As filed with the Securities and Exchange Commission on April 28, 201526, 2017

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM20-F

 

 

(Mark One)

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20142016

or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

or

 

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number:1-14362

 

 

 

LOGO

LOGO

(Exact name of Registrant as specified in its charter)

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

(Translation of Registrant’s name into English)

People’s Republic of China

(Jurisdiction of incorporation or organization)

No. 1052 Heping Road, Shenzhen, People’s Republic of China 518010

(Address of Principal Executive Offices)

Mr. Guo Xiangdong

Telephone: (86-755) 2558-8150

Email: ir@gsrc.com

Facsimile:(86-755) 2559-1480

No. 1052 Heping Road, Shenzhen, People’s Republic of China 518010

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on which Listed

American Depositary Shares,

each representing 50 Class H ordinary shares

New York Stock Exchange, Inc.

Class H ordinary shares, nominal value

RMB1.00 per share

 

New York Stock Exchange, Inc.


The Stock Exchange of Hong Kong Limited

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

 

Indicate the number of outstanding shares of each of the Registrant’s classes of capital or common stock as of December 31, 2014:2016:

 

Domestic shares (A shares), par value RMB1.00 per share

   5,652,237,000 

H shares, par value RMB1.00 per share

   1,431,300,000 

(including 164,995,500110,211,850 H shares in the form of American Depositary Shares)

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”).    Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or anon-accelerated filer.an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer, and large accelerated filer”“emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer x  ☒  Accelerated Filer ¨ Non-Accelerated File¨  ☐Emerging growth company  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP¨  ☐

  

International Financial Reporting Standards as issued

by the International Accounting Standards Boardx  ☒

 Other¨  ☐        

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ¨    No  x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ☐   Yes     ☐   No

 

 

 


TABLE OF CONTENTS

 

      Page 

Forward-Looking Statements

   1 

Certain Terms and Conventions

   1 

PARTPart I

   3 

ITEM 1.

  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS   3 

ITEM 2.

  OFFER STATISTICS AND EXPECTED TIMETABLE   3 

ITEM 3.

  KEY INFORMATION   3 

A.

  Selected Financial Data   3 

B.

  Capitalization and Indebtedness   56 

C.

  Reasons for the Offer and Use of Proceeds   56 

D.

  Risk Factors   56 

ITEM 4.

  INFORMATION ON THE COMPANY   1215 

A.

  History and Development of the Company12

B.

Business Overview   15 

C.B.

  Organizational StructureBusiness Overview   2519

C.

Organizational Structure31 

D.

  Property, Plant and Equipment   2632 

ITEM 4A.

  UNRESOLVED STAFF COMMENTS   2633 

ITEM 5.

  OPERATING AND FINANCIAL REVIEW AND PROSPECTS   2633 

A.

  Operating Results   2734 

B.

  Liquidity and Capital Resources39

C.

Research and Development, Patents and Licenses, etc.41

D.

Trend Information41

E.

Off-Balance Sheet Arrangements42

F.

Tabular Disclosure of Contractual Obligations42

G.

Safe Harbor42

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES42

A.

Directors and Senior Management42

B.

Compensation   48 

C.

  Board PracticesResearch and Development, Patents and Licenses, etc.   4950 

D.

  EmployeesTrend Information   50 

E.

  Share OwnershipOff-Balance Sheet Arrangements51

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   52 

F.

Tabular Disclosure of Contractual Obligations52

G.

Safe Harbor52

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES52

A.

  Major ShareholdersDirectors and Senior Management   52 

B.

  Related Party TransactionsCompensation53

C.

Interests of Experts and Counsel58

ITEM 8.

FINANCIAL INFORMATION58

A.

Consolidated Statements and Other Financial Information58

A.7

Legal Proceedings58

A.8

Dividend Distributions59

B.

Significant Changes59

ITEM 9.

THE OFFER AND LISTING59

A.

Offer and Listing Details59

B.

Plan of Distribution   60 

C.

  MarketsBoard Practices60

D.

Selling Shareholders60

E.

Dilution60

F.

Expenses of the Issue60

ITEM 10.

ADDITIONAL INFORMATION60

A.

Share Capital   61 

B.D.

  Memorandum and Articles of AssociationEmployees   6163

E.

Share Ownership64

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS65

A.

Major Shareholders65

B.

Related Party Transactions66 

C.

  Material ContractsInterests of Experts and Counsel   68

D.

Exchange Controls68

E.

Taxation69

F.

Dividends and Paying Agents76

G.

Statement by Experts76

H.

Documents on Display76

I.

Subsidiary Information7673 


ITEM 8.

FINANCIAL INFORMATION73

A.

Consolidated Statements and Other Financial Information73

A.7

Legal Proceedings73

A.8

Dividend Distributions74

B.

Significant Changes74

ITEM 9.

THE OFFER AND LISTING74

A.

Offer and Listing Details74

B.

Plan of Distribution75

C.

Markets75

D.

Selling Shareholders75

E.

Dilution75

F.

Expenses of the Issue76

ITEM 10.

ADDITIONAL INFORMATION76

A.

Share Capital76

B.

Memorandum and Articles of Association76

C.

Material Contracts85

D.

Exchange Controls85

E.

Taxation86

F.

Dividends and Paying Agents93

G.

Statement by Experts94

H.

Documents on Display94

I.

Subsidiary Information94

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  7694 

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES  7896 

A.

Debt Securities  7896 

B.

Warrants and Rights  7896 

C.

Other Securities  7896 

D.

American Depositary Shares96
Part II  7897 

PART II

79

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  7997 

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS  7998 

ITEM 15.

CONTROLS AND PROCEDURES  7998 

ITEM 16.

  8099 

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT  8099 

ITEM 16B.

CODE OF ETHICS  8099 

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES  8199 

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES  8199 

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS  81100 

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT  81100 

ITEM 16G.

CORPORATE GOVERNANCE  81101 

ITEM 16H.

MINE SAFETY DISCLOSURE102


Part III  82102 

PART III

82

ITEM 17.

FINANCIAL STATEMENTS  82102 

ITEM 18.

FINANCIAL STATEMENTS  82102 

ITEM 19.

EXHIBITS  82102 


Forward-Looking Statements

Certain information contained in this annual report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act.Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of words or phrases such as “is expected to”, “will”, “is anticipated”, “plan to”, “estimate”, “believe”, “may”, “intend”, “should” or similar expressions, or the negative forms of these words, phrases or expressions, or by discussions of strategy. Such statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results and those presently anticipated or projected. You are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date on which such statements were made. Among the factors that could cause our actual results in the future to differ materially from any opinions or statements expressed with respect to future periods include changes in the economic policy of the PRC government, changes in the Pearl River Delta economy and elsewhere in mainland China, increased competition from other means of transportation, delays in major development projects, occurrence of health epidemics or outbreaks in Hong Kong or China, foreign currency fluctuations and other factors beyond our control.

When considering such forward-looking statements, you should keep in mind the factors described in “ITEM 3. KEY INFORMATION—D. Risk Factors” and other cautionary statements appearing in “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS” of this annual report. Such risk factors and statements describe circumstances which could cause actual results to differ materially from those contained in any forward-looking statement.

Certain Terms and Conventions

Solely for the convenience of the reader, this annual report contains translations of amounts from RMB into U.S. dollars and vice versa at the rate of RMB6.2046RMB6.9430 to US$1.00, the certified exchange rate for December 31, 201430, 2016 as published by the Federal Reserve Board of the United States, except where we specify that a different rate has been used. You should not construe these translations as representations that the RMB amounts actually represent U.S. dollar amounts or could be converted into U.S. dollars at that rate or at all. See “ITEM 3. KEY INFORMATION—A. Selected Financial Data—Exchange Rate Information” for information regarding the certified exchange rates for U.S. dollar/RMB conversions from January 1, 20102012 through April 21, 2015.20, 2017.

We prepare and publish our consolidated financial statements in RMB.

Various amounts and percentages set out in this document have been rounded and, accordingly, may account for apparent discrepancies in the tables appearing herein. Unless the context otherwise requires or otherwise specified:

 

“Acquisition” means our acquisition of the railway transportation business between Guangzhou and Pingshi and the related assets and liabilities from Yangcheng Railway Company according to the asset purchase agreement dated November 15, 2004 between Yangcheng Railway Company and us.

 

“China” or “PRC” means the People’s Republic of China.

 

“CEPA” means the Closer Economic Partnership Arrangement between Hong Kong and Chinese Mainland entered into on October 27, 2004, as amended.

 

CRHs”CRH” means China RailwayHigh-Speed.

 

“CSRC” means China Securities Regulatory Commission.

“GRGC” means Guangzhou Railway (Group) Company, our largest shareholder.

“China Railway Corporation” or “CRC” means the entity set up on March 14, 2013 by the First Session of the 12th National People’s Congress of the PRC to perform the commercial functions formerly performed by the Ministry of Railways.

 

“Company”, “we”, “our”, “our Company”, the “Group”, or “us” means Guangshen Railway Company Limited, a joint stock limited company incorporated in Shenzhen, China with limited liability, and its subsidiaries on a consolidated basis.

“CRC Group” means CRC together with the subsidiaries transferred from MOR.

 

“EMU” means electric multiple unit, a multiple unit train consisting of self-propelled carriages.

 

“GRCL” means Guangmeishan Railway Company Limited.

“GRGC” means Guangzhou Railway (Group) Company, our largest shareholder.

“GSRC” means Guangdong Sanmao Railway Company Limited.

“HKSE” means the Stock Exchange of Hong Kong Limited.

 

“HKSE Listing Rules” means the Rules Governing the Listing of Securities on the HKSE.

 

“Hong Kong” means The Hong Kong Special Administrative Region of the PRC.

 

“Hong Kong dollars” or “HKD” means Hong Kong dollars, the lawful currency of Hong Kong.

 

“KCR” means Kowloon–Canton Railway.

 

“Macau” means the Macau Special Administrative Region of the PRC.

 

“MOF” means the Ministry of Finance of the PRC.

“MOR” means the Ministry of Railways, which was dissolved by the First Session of the 12th National People’s Congress of the PRC.

 

“MOT” means Ministry of Transport.

 

“MTR” means MTR Corporation Limited.

 

“NDRC” means the National Development and Reform Commission of the PRC.

“PBOC” means the People’s Bank of China.

“Pearl River Delta” means the area in and adjacent to the southern part of Guangdong Province, PRC, surrounding the mouth of the Pearl River and its lower reaches.

 

“Reform” means the transfer of (i) administrative functions pertaining to railway development planning and policies from the MOR to the MOT, (ii) other administrative functions previously performed by the MOR to the National Railway Administration, supervised by the MOT, and (iii) commercial functions previously performed by the MOR to the CRC, in accordance with the approved plan on State Council Institutional Reform and Transformation of Government Functions and Approval On Setting Up China Railway Company by the State Council.

“RMB” means Renminbi Yuan, the lawful currency of the PRC.

“Restructuring” means the restructuring conducted in connection with our initial public offering in 1996 during which we succeeded to the railroad and certain other businesses of our predecessor company and certain assets and liabilities of GRGC.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“ton” means metric ton; and one ton is approximately 2,205 pounds in weight.

 

“US$”, “USD” or “U.S. dollars” means U.S. dollars, the lawful currency of the United States.

 

“Yangcheng Railway Company” means Guangzhou Railway Group Yangcheng Railway Enterprise Development Company, a wholly owned subsidiary of GRGC, or its predecessor, Guangzhou Railway Group Yangcheng Railway Company.

PART I

 

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

 

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

ITEM 3.KEY INFORMATION

 

A.Selected Financial Data

The following selected consolidated data relating to our Consolidated Balance Sheets as of December 31, 20132015 and 2014,2016, and our Consolidated Comprehensive Income Statements, Consolidated Statements of Changes in Equity and Consolidated Cash Flow Statements for each of the years ended December 31, 2012, 20132014, 2015 and 20142016 are derived from and are qualified by reference to our audited consolidated financial statements included elsewhere in this annual report and should be read in conjunction with “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS”. The Selected Consolidated Balance Sheets Data as of December 31, 2010, 20112012, 2013 and 20122014 and our Consolidated Income Statements, Consolidated Statements of Changes in Equity and Consolidated Cash Flow Statements for each of the years ended December 31, 20102012 and 20112013 are derived from our audited consolidated financial statements that are not included in this annual report.

The consolidated financial statements from which the selected consolidated financial data set forth below have been derived were prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

   Year ended December 31, 
   2010  2011  2012  2013  2014 
   RMB  RMB  RMB  RMB  RMB  US$(1) 
   (in thousands except for per share data) 

Income Statement Data:

       

Revenue from railroad businesses

       

- Passenger

   7,377,145    8,026,512    7,841,091    8,058,291    6,988,288    1,126,308  

- Freight

   1,315,347    1,386,753    1,344,113    1,603,288    1,763,679    284,253  

- Railway network usage and other transportation-related services

   3,888,367    4,255,996    4,890,640    5,034,676    5,031,241    810,889  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Subtotal

 12,580,859   13,669,261   14,075,844   14,696,255   13,783,208   2,221,450  

Revenue from other businesses

 903,589   1,021,574   1,016,042   1,104,422   1,017,573   164,003  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenue

 13,484,448   14,690,835   15,091,886   15,800,677   14,800,781   2,385,453  

Railroad operating expenses

 (10,481,496 (11,123,133 (12,263,021 (12,878,816 (12,729,828 (2,051,676

Other businesses operating expenses

 (845,774 (977,868 (966,377 (1,048,553 (1,022,133 (164,738
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other (expense)/income and other(losses)/gains-net

 (47,060 (25,786 71,815   14,903   7,138   1,150  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Profit from operations

 2,110,118   2,564,048   1,934,303   1,888,211   1,055,958   170,189  

Profit attributable to equity holders of the Company

 1,486,062   1,804,107   1,318,938   1,273,841   662,021   106,698  

Profit from operations per share

 0.30   0.36   0.27   0.27   0.15   0.02  

Earnings per share for profit attributable to equity holders of the Company

- Basic and diluted

 0.21   0.25   0.19   0.18   0.09   0.01  

Dividends declared per share

 0.09   0.10   0.08   0.08   0.05   0.01  

Earnings per ADS for profit attributable to equity holders of the Company

 10.49   12.73   9.31   8.99   4.67   0.75  

  Year ended December 31,   Year ended December 31, 
  2010 2011 2012 2013 2014   2012 2013 2014 2015 2016 
  RMB RMB RMB RMB RMB US$(1)   RMB RMB RMB RMB RMB US$(1) 
  (in thousands except for per share data)   (in thousands except for per share/ADS data) 

Income Statement Data:

       

Revenue from Railroad and Related Business

       

- Passenger transportation

   7,841,091   8,058,291   6,988,288   6,997,562   7,358,851   1,059,895 

- Freight transportation

   1,344,113   1,603,288   1,763,679   1,761,449   1,718,260   247,481 

- Railway network usage and other transportation related services

   4,890,640   5,034,676   5,031,241   5,874,727   7,093,198   1,021,633 
  

 

  

 

  

 

  

 

  

 

  

 

 

Subtotal

   14,075,844   14,696,255   13,783,208   14,633,738   16,170,309   2,329,009 

Revenue from other businesses

   1,016,042   1,104,422   1,017,573   1,091,571   1,110,195   159,901 
  

 

  

 

  

 

  

 

  

 

  

 

 

Total revenue

   15,091,886   15,800,677   14,800,781   15,725,309   17,280,504   2,488,910 

Railroad and Related business operating expenses

   (12,263,021  (12,878,816  (12,729,828  (13,150,405  (14,561,793  (2,097,334

Other businesses operating expenses

   (966,377  (1,048,553  (1,022,133  (1,006,330  (1,076,206  (155,006

Other (expense)/income and other (losses)/gains-net

   71,815   14,903   7,138   (114,627  (108,270  (15,594

Operating profit

   1,934,303   1,888,211   1,055,958   1,453,947   1,534,235   220,976 

Profit attributable to equity holders of the Company

   1,318,938   1,273,841   662,021   1,070,822   1,158,253   166,823 

Operating profit per share

   0.27   0.27   0.15   0.21   0.22   0.03 

Earnings per share for profit attributable to equity holders of the Company

       

- Basic and diluted

   0.19   0.18   0.09   0.15   0.16   0.02 

Dividends declared per share

   0.08   0.08   0.05   0.08   0.08   0.01 

Earnings per ADS for profit attributable to equity holders of the Company

   9.31   8.99   4.67   7.56   8.18   1.18 

Balance Sheet Data (at year end):

              

Working capital

   1,576,567   3,064,855   3,254,818   648,201   1,011,115   162,961     3,254,818   648,201   1,011,115   1,338,889   830,610   119,633 

Fixed assets

   24,466,130   23,987,080   24,524,248   24,302,653   24,179,210   3,896,981  

Fixed assets-net

   24,524,248   24,302,653   24,179,210   24,073,759   24,278,032   3,496,764 

Leasehold land payments

   560,391   544,403   528,296   657,593   668,005   107,663     528,296   657,593   668,005   948,526   1,624,859   234,028 
  

 

  

 

  

 

  

 

  

 

  

 

 

Total assets

   30,604,502   32,207,347   32,867,182   33,231,989   30,536,663   4,921,616     32,867,182   33,231,989   30,536,663   31,943,272   32,870,258   4,734, 302 

Equity attributable to equity holders of the Company

   24,168,017   25,334,606   25,945,190   26,650,544   26,745,843   4,310,647     25,945,190   26,650,544   26,745,843   27,462,488   28,054,058   4,040,625 

Share capital, issued and outstanding (domestic shares 5,652,237; H shares 1,431,300), RMB1,00 per value domestic shares

   5,652,237   5,652,237   5,652,237   5,652,237   5,652,237   910,975  

Share capital, issued and outstanding (domestic shares 5,652,237; H shares 1,431,300), RMB1.00 par value domestic shares

   5,652,237   5,652,237   5,652,237   5,652,237   5,652,237   814,091 

H shares

   1,431,300   1,431,300   1,431,300   1,431,300   1,431,300   230,684     1,431,300   1,431,300   1,431,300   1,431,300   1,431,300   206,150 

Cash Flow Statement Data:

              

Net cash generated from operating activities

   3,331,458   3,329,058   2,177,673   1,883,411   1,945,576   313,570     2,177,673   1,883,411   1,945,576   2,259,691   1,641,238   236,387 

Net cash used in investing activities

   (1,188,763 (3,983,623 (2,160,895 (1,572,961 3,373,821   543,761     (2,160,895  (1,572,961  3,373,821   (1,349,235  (1,935,702  (278,799

Net cash used in financing activities

   (599,288 (637,736 (708,522 (572,785 (4,067,018 (655,484

Purchase of fixed assets and payment forconstruction-in-progress

   (1,158,399 (943,390 (1,836,154 (1,376,601 (999,633 (161,112

Dividends paid to shareholders of the Company

   (566,683 (637,533 (708,354 (566,680 (566,685 (91,333

Other Data:

       

Railroad transportation operating income

   2,099,363   2,546,128   1,812,823   1,817,439   1,053,380   169,774  

Other businesses operating income

   57,815   43,706   49,665   55,869   (4,560 (735

Net cash (used in) /generated from financing activities

   (708,522  (572,785  (4,067,018  (354,710  (566,683  (81,619

Payment for acquisition of fixed assets and construction-in-progress and prepayment for fixed assets; net of related payables

   (1,836,154  (1,376,601  (999,633  (1,292,273  (1,973,897  (284,300

Dividends paid to the Company’s shareholders

   (708,354  (566,680  (566,685  (354,177  (566,683  (81,619

   Year ended December 31, 
   2012   2013   2014  2015   2016 
   RMB   RMB   RMB  RMB   RMB   US$(1) 
   (in thousands except for per share/ADS data) 

Other Data:

           

Railroad transportation operating income

   1,812,823    1,817,439    1,053,380   1,483,333    1,608,516    231,675 

Other businesses operating income

   49,665    55,869    (4,560  85,241    33,985    4,895 

 

(1)Translation of amounts from RMB into US$, for the convenience of the reader has been made at RMB6.2046RMB6.9430 to US$1.00, the certified exchange rate for December 31, 201430, 2016 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at that rate on December 31, 201430, 2016 or on any other date.

Exchange Rate Information

We derive a majority of our revenue and incur most of our expenses in RMB. In addition, we maintain our books and records in RMB and our financial statements are prepared and expressed in RMB. Solely for the convenience of the reader, this annual report contains translations of certain RMB amounts into U.S. dollars and vice versa at US$1.00 = RMB6.2046,RMB6.9430, the certified exchange rate for December 31, 201430, 2016 as published by the Federal Reserve Board of United States. These translations should not be construed as representations that the RMB amounts could have been or could be converted into U.S. dollars at such rate or at all.

Effective January 1, 2009, the Federal Reserve Bank of New York discontinued publication of foreign exchange rates certified for customs purposes. Effective January 5, 2009, the Federal Reserve Board of the United States reinstituted the publication of the daily exchange rate data in a weekly version of the H.10 release. The certified exchange rate for RMB published by the Federal Reserve Board of the United States was US$1.00 = RMB6.2010RMB 6.8800 on April 21, 2015.20, 2017.

The following table sets forth information for the RMB noon buying rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York for the periods indicated:

 

   Renminbi per U.S. Dollar Noon Buying Rate 
   Period End   Average(1)   Low   High 

2010

   6.6000     6.7603     6.8330     6.6000  

2011

   6.2939     6.4475     6.6364     6.2939  

2012

   6.2301     6.3043     6.3879     6.2221  

2013

   6.0537     6.1412     6.2438     6.0537  

2014

   6.2046     6.1704     6.2591     6.0402  

October 2014

   6.1124     6.1251     6.1385     6.1107  

November 2014

   6.1429     6.1249     6.1429     6.1117  

December 2014

   6.2046     6.1886     6.2256     6.1490  

2015

        

   Renminbi per U.S. Dollar Noon Buying Rate 
   Period End   Average(1)   Low   High 

January 2015

   6.2495     6.2181     6.2535     6.1870  

February 2015

   6.2695     6.2518     6.2594     6.2399  

March 2015

   6.2082     6.1989     6.2082     6.1930  

April 2015 (through April 21, 2015)

   6.2010     6.2011     6.1930     6.2152  
   Renminbi per U.S. Dollar Noon Buying Rate 
   Period End   Average(1)   Low   High 

2012

   6.2301    6.3043    6.2221    6.3879 

2013

   6.0537    6.1412    6.0537    6.2438 

2014

   6.2046    6.1704    6.0402    6.2591 

2015

   6.4778    6.2869    6.1870    6.4896 

2016

   6.9430    6.6400    6.4480    6.9580 

October 2016

   6.7735    6.7303    6.6685    6.7819 

November 2016

   6.8837    6.8402    6.7630    6.9195 

December 2016

   6.9430    6.9198    6.8830    6.9580 

2017

        

January 2017

   6.8768    6.8907    6.8360    6.9575 

February 2017

   6.8665    6.8694    6.8517    6.8821 

March 2017

   6.8832    6.8940    6.8687    6.9132 

April 2017 (through April 20, 2017)

   6.8800    6.8871    6.8778    6.8988 

 

(1)The average rate for a year means the average of the exchange rates on the last day of each month during a year. The average rate for a month means the average of the daily exchange rates during that month.

Dividends

At a meeting of the directors held on March 25, 2015,29, 2017, the directors proposed a final dividend of RMB0.05RMB0.08 per ordinary share for the year ended December 31, 2014,2016, which is to be voted up on at our annual general meeting of shareholders scheduled on May 28, 2015.June 15, 2017.

This proposed dividend has not been reflected as a dividend payable in the financial statements as of December 31, 2014,2016, but instead as equity attributable to equity holders of our Company.

In accordance with our Articles of Association, dividends for our domestic shares will be paid in RMB while dividends for our H shares will be calculated in RMB and paid in Hong Kong dollars. Hong Kong dollar dividend payments will then be converted by the depositary and distributed to holders of ADSs in U.S. dollars. The exchange rate was based on the average of the closing exchange rates for RMB to Hong Kong dollars as announced by the People’s Bank of China, or the PBOC, during the calendar week preceding the date on which the dividend was declared.

 

B.Capitalization and Indebtedness

Not applicable.

 

C.Reasons for the Offer and Use of Proceeds

Not applicable.

 

D.Risk Factors

Risks Relating to Our Business

Any recurrence of a global financial crisis or economic downturn similar to that which occurred in 2008 and early 2009 could materially and adversely affect our business, financial condition, results of operations and prospects.

The global financial markets experienced periods of extreme volatility and disruption in 2008 and early 2009. The global financial crisis, concerns over inflation or deflation, energy costs, geopolitical risks, and the availability and cost of financing contributed to the unprecedented levels of market volatility and adversely affected the expectations for the continuous growth of the global economy, the capital markets and the consumer industry. These factors, combined with others, resulted in a severe global economic downturn and also a slowdown in the PRC economy. This change in themacro-economic conditions had an adverse impact on our business and operations by causing a decrease in the number of passengers and the volume of freight that we transported. AlthoughCurrent events, including the global and PRC economies began to show signs of recovery since the second half of 2009, the sustainability of these recoveries is uncertain due to escalating concerns regarding Europe’s sovereign debt crisis, the stabilityrecent potential changes in international policies of the EurozoneUnited States and concerns regardingUnited Kingdom’s vote to exit the decreased growth rateEuropean Union, create a level of China’s economy.uncertainty for multi-national companies. In particular, we experienced successive decreased inbound freight volume and revenue in 2012 and 2014 and decreased inbound freight volume in 2013,2014, 2015 and 2016, partially due to diminished export of PRC commodities affected by the slowdown of the global economic growth and international trade and decelerating economic growth in China, overall downward demand on the transportation market and diversion of customers away to high-speed railways for the passenger and freight transportation business. Any recurrence of a global financial crisis as a result of the recent market volatility arising from the concerns over among other issues, the fiscal stability of certain European countries, may adversely affect the growth of the PRC economy, which could adversely affect our business, financial condition, results of operations and prospects.

We face competition, which may adversely affect our business growth and results of operations.

Our passenger and freight transportation businesses face competition from other means of transportation, such as road, air and water transportation. In our passenger transportation business, we compete with the bus and ferry services operating within Hong Kong, Guangzhou, Shenzhen and elsewhere in our service region. We compete for passengers with bus and ferry services in terms of price, speed, comfort, reliability, convenience, service quality, frequency of service and safety. In our freight transportation business, we primarily compete with water, truck and air transportation services operating within our service region. We increasingly compete for freight business with truck operators, shipping companies and airline companies on the basis of price, reliability, capacity, convenience, service quality, and safety. In addition, theinter-city traffic system is gradually expanding within the Pearl River Delta region and there are a number of new high-speedinter-city passenger rail lines in operation or under construction within our service territory. As a result, the competition in both passenger and freight transportation in our service territory could increase significantly.

We expect competition to increase in the future as the marketization reform of the railway industry (including the reformation of the investment and financing system, the transportation management system and the pricing system) gradually deepens. In 2008, the National Development and Reform Commission of the PRC (the “NDRC”) approved the construction of a “four horizontal and four vertical” high-speed railway network to connect major populous and industry-intensive cities in China. With the establishment of the “four horizontal and four vertical” high-speed railway network and the Pearl River Delta Intercity railway network, the number of high-speed trains and intercity trains connecting the Pearl River Delta and other major mainland cities is increasing. The Guangzhou- Shenzhen section of the Guangzhou-Shenzhen-Hong Kong passenger line commenced operation in December 2011, theBeijing-Guangzhou passenger line commenced operation in December 2012, the Xiamen-Shenzhen passenger line commenced operation in December 2013, the Nanning-Guangzhou and theNanning-Guangzhou andGuiyang-Guangzhou passenger lines commenced operation in December 2014.2014, the Guangzhou-Foshan-Zhaoqing Intercity passenger line and the new section from Changping East Station to Xiaojinkou Station of the Dongguan-Huizhou Intercity passenger line commenced operation in March 2016. As a result, the number of passengers using our Guangzhou-Shenzhen intercity train and long-distance train services has decreased. Although we commenced the operation of the Shenzhen East Station in December 2012, the Pinghu Station in September 2016 and more long-distance trains and thenewly-built Shenzhen East Station to increase our passenger transportation capacity, we may continue to experience a decrease in the number of passengers using our Guangzhou-Shenzhen intercity train and long-distance train services in the future, which could materially and adversely affect our revenue from railway passenger transportation services. Furthermore, improvements in the high-speed railway network in China may further increase the competition we face and materially and adversely affect our revenue and results of operations. We believe that the entry barrier to the industry will decrease, investors in the industry will become more diversified and the State’s high-speed railway network with FourEast-West Lines and FourSouth-North Lines and numerousinter-city railways will complete construction and commence operation, leading to increased competition within the industry itself.itself.

See “ITEM 4. INFORMATION ON THE COMPANY—B. Business Overview—Competition” for additional information regarding our competition.

Any significant decrease in the overall levels of business, industrial, manufacturing and tourism activities within the Pearl River Delta region and elsewhere in China may have a material adverse effect on our revenue and results of operations.

The volume of freight and the number of passengers we transport are affected by the overall levels of business, industrial, manufacturing and tourism activities within the Pearl River Delta region, especially Guangdong and Hong Kong, which is our main service region, and elsewhere in China, which is in turn affected by many factors beyond our control, such as applicable policies and regulations of the PRC government, perceptions regarding the attractiveness of investing or operating a business within our service region, consumer confidence levels and interest rate levels. Any significant decrease in the overall levels of passenger travel or freight transportation, whether due to an economic slowdown or other reasons, such as freezing weather, floods, earthquake and other natural disasters or a recurrence of the SARS epidemic or outbreaks of avian flu, H1N1 or H7N9 influenza, dengue fever, Ebola virus or other similar health epidemics, may have a material adverse effect on our business, results of operations and financial condition. For example, we experienced decreased inbound freight volume and revenue in 2014,2016, partially due to the slowdown of China’s GDP growth, and a shiftthe adjustment of the economic structure in the Pearl River Delta economy towards technology businesses,Region, and the heightened competition in the freight transportation market, which resulted in decreased freight volume transported by rail.rail and the decrease in the outbound freight transportation revenues. Furthermore, following China’s accession to the World Trade Organization, the policy advantages that Shenzhen currently enjoys due to its status as a special economic zone may be phased out, and its economic growth rate may not be sustained in the long run. Other coastal regions, ports and free trade zones in China may develop at a faster pace and become more competitive than Shenzhen. As a result, part of the freight currently imported or exported through ports in Hong Kong, Shenzhen or Guangzhou may be shipped through other ports in China, which may adversely affect our freight transportation business.

Extensive government regulation of the railway transportation industry may limit our flexibility in responding to market conditions, competition or changes in our cost structure.

We are subject to extensive PRC laws and regulations relating to the railway transportation industry. Chinese governmental authorities currently regulate pricing, speed, train routes, new railway construction projects, and investment in the railway transportation industry.

In March 2013, the First Session of the 12th National People’s Congress of the PRC considered and approved the plan on State Council institutional reform and transformation of government functions, pursuant to which the Ministry of Railways (“MOR”) was dissolved. In accordance with the plan, administrative functions pertaining to railway development planning and policies were transferred to the Ministry of Transport (“MOT”), other administrative functions previously performed by the MOR were transferred to the National Railway Administration, supervised by the MOT, and commercial functions previously performed by the MOR were transferred to the China Railway Corporation (“CRC”) established in March 2013.2013 (the “Reform”). In January 2014, the National Railway Bureau was established. It oversees seven regional railway supervision and administration bureaus, including the Guangzhou Railway Supervision and Administration Bureau, which supervises Guangzhou Railway (Group) Company (“GRGC”) and Nanning Railway Bureau. UponThe Reform was completed on January 1, 2017 and as a result thereof, the actual controlling entity of our Company’s largest shareholder became the CRC. Regardless of the completion of thesuch transfer, the de facto control of our largest shareholder was transferred to China Railway Corporation. Currently, we are in the course of ascertaining the progress of the transfer and will make further disclosure concerning the progress in the due course. In the transition period between the dissolution of the MOR and the full functioning of the MOT, the National Railway Administration and the China Railway Corporation, there may be uncertainty in the division of functions with the MOR or the entities previously controlled or owned by it in the future, and in our future relationships with the MOT, the National Railway Administration and the China Railway Corporation. Our commercial transactions may be renegotiated and the regulatory landscape may change.

Any significant change in the relevant regulations of the PRC government as a result of these reforms or for any other reason is likely to have a material impact on our business and results of operations. In addition, our ability to respond to changes in our market conditions may be limited by those regulations set by the MOT, National Railway Administration and other Chinese governmental authorities.

Significant changes with respect to the PRC railway industry could adversely affect our business and results of operations

From 2005 to 2010, the PRC railway industry experienced rapid growth in terms of total investment in infrastructure construction from RMB88 billion to RMB707 billion, representing a compounded annual growth rate of 52%, according to statistics published by the MOR. However, after the occurrence of the Wenzhou Railway Accident (defined below) on July 23, 2011, the MOR has adjustedreduced the development schemeinvestment in the construction of fixed assets for the railway industry forin China from RMB744.1 billion in 2010 to RMB591.5 billion in 2011, representing an annual decrease rate of 20.5%. Although the period frominvestment in the construction of railway-related fixed assets during the 12th Five-Year Plan (from 2011 to 2015) achieved a record of RMB3.58 trillion and the newly proposed investment amount in the construction of railway-related fixed assets during the 13th Five-Year Plan (from 2016 to reduce the budgeted total investment budget in infrastructure construction from the proposed2020) is approximately RMB3.5 trillion, we cannot assure you that there will not be any significant changes with regard to RMB2.8 trillion.the actual amount the MOR will invest in the railway industry in the future. As the railway industry is heavily reliant on capital expenditures on infrastructure construction, the reduced investment in infrastructure construction may have material adverse impact on our future development and results of operations. In addition, to ensure the safe operation of high-speed railway transportation, the MOR also set speed limits on certain high-speed railways. Corresponding with the reduced speed limits, the ticket fare of the affected high-speed railways may be reduced. Although the speed limits do not affect the railways we operate, we cannot assure you that the future policies of the PRC government authorities in relation to railway speed limits will not affect us.

Changes in freight composition in our freight transportation business may adversely affect our results of operations.

Historically, our freight transportation revenue was derived mainly from the transportation of construction materials, coal, iron ore, oil, steel and chemicals, in which our railroad transportation services have an advantage over other means of transportation, such as road transportation services. With the restructuring of these industries, the movement of labor, the upgrading of the industrial structure and a shift in the Pearl River Delta economy towards technology businesses, we may experience reduced demand for our freight transportation services. For example, some products and materials, such as advanced technological products, which tend to be compact, may be instead shipped by road or air. We face significant competition in the transportation of suchlow-volume, high-value products. For example, the aggregate weight of goods we transported decreased each year from 20072012 to 2009 and from 2011 to 2014.2015. Changes in freight composition may affect the usage volume and pricing of our freight transportation services and adversely affect our results of operations.

Significant increases in electricity prices could harm our business.

Significant increases in the cost of electricity could increase the costs of our passenger and freight transportation. The electricity we use, including electricity used for our lines, is supplied through various entities under the jurisdiction of the Guangdong provincial power bureau on normal commercial terms. Any increase in the cost of electricity in Guangdong could increase our railway operating expenses. In 2012, 20132014, 2015 and 2014,2016, we paid approximately RMB660.7RMB585.8 million, RMB675.2RMB599.3 million and RMB585.8RMB599.2 million, respectively, in electricity charges. Accordingly, significant increases in electricity prices could have a material adverse effect on our financial condition and results of operations.

Our railroads connect with the railroads of other operators and any disruption in the operation of those railroads, or our cooperation with other operators, could have a material adverse effect on our business and operations.

Our railroads are an integral part of the PRC national railway network. Our railroads connect with theBeijing-Guangzhou line in the north, theShenzhen-Kowloon rail line in the south, theGuangzhou-Maoming rail line in the west, and theGuangzhou-Meizhou-Shantou rail line in the east, all of which are owned and operated by other operators. See “ITEM 4. INFORMATION ON THE COMPANY—A. History and Development of the Company—Service Territory” for additional information. Our train services use these other railroads to carry passengers and freight to locations outside of our service territory. The performance of our domestic long distance trains services and our Hong Kong Through Trains depends on the smooth operation of these railroads and our cooperation with the operators of these railroads. Any disruption in the operation of these railroads, or our cooperation with any one of these railroad operators for any reason, could have a material adverse effect on our business and results of operations.

Any changes in our right to own and operate our business and assets, our right to profit and our right of asset disposal as previously granted by the MOR and the State Council may have a material adverse effect on our business and results of operations.

We have been granted certain rights by the MOR and the State Council, with respect to certain aspects of our railroad and related businesses and operations, and also received legal clarification and confirmation of our asset ownership, corporate powers and relationships with service providers and other entities in the national railway system, in connection with our Restructuring. These rights include the right to own and operate our business and assets, the right to profit and the right of asset disposal. Although these rights were granted to us indefinitely, we cannot assure you that these rights will not be affected by future changes in PRC governmental policies or regulations or that other railway operators will not be granted similar rights within our service region. For example, since the MOT and National Railway Administration will be assuming the administrative duties formerly performed by the MOR, there may be changes in the regulatory landscape for such rights. If another railway operator is granted similar rights within our service region, the level of competition we face will increase significantly.

Guangzhou Railway (Group) Company, as our largest shareholder and one of our major service providers, may have interests that conflict with the best interests of our other shareholders and our Company.

Before our A Share Offering, in December 2006, GRGC held 67% of our issued share capital and was our controlling shareholder. Although the equity interest held by GRGC in our Company decreased to approximately 41% after the completion of the A Share Offering and further to approximately 37.1% as a result of the transfer by GRGC of a portion of its equity interest in our Company to the National Social Security Fund Council in September 2009, GRGC can still exercise substantial influence over our Company. GRGC’s ownership percentage enables it to exercise substantial influence over (i) our policies, management and affairs; (ii) our determinations on the timing and amount of dividend payments and our adoption of amendments to certain of the provisions of our Articles of Association and (iii) the outcome of most corporate actions. Subject to the requirements of applicable laws and regulations in China and the HKSE Listing Rules, GRGC may also cause us to effect certain corporate transactions.

GRGC’s interests may sometimes conflict with the interests of the other shareholders. We cannot assure you that GRGC, as our single largest shareholder, will always vote its shares in a way that benefits the other shareholders of our Company. In addition to its relationship with us as our single largest shareholder, GRGC, by itself or through its affiliates, such as Guangzhou Railway (Group) GuangshenYangcheng Railway Enterprise Development Company, a wholly owned subsidiary of GRGC, and Guangmeishan Railway Co., Ltd., also provides us with certain services, for which we have limited alternative sources of supply. The interests of GRGC and its affiliates as providers of these services may also conflict with our interests. We have entered into service agreements, and our transactions with GRGC and its affiliates have been conducted on open, fair and competitive commercial terms. However, we only have limited leverage in negotiating with GRGC and its affiliates over the specific terms of the agreements for the provision of these services as there are no alternate suppliers. See “ITEM 4. INFORMATION ON THE COMPANY—B. Business Overview—Major Suppliers and Service Providers” and “ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS—B. Related Party Transactions” for additional information regarding the services provided to us by GRGC and its subsidiaries.

We have very limited insurance coverage.

We do not maintain any insurance coverage against third party liabilities, except compulsory automobile liability insurance. In addition,Since November 1, 2015, passengers in China can voluntarily purchase accident insurance while purchasing a train ticket at RMB3.0 per person for a maximum coverage of up to RMB300,000 for an adult, or RMB100,000 for a minor, for death, injury and disability claims, and up to RMB30,000 for an adult, or RMB10,000 for a minor, for medical services and treatments, as a result of an accident. However, since we do not maintain any insurance coverage for most of our property, for business interruption or for environmental damage arising from accidents that occur in the course of our operations. As a result,operations, we have to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our results of operations and financial condition.

We could incur significant costs for violations of applicable environmental laws and regulations.

Our railroad operations and real estate ownership are subject to extensive national and local environmental laws and regulations concerning, among other things, gaseous emissions, wastewater discharge, disposal of solid waste and noise control. In addition, environmental liabilities may arise from claims asserted by adjacent landowners or other third parties. As of December 31, 2014,2016, we had not incurred any such liabilities and therefore, had not made any provision for such liabilities. We may also be required to incur significant expenses to remediate any violation of applicable environmental laws and regulations. In 2014,2016, our environmentalprotection-related expenses were approximately RMB21.0RMB 1.53 million, mainly related to constructionthe landscaping of sewage facilities in railway stations.our railroad and office areas.

Technological problems attributable to accidents, human error, severe weather or natural disasters could affect the performance or perception of our railway and result in decreases in customers and revenue, unexpected expenses and loss of market share.

Our operations may be affected from time to time by equipment failures, delays, collisions and derailments attributable to accidents, human error or natural disasters, such as typhoons or floods.

As our high-speed train service becomes technologically more complex, it may become more difficult for us to upkeep and repair our equipment and facilities as well as to maintain our service and safety standards. Furthermore, as we heavily rely on third parties for technical upgrades and support with regard to certain equipment and facilities, in case of any problems arising during our operation, our own staff may lack the technical expertise to identify and fix the problems in time. Moreover, the newly upgraded equipment may not be fully compatible with our existing operation system and may not meet our safety, security or other standards. The use of such equipment and facilities could result in malfunctions or defects in our services. In addition to potential technical complications, natural disasters could interrupt our rail services, thus leading to decreased revenue, increased maintenance and higher engineering costs.

If we experience any equipment failures, delays, temporary cancellations of schedules, collisions and derailments, or any deterioration in the performance or quality of any of our services, it could result in personal injuries, damage of goods, customer claims of damages, customer refunds and loss of goodwill. These problems may lead to decreases in customers and revenue, damage to our reputation, unexpected expenses, loss of passengers and freight customers, incurrence of significant warranty and repair costs, diversion of our attention from our transportation service efforts or strained customer relations, any one of which could materially adversely affect our business. For example, in January and February 2008, certain regions in southern China experienced extraordinary harsh winter weather, which caused equipment failures and delays and cancellations of some of our scheduled trains. As a result, during such period of freezing weather, our cost for repair of equipment increased and our revenue decreased. We cannot assure you that such events will not happen again in the future. In addition, on July 23, 2011, two high-speed trains collided on the Yongtaiwen railway line in the suburbs of Wenzhou, Zhejiang Province, China. 40 people were killed and 172 people were injured in this accident (the “Wenzhou Railway Accident”). Although we believe we have maintained effective safety measures and there has been no such collision accidents on railway lines operated by us since our inception, we cannot assure you that similar accidents will not occur on our railway lines in the future. The occurrence of any such accident could have a material adverse impact on us.

The revenue or charges for certainlong-distance passenger train and freight transportation businesses are finally settled by China Railway Corporation in accordance with the unified settlement rules.

As described in “ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS—B Related Party Transactions” and Notes 3837 and 3938 to our audited consolidated financial statements included elsewhere in this annual report, due to the fact that the railway business is centrally managed by China Railway Corporation (“CRC”) within the PRC, we work in cooperation with CRC and other railway companies controlled by the CRC for the operation of certain long-distance passenger train and freight transportation businesses within the PRC. The revenue generated from these long-distance passenger and freight transportation businesses is collected and settled by the CRC according to its settlement systems. The charges for the use of the rail lines and services provided by other railway companies are also settled by the CRC based on its systems. Although we can, to a certain extent, calculate the revenue and charges settled by the CRC based on our own data and information, the amount of settlement is finally settled by the CRC.

We may encounter difficulties in complying with theSarbanes-Oxley Act of 2002.

The United States Securities and Exchange Commission, as required by Section 404 of theSarbanes-Oxley Act of 2002, adopted rules requiring every public company in the United States to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must report on the effectiveness of the company’s internal control over financial reporting. Although we have concluded that we maintained effective internal control over financial reporting for each of the years ended December 31, 2012, 20132014, 2015 and 2014,2016, we may not be able to conclude in future years that we have effective internal control over financial reporting, in accordance with theSarbanes-Oxley Act of 2002. See “ITEM 15. CONTROLS and PROCEDURES.”

Moreover, in future years, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may disagree. If our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our internal control over financial reporting is designed or operated, or if the independent registered public accounting firm interprets the requirements, rules or regulations differently than we do, then they may issue an adverse opinion. Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our reporting processes, which could adversely impact the market price of our H shares and ADSs. In addition, we will continue to incur significant costs and use significant management and other resources in order to comply with Section 404 of theSarbanes-Oxley Act of 2002.

Risks Relating to Conducting Business in China

Substantially all of our assets are located in China and substantially all of our revenue is derived from our operations in China. Accordingly, our results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in China.

China’s economic, political and social conditions, as well as government policies, could affect our business.

As we are established, and operate substantially all of our businesses, in China, any changes in the political, economic and social conditions of the PRC or any changes in PRC governmental policies or regulations, including a change in the PRC government’s economic or monetary policies or railway or other transportation regulations, may have a material adverse effect on our business and operations and our results of operations. The economic environment in the PRC differs significantly from the United States and many Western European countries in terms of its structure, stage of development, capital reinvestment, growth rate, level of government involvement, resource allocation,self-sufficiency, rate of inflation and balance of payments position. The PRC government’s economic reform policies since 1978 have resulted in a gradual reduction in state planning in the allocation of resources, pricing and management of assets, and a shift towards the utilization of market forces. The PRC government is expected to continue its reforms, and many of its economic and monetary policies still need to be developed and refined. In addition, certain changes in governmental policies from time to time may negatively affect our business and operations. For example, the cooling measures imposed by PRC government on the real estate industry since early 2011 in response to rising housing prices has resulted in our decreased transportation of construction materials, coal, iron ore, oil and steel that are largely used in that industry. On January 1, 2014, the PRC government also implemented a Pilot Scheme for the Change from Business Tax to Value-added Tax (the “Pilot Scheme”) in the railway transportation industry. Value-added tax is a tax on top of but separated from price. According to the relevant accounting standard in China and overseas, operating revenues should be recognized after deducting value-added tax. As our income and pricing scheme remained unchanged after the implementation of the Pilot Scheme, the deduction of value-added tax from our income received from the original pricing scheme resulted in our reduced operating revenues in 2014 as compared to the same period in 2013. On January 1, 2016, the NDRC delegated its power to set baseline ticket pricing standards for high speed trains to the CRC. If the CRC increases or decreases the ticket prices for trains in our operation area, our revenue from railroad businesses will be affected accordingly. For further information on the ticket pricing, see “ITEM 4. INFORMATION ON THE COMPANY—B. Business Overview—Pricing.” We cannot assure you that future changes in governmental policies or regulation will not have a material adverse effect on our business, operations or results of operations.

Government control of currency conversion may adversely affect our operations and financial results.

Our books and records are maintained and our financial statements are prepared and presented in RMB, which is not a freely convertible currency. All foreign exchange transactions involving RMB must be transacted through banks and other institutions authorized by the People’s Bank of China, or PBOC. We receive substantially all of our revenue in RMB. We need to convert a portion of our revenue into other currencies to meet our foreign currency obligations, such as payment of cash dividends on our H shares and equipment purchases from overseas regions. In addition, the existing foreign exchange limitations under PRC law could affect our ability to obtain foreign currencies through debt financing, or to obtain foreign currencies for capital expenditures or for distribution of cash dividends on our H shares.

Fluctuation of the RMB could adversely affect our financial condition and results of operations.

The value of the RMB fluctuates and is subject to changes in market conditions as well as China’s political and economic conditions. Since 1994, the conversion of RMB into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the PBOC, which are set daily based on the previous day’sinter-bank foreign exchange market rates and current exchange rates on the world financial markets. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed floating band against a basket of certain foreign currencies. On April 14, 2012, the PRC government further allowed the floating band of RMB’s trading prices against the U.S. dollar to widen from 0.5% to 1% on each business day effective from April 2012, and further widened the floating band to 2% in March 2014. This has resulted in greater volatility in RMB exchange rate. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. We have certain U.S.dollar-denominated and HKdollar-denominated assets and the appreciation of RMB could result in a decrease of the value of these assets. For further information on our foreign exchange risks and certain exchange rates, see “ITEM 3. KEY INFORMATION—A. Selected Financial Data” and “ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK—Currency Risks.” We cannot assure you that any future movements in the exchange rate of RMB against the United States dollar or other foreign currencies will not adversely affect our results of operations and financial condition.

The differences with respect to the PRC legal system could limit the legal protections available to you.

As the PRC and the U.S. have different legal systems and the court decisions in China do not have binding force on subsequent cases, there are significant differences between the PRC legal system and the U.S. legal system. In addition, because the PRC Company Law is different in certain important aspects from company laws in Hong Kong, United States and other common law countries and regions and because the PRC laws and regulations dealing with business and economic matters, including PRC securities laws, are still evolving, you may not enjoy shareholder protections to which you may be entitled in Hong Kong, the United States or other jurisdictions.

AnPCAOB registered public accounting firms in China, including our independent registered public accounting firm, which has a substantial role inare not inspected by the audit of our company, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by theU.S. Public Company Accounting Oversight Board, which deprives us and as such,our investors may be deprived of the benefits of such inspection.

Auditors of companies whose shares are registered with the U.S. Securities and Exchange Commission and traded publicly in the United States, including anour independent registered public accounting firm, which has a substantial role in the audit of our company, must be registered with the U.S. Public Company Accounting Oversight Board or the PCAOB,(the “PCAOB”) and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards applicable to auditors. TheOur independent registered public accounting firm which has a substantial role in the audit of our company is located in, and organized under the laws of, the PRC, which is a jurisdiction where the PCAOB, notwithstanding the requirements of U.S. law, is currently unable to conduct inspections without the approval of the Chinese authorities. In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission (“CSRC”)CSRC and the PRC Ministry of Finance (the “MOF”), which establishedestablishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC or the PRC Ministry of FinanceMOF in the United States and the PRC, respectively. The PCAOB continues to be in discussions with the CSRC and the PRC Ministry of FinanceMOF to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companies with shares listed and tradedthat trade on U.S. exchanges.

This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of theour independent registered public accounting firm which has a substantial role in the audit of our company.firm. As a result, we and investors in our ADSscommon stock are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of theour independent registered public accounting firm’s audit procedures or quality control procedures of the independent registered public accounting firm which has a substantial role in the audit of our company as compared to auditors outside of China that are subject to PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

If additional remedial measures are imposed on fivethe Big Four PRC-based accounting firms, including theour independent registered public accounting firm, which has a substantial role in the audit of our firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC, we may have difficulties complying with the requirements of the Exchange Act.

Proceedings instituted recently by the SEC against five PRC-based accounting firms, including an independent registered public accounting firm which has a substantial role in the audit of our company, could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934.

In December 2012, the SEC instituted administrative proceedings against fivethe Big Four PRC-based accounting firms, including anour independent registered public accounting firm, which has a substantial role in the audit of our company, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit work papers relatedwith respect to their audits of certain PRC-based companies that are publicly traded in the United States and which areStates. On January 22, 2014, the subject of certain ongoing SEC investigations. We were not and are notadministrative law judge presiding over the subject of any SEC investigations nor are we involved in the proceedings brought by the SEC against the accounting firms. If the SEC is successful in the proceedings, it could result in the accounting firms, (including the independent registered public accounting firm which has a substantial role in the audit of our company) losing, temporarily or permanently, the ability to practice before the SEC.

In January 2014,matter rendered an initial administrative law decision was issued, censuring these accountingthat each of the firms had violated the SEC’s rules of practice by failing to produce audit work papers to the SEC. The initial decision censured each of the firms and suspending four of these firmsbarred them from practicing before the SEC for a period of six months. The decision was neither final nor legally effective unless and until reviewed and approved by the SEC. In February 2014, four of theseBig Four PRC-based accounting firms appealed the administrative law judge’s initial decision to the SEC against this decision. SEC. The administrative law judge’s decision does not take effect unless and until it is endorsed by the SEC.

In February 2015, each of the four PRC-basedChina-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC.SEC and audit U.S.-listed companies. The settlement requiresrequired the firms to follow detailed procedures and to seek to provide the SEC with access to ChinesePRC firms’ audit documents via the China Securities Regulatory Commission.CSRC. If future document productions fail to meet specified criteria, the SEC retains the authority to impose a variety of additional remedial measures on the firms do not follow these procedures,depending on the nature of the failure.

While we cannot predict if the SEC could imposewill further review the four China-based accounting firms’ compliance with specified criteria or if the results of such a review would result in the SEC imposing penalties such as suspensions or it could restartrestarting the administrative proceedings.

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, if the accounting firms including the independent registered public accounting firm which has a substantial role in the audit ofare subject to additional remedial measures, our company were denied, temporarily or permanently, the ability to practice before the SEC, and we are unable to find timely another registered public accounting firm which can perform such substantial role in the audit of our company,file our financial statements could be determined to not be in compliance with theSEC requirements forcould be impacted. A determination that we have not timely filed financial statements of public companies registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such a determinationin compliance with SEC requirements could ultimately lead to the delisting of our ADSs from the NYSE or the termination of the registration of our ADSs under the Exchange Act, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

 

ITEM 4.INFORMATION ON THE COMPANY

 

A.History and Development of the Company

Overview

We were established as a joint stock limited company under the Company Law of the PRC on March 6, 1996, and have conducted our business for sixteentwenty years. Our legal name isLOGOLOGO , and its English translation is Guangshen Railway Company Limited. Our registered office is located at No. 1052 Heping Road, Shenzhen, Guangdong Province, The People’s Republic of China, 518010. Our telephone number is(86-755) 2558-8150 and our fax number is(86-755) 2559-1480.

In May 1996, our H shares (stock code: 00525) were listed on the HKSE and our American Depositary Shares, or ADSs (ticker symbol: GSH), were listed on the NYSE. Our A shares (stock code: 601333) were listed on the Shanghai Stock Exchange in December 2006. We are currently the only PRC railway enterprise with shares concurrently listed in Shanghai, Hong Kong and New York.

We are mainly engaged in passenger and freight transportation businesses on theShenzhen-Guangzhou-Pingshi Railway, which is 481.2 kilometers long, running vertically through Guangdong Province. TheGuangzhou-Pingshi Railway is the southern part ofBeijing-Guangzhou Railway, which connects Northern China with Southern China. TheGuangzhou-Shenzhen Railway is strategically located and links with major railway networks in China, including theBeijing-Guangzhou,Beijing-Kowloon,Sanshui-Maoming,Pinghu-Nantou, andPinghu-Yantian lines, as well as to the Kowloon Canton Railway in Hong Kong, which is an important component of the transportation network of southern China, as well as the only railway channel linking Hong Kong with Mainland China. TheGuangzhou-Shenzhen Railway is currently one of the most modern railways in the PRC as well as the first wholly fenced railway with four parallel lines in the PRC that allows passenger trains and freight trains to run on separate lines.

Passenger transportation is our principal business. As of December 31, 2014, we operated 233.52016, there were 253 pairs of passenger trains each day,in our operation area according to the then train schedule, including 105102 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including 1994 pairs of inter-city trains between Guangzhou East to Shenzhen (including 20 stand-by pairs), 8 pairs of Guangzhou East to the Chaozhou-Shantou cross-network EMU trains), 13 pairs of Hong Kong Through Trains (including 11 pairs ofCanton-Kowloon Through Trains, 1 pair ofZhaoqing-Kowloon Through Trains and 1 pair ofBeijing/Shanghai-Kowloon Through Trains) and 115.5138 pairs of long-distance trains.trains (including 10 pairs of Guangzhou-Foshan-Zhaoqing intercity trains, 3 pairs of Guangzhou to Guilin North, NaningEast and Guiyang North cross-network EMU trains). We have adopted an“As-Frequent-As-Buses” “As-Frequent-As-Buses” operating model by dispatching one pair of our domestically manufactured electric multiple units trains, known as “China RailwayHigh-Speed trains” or “CRHs”,“CRHs,” every 10 minutes on average during peak hours between Guangzhou and Shenzhen. Thethrough-trains passing Hong Kong jointly operated by us and the MTR Corporation Limited (“MTR”) are one of the most important means of transportation between Guangzhou and Hong Kong. We have organized and operated a number of long-distance trains running from and to Guangzhou and Shenzhen that linked with most of the provinces, autonomous regions and municipals across the nation.

Freight transportation is another important segment of our business. We arewell-equipped with comprehensive freight facilities and are able to efficiently transport full load cargo, single load cargo, containers, bulky and overweight cargo, dangerous cargo, fresh and live cargo, and oversized cargo. Our rail lines operated are closely knitted with the major ports in Guangzhou and Shenzhen and are connected to several large industrial zones, logistics zones and plants and mines in the Pearl River Delta region via the railroad sidings. The major market of our freight transportation business is domestic mid-to long-distance transportation, and we enjoy competitive advantages in domestic mid-to long-distance freight transportation.

We have extended our passenger and freight transportation business to include railway operation services with the commencement ofWuhan-Guangzhou Passenger Railway Line in December 2009. As of the date of this annual report, we have provided such services to Wuhan-Guangzhou Passenger Railway Line Co., Ltd., Guangdong Guangzhou–ZhuhaiInter-city Railway Traffic Co., Ltd.,Guangzhou-Shenzhen-Hong Kong Express Rail Link Company Limited,Guangzhou-Zhuhai Railway Company Limited, Xiamen-Shenzhen Railway (Guangdong) Company Limited, and Ganzhou-Shaoguan Railway Company Limited, Nanning-Guangzhou Railway Company Limited, Guiyang-Guangzhou Railway Company Limited and Guangdong Pearl River Delta Inter-city Railway Traffic Company Limited. With the successful completion and commencement of operation of a series of high-speed railways andinter-city railways in the “Pan Pearl River Delta”,Delta,” our geographical coverage of railway operation service will be more extensive. We also intend to grow our business through railway operation services.

Background, Restructuring and Acquisition

The railroad system between Guangzhou and Shenzhen was part of the original“Canton-Kowloon” “Canton-Kowloon” railroad, which began operations in 1911. In 1949, following the establishment of the PRC, the railroad was divided into two sections, with the first linking Guangzhou and Shenzhen, and the second, across the Hong Kong border and separately owned, linking Luohu and the Kowloon peninsula in Hong Kong. The Guangzhou to Shenzhen railroad has been operated since 1949 by a sub-division of the Guangzhou Railway Bureau, a predecessor to GRGC.

In 1979, Guangshen Railway Company, our predecessor, in conjunction with Kowloon–Canton Railway (“KCR”), which has been merged into the MTR, was engaged in the joint operation of Hong Kong Through Train passenger services between Guangzhou and Hong Kong.

In 1984, to exploit the rapid growth in the Pearl River Delta, Guangshen Railway Company, our predecessor, was established pursuant to the approval of the State Council as astate-owned enterprise administered by the Guangzhou Railway Bureau. At that time, Guangshen Railway Company had only a single-line railroad. Since then, large capital expenditures have been made to expand and upgrade its facilities and services. In 1987, construction of the second line was completed. In 1991, Guangshen Railway Company began the construction of asemi-high-speed rail line and purchased locomotives and passenger coaches, which can provide passenger train services at speeds of more than 160 kilometers per hour. Commercial operation of the electric multiple units (“EMUs”)EMUs commenced in December 1994.

We were established as a joint stock limited company on March 6, 1996 following the Restructuring, which was carried out to reorganize the railroad assets and related businesses of Guangshen Railway Company and certain of its subsidiaries. As part of the Restructuring, 2,904,250,000 state legal person shares, par value RMB1.00 per share, of our Company were issued to GRGC, astate-owned enterprise controlled by the MOR. Guangshen Railway Company retained the assets, liabilities and businesses not assumed by us, including units providing staff quarters and social services such as health care, education, public security and other ancillary services, as well as subsidiaries or joint ventures whose businesses do not relate to railroad operations and do not compete with our businesses. As part of our Restructuring, Guangshen Railway Company was renamed Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company.

Since April 1, 1996, we have been able to set our own prices for our EMU train services and charge a premium over average national prices for our other passenger and freight train services. See “ITEM 4. INFORMATION ON THE COMPANY—B. Business Overview—Regulatory Overview—Pricing” for a more detailed description of our pricing scheme.

We completed our initial public offering of class H ordinary shares, or H shares, and our American depositary shares, or ADSs, in May 1996. In that offering, we issued a total of 1,431,300,000 H shares, par value RMB1.00 per share. Our H shares are listed for trading on the HKSE and our American depositary shares, or ADSs, each representing 50 H shares, are listed for trading on the NYSE.

On November 15, 2004, we entered into an asset purchase agreement with Yangcheng Railway Company to acquire the railway transportation business between Guangzhou and Pingshi and related assets and liabilities, or the Acquisition. In order to finance such Acquisition, on December 13, 2006, we issued 2,747,987,000 A shares that are now listed for trading on the Shanghai Stock Exchange (stock code: 601333) and raised approximately RMB10.0 billion from the A Share Offering. After the A Share Offering, approximately 41% of our issued and outstanding shares were owned by GRGC, while institutional and public shareholders own approximately 59% of our issued and outstanding ordinary shares, including A shares, H shares and ADSs.

On December 28, 2006, we paid RMB5.27 billion out of the proceeds raised from the A Share Offering to Yangcheng Railway Company. On January 1, 2007, the railway transportation business of theGuangzhou-Pingshi Railway came under our control as a result of the Acquisition. As a result, our operations expanded from a regional railway to a national trunk line network and our operating railway distance extended from 152 kilometers to 481.2 kilometers, running vertically through the entire Guangdong Province. In June 2007, we paid the remaining balance in the amount of RMB4.87 billion to Yangcheng Railway Company.

In April 2010, in order to further reduce our administrative expenses and improve the overall efficiency of our administration system, we made efforts to optimize our internal management structure, including establishing the General Administrative Department, the Human Resources Department, the Planning and Finance Department, the Operation Management Department and the Audit Department, each of which is under the supervision of our general manager, and outsourcing all other administrative functions to external service providers.

On November 30, 2013, we entered into an agreement to acquire the freight service business and related assets of China Railway Express Co., Ltd. Guangzhou Branch (“CREC”) and China Railway Container Transport Co. Ltd. Dalang Processing Station (“CRCT”), the subsidiaries of the CRC which operate freight service business. The purchase considerations for CREC and CRCT were approximately RMB102.3 million and RMB79.9 million, respectively. On the same day, control of the assets and operations of CREC and CRCT were transferred to us. The results of the operations of the above-mentioned entities have been included in our consolidated comprehensive income statement from November 30, 2013 onwards.

On May 29, 2014, we entered into an agreement with Guangzhou Railway (Group) Company Guangzhou Railway Economic Development Co., Ltd. to acquire certain assets and liabilities in relation to the freight service business. The total amount of assets were RMB161.7 million and total amount of liabilities were RMB39.3 million. The purchase price was approximately RMB122.4 million.

On October 20, 2014, we entered into an agreement with Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company to acquire approximately an additional 17.7% equity interest in Zengcheng Lihua Stock Company Limited (“Zengcheng Lihua”). The purchase price was approximately RMB 4.7 million. Upon the completion of the acquisition, we held an aggregate of approximately 44.7% equity interest in Zengcheng Lihua. On February 12, 2015, we obtained control of Zengcheng Lihua and began to consolidate its financial statements from that date.

On October 26, 2016, we entered into agreements to acquire certain railway operating assets of GRGC, Guangmeishan Railway Company Limited (“GRCL”) and Guangdong Sanmao Railway Company Limited (“GSRC”). GRCL and GSRC are subsidiaries of GRGC which operates passenger and freight transport service business. The purchase prices to GRGC, GRCL and GSRC were approximately RMB28,657,000, RMB453,658,000 and RMB249,677,000, respectively. On October 26, 2016, we obtained control of the above-mentioned railway operation assets and began to consolidate the results of operations of GRGC, GRCL and GSRC in our consolidated comprehensive income statement from that date.

Service Territory

Our rail lines traverse the Pearl River Delta and also run vertically through Guangdong Province, an area which benefited early from the PRC economic reform policies that began in the late 1970s. Throughout the 1980s and early 1990s, the economy of the Pearl River Delta, fueled by foreign investments, grew rapidly. The Pearl River Delta is currently one of the most affluent and fastest growing areas in China.

As of April 28, 2015,20, 2017, we had 48 stations situated on our rail lines, providing passenger and freight transportation services for cities, towns and ports situated along theShenzhen-Guangzhou-Pingshi corridors and Hong Kong Through Train passenger service, which we serve in conjunction with the MTR. We also provide railway operation services to other Chinese domestic railway companies.

TheShenzhen-Guangzhou-Pingshi railroad is an integral component of the PRC national railway network, and provides nationwide access to passenger and freight traffic from southern China to other regions of mainland China as described below:

Northbound. At Pingshi, our rail line connects with theBeijing-Guangzhou line, which is one of the major trunk lines linking southern China with Beijing and northern China. Another trunk line connecting northern and southern China, theBeijing-Hong Kong rail line, includes the section of our line from Dongguan to Shenzhen.

Southbound. Our line connects at Shenzhen with the rail line owned by the MTR that runs to Kowloon, Hong Kong.

Westbound. Our line connects with theGuangzhou-Maoming rail line operated by Sanmao Railway Company,GSRC, a company in which GRGC holds a 49.1% equity interest, thatwhich runs through the western part of Guangdong Province, connecting with other rail lines that continue on into the Guangxi Zhuang Autonomous Region, which provides access to southwestern China. Nanning-Guangzhou Railway and Guiyang-Guangzhou Railway commeced operation on December 26, 2014, which are connected with our line at Guangzhou Station since May 2016 by three EMUs operating between Guangzhou and Guiyang North, Guangzhou and Nanning East, and Guangzhou and Guilin North. Nanning-Guangzhou Railway is owned by Nanning-Guangzhou Railway Company Limited, a subsidiary of Nanning Railway Bureau of CRC. Guiyang-Guangzhou Railway is owned by Guiyang-Guangzhou Railway Company Limited, a subsidiary of Chengdu Railway Bureau of CRC. We provide the operational services to Nanning-Guangzhou Railway and Guiyang-Guangzhou Railway. Our line also connects with Guangzhou-Foshan-Zhaoqing Intercity Railway, which commenced operation on March 30, 2016 and was jointly invested by Guangdong Provincial Railway Construction Investment Group Co., Ltd. and the CRC

Eastbound. Our line connects with theGuangzhou-Meizhou-Shantou rail line and Xiamen-Shenzhen rail line. Guangzhou-Meizhou-Shantou rail line is operated by Guangmeishan Railway Company,GRCL, a company jointly established byin which GRGC the Guangdong Provincial Railway Company and other public investors.holds a 78.2% equity interest. A section of this line forms, along with our Dongguan to Shenzhen segment, a part of theBeijing-Hong Kong rail line, which terminates in Kowloon, Hong Kong. The section of Xiamen-Shenzhen rail line in Guangdong Province is owned by Xiamen-Shenzhen Railway (Guangdong) Company Limited, a subsidiary of GRGC. We provide the operational services to Xiamen-Shenzhen Railway (Guangdong) Company Limited. At Pinghu, our rail line connects with two local portrail lines: one of them, Pingnan Railway, principally serves three ports located in western Shenzhen—Shekou, Chiwan and Mawan—Mawan, which is under renovation and expansion to add passenger transport and sea-railway cargo transport capabilities in the future—and the other, Pingyan Railway, serves Yantian port, an internationaldeep-water port located in eastern Shenzhen. At the Huangpu and Xiayuan stations in Guangzhou, our line connects with Huangpu port and Xinsha port. Our rail line also connects with certain industrial districts, commercial districts and the facilities of many of our customers through spur lines, which are rail lines running off the main line that are used and typically financed by a freight customer or a group of freight customers and maintained by us for a fee. We believe that the customers connected to these spur lines and customers with goods that must be shipped through these regional ports are likely to use our services on a long-term basis.

Capital Expenditure

Our capital expenditure includes payments for acquisition of fixed assets and construction-in-progress, and prepayments for fixed assets, net of related payables. In 2014, 2015 and 2016, our total capital expenditure were RMB999.6 million, RMB1,292.3 million and RMB1,973.9 million, respectively.

For more information concerning the Company’s principal capital expenditure and divestitures currently in progress, including the distribution of these investments geographically and the method of financing, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - B. Liquidity and Capital Resources” and “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - F. Tabular Disclosure of Contractual Obligations.”

 

B.Business Overview

Business Operations

Our principal businesses are railroad passenger, transportation, freight transportation, railway network usage and othertransportation-related services, which collectively generated 93.1%93.6% of our total revenue in 2014.2016. The remaining 6.9%6.4% of our total revenue in 20142016 mainly consisted of train repair, on-board catering services, leasing, sales of materials and supplies, sale of goods and other businesses related to railway transportation.

In 2014,2016, affected by the unfavorable factors including the slowdown of the macro-economy, the competition in the face of an unfavorable operating environment with stalled macroeconomic growth, sluggishrailway passenger transportation market and a weak demand in the railway market and heavy competition in thefreight transportation market, we strived to achieve the targets set out by the Board, including enhancing workplace safety, exploring potential operational capabilities, improvingour passenger and freight services, improving asset management, strengthening cost controltransportation business continued to decline, which resulted in our business stagnating. We responded with a series of measures to increase our revenue and standardizing operationsreduce expenses. With the goal to ensure the safety and stability of transport and production. However, with the extension of the Pilot Scheme for the Change from Business Tax to Value-added Tax (the “Pilot Scheme”) toincrease our revenue, we have been exploring opportunities in the railway passenger and freight transportation industry on January 1, 2014,markets by making arrangements to open five new pairs of cross-network EMU traveling between Guangzhou East and Chaozhou-Shantou and one pair of long-distance trains between Shenzhen and Urumqi, recommence inter-city passenger transportation business at Pinghu Railway Station, adopt railway supply-side structural reform measures, increase the frequency of southern express lines for freight transportation and continuously expand the service scope of railway operations. At the same time, we enhanced our cost controls of our general and non-production expenses. As a result of those measures, we achieved growth both in operating revenue shrank significantly in 2014 as compared with the previous year, resulting in a sharp decline inand net profit year-on-year despite a slight decline in operating costs.profit.

In 2014,2016, we achieved a passenger delivery volume of 90.184.9 million persons, representinga year-to-year decrease of 0.9%0.6%; a tonnage of outbound freight of 51.615.36 million tons, representinga year-to-year decrease of 13.4%,9.0%; generating operating revenues of RMB14,801RMB17,281 million, representinga year-to-year decrease increase of 6.3%9.9%; consolidated profits attributable to equity holders of RMB662RMB1,158 million, representinga year-to-year decrease increase of 48.0%8.2%; and basic earnings per share of RMB0.09.RMB0.16.

The table below summarizes our railroad and related business revenue and traffic volume for the periods indicated:

 

   Year ended December 31, 
   2010   2011   2012   2013   2014 

Passenger Transportation

          

Total passenger revenue (RMB millions)

   7,377.14     8,026.51     7,841.09     8,058.29     6,988.29  

Total passengers (millions)

   84.92     90.83     84.60     90.96     90.11  

Totalpassenger-kilometers (millions)

   27,472.00     28,523.99     26,788.80     27,844.65     27,953.94  

Revenue perpassenger-kilometer (RMB)(1)

   0.27     0.28     0.29     0.29     0.25  

Freight Transportation

          

Total freight revenue (RMB millions)

   1,315.35     1,386.75     1,344.10     1,603.29     1,763.68  

Total freight tons (millions)

   67.93     68.70     62.67     59.56     51.56  

Revenue per ton (RMB)(2)

   19.36     20.18     21.45     26.92     34.21  

Totalton-kilometers (millions)

   15,191.43     15,519.10     14,620.50     13,293.83     11,425.99  

Revenue perton-kilometer (RMB)(3)

   0.09     0.09     0.09     0.12     0.15  

Railway Network Usage and othertransportation-related services(RMB millions)

   3,888.37     4,256.00     4,890.64     5,034.68     5,031.24  
   Year ended December 31, 
   2012   2013   2014   2015   2016 

Passenger Transportation

          

Total passenger transportation revenue (RMB millions)

   7,841.09    8,058.29    6,988.29    6,997.56    7,358.85 

Total passengers (millions)

   84.60    90.96    90.11    85.37    84.90 

Total passenger-kilometers (millions)

   26,788.80    27,844.65    27,953.94    25,989.28    25,479.15 

Revenue per passenger-kilometer (RMB)(1)

   0.29    0.29    0.25    0.27    0.29 

Freight Transportation

          

Total freight transportation revenue (RMB millions)

   1,344.11    1,603.29    1,763.68    1,761.45    1,718.26 

Total freight tons (millions)

   62.67    59.56    51.56    48.44    48.60 

Revenue per ton (RMB)(2)

   21.45    26.92    34.21    36.36    35.36 

Total ton-kilometers (millions)

   14,620.50    13,293.83    11,435.00    10,874.30    10,302.05 

Revenue per ton-kilometer (RMB)(3)

   0.09    0.12    0.15    0.16    0.17 

Railway Network Usage and other transportation related services (RMB millions)

   4,890.64    5,034.68    5,031.24    5,874.73    7,093.20 

 

(1)Revenue perpassenger-kilometer is calculated by dividing total passenger transportation revenue by totalpassenger-kilometers. Management believes that revenue perpassenger-kilometer is a useful measure for assessing the revenue levels of our passenger transportation business.
(2)Revenue per ton is calculated by dividing total freight revenue by total freight tons. Management believes that revenue per ton is a useful measure for assessing the revenue levels of our freight transportation business.
(3)Revenue perton-kilometer is calculated by dividing total freight revenue by totalton-kilometers. Management believes that revenue perton-kilometer is a useful measure for assessing the revenue levels of our freight transportation business.

Passenger Transportation

Passenger transportation is our largest business segment,stream, accounting for 47.2%42.6% of our total revenue and 50.7%45.5% of our railroad and related business revenue in 2014.2016. Our passenger train services can be categorized as follows:

 

transportation business ofGuangzhou-Shenzheninter-city Guangzhou-Shenzhen inter-city express trains;

 

long-distance trains; and

 

Through Trains in Hong Kong.

As of December 31, 2014, we operated2016, there were a total of 233.5253 pairs of passenger trains per dayin our operation area according to the then train schedule (each pair of trains meaning trains making oneround-trip between two points), representing an increase of 4.514 pairs from 229239 pairs as of December 31, 2013,2015, of which:

 

105

102 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including19 94 pairs of inter-city trains between Guangzhou East to Shenzhen (including 20 stand-by pairs), and 8 pairs of Guangzhou East to the Chaozhou-Shantou cross-network EMU trains);

 

13 pairs of Hong Kong Through Trains (including 11 pairs ofCanton-Kowloon Through Trains, 1 pair ofZhaoqing-Kowloon Through Trains and 1 pair ofBeijing/Shanghai-Kowloon Through Trains); and

115.5138 pairs of long-distance trains, representing an increase of 4.517 pairs from 111121 pairs as of December 31, 2013.2015. Long-distance trains included long-distance passenger trains operated by us between: Shenzhenbetween the following departure and Shanghai South; Shenzhen and Beijing West; Kowloon and Beijing West; Guangzhou and Shanghai South; Guangzhou and Beijing West; Guangzhou and Pingshi; Guangzhou and Chongqing North; Guangzhou and Dazhou; Guangzhou and Xi’an; Guangzhou and Taizhou; Guangzhou and Jiujiang; Guangzhou and Wenzhou; Guangzhou and Yantai; Guangzhou and Zhangjiajie; Guangzhou and Xi’ning; Guangzhou and Lhasa; Guangzhou and Ganzhou and Sanya and Beijing West.terminal stations:

Departure/ Terminal Station

Terminal/Departure Station

Guangzhou

Beijing West, Shanghai South, Xi’ning, Xi’an, Yantai, Chongqing North, Taizhou, Wenzhou, Dazhou, Ganzhou, Zhangjiajie, Jiujiang, Chengdu, Yueyang, Pingshi, Maoming East, Xinyi

Guangzhou East

Beijing West, Kowloon, Xiamen, Shantou, Meizhou

Shenzhen

Beijing West, Shanghai South, Urumqi, Qingdao, Nanjing, Hefei, Meizhou

Shezhen East

Chengdu East

Dongguan East

Chengdu

Shantou

Chongqing North, Wuchang, Meizhou

Huizhou

Wuchang

Zhaoqing

Wuchang, Dazhou, Chenzhou, Zhangjiajie, Kowloon

Sanya

Beijing West

Long-distance trains also included domestic long-distance trains that are operated by other operators but originatingoriginate or terminatingterminate on, or passingpass through, our railroad.

The table below sets out passenger transportation revenue and volumes for our Hong Kong Through Trains and domestic trains for each of the periods indicated:

 

  Total passenger revenue   Total passengers   Revenue per passenger   Total  passenger
transportation revenue
   Total passengers   Revenue per passenger 
  2012   2013   2014   2012   2013   2014   2012 2013 2014   2014   2015   2016   2014   2015   2016   2014 2015 2016 
  (RMB millions)   (millions)   (RMB)   (RMB millions)   (millions)     (RMB)   

Guangzhou-Shenzhen Trains

   2,373.6     2,415.8     2,115.1     35.8     37.0     36.0     66.3   65.3   58.8     2,115.1    2,224.0    2,413.0    36.0    35.7    36.2    58.8   62.3   66.7 

Hong Kong Through Trains

   480.2     498.3     526.9     3.8     3.9     3.9     127.6   127.5   135.1     526.9    510.4    528.3    3.9    3.8    3.5    135.1   134.3   150.9 

Long-distance Trains(1)

   4,450.0     4,560.3     3,782.5     45.0     50.1     50.2     N/A(1)   N/A(1)   N/A(1)    3,782.5    3,883.6    4,019.3    50.2    45.9    45.2    N/A(1)   N/A(1)   N/A(1) 

Other Revenues from Passenger Transportation(2)

   537.3     583.9     563.8     —       —       —       —      —      —       563.8    379.6    398.4    —      —      —      —     —     —   

Combined passenger operations

   7,841.1     8,058.3     6,988.3     84.6     91.0     90.1     N/A(1)   N/A(1)   N/A(1)    6,988.3    6,997.6    7,358.9    90.1    85.4    84.9    N/A(1)   N/A(1)   N/A(1) 

 

(1)Our revenue of long-distance passenger trains includes both the revenue from the passengers arriving at our railway stations and the revenue from the passengers departing from our railway stations. However, the number of our long-distance passengers only includes the passengers departing from our railway stations. As a result, we believe that the “per passenger revenue” cannot fairly reflect the financial status of our passenger transportation business.
(2)Since 2014, we have separated Other Revenues from Passenger Transportation from Long-distance Trains to more accurately reflect the correlation between passenger revenue and volumes, and have re-categorized Revenue from Long-distance Trains for 2012 and 2013 to reflect this change.

Guangzhou-Shenzhen Trains. In 2014,2016, our passenger transportation services on the trains between Guangzhou and Shenzhen accounted for 30.3%32.8% of our railroad passenger transportation revenue. As of December 31, 2014,2016, we operated 105102 pairs of intercity CRH passenger trains between Guangzhou and Shenzhen. Such CRH passenger trains are capable of running at a top speed of 200 kilometers per hour. The number of passengers traveling on ourGuangzhou-Shenzhen trains decreasedincreased by 2.7%1.5% from 37.035.7 million in 20132015 to 36.036.2 million in 2014.2016. The revenue from ourGuangzhou-Shenzhen trains decreasedincreased by 12.5%8.5% from RMB2,415.8RMB2,224.0 million in 20132015 to RMB2,115.1RMB2,413.0 million in 2014.2016. The decreaseincrease in passenger volume and revenue ofGuangzhou-Shenzhen trains was primarily due toto: (i) an increase in the numbercommencement of travelers travellingthe service of five pairs of cross-network EMU trains between Guangzhou and Shenzhen by high-speed train, which divertsChaozhou-Shantou, and the passenger volumerevenue from such trains is accounted for in the revenue from Guangzhou-Shenzhen trains, and (ii) the openingrecommencement of the highway between Guangzhou and Shenzhen in December 2013.inter-city passenger transportation business at Pinghu Railway Station since September 26, 2016.

Hong Kong Through Trains. In 2014,2016, our passenger transportation services on Hong Kong through trains accounted for 7.5%7.2% of our railroad passenger transportation revenue. We currently operate, jointly with the MTR, 13 pairs of Hong Kong Through Trains (including 11 pairs ofCanton-Kowloon Through Trains, 1 pair of Zhaoqing-Kowloon Through Trains and 1 pair ofBeijing/ Beijing West/Shanghai-Kowloon Through Trains). We are responsible for the operation of theBeijing/Shanghai-Kowloon Through Trains and 8 pairs ofCanton-Kowloon Through Trains whileThe MTR is responsible for the operation of 3 pairs ofCanton-Kowloon Through Trains.Trains while we are responsible for the remaining 10 pairs of Hong Kong Through Trains (except for the Shanghai-Kowloon Through Train which is operated by Shanghai Railway Bureau). In addition, we also provide railway network usage services to MTR for the Hong Kong Through Trains it operates.operates in the section between Shenzhen Station and Guangzhou East Station.

The Hong Kong Through Train services beyond Guangzhou to Foshan, Zhaoqing, Beijing and Shanghai are provided by GRGC and Shanghai Railway Bureau. Revenue from these Hong Kong Through Trains on theGuangzhou-Hong Kong section is shared between MTR and us, in proportion to our track mileage for the Hong Kong Through Train services, with 81.2% accruing to us and 18.8% to MTR. In addition, we share all related costs with MTR at the same rate for the Hong Kong Through Train services.

Most of the passengers taking our Hong Kong Through Trains are from Hong Kong, Macau, Taiwan regions and foreign countries, and many are business travelers. As the prices for our Hong Kong Through Train services are higher than the prices we charge for our domestic train services, these Hong Kong Through Train services produce higherper-passenger revenue than our other passenger train services.

TheIn 2016, the volume of passengers who traveled on the Hong Kong Through Trains decreased by 8.4% from 3.8 million in 2014 remained the same as2015 to 3.5 million in 2013 at 3.9 million.2016. The revenue from Hong Kong Through Trains increased by 5.7%3.5% from RMB498.3RMB510.4 million in 20132015 to RMB526.9RMB528.3 million in 2014.2016. This increasedecrease in passenger volume was mainly due to the decrease in mainland Chinese visitors travelling to and shopping in Hong Kong. This increase in revenue was mainly due to (i) the comfort, speed and convenience ofincrease in ticket prices for Hong Kong Through Trains attracted an increasing number of travelers traveling to Hong Kong and Macau, and (ii) the appreciation of the RMB against the HK dollar lowered the effective costs of traveling on Hong Kong Through Trains.starting from July 2015.

DomesticLong-distance Trains. In 2014,2016, our passenger transportation services on domestic long-distance trains accounted for 62.2%54.6% of our railroad passenger transportation revenue. As of December 31, 2014,2016, we operated on a daily basis 115.5138 pairs of long-distance trains on our rail lines to cities in Guangdong, Hunan, Hubei, Jiangxi, Anhui, Jiangsu, Liaoning, Shaanxi, Gansu, Fujian, Heilongjiang, Jilin, Zhejiang, Hebei, Henan, Sichuan, Yunnan, Hainan, Shanxi and Shandong provinces, Chongqing, Shanghai, Beijing and Tianjin municipalities and Guangxi Autonomous Region, Xinjiang Autonomous Region and Tibet Autonomous Region. In 2014,2016, the number of passengers travelingtraveled on our long-distance trains was 50.245.2 million, representing an increasea decrease of 0.3%1.5% from 50.145.9 million in 2013.2015. Our revenue from long-distance trains in 20142016 was RMB3,782.5RMB4,019.3 million, compared to RMB4,560.3RMB3,883.6 million in 2013.2015. The decrease of the passenger volume of long-distance trains remained relatively stable.was primarily due to the high-speed railway’s diversion effect, which has resulted in a continuous decrease of passenger volume of long-distance trains. The decreaseincrease in revenue of long-distance trains was primarily due to the extensioncommencement of the Pilot Scheme to the railway transportation industry from January 1, 2014. Value-added tax is a tax on topservice of but distinct from price. According to the relevant accounting standard in Chinaone pair of long-distance trains between Shenzhen and overseas, operating revenues should be recognized after deducting value-added tax. As our income and pricing scheme remained unchanged after the implementation of the Pilot Scheme, the deduction of value-added tax from income from the original pricing scheme resulted in lower revenue as compared with the same period last year.Urumqi.

Major Stations. The following are the major train stations owned and operated by us as of December 31, 2014:2016:

 

Station

Location

Connected Railways

  

Passenger

Transportation

BusinessLocation

  

Connected Railways

Passenger

Transportation

Business

Total
Passengers
for 20142016
(millions)
 

Guangzhou Station

  Yuexiu
District,
Guangzhou
  Beijing-Guangzhou Railway,Guangzhou-Maoming Railway,Guangzhou-Shenzhen Railway, Guangzhou-Foshan-Zhaoqing Intercity Railway, Guangzhou-Huizhou Intercity Railway, Guiyang-Guangzhou Raiwlay, Nanning-Guangzhou Railway, Line 2 and Line 5 of Guangzhou’s subway system  Long-distance trains,inter-city trains between Guangzhou and Shenzhen   29.025.59 

Guangzhou East Station

  Tianhe
District,
Guangzhou
  Beijing-GuangzhouRailway,Beijing-Guangzhou Railway, Guangzhou-Shenzhen Railway, Xiamen-Shenzhen Railway, Line 1 and Line 3 of Guangzhou’s subway system  Long-distance trains,inter-city trains between Guangzhou and Shenzhen, Hong Kong Through Trains   21.321.09 

Shenzhen Station

  Luohu
District,
Shenzhen
  Guangzhou-Shenzhen Railway, Hong Kong railway, Luobao Line of Shenzhen’s subway system  Long-distance trains,inter-city trains between Guangzhou and Shenzhen   22.9

Dongguan Station

Changping
Town,
Dongguan
Guangzhou-Shenzhen RailwayLong-distance trains,inter-city trains between Guangzhou and Shenzhen, Hong Kong Through Trains3.418.72 

Shaoguan East Station

  Shaoguan  Beijing-Guangzhou Railway  Long-distance trains   3.63.13 

Freight Transportation

Revenue from our freight transportation accounted for 11.9%9.9% of our total revenue and 12.8%10.6% of our railroad and related business revenue in 2014.2016. Our principal market for freight is domestic medium and long-haul freight, originating and/or terminating outside theShenzhen-Guangzhou-Pingshi corridor. We are well equipped with various freight facilities and can efficiently transport full load cargo, single load cargo and containers. We have established business cooperation with ports, logistics bases and specialized building materials markets in our service region.

The majority of the freight we transport is high-volume, medium to long-distance freight received from and/or transferred to other rail lines. A portion of the freight we transport both originates and terminates in theShenzhen-Guangzhou-Pingshi corridor. We classify our freight business into three categories:

 

inbound freight, which is primarily freight unloaded at freight stations and spur lines connected to ports on our rail line or in Hong Kong;

 

outbound freight, which is primarily freight bound for other regions in Mainland China as well as foreign countries loaded at our train stations and spur lines connected to ports on our rail line or in Hong Kong; and

 

pass-through freight, which refers to freight that travels on our rail line, but which does not originate from or terminate at our rail line.

Revenue from freight transportation business in 20142016 was RMB1,763.7RMB1,718.3 million, an decrease of 2.5% from RMB1,761.5 million in 2015. The total tonnage of freight we transported in 2016 was 48.6 million tons, representing an increase of 10.0%0.3% from RMB1,603.348.4 million tons in 2013. This increase2015. The decrease in freight revenue was mainly due to the following factors:

On November 30, 2013, we acquireddecrease in outbound freight tonnage and outbound freight transportation revenue, which resulted from the container transportation-related cargo businessslowing economy in China, the structural adjustment in the Pearl River Delta region and assets originally owned by Dalang Handling Station of CRC, resultingthe heightened competition in a year-on-yearthe freight transportation market in 2016. The increase in related revenues;

Freight transportation-related services and revenues, such as retrieval and deliverythe volume of goods and cargo handling, was reclassified as freight transportation serviceswas due to the increase in inbound freight tonnage and revenues, under the “One Price Policy” implemented on June 15, 2013; and

Since February 15, 2014, the unified nationalinbound freight transportation revenue as a result of our deepening reform of railway freight transportation fee has beenand the increased by 1.5 cents per ton kilometer. Theoperations of southern express trains (containers, single load cargo), and freight transportation of Beijing-Guangzhou railway Guangzhou-Pingshi section is operated by us and has adopted a unified fee.

The total tonnage of freight(mainly in containers) through each station we transported in 2014 was 51.6 million tons, representing a decrease of 13.4% from 59.6 million tons in 2013. This decrease in freight volume was mainly due to the following factors:managed.

Factors including the slowing economic growth in China and an economic shift in the Pearl-Delta region towards technology businesses contributed to a decrease of goods transported via the railway network; and

Since commencing operation, Guangzhou-Zhuhai Railway has increased the competition for freight transportation in the Guangzhou-Shenzhen area.

We serve a broad customer base and ship a wide range of goods in our freight transportation business. We are not dependent upon any particular customers or industries. We transport a broad range of goods, which can generally be classified as follows: metal ores, coal, containers, construction materials, steel, petroleum, and other goods.

The majority of our inbound freight consists of raw materials and essential production materials for manufacturing, industrial and construction activities, while the majority of our outbound freight consists of imported mineral ores as well as coal and goods produced or processed within our service territory, for customers throughout China and abroad.

Railway Network Usage and otherTransportation-Related Services Business

Revenue from our railway network usage and othertransportation-related services accounted for 34.0%41.1% of our total revenue and 36.5%43.9% of our railroad and related business revenue in 2014.2016. In 2014,2016, our revenue from railway network usage and othertransportation-related services was RMB5,031.2RMB7,093.2 million, representing a decreasean increase of 0.1%20.7% from RMB5,034.7RMB5,874.7 million in 2013.

2015. The decreaseincrease in revenue from railway network usage, railway operation service, and other transportation-related services was principally due to:

 

our acquisitions

the acquisition of locomotive assets of GSRC, which resulted in an increase in the container transportation-related cargo businessusage of locomotive towing services, and assets originally operated by Dalang Handling Station of CRC, andan increase in the baggage and parcel transportation business operated by CRC Express Co. Ltd Guangzhou Branch, after November 30, 2013;revenue from such services;

 

the Pilot Scheme, which was extended to the railway transportation industry from January 1, 2014. Value-added tax is a tax on top of but distinct from price. According to the relevant accounting standard in China and overseas, operating revenues should be recognized after deducting value-added tax. As our income and pricing scheme remained unchanged after the implementation of the Pilot Scheme, the deduction of value-added tax from income from the original pricing scheme resulted in lower revenue as compared with the same period last year; and

a drop in the prices for the national railway network usage services.

Thean increase in revenue fromthe railway operation services was principally duewe provided to :

an increase of railway transportation services providedcompanies we have been serving in the past, including but not limited to, Wuhan-Guangzhou Passenger Railway Line Guangzhou-Shenzhen-HongkongCo., Ltd., Guangzhou-Shenzhen-Hong Kong Express Railway Line, Guangzhou-Zhuhai Inter-city Railway Line,Rail Link Company Limited, Xiamen-Shenzhen Railway Company Limited, Ganzhou-Shaoguan Railway Company Limited, Guiyang-Guangzhou Railway Company Limited, and Guangzhou-Zhuhai Railway; andNanning-Guangzhou Railway Company Limited;

 

additional railway operation services for Great Southern Rail.

The increase in revenue from other services was mainly due to the acquisition of baggagepart of the operating assets and parcel delivery-related freight-transportation businesspersonnel of GRCL and asset originally operated by CRC Express Co. Ltd Guangzhou Branch on November 30, 2013.GSRC, which resulted in us providing transportation service to them; and

adding new transportation services for the Pearl River Delta Intercity Railway.

The following table shows the composition of our revenue from railway network usage and othertransportation-related services for each of the periods indicated:

 

  2012   2013   2014   2014   2015   2016 
  (RMB millions)   (RMB millions) 

Railway Network Usage(1)

   3,474.2     3,326.5     2,860.2     2,860.2    2,933.5    3,178.5 

Passenger transportation network usage services

   2,908.6     2,920.3     2,630.9     2,630.9    2,701.2    2,940.5 

Freight transportation network usage services

   565.6     406.2     229.3     229.3    232.3    238.0 

OtherTransportation-related Services(2)

   1,416.4     1,708.2     2,171.0  

Other Transportation-Related Services(2)

   2,171.0    2,941.2    3,914.7 

Railway operation services

   1,078.2     1,383.9     1,773.3     1,773.3    2,387.2    2,614.3 

Other Services(3)

   338.2     324.3     397.7     397.7    554.0    1,300.4 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

 4,890.6   5,034.7   5,031.2     5,031.2    5,874.7    7,093.2 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)In the past, we divided the Railway Network Usage Service into locomotive traction, track usage, electric catenariescatenary (overhead wires used to transmit electrical energy to trains), vehicle coupling and other services. Since 2014, we have divided the Railway Network Usage Service into passenger transportation network usage services and freight transportation railway network usage services to better reflect the business structure of transportation network clearance service.
(2)Othertransportation-related services include provision of railway operation services and other services.
(3)Other services include lease of locomotive and passenger trains, fueling of locomotive and passenger trains, parcel transportation and other transportation.

Other Businesses

Revenue from our other businesses accounted for 6.9%6.4% of our total revenue in 2014.2016. Our other businesses mainly consist of train repairs,on-board catering services, leasing, sales of materials and supplies, sale of goods and other businesses related to railway transportation.

Revenue from our other businesses was RMB1,017.6RMB1,110.2 million in 2014,2016, compared to RMB1,104.4RMB1,091.6 million in 2013.2015.

Seasonality of Our Railway Transportation Business

There is some seasonality in our businesses. The first quarter of each year typically contributes the highest portion of our annual revenue, mainly because it coincides with the Spring Festival holidays when Chinese people customarily travel from all over the country back to their hometowns. In addition, the Spring Festival holidays, the Qingming Festival holidays, the Labor Day holidays, the Dragon Boat Festival holidays, summer holidays and the National Day holidays in China are also high travel seasons. During these holidays, we usually operate additional passenger trains to meet the increased transportation demand.

Sales

Passenger Transportation

Our passenger tickets are currently sold primarily through the internet. Passengers also can buy tickets at the ticket counters and automatic selling machines andwhich are located in our train stations as well as through telephone and the internet.telephone. Additionally, our tickets are sold in Hong Kong and major cities in the Guangdong Province through ticket agents, travel agents and hotels, at our usual prices plus nominal commissions.

Hong Kong Through Train tickets are sold in Guangdong Province through our railway stations, as well as through various ticket outlets, hotels and travel agents. In Hong Kong, these tickets are sold exclusively by the MTR. As MTR’s sales network for these tickets is relatively limited, MTR has engaged the China Travel Service (HK) Ltd., or CTS, as the primary agent for such sales on anon-exclusive basis.

In 2009, we launched the finance IC card and Fastpass card systems at stations along theGuangzhou-Shenzhen line, which enabled the passengers to board the trains by flashing the cards without having to queue for tickets. Starting in 2011, in order to facilitate the adoption of ourreal-name ticketing systems, we ceased operations of the Fastpass card systems. By the end of 2014, we had issued an aggregate of 1.1 million finance IC cards on an accumulative basis. We have installed 8self-service seat reservation terminals and42 self-service ticket-invoice printing terminals for travelers using financial IC cards along theGuangzhou-Shenzhen line.

Our stations along theGuangzhou-Shenzhen line have adopted areal-name ticketing system, allowing passengers to use their identification cards to purchase tickets and board trains. Customers who provide their second generation China identification cards or Hong Kong and Macau identification cards may purchase tickets aboard trains without customer service representatives. Customers can also purchase tickets for ourGuangzhou-Shenzheninter-city Guangzhou-Shenzhen inter-city trains online. We now haveAs of December 31, 2016, we had a total of 161195 automatic ticket selling machines, 146138 automatic ticket inspection machines and 119194 internet ticket printing machines along theGuangzhou-Shenzhen line.

The current settlement method for passenger transportation iswas stipulated by the MOR and is still under execution.execution by the CRC. It provides that all revenue from passenger train services (including revenue generated from luggage and parcel services) is considered passenger transportation revenue and belongs to the railway bureau that operates that train. The railway bureau in turn pays other railway bureaus the fees for the use of their rail lines, hauling services, in-station passenger services, water supply, electricity for electric locomotives and contact wire use fees, etc. Under this settlement method, the railway bureaus operating the long-distance train services are required to pay us the following fees: (i) the portion of the revenue from the sale of tickets that is higher than the PRC national railway standards due to our special pricing standards and (ii) other fees including those for railroad line usage, in-station passenger service, haulage service, power supply for electric locomotives, usage fees of contact wires and water supply. This settlement method does not apply to the settlement of our revenue from the passenger trains between Guangzhou and Shenzhen, between Beijing and Hong Kong, between Shanghai and Hong Kong, between Zhaoqing and Hong Kong and the Hong Kong Through Trains. See “ITEM 4. INFORMATION ON THE COMPANY—B. Business Overview—Regulatory Overview—Pricing.”

In October 2016, we acquired parts of the railway operation assets of GRCL and GSRC. As a result of the acquisition, we expanded our service scope of railway operation of the Shenzhen-Pinshi rail line to the entire Guangdong Province, which improved the supply of passenger trains and our competitiveness in passenger transportation.

Freight Transportation

Since June 2013, National Railway Corporationthe CRC implemented the door-to-door freight fee for railway freight transportation which covers all fees incurred from loading goods, transportation from departure station to arrival station and ultimately to the designated destination. Door-to-door freight fees are charged one-time on the consignor’s account and evidenced by consignment invoice, which lists all chargeable services with corresponding prices.

We charge door-to-door freight fees where we are responsible to goods delivery. After deducting freight fees payable to us incurring in the railway lines under our control, we settled the balance with other relevant Railway Bureau through National Railway Corporation’sthe CRC’s clearing system on a monthly basis. For goods not delivered by us but transported through our lines, we received the settlement through National Railway Corporation’s clearing system on a monthly basis.

In May 2013, National Railway Corporationthe CRC restructured the businesses between CRCT, CREC and China Railway Special Cargo Services CO., Ltd. (“CRSCS”). After the restructuring, CRCT took charge of the container operation and management and left the container transportation business with all relevant assets to NationalState Railway Bureau. CREBureaus (including GRGC). CREC transformed into a logistics company, providing services to the public, while National Railway Bureau was responsible for the operation and management of luggage carts, postal trains, postal and parcel express special trains and operational bases. CRSCS expanded the businesses into container, mail and luggage transportation.

On November 30, 2013, we entered into an asset transfer agreement with China Railway Express Co., Ltd. Guangzhou Branch (“CREC GB”) and China Railway Container Transport Co. Ltd. Dalang Processing Station (“CRCT DS”). CREC GB and CRCT DS are all subsidiaries of the CRC. The consideration for CREC GB and CRCT DS were approximately RMB102.3 million and RMB79.9 million, respectively. On the same day, control of the assets and operations of CREC and CRCT were transferred to us. The results of operations of the above-mentioned entities have been included in our consolidated comprehensive income statements starting on November 30, 2013.

Our revenue from container, postal transportation and postal and parcel express special train services have been included into transportation revenue after business optimization.

We and NationalState Railway BureauBureaus (including GRGC) pay National Railway Corporationthe CRC a fee for railway boxes,containers, which is collected by the CRCT. Special cargo transportation income, partially paid to National Railway Bureau and us as railroad usage fees and locomotive traction fees, is attributable to CRSCS.

Competition

We provide passenger and freight transportation services on theShenzhen-Guangzhou-Pingshi Railway. We expect competition to increase in the future as the marketization reform of the railway industry (including the reformation of the investment and financing system, the transportation management system and the pricing system) gradually deepens. We compete for long-distance travellingtraveling passengers against other railway service providers operating within our service territory. The Guangzhou-Shenzhen section of the Guangzhou-Shenzhen-Hong Kong passenger line commenced operation in December 2011, theBeijing-Guangzhou passenger line commenced operation in December 2012, the Xiamen-Shenzhen passenger line commenced operation in December 2013 and theNanning-Guangzhou andGuiyang-Guangzhou passenger lines commenced operation in December 2014. In addition, in areas where our railroad connects with lines of other railway companies, such as in the Guangzhou area where our railroad connects with theGuangzhou-Maoming Line, and in the Dongguan area where our railroad connects with theGuangzhou-Meizhou-Shantou Line, we face competition from the railway companies operating in these areas. We believe that the entry barrier to the industry will decrease, investors in the industry will become more diversified and the State’shigh-speed railway network with FourEast-West Lines and FourSouth-North Lines and numerousinter-city railways will complete construction and commence operation, leading to increased competition within the industry itself.

We also face competition from the providers of a variety of other means of transportation within our service territory. With respect to passenger transportation, we face competition from bus services, which are available between Guangzhou and Hong Kong, between Guangzhou and Shenzhen and between many other locations that we provide passenger transportation services. Bus fares are typically lower than the fares for our passenger train services. Furthermore, buses can offer added convenience to passengers by departing from or arriving at locations outside their central terminals, such as hotels. However, train services generally offer greater speed, safety and reliability than bus services. In addition, since the implementation of our“As-Frequent-As-Buses” “As-Frequent-As-Buses” operating model, our high-speed train services and Hong Kong Through Train services have enabled us to compete more effectively with bus operators in terms of speed and frequency. We also compete to a lesser extent with commercial air passenger transportation services and ferry services operating between Guangzhou and Hong Kong.

With respect to freight transportation, we face increasing competition from truck transportation in the medium-andshort-distance freight transportation market as the expressway and highway networks in our service region and neighboring areas have increasingly improved. By comparison, in the long-distance freight transportation market, especially in the areas where water transportation is not well developed, our freight transportation service has many advantages compared to truck transportation due to the higher cost of truck transportation, susceptibility of truck transportation to traffic conditions and a scarcity of heavy duty trucks. Our freight transportation also competes with water transportation as the waterway networks have increasingly improved. Supported by its more extensive network, railway freight transportation is more competitive in terms of speed and safety compared to water transportation, especially in those areas that are far from coasts and main waterways. As air freight is very expensive and attracts a different group of customers, we do not consider that our freight transportation services face significant competition from air freight. In China, a significant portion of the bulky freight with low added-value is still transported by railroad.

In addition, the CRC recently proposed to conduct deeper reform to adopt more modernized methods for railway freight transportation, including, but not limited to, the use of the internet to book and manage all cargos, which would further marketize freight transportation-related services and may increase competition from companies that have adopted more modernized methods in railway freight transportation.

Equipment, Tracks and Maintenance

As of December 31, 2014,2016, we operated 146187 diesel locomotives, 20173 electric locomotives, 2026 EMUs and 1,5282,554 passenger coaches for our operations.

The freight cars we use are all leased from the CRC, to which we pay uniform rental fees based on the national standards set by the CRC. The amounts of such usage fees we paid to the CRC in 2012, 20132014, 2015 and 20142016 were approximately RMB201.2RMB269.1 million, RMB231.5RMB251.3 million, and RMB269.1RMB261.9 million, respectively.

From 2007, we started the operation of our CRHs, which we bought from Bombardier Sifang Power (Qingdao) Transportation Ltd. and Bombardier Sweden Transportation Ltd. Each CRH is designed to have a top speed of 200 kilometers per hour and we believe that the introduction of CRHs has strengthened our capability to deliver safety, speed, comfort and quality in our transport services and increased our efficiency and competitiveness.

Our repair and maintenance facilities, including our Guangzhou passenger vehicle maintenance facility, Shipai passenger vehicle maintenance facility, Shenzhen North passenger vehicle maintenance facility, Guangzhou vehicle maintenance facility and Guangzhou North vehicle maintenance facility, provide services for general maintenance and routine repairs on our coaches and locomotives. Major repairs and overhauls are performed by manufacturers or qualified railway bureaus or plants. The repair and maintenance services for the CRHs are provided by our Guangzhou EMU vehicle maintenance facility.

We believe that our existing tracks and equipment meet the needs of our current business and operations. Most of the rails and ties on our main lines have been installed within the last decade and are maintained and upgraded on an ongoing basis as required. In 2012, 20132014, 2015 and 2014,2016, we made improvements toreplaced approximately 133 kilometers, 957 kilometers and 13341 kilometers of railway lines, respectively.

Major Suppliers and Service Providers

GRGC, our single largest shareholder, and its subsidiaries are major suppliers of our materials and supplies. In 2014,2016, we purchased approximately RMB560.0RMB469.3 million in materials and supplies from GRGC and its subsidiaries, which represented 42.7%35.1% of our total purchase of materials and supplies. See “ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS—B. Related Party Transactions.”

The companies or bureaus owned or controlled by the CRC, including the GRGC, our single largest shareholder, are our major customers. In 2014,2016, we collected approximately RMB1,960.7RMB3,408.0 million from GRGC and its subsidiaries, which represented 13.2%19.7% of our operating revenues.

The electricity we use, including electricity used for our lines, is supplied through various entities under the jurisdiction of the Guangdong provincial power bureau on normal commercial terms. In 2012, 20132014, 2015 and 2014,2016, we paid approximately RMB660.7RMB585.8 million, RMB675.2RMB599.3 million and RMB585.8RMB599.2 million, respectively, infor electricity charges.

Regulatory Overview

As a joint stock limited company with publicly traded shares, we are subject to regulation by the PRC securities regulatory authorities with respect to our compliance with PRC securities laws and regulations.

Prior to March 14, 2013, we were regulated by the MOR. However, on March 14, 2013, the First Session of the 12th National People’s Congress of the PRC considered and approved the plan on State Council institutional reform and transformation of government functions, pursuant to which the MOR was dissolved. In accordance with the plan, administrative functions pertaining to railway development planning and policies were transferred to the MOT, other administrative functions previously performed by the MOR were transferred to the National Railway Administration, supervised by the MOT, and commercial functions previously performed by the MOR were transferred to the China Railway Corporation. UponCRC. The Reform was completed on January 1, 2017 and as a result, the completion of the transfer, the de facto controlactual controlling entity of our Company’s largest shareholder was transferred to China Railway Corporation. The details of this plan have not yet been announced. Therefore,became the following discussion regarding the regulation of the PRC national railway system may change substantially to reflect this plan.CRC. See “ITEM 3. KEY INFORMATION—D. Risk Factors—Risks Relating to Our Business— Extensive government regulation of the railway transportation industry may limit our flexibility in responding to market conditions, competition or changes in our cost structure.”

National Railway System

Railroads in the PRC fall largely into three categories:state-owned railroads, jointly owned railroads and local railroads. The PRC central government holds the equity interests instate-owned railroads. Thestate-owned railway system comprises over 70% of all rail lines, including all trunk lines. Prior to the dissolution of the MOR, thestate-owned railway system was operated as a nationwide integrated system under the supervision and management of the MOR. Jointly owned railroads are jointly invested and operated by the central government of the PRC, the local government and other foreign or domestic investors. Local railroads consist of regional lines usually within provincial or municipal boundaries that have been constructed under the sponsorship of local governments or local enterprises to serve local needs. Although the MOR did not operate other railroads, it provided guidance, coordination, supervision and assistance with respect to industry matters to such other railroads. The MOR’s responsibilities include the centralized coordination of train routing and scheduling nationwide, planning of freight shipments and freight car allocations, overseeing equipment standardization and maintenance requirements, and financial oversight and revenue clearing throughout the national railway system. After the dissolution of the MOR, the administrative functions formerly performed by the MOR will bewere assigned to the MOT and the National Railway Administration, while the commercial functions formerly performed by the MOR will bewere assigned to the CRC.

Railway group companies are directly responsible for passenger and freight transportation as well as the coordination and supervision of operations carried out by train stations within their respective service territory. There are currently 18 railway group companies overseeing distinct portions of the national railway system.

Transport Operations

Prior to the dissolution of the MOR, the transport operations of the PRC national railway system were organized under the centralized regulation of the MOR. In order to promote efficient utilization of the railroad network nationwide, the MOR supervised and coordinated traffic flow on national trunk lines and through any connection points, where two rail lines operated by different companies connect to each other, in the system. Based on route capacity, available equipment and national priorities, the MOR formulated and issued the plans to the railway bureaus or railway group companies regarding routings on trunk lines, allocation of transportation capacities between railway bureaus or railway group companies at the connection points and allocation of freight cars to railway bureaus or railway group companies. The MOR also regulated the dispatch of empty freight cars to designated locations in order to enhance the utilization rate of the freight cars within the national railway system. Within the plans set forth by the MOR, each railway bureau and railway group company supervised and coordinated traffic within its own jurisdiction.

Currently, the plans and schedules for our passenger and freight services that were conducted solely on our own lines were determined by us; while our passenger and freight services that ran beyond our own lines were subject to overall planning and scheduling of GRGC or the CRC.

Where our service runs beyond our own line, clearance by and coordination with GRGC is necessary. Prior to the dissolution of the MOR, to the extent that we operated long-distance services beyond GRGC’s jurisdiction, they were subject to coordination and clearance by the MOR. Currently, they were subject to coordination and clearance by the CRC. In addition, in order to enable GRGC and the MOR to allocate freight cars and control traffic going through connection points, we were required to provide GRGC with prior electronic notice through internal network, on a daily basis, of the number and types of freight cars we required, as well as the number of our freight trains that would go through particular connection points. Currently, the daily notice is still provided to GRGC and the allocation of freight cars and control of traffic through connection points are carried out by GRGC and the CRC. Furthermore, we were required to carry out special shipping tasks, such as emergency aid and military and diplomatic transport, as directed by the MOR (and now by the CRC) or GRGC. Revenue from military and diplomatic transport generally account for less than 1% of our total transportation revenue. Emergency aid transport was required only during periods of natural disasters declared by the PRC government, and was provided with reduced fees.

Pricing

Prior to the dissolution of the MOR, the MOR was generally responsible for preparing a proposal for the baseline pricing standards for the nationwide railway system with respect to freight and passenger transportation. Such proposed pricing standards would take effect after being approved by and/or filed with relevant PRC government authorities. Currently, the CRC is responsible for the preparing and filing of such proposal for the baseline pricing standards.

Pursuant to relevant approvals from the MOR and other relevant PRC government authorities, we have some discretion to adjust and determine our service price. With respect to our freight transportation services within ourGuangzhou-Shenzhen lines, we may set our prices within a range between 50% and 150% of national price levels. With respect to our passenger transportation services, we may set the prices for our regular speedGuangzhou-Shenzhen trains within a range between 25% and 225% of national price levels, and may freely determine the prices for our high-speed express trains between Guangzhou and Shenzhen. In addition, we set the prices for our Hong Kong Through Trains in consultation with MTR, our business partner and the prices for our Hong Kong Through Trains are higher than the prices we charge for our domestic train services.

Environmental Protection

We believe that we are in material compliance with all applicable PRC national and local environmental protection laws and regulations. We have not been fined or cited for any activities that have caused environmental damages. We have 14 wastewater treatment facilities used for purposes of treating wastewater generated from cleaning of special cargo freight cars, locomotives, coaches and from residential use of our employees. We pay regular fees to local authorities for the discharge of waste substances. In 2014,2016, our environmentalprotection-related expenses were approximately RMB21.0RMB1.35 million, mainly related to constructionthe landscaping of fixed suction sewage facilities in railway stations.our railroad and office areas.

Insurance

We do not currently maintain any insurance coverage with third party carriers against third party liabilities. Consistent with what we believe to be the customary practice among railway operators in the PRC, we do not maintain insurance coverage for our property and facilities (other than for our automobiles), for business interruption or for environmental damage arising from accidents on our property or relating to our operations. As a result, in the event of an accident or other event causing loss, destruction or damage to our property or facilities, causing interruption to our normal operations or causing liability for environmental damage orclean-up, we will be liable for such damages. See “ITEM 3. KEY INFORMATION—D. Risk Factors—Risks Relating to Our Business—We have very limited insurance coverage”.coverage.”

In addition, we have purchased liability insurance for our directors and have taken out basic retirement insurance, basic medical insurance,work-related personal injury insurance policies and childbearing insurance for our employees.

 

C.C.Organizational Structure

The following table lists our significant subsidiaries as of December 31, 2014:2016:

 

Name

  Country of
Incorporation
 Percentage of Interest
held by our Company

Dongguan Changsheng Enterprise Company Limited

  PRC   5151%

Shenzhen Fu Yuan Enterprise Development Company Limited

  PRC   100100%

Shenzhen Pinghu Qun Yi Railway Store Loading and Unloading Company Limited

  PRC   100100%

Shenzhen Nantie Construction Supervision Company Limited

  PRC   76.6676.66%

Shenzhen Railway Property Management Company Limited

  PRC100

Shenzhen Guangshen Railway Travel Service Ltd.

 PRC   100100%

Shenzhen Shenhuasheng Storage and Transportation Company Limited

  PRC   100100%

Shenzhen Guangshen Railway Economic and Trade Enterprise Company Limited

  PRC   100100%

Shenzhen Railway Station Passenger Services Company Limited

  PRC   100100%

Guangshen Railway Station Dongqun Trade and Commerce Service Company Limited

  PRC   100100%

Guangzhou Railway Huangpu Service Company Limited

  PRC   100100%

Zengcheng Lihua Stock Company Limited(1)

PRC44.72%

In 2014, Guangzhou Tielian Economy Development Company Limited (“Guangzhou Tielian”), a 50.5% owned subsidiary of our Company, was liquidated.

 

(1)According to the Articles of Association of Zengcheng Lihua Stock Company Limited (“Zengcheng Lihua”), the remaining shareholders of Zengcheng Lihua are all natural persons and none of such individual shareholders holds more than 0.5% equity interest in Zengcheng Lihua. All directors of Zengcheng Lihua were appointed by the Company. After considering that all shareholders of Zengcheng Lihua other than the Company are individuals with individual interest of less than 0.5% in Zengcheng Lihua and such individuals do not act in concert, and that all directors of Zengcheng Lihua were appointed by the Company, the directors of the Company believe that the Company has the de facto control power over the board of Zengcheng Lihua with regard to material financial and operating decisions of Zengcheng Lihua.

D.D.Property, Plant and Equipment

We occupy a total area of approximately 39.441.1 million square meters, among which, we own the land use right of approximately 11.413.1 million square meters on which our buildings and facilities ofGuangzhou-Shenzhen railway are located, and we lease approximately 28.0 million square meters from GRGC for theGuangzhou-Pingshi Railway.

With respect to the land for which we hold the land use rights, the terms range from 36.5 to 50 years, terminating between 2031 and 2055. Pursuant to relevant PRC regulations currently in effect, theseWe will renew the term of extend land use rights are renewable at the end of their termsright upon executionits expiry in strict compliance with requirements of relevant documentationlaws and payment of applicable fees.regulations. With respect to the land leased from GRGC, the term is 20 years, terminating in 2027. Based on the land lease agreement we entered into with GRGC in 2004, we can renew such lease at our discretion upon the expiration of the term of such land lease.

As of December 31, 2014,2016, we had not obtained the land use right certificates, or Land Certificates, of certain parcels of land with an aggregate area of approximately 1,995,5111,928,603 square meters. After consultation with our PRC legal counsel, we believe there is no legal hurdle for us to apply for and to obtain the Land Certificates and we do not believe the current lack of Land Certificates will lead to any material adverse impact on the operation of our business. Accordingly, we do not consider any provision for impairment necessary.

As of December 31, 2014,2016, we had not obtained the ownership certificates of certain buildings, or Building Ownership Certificates, which had an aggregate carrying value of approximately RMB1,921.1RMB1,819.5 million. After consultation with our PRC legal counsel, we believe that there is no legal hurdle for us to apply for and obtain the Building Ownership Certificates and it should not lead to any material adverse impact on the operation of our business. Accordingly, we do not consider any provision for impairment necessary.

Railroad operators typically require substantial land use rights for track, freight and maintenance yards, stations and related facilities. The availability of convenient rail transportation generally enhances the value of land along a rail line. We have not engaged and do not have any current plans to engage in commercial development of any of our land use rights for use other than in connection with our existing businesses. We do not at present intend to contribute capital to engage in any land development projects in the future. However, we may contribute land use rights not otherwise being fully utilized by us for equity stakes in these projects if we believe these opportunities are economically viable. Any development projects will require approval from PRC government authorities responsible for regulating land development.

As of April 28, 2015,20, 2017, we had 48 stations situated on our rail line, of which the Guangzhou East Station is the largest, occupying an area of 325,32541,925 square meters.

For additional information regarding our property, plant and equipment, see “ITEM 4. INFORMATION ON THE COMPANY—B. Business Overview—Equipment, Tracks and Maintenance” and Note 6 to our audited consolidated financial statements included elsewhere in this annual report.

ITEM 4A.UNRESOLVED STAFF COMMENTS

We do not have any unresolved Staff comments that are required to be disclosed under this item.

 

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This discussion and analysis should be read in conjunction with our audited consolidated financial statements included elsewhere in this annual report. Our audited consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by IASBIASB..

Overview

Our principal businesses are railroad passenger and freight transportation as well as railway network usage and othertransportation-related transportation related services on theShenzhen-Guangzhou-Pingshi railway and certain long-distance passenger transportation services. We also operate the Hong Kong Through Trains under a cooperative arrangement with MTR in Hong Kong. Prior to the Acquisition, our key strategic focus was to provide high-speed passenger train services in theGuangzhou-Shenzhen corridor. After the Acquisition, we have aimed to establish ourselves as a comprehensive railway service provider on theShenzhen-Guangzhou-Pingshi corridor by providing passenger transportation, freight transportation and railway network usage and othertransportation-related transportation related services to our customers. In addition to our core railroad transportation business, we also engage in other businesses that complement our core businesses, includingon-board and station sales, restaurant services, as well as advertising and tourism.

For the year ended December 31, 2014,2016, our total revenue was RMB14,800.8RMB17,280.5 million, profit attributable to equity holders was RMB662.0RMB1,158.3 million, and earnings per share were RMB0.09.RMB0.16. Railroad and related business revenue accounted for 93.3%93.1%, 93.0%93.1% and 93.1%93.6% of our total revenue in 2012, 20132014, 2015 and 2014,2016, respectively.

Passenger transportation is our principal business. In 2014,2016, the total number of our passengers was 90.184.9 million, representing a decrease of 1.0%0.6% from 91.085.4 million in 2013.2015. Our passenger transportation revenue was RMB6,988.3RMB7,358.9 million in 2014,2016, representing a decreasean increase of 13.3%5.2% from RMB8,058.3RMB6,997.6 million in 2013.2015.

We transported a total of 51.648.6 million tons of freight in 2014,2016, representing a decreasean increase of 13.4%0.3% from 59.648.4 million tons in 2013.2015. Our freight transportation revenue in 20142016 was RMB1,763.7RMB1,718.3 million, representing an increasea decrease of 10.0%2.5% from RMB1,603.3RMB1,761.4 million in 2013.2015.

Revenue from our railway network usages and othertransportation-related transportation related services business was RMB5,031.2RMB7,093.2 million in 2014,2016, representing a decreasean increase of 0.1%20.7% from RMB5,034.7RMB5,874.7 million in 2013.2015.

Revenue from our other businesses was RMB1,017.6RMB1,110.2 million in 2014,2016, compared to RMB1,104.4RMB1,091.6 million in 2013.2015.

A.A.Operating Results

Principal Factors Affecting Our Results of Operations

Economic Development in the Pearl River Delta Region and the PRC.PRC. We are mainly engaged in railway transportation services on the trains betweenGuangzhou-Shenzhen intercity trains, certain long-distance trains and Hong Kong Through Trains. Our results of operations relating to passenger transportation are influenced by the economic development in the Pearl River Delta region. The level of economic activities in the Pearl River Delta region, including the economic cooperation among Hong Kong, Macau and China, affects the number of business people and migrant workers traveling in this region. In addition, the average income levels of residents in this region and elsewhere in the PRC affects the number of the tourists departing from or arriving at our train stations. The majority of the freight we transport islarge-volume, medium-to long-distance freight received from and/or transferred to other railway lines. Economic development in the PRC, including but not limited to the Pearl River Delta region, determines the market demand for such goods as coal, iron ore, steel and therefore indirectly affects the market demand of freight train transportation service. Furthermore, the recent global financial crisis and economic downturn in 2008 had adversely affected economies and businesses around the world, including in China. Due to the global economic downturn, the economic situation in China was severe in the second half of 2008. This change in themacro-economic conditions had an adverse impact on our business and operations by causing a decrease in the number of passengers and the volume of freight that we transported in 2009. Although many places around the world have recovered since the second half of 2009, the global economic downturn, Europe’s sovereign debt crisis, the stability of the Eurozone and the decreased growth rate of China’s economy may have a material and adverse effect on our businesses, results of operations and financial condition. In 2016, China’s economy grew at a slower pace and trended stably and positively. Although China’s GDP growth rate remained high compared to other countries and the quality and efficiency of economic development were enhanced, providing strong and solid protection for the long-term and stable development of the Company, with the still complicated and evolving domestic and international economic environment, China’s economy still faced greater downward pressure, which suppressed the demand growth of passenger and freight transportation. For example, we experienced a decrease in the volume of freight transportation, partially due to the slowdown of China’s economic growth and a shift in the Pearl River Delta economy towards technology businesses, which require less freight to be transported by rail.

Competitive Pressure from other Railway Operators and other Means of Transportation.TransportationSales for our passenger transportation services are also affected by the competitive pressure from other railway operators and other means of transportation, such as the automobile, bus, ferry and airplane services. With the establishment of the “four horizontal and four vertical” high-speed railway network, more high-speed trains that connect the Pearl River Delta region and other major mainland cities are available to the public, including the Guangzhou-Shenzhen section of the Guangzhou-Shenzhen-Hong Kong passenger line which commenced operation in December 2011, theBeijing-Guangzhou passenger line which commenced operation in December 2012, the Xiamen-Shenzhen passenger line which commenced operation in December 2013 and theNanning-Guangzhou andGuiyang-Guangzhou passenger lines which commenced operation in December 2014. As a result, the number of passengers traveling by our long-distance train services decreased recently. In response to such competition, we adjusted the operational scheme of passenger transportation to increase the number of pairs of long-distance trains. In addition, the opening of the Guangzhou-Shenzhen high speed rail way, the rapid growth in the number of privately owned vehicles and a higher penetration of bus services also affected the number of train passengers traveling short distances and any significant decrease in the air transportation prices affects the number of train passengers traveling long distances. Our sales of the freight transportation services are also affected by the competition from other means of transportation, such as water, truck and freight transportation services. We also expect competition to increase in the future as the marketization reform of the railway industry (including the reformation of the investment and financing system, the transportation management system and the pricing system) gradually deepens. New passenger lines across China have commenced operations since 2009.

We believe that the entry barrier to the industry will decrease, investors in the industry will become more diversified and the State’s high-speed railway network with FourEast-West Lines and FourSouth-North Lines and numerousinter-city railways will complete construction and commence operation, leading to increased competition within the industry itself.

PRC Policies.PoliciesWe are allowed to be more flexible in setting the prices of both passenger transportation and the freight transportation services as compared to other domestic railroad operators. Material changes in the policies of the PRC government that affect such preferential treatments will affect our results of operations.

Year ended December 31, 20142016 compared with year ended December 31, 20132015

Revenue

In 2014,2016, our total revenue was RMB14,800.8RMB17,280.5 million, representing a decreasean increase of 6.3%9.9% from RMB15,800.7RMB15,725.3 million in 2013.2015. Our revenue from railroad passenger transportation service, freight transportation service and railway network usage and othertransportation-related transportation related services was RMB6,988.3RMB7,358.9 million, RMB1,763.7RMB1,718.3 million and RMB5,031.2RMB7,093.2 million, respectively, accounting for approximately 47.2%42.6%, 11.9%9.9% and 34.0%41.0% of our total revenue in 2014,2016, respectively.

Passenger transportation.transportation. Revenue from passenger transportation accounted for 47.2%42.6% of our total revenue and 50.7%45.5% of our railroad and related business revenue in 2014.2016. As of December 31, 2014,2016, we operated 233.5253 pairs of passenger trains each day, including 105102 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including 1994 pairs of inter-city trains between Guangzhou East to Shenzhen (including 20 stand-by pairs), 8 pairs of Guangzhou East to the Chaozhou-Shantou cross-network EMU trains), 13 pairs of Hong Kong Through Trains (including 11 pairs ofCanton-Kowloon Through Trains, 1 pair ofZhaoqing-Kowloon Through Trains and 1 pair ofBeijing/Shanghai-Kowloon Through Trains) and 115.5138 pairs of long-distance trains.trains (including 10 pairs of Guangzhou-Foshan-Zhaoqing intercity trains, 3 pairs of Guangzhou to Guilin North, NaningEast and Guiyang North cross-network EMU trains).

In 2014,2016, the total number of our passengers was 90.184.9 million, representing a decrease of 1.0%0.6% from 91.085.4 million in 2013.2015. Our passenger transportation revenue was RMB6,988.3RMB7,358.9 million in 2014,2016, representing a decreasean increase of 13.3%5.2% from RMB8,058.3RMB6,997.6 million in 2013.2015. The increase in revenue from passenger volume was primarily due to the commencement of service of five new pairs of cross-network EMU trains between Guangzhou East and Chaozhou-Shantou and one new pair of long-distance trains between Shenzhen and Urumqi, and the recommencement of inter-city passenger transportation business at Pinghu Railway Station since September 26, 2016. The decrease in passenger volume was primarily due to (i) the establishment of the “four horizontal and four vertical” high-speed railway network. The increasing number of high speedhigh-speed railways between the Pearl River DeltaRiver-Delta Area and other major cities in Mainland China, is drawingwhich has greatly drawn away passengers from the existing railway network in the Guangzhou-Shenzhen area, especially the Guangzhou-Shenzhen Intercity Railway, with growing adverse effects on our passenger volumes. The decrease in revenue from passenger volume was primarily due to: (i) the extension of the Pilot Scheme to railway transportation industry from January 1, 2014. Value-added tax is a tax on top of but distinct from price. According to the relevant accounting standard in the PRCus and overseas, operating revenues should be recognized after deducting value-added tax. As our income and pricing scheme remained unchanged after the implementation of the Pilot Scheme, the deduction of value-added tax from income from the original pricing scheme resulted in lower revenue as compared with the same period last year; (ii) long-distance train services for the Guangzhou-Liuzhou route and the Shenzhen(East)-Shanghai(South) route were terminated pursuant to a nationwide railway network adjustment in 2013, which resulted in a year-on-year decrease in the relevant revenue; and (iii) during the reporting period, the decrease in passengermainland visitors travelling to and shopping in Hong Kong, which caused the decrease of the volume in 2014.of passengers taking our Hong Kong Through Trains.

The following table sets forth our revenue from passenger transportation and the number of passengers for 20132015 and 2014:2016:

 

   Year ended December 31,   Change from 
   2013   2014   2013 to 2014 

Revenue from passenger transportation (RMB thousands)

   8,058,291     6,988,288     13.3

Total passengers (thousands)

   90,957     90,113     0.9

Totalpassenger-kilometers (millions)

   27,845     27,954     0.4

Revenue perpassenger-kilometer (RMB)

   0.29     0.25     (13.8%) 

   Year ended December 31,   Change from 
   2015   2016   2015 to 2016 

Revenue from passenger transportation (RMB thousands)

   6,997,562    7,358,851    5.2

Total passengers (thousands)

   85,367    84,896    (0.6%) 

Total passenger-kilometers (millions)

   25,989    25,479    (2.0%) 

Revenue per passenger-kilometer (RMB)

   0.27    0.29    7.4

Freight transportation.transportationRevenue from our freight transportation accounted for 11.9%9.9% of our total revenue and 12.8%10.6% of our railroad and related business revenue in 2014.2016.

Revenue from our freight transportation business in 20142016 was RMB1,763.7RMB1,718.3 million, an increasea decrease of 10.0%2.5% from RMB1,603.3RMB1,761.4 million in 2013. This increase in freight revenue was mainly due to (i) on November 30, 2013, we acquired the container transportation-related cargo business and assets originally owned by Dalang Handling Station of CRC, resulting in a year-on-year increase in related revenues; (ii) freight transportation-related services and revenues, such as retrieval and delivery of goods and cargo handling, was reclassified as freight transportation services and revenues, under the “One Price Policy” implemented on June 15, 2013; and (iii) since February 15, 2014, the unified national railway freight transportation fee has been increased by 1.5 cents per ton kilometer. The freight transportation of Beijing-Guangzhou railway Guangzhou-Pingshi section, which we operate, has adopted a unified fee.2015. The total tonnage of freight we transported in 20142016 was 51.648.6 million tons, representing a decreasean increase of 13.4%0.3% from 59.648.4 million tons in 2013. This2015. The decrease in freight volumerevenue was mainly due to (i) factors including the slowdown of economic growthdecrease in outbound freight tonnage and outbound freight transportation revenue, which resulted from the slowing economy in China, and the economic shift of the industry structure towards technology-driven businessstructural adjustment in the Pearl River Delta region which contributed to a decrease of goods volume transported viaand the railway network; and (ii) Guangzhou-Zhuhai Railway, which has been drawing awayheightened competition in the freight transportation demand frommarket in 2016. The increase in the Guangzhou-Shenzhen area since commencing operations.volume of freight transportation was due to the increase in inbound freight tonnage and inbound freight transportation revenue as a result of our deepening reform of railway freight transportation and the increased operations of southern express trains (containers, single load cargo), and freight tonnage (mainly in containers) through each station we managed.

The following table sets forth our revenue from freight transportation and the volumes of commodities we shipped for 20132015 and 2014:2016:

 

  Year ended December 31,   Change from   Year ended December 31,   Change
from
 
  2013   2014   2013 to 2014   2015   2016   2015 to 2016 

Revenue from freight transportation (RMB thousands)

   1,603,288     1,763,679     10.0   1,761,449    1,718,260    (2.5%) 

- Revenue from outbound freight transportation

   527,412     590,448     12.0   565,392    476,505    (15.7%) 

- Revenue from inbound andpass-through transportation

   904,908     920,255     1.7   1,022,025    1,105,061    8.1

- Revenue from other freight transportation services

   170,968     252,976     48.0   174,032    136,694    (21.5%) 

Total freight tons (thousands of tons)

   59,556     51,562     (13.4%)    48,438    48,603    0.3

- Outbound freight tonnage

   20,344     18,318     (10.0%)    16,882    15,356    (9.0%) 

- Inbound andpass-through freight tonnage

   39,212     33,244     (15.2%)    31,556    33,247    5.4

Revenue per ton (RMB)

   26.9     34.2     27.2   36.4    35.4    (2.7)% 

Totalton-kilometers (millions)

   13,293.8     11,426.0     (14.1%)    10,874    10,302    (5.3%) 

Revenue perton-kilometer (RMB)

   0.12     0.15     25   0.16    0.17    6.3

Railway network usage and other transportation-related services.transportation related services. Revenue from our railway network usage and othertransportation-related transportation related services accounted for 34.0%41.0% of our total revenue and 36.5%43.9% of our railroad and related business revenue in 2014.2016. Railway network usage and othertransportation-related transportation related services mainly include locomotive traction, track usage, electric catenaries,catenary, vehicle coupling and other services. Revenue from our railway network usages and othertransportation-related transportation related services business was RMB5,031.2RMB7,093.2 million in 2014,2016, representing a decreasean increase of 0.1%20.7% from RMB5,034.7RMB5,874.7 million in 2013.2015. The decreaseincrease in revenue from railway network usage and othertransportation-related transportation related services was principally due to (i) the reductionacquisition of locomotive assets of GSRC, which induced an increase in the revenues after November 30, 2013, when we acquiredusage of locomotive towing services, and an increase in the container transportation-related cargo business and assets originally operated by Dalang Handling Station of CRC, and the baggage and parcel transportation business operated by CRC Express Co. Ltd Guangzhou Branch;revenue from such services; (ii) the Pilot Scheme, which was implemented foran increase in the railway transportation industry from January 1, 2014. Value-added tax is a tax on top of but distinct from price. Accordingoperation services we provided to the relevant accounting standardrailway companies we have been serving in the PRCpast, including but not limited to, Wuhan-Guangzhou Passenger Railway Line Co., Ltd., Guangzhou-Shenzhen-Hong Kong Express Rail Link Company Limited, Xiamen-Shenzhen Railway Company Limited, Ganzhou-Shaoguan Railway Company Limited, Guiyang-Guangzhou Railway Company Limited, and overseas, operating revenues should be recognized after deducting value-added tax. As our incomeNanning-Guangzhou Railway Company Limited; and pricing scheme remained unchanged after(iii) the implementationacquisition of part of the Pilot Scheme, the deductionoperating assets and personnel of value-added tax from income from the original pricing schemeGRCL and GSRC, which resulted in lower revenue as compared with the same period last year;us providing transportation service to them and (iii) during the reporting period, there was a drop in the prices for the national railway network usage services.adding new transportation services among Pearl River Delta cities.

Other Businesses.BusinessesOur other businesses mainly consist of the sale of materials and supplies, maintenance of trains,on-board catering services, labor services, train repair and other businesses related to railway transportation. Revenue from our other businesses was RMB1,017.6RMB1,110.2 million in 2014,2016, representing a decreasean increase of 7.9%1.7% from RMB1,104.4RMB1,091.6 million in 2013,2015, primarily because freight transportation-relateddue to the increased profit we received from train repair services and revenues, such as retrievalfood and delivery of goods and cargo handling, was reclassified as freight transportation services and revenues, under the “One Price Policy” implemented on June 15, 2013.beverage we provided in trains.

Operating Expenses

In 2014,2016, our total operating expenses were RMB13,752.0RMB15,638.0 million, representing a decreasean increase of 1.3%10.5% from RMB13,927.4RMB14,156.7 million in 2013.2015.

The following table sets forth the principal operating expenses associated with our railroad businesses,and related business, as a percentage of our railroad and related business revenue for 20132015 and 2014.2016.

 

  Year ended December 31,   Year ended December 31, 
  2013 2014   2015 2016 

Railroad businesses revenue (RMB millions)

   14,696.3   13,783.2  

Railroad and related business revenue (RMB millions)

   14,633.7   16,170.3 

Business tax

   2.43 0.44   0.3  0.2

Labor and benefits

   26.76 32.22

Employee benefits

   32.6  35.0

Equipment leases and services

   28.35 26.33   26.7  25.9

Land use right leases

   0.38 0.39   0.4  0.3

Materials and supplies

   10.80 9.51   8.4  8.3

Repairs and facilities maintenance costs, excluding materials and supplies

   3.41 6.57   4.9  3.8

Depreciation of fixed assets

   9.47 10.20   9.5  9.2

Cargo logistics and outsourcing service charges

   1.1  1.3

Amortization of leasehold land payments

   0.10 0.13   0.1  0.2

Social services expenses

   0.46 0.09   0.1  0.1

Utility and office expenses

   0.49 0.54   0.4  0.3

Impairment for trade and other receivables and materials and supplies

   0.4  0.0

Others

   4.97 5.93   5.0  5.5

Operating expenses ratio(1)

   87.63 92.36   89.9  90.1

Railroad businesses operating margin

   12.37 7.64

Railroad and related business operating margin

   10.1  9.9

 

(1)Total railroad operating expenses as a percentage of railroad businessesand related business revenue.

Railway Operating Expenses.ExpensesOur total railway operating expenses decreasedincreased by 1.2%10.7% to RMB12,729.8RMB14,561.8 million in 20142016 from RMB12,878.8RMB13,150.4 million in 2013.2015. This decreaseincrease was driven primarily by:

 

Employee Benefits. Our Employee Benefits mainly consist of wages and welfare. In 2016, our expenses relating to employee benefits amounted to RMB5,654.9 million, representing an increase of 18.6% from RMB4,767.1 million in 2015. This increase was mainly due to an increase in the number of employees providing railway operations and services due to the acquisition of GRCL and GSRC, and an increase in industry-wide pay levels and contributions to the housing provident fund and social security fund.

Equipment leases and services. Our expenses for equipment leases and services mainly consist of railway line usage fees, train hauling fees and train leasing fees paid to other railway bureaus. In 2014,2016, our expenses relating to equipment leases and services amounted to RMB3,629.8RMB4,193.6 million, representing a decreasean increase of 3.6%7.3% from RMB4,166.3RMB3,908.5 million in 2013.2015. This was mainly due to a reduction in our long-distance services and a nation-wide decrease in the prices of railway network usage which resulted in a subsequent decrease in the leasing of equipment and related service charges.

Business tax. In 2014, our business tax amounted to RMB61.0 million, representing a decrease of 82.9% from RMB357.8 million in 2013. The decreaseincrease was mainly due to the implementationcommencement of the Pilot Scheme on January 1, 2014 such that the fact that the revenue from railwayfive newly added cross-network EMU pairs traveling across Guangzhou and Chaozhou-Shantou and one new pair of long distance trains between Shenzhen and Urumqi, and newly provided transportation is no longer subjectservice to business tax.GRCL and GSRC.

 

Materials and supplies. Our materials and supplies consist

Depreciation of Fixed Assets. In 2016, our expenses for materials, fuel, water and electricity. In 2014, our materials and suppliesof depreciation of fixed assets amounted to RMB1,310.1RMB1,488.3 million, representing a decreasean increase of 17.5%7.3% from RMB1,587.3RMB1,387.5 million in 2013.2015. The decreaseincrease was mainly due to the implementationacquisition of part of the Pilot Scheme on January 1, 2014, decreased tax burden on procurementoperating assets of supplies,GRCL and lowered workload on locomotive-towing services. See “ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS—B. Related Party Transactions” and Note 38 to our audited consolidated financial statements included elsewhere in this annual report.GSRC.

The decreaseincrease in our operating expenses was partially offset by:

Labor and benefits. In 2014, our labor and benefits expenses amounted to RMB4,441.6 million, representing an increase of 12.9% from RMB3,932.1 million in 2013. The increase was mainly due to an increase in the number of employees, an industry-wide pay-raise, increases in the contributions to the housing fund and social insurance and an increase in the salary and compensation expenses.

Repairsby repairs and facilities maintenance costs, excluding materials and supplies. In 2014,2016, our repairs and facilities maintenance costs, excluding materials and supplies, amounted to RMB905.5RMB612.5 million, representing an increasea decrease of 80.5%14.5% from RMB501.7RMB716.2 million in 2013.2015. This was mainly due to an increasethe decrease of repairs and facilities maintenance work on EMU, locomotives and passenger compartments.
costs in 2016.

Profit from Operations

Our profit from operations decreasedincreased by 44.1%5.5% to RMB1,056.0RMB1,534.2 million in 20142016 from RMB1,888.2RMB1,453.9 million in 2014,2015, primarily due to the extension of the Pilot Scheme to theincreased profit we received from passenger business, railway network usage and other transportation industry on January 1, 2014. As a result, our operating revenues shrank significantly during the reporting period as compared with the previous year, resultingrelated services and other businesses in a sharp decline in profit year-on-year despite only a slight decline in operating costs.2016.

Taxation

In 2014,2016, according to relevant tax regulations, our subsidiaries were subject to income tax at the rate of 25%, except for one subsidiary which was subject to income tax rate of 20%. Our income tax expense was RMB219.5RMB390.3 million in 2014,2016, representing a decreasean increase of 49.0%0.5%, compared to RMB430.7RMB388.5 million in 2013. The decrease2015. This increase was primarily due to the decreaseincrease in our profit from operations. The effective tax rate in 2016 was 25.3%, representing a decrease of 1.5% from 26.8% in 2015. This decrease was mainly due to the reversal of deferred tax assets for the impairment losses in investments in associates and other receivables recognized in prior years relating to Zengcheng Lihua, a predecessor associate of the Company which became a subsidiary in 2015.

Profit attributable to equity holders of our Company

As a result of the above, our profit attributable to equity holders of our Company decreasedincreased by 48.0%8.2% to RMB662.0RMB1,158.3 million in 20132016 from RMB1,273.8RMB1,070.8 million in 2013.2015.

Year ended December 31, 20132015 compared with year ended December 31, 20122014

Revenue

In 2013,2015, our total revenue was RMB15,800.7RMB15,725.3 million, representing an increase of 4.7%6.2% from RMB15,091.9RMB14,800.8 million in 2012.2014. Our revenue from railroad passenger transportation service, freight transportation service and railway network usage and othertransportation-related transportation related services was RMB8,058.3RMB6,997.6 million, RMB1,603.3RMB1,761.4 million and RMB5,034.7RMB5,874.7 million, respectively, accounting for approximately 51.0%, 10.1%44.5%,11.2% and 31.9%37.4% of our total revenue in 2013,2015, respectively.

Passenger transportation.transportation. Revenue from passenger transportation accounted for 51.0%44.5% of our total revenue and 54.8%47.8% of our railroad and related business revenue in 2013.2015. As of December 31, 2013,2015, we operated 229239 pairs of passenger trains each day, including 105 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including 19.519 stand-by pairs), 13 pairs of Hong Kong Through Trains (including 11 pairs ofCanton-Kowloon Through Trains, 1 pair ofZhaoqing-Kowloon Through Trains and 1 pair ofBeijing/Shanghai-Kowloon Through Trains) and 111121 pairs of long-distance trains.

In 2013,2015, the total number of our passengers was 91.085.4 million, representing an increasea decrease of 7.5%5.3% from 84.690.1 million in 2012.2014. Our passenger transportation revenue was RMB8,058.3RMB6,997.6 million in 2013,2015, representing an increase of 2.8%0.1% from RMB7,841.1RMB6,988.3 million in 2012.2014. The increasedecrease in passenger volume was primarily due to (i) the increasing number of high-speed railways between the Pearl River-Delta Area and other major cities in China, which has greatly drawn away passengers from us and (ii) the “Occupy Central” movement in Hong Kong, which caused the decrease of the volume of passengers taking our Hong Kong Through Trains. The increase in revenue from passenger volume was primarily due to (i) a relatively significant increase in the passenger volumecommencement of service of one new pair of long-distance trains due to the opening ofShenzhen-Shanghai Southbetween Guangzhou andGuangzhou-Yantai long distance trains on July 1, 2012, the opening of long-distance trains from Shenzhen East Station to various cities such as Nanning Ganzhou and Chengdu in December 2012 and the opening of long-distance trains from Shenzhen Station to Yantai Station in July 2013;(ii) Guangzhou-Shenzheninter-city trains implemented thethree new train schedule from December 2012 that has increased the number of pairs of cross-network EMU trains between Guangzhou East and thereby a corresponding increase in the passenger volume;Chaozhou-Shantou on September 30, 2014 and (iii) an increase in the number of travelers selecting to travel to Hong Kong and Macau by theCanton-Kowloon Through Trains due to continuous appreciation of the Renminbi and the installation of more comfortable new train models starting in 2012.February 1, 2015, respectively.

The following table sets forth our revenue from passenger transportation and the number of passengers for 20122014 and 2013:2015:

 

   Year ended December 31,   Change from 
   2012   2013   2012 to 2013 

Revenue from passenger transportation (RMB thousands)

   7,841,091     8,058,291     2.8

Total passengers (thousands)

   84,599     90,957     7.5

Totalpassenger-kilometers (millions)

   26,789     27,845     3.9

Revenue perpassenger-kilometer (RMB)

   0.29     0.29     —    

   Year ended December 31,   Change from 
   2014   2015   2014 to 2015 

Revenue from passenger transportation (RMB thousands)

   6,988,288    6,997,562    0.1

Total passengers (thousands)

   90,113    85,367    (5.3%) 

Total passenger-kilometers (millions)

   27,954    25,989    (7.0%) 

Revenue per passenger-kilometer (RMB)

   0.25    0.27    8.0

Freight transportation.transportationRevenue from our freight transportation accounted for 10.1%11.2 % of our total revenue and 10.9%12.0 % of our railroad and related business revenue in 2013.2015.

Revenue from our freight transportation business in 20132015 was RMB1,603.3RMB1,761.4 million, an increasea decrease of 19.3%0.1% from RMB1,344.1RMB1,763.7 million in 2012. This increase in freight revenue was mainly due to (i) the reform of freight transportation organizations for railway across the PRC in June 2013 under which we have undertaken some of the container transportation-related cargo business and assets previously operated by the Guangzhou Branch Company of China Railway Express and the Dalang Handling Station of China Railway Container and thereby a corresponding increase in the related revenue; and (ii) an increase of RMB1.5 cents perton-kilometer in the average transportation cost of railway freight transportation across the PRC from February 20, 2013.

2014. The total tonnage of freight we transported in 20132015 was 59.648.4 million tons, representing a decrease of 5.0%6.1% from 62.751.6 million tons in 2012. This2014. The decrease in freight revenue and freight volume waswere mainly due to (i) sluggish market demand for bulk goods such as metal ores,non-metal oresthe slowing economy in China, the structural adjustment in the Pearl River-Delta region and coal under the impact of decelerated domestic economic growth, adjustmentsheightened competition in industry structure and other factors that led to decreases in both outbound and inbound freight volume; and (ii) the diversion of part of the freight transportation market in 2015. Despite the fact that both freight revenue and total tonnage decreased between 2014 and 2015, the amount of Guangzhou Porttotal tonnage transported decreased at a greater rate than the decrease in total revenue; and there has been an increase in the unified national railway freight transportation fee by RMB0.01 per ton kilometer since February 1, 2015, as a result, revenue per ton in 2015 increased by 6.4% compared to Gaolan Port, Zhuhai upon the opening2014 (RMB36.4 in 2015 and operation ofGuangzhou-Zhuhai Railway Company Limited.RMB34.2 in 2014).

The following table sets forth our revenue from freight transportation and the volumes of commodities we shipped for 20122014 and 2013:2015:

 

  Year ended December 31,   Change from   Year ended December 31,   Change
from
 
  2012   2013   2012 to 2013   2014   2015   2014 to 2015 

Revenue from freight transportation (RMB thousands)

   1,344,113     1,603,288     19.3   1,763,679    1,761,449    (0.1%) 

- Revenue from outbound freight transportation

   461,793     527,412     14.2   590,448    565,392    (4.2%) 

- Revenue from inbound andpass-through transportation

   831,917     904,908     8.8   920,255    1,022,025    11.1

- Revenue from other freight transportation services

   50,404     170,968     239.2   252,976    174,032    (31.2%) 

Total freight tons (thousands of tons)

   62,671     59,556     (5.0%)    51,562    48,438    (6.1%) 

- Outbound freight tonnage

   21,373     20,344     (4.8%)    18,318    16,882    (7.8%) 

- Inbound andpass-through freight tonnage

   41,299     39,212     (5.1%)    33,244    31,556    (5.1%) 

Revenue per ton (RMB)

   21.5     26.9     25.1   34.2    36.4    6.4

Totalton-kilometers (millions)

   14,620.5     13,293.8     (9.1%)    11,435    10,874    (4.9%) 

Revenue perton-kilometer (RMB)

   0.09     0.12     33.3   0.15    0.16    6.7

Railway network usage and other transportation-related services.transportation related services. Revenue from our railway network usage and othertransportation-related transportation related services accounted for 31.9%37.4% of our total revenue and 34.3%40.1% of our railroad and related business revenue in 2013.2015. Railway network usage and othertransportation-related transportation related services mainly include locomotive traction, track usage, electric catenaries,catenary, vehicle coupling and other services. Revenue from our railway network usages and othertransportation-related transportation related services business was RMB5,034.7RMB5,874.7 million in 2013,2015, representing a decreasean increase of 2.9%16.8% from RMB4,890.6RMB5,031.2 million in 2012.2014. The increase in revenue from railway network usage and othertransportation-related transportation related services was principally due to (i) an increase in the railway operation services we provided due to increased train frequency of Guangdong Guangzhou Intercity Rail Transportation Company Limited,railway companies we have been serving in the past, including but not limited to, Wuhan-Guangzhou Passenger Railway Line Co., Ltd. and, Guangzhou-Shenzhen-Hong Kong Express Rail Link Company Limited;Limited, Xiamen-Shenzhen Railway Company Limited and Ganzhou-Shaoguan Railway Company Limited, and (ii) the railway operationoperating services we newly provided toGuangzhou-Zhuhai Guiyang-Guangzhou Railway Company Limited and Xiamen-ShenzhenNanning-Guangzhou Railway Company Limited in 2013.Limited.

Other Businesses.BusinessesOur other businesses mainly consist of the sale of materials and supplies, maintenance of trains,on-board catering services, labor services and other businesses related to railway transportation. Revenue from our other businesses was RMB1,104.4RMB1,091.6 million in 2013, compared to RMB1,016.02015, representing an increase of 7.3% from RMB1,017.6 million in 2012.2014, primarily because we included fueling service for locomotives and passenger cars as other businesses in 2015, which previously were categorized as part of the principal business mentioned above.

Operating Expenses

In 2013,2015, our total operating expenses were RMB13,927.4RMB14,156.7 million, representing an increase of 5.3%2.9% from RMB13,229.4RMB13,752.0 million in 2012.2014.

The following table sets forth the principal operating expenses associated with our railroad businesses,and related business, as a percentage of our railroad and related business revenue for 20122014 and 2013.2015.

 

  Year ended December 31,   Year ended December 31, 
  2012 2013   2014 2015 

Railroad businesses revenue (RMB millions)

   14,075.8   14,696.3  

Railroad and related business revenue (RMB millions)

   13,783.2   14,633.7 

Business tax

   2.42 2.43   0.4  0.3

Labor and benefits

   24.98 26.76   32.2  32.6

Equipment leases and services

   28.58 28.35   26.3  26.7

Land use right leases

   0.39 0.38   0.4  0.4

Materials and supplies

   10.89 10.80   9.5  8.4

Repairs and facilities maintenance costs, excluding materials and supplies

   4.95 3.41   6.6  4.9

Depreciation of fixed assets

   9.65 9.47   10.2  9.5

Amortization of leasehold land payments

   0.11 0.10   0.1  0.1

Social services expenses

   0.66 0.46   0.1  0.1

Utility and office expenses

   0.76 0.49   0.5  0.4

Impairment for trade and other receivables and materials and supplies

      0.4

Others

   3.74 4.97   5.9  6.1

Operating expenses ratio(1)

   87.13 87.63   92.4  89.9

Railroad businesses operating margin

   12.87 12.37

Railroad and related business operating margin

   7.6  10.1

 

(1)Total railroad operating expenses as a percentage of railroad businessesand related business revenue.

Railway Operating Expenses.ExpensesOur total railway operating expenses increased by 5.0%3.3% to RMB12,878.8RMB13,150.4 million in 20132015 from RMB12,263.0RMB12,729.8 million in 2012.2014. This increase was driven primarily by:

 

Labor and benefits. In 2013, our labor and benefits expenses amounted to RMB3,932.1 million, representing an increase of 11.8% from RMB3,516.6 million in 2012. The increase was mainly due to the increase in salaries across the industry, increase in the number of employees providing railway operation services and increases in housing fund and base of social security payments.

Equipment leases and services. Our expenses for equipment leases and services mainly consist of railway line usage fees, train hauling fees and train leasing fees paid to other railway bureaus. In 2013,2015, our expenses relating to equipment leases and services amounted to RMB4,166.3RMB3,908.5 million, representing an increase of 3.6%7.7% from RMB4,022.5RMB3,629.8 million in 2012.2014. This increase was mainly due to the openingcommencement ofShenzhen-Shanghai South three newly added cross-network EMU pairs traveling across Guangzhou andGuangzhou-Yantai long distance trains Chaozhou-Shantou, the increase in leasing fees of locomotives and management fees of railway operation services settled by usGRGC.

Labor and benefits. In 2015, our labor and benefits expenses amounted to RMB4,767.1 million, representing an increase of 7.3% from July 1, 2012 and container and parcel transportation business newly operated subsequentRMB4,441.6 million in 2014. The increase was mainly due to the reform of freight transportation organization, and thereby increases in equipment leasethe number of employees and services.the average monthly staff cost by person.

The increase in our operating expenses was partially offset by:

 

Materials and supplies. Our materials and supplies consist of expenses for materials, fuel, water and electricity. In 2013,2015, our materials and supplies amounted to RMB1,587.3 million, compared to RMB1,532.6 million in 2012.

Business tax. In 2013, our business tax amounted to RMB357.8 million, representing an increase of 5.2% from RMB340.0 million in 2012. The increase was due to increased revenue.

The decrease in our operating expenses was partially offset by:

Repairs and facilities maintenance costs, excluding materials and supplies. In 2013, our repairs and facilities maintenance costs, excluding materials and supplies, amounted to RMB501.7RMB1,224.3 million, representing a decrease of 28.0%6.5% from RMB696.9RMB1,310.1 million in 2012. This2014. The decrease was mainly due to the decreasecompletion of certain locomotive maintenance projects in phase 4 repairs costs for our CRH EMUs.

Utility2014 and office expenses. In 2013, our utility and office expenses amounted to RMB71.5 million, representing a decreaseno occurrence of 33.3% from RMB107.2 millionsimilar new projects in 2012. This was mainly due to reclassification of sales expenses from “utility and office expenses” amounting to RMB20.0 million to “others” and reduced security expenses.

Social service expenses. In 2013, our social service expenses amounted to RMB68.0 million, representing a decrease of 27.0% from RMB93.1 million in 2012. This was mainly due to the decrease of relevant expenses as a result of our acquisition of assets and business of related parties which had provided us with social services.2015. See “ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS—B. Related Party Transactions” and Note 3836 to our audited consolidated financial statements included elsewhere in this annual report.

Repairs and facilities maintenance costs, excluding materials and supplies. In 2015, our repairs and facilities maintenance costs, excluding materials and supplies, amounted to RMB716.2 million, representing a decrease of 20.9% from RMB905.5 million in 2014. This was mainly due to a decrease of maintenance work on locomotives and rolling stock.

Impairment for trade and other receivables and materials and supplies. In 2015, our impairment for trade and other receivables and materials and supplies amounted to RMB59.6 million, approximately RMB52.8 million of which was made for reusable rail-line track materials due to the decrease in steel prices in 2015. In addition, we recognized impairment loss of approximately RMB11.3 million for certain locomotive accessories, which were no longer used for commercial operations due to technological changes and development in 2015.

Profit from Operations

Our profit from operations decreasedincreased by 2.4%37.7% to RMB1,888.2RMB1,453.9 million in 20132015 from RMB1,934.3RMB1,056.0 million in 2012,2014, primarily due to the increase of our operating expenses.increased profit we received from railway network usage and other transportation related services in 2015.

Taxation

In 2013,2015, according to relevant tax regulations, our subsidiaries were subject to income tax at the rate of 25%, except for one subsidiary which was subject to income tax rate of 20%. Our income tax expense was RMB430.7RMB388.5 million in 2013,2015, representing a decreasean increase of 2.4%77.0%, compared to RMB441.2RMB219.5 million in 2012.2014. The decreaseincrease was primarily due to the decreaseincrease in our profit from operations. The effective tax rate in 2015 was 26.8%, representing an increase of 1.9% from 24.9% in 2014. The increase was mainly due to expenses and losses incurred, which are not deductible for tax assessment purposes, and reversal of deferred tax asset associated with impairment loss of investment in associates and other receivables recognized in prior years.

Profit attributable to equity holders of theour Company

As a result of the above, our profit attributable to equity holders of theour Company decreasedincreased by 3.4%61.8% to RMB1,273.8RMB1,070.8 million in 20132015 from RMB1,319.0RMB662.0 million in 2012.2014.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with IFRS. Our principal accounting policies are set out in Note 2 to our audited consolidated financial statements included elsewhere in this annual report. IFRS also requires us to exercise our judgment in the process of applying our accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4 to our audited consolidated financial statements included elsewhere in this annual report. Although these estimates are based on our best knowledge of current events and actions, actual results ultimately may differ from those estimates.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of our business activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within our Company.the Group.

We recognize revenue when the services are rendered and the amount of revenue can be reliablyreliable measured, it is probable that future economic benefits will probably flow to the entity with reasonably certainty, and specific criteria have been met for each of our business activities as described below. We base ourThe recognition also involves use of estimates exercised by management based on historical results, takingtakes into consideration the different type of customers, the type of transactions and otherthe specifics of each arrangement.

(a)Revenue from railroad and related business

Revenue from passenger transportation

The passenger transportation is generally classified by transportation business of Guangzhou-Shenzhen inter-city express trains, long-distance trains and Guangzhou-Hong Kong city through trains. These services are provided in cooperation with other railway business:companies in PRC and the corresponding revenue information is captured and processed by the CRC through a central clearance system.

Revenues are recognized on a monthly basis when the train transportation services are rendered within the month, i.e. upon the passenger tickets with fixed prices and dates of travel, which are non-refundable and non-reschedulable, are sold and the respective trains have reached the prescribed destinations within that particular month, as well as upon approval and notification is made by the CRC on a monthly basis (the “CRC Monthly Statement”) for transactions completed within that month and when the amounts of revenue can be reliably measured and collectability is certain. The revenue is presented net of value-added tax but before deduction of any sales handling commissions.

Revenue from freight transportation

We also operate with other railway business includes revenuecompanies in PRC for the provision of freight transportation services. Service information and computation of the attributable revenues entitled by us are processed by the central clearance system of the CRC on a monthly basis. Revenue from passengeroutbound and inbound freight transportation with ports of loading and discharge located at railway lines owned and operated by us; pass-through transportation with freight trains passing through railway lines owned and operated by us; as well as goods loading and discharge services rendered at ports located at railway lines owned by us, are recognized, on a monthly basis, when the goods are delivered to the ports of discharge within a month, or when the loading/discharge services are rendered, and revenuewhen the amounts are approved and notified in the CRC Monthly Statement, upon which the amounts can be reliably measured and collectability is certain.

The revenues are presented at the gross amounts of the attributable freight charges computed from the standard freight charges imposed by the CRC.

Revenue from railway network usage and othertransportation-related transportation related business services. Othertransportation-related

Revenue from railway network usage and other transportation related business, mainly consist of network usage services include the(locomotive traction, track usage and electric catenary service, etc.) and railway operation service provided toservices and other services, are rendered by us together with other railway companies in PRC. The information relating to network usage service is captured and processed by the central clearance system of the CRC. The revenue from network usage services are recognized on a monthly basis, when the services are rendered within that month and revenue can be reliably measured, i.e. upon approval and notification made in the the CRC Monthly Statement, for the transactions completed within that month, when the respective revenue amounts can be reliably measured and when collectability is certain. Railway operation services and other service provided in relation to passengerservices are rendered solely by us and freight transportation. Revenue from railway business isthey are recognized when the services are rendered and revenue can be reliably measured. All proceeds are collected by us directly.

The operations of our railway and related business form part of the nationwide railway system in PRC and they are supervised and governed by the CRC. We render the passenger transportation and freight transportation services in cooperation with other railway companies and the related service fees and charges are collected either by us or by other railway companies. In addition, we also receive service fees and charges for on behalf of other railway companies. The respective fares and charges of the services, fee sharing basis, and processing of the respective revenue sharing among different railway companies are done centrally by a central clearance system operated by the CRC. We record revenues based on the amounts of attributable revenue approved and notified in the CRC Monthly Statement for services undertaken by us completed within the specific month, upon then the revenues can be reliably measured and collectability is certain. The respective share of revenues, in excess of amount collected by us, are credited by the CRC to bank accounts maintained by us. In the case that the attributable amount is less than the amount collected by us, we remit the surplus to the CRC.

(b)Revenue from other businesses

Revenue from other businesses: revenue frombusiness mainly consist of on-board catering services, leasing, sales of materials, sale of goods and other businesses principally includesrelated to railway transportation. Revenues from on-board catering services offered in railway stations, sales of food, beverages and merchandise on board the trains and in the railway stations. Revenue from other businesses isare recognized oncewhen the related services orare rendered. Revenues from sales of materials and supplies and sale of goods are recognized when the respective materials and goods are delivered the related risks and rewards of ownership have been transferred and revenue can be reliably measured.

Interest income: we recognize interest income using the effective interest method. When a receivable is impaired, we reduce the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and we continue unwinding the discount as interest income. Interest income on impaired receivables is recognized using the original effective interest rate.

Dividend income: dividend income is recognized when the right to receive payment is established.

Rental income: revenuecustomers. Revenue from operating lease arrangements on certain properties and locomotives is recognized on astraight-line basis over the period of the respective leases.

Fixed assets

The railway industry is capital intensive. Under IFRS, fixed assets are initially recorded at historical cost lesswith the balance subsequently adjusted for depreciation and impairment loss.impairment. Historical cost represents expenditure that is directly attributable to the acquisition of the items (for the case of fixed assets acquired by us from GRGC during the Restructuring, the revaluated amount in the Restructuring was deemed costs). We have early adopted the amended IFRS 1,“First-time Adoption of IFRS” beginning from January 1, 2010. With the amended IFRS 1, the revaluated amount can become deemed costs so long as the revaluation takes place at periods before or during thefirst-time IFRS adopters’ first set of IFRS financial statements. In addition, the IASB has made a special provision in this IFRS 1, which allows existing IFRS preparers to retrospectively apply this rule.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the assetitem will flow to us and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the comprehensive income statement during the financial period in which they are incurred.

Depreciation is calculated using thestraight-line method to write offallocate the cost amount, after taking into account the estimated residual value of not more than 4% of cost, of each asset over its estimated useful life. The estimated useful lives are as follows:

 

Buildings ((Note a)a)

 20 to 40 years 

Track, bridges and service roads (Note a)

 16 to 100 years 

Locomotives and rolling stock

 20 years 

Communications and signaling systems

 8 to 20 years 

Other machinery and equipment

 4 to 25 years 

Note a: The estimated useful lives of some buildings, tracks, bridges and service roads exceed the initial lease periods of the land use rights from operation lease; and the initial period of certain land use right acquired, on which these assets are located.

Notea: The estimated useful lives of buildings, tracks, bridges and service roads exceed the initial lease periods of the respective land use right lease grants (the “Lease Term”) and land use right operating leases (the “Operating Lease Term”) of the land on which these assets are located. Pursuant to the relevant laws and regulations in the PRC governing the land use right lease grant, we have the right to renew the leases to a period not less than 50 years after payment of additional cost. This right can be exercised within one year of the expiry of the initial Lease Term and can only be denied if such renewals are considered to be detrimental to the public interest. We consider the approval process to be perfunctory. In addition, based on the provision of the land use right operating lease agreement entered into with our single largest shareholder, we can renew the lease at our own discretion upon expiration of the Operating Lease Term. Based on these considerations, we determined the estimated useful lives of these assets to extend beyond the initial Lease Term as well as the Operating Lease Term.

We will renew the term of land use rights upon their expiry in strict compliance with requirements of relevant laws and regulations. There is no substantive impediment for the renewal except for possible competing public interests. In addition, based on the provision of the land use right operating lease agreement entered into with the single largest shareholder, we can renew the lease at its own discretion upon expiry of the operating lease term. Based on the above consideration, our directors consider the current estimated useful lives of those assets to be reasonable.

The assets’ residual values and estimated useful lives are reviewed, and adjusted if appropriate, at the end of each balance sheet date.year.

Where theAn asset’s carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the sales proceeds with the carrying amount and are recognized within “other (expense)/income and other (loss)/gains—gains/(losses)—net”, included in the comprehensive income statement.

Government grants

Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and we will comply with all attached conditions.

Government grants relating to costs are deferred and are recognized in the comprehensive income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to property, plant and equipment are included innon-current liabilities as deferred government grants and are credited to the comprehensive income statement on astraight-line basis over the expected lives of the related assets.

Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected to be completed withinin one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are recordedpresented asnon-current assets.

Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

A provision for impairment of receivables is established when there is objective evidence to prove the following:

 

significant financial difficulty of the issuer or obligor;

 

a breach of contract, such as a default or delinquency in interest or principal payments;

 

we, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

 

it becomes probable that the borrower will enter bankruptcy or other financial reorganization;

 

the disappearance of an active market for that financial asset because of financial difficulties; or

 

observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio; and

(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

The amount of the provisionloss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate.

Trade payables

Trade payables are recognized initially at fair value and subsequently measured at amortized cost usingobligations to pay for goods or services that have been acquired in the effective interest method.ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are recordedpresented asnon-current liabilities.

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

We derecognize financial liability when, and only when, our obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Goodwill

Goodwill represents the excess of the consideration transferred, the amount of anynon-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of our share of identifiable net assets acquired. Goodwill arising from acquisitions of subsidiaries’ business is disclosed separately on ourthe balance sheet. Goodwill is tested for impairment annually or, whenever there is an indication of impairment, and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units forFor the purpose of impairment testing. The allocationtesting, goodwill acquired in a business combination is madeallocated to thoseeach of the cash-generating units (“CGUs”), or groups of cash-generating units, identified according to operating segment,CGUs, that areis expected to benefit from the business combination insynergies of the combination. Each unit or group of units to which the goodwill arose.is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognized immediately as an expense and is not subsequently reversed.

Impairment of investment in subsidiaries, associates andnon-financial assets other than goodwill

Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows(cash-generating units) (CGUs).Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Impairment testing of the investments in subsidiaries or associates is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary or associate in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the consolidated comprehensive income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

(a)Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the PRC where our subsidiaries and associates operate and generate taxable income. We periodically evaluate positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establish provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

(b)Deferred income tax

Inside basis differences

Deferred income tax is provided,recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Outside basis differences

Deferred income tax isliabilities are provided on taxable temporary differences arising onfrom investments in our subsidiaries, and associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by us and it is probable that the temporary difference will not reverse in the foreseeable future. Generally we are unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives us the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from our associate’s undistributed profits is not recognized.

Deferred income tax assets are recognized on deductible temporary differences arising from investments in our subsidiaries, and associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilized.

(c)Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Employee benefits

(a)Defined contribution plan

We makepay contributions to employee benefit fundsdefined contribution schemes operated by the local governmentsgovernment for employee benefits in respect of pension housing, safety and otherunemployment. We also pay contributions to defined contribution schemes operated by Guangzhou Railway Group for employee benefit matters.supplementary pension benefit. We have no further payment obligations once the contributions have been paid according to the relevant laws and regulations.paid. The contributions to such statutory employee benefit fundsthe defined contribution schemes are recognized as staff costs when they are due.

(b)Termination benefits

Termination benefits are payable when qualified employees acceptemployment is terminated by us before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for such benefits, subject to approval by our management.these benefits. We recognize retirementtermination benefits after formingat the earlier of the following dates: (a) when we can no longer withdraw the offer of those benefits; and (b) when we recognize costs for a formal final decision to terminate an employee or to provide retirement benefits after an employee acceptsrestructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer formade to encourage voluntary redundancy.redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the balance sheet dateend of the reporting period are discounted to their present value.

Critical Accounting Estimates and AssumptionsJudgments

We make estimates and assumptions concerning the future. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

We make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

addressed below:

Impairment of receivables

EstimatesWe make provision for impairment of receivables based on an assessment of the depreciable livesrecoverability of fixed assets

The estimate of depreciable lives of fixed assets, especially tracks, bridgestrade and service roads, was made by our Directorsother receivables with reference to the historical usage ofextent and duration that the assets; their expected physical wear and tear; results of recent durability assessment performed; technicalamount will be recovered. Provisions are applied where events or commercial obsolescence arising from changes or improvements in production of similar fixed assets, our right to renew the land use right grants and the land use right lease on which these assets are located, and the changes in market demand for, or legal or comparable limits imposed on,circumstances indicate that the balances may not be collectible. The identification of impairment requires the use of judgment and estimates. Where the expectation is different from the original estimate, such fixed assets.

See “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS—A. Operating Results—Critical Accounting Policiesdifference will impact the carrying amount of trade and Estimated—Fixed Assets”other receivables and Note 2.6 to our consolidated financial statements included elsewhere in this annual report for the current estimated useful lives of fixed assets. If the estimated depreciable lives of tracks, bridges and service roads had been increased/decreased by 10%, the depreciation expenses of fixed assets for the year ended December 31, 2014 would have been decreased/decreased by approximately RMB19.1 million and RMB23.4 million, respectively, compared to RMB18.5 million and RMB22.6 million in 2013, respectively).

Estimated impairment of goodwill

We test whether goodwill has suffered any impairment annually or, whenever there is an indication of impairment, in accordance with the accounting policy stated in Note 2.9 to our consolidated financial statements included elsewhere in this annual report. The recoverable amounts of cash-generating units have been determined based on the higher of an asset’s fair value less costs to sell and value in use. These calculations require the use of estimates. See Note 9 to our consolidated financial statements included elsewhere in this annual report.

Estimated impairment ofnon-financial assets (other than goodwill)

In determining whether an asset is impaired or the event previously causing the impairment no longer exists, management has to exercise judgment, particularly in assessing: (i) whether an event has occurred that may affect the asset value or such event affecting the asset value has not been in existence; (ii) whether the carrying value of an asset can be supported by the net present value of future cash flows which are estimated based upon the continued use of the asset or derecognition; and (iii) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rate or the growth rate assumptionscharge in the cash flow projections, could materially affect the net present value usedperiod in the impairment test.which such estimate has been changed.

Recently adopted accounting standards

In the current year, we have adopted the following new and revised standards, and amendments to existing standards which are mandatory for the financial year beginning January 1, 2014:2016:

Amendment to IAS 32 Financial instruments: Presentation on asset and liability offsetting clarifies that the right

Accounting for acquisitions of set-off must not be contingent on a future event. It must also be legally enforceable for all counterpartiesinterests in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not have a significant effect on our consolidated financial statements.

joint operations – Amendments to IFRS10, IFRS12IFRS 11

Clarification of acceptable methods of depreciation and IAS 27Consolidation for investment entities mean that many funds and similar entities will be exempt from consolidating most of their subsidiaries. Instead, they will measure them at fair value through profit or loss. The amendments give an exception to entities that meet an ‘investment entity’ definition and which display particular characteristics. Changes have also been made in IFRS12 to introduce disclosures that an investment entity needs to make. The amendment did not have a significant effect on our financial statements.

amortization – Amendments to IAS 36Impairment of assets on recoverable amount disclosures for non-financial assets removed certain disclosures of the recoverable amount of CGUs which had been included in16 and IAS 36 by the issue of IFRS 13. The amendment did not have a significant effect on our consolidated financial statements.38

IFRIC 21Levies includes the interpretation addresses what the obligating event is that gives riseAnnual improvements to the payment of a levyIFRSs 2012 – 2014 cycle, and when a liability should be recognized. We are not currently subjected to significant levies so the impact on us is not material.

Amendment

Disclosure initiative – amendments to IAS 39Financial instruments: Recognition and measurement considers legislative changes to ‘over-the-counter’ derivatives and the establishment of central counterparties. Under IAS 39, novation of derivatives to central counterparties would result in discontinuance of hedge accounting. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. We have applied the amendment and there has been no significant impact on the group financial statements as a result.1.

The adoption of the above new/revised standards had no significant financial effect on our consolidated financial statements.

New accounting pronouncements

The following new standards, amendments and interpretations have been issued as of December 31, 20142016 but are not yet effective for IFRS financial statements for the year ended December 31, 2014:2016:

 

   Effective for annual
periodsPeriods beginning on
or
after

Amendment to IAS19 regarding defined benefit plans: employee contributions

 July 1, 2014

Annual improvements to IFRSs 2010-2012 Cycle

July 1, 2014

Annual improvements to IFRSs 2011-2013 Cycle

July 1, 2014

Annual improvements to IFRSs 2012-2014 Cycle

January 1, 2016

IFRS 14 Regulatory Deferral Accounts

January 1, 2016

Amendment to IFRS 11 on accounting for acquisitions of interests in joint operations

January 1, 2016

Amendments to IAS 1 Disclosure Initiative

January 1, 2016

Amendments to IAS 16 and IAS 38 on clarification of acceptable methods of depreciation and amortization

January 1, 2016

Amendments to IAS 16 and IAS 41 on Agriculture: bearer plants

January 1, 2016

Amendments to IFRS 10 and IAS 28 on sale or contribution of assets between an investor and its associate or joint venture

  January 1, 2016The effective date is unkown

AmendmentAmendments to IAS 27 on equity method in separate financial statements7 Disclosure Initiative

 January 1, 20162017

Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized  Losses

January 1, 2017

Amendments to IFRS 10 , IFRS 122 Classification and IAS 28 on investment entities: applying the consolidation exceptionMeasurement of Share-based Payment Transactions

 January 1, 20162018

IFRS15 Revenue from Contracts with Customers

  January 1, 20172018

IFRS 9 Financial Instruments

  January 1, 2018

IFRS16 Leases

January 1, 2019

Our management is in the process of makinghas already commenced an assessment of the impact of these new or revised standards which are relevant to our operation. According to the above newpreliminary assessment made by the directors of the Company, no significant impact on the financial performance and amendedpositions is expected when adopting IFRS 9, IFRS 15 and IFRS16. Our management does not intend to adopt the standards and is not yet in a position to state what impact they would have, if any, on our results of operations and financial position.before their respective effective dates.

 

B.Liquidity and Capital Resources

Our principal source of capital has been cash flow from operations and cash flow from financing activities, and our principal uses of capital are to fund capital expenditures, investment and payment of taxes and dividends.

We generated approximately RMB1,945.6RMB1,641.2 million of net cash flow from operating activities in 2014.2016. Substantially all of our revenue was received in cash, with accounts receivable arising primarily from long-distance passenger train services provided andpass-through freight transactions originating from other railway companies whose lines connect to our railroad. Similarly, some accounts payable arise from payments for railroad transportation services that we collect on behalf of other railroad companies and should pay to these companies. Accounts receivable and payable were generally settled either quarterly or monthly between us and the other railroad companies. Most of our revenue generated from our other businesses was also received in cash. We also have accounts payable associated with the purchase of materials and supplies in our other businesses.

In 2014,2016, other than operating expenses, our cash outflow mainly related to the following:

 

repayment of bond payables of RMB3.5 billion;

capital expenditures of approximately RMB999.6RMB1,973.9 million, representing a decreasean increase of 27.4%52.7% from RMB1,376.6RMB1,292.3 million in 2013;2015;

payment of dividends of approximately RMB566.7 million; and

 

income tax expenses of approximately RMB308.0 million;RMB571.6 million.

Our capital expenditures for 20142016 consisted primarily of the following projects;projects:

 

replacement

the reconstruction of steel tracks for Guangzhou-Shenzhen line and Guangpingthe section from Guangzhou East Station to Xintang Station of Beijing-Guangzhou line;Guangshen Line to be connected with the Guangzhou-Dongguan-Shenzhen Intercity Passenger Lines;

 

replacement

the improvement of railroad switch for Guangpingthe UM71 automatic shut-off and computer interlocking systems of the section from Guangzhou to Pingshi of the Beijing-Guangzhou lineLine; and Jiangcun Station;

 

upgrading train stations and connection networks.

the purchase of four sets of EMU trains, each of which has a maximum operational speed of 250 km/h.

Funds not required for immediate use are kept inshort-term investments and bank deposits. We had cash and cash equivalents of approximately RMB1,665.1RMB1,359.7 million as of December 31, 2014.2016.

As of December 31, 2014,2016, we did not have any entrusted deposits placed with any financial institutions in the PRC and we did not engage in any trust business.

In order to satisfy our operational needs, to supplement our working capital and to improve our debt structure, we issued RMB3.5 billion 4.79% fixed rate notes due 2014, or the Notes, on December 16, 2009. The Notes were issued at face value and bear fixed interest at 4.79% per annum and were repaid in full on December 17, 2014. As of December 31, 2014,2016, we did not have any banking facilities.

Cash Flow

Our net cash and cash equivalents as of December 31, 2014 increased2016 decreased by approximately RMB1,252.4RMB861.1 million from December 31, 2013.2015. Our principal source of capital was revenue generated from operating activities.

The following table sets forth certain items in our consolidated cash flow statements for 2012, 20132014, 2015 and 2014,2016, and the percentage change in these items from 20132015 to 2014:2016:

 

 Year ended December 31,   Change from
2013 to 2014
   Year ended December 31,   Change from 2015
to 2016
 
 2012 2013 2014     2014   2015   2016   
 (RMB thousands)       (RMB thousands)     

Net cash generated from operating activities

 2,177,673   1,883,411   1,945,576     3.3   1,945,576    2,259,691    1,641,238    (27.4)% 

Net cash (used in)/generated from investing activities

 (2,160,895 (1,572,961 3,373,821     N/A     3,373,821    (1,349,235   (1,935,702   N/A 

Net cash used in financing activities

 (708,522 (572,785 (4,067,018   (610.0%)    (4,067,018   (354,710   (566,683   59.8

Net (decrease) /increase in cash and cash equivalents

 (691,744 (262,335 1,252,379     N/A  

Net (decrease)/increase in cash and cash equivalents

   1,252,379    555,746    (861,147   N/A 

Our net cash inflow from operating activities decreased to RMB1,641.2 million in 2016 from RMB2,259.7 million in 2015, primarily due to (i) the increase of payments in employee benefits about RMB984.4 million and income tax of RMB310.9 million, and (ii) the increase in revenue of RMB1,555.2 million offsets by cashflow outflow of RMB855.7 million as a result of changes in accounts receivable and account payables. Our net cash inflow from operating activities increased to RMB1,945.6RMB2,259.7 million in 20142015 from RMB1,883.4 million in 2013, primarily due to (i) the extension of the Pilot Scheme to the railway transportation industry, which greatly reduced our operating income during the reporting period, (ii) an increase in trade payables of RMB514.3RMB1,945.6 million in 2014, primarily due to (i) the Pilot Scheme, (iii) a decreaseincrease of our revenue in prepayments and other receivables of RMB15.1 million, primarily due to the Pilot Scheme, (iv) a decrease in employee benefits obligations of RMB7.9 million and (v) interest income of RMB90.1 million. Our2015, which further increased our net cash inflow from operating activities decreased to RMB1,883.4by RMB99.2 million, (ii) the decrease of cash payments of income tax by RMB47.3 million in 2013 from RMB2,177.7 million in 2012, primarily due2015 compared to an increase in trade receivables of RMB550.4 million in 2013 due to (i) delayed payment by certain railroad companies who commissioned us to operate certain railway lines, (ii) a decrease in trade payables of RMB283.0 million in 2013 due to decreased train repair costs and project construction costs payable,2014, and (iii) an increasethe payment of RMB167.7 million interest accrued from the RMB3.5 billion bond that was repaid in prepaymentsDecember 2014 and no occurrence of new long-term debts or other receivables of RMB94.2 millioninterest in 2013, compared to a decrease in prepayments and other receivables of RMB4.1 million in 2012.

Our net cash from investment activities in 2014 was RMB3,373.8 million and our net cash used in investment activities was RMB1,573.0 million in 2013, primarily due to a decrease in short-term deposits with maturities more than three months.2015.

Our net cash used in investment activities decreased to RMB1,573.0increased from RMB1,349.2 million in 2013 from RMB2,160.92015 to RMB1,935.7 million in 2012,2016, primarily due to (i) a decreasean increase in capital expendituresexpenses on investment of RMB459.6certain fixed assets of GRCL and GSRC. Our net cash used in investment activities in 2015 was RMB1,349.2 million and (ii) a decreaseour net cash from investment activities was RMB3,373.8 million inshort-term deposits with maturities more than 2014, primarily due to the collection of deposit of fixed terms over three months net,at the end of RMB309.6 million2015 and increase in 2013, compared to RMB488.0 million in 2012.expenses on investment of fixed assets.

Our net cash used in financing activities significantly increased to RMB4,067.0RMB566.7 million in 20142016 from RMB572.8RMB354.7 million in 2013,2015, primarily due to the repaymentsincrease in allocation of bond payables of RMB3.5 billion .cash dividends in 2016.

Our net cash used in financing activities decreased to RMB572.8RMB354.7 million in 20132015 from RMB708.5RMB4,067.0 million in 2012,2014, primarily due to a decreasethe repayment of RMB141.7 million in the distributionmedium-term notes with face value of RMB3.5 billion at the end of 2014 and no occurrence of cash dividend to the shareholdersoutflow for financing activities in 2013.2015.

Our working capital was mainly used for capital expenditures, operating expenses and payment of taxes and dividends and investments. In 2014,2016, our expenses for the purchase of fixed assets and payments forconstruction-in-progress totaled RMB999.6RMB1,973.9 million. In addition, we paid RMB308.0RMB571.6 million for income taxes and approximately RMB566.7 million for dividends.

We believe we have sufficient financial resources to meet our operational and development requirements in 2015.2017.

 

C.C.Research and Development, Patents and Licenses, etc.

We do not generally conduct our own research and development with respect to major capital projects. In the past, in connection with our high-speed train and electrification projects, our predecessor relied upon the engineering and technical services of various research and design institutes under the MOR.CRC. In recent years, we conducted limited research and development activities in connection with the implementation of automated ticketing, including the development of related computer software.

We do not anticipate a significant need for research and development services in the foreseeable future, and do not expect to require any such services in connection with our other businesses. To the extent that these services are needed, we expect to engage outside service providers to satisfy this need. In connection with major engineering and construction projects, as well as major equipment acquisitions, we intend to conduct technical research and feasibility studies with relevant engineering service organizations, so as to ensure thecost-effectiveness of our capital expenditures.

 

D.Trend Information

The Pearl River Delta remains one of China’s fastest growing economic regions. We believe that various factors, including the increasing economic cooperation within the Pearl River Delta region and its adjacent areas, the “Relaxed Individual Travel” program, the improvement of the subway system in Shenzhen and Guangzhou, will continue to increase passenger travel and freight transportation within our service region. We expect the PRC government’s current economic, import and export, foreign investment and infrastructure policies to generate additional demand for transportation services in our service areas. These policies and measures may have both positive and negative effects on our business development. They are expected to promote economic growth and create new demand for our transportation services.

At the same time, however, with the improvement of highway and waterway transportation facilities, we anticipate additional competition. In addition, the economic measures PRC government implemented to manage its economy may have an impact on our business and results of operations in 2015.2017. In addition, any change of the benchmark interest rates set by the PRC government and the implementation of other applicable policies may have an impact on our business and results of operations in 2015.2017.

While the PRC government is in the progress of lessening restrictions on foreign investment, the opening up of domestic railway transportation will be gradual and we expect competition from foreign and domestic railway to be limited in the short term. In addition, as the PRC government lifts control over foreign investments, including allowing foreign participation in railway construction, our competitive position in our service region may be challenged by foreign strategic investment.

In addition, the global financial crisis and economic downturn since 2008 had adversely affected economies and businesses around the world, including in China. Due to the global economic downturn, the economic situation in China was severe in the second half of 2008. This change in themacro-economic conditions had an adverse impact on our business and operations by causing a decrease in the number of passengers and the volume of freight that we transported in 2009. Although the economy in China, as well as in many other places around the world, has recovered since the second half of 2009, the sustainability of these recoveries is uncertain due to escalating concerns regarding Europe’s sovereign debt crisis, the stability of the Eurozone and sustainability of high rates of growth in China.

In 2016, China’s economy grew at a slower pace and trended stably and positively. Although China’s GDP growth rate remained high compared to other countries and the quality and efficiency of economic development were enhanced, providing strong and solid protection for the long-term and stable development of the Company, with the still complicated and evolving domestic and international economic environment, China’s economy still faced greater downward pressure, which suppressed the demand growth of passenger and freight transportation.

Nevertheless, we believe the Chinese railway industry will continue to grow in the coming years in light of the launch of certain government policies. There are expected to be stable investments in the country’s railway industry from 2016 to 2020 in accordance with the Thirteenth Five-Year Plan on National Economics and Social Development of the PRC and in July 2016, the NDRC, Ministry of Transport and the CRC jointly issued the Medium to Long Term Plan for Railway Network Development (the “Plan”), which sets out the railway network development plan for the period of 2016 to 2025. According to the Plan, by the year 2020, a series of landmark railway projects will be completed and put into operation, extending the length of railways in China to 150,000 kilometers, representing a 24.0% increase from 121,000 kilometers at the end of 2015. Length of high speed rails will increase to 30,000 kilometers, representing a 57.9% increase from 19,000 kilometers at the end of 2015. During the same period, the Chinese government expects to invest more than RMB2.8 trillion in railway network development.

Looking into 2015,2017, we believe China remains in a strategic opportunity phase for its development.development even though the rate of growth in China may not be maintained at historical levels. Under the background of the steady growth of China’s economy and its stable social situation, the railway transportation industry is expected to develop in a more scientific, orderly, sustained and stable manner in 2015,2017, with continuous growth of the railway network and transportation capacity, as well as volume of passengers and freight.

E.Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

F.F.Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations, capital commitments and operating lease commitments as of December 31, 20142016 for the periods indicated.

 

  Payment due by period (RMB thousands)     
  Payment due by period (RMB thousands)           Less than           More than 

Contractual Obligations

  Total   Less than
1 year
   1-3 year   3-5 year   More than
5 years
   Total   1 year   1-3 year   3-5 year   5 years 

Capital Expenditure Obligation(1)

   146,979     146,979     —       —       —       769,013    769,013             

Operating Lease Obligations(2)

   888,000     74,000     148,000     148,000     518,000     740,000    74,000    148,000    148,000    370,000 
  

 

   

 

   

 

   

 

   

 

 

Total

   1,034,979     220,979     148,000     148,000     518,000     1,509,013    843,013    148,000    148,000    370,000 
  

 

   

 

   

 

   

 

   

 

 

 

(1)See Note 36(a)35(a) to our audited consolidated financial statements, “Capital Commitments”.Commitments.”
(2)See Note 36(b)35(b) to our audited consolidated financial statements, “Operating Lease Commitments”.Commitments.”

Based on the current progress of our new projects, we estimate that our capital expenditures for 20152017 will amount to approximately RMB1.46RMB2.9 billion and will consist primarily of the following projects:

 

capacity

the expansion of Xiayuan Station and Sungangthe section repair capacity for the vehicle section at Guangzhou North Station;

 

construction

the reconstruction of new intercity train station within Guangzhou-Shenzhen Pinghu station;the section from Guangzhou East Station to Xintang Station of Guangsheng Line III and IV;

 

the improvement of the five-stage operational system of CRH EMU trains;

the improvement of the UM71 automatic closingshut-off and computer interlocking reconstruction;systems of the section from Guangzhou to Pingshi of the Beijing-Guangzhou Line; and

 

replacement

the improvement of diesel-generators for passenger trains;

replacementthe adaptability of steel tracks, railroad switches and railroad switch ties.traction power supply system of the section from Pingshi to Guangzhou of the Beijing-Guangzhou Line.

 

G.Safe Harbor

See“Forward-Looking “Forward-Looking Statements.”

 

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.Directors and Senior Management

Directors

Our board of directors is composed of sixnon-independent directors and three independent directors. Except for Mr. Wu Yong, Mr. Chen Jianping and Mr. Hu Lingling, all of our directors were elected or re-elected at our annual shareholders’ general meeting held on May 29, 2014 by cumulative voting. Mr. Wu Yong was elected as a director at our shareholders’ extraordinary general meeting on December 16, 2014 and then the Chairman of the Board of Directors at a Board meeting on December 18, 2014. Mr. Chen Jianping was elected as a director at our annual shareholders’ general meeting held on May 28, 2015. Mr. Hu Lingling was elected as a director at our annual shareholders’ general meeting held on May 26, 2016. The business address of each of our directors is No. 1052 Heping Road, Shenzhen, People’s Republic of China 518010.

The table below sets forth the information relating to our directors as of April 28, 2015:26, 2017:

 

Name

  Age   

Position

  Date First
Elected or
Appointed
  Age  

Position

  Date First
Elected or
Appointed

Wu Yong

   51    Chairman of the Board of Directors  2014  53  Chairman of the Board of Directors  2014

Shen Yi

   59    Executive Director and General Manager  2008

Hu Lingling

  53  Executive Director  2016

Sun Jing

   49    Director  2012  51  Director  2012

Yu Zhiming

   56    Director  2008  58  Director  2008

Huang Xin

   50    Director  2014

Chen Jianping

  50  Director  2015

Luo Qing

   50    Executive Director  2014  52  Executive Director  2009

Chen Song

   42    Independent non-executive Director  2014  44  Independent Non-executive Director  2014

Jia Jianmin

   57    Independent non-executive Director  2014  59  Independent Non-executive Director  2014

Wang Yunting

   56    Independent non-executive Director  2014  58  Independent Non-executive Director  2014

Wu Yong is our Chairman and joined our Company in December 2014.Chairman. Mr. Wu holds a bachelor’s degree and is a senior engineer and has a bachelor’s degree. Hewith advanced engineering remuneration. Mr. Wu started his career in July 1986, and served as chief of the track divisions of Suxian, Huaibei, Fuyang and Suzhou of Bengbu Sub-bureau of Shanghai Railway Bureau, the bureau chief assistant and deputy bureau chief of Benghu Sub-bureau of Shanghai Railway Bureau, the commander chief of Hefei-Wuhan Railway Engineering Construction Headquarters of Shanghai Railway Bureau, the bureau chief assistant deputy bureau chief and executivethe deputy bureau chief of Wuhan Railway Bureau and the bureau chief and deputy party secretary of Chengdu Railway Bureau. Since August 2014, he has been the chairman and the general manager of Guangzhou Railway (Corporation) Company (GRGC)GRGC and the deputy secretary of the party committee. Currently, Mr. Wu is also the chairman of the board of Guangmeishan Railway Company Limited, Guangdong Sanmao Railway Company Limited, Yuehai Railway Company Limited and Shichang Railway Company Limited.

Shen YiHu Lingling is our executive Director and general manager and joined our Company in 2008.manager. Mr. Shen graduated from the Northern Jiaotong University (now, Beijing Jiaotong University) andHu holds a bachelor’s degree and is an engineer. Mr. Hu started to work in railway transportation. He has more than 30 years of experience inthe railway transportation managementindustry in 1985. Mr. Hu served as the deputy chief engineer and has served at different railway stationsthe deputy station chief of Shaoguan East Station (f/k/a Shaoguan Station) of former Yangcheng Railway Company of GRGC, the deputy chief engineer and sections, RailwaySub-bureaus and Railway Bureaus. He wasthe deputy general manager of Hong Kong Qiwen Trade Company Limited, Guangmeishan Railway Company Limited and Huaihuaformer Yangcheng Railway Company of GRGC. Before joining our Company in October 2008, he wasGRGC and the director of the transportation department of GRGC, and the deputy general manager of Shichang RailwayGRGC. He also worked in the global business department of the headquarter of International Union of Railways in Paris, France and served as the deputy general manager of Guangzhou-Shenzhen-Hong Kong Express Rail Link Company Limited. Mr. Hu has been serving as our general manager since November 2015.

Sun Jing is ournon-executive Director and joined our Company in 2012. He is a senior engineer and has Director. Mr. Sun holds a bachelor’s degree and is a master’s degree in engineering. Before June 2004,senior engineer. Mr. Sun worked atstarted to work in the northernrailway transportation industry in July 1985. Mr. Sun served as the section chief and deputy party secretary of Yueshan locomotive section of ZhengzhouSub-bureau of Zhengzhou Railway Bureau, the deputy division chief and the division chief of locomotive department of Zhengzhou Railway Bureau and Yueshan locomotive section of ZhengzhouSub-bureau of Zhengzhou Railway Bureau. From June 2004 to March 2007, he has served as division chief of the locomotive department of Zhengzhou Railway Bureau. He was an assistant to the director of Zhengzhou Railway Bureau from April 2007.Bureau. He has been servedserving as deputy general manager of GRGC since May 2007. Mr. Sun is now a director of Guangzhou Electric Locomotive Co., Ltd.

Yu Zhiming is ournon-executive Director and joined our Company in 2008. Director. Mr. Yu is a senior accountant and hasholds a bachelor’s degree and is a master’s degreesenior accountant. Mr. Yu started his career in engineering.May 1980. He has many years of experience in finance. Before April 2008, he served as the director of theSub-division of Finance of Wuhan RailwaySub-bureau of Zhengzhou Railway Bureau, the director of the finance department of Wuhan Railway Bureau director of capital settlement center of Wuhan Railway Bureau and the standingvice-director of capital settlement center of MOR. Since April 2008, heHe has been serving as the chief accountant of GRGC Since April 2008.

Chen Jianping is our non-executive Director. Mr. Chen holds a bachelor’s degree and a master’s degree and is a political engineer. Mr. Chen served as a Supervisor representing employees of the Company before being elected as our non-executive Director. Mr. Chen worked with the First High School of Guangzhou Railway and Locomotive Sports Association of GRGC and is working with GRGC. Currently,From 1997 to 2007, Mr. Yu is alsoChen served as the office secretary of the trade union of GRGC, director of the logistics department of our Company, deputy secretary of the Party Work Committee and concurrently the secretary of the committee for disciplinary inspection of the passenger transportation business unit of our Company, deputy office manager of our Company and chairman of the board of China Railway (HK) Holdings Ltd, chairmantrade union of the supervisory committeemechanized line center of Yuehai Railway Company Limited, Guangdong Guangzhou–ZhuhaiInter-city Railway Traffic Co., Ltd., MaoZhan Railway Company LimitedGRGC. From 2007 to October 2012, Mr. Chen served as the section chief of Guangzhou Passenger Transportation Division. From November 2012 to October 2013, he was the general manager of diversified operation and Guangdong Pearl River DeltaInter-city Railway Traffic Co., Ltd. Mr. Yu isdevelopment center, deputy secretary of the Party Work Committee and director of Guangmeishan Railway Company Limited, Guangdong Sanmao Railway Company Limited, Shichang Railway Company Limited, Hukun Passenger Railway Line (Hunan) Co., Ltd., Hainan Eastern High Speed Company Limited, Ganzhou-Shaoguan Railway Company Limited, China Railway Container Transportation Limited, China Railway Special Goods Transportation Limited, Huaishaoheng Railway Co., Ltd.various operation and Qianzhangchang Railway Company Limited and a supervisormanagement offices of Guangzhou–Zhuhai Railway Company Limited.

Huang Xin is our non-executive Director and joined our Company in 1997. Mr. Huang is an engineer and has a bachelor’s degree. Mr. Huang has many years of experience in various positions in joint railway companies and has served in our Company for ten years between December 1997 and October 2007 at positions includingGRGC. From November 2013 to September 2014, he was the deputy manager of transportation management, head of the sales center’s integrated division, stationmaster of Shenzhen station,North Station and deputy secretary of the party committeeParty Work Committee of the transportation department andour Company. Since October 2014, Mr. Chen has been the chief of passenger transportation department, safety control department and human resources department. From October 2007 to April 2012, he served as the director of the passenger transportation department of GRGC andGRGC. Mr. Chen was also became GRGC’s deputy general engineer between April 2012 and September 2014. Since Septembera Supervisor representing employee of the Company from May 2014 he has been serving as the deputy director of CRC transportation and operation department.to May 2015.

Luo Qing is our executive Director and joined our Company in 2008.Director. Mr. Luo is a political engineer and has a bachelor’s degree from Correspondence College ofpostgraduate at the Party School of CPCthe Communist Party of China and is a political engineer. Mr. Luo has been working in economic management and a master’s degree. Before April 2006,the railway transportation industry since August 1981. Previously, he had served as sportsman, coach andthe secretary-general of Guangdong Physical Culture andLocomotive Sports Team, labor unionAssociation of Guangzhou Railway Sub-bureau of Guangzhou Railway Bureau, labor union of YangChengYangcheng Railway Company of GRGC, the secretary-general of Locomotive Sports Association of YangCheng Railway Company of GRGC, and Locomotive Sports Association of GRGC. Between April 2006 and October 2008, he was the chief of the organization department of trade union of GRGC. From November 2008 to April 2010, he served asGRGC and the chairman of the trade union of ourthe Company. Since May 2010, he has been the deputy secretary of the party and working committee, andthe secretary of the discipline inspection and working commission of ourthe Company and also the chairman of the trade union of ourthe Company.

Chen Song is our independent non-executive DirectorDirector. Mr. Chen holds a doctorate degree in finance and joined our Company in May 2014. Mr. Cheninvestment from the Management School of Sun Yat-sen University, and is a certified public accountant of China and a certified internal auditor registered in the US. He has a doctorate degree in finance and investment from Management School of Sun Yat-sen University.U.S. Mr. Chen was a teacher in higher mathematics and pharmaceutical machinery in Guangdong Food and Drug Vocational College, the tutor for MBA and EMBA in Management School of Sun Yat-sen University, managerial trainee in P&G (China) Investment Limited Company, financial analysis manager in Crest Oral Department, financial supervisor of business department, CFO, executive director of Heinz (China) Investment Co., Ltd., chief financial officer of Ren Coty (China) and a director and general manager of its cosmetics division, financial supervisor of Greater China Region in Boer CMC Markets Asia Pacific Pty Ltd, the deputy general manager and CFO of Chongqing Brewery Co., Ltd. He currently serves as deputya director and general manager and CFO of Chongqing Brewery Co., Ltd.

Jia Jianmin is our independent non-executive Director and joined our Company in May 2014.Director. Mr. Jia hasholds a master’s degree and doctorate degree in business from the McCombs School of Business of the University of Texas at Austin. He was a member of The National Natural Science Foundation of Department of Management Science Advisory Committee of Experts, a member of China National MBA Education Supervisory Committee and a Scholar Director of MSI USA. He has served companies including Hutchison Whampoa, China Telecom, China Mobile, China Citic Bank, IBM, China Rail, CSR and CNR. He is a professor and chairman of the Department of Marketing of Faculty of Business Administration of The Chinese University of Hong Kong and holds the title of Changjiang Scholar Professor of the Ministry of Education of PRC.

Wang Yunting is our independent non-executive Director and joined our Company in May 2014.Director. Mr. Wang graduatedholds a bachelor’s degree from the Medical School of Xi’an Jiaotong University with a bachelor’s degree and obtained an EMBA degree from Guanghua School of Management, Peking University. Mr. Wang was the vice general manager of China Commercial Foreign Trade Corporation, Ltd. (Shenzhen) and vice general manager of Beijing Capital Huayin Group. He is now a director of Shaanxi Fortune Investment Limited.

Supervisors

The table below sets forth the information relating to our supervisors as of April 28, 2015.26, 2017.

 

Name

  Age   

Position

  Date First
Elected or
Appointed
  Age  

Position

  Date First
Elected or
Appointed

Liu Mengshu

   51    Chairman of the supervisory committee  2014  53  Chairman of the supervisory committee.  2014

Chen Shaohong

   48    Supervisor  2008  50  Supervisor  2008

Shen Jiancong

   46    Supervisor  2011  48  Supervisor  2011

Li Zhiming

   54    Supervisor  2005  55  Supervisor  2005

Chen Jianping

   48    Supervisor  2011

Zhou Shangde

  46  Supervisor  2015

Song Min

   44    Supervisor  2014  46  Supervisor  2014

Liu Mengshu is chairman of our supervisory committee and joined our Company in May 2014.committee. Mr. Liu holds a bachelor’s degree and is an engineer and has a bachelor’s degree.engineer. He served in the Huaihua Sub-bureau of Guangzhou Railway Bureau and GRGC Changsha headquarters. He served in GRGC as the head of the director of organization of the party committee of GRGC from November 2004 to April 2006, as head of the GRGC party committee’s propaganda department from April 2006 to September 2008 and as GRGC’s office director from September 2008 to December 2013. Since December 2013, he has been the deputy secretary of CPC and the secretary of Committee for Discipline Inspection of GRGC. Currently, Mr. Liu is also the chairman of the supervisory committee of Guangmeishan Railway Company Ltd. and Guangdong Sanmou Railway Company Ltd.

Chen Shaohong is our Supervisor and joined our Company in 2008.Supervisor. Mr. Chen is an economist and holds a bachelor’s degree.degree and is an economist. Mr. Chen has been engaged in the research and practice of enterprise management for a long time. Before April 2006, he has beenvice-section chief and section chief of mechanism reform section of corporate management office,vice-director of corporate management office andvice-director of corporate management and legal affairs department of GRGC. From April 2006 to May 2008, he served as director of corporate management and legal affairs department of GRGC. SinceFrom June 2008 to July 2015, Mr. Chen has beenwas the vice-chief economist and director of corporate and legal affairs department of GRGC. Since August 2015, Mr. Chen is alsohas been the chairman of supervisory committee of Shichang Railway Company Limited, Hukun Passenger Railway Line (Hunan) Co., Ltd. and Hainan Railway Economic and Technological Development Corporation Company; director of Guangmeishan Railway Company Limited, Guangdong Sanmao Railway Enterprise Development Company, Yuehai Railway Company Limited, Xiamen-Shenzhen Railway (Guangdong) Company Limited, Jingyue Railway Company Limitedthe Corporate and Guangdong Shenmao Railway Company Limited and the supervisorLegal Affairs department of Guangdong Sanmao Railway Company Limited, Huaishaoheng Railway Co., Ltd., HunanInter-city Railway Company Limited, Guangzhou Electric Locomotive Co., Ltd., Guangdong Pearl River DeltaInter-city Railway Traffic Co., Ltd., Hainan High Speed Ring Railway Company Limited, Guangzhou-Shaoguan Railway Company Limited, China Railway Express Co., Ltd. and Qianzhangchang Railway Company Limited.CRGC.

Shen Jiancong is our SupervisorSupervisor. Mr. Shen holds a bachelor’s degree and joined our Company in 2011. He is an economist and has a bachelor’s degree.economist. Before March 2011, Mr. Shen has worked as secretary of Chinese Youth League of the Guangzhou mechanical refrigerator car depot of GuangzhouSub-bureau of Guangzhou Railway Bureau, deputy director and director of division of personnel of GRGC, deputy director of Division of Human Resources of GRGC, concurrently as deputy director of organization department of Party Committee of GRGC and secretary of CPC committee and vice stationmaster of Shenzhen stationStation of our Company. He has been director of division of human resources and director of organization department of party committee of GRGC since March 2011.

Li Zhiming is our Supervisor and joined our Company in 2005.Supervisor. Mr. Li is an accountant and hasholds a bachelor’s degree in economics and management from the Party School of CPC in economicsthe Communist Party of China and management.is an accountant. Before 1996, Mr. Li had served in various managerial positions in Hengyang RailwaySub-bureau of Guangzhou Railway Bureau and Changsha Railway Company of GRGC. From 1996 to March 2005, he was chief of FinanceSub-division of Changsha Railway Company of GRGC. Since April 2005, Mr. Li has been deputy chief and chief of the audit department of GRGC. Mr. Li is also the chairman of the supervisory committee of Guangdong Shenmao Railway Company Limited and Guangzhou Tiecheng Enterprise Company Limited, chairman of the supervisory committee of Xingguangji Trade Company Limited; director of Hong Kong Qiwen Limited and Hainan Railway Economic and Technological Development Corporation; supervisor of Guangmeishan Railway Company Limited, Guangdong Sanmao Railway Company Limited, Guangdong Sanmao Railway Enterprise Development Company Limited, Yuehai Railway Company Limited, Shichang Railway Company Limited, Hukun Passenger Railway Line (Hunan) Co., Ltd, Huaishaoheng Railway Co., Ltd., Xiamen-Shenzhen Railway (Guangdong) Company Limited, Ganzhou-Shaoguan Railway Company Limited,Guiyang-Guangzhou Railway Co., Ltd,Hunan-Guangzhou Railway Co., Ltd., Jingyue Railway Company Limited and Guangzhou–Zhuhai Railway Company Limited.

Chen Jianping

Zhou Sangde is our Supervisor and joined our Company in 2007. Mr. Chen worked with the First High Schoolrepresents employees of Guangzhou Railway and Locomotive Sports Association of GRGC and is working with GRGC and our Company. Mr. Chen servedZhou holds a master’s degree from the Party School of the Communist Party of China and is a political engineer. Mr. Zhou used to serve as the office secretary of the trade unionCommunist Youth League of GRGC, directorSungang Station (formerly known as the Shenzhen North Station), deputy chief of the logisticorganization and human resources department, of our Company, deputy secretarydirector of the party committee and concurrently the secretary of committee for disciplinary inspection of the passenger transportation business unit of our Company, deputy office, manager of our Company and chairman of the trade union of the mechanized lineintegrated service center of GRGC.our Company. From July 2007 to October 2012, he hasMarch 2011, Mr. Zhou was transferred to GRGC and served as the sectiondeputy chief of Guangzhou Passenger Transportation Division,the human resources office, deputy office manager and from November 2012concurrently director of the reception office, and chief party secretary of the administrative office of GRGC. In March 2011, Mr. Zhou was transferred back to October 2013, heour Company and served as party secretary and station supervisor of Shenzhen Station. Since December 2014, Mr. Zhou has been the general manager of diversified operation and development center, deputy secretarysupervisor of the party committee and director of various operation and management offices of GRGC. From November 2013 to September 2014, he was the stationmaster of Shenzhen North station and deputy secretary of the Party Work Committee of our Company. Since October 2014, he has been the chief of passenger transportation department of GRGC.Sungang Station.

Song Min is our Supervisor and joined our Company in 2012. Ms. Song represents employees of our Company. Ms. Song is an accountant and hasholds a bachelor’s degree in accounting from Lanzhou University in accounting.and is an accountant. Ms. Song joined the railway industry in 1991 and has served in many railway companies. She has served as the deputy manager of the operating finance office, department of finance of Qinghai-Tibet Railway Company, deputy director and finance director of Qinghai-Tibet Railway Public Security Bureau, vice office supervisor of Qinghai-Tibet Railway Company Annuity Council, vice consultant of financial management of the State Taxation Bureau of Qinghai Province and the senior manager of Petrol China Guangdong Sales Company, Shenzhen Branch. Since November 2012, she has been the chief of the Audit Department of our Company.

Senior Management

The table below sets forth information relating to our senior management as of April 28, 2015:26, 2017:

 

Name

  Age   

Position

  Date First
Elected or
Appointed
  Age  

Position

  Date First
Elected or
Appointed

Shen Yi

   59    General Manager  2008

Mu Anyun

   54    Deputy General Manager  2009

Hu Lingling(1)

  53  General Manager  2015

Luo Jiancheng

  44  Deputy General Manager  2016

Guo Xiangdong(2)

   49    Deputy General Manager and Company Secretary  2004  51  Deputy General Manager and  2010
    Company Secretary  2004

Tang Xiangdong

   46    Chief Accountant  2008  48  Chief Accountant  2008

 

(1)See “Item 6. Directors, Senior Management and Employees – A. Directors and Senior Management – Directors” for information regarding Hu Lingling.
(2)Guo Xiangdong was firstly appointed as our Deputy General Manager in 2010 and Company Secretary in 2004.

Shen Yi is our Director and General Manager.

Mu Anyun joined our Company in February 2009 andLuo Jiancheng is a deputy general manager of our Company. Mr. Mu is an economist and hasLuo holds a bachelor’s degree and an MBA degree from Macau Universityis a senior engineer. Mr. Luo served successively as the chief of Sciencethe Investigation & Inspection Division of the General Office of GRGC, Shiweitang station master of GSRC, deputy chief of the Transportation Department of GRGC, the assistant of the general manager of the Company, the general manager of Guangzhou Tiecheng Industrial Company and technology. Mr. Mu joined the railway departments in 1981 and had served in various managerial positions in Guangzhou Railway Bureau and GRGC. From May 2000 to January 2009, he was director and deputy general manager of Guangmeishan Railway Company Limited.GMSR. Since February 2009,December 2016, he has been serving as our deputy general manager of our Company. Currently, Mr. Mu is also a director of Guangzhou Tiecheng Enterprise Company Limited and Shenzhen Guangshen Railway Civil Engineering Company.manager.

Guo Xiangdong joined our Company in 1991 and is the Deputy General Manager and secretary of the Board. Mr. Guo is an economist and hasholds a bachelor’s degree from Central China Normal University and an MBA.MBA degree and is an economist. Before January 2004, he has been deputy section chief, deputy head and head of secretariat of the Board. From January 2004 to November 2010, he has been appointed as the secretary of the Board and since December 2010, Mr. Guo has been appointed as the deputy general manager and secretary of the Board.

Tang Xiangdong joined our Company in June 1990 and is Chief Accountant of our Company. Mr. Tang holds a bachelor’s degree in business administration from Jinan University and an MBA degree and is a senior accountant and has a bachelor’s degree from Jinan University in business administration and an MBA.accountant. Before March 2006, he has served in various professional management positions in the Labor and Capital Department, Diversified Business Department and Revenue Settlement Center of our Company. From March 2006 to November 2008, he was director of Finance Department of our Company. Since December 2008, Mr. Tang has been the chief accountant of our Company. Mr. Tang is also a director of Guangzhou Tiecheng Enterprise Company Limited and Shenzhen Guangshen Railway Civil Engineering Company.

Additional Information

Ournon-independent directors, members of our supervisory committee and senior management also serve as the directors, supervisors or senior management members in other companies as follows:

 

Name

  

Position

Wu Yong

  

Chairman of the Board of Directors of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Co., Ltd.

Yuehai Railway Company Limited

Shichang Railway Company Limited

Chairman, General Manager of:

GRGC

Sun Jing

  

Director of:

Guangzhou Electric Locomotive Co., Ltd.

Deputy General Manager of:

GRGC

Yu Zhiming  

Chairman of the Board of Directors of:

China Railway (HK)(Hong Kong) Holdings LtdLimited

Chairman of the Supervisory Committee of:

Yuehai Railway Company Limited

Guangdong Guangzhou–ZhuhaiInter-city Railway Traffic Co., Ltd.

MaoZhan Railway Company Limited

Guangdong Pearl River DeltaInter-city Railway Traffic Co., Ltd.

Director of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Co., Ltd.

Shichang Railway Company Limited

Hukun Passenger Railway Line (Hunan) Co., Ltd.

Hainan High SpeedHigh-speed Railway Company Limited (formerly known as Hainan Eastern Ring Railway Company Limited)

Ganzhou-ShaoguanGanshao Railway Company Limited

China Railway Container Transportation Company Limited

China Railway Special Goods Transportation Company Limited

Huaishaoheng Railway Company Limited

Qianzhangchang Railway Company Limited

Supervisor of:

Guangzhou–Zhuhai Railway Company Limited

Chief Accountant of:

GRGC

Huang Xin

Name

  

Deputy director of:

CRC transportation and operation departmentPosition

Liu MengshuSupervisor of:
  

Chairman of Supervisory Committee of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Co., Ltd.

Chen Shaohong

Vice-chief Economist and Director of Corporate and Legal Affairs Department of:

GRGC

Chairman of Supervisory Committee of:

Shichang Railway Company Limited

Hukun Passenger Railway Line (Hunan) Co., Ltd.

Hainan Railway Economic and Technological Development Corporation Company

Director of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Enterprise Development Company

Yuehai Railway Company Limited

Xiamen-Shenzhen Railway (Guangdong) Company Limited

Jingyue Railway Company Limited Guangdong Shenmao Railway Company Limited

Supervisor of:

Guangdong Sanmao Railway Co., Ltd.

Huaishaoheng Railway Company Limited

HunanInter-city Railway Company Limited

Guangzhou Electric Locomotive Co., Ltd.

Guangdong Pearl River DeltaInter-city Railway Traffic Co., Ltd.

Hainan High Speed Railway Company Limited

Ganzhou-ShaoguanGuangzhou–Zhuhai Railway Company Limited

China Railway Express Co., Ltd.

Chen JianpingDirector of:

QianzhangchangHainan Railway Economic and Technological Development Corporation Company

Supervisor of:

China Railway Commemorative Ticket Company

Chen SongDirector and General Manager of:

Chongqing Brewery Co., Ltd.

Jia JianminProfessor and Chairman of the Department of Marketing of Faculty of Business Administration and Changjiang Scholar Profesor of the Ministry of Education of:

The Chinese University of Hong Kong

Wang YuntingChairman of the Board of Directors of:

Shaanxi Fortune Investment Limited

Liu MengshuChairman of Supervisory Committee of:

Guangmeishan Railway Company Limited

Shen Jiancong  

Director of Division of Human Resources and Director of Organization Department of party committee of:

GRGC

Li Zhiming

Chief of the Audit Department of:

GRGC

Chairman of the Supervisory Committee of:

Guangzhou Tiecheng Enterprise Company Limited

Xingguangji Trade Company Limited

Guangdong Shenmao Railway Company Limited

Director of:

Hong Kong Qiwen Company Limited

Hainan Railway Economic Technological Development Corporation

Supervisor of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Co., Ltd.

Guangdong Sanmao Railway Enterprise Development Company Limited

Yuehai Railway Company Limited

Chen ShaohongChairman of Supervisory Committee of:

Shichang Railway Company Limited

Hukun Passenger Railway Line (Hunan) Co., Ltd.

HuaishaohengHainan Railway Economic and Technological Development Corporation Company

Director of:

Guangmeishan Railway Company Limited

Yuehai Railway Company Limited

Xiamen-Shenzhen Railway (Guangdong) Company Limited

Ganzhou-Shaoguan Railway Company Limited

Guiyang-Guangzhou Railway Co., Ltd.

Nanning-Guangzhou Railway Co., Ltd.

Jingyue Railway Company Limited

Guangzhou–ZhuhaiGuangdong Shenmao Railway Company Limited

Guangdong Meishan Passenger Railway Line Company Limited

Supervisor of:

Guangdong Sanmao Railway Co., Ltd.

Hunan Inter-city Railway Company Limited

Guangdong Pearl River Delta Inter-city Railway Traffic Co., Ltd.

Hainan High-speed Railway Company Limited

Ganshao Railway Company Limited

China Railway Express Co., Ltd.

Guangzhou Electric Locomotive Co., Ltd.

Li ZhimingChairman of the Supervisory Committee of:

Guangzhou Tiecheng Enterprise Company Limited

Xingguangji Trade Company Limited

Guangdong Shenmao Railway Company Limited

Chen Jianping

Name

  

Chief of Passenger Transportation Department of:

GRGCPosition

Mu AnyunDirector of:
  

Director of:

Guangzhou Tiecheng EnterpriseHong Kong Qiwen Company Limited

Shenzhen GuangshenHainan Railway Civil EngineeringEconomic and Technological Development Corporation Company

Supervisor of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Co., Ltd.

Yuehai Railway Company Limited

Shichang Railway Company Limited

Hukun Passenger Railway Line (Hunan) Co., Ltd.

Xiamen-Shenzhen Railway (Guangdong) Company Limited

Ganzhou-Shaoguan Railway Company Limited

Guiyang-Guangzhou Railway Company Limited

Nanning-Guangzhou Railway Company Limited

Jingyue Railway Company Limited

Guangzhou–Zhuhai Railway Company Limited

Guangdong Meishan Passenger Railway Line Company Limited

Guangzhou Northeastern Cargo Outer Ring Railway Company Limited

Guangzhou Nanshagang Railway Company Limited

Tang Xiangdong  

Director of:

Guangzhou Tiecheng Enterprise Company Limited

Shenzhen Guangshen Railway Civil Engineering Company

 

Note:Chongqing Brewery Co., Ltd is a listed A share company of China. The Chinese University of Hong Kong is a university located in Hong Kong. Shaanxi Fortune Investment Limited is a company located in Xi’an, Shaanxi Province, China. China Railway Container Transportation Company Limited, China Railway Special Goods Transportation Company Limited, and China Railway Express Co., Ltd., China Railway Commemorative Ticket Company, Guiyang-Guangzhou Railway Company Limited, and Nanning-Guangzhou Railway Company Limited are subsidiaries of CRC. Guangzhou Tiecheng Industrial Company and Shenzhen Guangshen Railway Civil Engineering Company are our joint venture partners. Guangzhou Electric Locomotive Co., Ltd., Guangzhou Zhuhai Railway Company Limited, Guangdong Guangzhou–ZhuhaiInter-city Railway Traffic Co., Ltd., Guangdong Pearl River DeltaInter-city Railway Traffic Co., Ltd., Guangdong Shenmao Railway Company Limited, Jingyue Railway Company Limited, Guangdong Meishan Passenger Railway Line Company Limited, MaoZhan Railway Company Limited and JingyueGuangzhou Nanshagang Railway Company Limited are joint venture partners of GRGC. The remaining companies in the table above are subsidiaries of GRGC.

B.Compensation

Directors and Senior Management

Total remuneration of our directors, supervisors and senior management members during 20142016 included wages, bonuses, other schemes and allowances. Directors or supervisors who are also officers and employees of our Company receive certain other benefits in kind from GRGC or us, such as subsidized or medical insurance, housing and transportation, as customarily provided by the railway companies in the PRC to their employees. The amount of compensation to each director, supervisor and senior management for the year ended December 31, 2016 is listed as follows:

Name

Position

Total remuneration received from the
Company (before tax) during  the reporting
period (RMB thousand)

Wu Yong

Chairman of the Board of Directors—  

Hu Lingling

Executive Director and General Manager407.0

Shen Yi*

Executive Director—  

Sun Jing

Non-executive Director—  

Yu Zhiming

Non-executive Director—  

Chen Jianping

Non-executive Director—  

Luo Qing

Executive Director343.0

Chen Song

Independent Non-executive Director112.0

Jia Jianmin

Independent Non-executive Director143.0

Wang Yunting

Independent Non-executive Director112.0

Liu Mengshu

Chairman of the Supervisory Committee—  

Chen Shaohong

Supervisor—  

Shen Jiancong

Supervisor—  

Li Zhiming

Supervisor—  

Zhou Shangde

Supervisor Representing Employees340.0

Song Min

Supervisor Representing Employees310.0

Luo Jiancheng

Deputy General Manager—  

Mu Anyun*

Deputy General Manager345.0

Guo Xiangdong

Deputy General Manager, Secretary of the Board343.0

Tang Xiangdong

Chief Accountant342.0

Total:

2,797.0

(1)Those marked with asterisk (*) in the table represents that the person has resigned during the fiscal year ended December 31, 2016, of which: Mr. Shen Yi ceased to serve as the executive Director of the Company for the reason of age and Mr. Mu Anyun ceased to serve as the Deputy General Manager of the Company due to change of position.

The aggregate amount of cash remuneration paid by our Company in 20142016 to all individuals who are our directors, supervisors and senior management members was approximately RMB2.7RMB2.8 million, of which approximately RMB1.4 million was paid to ournon-independent directors and supervisors and approximately RMB0.4 million was paid to the independentnon-executive directors. The aggregate amount of cash remuneration we paid during the year ended December 31, 20142016 for pension and retirement benefits to all individuals who are currently our directors, supervisors and senior management members was approximately RMB0.2 million.

Interests of Our Directors, Supervisors and Other Senior Management in Our Share Capital

As of December 31, 2014,2016, there was no record of interests or short positions (including the interests or short positions which were taken or deemed to have under the provisions of the Hong Kong Securities and Futures Ordinance) held by our directors or supervisors in our shares, debentures or other securities, or securities of any of our associated corporation (within the meaning of the Hong Kong Securities and Futures Ordinance) in the register required to be kept under section 352 of the Hong Kong Securities and Futures Ordinance. We had not received notification of such interests or short positions from any of our directors or supervisors as required to be made to us and the HKSE pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in Appendix 10 to the HKSE Listing Rules. We have not granted any of our directors or supervisors, or any of their respective spouses or children under the age of 18, any right to subscribe for any of our shares or debentures.

Service Contracts of Our Directors and Supervisors

Each of our directors and supervisors has entered into a service agreement with us. Except as disclosed, no other service contract has been entered into between any of our subsidiaries or us on one hand, and any of our directors or supervisors on the others, that cannot be terminated by us within one year without payment of compensation (other than statutory compensation).

Contracts Entered into by Our Directors and Supervisors

None of our directors or supervisors had any direct or indirect material interests in any contract of significance subsisting during the year ended on December 31, 20142016 or as of December 31, 20142016 to which we or any of our subsidiaries was a party.

Remuneration of Our Directors and Supervisors

The level of remuneration of our directors and supervisors was determined by reference to various factors, including the prevailing rates of remuneration in Shenzhen, where we are located, and the job nature of each of our directors and supervisors. The remuneration and annual incentive of the Directors and the Supervisors will be considered and recommended by the Remuneration Committee and will be approved and authorized by the shareholders at shareholders’ general meetings of our Company. No Director or Supervisor is involved in determining hishis/her own remuneration.

 

C.Board Practices

Board of Directors

In accordance with our currently effective Articles of Association, our board of directors comprises nine directors, one of whom is the chairman. Directors are appointed at our shareholders’ general meeting through voting, and generally serve for a term of three years.years (except for Chen Jianping whose term is two years). Upon the expiration of the term of their office, they can serve consecutive terms ifre-appointed at the next shareholders’ general meeting. The service contracts that we have entered into with our directors do not provide for any payment of compensation upon termination. Our board of directors held five meetings during the year ended December 31, 2016.

Supervisory Committee

We have a supervisory committee consisting of five to seven supervisors. Supervisors generally serve a term of three years. Upon the expiration of their terms of office, they may bere-appointed to serve consecutive terms. The supervisory committee is presided over by a chairman who may be elected or removed with the consent oftwo-thirds or more of the members of the supervisory committee. The term of office of the chairman is three years, renewable uponre-election. Our supervisory committee currently consists of four representatives of the shareholders who may be elected or removed by our shareholders’ general meeting, and two representatives of our employees who may be elected by our employees at the employees’ congress or employees’ general meeting or through any other democratic means. Members of our supervisory committee may also attend meetings of the board of directors. The current members of our supervisory committee are: Liu Mengshu, Chen Shaohong, Shen Jiancong, Li Zhiming, Chen JianpingZhou Shangde and Song Min. All shareholder representatives of our supervisory committee were elected orre-elected at the annual shareholders’ general meeting held on May 29, 2014. Chen JianpingZhou Shangde and Song Min were elected as the Supervisors of our Company as employee representatives at the employees’ congress held in 2014. TheExcept for Zhou Shangde, whose term is two years, the term of thesethe remaining supervisors is 3three years. Our supervisory committee held sixfour meetings during the year ended December 31, 2014,2016, at which resolutions concerning our periodic reports, internal control evaluations and our dividend policy were passed and ratified. Our supervisors attended shareholders’ general meetings, meetings of our board of directors and other important meetings concerning our operation during the year ended December 31, 2014.2016. Our supervisory committee reviews the report of our directors, the financial report and proposed profit distribution presented by our board of directors at our annual general meeting of shareholders.

Supervisors attend board meetings asnon-voting members. The supervisory committee is accountable to the shareholders’ general meeting and has the following duties and responsibilities:

 

to examine our Company’s financial situation;

 

to supervise the performance of duties of the directors, general manager, deputy general managers and other senior management; to propose the dismissal of directors, general manager,managers, deputy general managers and other senior management who have violated any law, administrative regulations, the Articles of Association or resolutions of the shareholders’ general meetings;

 

to demand a director, general manager, deputy general manager or any other senior management to rectify such breach when the acts of such persons are harmful to our Company’s interest;

 

to propose the convening of shareholders’ general meetings, and to convene and chair the shareholders’ general meetings if the board of directors fails to perform this duty as stipulated in the Articles of Association;

 

to propose motions to shareholders’ general meetings; and

 

to initiate legal proceedings against any director, general manager, deputy general manager and other senior management in accordance with Article 152151 of the Company Law.

Supervisors may attend meetings of the board of directors and question or give advice on the resolutions of the board of directors.

The supervisory committee may conduct investigation if they find the operation of our Company unusual and may engage professionals such as lawyers, certified public accountants or practicing auditors to assist if necessary. All reasonable fees so incurred shall be borne by our Company.

Audit Committee

We have an audit committee consisting of three independentnon-executive directors. The current members of our audit committee, appointed by the Board of Directors, are Chen Song (Chairman), Jia Jianmin and Wang Yunting. Mr. Chen, Mr. Jia and Mr. Wang are “independent directors” of our Company as defined in Section 303A.02 of the NYSE Listed Company Manual. The audit committee must convene at least four meetings each year, and may invite the executive directors, persons in charge of the financial and audit departments and our independent auditors to participate. The audit committee must have at least two meetings with management and at least two meetings with the auditors each year without any executive directors present. Our audit committee held six meetings during the year ended December 31, 2016. The duties of the audit committee include:

 

reviewing the annual financial statements and interim financial statements of our Company, including the disclosures made by our Company in this annual report;

 

reviewing the financial reports and the reports of our Company prepared by the independent auditor and its supporting documents, including the review of the internal control and disclosure controls and procedures, and to discuss with the auditor the annual audit plan and solutions to problems in the previous year;

 

reviewing and approving the selection of and remuneration paid to the independent auditor;

pursuant to the resolutions of the annual general meeting, determining with the Board of Directors the annual auditing fees paid to our independent auditor;

 

reviewing with the management and the independent auditor the performance, adequacy and effectiveness of the internal controls and risk management, as well as any material deficiencies and weakness existing in the internal controls;

 

evaluating our Company’s performance in complying with industrial practices, market rules, and statutory duties, and the safeguarding of its own interests and the interests of its shareholders;

 

considering and determining whether any senior executive officer or senior financial personnel is in violation of their code of conduct, and the consequences for such a violation; and

 

overseeing the management of the retirement pension fund of our Company.

Remuneration Committee

We have a remuneration committee consisting of two executive Directors and three independentnon-executive Directors, namely, Wu Yong, Hu Lingling, Chen Song (chairman of remuneration committee), Jia Jianmin and Wang Yunting, Wu Yong and Shen Yi.Yunting. The remuneration committee will meet from time to time when required to considerremuneration-related matters of our Company.

The principal duties of the remuneration committee include reviewing and making recommendations to the Board for the remuneration packages for the Directors and the Supervisors of our Company. The remuneration policy of our Company seeks to provide, in the context of our business strategy, reasonable remuneration to attract and retain high caliber executives. The remuneration committee obtains benchmark information from internal and external sources in relation to market conditions, packages offered in the industry and the overall performance of our Company when determining the Directors’ and the Supervisors’ emoluments.

 

D.Employees

As of December 31, 2012, 20132014, 2015 and 2014,2016, we had approximately 34,573, 36,88637,301, 43,824 and 37,30144,609 employees, respectively. The increase in the number of our employees in 20142016 was primarily due to an increase in passenger and freight transportation and transit operation personnel, and electricity and water supplies personnel. The following chart sets forth the number of our employees by function as of December 31, 2014:

2016:

Function

  Employees 

Passenger and freight transportation and transit operation personnel(1) (2) (3)

   7,08519,989 

Freight transportationEngineering personnel(2)(4)

   1,9935,418 

Transit operationDriving personnel(3)(5)

   6,7604,428 

EngineeringPublic works personnel(4)(6)

   4,6424,510 

DrivingElectricity personnel(5)(7)

   2,9502,042 

Public worksElectricity and water supplies personnel(6)(8)

   3,9112,376 

ElectricityBuilding construction personnel(7)(9)

   1,4731,067 

Electricity and water supplies personnel(8)

2,082

Building construction personnel(9)

1,037

Various operations and other employees of subsidiaries(10)

   22269 

Technical and administrative personnel(11)

   4,4134,710 

Other employees(12)

   733115

 

Total

   37,30144,609

 

 

(1)Passenger transportation personnel mean those people that provide station boarding and train services and those people responsible for organization of freight transportation.
(2)Freight transportation personnel mean those people responsible for organization of freight transportation.
(3)Transit operation personnel mean those people responsible for providing station boarding services.
(4)Engineering personnel mean those people responsible for locomotive operation and overhaul.
(5)Driving personnel mean those people responsible for vehicle operation and overhaul.
(6)Public works personnel mean those people responsible for station track and railroad switch maintenance.
(7)Electricity personnel mean those people responsible for signal equipment maintenance.
(8)Electricity and water supplies personnel mean those people responsible for contact networkcatenary operation and overhaul as well as power and water consumption maintenance.
(9)Building construction personnel mean those people responsible for construction, apartments and dining halls.
(10)Various operations and other employees of subsidiaries mean all personnel involved in diversified businesses.
(11)Technical and administrative personnel mean all managerial personnel other than the personnel of diversified businesses.
(12)Other personnel include all personnel who have been sick, studying orearly-retired.

All of our employees are located in Guangzhou, Shenzhen, Pingshi and the area adjacent to ourShenzhen-Guangzhou-Pingshi line.

We have established a trade union to protect employees’ rights, assist in the fulfillment of their economic objectives, encourage employee participation in management decisions and assist in mediating disputes between the management and union members. Each of our train stations and railway units has a separate branch of the trade union. Most of our employees belong to the trade union. We have not experienced any strikes or other labor disturbances that have interfered with our operations in the past, and we believe that our relations with our employees are good.

We have implemented a salary policy which links our employees’ salaries with results of operations, labor efficiency and individual performance. Employees’ salaries distribution is subject to our overall operational results and is based on their performance records and reviews. In addition, pursuant to applicable government policies and regulations, we set aside statutory funds for our employees and also maintain various insurance policies for the benefits of our employees, including housing fund, retirement insurance, supplemental retirement insurance, basic and supplemental medical insurance, pregnancy-related medical insurance and other welfare programs. In 2014,2016, we paid approximately RMB4,968.0RMB6,219.3 million in aggregate salaries and benefits to our employees.

In addition, pursuant to an early retirement scheme implemented by our Company, certain employees who meet certain specified criteria were provided with the option to retire early and enjoy certain early retirement benefits, such as payments of the basic salary and other relevant benefits, offered by our Company, until they reach the statutory retirement age. Under the terms of the scheme, all applications are subject to our approval. Expenses incurred on such employee early retirement benefits have been recognized in the income statement when we approved such applications from the employees. The specific terms of these benefits vary among different employees, depending on their position held, tenure of service and employment location.

Details of our statutory welfare fund and retirement benefits are set out in Notes 2524 and 2827 to our audited consolidated financial statements included elsewhere in this annual report.

 

E.Share Ownership

As of April 28, 2015,26, 2017, none of our directors, supervisors or senior management owned any interest in any shares or options to purchase our shares.

ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.Major Shareholders

We are a joint stock company organized under the laws of the PRC in March 1996. Before the A Share Offering, GRGC, astate-owned enterprise under the administration of the MOR, owned approximately 66.99% of our outstanding ordinary shares. Although the equity interest held by GRGC decreased to approximately 41% after the completion of our initial public offering of A shares in December 2006 and further reduced to 37.1% as a result of the transfer by GRGC of a portion of its shares to the National Social Security Fund Council in September 2009, GRGC can still exercise substantial influence over our Company. In addition, before the dissolution of MOR on March 14, 2013, GRGC also actsacted as an administrative agent of the MOR that controls and coordinates railway operations in Guangdong Province, Hunan Province and Hainan Province. As an instrumentality of the MOR, GRGC performsperformed direct regulatory oversight functions with respect to us, including determining and enforcing technical standards and implementing special transportation directives.

OnAfter the dissolution of MOR on March 14, 2013, the de facto controller of GRGC, namely MOR, was dissolved. The MOR’s administrative functions were transferred to the MOT and its subordinate body, the newly established State Railway Administration, whereas its commercial functions, were transferred to the newly incorporated CRC, andtogether with its underlying assets, liabilities and staff, were all transferred to the newly incorporated the CRC. Since GRGC was a railway corporation directly under the former MOR, and its interests would bewere also transferred to the CRC (the “Transfer”). Uponafter the completion of the Transfer,Reform on January 1, 2017. As a result thereof, the de facto controlleractual controlling entity of theour Company’s largest shareholder of our Company would be changed tobecame the CRC.

Shareholding Structure of our Company

As of March 31, 2017, we had 365 record holders holding our H shares (including ADSs) and 259,826 record holders holding our A shares according to records we obtained from Computershare Hong Kong Investor Services Limited and CSDC, respectively. Set out below is the current shareholding structure of our Company as of April 28, 2015:the date hereof:

 

Name of Shareholders

  Type of
Shares
   Number of
Shares Held
   Shareholding
Percentage %
   Type of
Shares
   Number of Shares
Held
   Shareholding
Percentage %
 

Public Shareholders of H shares (including ADSs)

   H shares     1,431,300,000     20.2     H shares    1,431,300,000    20.2 

Guangzhou Railway (Group) Company

   A shares     2,629,451,300     37.1     A shares    2,629,451,300    37.1 

Other Public Shareholders of A shares(1)

   A shares     3,022,785,700     42.7     A shares    3,022,785,700    42.7 
    

 

   

 

 

Total

     7,083,537,000     100.0       7,083,537,000    100.0 
    

 

   

 

 

 

(1)On September 22, 2009, GRGC transferred 274,798,700 A shares held by it to the National Council for Social Security Fund in the PRC (the “NCSSF”) according to regulations issued by the relevant PRC authorities. Upon this transfer, the NCSSF has voluntarily agreed to extend the transfer restriction period associated with these shares for another three years. The transfer restriction of these 274,798,700 shares was expired on December 21, 2012. No shares were subject to sale restriction and all the shares achieved full circulation on December 24, 2012.

The following table sets forth information regarding ownership of our issued and outstanding capital stock as of April 28, 2015,20, 2017, including all persons who are known by us to own, either as beneficial owners or holders of record, 5% or more of our capital stock.

 

Title of Class

  Identity of
Person or
Group
   Amount Owned   Percentage
of Class of
Shares
   Percent of
Total Capital
   Identity of
Person or
Group
   Amount Owned   Percentage of
Class of
Shares
   Percent of
Total Capital
 

Ordinary Shares (A shares)(1)

   GRGC     2,629,451,300     46.5     37.1     GRGC    2,629,451,300    46.5    37.1 

 

(1)A shares held by GRGC are no longer restricted from sales and redemption starting from December 22, 2009.

The following table sets forth all persons who were known by us to beneficially own 5% or more of our issued and outstanding H shares as of April 21, 2015.20, 2017.

 

Identity of Person or Group

  Shares
Owned
   Percentage
of H Shares
   Percentage of
Total
Capital
   Shares
Owned
 Percentage
of H Shares
 Percentage  of
Total

Capital
 

BlackRock, Inc.

   271,821,893(L)   19.0  3.8
 1,182,000(S)   0.1  0.02

BlackRock Global Funds

   201,265,049(L)   14.1  2.8

FIL Limited

   200,376,000     13.99     2.83     162,788,000(L)   11.4  2.3

BlackRock, Inc.

   104,228,061     7.28     1.47  

Fidelity Funds

   125,726,000(L)   8.8  1.8

Note: (L) – Long Position, (S) – Short Position

As of the date of this annual report,hereof, we are not aware of any arrangement that may at a subsequent date result in a change of control of our Company.

In accordance with our Articles of Association, each share of our capital stock has one vote and the shares of the same class have the same rights. Other than restrictions on the controlling shareholder as described under “ITEM 10. ADDITIONAL INFORMATION—B. Memorandum and Articles of Association—Restrictions on Controlling Shareholders”,Shareholders,” the voting rights of our major holders of domestic shares are identical to those of any other holders of our domestic shares, and the voting rights of our major holders of H shares are identical to those of our other holders of H shares. Holders of domestic shares and H shares are deemed to be shareholders of different classes for some matters, which may affect their respective interests. Holders of H shares and domestic shares are entitled to the same voting rights.

 

B.Related Party Transactions

Under IAS 24, parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

The following table sets forth our principal related parties that do not control and are not controlled by our Company as of December 31, 2014.2016. For related parties that control or are controlled by our Company, see “ITEM 4. INFORMATION ON THE COMPANY—C. Organizational Structure”.

 

Name of related parties

  Relationship with Us

Single largest shareholder and its subsidiaries

  

GRGC

  Single largest shareholder

Guangzhou Railway Group YangChengYangcheng Railway Enterprise Development Company

  Subsidiary of GRGC

Guangmeishan Railway Company Limited

  Subsidiary of GRGC

Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company

  Subsidiary of GRGC

Guangzhou Railway Material Supply Company

  Subsidiary of GRGC

Guangzhou Railway Engineer Construction Enterprise Development Company

  Subsidiary of GRGC

Yangcheng Construction Company of YangChengYangcheng Railway Enterprise Development Company

  Subsidiary of GRGC

Guangzhou Railway Real Estate Construction Company

  Subsidiary of GRGC

Yuehai Railway Company Limited

  Subsidiary of GRGC

Shichang Railway Company Limited

  Subsidiary of GRGC

Guangzhou Railway Station Service Centre

  Subsidiary of GRGC

GSRC

Subsidiary of GRGC

Changsha Railway Construction Company Limited

  Subsidiary of GRGC

Guangdong Sanmao Railway Company Limited

 Subsidiary of GRGC

Guangzhou Qingda Transportation Company Limited

  Subsidiary of GRGC

Guangzhou Yuetie Operational Development Company

  Subsidiary of GRGC

Guangzhou Railway Railway Rolling Stock Works

  Subsidiary of GRGC

Foreign Economic & Trade Development Corporation of Guangzhou Railway Group

  Subsidiary of GRGC

Shenzhen Guangshen Railway Living Service Centre

  Subsidiary of GRGC

Guangzhou Yangcheng Living Service Centre

  Subsidiary of GRGC

Pajiangkou Stone Pit of Yangcheng Railway Enterprise Development Company

 Subsidiary of GRGC

Guangdong Tieqing International Travel Agency Company Limited

  Subsidiary of GRGC

Guangdong Sanmao Enterprise Development Company Limited

  Subsidiary of GRGC

Guangshengang Passenger Special Line Company
Limited(i)

 Subsidiary of GRGC

Guangdong Guangzhu Intercity Rail Transportation Company Limited(ii)

Subsidiary of GRGC

Huaihua Railway Engineer Construction Company

  Subsidiary of GRGC

Lechang Anjie Railway Sleeper Company Limited

  Subsidiary of GRGC

Xiashen Railway Guangdong Company Limited

  Subsidiary of GRGC

Ganshao Railway Company Limited

  Subsidiary of GRGC

Guangzhou Railway Economic Technology Development Corporation

  Subsidiary of GRGC

Hunan Changtie Industrial Development Co. Ltd.

Subsidiary of GRGC

Associates of the Group

  

Zengcheng Lihua

Associate of the Group

Guangzhou Tiecheng Enterprise Company Limited

  Associate of the Group

Shenzhen GuangshenGuangzhou Railway Civil Engineering Company

  Associate of the Group

(i)In March 2012, GRGC disposed of its investment in Guangshengang Passenger Special Line Company Limited. As a result, Guangshengang Passenger Special Line Company Limited was no longer considered as a related party of the Group since the day GRGC lost control of Guangshengang Passenger Special Line Company Limited. However, the transactions with Guangshengang Passenger Special Line Company Limited during the period from January 1, 2012 to the date loss of control were still disclosed as related party transactions.
(ii)In November 2012, GRGC disposed of its investment in Guangdong Guangzhu Intercity Rail Transportation Company Limited. As a result, Guangdong Guangzhu Intercity Rail Transportation Company Limited was no longer considered as a related party of the Group since the day GRGC lost control of Guangdong Guangzhu Intercity Rail Transportation Company Limited. However, the transactions with Guangdong Guangzhu Intercity Rail Transportation Company Limited during the period from January 1, 2012 to the date loss of control were still disclosed as related party transactions.

Since the Restructuring carried out in 1996 in preparation for our initial public offering, certain transactions between our Company and GRGC and the subsidiaries of GRGC, including Yangcheng Railway Company and Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company continued in the form ofcross-provision of goods and services.

We entered into the Framework Comprehensive Services Framework Agreement with GRGC on October 27, 2010, or the Framework Agreement, which governs the mutual provision of services between our Company and GRGC and the subsidiaries of GRGC, including Yangcheng Railway Company and Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company. The Framework Agreement has a term of three years beginning from January 1, 2011 and was approved by the independent shareholders at the extraordinary shareholders’ general meeting held on December 21, 2010. Upon its expiration, we entered into a second Framework Comprehensive Services Framework Agreement with GRGC on October 18, 2013. The continuing connected transactions contemplated thereunder, and the proposed annual caps in relation to the continuing connected transactions under the Framework Comprehensive Services Framework Agreement for the three financial years ending December 31, 2016 were approved by the independent shareholders at the extraordinary shareholders’ general meeting held on December 19, 2013. Upon its expiration, we entered into a new Comprehensive Services Framework Agreement with CRC on November 1, 2016, which governs the mutual provision of services between our Company, GRGC and the subsidiaries of GRGC and other companies of the CRC Group. The continuing connected transactions contemplated thereunder, and the proposed annual caps in relation to the continuing connected transactions under the Comprehensive Services Framework Agreement for the three financial years ending December 31, 2019 were approved by the independent shareholders at the extraordinary shareholders’ general meeting held on December 30, 2016.

According to the current Framework Agreement, the principal goodsscope of services between us and services provided by GRGC and some of its subsidiaries to usthe CRC Group include the following:

 

 (a)Mutual provision of railway transportation services, which comprise:

 

 (i)productionco-ordination, safety management and safety management;dispatching services;

 

 (ii)leasingapplication and rental services of railway infrastructuresinfrastructure and transportation equipment;

 

 (iii)railway communications services;

(iv)railway network services (including but not limited to passenger related services, provisionwater supply in trains, use of water to trains, railway track usage, locomotivelines, traction and electricity provisionsupply for locomotives and ticket sale services);

 

 (iv)(v)passengercrew services; and

 

 (v)(vi)cleaning services of locomotives, trains and railway stations.

 

 (b)Mutual provision of railway related services, which comprise:

 

 (i)repair services of railway infrastructuresinfrastructure and transportation equipment;

 

 (ii)locomotiverepair services of locomotives and train repair services;trains;

 

 (iii)purchaseprocurement and salesales services of railway related materials;

 (iv)security services;

 

 (v)hygiene and epidemic prevention services;

(vi)property management and building maintenance services; and

 

 (vi)(vii)project construction, management and supervision services.

In addition to the above, GRGC and its subsidiaries also provide scheduling, railway communication and hygiene and epidemic prevention services to the Group Companies.

The prices at which these goods and services are provided to us by GRGC and its subsidiaries are determined according to the following principles:

 (a)(c)ForWe will provide special entrusted railway transportation services:services to the CRC Group, which include but are not limited to:

 

 (i)operation and management of passengers and freight transportation and related services; and

(ii)repair services of transportation facilities and equipment.

(d)Mutual provision of miscellaneous services between us and the CRC Group that are necessary for the proper functioning of railway transportation and operation.

The prices at which these mutual goods and services are provided under the current Framework Agreement are determined according to the following priority:

(a)the prices as determined by Chinese government;

(b)if the prices are not specified by Chinese government, the prices will be determined in accordance with the applicable industry settlement rules; pricing standards and rules of national railways within the guidance prices set by Chinese government;

(c)if unavailable, the prices willare not specified by Chinese government and Chinese government has not set applicable guidance prices, the prices shall be determined in accordance with the guidance prices set by the government.applicable industry price settlement rules;

 

 (ii)(d)if neitherexcept for applying the applicableprices specified by Chinese government, the guidance prices set by Chinese government and the industry settlement rules, nor the government guidanceif there are comparable market prices is available,or pricing standards, priority shall be given to such market prices or pricing standards as reference points to determine the prices will be determined based on the market prices after negotiation between the parties, provided that the prices will be fixed on normal commercial terms or on terms no less favorable than those available to or from independent third parties for the same or similar type of services under prevailing local market conditions.upon negotiation;

 

 (b)(e)For railway related services:if none of the above-mentioned pricing standards is available, the prices shall be determined with reference to the prices of non-connected transactions between the connected parties and independent third parties; and

 

 (i)(f)if neither comparable market prices nor prices of non-connected transactions are available for reference, the prices willshall be determined in accordance with applicable industry standard fees and agreed betweenupon negotiation according to the parties subject toaggregate of the total actual situation.

(ii)if the applicable industry standard fees are not available, the prices will be determined based on the cost incurred incosts for providing the relevant services, plus reasonable profits after negotiation between the parties, provided that the prices will be fixed on normal commercial terms or on terms no less favorable than those available to or from independent third parties for the same or similar type of services under prevailing local market conditions.and taxes and additional charges paid.

The chart below sets forth the material transactions we undertook with related parties for the periods indicated:

 

   Year ended December 31, 
   2012   2013   2014 
   (RMB thousands) 

Provide services and sales of goods

      

Transportation-related services

      

Provision of train transportation services to GRGC and its subsidiaries(i)

   352,973     367,745     424,743  

Revenue collected by CRC for railway network usage and related services provided to GRGC and its subsidiaries(ii)

   1,238,431     1,255,572     1,153,630  

Revenue from railway operation service provided to GRGC’s subsidiaries(iii)

   278,669     76,480     359,740  
  

 

 

   

 

 

   

 

 

 
 1,870,073   1,699,797   1,938,113  
  

 

 

   

 

 

   

 

 

 

Other services

Sales of materials and supplies to GRGC and its subsidiaries(iv)

 11,218   24,174   22,579  
  

 

 

   

 

 

   

 

 

 

Receive services and purchase

Transportation-related services

Provision of train transportation services by GRGC and its subsidiaries(i)

 653,787   665,189   633,382  

Cost settled by CRC for railway network usage and related services provided by GRGC and its subsidiaries(ii)

 1,578,108   1,564,499   1,436,711  

Operating lease rental paid to GRGC for the leasing of land use rights

 54,800   56,000   53,962  
  

 

 

   

 

 

   

 

 

 
 2,286,695   2,285,688   2,124,055  
  

 

 

   

 

 

   

 

 

 

Other services

Social services (employee housing and public security services and other ancillary services) provided by GEDC and Yangcheng Railway(iii)

 93,090   67,990   12,430  

Provision of repair and maintenance services by GRGC and its subsidiaries(iv)

 240,761   346,831   295,283  

Purchase of materials and supplies from GRGC and its
subsidiaries(v)

 766,309   666,771   560,034  

  Year ended December 31,   Year ended December 31, 
  2012   2013   2014   2014   2015   2016 
  (RMB thousands)   (RMB thousands) 

Provision of services and sales of goods

      

Railroad and Related Business

      

Provision of train transportation services to GRGC and its
subsidiaries
(i)

   424,743    751,956    1,425,538 

Revenue collected by the CRC for railway network usage and related services provided to GRGC and its subsidiaries(ii)

   1,153,630    1,180,852    1,400,876 

Revenue from railway operation service provided to GRGC’s subsidiaries(iii)

   359,740    550,168    579,253 
  

 

   

 

   

 

 
   1,938,113    2,482,976    3,405,667 

Other Businesses

      

Sales of materials and supplies to GRGC and its subsidiaries(iv)

   22,579    25,940    29,449 

Services received and purchases made

      

Railroad and Related Business

      

Provision of train transportation services by GRGC and its
subsidiaries
(i)

   633,382    888,903    989,778 

Cost settled by the CRC for railway network usage and related services provided by GRGC and its subsidiaries(ii)

   1,436,711    1,406,962    1,628,336 

Operating lease rental paid to GRGC for the leasing of land use rights

   53,962    55,090    55,090 
  

 

   

 

   

 

 
   2,124,055    2,350,955    2,673,204 
  

 

   

 

   

 

 

Other Businesses

      

Social services (employee housing and public security services and other ancillary services) provided by GEDC(iii)

   12,430    16,080    11,297 

Provision of repair and maintenance services by GRGC and its subsidiaries(iv)

   295,283    489,038    306,988 

Purchase of materials and supplies from GRGC and its subsidiaries(v)

   560,034    384,262    469,273 

Provision of construction services by GRGC and its subsidiaries(vi)

   287,903     229,999     280,983     280,983    226,089    347,409 

Others

   —       12,889     8,729     8,729    —      —   
  

 

   

 

   

 

   

 

   

 

   

 

 
 1,388,063   1,324,480   1,157,459     1,157,459    1,115,469    1,134,967 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

(i)The service charges are determined based on a pricing scheme set by the MORCRC or based on negotiation between the contracting parties with reference to fullactual cost principle.incurred.
(ii)Such revenues/charges are determined by the MORCRC based on its standard charges applied on a nationwide basis.
(iii)The service charges are levied based on contract prices determined based on costa “cost plus a profit marginmargin” and explicitly agreed between both contract parties.
(iv)The prices are determined based on mutual negotiation between the contracting parties with reference to fullactual cost principle.incurred.
(v)The prices are determined based on mutual negotiation between the contracting parties with reference to procurement cost plus a management fee rangeranging from 0.3% to 5%.
(vi)Based on construction amount determined under national railway engineering guidelines.

We had the following material balances with our related parties as of the dates indicated:

 

  As of December 31,   As of December 31, 
  2013   2014   2015   2016 
  (RMB thousands)   (RMB thousands) 

Trade receivables

   326,826     765,098     862,199    730,061 

- GRGC(i)

   196,439     260,554     96,314    229,056 

- Subsidiaries of GRGC(i)

   130,387     504,544     765,885    501,005 

Prepayments and other receivables

   88,735     47,733     7,788    25,961 

- GRGC

   40,170     5,399     6,011    691 

- Subsidiaries of GRGC

   44,166     37,560     1,777    25,270 

- Associates

   16,711     17,086  

Less: impairment provision(iii)

   (12,312   (12,312

Prepayments for fixed assets and construction-in-progress

   1,092     1,092     1,092    225 

- GRGC

   1,092     1,092     1,092    —   

- Subsidiaries of GRGC(ii)

   —      225 

Trade payables

   273,146     617,822     431,650    533,051 

- GRGC(i)

   34,137     119,953     24,467    61,486 

- Subsidiaries of GRGC(ii)

   237,847     433,805     366,015    432,712 

- Associates

   1,162     64,064     41,168    38,853 

Payables for fixed assets and construction-in-progress

   174,522     208,955     185,339    249,308 

- GRGC

   3,859     12,610     18,829    10,805 

- Subsidiaries of GRGC

   131,170     159,381     128,871    168,038 

- Associates

   39,493     36,964     37,639    70,465 

Accruals and other payables

   50,298     29,057     399,634    430,331 

- GRGC

   1,179     4,133     1,891    5,663 

- Subsidiaries of GRGC(iv)

   43,963     20,600  

- Associates(v)

   5,156     4,324  

- Subsidiaries of GRGC(iii)

   396,590    422,877 

- Associates(iv)

   1,153    1,791 

 

(i)The trade balances due from/to GRGC, subsidiaries of GRGC mainly represented service fees and charges payable and receivable balances arising from the provision of passenger transportation and cargo forwarding businesses jointly with these related parties within the PRC.
(ii)The trade payables due to subsidiaries of GRGC mainly represented payables arising from unsettled fees for purchase of materials and provision of other services according to various service agreements entered into between the Group and the related parties.
(iii)Impairment loss provision set up against a receivable balance due from Zengcheng Lihua, which was brought forward from prior years.
(iv)The other payables due to subsidiaries of GRGC mainly represented the performance deposits received for construction projects and deposits received from ticketing agencies.
(v)(iv)The other payables due to associates mainly represented the performance deposits received for construction projects operated by associates.

As of December 31, 2014,2016, all the balances maintained with related parties are unsecured,non-interest bearing and are repayable on demand.

Our related party transactions have been carried out on normal commercial terms according to the HKSE Listing Rules and the contracts we entered into with our related parties. Except for the transactions discussed in this section, no other material related party transactions were entered into in 2014.2016. Our independentnon-executive directors have confirmed that these transactions (which are “connected transactions” as defined in the HKSE Listing Rules) entered into by us in 20142016 were entered into in the ordinary and usual course of our business on normal commercial terms and in accordance with the terms of an agreement governing such transactions.

Transaction with the CRC and other railway companies

The MOR wasOn March 14, 2013, pursuant to the approved plan on State Council Institutional Reform and Transformation of Government Functions and Approval On Setting Up China Railway Company by the State Council, the previous controlling entity of GRGC, MOR, was dissolved. The administrative function of MOR was transferred to the single largest shareholderMOT and the newly established National Railway Bureau, and its business functions were transferred to the CRC. Accordingly, the equity interests of our Company and also centrally managedGRGC, which was previously wholly controlled by MOR, were transferred to the railway business within the PRC. CRC. The Reform was completed on January 1, 2017.

We workedwork in cooperation with the MORCRC and other railway companies owned and controlled by the MOR to operateCRC for the operation of certain long-distancelong distance passenger train transportation and freight transportation servicesbusinesses within the PRC. The related revenue wasrevenues generated from these long-distance passenger and freight transportation businesses are collected by other railway companies, which was then remitted to the MOR and centrally processed. A certain portion of the revenue so collected was allocated to our Company for the use of our rail lines or for services rendered by us in connection with the delivery of these services. On the other hand, our Company was also allocatedsettled by the MOR certainCRC according to its settlement systems. The charges for the use of the rail lines and services provided by other railway companies. Such allocations were determinedcompanies are also instructed by the MORCRC and settled by the CRC based on its standard charges applied on a nationwide basis.

The MOR was dissolved in March 2013 during the First Session of the 12th National People’s Congress of the PRC. The China Railway Corporation will perform the commercial functions previously performed by the MOR. Accordingly, the equity interests of GRGC which was wholly owned by MOR previously will be transferred to CRC. Once the transfer is completed, the actual controlling entity of our Company’s largest shareholder will become CRC.systems. Since March 2013, the collecting, processing and distribution functionfunctions of revenues, which were previously executed by MOR, previously hadhave been transferred to the CRC. The revenues generated from the long-distance passenger train transportation and freight transportation businesses are collected and settled by CRC together with the subsidiaries transferred from MOR (the “CRC Group”) on behalf of our Company through CRC’s settlement systems. As ofat December 31, 2014,2016, the cooperation mode and pricing model didhad not change.been subject to any material changes.

The chart below sets forth the material transactions our Company undertook with the MOR forCRC and its subsidiaries during the periods indicated prior to March 2013 and with CRC together with the subsidiaries which were wholly owned by MOR previously after March 2013.last three fiscal years. Unless otherwise specified, the transactions disclosed below have excluded the transactions with GRGC and its subsidiaries:

 

   Year ended December 31, 
   2012   2013   2014 
   (RMB thousands) 

Provide services and sales of goods

      

Transportation-related services

      

Provision of train transportation services to CRC Group(i)

   141,664     30,450     5,229  

Revenue collected by CRC for services provided to CRC Group(ii)

   2,235,810     2,070,966     1,706,558  

Revenue from railway operation service provided to CRC Group(vi)

   824,126     968,477     950,966  
  

 

 

   

 

 

   

 

 

 
 3,201,600   3,069,893   2,662,753  
  

 

 

   

 

 

   

 

 

 

Other services

Provision of repairing services for cargo trucks to CRC Group(ii)

 247,335   286,265   259,470  

Sales of materials and supplies to CRC Group(iv)

 107,759   65,897   43,239  

Provision of apartment leasing services to CRC Group(iv)

 —     780   732  
  

 

 

   

 

 

   

 

 

 
 355,094   352,942   303,441  
  

 

 

   

 

 

   

 

 

 

Receive services and purchase of goods

Transportation-related services

Provision of train transportation services by CRC Group(i)

 213,755   264,372   292,866  

Cost settled by CRC for services provided by CRC Group(ii)

 1,425,412   1,457,451   1,265,873  
  

 

 

   

 

 

   

 

 

 
 1,639,167   1,721,823   1,558,739  
  

 

 

   

 

 

   

 

 

 

Other services

Provision of repair and maintenance services by CRC Group(iii)

 51,810   68,963   28,531  

Purchase of materials and supplies from CRC Group(v)

 390,314   131,061   9,317  
  

 

 

   

 

 

   

 

 

 
 442,124   200,024   37,848  
  

 

 

   

 

 

   

 

 

 

   Year ended December 31, 
   2014   2015   2016 
   (RMB thousands) 

Provision of services and sales of goods

      

Railroad and Related Business

      

Provision of train transportation services to the CRC Group(i)

   5,229    36,515    29,794 

Revenue collected by the CRC for services provided to the CRC Group(ii)

   1,706,558    1,752,666    1,777,640 

Revenue from railway operation service provided to the CRC Group(iii)

   950,966    1,421,995    1,628,143 
  

 

 

   

 

 

   

 

 

 
   2,662,753    3,211,176    3,435,577 
  

 

 

   

 

 

   

 

 

 

Other Businesses

      

Provision of repairing services for cargo trucks to the CRC Group(ii)

   259,470    284,348    323,993 

Sales of materials and supplies to the CRC Group(iv)

   43,239    38,395    7,073 

Provision of apartment leasing services to the CRC Group(iv)

   732    762    641 
  

 

 

   

 

 

   

 

 

 
   303,441    323,505    331,707 

Services received and purchases made

      

Railroad and Related Business

      

Provision of train transportation services by the CRC Group(i)

   292,866    277,138    292,754 

Cost settled by the CRC for services provided by the CRC Group(ii)

   1,265,873    1,365,352    1,376,047 
  

 

 

   

 

 

   

 

 

 
   1,558,739    1,642,490    1,668,801 

Other Businesses

      

Provision of repair and maintenance services by the CRC Group(iv)

   28,531    2,813    42,954 

Purchase of materials and supplies from the CRC Group(v)

   9,317    33,591    15,220 

Provision of construction services by the CRC Group(vi)

   —      13,538    4,385 
  

 

 

   

 

 

   

 

 

 
   37,848    49,942    62,559 
  

 

 

   

 

 

   

 

 

 

 

(i)The service charges are determined based on a pricing scheme set by the MORCRC or based on negotiation between the contracting parties with reference to full cost principle.actual costs incurred.
(ii)Such revenues/charges are determined by the MORCRC based on its standard charges applied on a nationwide basis.
(iii)The service charges are levied based on contract prices determined based on costa “cost plus a profit marginmargin” and explicitly agreed between both contracting parties.
(iv)The prices are determined based on mutual negotiation between the contracting parties with reference to full cost principle.actual costs incurred.
(v)The prices are determined based on mutual negotiation between the contracting parties with reference to procurement cost plus management fee ranged from 0.3% to 5%.
(vi)Based on construction amounts determined under national railway engineering guidelines.

The chart below sets forth the revenue collected and settled through the MOR/CRC for the periods indicated:

 

  Year ended December 31,   Year ended December 31, 
  2012   2013   2014  ��2014   2015   2016 
  (RMB thousands)   (RMB thousands) 

Passenger transportation

   7,522,886     7,740,887     6,630,629     6,630,629    6,642,129    6,960,491 

Freight transportation

   764,359     871,173     920,255     920,255    1,022,025    1,105,061 

Luggage and parcel

   —       100,884     148,863     148,863    86,199    86,883 
  

 

   

 

   

 

   

 

   

 

   

 

 
 8,287,245   8,712,944   7,699,747     7,699,747  �� 7,750,353    8,152,435 
  

 

   

 

   

 

   

 

   

 

   

 

 

We cooperate with the CRC and other railway companies owned and controlled by the CRC for the operation of certain long distance passenger trains and freight transportation businesses within the PRC. The revenues generated from these long-distance passenger trains and freight transportation businesses are collected and settled by the CRC Group on our behalf through the CRC’s nationwide settlement systems.

We had the following material balances maintained with the CRC Group as of December 31, 20132015 and December 31, 2014:2016:

 

  As of December 31,   As of December 31, 
  2013   2014   2015   2016 
  (RMB thousands)   (RMB thousands) 

Due from CRC Group

    

Due from the CRC Group

    

Trade receivables

   667,800     643,182     897,030    1,443,272 

Other receivables

   1,452     9,411     6,700    4,672 

Due to CRC Group

    

Due to the CRC Group

    

Trade payables

   150,292     37,843     62,709    65,496 

Other payables

   321     294     19,968    15,901 

 

C.C.Interests of Experts and Counsel

Not applicable

 

ITEM 8.ITEM 8.FINANCIAL INFORMATION

 

A.A.Consolidated Statements and Other Financial Information

A.1 – A.6:

See pagesF-1 toF-79 F-78 following ITEM 19.

 

A.7Legal Proceedings

We have been unable to recover the deposit from Li Cheng Credit Cooperative (“Li Cheng”) upon maturity. We have initiated several legal proceedings against Li Cheng in order to enforce recovery but so far have not succeeded. As a result, for the year ended December 31, 2012, 2013 and 2014, we had a provision for impairment loss of RMB31.36 million, RMB24.97 million and RMB24.97 million respectively, against the principal balance of a deposit placed with Li Cheng.

Except as disclosed, we are not a party to any material legal proceeding and no material legal proceeding is known to us to be pending against us or with respect to our properties.

A.8Dividend Distributions

We make decisions concerning the payment of dividends on an annual basis. Any dividends are paid at the discretion of our board of directors, which makes a recommendation in this regard that must be confirmed at our annual general meeting. Our Articles of Association permit us to distribute dividends from profits more than once a year. The amount of these interim dividends cannot exceed 50% of our distributable income as stated in our interim profit statements. In accordance with our Articles of Association, the amounts available for the purpose of paying dividends will be deemed to be the lesser of:

 

netafter-tax income determined in accordance with PRC accounting standards and regulations; and

 

netafter-tax income determined in accordance with either international accounting standards or the accounting standards of the countries in which our shares are listed.

See “ITEM 10. ADDITIONAL INFORMATION—E. Taxation” for a discussion of the tax consequences related to the receipt of dividends.

Our Articles of Association prohibit us from distributing dividends without first making up for cumulative losses from prior periods (determined in accordance with PRC accounting standards) and making all tax and other payments required by law. Further, prior to the payment of dividends, our profits are subject to deductions such as allocations to a statutory common reserve fund. The common reserve fund may be used to make up losses or be converted into share capital or reinvested.

Our Articles of Association require that cash dividends in respect of H shares be declared in RMB and paid in Hong Kong dollars at the average of the exchange rate as published by the People’s Bank of ChinaPBOC for each day of the calendar week preceding the date of the dividend declaration. To the extent that we are unable to pay dividends in Hong Kong dollars from our own foreign exchange resources, we will have to obtain Hong Kong dollars through the interbank system or by other permitted means. Hong Kong dollar dividend payments will be converted by the depositary and distributed to holders of ADSs in U.S. dollars.

On March 25, 2015,29, 2017, our Board of Directors proposed a final dividend distribution of RMB0.05RMB0.08 per share to our shareholders for the year ended December 31, 2014.2016. The final dividend payment is expected to be approved by our shareholders at our annual general meeting of shareholders to be held on May 28, 2015.June 15, 2017.

 

B.B.Significant Changes

Other than events already mentioned in this annual report, there have been no significant changes since December 31, 2014.2016.

 

ITEM 9.ITEM 9.THE OFFER AND LISTING

 

A.A.Offer and Listing Details

Price Range of our H shares and ADSs

As of December 31, 20142016 and April 21, 2015,20, 2017, there were 1,431.3 million H shares issued and outstanding. As of December 31, 20142016 and April 21, 2015,20, 2017, there were 3,299,9102,204,237 ADSs and 3,011,7242,204,237 ADSs outstanding held by 155139 and 153137 registered holders, respectively.

The HKSE is the principalnon-US trading market for our H shares. The ADSs, each representing 50 H shares, have been issued by JPMorgan Chase Bank as depositary and are listed on the NYSE. The following table sets forth, for the periods indicated, the reported high and low closing sales prices for our securities on each of these stock exchanges:

   New York Stock
Exchange
   HKSE 

Calendar Period

  High   Low   High   Low 
   (USD per ADS)   (HKD per H share) 

Annual highs and lows

        

2010

   22.26     16.03     3.48     2.56  

2011

   21.67     13.82     3.40     2.22  

2012

   21.38     13.97     3.37     2.19  

2013

   28.17     18.73     4.48     2.81  

2014

   24.59     18.05     3.82     2.79  

Quarterly highs and lows

        

First Quarter 2013

   26.75     19.34     4.23     3.01  

Second Quarter 2013

   25.22     18.73     4.00     2.81  

Third Quarter 2013

   27.40     19.49     4.48     3.00  

Fourth Quarter 2013

   28.17     21.03     4.37     3.28  

First Quarter 2014

   23.76     19.95     3.72     3.09  

Second Quarter 2014

   22.14     18.05     3.44     2.79  

Third Quarter 2014

   23.10     18.57     3.58     2.86  

Fourth Quarter 2014

   24.59     19.32     3.82     3.06  

Monthly highs and lows

        

October 2014

   21.44     19.32     3.36     3.06  

November 2014

   22.21     20.46     3.44     3.19  

December 2014

   24.59     20.86     3.82     3.25  

January 2015

   25.94     23.74     4.05     3.73  

February 2015

   25.30     24.25     3.94     3.79  

March 2015

   25.23     22.54     3.96     3.48  

April 2015 (through April 21, 2015)

   32.27     23.54     5.18     3.60  
   New York Stock
Exchange
   HKSE 

Calendar Period

  High   Low   High   Low 
   (USD per ADS)   (HKD per H share) 

Annual highs and lows

        

2012

   21.38    13.97    3.37    2.19 

2013

   28.17    18.73    4.48    2.81 

2014

   24.59    18.05    3.82    2.79 

2015

   34.85    18.92    5.43    2.92 

2016

   30.50    20.51    4.92    3.11 

Quarterly highs and lows

        

First Quarter 2015

   26.00    23.04    4.14    3.48 

Second Quarter 2015

   34.85    23.54    5.43    3.60 

Third Quarter 2015

   27.39    18.92    4.27    2.92 

Fourth Quarter 2015

   26.69    19.93    4.34    3.13 

First Quarter 2016

   24.43    20.51    3.90    3.11 

Second Quarter 2016

   25.74    21.22    4.05    3.30 

Third Quarter 2016

   27.51    22.74    4.38    3.52 

Fourth Quarter 2016

   30.50    25.58    4.92    3.97 

Monthly highs and lows

        

October 2016

   28.44    25.71    4.43    3.97 

November 2016

   27.99    25.58    4.32    3.98 

December 2016

   30.50    26.23    4.92    4.08 

January 2017

   33.18    29.96    5.17    4.63 

February 2017

   32.43    30.34    5.15    4.69 

March 2017

   32.34    30.10    5.03    4.63 

April 2017 (through April 20, 2017)

   31.60    30.08    4.97    4.60 

During the year ended December 31, 2014,2016, we did not purchase, sell or redeem any of our H shares.

In addition to our H Shares, our A shares have been listed for trading on the Shanghai Stock Exchange starting from December 22, 2006.

 

B.B.Plan of Distribution

Not applicable.

 

C.C.MarketsMarkets

Our H shares are listed on the HKSE under the stock code “00525” and American Depositary Shares representing our H shares are listed on the NYSE under the stock code “GSH”.“GSH.” Our A shares are listed for trading on the Shanghai Stock Exchange under the stock code “601333.”

 

D.D.Selling Shareholders

Not applicable.

 

E.E.Dilution

Not applicable.

F.DilutionExpenses of the Issue

Not applicable.

 

F.Expenses of the Issue

Not applicable.

ITEM 10.ADDITIONAL INFORMATION

We were established as a joint stock limited company under the Company Law of the PRC on March 6, 1996. Our legal name isLOGOLOGO , and its English translation is Guangshen Railway Company Limited.

A.A.Share Capital

We issued a total of 2,747,987,000 A shares in our initial public offering of A shares on the PRC domestic market in December 2006, and raised proceeds of approximately RMB10.0 billion. Each A share has a par value of RMB1.00 and has been listed for trading on the Shanghai Stock Exchange.

The total number of shares of our Company after the A Share Offering is 7,083,537,000. As of December 31, 2014,2016, our issued share capital consisted of:

 

 Number of
shares
 Percentage of
shares (%)
   Number of
shares
   Percentage of
shares (%)
 

Type of share capital

      

Domestic tradable shares without restriction on sales (A shares)

 5,652,237,000   79.8     5,652,237,000    79.8 

H shares

 1,431,300,000   20.2     1,431,300,000    20.2 
 

 

  

 

   

 

   

 

 

Total

 7,083,537,000   100.0     7,083,537,000    100.0 
 

 

  

 

   

 

   

 

 

Public Float

As of April 28, 2015,26, 2017, at least 25% of our total issued share capital was held by the public, as required under the HKSE Listing Rules.

Pre-Emptive Rights

There is no provision in our Articles of Association or under the laws of the PRC which provides forpre-emptive rights of our shareholders.

 

B.B.Memorandum and Articles of Association

Our shareholders previously adopted the amended and restated Articles of Association at an annual shareholders’ general meeting held on June 25, 2009, which was filed as an exhibit to our annual report on Form 20-F with the SEC on June 22, 2010. On September 27, 2012 and May 28, 2015, our shareholders passed resolutions to make additional amendments to the Articles of Association, the full text of which was filed as an exhibit to our annual report on Form 20-F with the SEC on April 27, 2016. On May 26, 2016, our shareholders passed resolutions to make additional amendments concerning the scope of the business of the Company set forth in Article 13 of the Articles of Association, the full text of which is filed as Exhibit 1.1 hereto.

Described below is a summary of the significant provisions of our amended and restated Articles of Association as currently in effect. As this is a summary, it does not contain all the information that may be important to you. Our current Articles of Association took effect on June 25, 2009, the full text of which was filed as Exhibit 1.1 to our annual report onForm 20-F filed with the SEC on June 22, 2010.

General

We are a joint stock limited company established in accordance with the Company Law of China, the Rules of the State Council on the Overseas Issuance and Listings and other relevant laws and regulations of the PRC. Our Company was established by way of promotion with approval evidenced by the document “Ti Gai Sheng” [1995] No. 151 of the PRC’s State Commission Forfor Economic Restructuring. We were registered with and obtained a business license from the Administration for Industry Andand Commerce of Shenzhen, Guangdong Province on March 6, 1996. The number of our business license is Shen Si Zi 4403011022106. Article 12 of our Articles of Association states that our object is to carry on the business of railway transportation.

Significant Differences between H shares and A shares

Holders of H shares and A shares (also referred to as domestic shares), with minor exceptions, are entitled to the same economic and voting rights. However, our Articles of Association provide that holders of H shares will receive dividends in Hong Kong dollars while holders of A shares will receive dividends in RMB. Other differences between the rights of holders of H shares and A shares relate primarily to ownership and transferability. H shares may only be subscribed for and owned by legal and natural persons of any country other than the PRC (excluding Taiwan, Hong Kong, and Macau), and must be subscribed for, transferred and traded in a foreign currency. Other than the limitation on ownership, H shares are freely transferable in accordance with our Articles of Association. A shares may only be subscribed for and owned by legal or natural persons in the PRC (excluding Taiwan, Hong Kong and Macau), and must be subscribed for and traded in RMB. Transfers of A shares are subject to restrictions set forth under PRC rules and regulations, which are not applicable to H shares. Transfers of A shares owned by our directors or employees are also subject to restrictions under PRC rules and regulations. A shares and H shares are also distinguished by differences in administration and procedure, including provisions relating to notices and financial reports to be sent to shareholders, dispute resolution, registration of shares on different parts of the register of shareholders, the method of share transfer and appointment of dividend receiving agents.

Restrictions on Transferability

H shares may be traded only among foreign investors, and may not be sold to PRC investors (except investors from Hong Kong, Macau and Taiwan). PRC investors (except investors from Hong Kong, Macau and Taiwan) are not entitled to be registered as holders of H shares. Under our Articles of Association, we may refuse to register a transfer of H shares unless:

 

relevant transfer fees have been paid, if any;

 

the instrument of transfer only involves H shares;

 

the stamp duty chargeable on the instrument of transfer has been paid;

 

the relevant share certificate and, upon the reasonable request of the board of directors, any evidence in relation to the right of the transferor to transfer the shares have been submitted;

 

if the shares are being transferred to joint owners, the maximum number of joint owners does not exceed four; and

 

we do not have any lien on the relevant shares.

Dividends

Unless otherwise resolved by a shareholders’ general meeting, we may distribute dividends more than once a year, provided that the amount of interim dividends to be distributed shall not exceed 50% of the distributable profit as stated in our interim profit statement. In accordance with our Articles of Association, our net profit for the purpose of profit distribution will be deemed to be the lesser of the amount determined in accordance with:

 

PRC accounting standards and regulations; and

 

international accounting standards or the accounting standards of the countries in which our shares are listed.

Our Articles of Association allow for distributions of dividends in the form of cash or shares, and encourage the Board to first consider a payment of cash dividends as opposed to share dividends. In particular, according to our Articles of Association, interim dividends may be distributed by way of cash dividends. Dividends may only be distributed, however, after allowance has been made in the following sequence:

 

making up losses;

 

allocations to the statutory common reserve fund;

 

allocations to the discretionary common reserve fund upon the approval of shareholders at a general meeting; and

 

payment of dividends in respect of ordinary shares.

The board of directors shall, in accordance with the laws and administrative regulations of the State (if any) and our Company’s operation and development requirements, determine the proportions of allocations to the discretionary common reserve fund and payment of ordinary share dividends subject to approval of shareholders at the general meeting. The Company may not distribute any dividend before making up for its losses and allocating funds to the statutory common reserve fund.

Our Articles of Association require us to appoint on behalf of the holders of H shares a receiving agent to receive on behalf of these shareholders dividends declared and all other moneys in respect of the H shares. The receiving agent appointed shall be a company that is registered as a trust company under the Trustee Ordinance of Hong Kong. Our Articles of Association require that cash dividends in respect of H shares be declared in RMB and paid by us in Hong Kong dollars. If we record no profit for the year, we may not normally distribute dividends for the year.

Voting Rights and Shareholder Meetings

Shareholders’ general meetings can be annual shareholders’ general meetings or extraordinary general meetings. Shareholders’ meetings shall be convened by the board of directors. The board of directors shall convene an annual shareholders’ meeting within six months from the end of the preceding accounting year. The shareholders provide us with principal authority at general meetings. We exercise our functions and powers in compliance with our Articles of Association.

We are not permitted to enter into any contract with any person other than a director, supervisor, general manager, deputy general manager, or other senior officers of our Company whereby the management and administration of the whole of our Company or any material business of our Company is to be handed over to such person without the prior approval of the shareholders in a general meeting.

The board of directors shall convene an extraordinary shareholders meeting within two months if any one of the following circumstances occurs:

 

the number of directors falls short of the number stipulated in the Company Law of the PRC or ourby-laws or is belowtwo-thirds of the number required in our Articles of Association;

 

our unrecovered losses that have not been made up amount toone-third of ourpaid-in share capital;

 

shareholder(s), severally or jointly, holding 10% or more of our issued shares carrying the right to vote make a request in writing to convene an extraordinary general meeting;

 

the board of directors considers it necessary; or

 

the supervisory committee proposes to convene such a meeting.

Where we convene a shareholders’ general meeting (when we have more than one shareholder), we shall give not less than 45 days prior public notice or other means (if necessary) as specified in our Articles of Association to all shareholders whose names appear in the share register of the items to be considered and the date and venue of the meeting. Any shareholder intending to attend the shareholders’ general meeting shall give us a written reply stating his or her intention to attend the meeting 20 days prior to the date of the meeting.

Where our Company convenes an annual general meeting, shareholders who severally or jointly hold more than 3% of our Company’s shares, may present an extraordinary proposal for the shareholders’ general meeting in written form to our Company. If the subject of the extraordinary proposal falls within the functions and powers of a shareholders’ general meeting, then it should be included in the agenda of the meeting.

A shareholder extraordinary general meeting shall not resolve any matter not stated in the notice of such meeting. A notice of meeting of shareholders shall:

 

be given by way of public notice or other means as specified under our Articles of Association;

 

specify the place, date and the time of the meeting;

 

state the motions to be discussed at the meeting;

 

provide such information and explanations as are necessary for the shareholders to exercise an informed judgment on the proposals before them. Without limiting the generality of the foregoing, where a proposal is made to merge our Company with another entity, to repurchase the shares of our Company, to reorganize its share capital or to restructure our Company in any other way, the terms of the proposed transaction must be provided in detail, together with copies of the proposed agreement, if any, and the cause and effect of the proposal must be properly explained;

 

contain disclosure of the nature and extent, if any, of material interests of any director, supervisor, general manager, deputy general manager or other senior officers of our Company in the transaction proposed and the effect of the proposed transaction on them in their capacity as shareholders in so far as it is different from the effect on the interests of other shareholders of the same class;

 

contain the full text of any special resolution proposed to be approved at the meeting;

contain conspicuously a statement that a shareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him or her and that a proxy need not also be a shareholder; and

 

state the time within which and the address to which voting proxies for the meeting are to be delivered.

The Company may send the notice to the domestic shareholders by way of public notice published in one or more newspapers designated by the securities regulatory authority under the State Council at leastforty-five (45) days before the date of the meeting. After the publication of such notice, all holders of domestic shares shall be deemed to have received the notice of the relevant shareholders’ general meeting. Notice of a shareholders’ general meeting to holders ofoverseas-listedforeign-invested overseas-listed foreign-invested shares shall be published on our Company’s website (www.gsrc.com) at leastforty-five (45) days prior to the date of the meeting. After the publication of such notice, all holders ofoverseas-listedforeign-invested overseas-listed foreign-invested shares shall be deemed to have received the notice of the relevant shareholders’ general meeting. The accidental omission to give notice of a meeting to, or thenon-receipt of notice of a meeting by any person entitled to receive notice, shall not invalidate the meeting or the resolutions adopted therein. Where we convene an annual general meeting, we shall include in the agenda of the meeting any resolutions submitted by shareholders (including proxies) who either separately or in aggregate hold more than 3% of the total number of our shares, provided that these resolutions fall within the scope of powers of a shareholders’ general meeting.

The following matters shall be resolved by way of ordinary resolution of the shareholders’ general meeting:

 

work reports of the board of directors and the supervisory committee;

 

profit distribution proposals and loss recovery proposals formulated by the board of directors;

 

removal of members of the board of directors and the supervisory committee, their remuneration and methods of payment;

 

our annual financial budget, final accounts, balance sheet, income statement and other financial statements; and

 

matters other than those that are required by laws, administrative regulations or our Articles of Association to be adopted by way of special resolution.

The following matters shall be resolved by way of special resolution of the shareholders’ general meeting:

 

increase or reduction of our share capital and the issuance of shares of any class, warrants and other similar securities;

 

issuance of Company debentures;

 

division, merger, dissolution and liquidation of our Company;

 

amendment to our Articles of Association;

 

alteration to the form of our Company;

 

acquisition or disposal within one year of material assets exceeding 30% of the total assets of our Company; and

 

any other matter that, according to an ordinary resolution of the shareholders meeting, may have a significant impact on our Company and requires adoption by way of a special resolution.

Shareholders have the right to attend general meetings of shareholders and to exercise their voting rights, in person or by proxy, in relation to the amount of voting shares they represent. Each share carries the right to one vote. Any share of our Company held by our Company does not carry any voting right.

At any meeting of shareholders a resolution shall be decided by a show of hands unless a poll is demanded before or after any vote by show of hands:

 

by the chairman of the meeting;

 

by at least two shareholders who possess the right to vote, present in person or by proxy; or

 

by one or more shareholders (including proxies) representing either separately or in aggregate, not less thanone-tenth of all shares having the right to vote at the meeting.

Unless a poll is demanded, a declaration by the chairman of the meeting that a resolution has on a show of hands been carried and an entry to that effect in the minutes of the meeting shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favor of or against that resolution, that the resolution has been carried. A demand for a poll may be withdrawn. A poll demanded on the election of the chairman, or on a question of suspension of the meeting, shall be taken at the meeting immediately. A poll demanded on any other questions shall be taken at such time as the chairman of the meeting directs, and any business other than that on which the poll has been demanded may be proceeded with. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. On a poll taken at a meeting, a shareholder should cast his or her vote(s) either at the meeting, online or through another way as permitted by the Articles of Association; a shareholder (including their proxies) entitled to two or more votes need not cast all his or her votes in the same way. In the case of a tie, the chairman of the meeting shall be entitled to one additional vote. Shareholders shall be entitled to designate two shareholder representatives to participate in counting the votes and supervising the voting process; provided that no person shall be permitted to serve as a shareholder representative to the extent such person has an interest in, or is otherwise impacted by, the resolutions being voted on, to the extent such interest or impact is disproportionate in comparison to other shareholders.

Board of Directors

Where a director is interested in any resolution proposed at a board meeting, the director shall not be present and shall not have a right to vote at the meeting. That director shall also not be counted in the quorum of the relevant meeting.

Our directors’ compensation is determined by resolutions approved at shareholders’ general meetings. Our directors have no power to approve their own compensation.

Our directors are not required to hold shares of our Company. There is no age limit requirement with respect to retirement ornon-retirement of our directors.

At leastone-third of our board members shall be independent directors. An independent director is a director who does not act in other capacities in our Company other than as a director, and who does not have any relationship with our Company or our Company’s substantial shareholders which may affect the director in making independent and objective judgment. An independent director shall have certain special duties, including, among others, to approve a connected transaction of which the total consideration accounts for more than 5% of the latest audited net asset value of our Company before submission to the board of the directors for discussion, to propose the convening of a board meeting, to engage external auditors or consultants independently, and to make independent opinion on significant events of our Company. To ensure that the independent directors can effectively perform their duties, our Company shall provide them with certain working conditions.

Liquidation Rights

In the event of the termination or liquidation of our Company, our shareholders shall have the right to participate in the distribution of surplus assets of our Company in accordance with the type and number of shares held by those shareholders.

Liability of Shareholders

The liability of holders of our shares for our losses or liabilities is limited to their capital contributions in our Company.

Increases in Share Capital

Our Articles of Association require that approval by a special resolution of the shareholders and by special resolution of holders of domestic shares and H shares at separate shareholder class meetings be obtained prior to authorizing, allotting, issuing or granting shares, securities convertible into shares or options, warrants or similar rights to subscribe for any shares or convertible securities. No approval is required to be obtained from separate class meetings if, but only to the extent that, we issue domestic shares and H shares, either separately or concurrently, in numbers not exceeding 20% of the number of domestic shares and H shares then in issue, respectively, in any12-month period, as approved by a special resolution of the shareholders. New issues of shares must also be approved by relevant PRC authorities.

Reduction of Share Capital and Purchase by Us of Our Shares

We may, following the procedures provided in the Articles of Association and subject to the approval of the relevant governing authority of the State, repurchase any of our issued shares under the following circumstances:

 

cancellation of shares for capital reduction;
(1)cancellation of shares for capital reduction;

 

merging with another company that holds our shares;
(2)merging with another company that holds our shares;

 

paying shares to our employees as bonus; or
(3)paying shares to our employees as bonus; or

 

repurchasing, upon request, any shares held by any shareholder who is opposed to our Company’s resolution for merger orspin-off at a shareholders’ general meeting.
(4)repurchasing, upon request, any shares held by any shareholder who is opposed to our Company’s resolution for merger or spin-off at a shareholders’ general meeting.

Any repurchase of shares under items (1) to (3) of the foregoing paragraph shall be approved by shareholders’ general meeting of our Company. After repurchase of the shares according to the foregoing paragraph by our Company, the shares repurchased under item 1 shall be cancelled within ten days from the date of the repurchase; and the shares repurchased under items 2 and 4 shall be transferred or cancelled within six months.

The shares repurchased by our Company under item 3 may not exceed 5% of the total of our Company’s issued shares. Such repurchase shall be financed by our Company’s profit after tax. The shares so repurchased shall be transferred to the employees within one year.

We may not accept our shares as the subject of any pledge.

In the event that the regulatory authorities at the place of listing of ouroverseas-listed foreign shares have different requirements, such requirements shall prevail.

Subject to approval by PRC securities regulatory authorities and compliance with applicable law, we may carry out a share repurchase by one of the following methods:

 

under a general offer;

 

open offer on a stock exchange; or

 

by off-market contract.

We may, with the prior approval of shareholders in general meeting obtained in accordance with our Articles of Association, repurchase our shares by an off-market contract, and we may rescind or vary such a contract or waive any of our rights under the contract with the prior approval of shareholders obtained in the same manner. A contract to repurchase shares includes (without limitation) an agreement to become obliged to repurchase and an agreement to acquire the right to repurchase our shares. We may not assign a contract to repurchase our own shares or any rights provided thereunder.

Shares repurchased by us shall be canceled and the amount of our registered capital shall be reduced by the par value of those shares. The amount of our registered capital so reduced to the extent that shares are repurchased out of an amount deducted from our distributable profits, shall be transferred to our capital common reserve account.

Unless we are in the process of liquidation:

 

where we repurchase our shares at par value, the amount of the total par value of shares so repurchased shall be deducted from our book balance distributable profits or out of the proceeds of a new issue of shares made in respect of the repurchase; and

where we repurchase our shares at a premium, an amount equivalent to their total par value shall be deducted from our book balance distributable profits or the proceeds of a new issue of shares made in respect of the repurchase. Payment of the portion in excess of their par value shall be effected as follows:

 

if the shares being repurchased were issued at par value, payment shall be made out of our book balance distributable profits; and

 

if the shares being repurchased were issued at a premium, payment shall be made out of our distributable profits or out of proceeds of a new issue of shares made in respect of the repurchase, provided that the amount paid out of the proceeds of the new issue may not exceed the aggregate of premiums received by us on the issue of the shares repurchased or the current balance of our capital common reserve account (inclusive of the premiums from the new issue of shares).

 

Payment by us in consideration for:

 

the acquisition of rights to repurchase our shares;

 

the variation of any contract to repurchase our shares; or

 

the release of any of our obligations under any contract to repurchase our shares; shall be made out of our distributable profits.

Restrictions on Controlling Shareholders

In addition to obligations imposed by law or required by the stock exchanges on which our shares are listed, a controlling shareholder (as defined below) shall not exercise his or her voting rights in respect of the following matters in a manner prejudicial to the interests of the shareholders generally or any part of our shareholders:

 

to relieve a director or supervisor of his or her duty to act honestly in our best interests;

to approve the expropriation, by a director or supervisor (for his or her own benefit or for the benefit of another person), in any guise, of our assets, including without limitation opportunities advantageous to us; or

 

to approve the expropriation by a director or supervisor (for his or her own benefit or for the benefit of another person) of the individual rights of other shareholders, including without limitation rights to distributions and voting rights, save and except where it was done pursuant to a restructuring submitted to and approved by our shareholders in accordance with our Articles of Association.

“Controlling shareholder” means a shareholder whose shareholdings represent over 50% of the total share capital of our Company, or if less than 50%, whose entitlement to voting rights is sufficient to materially affect the resolutions at general meetings of our Company.

Changing Rights of a Class of Shareholders

Rights conferred on any class of shareholders in the capacity of shareholders may not be varied or abrogated unless approved by a special resolution of shareholders at a general meeting and by holders of shares of that class at a separate class meeting conducted in accordance with our Articles of Association.

Duties of Directors, Supervisors and Other Senior Officers in Interested Transactions

Where any director, supervisor, general manager, deputy general manager or other senior officers (or an associate thereof) is in any way materially interested in a contract or transaction or arrangement or proposed contract or transaction or arrangement with us (other than his or her contract of service with us), he or she shall declare the nature and extent of his or her interest to the board of directors at the earliest opportunity, whether or not the contract, transaction or proposal or arrangement is subject to the approval of the board of directors.

Unless the interested director, supervisor, general manager deputy general manager or other senior officers has disclosed his or her interests and the contract or transaction is approved by the board of directors at a meeting in which the interested director, supervisor, general manager, deputy general manager or other senior officers has not been counted in the quorum and has refrained from voting, a contract or transaction in which that director, supervisor, general manager, deputy general manager or other senior officers is materially interested is voidable except as against a bona fide party to the contract or transaction acting without notice of the breach of duty by the interested director, supervisor, general manager, deputy general manager or other senior officers.

We shall not directly or indirectly make a loan to or provide any guarantees in connection with a loan to a director, supervisor, general manager, deputy general manager or other senior officers of our Company or of GRGC or any of their respective associates. However, the following transactions are not subject to this prohibition:

 

the provision by us of a loan or a guarantee of a loan to one of our subsidiaries;

 

the provision by us of a loan or a guarantee in connection with a loan or any other funds to any of our directors, supervisors, general managers, deputy general managers or other senior officers to pay expenditures incurred or to be incurred on our behalf by him or her or for the purpose of enabling him or her to perform his or her duties properly, in accordance with the terms of a service contract approved by the shareholders at a general meeting; and

 

the provision by us of a loan or a guarantee in connection with a loan to any of our directors, supervisors, general managers, deputy general managers or other senior officers or their respective associates on normal commercial terms, provided that the ordinary course of our business includes the lending of money or the giving of guarantees.

Recent Amendments to Our Articles of Association

In 2008, we made some minor amendments to our Articles of Association, which were approved by shareholders at our annual shareholders’ general meeting held on June 26, 2008. In 2009, we made additional amendments to our Articles of Association, which amendments were approved by shareholders at our annual shareholders’ general meeting held on June 25, 2009.

C.C.Material Contracts

AllOther than the Comprehensive Services Framework Agreement, dated as of November 1, 2016, all other material contracts we entered into during the fiscal years of 20132015 and 20142016 were made in the ordinary course of business.

 

D.D.Exchange Controls

The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. Effective January 1, 1994, the dual foreign exchange system in China was abolished in accordance with the notice of the People’s Bank of ChinaPBOC concerning future reform of the foreign currency control system issued December 1993. The conversion of RMB into U.S. dollars in China currently must be based on the People’s Bank of ChinaPBOC rate. The People’s Bank of ChinaPBOC rate is set based on the previous day’s Chinese interbank foreign exchange market rate and with reference to current exchange rates on the world financial markets. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. On April 14, 2012, the PRC government further allowed the floating band of RMB’s trading prices against the U.S. dollar to widen from 0.5% to 1% on each business day effective from April 2012, and further widened such floating band to 2% in March 2014. In recent years, the PBOC has been working to develop a mechanism for formulating the midpoint rate of the RMB. On August 11, 2015, it announced the implementation of the RMB exchange rate formation mechanism reform to allow the market to play a bigger role in exchange rate determination. As a result thereof, the PBOC guided the RMB weaker by lowering the midpoint rate to reflect the prevailing market rate, while emphasizing the use of the closing rate on the preceding day as a reference when deciding the midpoint rate. In February 2016, the PBOC disclosed a mechanism for formulating the midpoint rate of the RMB based on the “closing rate on the preceding date + currency basket-based adjustment” rule.

Any future fluctuation of the RMB against the U.S. dollar (whether due to a decrease in the foreign currency reserves held by the PRC government or any other reason) will have an adverse effect upon the U.S. dollar equivalent and Hong Kong dollar equivalent of our net income and increase the effective cost of foreign equipment and the amount of foreign currency expenses and liabilities. In 2014,2016, we incurred a foreign exchange lossgain of approximately RMB0.4RMB6.4 million due to the appreciationdepreciation of the Hong Kong dollar against the RMB. If the applicable market exchange rates were to change by 5%, this would result in a change in our net income of approximately RMB2.3RMB4.3 million. We have no plans to hedge our currency exposure in the future. No assurance can be given that the Hong Kong dollar to U.S. dollar exchange rate link will be maintained in the future. Furthermore, any change in exchange rate that has a negative effect on the market for the H shares in either the United States or Hong Kong is likely to result in a similar negative effect on the other market.

We have been, and will continue to be, affected by changes in exchange rates in connection with our ability to meet our foreign currency obligations and will be affected by such changes in connection with our ability to pay dividends on H shares in Hong Kong dollars and on ADSs in U.S. dollars. As of December 31, 2014,2016, we maintained the equivalent of approximately RMB62.1RMB115.8 million in U.S. dollar and Hong Kongdollar-denominated balances for purposes of satisfying our foreign currency obligations (e.g., to purchase foreign equipment) and paying dividends to our overseas shareholders. See Note 3 to our audited consolidated financial statements included elsewhere in this annual report. We believe that we have or will be able to obtain sufficient foreign exchange to continue to satisfy these obligations. We do not engage in any financial contract or other arrangement to hedge our currency exposure.

E.E.TaxationTaxation

PRC Taxation

Tax Basis of Assets

As of June 30, 1995, our assets were valued in conjunction with the Restructuring. This valuation, which was confirmed by the State Assets Administration Bureau, establishes the tax basis for these assets.

Income Tax

In accordance with the Enterprise Income Tax Law of the PRC (hereinafter referred to as the “EIT Law”), which was adopted at the 5th Session of the 10th National People’s Congress of the PRC on March 16, 2007, enterprises and other organizations that earn income within the territory of the PRC are payers of enterprise income tax, which shall be paid in accordance with the provisions of EIT Law. The Enterprise Income TaxEIT Law of the PRC and the Implementation Regulationsimplementation regulations for the Enterprise Income TaxEIT Law of the PRC(the “Implementation Regulations”) both came into effect on January 1, 2008, meanwhile the Income Tax Law of the PRC forForeign-invested Enterprises and Foreign Enterprises and the Interim Regulations of the PRC on Enterprise Income Tax have been simultaneously repealed.

Pursuant to the EIT Law, the income tax rate for PRC enterprises is reduced from the original 33% to 25%, same as the rate applied to foreign investment enterprises and foreign enterprises.

According to the EIT Law and the Notice Regarding Implementation of the Preferential Enterprise Income Tax in the Transition Period issued by the State Council, an enterprise established with approval prior to the promulgation of the EIT Law that enjoyed a preferential tax rate according to the provisions of tax laws and administrative regulations then in force maycould gradually transittransition to the tax rate provided for hereintherein within five years after the implementation of the EIT Law. The preferential income tax rate of 15% that was applicable to companies incorporated in Shenzhen and other special economic zones was phased out over five years beginning on January 1, 2008. After suchfive-year period and since January 1, 2012, the tax rate applicable to us has been fixed at 25%, i.e., the unified income tax rate applicable to all domestic companies in the PRC (with limited exceptions). An enterprise enjoying regular tax reduction or exemption may continue to enjoy such tax reduction or exemption until the expiration of the term thereof pursuant to the provisions of the State Council; if it has not yet enjoyed such tax reduction or exemption because it fails to make a profit, the term of such tax reduction or exemption shall be calculated from the effective date of the EIT Law (that is January 1,2008)1, 2008).

Value Added Tax

Pursuant to the Provisional Regulations of the PRC Concerning Value Added Tax effective from January January��1, 1994, which was amended by the State Council on November 10, 2008 and the Detailed Rules for the Implementation of the Interim Regulations of the PRC on Value-Added Tax ,which was promulgated on December 18, 2008, and revised on October 28, 2011, our passenger and freight transportation businesses are not subject to value added tax, while our other businesses are subject to value added tax at the raterates ranging from 3% to 17%, depending on the scale and nature of the businesses.

Pursuant to the Notice of the Ministry of Finance and the State Administration of Taxation on Including Railway Transport and Postal Services under the Pilot Program of Replacing Business Tax with Value-Added Tax, which was promulgated on December 12, 2013, and came into effect on January 1, 2014, the value-added tax rate of 11% shall be levied on enterprises providing transport and postal services.

Tax on Dividends

For an Individual Investor.Investor. According to the Individual Income Tax Law of the PRC, an income tax at the rate of 20% shall be withheld on dividend payments from PRC enterprises to residents of the PRC. According to the Circular on Relevant Tax Policies on Pilot Shanghai-Hong Kong Stock Connect Scheme (Cai Shui [2014] No. 81) (hereinafter referred to as the “Circular 81”) issued by the Ministry of Finance, State Tax Bureau and CSRC on October 31, 2014, which wasbecame effective November 17, 2014, a PRC company that pays dividends to a PRC individual income tax shall be withheld from mainland individual investors’ dividends from investment in stocksinvestor, with respect to H shares listed on the SEHKHKSE through the Shanghai-Hong Kong Stock Connect, at the rate of 20% by the company of H share, which shall apply tomust first request from the China Securities Depository and Clearing Company Limited (hereinafter referred to as the “CSDC”) firstly, and thea list of mainlandPRC individual investors will be providedinvestors. The PRC company shall then withhold PRC individual income tax at a rate of 20% on payments to the company of H share by CSDC.such individual investors. For a foreign individual who is not a resident of the PRC, the receipt of dividends from a PRC company inwith A shares listed on the PRCShanghai Stock Exchange is normally subject to aPRC withholding tax at a rate of 20% unless specifically exempted by the tax authority of the State Council or reduced by an applicable tax treaty. According to the Notice on the Issues Concerning the Collection and Administration of Individual Income Tax Following the Repeal of Circular 45 issued by the PRC State Tax Bureau, foreign residentnon-resident individual shareholders receiving dividends from shares in a domesticPRC non-foreign-invested enterprise may withhold individual incomebe subject to PRC withholding tax at thea rate of 10%; the receipt, subject to reduction under an applicable tax treaty. A non-PRC individual that is a resident of dividends from a company in the PRC by foreign individuals of countries which havecountry that has not entered into a double taxation agreement with the PRC is subject to thetax treaty rate in the relevant tax treaty. A foreign individual of countries which have not entered into any double taxation agreement with the PRC or in any other case will be subject to 20% PRC withholding tax. However,tax at a rate of 20%. A PRC company that pays dividends to investors in Hong Kong (including enterprises and individuals), with respect to A shares listed on the Shanghai Stock Exchange, before the Hong Kong Securities Clearing Company Ltd is able to provide detail datadetails of an investor’s identity and stock holding period to CSDC, dividends received by investors from Hong Kong market (including enterprise and individual) from investment in A share listed onmust withhold PRC tax at a rate of 10%, rather than applying the Shanghai Stock Exchange shall not be subject to differential tax policiesexemptions based on the stock holding period. Instead, such dividends shall be subject to withholding atperiod discussed in the following paragraph, and should also apply for a rate of 10% and applied for withholding declaration byfrom the listed company to theappropriate PRC tax authority.

According to the Notice on the Issues concerning the Implementation of Differential Individual Income Tax Policies on Dividends and Bonuses of Listed Companies promulgated on December 28, 2012, individual PRC resident holders of A Sharesshares who have held such shares for one month or less shall include all cash and share distributions in their taxable income; individualincome. Individual PRC resident holders of A Sharesshares who have held such shares for more than one month, andbut not more than one year, shall temporarily include 50% of all cash and share distributions in their taxable income; andincome. In addition, individual PRC resident holders of A Sharesshares who have held shares for more than one year shall temporarily include 25% of all cash and share distributions in their taxable income.

For An Enterprise.According to the Circular 81, MainlandPRC enterprise investors’ dividends from investment in stocks listed on the SEHKHKSE through the Shanghai-Hong Kong Stock Connect shall be included into the totalin income and shall be subject to thePRC enterprise income tax. However, mainlanda PRC enterprise investor’s dividends in respect of the H share,shares, which ishave been continuously held by such investor for a period of over 12 months, shall be exemptedexempt from PRC enterprise income tax. According to the EIT Law and its implementing rules,Implementation Regulations, and pursuant to the Notice on the Issues Regarding Withholding of the Enterprise Income Tax on the Dividends Paid by Chinese Resident Enterprises to H share Holders Which Are OverseasNon-resident Enterprises issued by State Administration of Taxation on November 6, 2008, when a non PRCnon-PRC resident enterprise with no establishment or office in the PRC receives dividends from a company in the PRC, or a non PRCnon-PRC resident enterprise with an establishment or office in the PRC receives dividends from a company in the PRC, whichand such dividends so received are not effectively connected with suchan establishment or office in the non PRC, the non-PRC resident enterprise is normally subject to a PRC withholding tax at a rate of 10% under the EIT Law.

The Response to Questions on Levying Enterprise Income Tax on Dividends Derived byNon-resident Enterprise from HoldingB-shares issued by the SAT on July 24, 2009 further provides that anyPRC-resident Enterprise PRC resident enterprise that is listed on an overseas stock exchangesexchange must withhold PRC enterprise income tax at a rate of 10% on dividends that it distributes tonon-resident enterprises. Such non-PRC resident enterprises, subject to reduction under an applicable tax rate may be reduced pursuant to the tax treaty or agreement that the PRC has concluded with a relevant jurisdiction, where applicable.treaty.

Capital Gains Tax

For An Individual Investor.Investor. According to the Notice Concerning the Continuation of Exemption from Individual Income Tax on the Income from StocksStock Transfer issued by the PRC Ministry of Finance and the PRC State Tax Bureau on March 30, 1998, effective from January 1, 1997, gains realized by individuals from transferring stocksstock of listed companies are still not subject to individual income tax.

After the latest amendment to the Individual Income Tax Law on June 30, 2011 and its Implementation Rulesimplementation rules on February 18, 2008, the State Administration of Taxation has not stated whether it will continue to exempt from individual income tax income derived by individuals from the transfer of listed shares. However, on December 31, 2009, the Ministry of Finance, State Administration of Taxation and CSRC jointly issued the Circular on Related Issues on Collection of Individual Income Tax over the Income Received by Individuals from Transfer of Listed Shares Subject to Sales Limitation (Cai Shui [2009] No. 167), which states that individuals’ income from transferring listed shares on certain domestic exchanges shall continue to be exempted from the individual income tax, except for the shares of certain specified companies under certain situations which are subject to sales limitations (as defined in such Circular and its supplementary notice issued on November 10, 2010). Meanwhile, according to Circular 81, mainlandPRC individual investors’ gains from transferring stocksstock of a company listed on the HKSE through the Shanghai-Hong Kong Stock Connect shall be temporarily exempted from PRC individual income tax from November 17, 2014 to November 16, 2017. Moreover, the gains received by individual investors from the Hong Kong market from transferring A shares listed on the Shanghai Stock Exchange shall be temporarily exempted from income tax.

For An Enterprise.Enterprise. In accordance with the EIT Law and its implementation regulations,Implementation Regulations, anon-resident enterprise is generally subject to PRC enterprise income tax at a rate of 10% with respect toPRC-sourced income, including gains derived from the disposal of equity interests in a PRC resident enterprise, if it does not have an establishment or placepremises in the PRC or has an establishment or premises in the PRC but thePRC-sourced income is not connected with such establishment or premisepremises in the PRC. According to Circular 81, the gains derived from transferring A shares listed on the Shanghai Stock Exchange received by enterprise investors from the Hong Kong marketenterprise investors through the Shanghai-Hong Kong Stock Connect shall be temporarily exempted from income tax. In addition, such taxgains may be exempted in the PRC if the tax treaty or agreement that the PRC concluded with the relevant jurisdiction, where applicable, states that the PRC may not tax capital gains.

In accordance with Circular 81, mainlandPRC enterprise investors’ gains from transferring stocks listed on the HKSE through the Shanghai-Hong Kong Stock Connect shall be included in total income and shall be subject to enterprise income tax.

Tax Treaties

For non PRCnon-PRC resident enterprises with no establishment in the PRC and individuals not resident in the PRC, if their home countries or jurisdictions have entered into double taxation treaties with the PRC, such enterprises and individuals may be entitled to a reduction of any withholding tax imposed on the payment of dividends from a PRC company. The PRC currently has double taxation treaties with a number of countries, including Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States.

The Agreement Between the Government of the United States of America and the PRC Government for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, together with related protocols, referred to herein as the US PRC“US-PRC tax treaty, currently limitlimits the rate of PRC withholding tax upon dividends paid by our Company to a U.S. holder (as defined below under “U.S. Federal Income Taxation”) who is a resident of the United States resident for purposes of the US PRCU.S.-PRC tax treaty to 10%. It is uncertain if the US PRCUS-PRC tax treaty exempts from PRC tax the capital gains of a U.S. holder arising from the sale or disposition of H shares or ADSs. U.S. holders are advised to consult their tax advisors with respect to these matters.

United States

U.S. Federal Income Taxation

The following is a general discussion of the material United StatesU.S. federal income tax consequences of purchasing, owning and disposing of the H shares or ADSs if you are a U.S. holder, as defined below, and hold the H shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended or the Code.(the “Code”). This discussion does not address all of the United StatesU.S. federal income tax consequences relating to the purchase, ownership and disposition of the H shares or ADSs, and does not take into account U.S. holders who may be subject to special rules including:

 

banks, insurance companies and financial institutions;

 

United States

U.S. expatriates;

 

tax-exempt entities;

certain insurance companies;

 

broker-dealers;

 

traders in securities that elect to mark to market;

 

U.S. holders liable for alternative minimum tax;

 

U.S. holders that own 10% or more of our voting stock;

 

U.S. holders that hold the H shares or ADSs as part of a straddle or a hedging or conversion transaction; or

 

U.S. holders whose functional currency is not the U.S. dollar.

This discussion is based on the Code, its legislative history, final, temporary and proposed United States Treasury regulations promulgated thereunder, published rulings and court decisions as in effect on the date hereof, all of which are subject to change, or changes in interpretation, possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreements will be performed according to its terms.

You are a “U.S. holder” if you are a beneficial owner of H shares or ADSs and are:

 

a citizen or resident of the United States for United StatesU.S. federal income tax purposes;

 

a corporation, or other entity treated as a corporation for United StatesU.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

an estate the income of which is subject to United StatesU.S. federal income tax without regard to its source; or

 

a trust:

 

subject to the primary supervision of a United StatesU.S. court and the control of one or more United StatesU.S. persons; or

 

that has elected to be treated as a United StatesU.S. person under applicable United StatesU.S. Treasury regulations.

If a partnership (including any entity taxed as a partnership for U.S. federal income tax purposes) holds the H shares or ADSs, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership that holds the H shares or ADSs, we urge you to consult your tax advisors regarding the consequences of the purchase, ownership and disposition of the H shares or ADSs.

This discussion does not address any United StatesU.S. federal estate or gift tax consequences, or any state, local ornon-United States non-U.S. tax consequences of the purchase, ownership and disposition of the H shares or ADSs.

We urge you to consult your tax advisors regarding the United StatesU.S. federal, state, local andnon-United States non-U.S. tax consequences of the purchase, ownership and disposition of the H shares or ADSs .ADSs.

In general, if you hold ADRs evidencing ADSs, you will be treated as the owner of the H shares represented by the ADSs. The following discussion assumes that we are not a passive foreign investment company or PFIC,(a “PFIC”), as discussed under “PFIC Rules” below.

Distributions on the H shares or ADSs

The gross amount of any distribution (without reduction for any PRC tax withheld) we make on the H shares or ADSs out of our current or accumulated earnings and profits will be includible in your gross income as dividend income when the distribution is actually or constructively received by you, in the case of the H shares, or by the depositary in the case of ADSs. Subject to certain limitations, dividends paid tonon-corporate U.S. holders, including individuals, may be eligible for a reduced rate of taxation if we are deemed to be a “qualified foreign corporation” for United StatesU.S. federal income tax purposes. A qualified foreign corporation includes:

 

a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program; and

a foreign corporation if its stock with respect to which a dividend is paid (or ADSs backed by such stock) is readily tradable on an established securities market within the United States,

but does not include an otherwise qualified foreign corporation that is a PFIC in the taxable year the dividend is paid or the prior taxable year. We believe that we will be a qualified foreign corporation so long as we are not a PFIC (and were not a PFIC for our prior taxable year) and we are considered eligible for the benefits of the US—PRCU.S.-PRC tax treaty. Our status as a qualified foreign corporation, however, may change.

Distributions by a corporation that exceed its current and accumulated earnings and profits (as determined for United StatesU.S. federal income tax purposes) generally are treated as a return of capital to the extent of a shareholder’s basis in the corporation’s shares, and thereafter as capital gain. We do not maintain calculations of our current and accumulated earnings and profits as determined for United StatesU.S. federal income tax purposes, and you should expect that the full amount of any distribution to you will be treated as a dividend for United StatesU.S. federal income tax purposes. Any dividend will not be eligible for thedividends-received deduction generally allowed to United StatesU.S. corporations in respect of dividends received from United StatesU.S. corporations. The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.

If we make a distribution paid in Hong Kong dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK dollar/U.S. dollar rate on the date such distribution is received by you or by the depositary, regardless of whether you or the depositary convert the distribution into U.S. dollars on such date. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in your income to the date you or the depositary convert the distribution into U.S. dollars will be treated as foreign currency exchange gain or loss that is United States sourceU.S.-source ordinary income or loss for foreign tax credit limitation purposes.

Subject to various limitations, any PRC tax withheld from distributions in accordance with PRC law, as limited by the US—PRCU.S.-PRC tax treaty, may be creditable against your United StatesU.S. federal income tax liability. For foreign tax credit limitation purposes, dividends paid on the H shares or ADSs will be foreign source income, and will be treated as “passive category income” or, in the case of some U.S. holders, “general category income.” You may not be able to claim a foreign tax credit (and instead may claim a deduction) fornon-United States non- U.S. taxes imposed on dividends paid on the H shares or ADSs if you (i) have held the H shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss with respect to such shares, or (ii) are obligated to make payments related to the dividends (for example, pursuant to a short sale).

Sale, Exchange or Other Disposition

Upon a sale, exchange or other disposition of the H shares or ADSs, you will recognize a capital gain or loss for United StatesU.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H shares or ADSs. Any gain or loss will generally be United States sourceU.S.-source gain or loss for foreign tax credit limitation purposes. Capital gain of certainnon-corporate U.S. holders, including individuals, is generally taxed at reduced rates where the H shares or ADSs have been held more than one year. Your ability to deduct capital losses is subject to limitations.

If any PRC tax is withheld from your gain on a disposition of H shares or ADSs, such tax would only be creditable against your United StatesU.S. federal income tax liability to the extent that you have foreign sourceforeign-source income. However, in the event that PRC tax is withheld, a U.S. holder that is eligible for the benefits of the US—U.S.- PRC tax treaty may be able to treat the gain as foreign sourceforeign-source income for foreign tax credit limitation purposes.

If you are paid in a currency other than U.S. dollars, any gain or loss resulting from currency exchange fluctuations during the period from the date of the payment resulting from sale, exchange or other disposition to the date you convert the payment into U.S. dollars will be treated as foreign currency exchange gain or loss that is United States sourceU.S.-source ordinary income or loss for foreign tax credit limitation purposes.

PFIC Rules

In general, a foreign corporation is a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries:

 

75% or more of its gross income consists of passive income, such as dividends, interest, rents and royalties; or

 

50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.

We believe that we were not a PFIC for our taxable year ended December 31, 20142016 and do not currently believe that we will be treated as a PFIC for the current or subsequent taxable years. However, PFIC status cannot be determined until the close of a taxable year and, accordingly, there can be no assurance that we will not be a PFIC in the current or subsequent taxable years.

If we were a PFIC in any taxable year that you held the H shares or ADSs, you generally would be subject to special rules with respect to “excess distributions” made by us on the H shares or ADSs and with respect to gain from a disposition of the H shares or ADSs. An “excess distribution” generally is defined as the excess of the distributions you receive with respect to the H shares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter of the three preceding years or your holding period for the H shares or ADSs. Generally, you would be required to allocate any excess distribution or gain from the disposition of the H shares or ADSs ratably over your holding period for the H shares or ADSs. The portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in which we became a PFIC, would be taxed at the highest United StatesU.S. federal income tax rate on ordinary income in effect for such taxable year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been due with respect to such particular taxable years. The portion of the excess distribution or gain that is allocated to the current year, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income.

The foregoing rules with respect to excess distributions and dispositions may be avoided or reduced if you are eligible for and timely make a valid“mark-to-market” “mark-to-market” election. If your H shares or ADSs were treated as shares regularly traded on a “qualified exchange” for United StatesU.S. federal income tax purposes and a validmark-to-market election was made, in calculating your taxable income for each taxable year you generally would be required to take into account as ordinary income or loss the difference, if any, between the fair market value and the adjusted tax basis of your H shares or ADSs at the end of your taxable year. However, the amount of loss you would be allowed is limited to the extent of the net amount of previously included income as a result of the market-to-market election. Your basis in the H shares or ADSs will be adjusted to reflect any such gain or loss. The NYSE on which the ADSs are traded is a qualified exchange for United StatesU.S. federal income tax purposes.

Alternatively, a timely election to treat us as a qualified electing fund under Section 1295 of the Code could be made to avoid the foregoing rules with respect to excess distributions and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements that would permit you to make a qualified electing fund election.

If you own the H shares or ADSs during any year that we are a PFIC, you generally will be required to file Internal Revenue Service or IRS,(the “IRS”), Form 8621, as described in the instructions to Form 8621, subject to certain exceptions based on the value of PFIC stock held. We encourage you to consult your own tax advisor concerning the United StatesU.S. federal income tax consequences of holding the H shares or ADSs that would arise if we were considered a PFIC.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to dividends in respect of the H shares or ADSs or the proceeds of the sale, exchange, or redemption of the H shares or ADSs paid within the United States, and in some cases, outside of the United States, other than to various exempt recipients. In addition, you may, under some circumstances, be subject to “backup withholding” with respect to dividends paid on the H shares or ADSs or the proceeds of any sale, exchange or transfer of the H shares or ADSs, unless youyou:

 

fall within various other exempt categories, and, when required, demonstrate this fact; or

 

provide a correct taxpayer identification number on a properly completed IRSForm W-9 or a substitute form, certify that you are exempt from backup withholding and otherwise comply with applicable requirements of the backup withholding rules.

Any amount withheld under the backup withholding rules generally will be creditable against your United StatesU.S. federal income tax liability provided that you furnish the required information to the IRS in a timely manner. If you do not provide a correct taxpayer identification number, you may be subject to penalties imposed by the IRS.

Certain U.S. holders who are individuals that hold certain foreign financial assets (which may include the H shares or ADSs) are required to report information relating to such assets, subject to certain exceptions. You should consult your own tax advisors regarding the effect, if any, of these requirements on your ownership and disposition of the H shares or ADSs.

Hong Kong Taxation

The following discussion summarizes the material Hong Kong tax provisions relating to the ownership of H shares or ADSs held by you.

Dividends

Under current practice, no tax will be payable by you in Hong Kong in respect of dividends paid by us.

Taxation of Capital Gains

No capital gain tax is generally imposed in Hong Kong in respect of capital gains from the sale of shares (such as the H shares). However, if trading gains from the sale of property by persons as part of profit making are regarded as carrying on a trade, profession or business in Hong Kong, where such gains are derived from or arise in Hong Kong from such trade, profession or business, such trading gains will be chargeable to Hong Kong profits tax, which is currently imposed at the rate of 16.5% on corporations and at a maximum rate of 15% on unincorporated businesses. Certain categories of taxpayers are likely to be regarded as deriving trading gains rather than capital gains (for example, financial institutions, insurance companies and securities dealers) unless these taxpayers can prove that the investment securities are held for long-term investment. Gains from sales of the H shares affected on the Hong Kong Stock Exchange will be considered to be derived from or arise in Hong Kong. Liability for Hong Kong profits tax would thus arise in respect of trading gains from sales of H shares realized by persons carrying on a business of trading or dealing in Hong Kong in securities.

There will be no liability for Hong Kong profits tax in respect of profits from the sale of ADSs (i.e., the profits derived abroad), where purchases and sales of ADSs are effected outside Hong Kong, e.g. on the NYSE.

Hong Kong Stamp Duty

Hong Kong stamp duty will be payable by each of the seller and the purchaser for every sale and purchase, respectively, of the H shares. An ad valorem duty is charged at the rate of 0.2% of the consideration of the fair value of the H shares transferred and the relevant contract notes shall be stamped (the buyer and seller each paying half of such stamp duty). In addition, a fixed duty of HKD 5 is currently payable on an instrument of transfer of H shares.

The withdrawal of H shares when ADSs are surrendered, and the issuance of ADSs when H shares are deposited, may be subject to Hong Kong stamp duty at the rate described above for sale and purchase transactions, if the withdrawal or deposit results in a change of legal and beneficial ownership under Hong Kong law. The issuance of ADSs for deposited H shares issued directly to the depositary or for the account of the depositary should not lead to a Hong Kong stamp duty liability. You are not liable for the Hong Kong stamp duty payable on transfers of ADSs outside of Hong Kong.

Hong Kong Estate Duty

Prior to February 11, 2006, estate duty was levied on the value of property situated in Hong Kong passing or deemed passing on the death of a person. H shares are regarded as property situated in Hong Kong for estate duty purposes. HK estate duty is not applicable with respect to estates of persons who passed away on or after Feb. 11, 2006.

F.F.Dividends and Paying Agents

Not applicable.

G.Statement by Experts

Not applicable.

 

H.G.Statement by Experts

Not applicable.

H.Documents on Display

We filed with SEC in Washington, D.C. a registration statement onForm F-1 (RegistrationNo. 333-3382) under the Securities Act of 1933, as amended, in connection with our global offering in May 1996. The registration statement contains exhibits and schedules. For further information with respect to our Company and our ADSs, please refer to the registration statement and to the exhibits and schedules filed with the registration statement.

Additionally, we are subject to the informational requirements of the Exchange Act, and in accordance with the Exchange Act, we file annual reports onForm 20-F within four months of our fiscal year end, and we will furnish other reports and information under cover ofForm 6-K with the SEC. You may review a copy of the registration statement and other information without charge at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also inspect the registration statement and its exhibits and schedules at the office of the New York Stock Exchange, 11 Wall Street, New York, New York 10005. You may also get copies, upon payment of a prescribed fee, of all or a portion of the registration statement from the SEC’s public reference room or by calling the SEC on1-800-SEC-0330 or visiting the SEC’s website atwww.sec.gov.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.

 

I.I.Subsidiary Information

Not applicable.

 

ITEM 11.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following paragraphs describe the various market risks to which we were exposed as of December 31, 20132015 and 2014.2016.

Currency Risks

We mainly operate in the PRC with most of the transactions settled in RMB. RMB is also the functional currency of our Company. RMB is not freely convertible into other foreign currencies. The conversion of RMB denominated balances into foreign currencies is subject to the rates and regulations of foreign exchange control promulgated by the PRC government. Any monetary assets and liabilities denominated in currencies other than RMB would subject our Company to currency risks. In addition, we are required to pay dividends in Hong Kong dollars in the future when dividends are declared.

The monetary assets and liabilities held by us that are denominated in U.S. dollars and Hong Kong dollars as of December 31, 20132015 and 20142016 are set forth below.

   As of December 31, 

Monetary assets and liabilities

  Currency
Denomination
  2015   2016 
   (RMB thousands) 

Cash and cash equivalents

  USD   —      96 

Cash and cash equivalents

  HKD   72,140    115,680 

Other receivables

  HKD   71    66 

Other payables

  HKD   —      —   

   As of December 31, 
Monetary assets and liabilities  Currency
Denomination
  2013   2014 
   (RMB thousands) 

Cash and cash equivalents

  USD   69     —    

Cash and cash equivalents

  HKD   18,561     62,093  

Other receivables

  HKD   35     93  

Other payables

  HKD   (109   —    

We may experience a loss as a result of any foreign currency exchange rate fluctuations in connection with our deposits. We have not used any means to hedge the exposure to foreign exchange risk.

We incurred a foreign exchange lossgain of RMB0.41RMB6.4 million for the year ended December 31, 2014.2016. As of December 31, 2014,2016, our assets denominated in Hong Kong dollars and U.S. dollars were translated into RMB at the applicable market exchange rates as of that date and amounted to approximately RMB62.1RMB115.8 million. If the applicable market exchange rates were to change by 5%, this would result in a change in fair value of approximately RMB3.1RMB4.3 million in these balances.

While our foreign currency deposits are relatively stable, they are insufficient to pay all dividends and operating expenses, therefore, we bear the risk of exchange rate fluctuations when we convert RMB to payforeign-currency denominated dividends and operating expenses. However, our management believes that these contingent exposures relating to foreign exchange rate fluctuations have not had and are not likely to have a material effect on our financial position. As a result, we do not enter into any hedging transactions with respect to our exposure to foreign currency movements. Furthermore, we are not aware of any effective financial hedging products that serve as protection against a possible RMB devaluation or appreciation.

Interest Rate Risks

As of December 31, 2014,2016, funds that we do not need in the short term are generally kept as temporary cash deposits in commercial banks in the form offixed-term deposits. We do not hold any marketrisk-sensitive instruments for trading purposes. As we have no significantinterest-bearing assets (except for deposits held in banks), our income and operating cash flows are not materially affected by the changes of market interest rates. Other than deposits held in banks, the Group does not have significant interest-bearing assets.

Credit Risks

The carrying amount of cash and cash equivalents, trade and other receivables (excluding prepayments),short-term deposits, and long-term receivables represent our maximum exposure to credit risk in relation to financial assets.

Cash andshort-term liquid investments are placed with reputable banks. No significant credit risk is expected.

The majority of our accounts receivable balance relate to the rendering of services or sales of products to third party customers. Our other receivable balances mainly arise from services other than the main railway transportation services. We perform ongoing credit evaluations of our customers/debtors’ financial condition and generally do not require collateral from the customers/debtors’ account on the outstanding balances. Based on the expected reliability and the timing for collection of the outstanding balances, we maintain a provision for doubtful accounts and actual losses incurred have been within management’s expectation.

No other financial assets carry a significant exposure to credit risk.

Liquidity Risks

Prudent liquidity risk management includes maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, our Company’s treasury function allows flexibility in funding by maintaining committed credit lines.

We monitor our liquidity reserves (comprises undrawn borrowing facilities and cash and cash equivalents on the basis of expected cash flows) on a regular basis. See Note 3 to our audited consolidated financial statements included elsewhere in this annual report, which analyzes our Company’s financial liabilities into relevant maturity groups based on the remaining periods at the date of the balance sheet to the contractual maturity date.

Except as described above and in Note 3 to our audited consolidated financial statements included elsewhere in this annual report, our management believes that as of December 31, 2014,2016, at present and in our normal course of business, we are not subject to any other material market-related risks.

 

ITEM 12.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A.A.Debt Securities

Not applicable.

 

B.B.Warrants and Rights

Not applicable.

 

C.C.Other Securities

Not applicable.

 

D.D.American Depositary Shares

JPMorgan Chase Bank, N.A. is the depositary for our ADSs. The depositary’s office is located at No. 13 Building, 4 New York Plaza, New York, NY 10004. On April 25, 2008, JPMorgan Chase Bank, N.A. signed an agreement with Wells Fargo Bank, pursuant to which Wells Fargo Bank will provide the depositary service for our ADSs on behalf of JPMorgan Chase Bank, N.A. Each of our ADRs represents 50 H shares of par value RMB1.00 per share.

In April 2009, we entered into an amendment to our deposit agreement with JPMorgan Chase Bank, N.A., which we initially entered into on May 10, 1996. The revisions include allowing the depositary, in line with the current market practice, to charge the holders of the ADSs a cash distribution fee and an annual administrative fee, the aggregate of which should not exceed US$0.02 per ADS in any calendar year. The amendment of the deposit agreement became effective on May 25, 2009. At such effective date, every holder of our ADSs shall be deemed by holding our ADSs to consent and agree to such amendment and to be bound by the deposit agreement and the American Depositary Receipts as amended by such amendment. For further information, see theForm F-6EF we filed with the SEC on April 24, 2009 and theForm 6-K we furnished on April 28, 2009.

In May 2015, we proposed certain amendments to the form of the deposit agreement and the American Depositary Receipts while keeping the terms of deposit the same as the terms disclosed in the Form F-6EF we filed with the SEC on April 24, 2009. For further information of the amended and restated deposit agreement and the American Depositary Receipts, see the Form F-6 we filed with the SEC on May 12, 2015.

Fees Payable by ADS holdersHolders

The Depositary may charge each person, US$5.00 for each 100 ADSs (or portion thereof) for ADRs issued, delivered, reduced, cancelled or surrendered, as the case may be.

The following additional charges may be incurred by holders of our ADSs:

 

a fee of US$1.50 per ADR for transfers of ADRs;

 

a fee of US$0.02 or less per ADS for any cash distribution made, or the cash distribution fee;

 

a fee of US$5.00 for each 100 ADSs (or portion thereof) for any security distribution;

 

an administration fee of US$0.02 per ADS per calendar year (or portion thereof), provided, however, that the aggregate amount of such administration fee and the cash distribution fee shall not exceed US$0.02 per ADS in any calendar year;

 

stock transfer or other taxes and other governmental charges;

 

cable, telex and facsimile transmission and delivery charges incurred at the request of the ADS holders;

transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; and

 

expenses of the depositary in connection with the conversion of foreign currencies into U.S. dollars.

We will pay all other charges and expenses of the depositary and its agents (except the custodian) pursuant to the agreements between us and the depositary. The fees described above may be amended from time to time.

Payments Received by Foreign Private Issuer

The depositary has agreed to reimburse and waive certain fees and expenses incurred by us in connection with our ADR program.

Direct Payments

The table below sets forth the types of expenses that the depositary has reimbursed us for the year ended December 31, 2014:2016:

 

Category of Expenses

  Amount (US$) 

Investor relationsNYSE list fee

   3,202.1675,000.00 

Broker reimbursements

   15,455.8913,387.09 

TotalMiscellaneous

   18,658.0519,727.07

Total

108,114.16 
  

 

 

 

Indirect PaymentsPART II

The depositary has also agreed to waive certain fees for standard costs associated with the administration of our ADS program. The table below sets forth those fees that the depositary waived in the year ended December 31, 2014:

 

ITEM 13.

Category of Expenses

Amount (US$)

Fees waived

300,000

PART II

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

 

ITEM 15.ITEM 15.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our Chairman of the Board, General Manager, Chief Accountant and Company Secretary, evaluated the effectiveness of the design and operation of our Company’s disclosure controls and procedures (as defined in the Exchange Act Rules13a-15(e) and15d-15(e)) as of the end of the period covered by thisForm 20-F. Based on this evaluation, our Chairman of the Board, General Manager, Chief Accountant and Company Secretary concluded that our Company’s disclosure controls and procedures were effective as of December 31, 2014.2016. Our Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file and furnish under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and regulations and such information is accumulated and communicated to our Company’s management including the Chairman of the Board, General Manager, Chief Accountant and Company Secretary, as appropriate, to allow timely decision regarding required disclosures.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Exchange Act Rules13a-15(f) and15d-15(f). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our Company are being made only in accordance with authorizations of management and directors of our Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

For the year ended December 31, 2014,2016, under the supervision, and with the participation, of our Chairman of the Board, General Manager, Company Secretary and Chief Accountant, our management has conducted an assessment of the effectiveness of our internal control over financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control—Integrated Framework (2013).. Based on this evaluation, our Company’s management has concluded that its internal control over financial reporting was effective as of December 31, 2014.2016.

The effectiveness of our Company’s internal control over financial reporting as of December 31, 20142016 has been audited by PricewaterhouseCoopers (Certified Public Accountants, Hong Kong),Zhong Tian LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 20142016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16.

 

ITEM 16A.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Chen Song is an “audit committee financial expert” as defined in Item 16A ofForm 20-F. Mr. Lo Mun LamJia Jianmin and each of the other members of the Audit Committee is an “independent director” as defined in Section 303A.02 of the NYSE Listed Company Manual.

 

ITEM 16B.ITEM 16B.CODE OF ETHICS

We have adopted a code of ethics that applies to our Chairman, General Manager, Company Secretary, Chief Accountant and other senior officers, or the Code of Ethics for Senior Management, on April 20, 2004. On April 23, 2008, we amended the Code of Ethics for Senior Management pursuant to Section 404 of theSarbanes-Oxley Act. On April 29, 2009, we further amended the Code of Ethics for Senior Management in order to further strengthen our corporate governance, regulate the acts of our executive officers and ensure the better performance of duties by our executive officers. According to the amended Code of Ethics for Senior Management, each of our senior officers is required to sign a certificate for the compliance with the Code of Ethics for Senior Management at his/her initial or subsequent election or engagement, and to submit an annual certificate with respect to his/her compliance with the Code of Ethics for Senior Management. A copy of this amended Code of Ethics for Senior Management is filed as Exhibit 11.1 to our annual report onForm 20-F filed with the SEC on June 25, 2009.

ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Resolutions to appointOn December 30, 2016, we appointed PricewaterhouseCoopers (certified public accountants in Hong Kong),Zhong Tian LLP, or PwC China, as our auditor for 2014 have been approved at the annual general meeting of our shareholders held on May 29, 2014.independent registered public accounting firm, and dismissed PricewaterhouseCoopers, or PwC HK (“PwC HK” and “PwC China”, collectively referred to herein as “PwC”).

The following table presents the aggregate fees for professional services and other services rendered by PwC to us in 20132015 and 2014.2016.

 

  2013   2014   2015   2016 
  (RMB millions)   (RMB millions) 

Audit Fees

   8.08     8.08     8.08    8.08 

Audit-related Fees

   —       —       —      —   

Tax Fees

   —       —       —      —   

All Other Fees

   0.43     0.33     0.25    0.19 
  

 

   

 

   

 

   

 

 

Total

 8.51   8.41     8.33    8.27 
  

 

   

 

   

 

   

 

 

Notes:

1.Traveling expenses and tax fees are included in the audit fees and do not require additional payment.
2.As of December 31, 2014,2016, there did not exist any amount that became payable but remained outstanding.

Allnon-audit services to be provided by our independent registered public accountants, PwC, must be approved by our audit committee.

 

ITEM 16D.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During the year ended December 31, 2014,2016, there was no purchase, sale or redemption of our H shares or ADSs by us, or any of our subsidiaries.

 

ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

(a)(1) Previous independent registered public accounting firm.

(i) On December 30, 2016, we appointed PwC China, as our independent registered public accounting firm, and dismissed PwC HK.

(ii) The reports of PwC HK on the financial statements for the fiscal years ended December 31, 2015 and 2014 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.

(iii) Our Audit Committee participated in and approved the decision to change our independent registered public accounting firm.

(iv) During the fiscal years ended December 31, 2015 and 2014 and the subsequent interim period through December 30, 2016, there were no disagreements with PwC HK on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PwC HK would have caused them to make reference thereto in their reports on the financial statements for such years.

(v) During the fiscal years ended December 31, 2015 and 2014 and the subsequent interim period through December 30, 2016, there were no “reportable events” (as defined in Item 16F(a)(1)(v) of Form 20-F).

(2) New independent registered public accounting firm.

PwC China was appointed to be our new independent registered public accounting firm for the purpose of this Form 20-F for the year ended December 30, 2016. During the fiscal years ended December 31, 2015 and 2014 and the subsequent interim period through December 30, 2016, other than in the ordinary course of the audit, we did not consult with PwC China regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Registrant’s financial statements, and neither a written report nor oral advice was provided to us that PwC China concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions thereto, or a “reportable event”, as that term is defined in Item 16F(a)(1)(v) of Form 20-F.

(3) We have provided PwC HK with a copy of the foregoing disclosure, and requested that PwC HK furnish us with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated April 26, 2017, is filed as Exhibit 16.1 to this Form 20-F.

(b) Not applicable.

ITEM 16G.ITEM 16G.CORPORATE GOVERNANCE

Under the NYSE’s corporate governance listing standards, we are required to disclose any significant ways in which our governance practices differ from those followed by U.S. domestic companies under the NYSE listing standards. There are no significant differences in our corporate governance practices compared to those followed by a U.S. domestic company under the NYSE listing standards, except for the following:

 

we do not have the majority of our board of directors comprised of independent directors as defined under Section 303A.02 of the NYSE Manual;

 

we do not have a nominating committee or a corporate governance committee similar to that required for U.S. domestic companies;

 

we do not have a compensation committee wholly made up of independent directors. Our remuneration committee currently consists both executive directors and independentnon-executive directors with the independentnon-executive directors making up the majority of such committee;

 

instead of having formal corporate governance guidelines similar to those required for U.S. domestic companies, we have, in accordance with applicable PRC laws and regulations and the HKSE Listing Rules, adopted the Articles of Association, the General Meeting System, the Working Ordinance for the Board of Directors, the Working Ordinance for the supervisory committee, the Working Ordinance for the General Manager, the Capital Management Measures, the Investment Management Measures, the Code of Ethics for Senior Officers and the Audit Committee Charter that contain provisions addressing (i) director qualification standards and responsibilities; (ii) key board committee responsibilities; (iii) director access to management and, as necessary and appropriate, independent advisors; (iv) director compensation; (v) management succession and (vi) director orientation and continuing education;

as a company listed on the HKSE, we are required to comply with applicable corporate governance and other related requirements of the HKSE Listing Rules, including the Corporate Governance Code, unless an exemption is available; and

 

we have not adopted a set of formal code of business conduct and ethics for our directors, officers and employees similar to that required for U.S. domestic companies. We have implemented code of business conduct and ethics for senior management, including our General Manager, Deputy General Manager, Chief Accountant and Company Secretary. In addition, our directors are required to comply with the Model Code for Securities Transactions by Directors of Listed Companies set out in the HKSE Listing Rules, which sets out standards with which directors are required to comply with respect to transactions involving our securities.

ITEM 16H.ITEM 16H.MINE SAFETY DISCLOSURE

Not applicable.

PART III

 

ITEM 17.FINANCIAL STATEMENTS

We have elected to provide the financial statements and related information specified in ITEM 18 in lieu of ITEM 17.

 

ITEM 18.ITEM 18.FINANCIAL STATEMENTS

See pagesF-1 toF-79 F-78 following ITEM 19.

 

ITEM 19.ITEM 19.EXHIBITSEXHIBITS

 

 (a)See pagesF-1 toF-79 F-78 following this item.

 

 (b)Index of Exhibits

Documents filed as exhibits to this annual report:

 

Exhibit
Number

  

Description

1.1a  Amended and Restated Articles of Association
2.1*  2.1(1)  Form of Amendment No. 1 to Deposit Agreement
2.2*  2.2(1)  Form of American Depositary Receipt
4.1**  4.1(2)  English Translation of the Land Lease Agreement dated November 15, 2004 between Guangshen Railway Company Limited and Guangzhou Railway (Group) Company
4.2ß  4.2  Master comprehensive services agreementsEnglish Translation of the Comprehensive Services Framework Agreement, dated October 18, 2013November 1, 2016, between Guangshen Railway Company Limited and each of GRGC, Guangzhou Railway(Group) GuangshenChina Railway Enterprise Development Company and Yangcheng Railway CompanyCorporation
7.1  Statements explaining how certain ratios are calculated in this annual report
8.1  List of subsidiaries of Guangshen Railway Company Limited as of December 31, 20142016
11.1¥(3)  Code of Ethics for the Senior Management as amended on April 29, 2009
12.1  Section 302 principal executive officers’ and principal financial officer’s certifications
13.1  Certifications of principal executive officers and principal financial officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S.Sarbanes-Oxley Act of 2002
16.1Letter from PricewaterhouseCoopers to the SEC

 

*(1)Incorporated by reference from the Registrant’sForm F-6EF filed with the SEC on April 24, 2009.
**

Incorporated by reference from the Registrant’s annual report onForm 20-FF-6 filed with the SEC on June 28, 2005.May 12, 2015.

¥(2)Incorporated by reference from the Registrant’s annual report onForm 20-F filed with the SEC on June 25, 2009.
aIncorporated by reference from the Registrant’s annual report onForm 20-F filed with the SEC on June 22, 2010.
ß

Incorporated by reference from the Registrant’s annual report on Form 20-F filed with the SEC on April 24, 2014.June 28, 2005.

(3)

Incorporated by reference from the Registrant’s annual report on Form 20-F filed with the SEC on June 25, 2009.

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

GUANGSHEN RAILWAY COMPANY LIMITED
Date: April 28, 201526, 2017By:

/s/ Wu Yong

Wu Yong
Chairman of the Board of Directors


INDEX TO FINANCIAL STATEMENTS

 

   Page 

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

  

Report of Independent Registered Public Accounting Firm

   F-2,3F-2,3,4 

Consolidated Balance Sheets as at DecemberatDecember 31, 20132015 and 20142016

   F-4F-5 

Consolidated Comprehensive Income Statements for the years ended December 31, 2012, 20132014, 2015 and 20142016

   F-5,6F-6,7 

Consolidated Cash Flow Statements for the years ended December 31, 2012, 20132014, 2015 and 20142016

   F-7F-8 

Consolidated Statements of Changes in Equity for the years ended December 31, 2012, 20132014, 2015 and 20142016

   F-8,9F-9,10 

Notes to the Consolidated Financial Statements

   F-10F-11 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Guangshen Railway Company Limited

In our opinion, the accompanying consolidated balance sheetssheet and the related consolidated statements of comprehensive income, of cashflows,cash flows, and of changes in equity present fairly, in all material respects, the financial position of Guangshen Railway Company Limited (the “Company”) and its subsidiaries (the “Group”) at December 31, 2014 and 2013,2016, and the results of their operations and their cash flows for each of the three years in the periodyear then ended December 31, 2014 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as atof December 31, 2014,2016, based on criteria established in Internal Control—Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Report Onon Internal Control over Financial Reporting inappearing under Item 15 appearing on pages 79 and 80 of the 2014 Annual Report.15. Our responsibility is to express opinions on these financial statements and on the Group’s internal control over financial reporting based on our integrated audits.audit. We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our auditsaudit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers Zhong Tian LLP

Shanghai, the People’s Republic of China

April 26, 2017

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Guangshen Railway Company Limited

In our opinion, the accompanying consolidated balance sheet as of December 31, 2015 and the related consolidated statements of comprehensive income, of cash flows, and of changes in equity for each of the two years in the period ended December 31, 2015 present fairly, in all material respects, the financial position of Guangshen Railway Company Limited (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers

Hong Kong

April 28, 201527, 2016

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS AT DECEMBER 31, 20132015 AND 20142016

(Amounts in thousands)

 

      December 31 
     December 31   Note   2015 2016 2016 
  Note  

2013

RMB

   

2014

RMB

   

2014

US$*

       RMB RMB US$* 

ASSETS

              

Non-current assets

              

Fixed assets

  6   24,302,653     24,179,210     3,896,981  

Fixedassets-net

   6    24,073,759   24,278,032   3,496,764 

Construction-in-progress

  7   543,350     401,434     64,699     7    569,573   790,308   113,828 

Prepayments for fixed assets and construction-in-progress

     9,403     13,499     2,176       46,546   60,095   8,655 

Leasehold land payments

  8   657,593     668,005     107,663     8    948,526   1,624,859   234,028 

Goodwill

  9   281,255     281,255     45,330     9    281,255   281,255   40,509 

Investments in associates

  11   142,054     147,102     23,709     11    168,711   167,604   24,140 

Deferred tax assets

  12   91,227     67,584     10,893     12    93,249   79,929   11,512 

Long-term prepaid expenses

  13   33,528     22,004     3,546     13    14,485   7,824   1,127 

Available-for-sale investments

  15   53,826     53,826     8,675     15    53,826   53,826   7,753 

Long-term receivable

  16   29,588     30,197     4,867     16    30,804   31,406   4,524 
    

 

   

 

   

 

     

 

  

 

  

 

 
 26,144,477   25,864,116   4,168,539       26,280,734   27,375,138   3,942,840 
    

 

   

 

   

 

     

 

  

 

  

 

 

Current assets

      

Materials and supplies

17 391,947   400,509   64,550     17    307,056   332,607   47,905 

Trade receivables

18 1,554,914   2,313,405   372,853     18    2,886,066   3,364,366   484,569 

Prepayments and other receivables

19 244,373   189,576   30,554     19    142,613   330,491   47,601 

Short-term deposits

20 4,483,600   104,000   16,762     20    106,000   108,000   15,556 

Cash and cash equivalents

20 412,678   1,665,057   268,358     20    2,220,803   1,359,656   195,831 
    

 

   

 

   

 

     

 

  

 

  

 

 
 7,087,512   4,672,547   753,077       5,662,538   5,495,120   791,462 
    

 

   

 

   

 

     

 

  

 

  

 

 

Total assets

 33,231,989   30,536,663   4,921,616       31,943,272   32,870,258   4,734,302 
    

 

   

 

   

 

     

 

  

 

  

 

 

Equity

EQUITY AND LIABILITIES

      

Capital and reserves attributable to the Company’s equity holders

      

Share capital

21 7,083,537   7,083,537   1,141,659     21    7,083,537   7,083,537   1,020,242 

Share premium

 11,562,777   11,562,738   1,863,575       11,562,738   11,562,738   1,665,381 

Other reserves

22 2,530,747   2,596,783   418,525     22    2,708,543   2,825,593   406,970 

Retained earnings

 5,473,483   5,502,785   886,888       6,107,670   6,582,190   948,032 
    

 

   

 

   

 

     

 

  

 

  

 

 
 26,650,544   26,745,843   4,310,647       27,462,488   28,054,058   4,040,625 
    

 

   

 

   

 

     

 

  

 

  

 

 

Non-controlling interests

 43,821   40,617   6,546       (18,226  (24,003  (3,457
    

 

   

 

   

 

     

 

  

 

  

 

 

Total equity

 26,694,365   26,786,460   4,317,193       27,444,262   28,030,055   4,037,168 
    

 

   

 

   

 

     

 

  

 

  

 

 

Liabilities

      

Non-current liabilities

      

Deferred income related to government grants

23 90,404   88,771   14,307  

Employee benefits obligations

25 7,909   —     —    

Deferred income relating to government grants

   23    103,985   106,810   15,384 

Deferred tax liabilities

   12    71,376   68,883   9,921 
    

 

   

 

   

 

     

 

  

 

  

 

 
 98,313   88,771   14,307       175,361   175,693   25,305 
    

 

   

 

   

 

     

 

  

 

  

 

 

Current liabilities

      

Trade payables

26 940,045   1,438,444   231,835     25    1,105,291   1,143,523   164,702 

Payables for fixed assets and construction-in-progress

 856,837   1,094,814   176,452       1,425,998   1,765,185   254,240 

Dividends payable

 146   548   88       14,318   15,542   2,239 

Income tax payable

 269,981   157,865   25,443       313,656   121,513   17,501 

Accruals and other payables

27 879,579   969,761   156,298     26    1,464,386   1,618,747   233,147 

Current portion of bonds payable

24 3,492,723   —     —    
    

 

   

 

   

 

     

 

  

 

  

 

 
 6,439,311   3,661,432   590,116       4,323,649   4,664,510   671,829 
    

 

   

 

   

 

     

 

  

 

  

 

 

Total liabilities

 6,537,624   3,750,203   604,423       4,499,010   4,840,203   697,134 
    

 

   

 

   

 

     

 

  

 

  

 

 

Total equity and liabilities

 33,231,989   30,536,663   4,921,616       31,943,272   32,870,258   4,734,302 
    

 

   

 

   

 

     

 

  

 

  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

*Translation of amounts from Renminbi (“RMB”) into United States dollars (“US$”) for the convenience of the reader has been made at US$1.00=RMB6.2046,RMB6.9430, the certified exchange rates for December 31, 201430, 2016 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 201430, 2016 or on any other date.

 

Chairman

        ChairmanGeneral Manager

Chief Accountant

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 20132014, 2015 AND 20142016

(Amounts in thousands, except per share and per ADS data)

 

     Years ended December 31     Years ended December 31 
  Note  2012 2013 2014 2014   Note 2014 2015 2016 2016 
     RMB RMB RMB US$*     RMB RMB RMB US$* 

Revenue from Railroad Businesses

       

Passengers

     7,841,091   8,058,291   6,988,288   1,126,308  

Freight

     1,344,113   1,603,288   1,763,679   284,253  

Revenue from Railroad and Related Business

      

Passenger transportation

    6,988,288   6,997,562   7,358,851   1,059,895 

Freight transportation

    1,763,679   1,761,449   1,718,260   247,481 

Railway network usage and other transportation related services

     4,890,640   5,034,676   5,031,241   810,889      5,031,241   5,874,727   7,093,198   1,021,633 
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 
 14,075,844   14,696,255   13,783,208   2,221,450      13,783,208   14,633,738   16,170,309   2,329,009 

Revenue from other businesses

 1,016,042   1,104,422   1,017,573   164,003      1,017,573   1,091,571   1,110,195   159,901 
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Total revenue

 15,091,886   15,800,677   14,800,781   2,385,453      14,800,781   15,725,309   17,280,504   2,488,910 

Operating expenses

      

Railroad businesses

Business tax

 (340,035 (357,824 (61,021 (9,835

Labour and benefits

28 (3,516,589 (3,932,120 (4,441,615 (715,858

Railroad and Related business

      

Business tax and surcharge

    (61,021  (46,785  (38,723  (5,577

Employee benefits

   27   (4,441,615  (4,767,083  (5,654,869  (814,471

Equipment leases and services

 (4,022,514 (4,166,329 (3,629,757 (585,011    (3,629,757  (3,908,545  (4,193,555  (603,998

Land use right leases

36(b) (54,800 (56,000 (53,962 (8,697   35(b)   (53,962  (55,090  (55,090  (7,935

Materials and supplies

 (1,532,559 (1,587,251 (1,310,106 (211,151    (1,310,106  (1,224,262  (1,336,614  (192,512

Repair and facilities maintenance costs, excluding materials and supplies

 (696,884 (501,711 (905,540 (145,947    (905,540  (716,193  (612,484  (88,216

Depreciation of fixed assets

 (1,358,527 (1,392,010 (1,405,580 (226,538    (1,405,580  (1,387,534  (1,488,324  (214,363

Cargo logistics and outsourcing service charges

    —     (158,947  (206,195  (29,698

Amortisation of leasehold land payments

 (15,001 (15,001 (18,245 (2,941    (18,245  (17,949  (27,338  (3,937

Social services charges

 (93,090 (67,990 (12,430 (2,003

Social services expenses

    (12,430  (16,080  (11,297  (1,627

Utility and office expenses

    (74,740  (63,602  (55,718  (8,025

Reversal of/(provision for) impairment of materials and supplies

    —     (64,096  5,209   750 

Others

    (816,832  (724,239  (886,795  (127,725
   

 

  

 

  

 

  

 

 
    (12,729,828  (13,150,405  (14,561,793  (2,097,334
   

 

  

 

  

 

  

 

 

Other businesses

      

Business tax and surcharge

    (29,957  (31,759  (13,593  (1,958

Employee benefits

   27   (469,273  (443,014  (564,478  (81,302

Materials and supplies

    (306,128  (341,386  (360,552  (51,930

Depreciation of fixed assets

    (23,694  (24,208  (30,646  (4,414

Amortisation of leasehold land payments

    (919  (10,464  (11,332  (1,632

Utility and office expenses

 (107,216 (71,525 (74,740 (12,046    (34,880  (30,080  (23,051  (3,320

Others

 (525,806 (731,055 (816,832 (131,649    (157,282  (125,419  (72,554  (10,450
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 
 (12,263,021 (12,878,816 (12,729,828 (2,051,676    (1,022,133  (1,006,330  (1,076,206  (155,006
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Other businesses

Business tax

 (32,845 (37,098 (29,957 (4,828

Labour and benefits

28 (458,349 (493,072 (469,273 (75,633

Materials and supplies

 (317,738 (338,547 (306,128 (49,339

Depreciation of fixed assets

 (23,877 (22,002 (23,694 (3,819

Amortisation of leasehold land payments

 (987 (920 (919 (148

Utility and office expenses

 (132,581 (156,914 (192,162 (30,971

Total operating expenses

    (13,751,961  (14,156,735  (15,637,999  (2,252,340

Other income and other gains/(losses) - net

   28   7,138   (114,627  (108,270  (15,594
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 
 (966,377 (1,048,553 (1,022,133 (164,738
    

 

  

 

  

 

  

 

 

Total operating expenses

 (13,229,398 (13,927,369 (13,751,961 (2,216,414

Other income and other gains—net

29 71,815   14,903   7,138   1,150  
    

 

  

 

  

 

  

 

 

Profit from operations

 1,934,303   1,888,211   1,055,958   170,189  

Finance costs

30 (187,073 (191,686 (180,373 (29,071

Operating profit

    1,055,958   1,453,947   1,534,235   220,976 

Financeincome/(costs)-net

   29   (180,373  (4,608  2,551   367 

Share of results of associates

11 10,906   5,228   5,048   814     11   5,048   2,499   7,223   1,041 
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Profit before income tax

 1,758,136   1,701,753   880,633   141,932      880,633   1,451,838   1,544,009   222,384 

Income tax expense

31 (441,151 (430,670 (219,507 (35,378   30   (219,507  (388,530  (390,309  (56,217
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Profit for the year

 1,316,985   1,271,083   661,126   106,554      661,126   1,063,308   1,153,700   166,167 
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2012, 20132014, 2015 AND 20142016

(Amounts in thousands, except per share and per ADS data)

 

      Years ended December 31,       Years ended December 31 
  Note   2012 2013 2014 2014   Note   2014 2015 2016 2016 
      RMB RMB RMB US$*       RMB RMB RMB US$* 

Profit for the year

     1,316,985   1,271,083   661,126   106,554       661,126   1,063,308   1,153,700   166,167 

Other comprehensive income, net of tax

     —      —      —      —    

Other comprehensive income

     —     —     —     —   
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Total comprehensive income for the year, net of tax

 1,316,985   1,271,083   661,126   106,554       661,126   1,063,308   1,153,700   166,167 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Profit attributable to:

       

Equity holders of the Company

 1,318,938   1,273,841   662,021   106,698       662,021   1,070,822   1,158,253   166,823 

Non-controlling interests

 (1,953 (2,758 (895 (144     (895  (7,514  (4,553  (656
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 
 1,316,985   1,271,083   661,126   106,554       661,126   1,063,308   1,153,700   166,167 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Total comprehensive income attributable to:

       

Equity holders of the Company

 1,318,938   1,273,841   662,021   106,698       662,021   1,070,822   1,158,253   166,823 

Non-controlling interests

 (1,953 (2,758 (895 (144     (895  (7,514  (4,553  (656
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 
 1,316,985   1,271,083   661,126   106,554       661,126   1,063,308   1,153,700   166,167 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Earnings per share for profit attributable to the equity holders of the Company during the year

       

- Basic and diluted

 32   RMB0.19   RMB0.18   RMB0.09  US$0.01     31   RMB  0.09  RMB  0.15  RMB  0.16  US$0.02 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Earnings per equivalent ADS

       

- Basic and diluted

 32   RMB9.31   RMB8.99   RMB4.67  US$0.75     31   RMB  4.67  RMB  7.56  RMB  8.18  US$1.18 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

*Translation of amounts from Renminbi (“RMB”) into United States dollars (“US$”) for the convenience of the reader has been made at US$1.00=RMB6.2046,RMB6.9430, the certified exchange rates for December 31, 201430, 2016 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 201430, 2016 or on any other date.

 

ChairmanGeneral ManagerChief Accountant

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 20132014, 2015 AND 20142016

(Amounts in thousands)

 

     Year ended December 31,     Year ended December 31 
  Note  2012 2013 2014 2014   Note 2014 2015 2016 2016 
     RMB RMB RMB US$*     RMB RMB RMB US$* 

Cash flows from operating activities:

             

Cash generated from operations

  34(a)   2,875,017   2,423,086   2,421,206   390,228     33(a)   2,421,206   2,520,379   2,212,863   318,719 

Interest paid

     (167,650 (167,650 (167,650 (27,020    (167,650  —     —     —   

Income tax paid

     (529,694 (372,025 (307,980 (49,637    (307,980  (260,688  (571,625  (82,332
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Net cash generated from operating activities

 2,177,673   1,883,411   1,945,576   313,571      1,945,576   2,259,691   1,641,238   236,387 
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Cash flows from investing activities:

      

Payments for acquisition of fixed assets and construction-in-progress and prepayment for fixed assets, net of related payables

 (1,836,154 (1,376,601 (999,633 (161,112    (999,633  (1,292,273  (1,973,897  (284,300

Proceeds from disposal of fixed assets

34(b) 41,071   75,250   708   114  

Proceeds from disposal of fixed assets and leasehold land

   33(b)   708   7,821   17,950   2,585 

Government grants received

 —     647   —     —        —     8,160   6,082   876 

Interest received

 116,688   127,318   128,139   20,652      128,139   2,895   1,949   281 

Payment for investment in associates

    —     (19,110  —     —   

(Increase)/ decrease in short-term deposits with maturities more than three months, net

 (488,000 (309,600 4,379,600   705,863      4,379,600   (2,000  (2,000  (288

Dividends received

 5,500   4,904   4,904   790      4,904   5,884   14,214   2,047 

Payment for business combination, net of cash acquired

37 —     (94,879 (139,897 (22,547    (139,897  (60,612  —     —   
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Net cash (used in)/generated from investing activities

 (2,160,895 (1,572,961 3,373,821   543,760  

Net cash generated from/(used in) investing activities

    3,373,821   (1,349,235  (1,935,702  (278,799
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Cash flows from financing activities:

      

Repayments of bond payables

24 —     —     (3,500,000 (564,098    (3,500,000  —     —     —   

Dividends paid to non-controlling interests’ shareholders

 (10 —     —     —        —     (533  —     —   

Dividends paid to the Company’s shareholders

 (708,354 (566,680 (566,685 (91,333    (566,685  (354,177  (566,683  (81,619

Acquisition of additional interests in subsidiary from non-controlling interests

 —     (5,947 —     —    

Payments for management fee of bond payables

 (158 (158 (333 (54    (333  —     —     —   
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Net cash used in financing activities

 (708,522 (572,785 (4,067,018 (655,485    (4,067,018  (354,710  (566,683  (81,619
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Net (decrease)/increase in cash and cash equivalents

 (691,744 (262,335 1,252,379   201,846  

Net increase/(decrease) in cash and cash equivalents

    1,252,379   555,746   (861,147  (124,031
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Cash and cash equivalents, at beginning of year

 1,366,757   675,013   412,678   66,512      412,678   1,665,057   2,220,803   319,862 
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Cash and cash equivalents, at end of year

20 675,013   412,678   1,665,057   268,358     20   1,665,057   2,220,803   1,359,656   195,831 
    

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

*Translation of amounts from Renminbi (“RMB”) into United States dollars (“US$”) for the convenience of the reader has been made at US$1.00=RMB6.2046,RMB6.9430, the certified exchange rates for December 31, 201430, 2016 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 201430, 2016 or on any other date.

 

ChairmanGeneral ManagerChief Accountant

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012, 20132014, 2015 AND 20142016

(Amounts in thousands)

 

 Attributable to equity holders of the Company      Attributable to equity holders of the Company     
 Share capital 

Share

premium

 

Statutory
surplus

reserve

 

Discretionary
surplus

reserve

 

Other

reserve

 Retained
earnings
 Total Non-controlling
interests
 Total equity  

Share capital
RMB

(Note 21)

 

Share

premium

RMB

 

Statutory

surplus

reserve

RMB

(Note 22)

 

Discretionary
surplus

reserve

RMB

(Note 22)

 

Other

reserve

RMB

(Note 22)

 

Retained
earnings

RMB

 

Total

RMB

 

Non-

controlling

interests

RMB

 

Total equity

RMB

 
 RMB RMB RMB RMB RMB RMB RMB RMB RMB 
 (Note 21)   (Note 22) (Note 22) (Note 22)         

Balance at January 1, 2012

 ��7,083,537   11,564,581   1,965,036   304,059    —     4,417,393   25,334,606   52,802   25,387,408  

Balance at January 1, 2014

  7,083,537   11,562,777   2,226,688   304,059   —     5,473,483   26,650,544   43,821   26,694,365 

Total comprehensive income

  —      —      —      —      —     1,318,938   1,318,938   (1,953 1,316,985    —     —     —     —     —     662,021   662,021   (895  661,126 

Profit for the year

  —      —      —      —      —     1,318,938   1,318,938   (1,953 1,316,985    —     —     —     —     —     662,021   662,021   (895  661,126 

Other comprehensive

  —      —      —      —      —      —      —      —      —    

Special reserve-Safety Production Fund (Note 22)

  —      —      —      —      —      —      —      —      —    

Appropriation

  —      —      —      —     134,265   (134,265  —      —      —    

Utilization

  —      —      —      —     (134,265 134,265    —      —      —    

Appropriations from retained earnings (Note 22)

  —      —     133,171    —      —     (133,171  —      —      —    

Dividends relating to 2011

  —      —      —      —      —     (708,354 (708,354  —     (708,354
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2012

 7,083,537   11,564,581   2,098,207   304,059    —     4,894,806   25,945,190   50,849   25,996,039  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at January 1, 2013

 7,083,537   11,564,581   2,098,207   304,059    —     4,894,806   25,945,190   50,849   25,996,039  

Total comprehensive income

  —      —      —      —      —     1,273,841   1,273,841   (2,758 1,271,083  

Profit for the year

  —      —      —      —      —     1,273,841   1,273,841   (2,758 1,271,083  

Other comprehensive

  —      —      —      —      —      —      —      —      —    

Other comprehensive income

  —     —     —     —     —     —     —     —     —   

Special reserve-Safety Production Fund (Note 22)

  —      —      —      —      —      —      —      —      —      —     —     —     —     —     —     —     —     —   

Appropriation

  —      —      —      —     200,839   (200,839  —      —      —      —     —     —     —     208,250   (208,250  —     —     —   

Utilisation

  —      —      —      —     (200,839 200,839    —      —      —      —     —     —     —     (208,250  208,250   —     —     —   

Acquisition of additional interests in subsidiary from non-controlling interests

  —     (1,804  —      —      —      —     (1,804 (4,143 (5,947

Liquidation of a subsidiary

  —     (39  —     —     —     —     (39  (1,905  (1,944

Appropriations from retained earnings (Note 22)

  —      —     128,481    —      —     (128,481  —      —      —      —     —     66,036   —     —     (66,036  —     —     —   

Dividends relating to 2012

  —      —      —      —      —     (566,683 (566,683 (127 (566,810

Dividends relating to 2013

  —     —     —     —     —     (566,683  (566,683  (404  (567,087
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2013

 7,083,537   11,562,777   2,226,688   304,059    —     5,473,483   26,650,544   43,821   26,694,365  

Balance at December 31, 2014

  7,083,537   11,562,738   2,292,724   304,059   —     5,502,785   26,745,843   40,617   26,786,460 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2013

 US$1,170,117   US$1,910,035   US$367,823   US$50,227    —     US$904,155   US$4,402,357   US$7,239   US$4,409,596  

Balance at January 1, 2015

  7,083,537   11,562,738   2,292,724   304,059   —     5,502,785   26,745,843   40,617   26,786,460 

Total comprehensive income

  —     —     —     —     —     1,070,822   1,070,822   (7,514  1,063,308 

Profit for the year

  —     —     —     —     —     1,070,822   1,070,822   (7,514  1,063,308 

Other comprehensive income

  —     —     —     —     —     —     —     —     —   

Special reserve-Safety Production Fund (Note 22)

  —     —     —     —     —     —     —     —     —   

Appropriation

  —     —     —     —     192,860   (192,860  —     —     —   

Utilisation

  —     —     —     —     (192,860  192,860   —     —     —   

Business combination

  —     —     —     —     —     —     —     (49,902  (49,902

Appropriations from retained earnings (Note 22)

  —     —     111,760   —     —     (111,760  —     —     —   

Dividends relating to 2014

  —     —     —     —     —     (354,177  (354,177  (1,427  (355,604
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2015

  7,083,537   11,562,738   2,404,484   304,059   —     6,107,670   27,462,488   (18,226  27,444,262 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2012, 20132014, 2015 AND 20142016

(Amounts in thousands)

 

 Attributable to equity holders of the Company      Attributable to equity holders of the Company     
 Share capital 

Share

premium

 

Statutory

surplus

reserve

 

Discretionary
surplus

reserve

 

Other

reserve

 Retained
earnings
 Total Non-controlling
interests
 Total equity  

Share capital
RMB

(Note 21)

 

Share

premium

RMB

 

Statutory

surplus

reserve

RMB

(Note 22)

 

Discretionary
surplus

reserve

RMB

(Note 22)

 

Other

reserve

RMB

(Note 22)

 

Retained
earnings

RMB

 

Total

RMB

 

Non-

controlling

interests

RMB

 

Total equity

RMB

 
 RMB RMB RMB RMB RMB RMB RMB RMB RMB 
 (Note 21)   (Note 22) (Note 22) (Note 22)         

Balance at January 1, 2014

 7,083,537   11,562,777   2,226,688   304,059    —     5,473,483   26,650,544   43,821   26,694,365  

Balance at January 1, 2016

  7,083,537   11,562,738   2,404,484   304,059   —     6,107,670   27,462,488   (18,226  27,444,262 

Total comprehensive income

  —      —      —      —      —     662,021   662,021   (895 661,126    —      —      —     1,158,253   1,158,253   (4,553  1,153,700 

Profit for the year

  —      —      —      —      —     662,021   662,021   (895 661,126    —      —      —     1,158,253   1,158,253   (4,553  1,153,700 

Other comprehensive

  —      —      —      —      —      —      —      —      —    

Other comprehensive income

  —      —      —      —     —     —   

Special reserve-Safety Production Fund (Note 22)

  —      —      —      —      —      —      —      —      —      —     —     —     —     —     —     —     —     —   

Appropriation

  —      —      —      —     208,250   (208,250  —      —      —      —     —     —     —     204,792   (204,792  —     —     —   

Utilisation

  —      —      —      —     (208,250 208,250    —      —      —      —     —     —     —     (204,792  204,792   —     —     —   

Liquidation of a subsidiary

  —     (39  —      —      —      —     (39 (1,905 (1,944

Appropriations from retained earnings (Note 22)

  —      —     66,036    —      —     (66,036  —      —      —      —     —     117,050   —     —     (117,050  —     —     —   

Dividends relating to 2013

  —      —      —      —      —     (566,683 (566,683 (404 (567,087

Dividends relating to 2015

  —     —     —     —     —     (566,683  (566,683  (1,224  (567,907
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2014

 7,083,537   11,562,738   2,292,724   304,059    —     5,502,785   26,745,843   40,617   26,786,460  

Balance at December 31, 2016

  7,083,537   11,562,738   2,521,534   304,059   —     6,582,190   28,054,058   (24,003  28,030,055 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2014(*)

 US$1,141,659   US$1,863,575   US$369,520   US$49,005    —     US$886,888   US$4,310,647   US$6,546   US$4,317,193  

Balance at December 31, 2016(*)

 US$1,020,242  US$1,665,381  US$363,176  US$43,794   —    US$948,032  US$4,040,625  US$(3,457 US$4,037,168 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

*Translation of amounts from Renminbi (“RMB”) into United States dollars (“US$”) for the convenience of the reader has been made at US$1.00=RMB6.2046,RMB6.9430, the certified exchange rates for December 31, 201430, 2016 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 201430, 2016 or on any other date.

 

 

 

 

ChairmanGeneral ManagerChief Accountant

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

1GENERAL INFORMATION

Guangshen Railway Company Limited (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) on 6 March 1996. On the same date, the Company assumed the business operations of certain railroad and other related businesses (collectively the “Businesses”) that had been undertaken previously by its predecessor, Guangshen Railway Company (the “Predecessor”) and, certain subsidiaries of its subsidiaries;the Predecessor; and Guangzhou Railway (Group) Company (the “Guangzhou Railway Group”) and certain of its subsidiaries prior to the formation of the Company.

The Predecessor iswas controlled by and iswas under the administration of the Guangzhou Railway Group. Pursuant to a restructuring agreement entered into between the Guangzhou Railway Group, the Predecessor and the Company in 1996, (the “Restructuring Agreement”), the Company issued to the Guangzhou Railway Group 100% of its equity interest in the form of 2,904,250,000 ordinary shares (the “State-owned Domestic Shares”) infor the exchange for theof assets and liabilities associated with the operations of the Businesses (the “Restructuring”). After the Restructuring, the Predecessor changed its name to Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company (the “GEDC”).

In May 1996, the Company issued 1,431,300,000 shares, representing 217,812,000 H Shares (“H Shares”) and 24,269,760 American Depositary Shares (“ADSs”, one ADS represents 50 H Shares) in a global public offering for cash of approximately RMB4,214,000,000 in order to finance the capital expenditure and working capital requirements of the Company and its subsidiaries (collectively defined as the “Group”).

In December 2006, the Company issued 2,747,987,000 A Shares on the Shanghai Stock Exchange through an initial public offering of shares in order to finance the acquisition of the business and related assets and liabilities associated with the railway transportation business (“Yangcheng Railway Business”) of Guangzhou Railway Group Yangcheng Railway Enterprise Development Company (“Yangcheng Railway “), a wholly owned subsidiary of Guangzhou Railway Group which operates a railway line between the cities of Guangzhou and Pingshi in the Southern region of the PRC.

Before March 2013, the Ministry of Railway of the PRC (“MOR”) was the controlling entity of the Company’s single largest shareholder (i.e. Guangzhou Railway Group). In addition, it was the government authority which governed and monitored the railway business centrally within the PRC.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

1GENERAL INFORMATION (CONTINUED)

 

On 14 March 2013, pursuant to the approved plan on State Council Institutional Reform and Transformation of Government Functions and Approval On Setting Up China Railway Company by the State Council, the previous controlling entity of Guangzhou Railway Group, MOR, had been dismantled.was dissolved. The administrative functionfunctions of MOR will bewere transferred to the Ministry of Transport and thea newly established National Railway Bureau, and itsBureau. The business functions and all related assets, liabilities and human resources will bewere transferred to the China Railway Corporation (“CRC”). Accordingly, the equity interests of Guangzhou Railway Group which was wholly controlled by MOR previously will bewere also transferred to the CRC. OnceCRC (“Reform”). The Reform was completed and CRC became the transfer is completed, the actual controlling entity of the Company’s largestprincipal shareholder, will becomeGuangzhou Railway Group. Upon the completion of necessary procedures and approval, CRC (See Note 39 for more details)became the controlling entity of the Company’s principal shareholder, Guangzhou Railway Group since 1 January 2017. CRC, together with subsidiaries which were wholly controlled by MOR previously became related parties (hereinafter collectively as “CRC Group”).

The principal activities of the Group are the provision of passenger and freight transportation on railroad.railroads. The Group also operates certain other businesses, which principally include services offered in railway stations; and sales of food, beverages and merchandises on board the trains and in the railway stations.

The registered address of the Company is No. 1052 Heping Road, Shenzhen, Guangdong Province, the People’s Republic of China. The business license for the Company will expire in 2056.

As at 31 December 2014, the Company had in total approximately 37,300 employees, representing an increase of 400 as compared with that of 31 December 2013.

The financial statements were authorised for issue by the board of directors of the Company on 2826 April 2015.2017.

The English names of all companies listed in the financial statements are direct translations of their registered names in Chinese.

 

2PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adoptedapplied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

2.1Basis of preparation

The consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standards Board (“IASB”). The consolidated financial statements have been prepared under the historical cost convention.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.1Basis of preparation (continued)

 

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

2.1.1Changes in accounting policy and disclosures

 

(a)New and amended standards adopted by the Group

In the current year,The following amendments to standards have been adopted by the Group has adoptedfor the following new and revised standards, and amendments to existing standards which are mandatoryfirst time for the financial year beginning on 1 January 2014:2016:

 

Amendment

Accounting for acquisitions of interests in joint operations – Amendments to IAS 32, ‘Financial instruments: Presentation’ on asset and liability offsettingIFRS 11

The amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not have a significant effect on the consolidated financial statements.

 

Amendment to IFRS10, IFRS12

Clarification of acceptable methods of depreciation and IAS 27, ‘Consolidation for investment entities’

These amendments mean that many funds and similar entities will be exempt from consolidating most of their subsidiaries. Instead, they will measure them at fair value through profit or loss. The amendments give an exception to entities that meet an ‘investment entity’ definition and which display particular characteristics. Changes have also been made in IFRS12 to introduce disclosures that an investment entity needs to make. The amendment did not have a significant effect on the group financial statements.

amortisation – Amendments to IAS 36, ‘Impairment of assets’ on recoverable amount disclosures for non-financial assets16 and IAS 38

This amendment removed certain disclosures

Annual improvements to IFRSs 2012 – 2014 cycle, and

Disclosure initiative – amendments to IAS 1.

The directors of the recoverable amountCompany consider that the adoption of the cash-generating units (“CGUs”) which had been included in IAS 36 by the issue of IFRS 13. The amendment did notamendments to standards have a significant effect on the consolidated financial statements.

IFRIC 21, ‘Levies’

The interpretation addresses what the obligating event is that gives rise to the payment of a levy and when a liability should be recognised. The Group is not currently subjected to significant levies so theno material impact on the Group is not material.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.1Basis of preparation (continued)

(a)New and amended standards adopted by the Group (continued)

Amendment to IAS 39, ‘Financial instruments: RecognitionGroup’s operating results and measurement’

This amendment considers legislative changes to ‘over-the-counter’ derivatives and the establishment of central counterparties. Under IAS 39 novation of derivatives to central counterparties would result in discontinuance of hedge accounting. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. The Group has applied the amendment and there has been no significant impact on the group financial statements as a result.position.

 

(b)The following new standards, amendments and interpretations have been issued as at 31 December 20142016 but are not yet effective for IFRS financial statements for the year ended 31 December 2014:2016

 

Effective for

annual

periods

beginning

on or after

Amendment to IAS19 regarding defined benefit plans: employee contributions

1 July 2014

Annual improvements to IFRSs 2010-2012 Cycle

1 July 2014

Annual improvements to IFRSs 2011-2013 Cycle

1 July 2014

Annual improvements to IFRSs 2012-2014 Cycle

1 January 2016

IFRS 14 Regulatory Deferral Accounts

1 January 2016

Amendment to IFRS 11 on accounting for acquisitions of interests in joint operations

1 January 2016

Amendments to IAS 1 Disclosure Initiative

1 January 2016

Amendments to IAS 16 and IAS 38 on clarification of acceptable methods of depreciation and amortisation

1 January 2016

Amendments to IAS 16 and IAS 41 on Agriculture: bearer plants

1 January 2016

Amendments to IFRS 10 and IAS 28 “Sale or contribution of assets between an investor and its associate or joint venture”. The amendments address an inconsistency between IFRS 10 and IAS 28 on sale or contribution of assets between an investor and its associate or joint venture

1 January 2016

Amendment to IAS 27 on equity method in separate financial statements

1 January 2016

Amendments to IFRS 10 , IFRS 12 and IAS 28 on investment entities: applying the consolidation exception

1 January 2016

IFRS15 Revenue from Contracts with Customers

1 January 2017

IFRS 9 Financial Instruments

1 January 2018

Management is in the processsale and contribution of makingassets between an assessmentinvestor and its associate or joint venture. A full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if those assets are in a subsidiary. These amendments were originally intended to be effective for annual periods beginning on or after 1 January 2016. The effective date is unknown.

Amendments to IAS 7 “Disclosure Initiative”. The amendments are part of the impactIASB’s disclosure initiative project and introduce additional disclosure requirements intended to address investors’ concerns that financial statements do not currently enable them to understand the entity’s cash flows; particularly in respect to the management of the above new and amended standards. Management is not yet in a position to state what impact they would have, if any,financing activities. These amendments will be effective for annual periods beginning on the Group’s results of operations and financial position.or after 1 January 2017.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.22.1SubsidiariesBasis of preparation (continued)

 

2.2.12.1.1ConsolidationChanges in accounting policy and disclosures (continued)

(b)The following new standards, amendments and interpretations have been issued as at 31 December 2016 but are not effective for IFRS financial statements for the year ended 31 December 2016(continued):

Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealised Losses “. The amendments clarify the recognition of deferred tax assets for unrealised losses related to debt instruments measured at fair value. These amendments will be effective for annual periods beginning on or after 1 January 2017.

Amendments to IFRS 2 “ Classification and Measurement of Share-based Payment Transactions “. The amendments relate to the following areas: (1) The accounting for the effects of vesting conditions on cash-settled share-based payment transactions;(2) The classification of share-based payment transactions with net settlement features for withholding tax obligations;(3) The accounting for a modification to the terms and conditions of a share-based payment that changes the transaction from cash-settled to equity-settled. These amendments will be effective for annual periods beginning on or after 1 January 2018.

IFRS 9, “Financial instruments”. IFRS 9 (2014), “Financial instruments” replaces the whole of IAS 39. IFRS 9 has three financial asset classification categories for investments in debt instruments: amortised cost, fair value through other comprehensive income (“OCI”) and fair value through profit or loss. Classification is driven by the entity’s business model for managing the debt instruments and their contractual cash flow characteristics. Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in OCI, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss. For financial liabilities there are two classification categories: amortised cost and fair value through profit or loss. Wherenon-derivative financial liabilities are designated at fair value through profit or loss, the changes in the fair value due to changes in the liability’s own credit risk are recognised in OCI, unless such changes in fair value would create an accounting mismatch in profit or loss, in which case, all fair value movements are recognised in profit or loss. There is no subsequent recycling of the amounts in OCI to profit or loss. For financial liabilities held for trading (including derivative financial liabilities), all changes in fair value are presented in profit or loss. IFRS 9 introduces a new model for the recognition of impairment losses—the expected credit losses (ECL) model, which constitutes a change from the incurred loss model in IAS 39. IFRS 9 contains a ‘three stage’ approach, which is based on the change in credit quality of financial assets since initial recognition. IFRS 9 applies to all hedging relationships, with the exception of portfolio fair value hedges of interest rate risk. The new guidance better aligns hedge accounting with the risk management activities of an entity and provides relief from the more “rule-based” approach of IAS39. This standard will be effective for annual periods beginning on or after 1 January 2018.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.1Basis of preparation (continued)

2.1.1Changes in accounting policy and disclosures (continued)

(b)The following new standards, amendments and interpretations have been issued as at 31 December 2016 but are not effective for IFRS financial statements for the year ended 31 December 2016 (continued):

IFRS 15 “Revenue from Contracts with Customers”. IFRS 15 establishes a comprehensive framework for determining when to recognize revenue and how much revenue to recognize through a5-step approach: (1) Identify the contract(s) with customer; (2) Identify separate performance obligations in a contract (3) Determine the transaction price (4) Allocate transaction price to performance obligations and (5) recognize revenue when performance obligation is satisfied. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. It moves away from a revenue recognition model based on an ‘earnings processes to an ‘asset-liability’ approach based on transfer of control. IFRS 15 provides specific guidance on capitalization of contract cost and license arrangements. It also includes a cohesive set of disclosure requirements about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. IFRS 15 replaces the previous revenue standards: IAS 18 Revenue and IAS 11 Construction Contracts, and the related Interpretations on revenue recognition: IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers andSIC-31 Revenue- Barter Transactions Involving Advertising Services. This standard will be effective for annual periods beginning on or after 1 January 2018.

IFRS16 “Leases”. IFRS 16 provides updated guidance on the definition of leases, and the guidance on the combination and separation of contracts. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. IFRS 16 requires lessees to recognise lease liability reflecting future lease payments and a‘right-of-use-asset’ for almost all lease contracts, with an exemption for certain short-term leases and leases oflow-value assets. The lessors accounting stays almost the same as under IAS 17. However, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. This standard will be effective for annual periods beginning on or after 1 January 2019.

The Group has already commenced an assessment of the impact of these new or revised standards which are relevant to the Group’s operation. According to the preliminary assessment made by the directors of the Company, no significant impact on the financial performance and positions of the Group is expected when adopting IFRS 9, IFRS 15 and IFRS16. At this stage, the Group does not intend to adopt the standard before its effective date.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.2Subsidiaries

A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

 

(a)Business combinations

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Group recognises anynon-controlling interest in the acquiree on anacquisition-by-acquisition basis, either at fair value or at basis.Non-controlling interests in the non-controlling interest’sacquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other components ofnon-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by IFRS.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.2Subsidiaries (continued)

2.2.1Consolidation (continued)

(a)Business combinations (continued)

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income.loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of anynon-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred,non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement (Note 2.9).

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.2Subsidiaries (continued)

 

(b)Changes in ownership interests in subsidiaries without change of control

Transactions withnon-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals tonon-controlling interests are also recorded in equity.

 

(c)Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity isre-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

22.3PRINCIPAL ACCOUNTING POLICIES (CONTINUED)Associates

2.3Associates

Associates are all entitiesAn associate is an entity over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investmentinvestments in associates includesinclude goodwill identified on acquisition. Upon the acquisition of the ownership interest in an associate, any difference between the cost of the associate and the Group’s share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as goodwill.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

The Group’s share of post-acquisition profit or loss is recognised in the comprehensive income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.3Associates (continued)

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to ‘share of result of associates’ in the comprehensive income statement.

Profits or losses and other comprehensive income resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressedIn the Company’s balance sheet, investments in Renminbi unless otherwise stated)

associates are accounted for at cost less provision for impairment losses. Cost also includes direct attributable costs of investment. The results of associates are accounted for by the Company on the basis of dividend received and receivable.

 

22.4PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.4Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the senior executives that make strategic decisions.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2.52PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.5Foreign currency transaction

 

(a)Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the Company’s functional and the Group’s presentation currency.

 

(b)Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items arere-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation atyear-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the comprehensive income statement.

Foreign exchange gains and losses are presented in the consolidated comprehensive income statement within ‘Finance costs’.

 

2.6Fixed assets

Fixed assets are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items (for the case of fixed assets acquired by the Company from Predecessor during the Restructuring, the revaluated amount in the Restructuring was deemed costs).

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the comprehensive income statement during the financial period in which they are incurred.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.6Fixed assets (continued)

Depreciation is calculated using the straight-line method to allocate the cost amount, after taking into account the estimated residual value of not more than 4% of cost, of each asset over its estimated useful life. The estimated useful lives are as follows:

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.6Fixed assets (continued)

 

Buildings (Note a)

 20 to 40 years 

Tracks, bridges and service roads (Note a)

 16 to 100 years 

Locomotives and rolling stock

 20 years 

Communications and signallingsignaling systems

 8 to 20 years 

Other machinery and equipment

 4 to 25 years 

Note a:

The estimated useful lives of some buildings, tracks, bridges and service roads exceed the initial lease periods of the respective land use right lease grants (the “Lease Term”rights from operation lease( details contained in Note 35(b)); and the initial period of certain land use right operating leases (the “Operating Lease Term”)acquired(Note 2.8), on which these assets are located (Notes 2.8 and 36(b)).located.

Pursuant toThe Group will renew the term of extend land use right upon its expiry in strict compliance with requirements of relevant laws and regulations inregulations. There is no substantive impediment for the PRC governing the land use right lease grants, the Group has the right to renew the respective leases up to a period not less than 50 years with additional cost paid. This right can be exercised within one year before the expiry of the initial Lease Term, and can only be denied if such renewals are considered to be detrimental to therenewal except public interest. Accordingly, the directors of the Company consider that the approval process to be perfunctory.interests. In addition, based on the provision of the land use right operating lease agreement entered into with the single largest shareholder (details contained in Note 36(b)(Note 35(b)), the Company can renew the lease at its own discretion upon expiry of the Operating Lease Term.operating lease term. Based on the above considerations,consideration, the directors have determinedconsider the current estimated useful lives of thesethose assets to extend beyond the initial Lease Term as well as the Operating Lease Term.be reasonable.

The assets’ residual values and estimated useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.year.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.10).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within “other income and other gains—gains/(losses) - net”, included in the comprehensive income statement.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

22.7PRINCIPAL ACCOUNTING POLICIES (CONTINUED)Construction-in-progress

2.7Construction-in-progress

Construction-in-progress represents buildings, tracks, bridges and service roads, mainly includes the construction related costs for the associated facilities of the existing railway line of the Group.Construction-in-progress is stated at cost, which includes all expenditures and other direct costs, site restoration costs, prepayments attributable to the construction and interest charges arising from borrowings used to finance the construction during the construction period, less impairment loss.Construction-in-progress is not depreciated until such assets are completed and ready for their intended use.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2.82PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.8Leasehold land payments

The Group acquired the right to use certain parcels of land for certain of its rail lines, stations and other businesses. The payment paid for such land representspre-paid lease payments, which are amortised over the lease terms of 36.5 to 50 years using the straight-line method. Pursuant to the relevant laws and regulations in the PRC governing the land use right lease grant, the Group has the right to extend and renew the lease for a period not less than 50 years. This right can be exercised within one year before the expiry of the initial Lease Term, and can only be denied if such renewals are considered to be detrimental to the public interest. The Group considers the approval process to be perfunctory and the renewal is reasonably assured.

 

2.9Goodwill

Goodwill represents the excess of the consideration transferred, the amount of anynon-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of identifiable net assets acquired. Goodwill arising from acquisitions of subsidiaries’ business is disclosed separately on the balance sheet.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of CGUs,the cash-generating units (“CGUs”), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

22.10PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.10Impairment of investment in associates and non-financial assets other than goodwill

Impairment testing of the investments in associates is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the associate in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

Assets that subjected to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable CGUs. cash flows (CGUs).Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2.112Financial assetsPRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.11.12.11ClassificationFinancial assets

2.11.1Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables,available-for-sale financial assets and held to maturity investment. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. In current year, the Group held loan and receivables andavailable-for-sale financial assets.

 

(a)Loans and receivables

Loans and receivables arenon-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets except for the amounts that are settled or expected to be settled more than 12 months after the end of the reporting period. These are classified asnon-current assets. The Group’s loans and receivables comprise “long-term receivables”, “trade and other receivables”, “short-term deposits” and “cash and cash equivalents” in the balance sheet (Notes 2.16 and 2.17).

 

(b)Available-for-sale financial assets

Available-for-sale financial assets arenon-derivatives that are either designated in this category or not classified in any of the other categories. They are included innon-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

22.11.2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.11Financial assets (continued)

2.11.2Recognition and measurement

Regular way purchases and sales of financial assets are recognised on the trade-date—the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.Available-for-sale financial assets are subsequently carried at fair value, except for those investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, which shall be measured at cost. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

Changes in the fair value of monetary andnon-monetary securities classified asavailable-for-sale are recognised in other comprehensive income.

When securities classified asavailable-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the comprehensive income statement as ‘gains“other income and losses from investment securities’other gains/(losses) - net”.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.11Financial assets (continued)

2.11.2Recognition and measurement (continued)

Dividends onavailable-for-sale equity instruments are recognised in the comprehensive income statement as part of other income when the Group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group established fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs. Ininputs.In case of unlisted equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably determined via valuation techniques, they are measured at cost, subject to impairment review.

 

2.12Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

22.13PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.13Impairment of financial assets

 

(a)Assets carried at amortised cost

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:

 

Significant financial difficulty of the issuer or obligor;

 

A breach of contract, such as a default or delinquency in interest or principal payments;

 

The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

 

It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.13Impairment of financial assets (continued)

(a)Assets carried at amortised cost (continued)

 

The disappearance of an active market for that financial asset because of financial difficulties; or

 

Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio;

(i)adverse changes in the payment status of borrowers in the portfolio;

(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

(ii)national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Group first assesses whether objective evidence of impairment exists.

For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the comprehensive income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.13Impairment of financial assets (continued)

(a)Assets carried at amortised cost (continued)

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the comprehensive income statement.

 

(b)Assets classified as available for sale

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired.

For equity investments, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists the cumulative loss, which is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, is removed from equity and recognised in profit or loss. Impairment losses recognised in the consolidated comprehensive income statement on equity instruments are not reversed through the consolidated comprehensive income statement.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2.142PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.14Long-term prepaid expenses

Long-term prepaid expenses include the various expenditures that have been incurred but should be recognised as expenses over more than one year in the current and subsequent periods. Long-term prepaid expenses are amortised on the straight-line basis over the expected beneficial period and are presented at actual expenditure net of accumulated amortisation.

 

2.15Materials and supplies

Materials and supplies are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. Materials and supplies are charged as fuel costs and repair and maintenance expenses when consumed, or capitalised to fixed assets when the items are installed with the related fixed assets, whichever is appropriate. NetThe cost of materials and supplies may not be recoverable if they are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined due to various reasons. When such circumstances happen, cost of materials and supplies is written to net realisable value, which is the estimated selling price in the ordinary course of business, less applicable variable expenses.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

22.16PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.16Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented asnon-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

 

2.17Cash and cash equivalents

Cash and cash equivalents include cash in hand; deposits held at call with banks; and other short-term highly liquid investments with original maturities of three months or less.

 

2.18Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

 

2.19Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented asnon-current liabilities.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.19Trade payables (continued)

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

The Group derecognises financial liability when, and only when, the Group’s obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

22.20PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.20Borrowings

Borrowings (including bonds payable) are recognised initially at fair value, net of transaction costs incurred. They are subsequently carried at amortised cost; and any difference between proceeds (net of transaction costs) and the redemption value is recognised in the comprehensive income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

 

2.21Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.capitalisation .

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

 

2.22Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated comprehensive income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.22Current and deferred income tax (continued)

 

(a)Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countriesPRC where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.22Current and deferred income tax (continued)

 

(b)Deferred income tax

Inside basis differences

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Outside basis differences

Deferred income tax isliabilities are provided on taxable temporary differences arising onfrom investments in subsidiaries, and associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from the associate’s undistributed profits is not recognised.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, and associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.22Current and deferred income tax (continued)

 

(c)Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

 

2.23Employee benefits

 

(a)Defined contribution plan

The Group pays contributions to defined contribution schemes operated by the local government for employee benefits in respect of pension and unemployment. The Group also pays contribution to defined contribution schemes operated by Guangzhou Railway Group for employee supplementary pension benefit. The Group has no further payment obligations once the contributions have been paid. The contributions to the defined contribution schemes are recognised as staff costs when they are due.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.23Employee benefits (continued)

 

(b)Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

 

2.24Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2.252PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.25Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.

The Group recognises revenue when the services are rendered and the amount of revenue can be reliablyreliable measured, it is probable that future economic benefits will probably flow to the entity with reasonably certainty, and specific criteria have been met for each of the Group’s activities as described below. The Group bases itsrecognition also involves use of estimates of returnexercised by management based on historical results, takingtakes into consideration the different type of customer, the type ofcustomers, transactions and the specifics of each arrangement.

(a)Revenue from railroad and related business

Revenue from passenger transportation

The passenger transportation is generally classified by transportation business ofGuangzhou-Shenzhen inter-city express trains, long-distance trains andGuangzhou-Hong Kong city through trains. These services are provided in cooperation with other railway companies in PRC and the corresponding revenue information is captured and processed by CRC through a central clearance system.

Revenues are recognized on a monthly basis when the train transportation services are rendered within the month, i.e. upon the passenger tickets with fixed prices and dates of travel, which arenon-refundable andnon-reschedulable, are sold and the respective trains have reached the prescribed destinations within that particular month; as well as upon approval and notification is made by CRC on a monthly basis (the “CRC Monthly Statement”) for transactions completed within that month and when the amounts of revenue can be reliably measured and collectability is certain. The revenue is presented net of value-added tax but before deduction of any sales handling commissions.

Revenue from freight transportation

The Group also operates with other railway companies in PRC for the provision of freight transportation services. Service information and computation of the attributable revenues entitled by the Group are processed by the central clearance system of CRC on a monthly basis. Revenue from outbound and inbound freight transportation with ports of loading and discharge located at railway lines owned and operated by the Group; pass-through transportation with freight trains passing through railway lines owned and operated by the Group; as well as goods loading and discharge services rendered at ports located at railway lines owned by the Group, are recognized, on a monthly basis, when the goods are delivered to the ports of discharge within a month, or when the loading/discharge services are rendered, and when the amounts are approved and notified in the CRC Monthly Statement, upon which the amounts can be reliably measured and collectability is certain.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THECONSOLIDATEDFINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.25Revenue recognition (continued)

 

(a)Revenue from railwayrailroad and related business (continued)

Revenue from railway business includes revenuefreight transportation(continued)

The revenues are presented at the gross amounts of the attributable freight charges computed from passenger andthe standard freight services, revenuecharges imposed by CRC.

Revenue from railway network usage and other transportation related services. Otherservices

Revenue from railway network usage and other transportation related services, includemainly consist of network usage services (locomotive traction, track usage and electric catenaries service, etc.) and railway operation services and other services, are rendered by the railway transportation management service provided toGroup together with other railway companies in PRC. The information relating to network usage service is captured and processed by the central clearance system of CRC. The revenue from network usage services are recognized on a monthly basis, when the services are rendered within that month and revenue can be reliably measured, i.e. upon approval and notification made in the CRC Monthly Statement, for the transactions completed within that month, when the respective revenue amounts can be reliably measured and when collectability is certain. Railway operation services and other service provided in relation to passengerservices are rendered solely by the Group and freight transportation. Revenue from railway business is recognisedthey are recognized when the services are rendered and revenue can be reliably measured. All proceeds are collected by the Group directly.

The operations of the railway business of the Group form part of the nationwide railway system in PRC and they are supervised and governed by CRC. The Group render the passenger transportation and freight transportation services in cooperation with other railway companies and the related service fees and charges are collected either by the Group itself or by other railway companies. In addition, the Group also receives service fees and charges for on behalf of other railway companies. The respective fares and charges of the services, fee sharing basis, and processing of the respective revenue sharing among different railway companies are done centrally by a central clearance system operated by CRC. The Group records revenues based on the amounts of attributable revenue approved and notified in the CRC Monthly Statement for services undertaken by the Group completed within the specific month, upon then the revenues can be reliably measured and collectability is certain. The respective share of revenues, in excess of amount collected by the Group itself, are credited by CRC to bank accounts maintained by the Group. In the case that the attributable amount is less than the amount collected by the Group, the Group remits the surplus to CRC.

 

(b)Revenue from other businesses

Revenue from other business principally includesmainly consist ofon-board catering services, offered in railway stations,leasing, sales of food, beveragesmaterials, sale of goods and merchandises on board the trains and in theother businesses related to railway stations. Revenuetransportation. Revenues from other business is recognised onceon-board catering services are recognized when the related services orare rendered. Revenues from sales of materials and supplies and sale of goods are recognized when the respective materials and goods are delivered the related risks and rewards of ownership have been transferred and revenue can be reliably measured.

(c)Rental income

to customers. Revenue from operating lease arrangements on certain properties and locomotives is recognisedrecognized on a straight-line basis over the period of the respective leases.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2.262PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.26Interest income

Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired receivables is recognised using the original effective interest rate.

 

2.27Dividend income

Dividend income is recognised when the right to receive payment is established.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

22.28PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.28Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the comprehensive income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to property, plant and equipmentfixed assets are included innon-current liabilities as deferred government grants and are credited to the comprehensive income statement on a straight-line basis over the expected lives of the related assets.

 

2.29Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the comprehensive income statement on a straight-line basis over the period of the lease.

 

2.30Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

3FINANCIAL RISK MANAGEMENT

 

3.1Financial risk factor

The Group’s activities expose it to a variety of financial risks: market risk (including price risk, foreign currency risk and cash flow and fair value interest rate risk), credit risk, and liquidity risk. The Group’s overall risk management strategy seeks to minimise the potential adverse effects on the financial performance of the Group.

 

(a)Market risk

 

(i)Price risk

The Group is exposed to price risk because of investments held by the Group and classified as available-for-sale on the consolidated balance sheet.

To manage its price risk arising from investments in equity interests, the Group diversifies its portfolio. Diversification of the portfolio is made in accordance with the limits set by the Group.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1Financial risk factor (continued)

(a)Market risk (continued)

(ii)Foreign currency risk

The Group mainly operates in the PRC with most of the transactions settled in RMB. RMB is also the functional currency of the Group. RMB is not freely convertible into other foreign currencies. The conversion of RMB denominated balances into foreign currencies is subject to the rates and regulations of foreign exchange control promulgated by the PRC government. Any foreign currency denominated monetary assets and liabilities other than in RMB would subject the Group to foreign exchange exposure.

The Group’s objective of managing the foreign currency risk is to minimise potential adverse effects arising from foreign transaction movements. Depending on volatility of specific foreign currency exposed, measures are taken by management to manage the foreign currency positions.

The following table shows the Group’s foreign currency denominated monetary assets and liabilities (inin RMB equivalent):equivalent:

 

      As at 31 December   Currency   As at 31 December 
Monetary assets and liabilities  

Currency

denomination

   2013
(RMB’000)
   2014
(RMB’000)
 
Monetary assets  denomination   2015   2016 
      (RMB’000)   (RMB’000) 

Cash and cash equivalents

   HKD     18,561     62,093     HKD    72,140    115,680 

Cash and cash equivalents

   USD     69     —       USD    —      96 

Other receivables

   HKD     35     93     HKD    71    66 

Other payables

   HKD     (109   —    
    

 

   

 

 
     72,211    115,842 
    

 

   

 

 

The Group may experience a loss as a result of any foreign currency exchange rate fluctuations in connection with monetary assets shown above. The Group has not used any means to hedge the exposure.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1Financial risk factor (continued)

(a)Market risk (continued)

(ii)Foreign currency risk (continued)

As at 31 December 2014,2016, if RMB had weakened/strengthened by 5% against the HKD with all other variables held constant, profit after tax for the year would have been RMB2,332,000 (2013: RMB693,000)RMB4,340,000 (2015: RMB2,708,000 ) higher/lower, mainly as a result of foreign exchange gains/losses on translation ofHKD-denominated cash in banks. The impact of exchange fluctuations of USD is not significant.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

(iii)3FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1Financial risk factor (continued)

(a)Market risk (continued)

(ii)Cash flow and fair value interest rate risk

Other than deposits held in banks, the Group does not have significant interest-bearing assets. The average interest rate of deposits held in banks in the PRC throughout the year was approximately 2.59% (2012: 2.86% and 2013: 2.87%1.38% (2015: 1.71%). Any change in the interest rate promulgated by the People’s Bank of China from time to time is not considered to have a significant impact to the Group.

The Group’sAs at 31 December 2015 and 2016, the Group had no interest rate riskbearing debts, which affects its income and operating cash flows mainly arises from bonds payable. The bonds bear interest at fixed rates, andmay expose the Group to fair valueany interest rate risk.

 

(b)Credit risk

Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, short-term deposits,bank balances, trade and other receivables (excluding prepayments) and long-term receivable.

The credit quality of financial assets that are neither past due nor impaired can be analysed by the nature of counterparties as follows:

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1Financial risk factor (continued)

(b)Credit risk (continued)

  

As at 31 December

2013

RMB’000

   

As at 31 December

2014

RMB’000

   

As at 31 December

2015

RMB’000

   

As at 31 December

2016

RMB’000

 

Trade receivables

        

Due from CRC Group

   667,650     628,576     885,472    1,314,352 

Due from related parties

   294,827     736,737     804,845    721,557 

Due from third parties

   497,910     585,572     499,946    481,372 
  

 

   

 

   

 

   

 

 
 1,460,387   1,950,885     2,190,263    2,517,281 
  

 

   

 

   

 

   

 

 

Other receivables excluding prepayments

    

Due from CRC Group

 711   8,904     6,378    3,846 

Due from related parties

 3,315   1,076     6,953    2,619 

Due from third parties

 121,540   86,034     69,536    220,035 
  

 

   

 

   

 

   

 

 
 125,566   96,014     82,867    226,500 
  

 

   

 

   

 

   

 

 

Long-term receivable

    

Due from a third party

 29,588   30,197     30,804    31,406 
  

 

   

 

   

 

   

 

 

For trade and other receivables, management performs ongoing credit evaluations of its customers/debtors’ financial condition and generally does not require collateral from the customers/debtors. After assessing the expected realizability and timing for collection of the outstanding balances, the Group maintains a provision for impairment of receivables and actual losses incurred have been within management’s expectation.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

   

As at December 31,

2013

RMB’000

   

As at December 31,

2014

RMB’000

 

Cash at bank and short-term deposits

    

Placed in listed banks in the PRC

   4,895,992     1,769,023  

Placed in unlisted banks in the PRC

   250     —    
  

 

 

   

 

 

 
 4,896,242   1,769,023  
  

 

 

   

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1Financial risk factor (continued)

(b)Credit risk (continued)

   

As at December 31,

2015

RMB’000

   

As at December 31,

2016

RMB’000

 

Cash at bank and short-term deposits

    

Placed in listed banks in the PRC

   2,326,757    1,467,616 
  

 

 

   

 

 

 

Cash and short term liquid investmentsdeposits are placed with reputable banks. There was no recent history of default of cash and cash equivalents and short-term deposits from such financial institutions.

There were no other financial assets carrying a significant exposure to credit risk.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressedNone of the financial assets that are fully performing has been renegotiated in Renminbi unless otherwise stated)the current year.

3FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1Financial risk factor (continued)

 

(c)Liquidity risk

Prudent liquidity risk management includes maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Management monitors rolling forecasts of the Group’s liquidity reserves (comprising undrawn borrowing facilities and cash and cash equivalents) on the basis of expected cash flows.

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

 

   Less than
1 year
RMB’000
   Between 1
and 2 years
RMB’000
   Between 2
and 5 years
RMB’000
RMB’000RMB’000RMB’000 

At 31 December 20132016

      

Bonds payable (including interests)

3,660,760—  —  

Trade and other payables excluding statutory liabilitiestax payables, employee benefits payables and advances

   1,417,6302,201,483    —      —   

Dividends payable

   14615,542    —      —   

Payables for fixed assets andconstruction-in-progress

   856,8371,765,185    —      —   
  

 

 

   

 

 

   

 

 

 

At 31 December 20142015

Trade and other payables excluding statutory liabilitiestax payables, employee benefits payables and advances

 1,942,4312,136,570  —    —   

Dividends payable

 54814,318  —    —   

Payables for fixed assets andconstruction-in-progress

  1,094,8141,425,998  —    —   
  

 

 

   

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

3.23FINANCIAL RISK MANAGEMENT (CONTINUED)

3.2Capital risk management

The Group’s objectives of managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital by regularly reviewing the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total bonds payable less cash and cash equivalents. Total capital is the total equity as shown in the consolidated balance sheet plus net debt.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3FINANCIAL RISK MANAGEMENT (CONTINUED)

3.2Capital risk management (continued)

As at 31 December 2014,2015 and 2016, the Group did not have borrowings and bonds. The directors are of the opinion that the Group’s capital risk is low.

The gearing ratio as at 31 December 2013 is as follows:

 

3.3
2013
RMB’000

Total bonds payable (Note 24)

3,492,723

Less: Cash and cash equivalents (Note 20)

(412,678

Net debt

3,080,045

Total equity

26,694,365

Total capital

29,774,410

Gearing ratio

10

Fair value estimation

3.3 Fair value estimation

According to amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, it requires disclosure of fair value measurements by level of following fair value measurement hierarchy:

 

Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

 

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

 

Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

As at 31 December 2014,2016, the Group did not have any financial instruments that were measured at fair value.

As at 31 December 2014,2016, the fair values of other financial instruments approximated their carrying values.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

4CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

4.1Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

Impairment of receivables

(a)The estimates of the depreciable lives of fixed assets

The estimateGroup makes provision for impairment of depreciable livesreceivables based on an assessment of fixed assets, especially tracks, bridgesthe recoverability of trade and service roads, was made by the directorsother receivables with reference to the following: (1)extent and duration that the historical usage of the assets; (2) their expected physical wear and tear; (3) results of recent durability assessment performed; (4) technicalamount will be recovered. Provisions are applied where events or commercial obsolescence arising from changes or improvements in production of similar fixed assets; (5) the right of the Group to renew the land use right grants and the land use right lease on which these assets are located (Notes 2.8 and 36(b)); (6) the changes in market demand for, or legal or comparable limits imposed on,circumstances indicate that the balances may not be collectible. The identification of impairment requires the use of judgment and estimates. Where the expectation is different from the original estimate, such fixed assets. The useful livesdifference will impact the carrying amount of trade and residual values have been reviewedother receivables and no change was made in current year.

The current estimated useful lives are stated in Note 2.6. If the estimated depreciable lives of tracks, bridges and service roads had been increased/decreased by 10%, the depreciation expenses of fixed assets for the year ended 31 December 2014 would have been decreased/increased by approximately RMB19,149,000 and RMB23,404,000 respectively (2012: RMB18,524,000 and RMB22,640,000 respectively; 2013: RMB18,502,000 and RMB22,613,000 respectively).

(b)Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.9. The recoverable amounts of CGUs have been determined based on value-in-use calculations. These calculations require the use of estimates (Note 9).

(c)Estimated impairment of non-financial assets (other than goodwill)

In determining whether an asset is impaired or the event previously causing the impairment no longer exists, management has to exercise judgement, particularly in assessing: (1) whether an event has occurred that may affect the asset value or such event affecting the asset value has not been in existence; (2) whether the carrying value of an asset can be supported by the net present value of future cash flows which are estimated based upon the continued use of the asset or derecognition; and (3) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rate or the growth rate assumptionscharge in the cash flow projections, could materially affect the net present value usedperiod in the impairment test.which such estimate has been changed.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

5SEGMENT INFORMATION

The chief operating decision-makers have been identified as senior executives. Senior executives review the Group’s internal reporting in order to assess performance and allocate resources. Management has determined theThe operating segments were determined based on these management reports.

Senior executives considerevaluate the business from a perspective of revenues and operating results generated from railroad and related business conducted by the Company (“the Company’sRailway Transportation Business”). Other segments mainly include provision of on-board catering services, warehousing services, hotel management services andleasing, sales of merchandisesmaterials, sale of goods and other businesses related to railway transportation provided by the subsidiaries of the Group.Company. Senior executives assess the performance of the operating segments based on a measure of the profit before income tax. Other information provided, except as noted below, to senior executives is measured in a manner consistent with that in the financial statements.

The segment results for 2012, 20132014, 2015 and 20142016 are as follows:

 

 The Company’s Business All other segments Elimination Total  The Railway Transportation
Business
 Others Elimination Total 
 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014  2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 
 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

Segment revenue

                        

- Railroad Businesses

 14,075,844   14,696,255   13,783,208    —      —      —      —      —      —     14,075,844   14,696,255   13,783,208  

- Railroad and Related Business

  13,783,208   14,633,738   16,170,309   —     —     —     —     —     —     13,783,208   14,633,738   16,170,309 

- Other Businesses

 621,229   664,635   586,564   394,813   464,827   473,204    —     (25,040 (42,195 1,016,042   1,104,422   1,017,573    586,564   672,455   663,418   473,204   458,944   487,097   (42,195  (39,828  (40,320  1,017,573   1,091,571   1,110,195 

- Inter-segment revenue

  —      —      —      —      —      —      —      —      —      —      —      —    
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total revenue

 14,697,073   15,360,890   14,369,772   394,813   464,827   473,204   —     (25,040 (42,195 15,091,886   15,800,677   14,800,781    14,369,772   15,306,193   16,833,727   473,204   458,944   487,097   (42,195  (39,828  (40,320  14,800,781   15,725,309   17,280,504 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Segment result

 1,757,476   1,706,027   869,701   1,048   (5,011 13,394   (388 737   (2,462 1,758,136   1,701,753   880,633    869,701   1,487,249   1,549,120   13,394   (28,549  3,548   (2,462  (6,862  (8,659  880,633   1,451,838   1,544,009 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Finance costs

 186,916   191,501   180,208   157   185   165   —     —     —     187,073   191,686   180,373  

Finance costs/(income)

  180,208   4,448   (2,728  165   160   177   —     —     —     180,373   4,608   (2,551

Share of results of associates

 10,906   5,228   5,048   —     —     —     —     —     —     10,906   5,228   5,048    5,048   2,499   7,223   —     —     —     —     —     —     5,048   2,499   7,223 

Depreciation

 1,377,855   1,409,325   1,423,023   4,549   4,687   6,251   —     —     —     1,382,404   1,414,012   1,429,274    1,423,023   1,404,439   1,511,570   6,251   7,303   7,400   —     —     —     1,429,274   1,411,742   1,518,970 

Amortisation of leasehold land payments

 15,001   15,001   18,245   987   920   919   —     —     —     15,988   15,921   19,164    18,245   17,949   27,338   919   10,464   11,332   —     —     —     19,164   28,413   38,670 

Amortisation of long-term prepaid expenses

 7,132   12,697   13,610   105   201   321   —     —     —     7,237   12,898   13,931    13,610   13,842   6,729   321   337   239   —     —     —     13,931   14,179   6,968 

Recognition of employee benefits obligations

 66,650   —     —     —     —     —     —     —     —     66,650   —     —    

Provision/(Reversal of) for doubtful accounts

 1,464   (5,788 1,150   112   (49 —     —     —     —     1,576   (5,837 1,150  

Impairment of fixed assets

  —     80,393   —     —     —     —     —     —     —     —     80,393   —   

Impairment ofconstruction-in progress

  —     2,434   5,662   —     —     —     —     —     —     —     2,434   5,662 

Loss arising from business combination

  —     —     —     —     45,073   —     —     —     —     —     45,073   —   

(Reversal of)/provision for impairment of materials and supplies

  —     64,096   (5,209  —     —     —     —     —     —     —     64,096   (5,209
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

5SEGMENT INFORMATION (CONTINUED)

 

A reconciliation of the segment results to profit of 2012, 20132014, 2015 and 20142016 is as follows:

 

 The Company’s Business All other segments Elimination Total  The Railway Transportation Business All other segments Elimination Total 
 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014  2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 
 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

Segment result

 1,757,476   1,706,027   869,701   1,048   (5,011 13,394   (388 737   (2,462 1,758,136   1,701,753   880,633    869,701   1,487,249   1,549,120   13,394   (28,549  3,548   (2,462  (6,862  (8,659  880,633   1,451,838   1,544,009 

Income tax expense

 (436,671 (426,445 (214,389 (4,480 (4,225 (5,118  —      —      —     (441,151 (430,670 (219,507  (214,389  (372,142  (385,840  (5,118  (16,388  (4,469  —     —     —     (219,507  (388,530  (390,309
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Profit for the year

 1,320,805   1,279,582   655,312   (3,432 (9,236 8,276   (388 737   (2,462 1,316,985   1,271,083   661,126  

Profit/(loss) for the year

  655,312   1,115,107   1,163,280   8,276   (44,937  (921  (2,462  (6,862  (8,659  661,126   1,063,308   1,153,700 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

The Group is domiciled in the PRC. All the Group’s revenues were generated in the PRC, and the total assets are also located in the PRC.

 

 The Company’s Business All other segments Elimination Total  The Railway
Transportation Business
 All other segments Elimination Total 
 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014  2015 2016 2015 2016 2015 2016 2015 2016 
 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

Total segment assets

 32,818,371   33,183,049   30,498,118   229,613   221,612   234,430   (180,802 (172,672 (195,885 32,867,182   33,231,989   30,536,663    31,554,271   32,483,625   595,173   586,519   (206,172  (199,886  31,943,272   32,870,258 

Total segment assets include:

                    

Investment in associates

 136,826   142,054   147,102    —      —      —      —      —      —     136,826   142,054   147,102    168,711   167,604   —     —     —     —     168,711   167,604 

Additions to non-current assets (other than financial instruments and deferred tax assets)

 1,921,215   1,399,997   1,376,436   9,210   16,900   3,302    —      —      —     1,930,425   1,416,897   1,379,738    1,625,915   2,817,557   363,926   3,279   —     —     1,989,841   2,820,836 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total segment liabilities

 6,892,559   6,544,338   3,770,778   99,595   105,449   121,647   (121,011 (112,163 (142,222 6,871,143   6,537,624   3,750,203    4,066,001   4,398,759   578,754   588,128   (145,745  (146,684  4,499,010   4,840,203 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Revenues of approximately RMB3,407,998,000 (2014: RMB1,958,375,000 (2012: RMB1,881,292,000 and 2013: RMB1,723,972,000)2015: RMB2,508,916,000) are derived from Guangzhou Railway Group and its subsidiaries. These revenues are attributable to the Company’sRailway Transportation Business. Except that, no revenues derived from a single external customer have exceeded 10% of the total revenues.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

6FIXED ASSETSASSETS-NET

 

  Buildings 

Tracks,

bridges and
service roads

 Locomotives
and rolling
stock
 

Communications

and signalling
systems

 

Other

machinery and

equipment

 Total  Buildings
RMB’000
 

Tracks,

bridges and

service roads
RMB’000

 Locomotives
and rolling
stock
RMB’000
 

Communications

and signalling
systems
RMB’000

 

Other

machinery and

equipment
RMB’000

 Total
RMB’000
 
  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

At 1 January 2013

       

At 1 January 2015

      

Cost

   5,876,441   14,917,817   7,374,288   1,607,556   5,217,526   34,993,628    6,723,551   15,433,890   7,568,098   1,712,493   5,810,040   37,248,072 

Accumulated depreciation

   (1,602,648 (2,388,150 (2,650,491 (951,318 (2,874,000 (10,466,607  (2,066,210  (2,769,268  (3,487,701  (1,216,155  (3,528,366  (13,067,700

Impairment

   —      —      —      —     (2,773 (2,773  —     —     —     —     (1,162  (1,162
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net book amount

 4,273,793   12,529,667   4,723,797   656,238   2,340,753   24,524,248    4,657,341   12,664,622   4,080,397   496,338   2,280,512   24,179,210 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Year ended 31 December 2013

Year ended 31 December 2015

      

Opening net book amount

 4,273,793   12,529,667   4,723,797   656,238   2,340,753   24,524,248    4,657,341   12,664,622   4,080,397   496,338   2,280,512   24,179,210 

Additions due to business combination

 96,879   10,431   48,307   —     41,198   196,815  �� 22,550   1,346   —     —     599   24,495 

Other additions

 825   —     85,495   11,330   132,299   229,949    8,991   —     488,335   11,845   113,443   622,614 

Transfer from construction-in-progress
(Note 7)

 220,601   433,487   35,342   103,342   219,812   1,012,584  

Transfer in fromconstruction-in-progress
(Note 7)

  241,860   234,030   38,470   90,469   218,690   823,519 

Reclassifications

 (64 —     —     (3,984 4,048   —      616   —     —     —     (616  —   

Impairment

  —     —     (80,393  —     —     (80,393

Disposals

 (4,031 (219,684 (18,215 (253 (4,748 (246,931  (5,187  (48,341  (26,408  (293  (3,715  (83,944

Depreciation charges

 (220,219 (210,429 (436,430 (152,775 (394,159 (1,414,012  (273,380  (217,204  (431,070  (132,392  (357,696  (1,411,742
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Closing net book amount

 4,367,784   12,543,472   4,438,296   613,898   2,339,203   24,302,653    4,652,791   12,634,453   4,069,331   465,967   2,251,217   24,073,759 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

At 31 December 2013

At 31 December 2015

      

Cost

 6,186,344   15,114,616   7,486,484   1,711,693   5,579,411   36,078,548    6,989,242   15,615,264   7,657,021   1,807,311   6,022,269   38,091,107 

Accumulated depreciation

 (1,818,560 (2,571,144 (3,048,188 (1,097,795 (3,237,435 (11,773,122  (2,336,451  (2,980,811  (3,587,690  (1,341,344  (3,769,890  (14,016,186

Impairment

 —     —     —     —     (2,773 (2,773  —     —     —     —     (1,162  (1,162
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net book amount

 4,367,784   12,543,472   4,438,296   613,898   2,339,203   24,302,653    4,652,791   12,634,453   4,069,331   465,967   2,251,217   24,073,759 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Year ended 31 December 2014

Year ended 31 December 2016

      

Opening net book amount

 4,367,784   12,543,472   4,438,296   613,898   2,339,203   24,302,653    4,652,791   12,634,453   4,069,331   465,967   2,251,217   24,073,759 

Additions due to business combination
(Note 37)

 114,062   26,948   —     64   10,972   152,046  

Additions due to business combination
(Note 36)

  —     —     565,493   11,859   71,538   648,890 

Other additions

 7,513   —     69,937   14,284   131,860   223,594    6,294   —     446,754   42,182   154,100   649,330 

Transfer from construction-in-progress
(Note 7)

 418,963   482,166   14,282   25,016   169,509   1,109,936  

Transfer in fromconstruction-in-progress
(Note 7)

  485,087   88,128   36,584   77,808   330,106   1,017,713 

Transfer out toconstruction-in-progress for repair
(Note 7)

  (4,743  —     (189,888  (2,958  (8,797  (206,386

Transfer in fromconstruction-in-progress after repair

  10,451   2,088   430,050   6,613   21,833   471,035 

Reclassifications

 323   —     —     (189 (134 —      (10,141  (94  —     172   10,063   —   

Reclassified to leasehold land payments (a)

  —     (715,003  —     —     —     (715,003

Disposals

 (1,013 (175,756 (103 (1,346 (1,527 (179,745  (946  (92,586  (42,618  (1,621  (4,565  (142,336

Depreciation charges

 (250,291 (212,208 (442,015 (155,389 (369,371 (1,429,274  (293,503  (216,765  (460,387  (107,148  (441,167  (1,518,970
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Closing net book amount

 4,657,341   12,664,622   4,080,397   496,338   2,280,512   24,179,210    4,845,290   11,700,221   4,855,319   492,874   2,384,328   24,278,032 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

At 31 December 2014

At 31 December 2016

      

Cost

 6,723,551   15,433,890   7,568,098   1,712,493   5,810,040   37,248,072    7,468,977   14,887,093   8,557,841   1,917,478   6,514,493   39,345,882 

Accumulated depreciation

 (2,066,210 (2,769,268 (3,487,701 (1,216,155 (3,528,366 (13,067,700  (2,623,687  (3,186,872  (3,702,522  (1,424,604  (4,129,003  (15,066,688

Impairment

 —     —     —     —     (1,162 (1,162  —     —     —     —     (1,162  (1,162
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net book amount

 4,657,341   12,664,622   4,080,397   496,338   2,280,512   24,179,210    4,845,290   11,700,221   4,855,319   492,874   2,384,328   24,278,032 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

6FIXED ASSETSASSETS-NET (CONTINUED)

 

As at 31 December 2014, the ownership certificates of certain buildings of the Group with an aggregate carrying value of approximately RMB1,921,120,000 (2013: RMB1,703,324,000) had not been obtained by the Group. After consultation made with the Company’s legal counsel, the directors of the Company consider that there is no legal restriction for the Group to apply for and obtain the ownership certificates of such buildings and it should not lead to any significant adverse impact on the operations of the Group.

As at 31 December 2014, fixed assets of the Group with an aggregate net book value of approximately RMB85,941,000 (2013: RMB76,164,000) had been fully depreciated but they were still in use.

(a)The costs of approximately RMB715,003,000 in relation to land use right have been reclassified to the leasehold land payments (Note 8)

 

7(b)CONSTRUCTION-IN-PROGRESSAs at 31 December 2016, the ownership certificates of certain buildings of the Group with an aggregate carrying value of approximately RMB1,819,505,000 (2015: RMB1,753,314,000) had not been obtained by the Group. After consultation made with the Company’s legal counsel, the directors of the Company consider that there is no legal restriction for the Group to apply for and obtain the ownership certificates of such buildings and it should not lead to any significant adverse impact on the operations of the Group.

 

   2013   2014 
   RMB’000   RMB’000 

At 1 January

   679,528     543,350  

Additions due to business combination (Note 37)

   2,700     1,665  

Other additions

   1,021,065     995,931  

Transfer to fixed assets (Note 6)

   (1,012,584   (1,109,936

Transfer to leasehold land (Note 8)

   (147,359   (29,576
  

 

 

   

 

 

 

At 31 December

 543,350   401,434  
  

 

 

   

 

 

 
(c)As at 31 December 2016, fixed assets of the Group with an aggregate net book value of approximately RMB116,953,000 (2015: RMB100,888,000) had been fully depreciated but they were still in use.

7CONSTRUCTION-IN-PROGRESS

   2015   2016 
   RMB’000   RMB’000 

At 1 January

   401,434    569,573 

Additions due to business combination (Note 36)

   —      59,992 

Transfer in from fixed assets for repair (Note 6)

   —      206,386 

Other additions

   994,092    1,448,767 

Transfer to fixed assets (Note 6)

   (823,519   (1,017,713

Transfer out to fixed assets after repair(Note 6)

   —      (471,035

Impairment

   (2,434   (5,662
  

 

 

   

 

 

 

At 31 December

   569,573    790,308 
  

 

 

   

 

 

 

Construction-in-progress as at 31 December 2013 and 20142016 mainly was improvement on theprojects for road existing railway equipment in the PRC.

For the year ended 31 December 2014,2016, no interest expense (2013:(2015: Nil) washad been capitalised in theconstruction-in-progress balance as the impact of interest capitalisation was not material.there were no third party borrowings during this year.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

8LEASEHOLD LAND PAYMENTS

The Group’s interests in leasehold land represent prepaid operating lease payments in the PRC and its net book value are analysed as follows:

 

   RMB’000 

At 1 January 20132015

  

Cost

   791,054965,148 

Accumulated amortisation

  (262,758

Net book amount

528,296

Year ended 31 December 2013

Opening net book amount

528,296

Addition

147,359

Amortisation charges

(15,921

Disposal

(2,141

Closing net book amount

657,593

At 31 December 2013

Cost

935,572

Accumulated amortisation

(277,979

Net book amount

657,593

Year ended 31 December 2014

Opening net book amount

657,593

Addition

29,576

Amortisation charges

(19,164

Closing net book amount

668,005

At 31 December 2014

Cost

965,148

Accumulated amortisation

 (297,143
  

 

 

 

Net book amount

 668,005

Year ended 31 December 2015

Opening net book amount

668,005

Additions

308,934

Amortisation charges

(28,413

Closing net book amount

948,526

At 31 December 2015

Cost

1,274,082

Accumulated amortisation

(325,556

Net book amount

948,526

Year ended 31 December 2016

Opening net book amount

948,526

Transfer from fix assets (Note 6)

715,003

Amortisation charges

(38,670

Closing net book amount

1,624,859

At 31 December 2016

Cost

1,989,085

Accumulated amortisation

(364,226

Net book amount

1,624,859 
  

 

 

 

As at 31 December 2014,2016, land use right certificates of certain parcels of land of the Group with an aggregate carrying value of approximately RMB228,630,000 (2013: RMB204,075,000)RMB936,304,000 (2015: RMB236,522,000), respectively had not been obtained. After consultation made with the Company’s legal counsel, the directors consider that there is no legal restriction for the Group or the Company to apply for and obtain the land use right certificates and it should not lead to any significant adverse impact on the operations of the Group.Group or the Company.

The remaining lease period of leasehold land as at 31 December 2016 was as follows:

   2015   2016 
   RMB’000   RMB’000 

Lease of between 10 to 50 years

   948,526    1,624,859 
  

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

9GOODWILL

 

   RMB’000 

Year ended 31 December 20132015 and 20142016

  

Opening net book amount

   281,255 

Additions

   —   

Impairment

—  
  

 

 

 

Closing net book amount

 281,255 
  

 

 

 

At 31 December 20132015 and 20142016

Cost

 281,255 

Accumulated impairment

 —   
  

 

 

 

Net book amount

 281,255 
  

 

 

 

TheAs at 31 December 2015 and 2016, the outstanding balance of goodwill balance arose from the excess of a purchase consideration paid by the Company over the aggregate fair values of the identifiable assets, liabilities and contingent liabilities of the Yangcheng Railway Business acquired by the Company.

Prior to 1 January 2009, the goodwill had been allocated to a cash-generating unit (“CGU”) comprising the Yangcheng Railway Business. The recoverable amount of that CGU is determined based on value-in-use calculations and no impairment losses had been recognised prior to 1 January 2009.

On 1 January 2009, the Group integrated the Yangcheng Railway Business with the Group’s railway business in order to improve the operation efficiency. As a result, the management considers that the Yangcheng Railway Business and the Group’s remainingother railway business (collectively the “Combined Railway Business”) represents the lowest level of CGUs within the Group at which goodwill is monitored for internal management purposes. In addition,As a result, the Combined Railway Business is not larger than an operating segment determined under with IFRS 8. Therefore, the Groupgoodwill balance has reallocated the goodwillbeen allocated to the CGU comprising the Combined Railway Business.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2014

(All amounts expressed in Renminbi unless otherwise stated)

9GOODWILL (CONTINUED)

The recoverable amount of the CGU is determined based on higher ofvalue-in-use and fair value less costs to sell. These calculations usepre-tax cash flow projections based on financial forecasts prepared by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below.

The key assumptions used forvalue-in-use calculations are as follows:

 

Railroad business  2013 2014   2015 2016 

Gross margin

   28.77 24.64   18.02  18.92

Growth rate

   2 2   2.00  2.00

Discount rate

   12.44 12.44   12.44  12.44
  

 

  

 

   

 

  

 

 

Management estimated the gross margin and growth rate based on past performance and its expectations for the market development. The discount rate used ispre-tax and reflect specific risks relating to the railroad business segment.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2016

(All amounts expressed in Renminbi unless otherwise stated)

9GOODWILL (CONTINUED)

If the budgeted growth rate used in thevalue-in-use calculation for the CGU in railroad business had been 10% lower than management’s estimates as at 31 December 2014,2016, the Group would have no impairment recognised against goodwill.

If the estimatedpre-tax discount rate applied to the discounted cash flows for the CGU in railroad business had been 1% higher than management’s estimates as at 31 December 2014,2016, the Group would have no impairment recognised against goodwill.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

10INVESTMENTS IN SUBSIDIARIES

AsThe following is a list of the principal subsidiaries at 31 December 2014, the Company had direct or indirect interests in the following subsidiaries which are incorporated/established and are operating in the PRC:2016:

 

Name of the entity

  Date of
incorporation/
establishment
   Percentage of equity
interest attributable
to the Company
  Paid-in capital  

Principal activities

       Directly  Indirectly      

Dongguan Changsheng Enterprise Company Limited

   22 May 1992     51  —     RMB38,000,000  Warehousing

Shenzhen Fu Yuan Enterprise Development Company Limited

   1 November 1991     100  —     RMB18,500,000  Hotel management

Shenzhen Pinghu Qun Yi Railway Store Loading and Unloading Company Limited

   11 September 1993     100  —     RMB10,000,000  Cargo loading and unloading, warehousing, freight transportation

Shenzhen Nantie Construction Supervision Company Limited

   8 May 1995     67.46  9.20 RMB3,000,000  Supervision of construction projects

Shenzhen Railway Property Management Company Limited

   13 November 2001     —      100 RMB3,000,000  Property management

Shenzhen Guangshen Railway Travel Service Ltd.

   16 August 1995     75  25 RMB2,400,000  Travel agency

Shenzhen Shenhuasheng Storage and Transportation Company Limited

   2 January 1985     41.50  58.50 RMB2,000,000  Warehousing, freight transport and packaging agency services

Shenzhen Guangshen Railway Economic and Trade Enterprise Company Limited

   7 March 2002     —      100 RMB2,000,000  Catering management

Shenzhen Railway Station Passenger Services Company Limited

   18 December 1986     100  —     RMB1,500,000  Catering services and sales of merchandise

Guangshen Railway Station Dongqun Trade and Commerce Service Company Limited

   23 November 1992     100  —     RMB1,020,000  Sales of merchandises

Guangzhou Railway Huangpu Service Company Limited

   15 March 1985     100  —     RMB379,000  Cargo loading and unloading, warehousing, freight transportation

During the year ended 31 December 2014, Guangzhou Tielian Economy Development Company Limited (“Guangzhou Tielian”), a 50.5% owned subsidiary of the Company was liquidated.

All the above subsidiaries are limited liability companies.

Name of the entity

 

Place of incorporation and
nature of legal entity

 

Principal activities and place of operation

 Proportion of
equity  interests
held by the
Company (%)
  Proportion of equity
interests held by the

group (%)
  Proportion of equity
interests held by
non-controlling
interests (%)
 

Dongguan Changsheng Enterprise Company Limited

 

China, limited liability company

 

Warehousing in PRC

  51  51  49

Shenzhen Fu Yuan Enterprise Development Company Limited

 

China, limited liability company

 

Hotel management in PRC

  100  100  —   

Shenzhen Pinghu Qun Yi Railway Store Loading and Unloading Company Limited

 

China, limited liability company

 

Cargo loading and unloading, warehousing, freight transportation in PRC

  100  100  —   

Shenzhen Nantie Construction Supervision Company Limited

 

China, limited liability company

 

Supervision of construction projects in PRC

  67.46  76.66  23.34

Shenzhen Railway Property Management Company Limited

 

China, limited liability company

 

Property management in PRC

  —     100  —   

Shenzhen Shenhuasheng Storage and Transportation Company Limited

 

China, limited liability company

 

Warehousing, freight transport and packing agency services

  41.50  100  —   

Shenzhen Guangshen Railway Economic and Trade Enterprise Company Limited

 

China, limited liability company

 

Catering management in PRC

  —     100  —   

Shenzhen Railway Station Passenger Services Company Limited

 

China, limited liability company

 

Catering services and sales of merchandise in PRC

  100  100  —   

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

10INVESTMENTS IN SUBSIDIARIES (CONTINUED)

 

The following is a list of the principal subsidiaries at 31 December 2016 (continued):

Name of the entity

 

Place of incorporation and
kind of legal entity

 

Principal activities and place of operation

 Proportion of equity
interests held by the
Company (%)
  Proportion of equity
interests held by the
group (%)
  Proportion of equity
interests held by

non-controlling
interests (%)
 

Guangshen Railway Station Dongqun Trade and Commerce Service Company Limited

 

China, limited liability company

 

Sales of merchandises in PRC

  100  100  —   

Guangzhou Railway Huangpu Service Company Limited

 

China, limited liability company

 

Cargo loading and unloading, warehousing, freight transportation in PRC

  100  100  —   

Zengcheng Lihua Stock Company Limited (“Zengcheng Lihua”) (i)

 

China, limited liability company

 

Real estate construction, provision of warehousing, cargo uploading and unloading services

  44.72  44.72  55.28

(i)According to the Articles of Association of Zengcheng Lihua, the remaining shareholders are all natural persons and none of individual holds more than 0.5% equity interest in Zengcheng Lihua. All directors of Zengcheng Lihua were appointed by the Company. After considering all shareholders of Zengcheng Lihua other than the Company are individuals with individual interest holding of less than 0.5% and such individuals do not act as concert, and also all directors of Zengcheng Lihua were appointed by the Company, the directors of the Company consider that the Company has the de facto control power over the board on the substantial financial and operating decisions of Zengcheng Lihua.

As at 31 December 2014,2016, the Company had direct or indirect interests in the followingnon-wholly owned subsidiaries which are incorporated/established and are operating in the PRC: (continued)

In year 2014, Guangzhou Tielian completed its liquidation. The Company received RMB1,943,000 from Guangzhou Tielian and investment income amounting to RMB143,000 was recognised in the comprehensive income statement of the Company.

As at 31 December 2014, the total non-controlling interests was RMB40,617,000 (31 December 2013: RMB43,821,000), which waswere not materialsignificant to the Group. Therefore, nofinancial information onof thenon-wholly owned subsidiaries with material non-controlling interests ishad not been disclosed.

11INVESTMENTS IN ASSOCIATES

   

31 December

2013

   

31 December

2014

 
   RMB’000   RMB’000 

Share of net assets

   171,743     176,791  

Less: provision for impairment in value (Note a)

   (29,689   (29,689
  

 

 

   

 

 

 
 142,054   147,102  
  

 

 

   

 

 

 

Note a:

The provision balance at the Group level as at 31 December 2014 represented full provision for impairment loss in investment in Zengcheng Lihua Stock Company Limited (“Zengcheng Lihua”) of approximately RMB29,689,000 (31 December 2013: RMB29,689,000) made in prior years.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

11INVESTMENTS IN ASSOCIATES (CONTINUED)

 

   2015   2016 
   RMB’000   RMB’000 

Share of net assets

   168,711    167,604 

Less: provision for impairment in value

   —      —   
  

 

 

   

 

 

 
   168,711    167,604 
  

 

 

   

 

 

 

The movement of investments in associates of the Group during the year is as follows:

 

  2013   2014   2015   2016 
  RMB’000   RMB’000   RMB’000   RMB’000 

Beginning of the year

   136,826     142,054     147,102    168,711 

Share of results after tax

   5,228     5,048     2,499    7,223 

Dividend

   —      (8,330

Capital injection made in an associate

   19,110    —   
  

 

   

 

   

 

   

 

 

End of the year

 142,054   147,102     168,711    167,604 
  

 

   

 

   

 

   

 

 

As at 31 December 2014,2016, the Group had direct interests in the following companies which are incorporated/established and are operating in the PRC:

 

Name of the entity

 Date of
incorporation/
establishment
 Percentage of
equity interest
attributable to the
the Company
 Paid-in capital  

Principal activities

Zengcheng Lihua

30 July 199226.98RMB107,054,682Real estate construction, provision of warehousing, cargo uploading and unloading services

Guangzhou Tiecheng Enterprise Company Limited (“Tiecheng”)

 2 May 1995 4949%  RMB343,050,000  Properties leasing and trading of merchandise

Shenzhen GuangshenGuangzhou Railway Civil Engineering Company (“Shentu”)

 1 March 1984 4949%  RMB64,000,000  Construction of railroad properties

All the above associates are limited liability companies and they are unlisted companies. There are no significant contingent liabilities relating to the Group’s interest in the associates and there are no significant restrictions on the transfer of assets or earnings from the associates to the Group.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2016

(All amounts expressed in Renminbi unless otherwise stated)

11INVESTMENTS IN ASSOCIATES (CONTINUED)

Set out below are the summarised financial information for Tiecheng Shentu and Zengcheng LihuaShentu which are accounted for using the equity method in the consolidated financial statements.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2014

(All amounts expressed in Renminbi unless otherwise stated)

Summarised balance sheets

 

11INVESTMENTS IN ASSOCIATES (CONTINUED)

   Tiecheng   Shentu 
   2015
RMB’000
   2016
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Current assets

   71,947    87,733    871,300    921,761 

Non-current assets

   346,761    339,409    7,734    7,614 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   418,708    427,142    879,034    929,375 
  

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities

   211,121    210,553    742,313    803,713 

Non-current liabilities

   —      202    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

   211,121    210,755    742,313    803,713 
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity

   207,587    216,387    136,721    125,662 
  

 

 

   

 

 

   

 

 

   

 

 

 

Share of net assets

   101,718    106,030    66,993    61,574 
  

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amount of interest in associates

   101,718    106,030    66,993    61,574 
  

 

 

   

 

 

   

 

 

   

 

 

 

Summarised balance sheetcomprehensive income statements

 

   As at 31 December 2013   As at 31 December 2014 
   

Zengcheng

Lihua

  Tiecheng   Shentu   

Zengcheng

Lihua

  Tiecheng   Shentu 
   RMB’000  RMB’000   RMB’000   RMB’000  RMB’000   RMB’000 

Current assets

   99,450    64,809     725,801     101,479    58,149     772,956  

Non-current assets

   62,093    359,838     11,200     63,646    352,300     9,291  
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Total assets

 161,543   424,647   737,001   165,125   410,449   782,247  
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Current liabilities

 406,862   226,672   645,069   414,137   207,378   685,109  
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Total liabilities

 406,862   226,672   645,069   414,137   207,378   685,109  
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Equity

 (245,319 197,975   91,932   (249,012 203,071   97,138  
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Share of net assets

 (66,187 97,008   45,046   (67,183 99,505   47,597  
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Carrying amount of interest in associates

 —     97,008   45,046   —     99,505   47,597  
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 
   Tiecheng   Shentu 
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 
            

Revenue

   33,190    32,955    41,217    535,193    467,911    493,277 

Net profit

   5,095    4,516    8,800    5,206    583    5,941 

Other comprehensive income

   —      —      —      —      —      —   

Total comprehensive income for the year

   5,095    4,516    8,800    5,206    583    5,941 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of the summarised financial information presented to the carrying amount of its interests in associates as follows:

 

Summarised financial information  Zengcheng Lihua  Shentu  Tiecheng  Total 
  2013  2014  2013  2014  2013  2014  2013   2014 
  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000  RMB’000   RMB’000 

Opening net assets

   (238,421  (245,319  86,189    91,932    193,048    197,975    40,816     44,588  

Profit for the year

   (6,898  (3,693  5,743    5,206    4,927    5,096    3,772     6,609  

Other comprehensive income

   —      —      —      —      —      —      —       —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Closing net assets

 (245,319 (249,012 91,932   97,138   197,975   203,071   44,588   51,197  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Percentage of ownership interest

 26.98 26.98 49 49 49 49
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Carrying value

 —     —     45,046   47,597   97,008   99,505   142,054   147,102  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

According to the accounting policy stated in Note 2.3, the Group has written down the carrying value of its interest in Zengcheng Lihua to zero in previous years and did not recognise any further loss in year 2013 and 2014.

   Tiecheng  Shentu  Total 
Summarised financial information  2015
RMB’000
  2016
RMB’000
  2015
RMB’000
  2016
RMB’000
  2015
RMB’000
  2016
RMB’000
 

Opening net assets

   203,071   207,587   97,138   136,721   300,209   344,308 

Profit for the year

   4,516   8,800   583   5,941   5,099   14,741 

Dividend

   —     —      (17,000  —     (17,000

Increase inpaid-in capital

   —     —     39,000   —     39,000   —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Closing net assets

   207,587   216,387   136,721   125,662   344,308   342,049 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Percentage of ownership interest

   49  49  49  49  49  49
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Carrying value

   101,718   106,030   66,993   61,574   168,711   167,604 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

12DEFERRED TAX ASSETS/(LIABILITIES)

   2015
RMB’000
   2016
RMB’000
 

Deferred tax assets

   113,418    98,862 

Less: Offsetting of deferred tax liabilities

   (20,169   (18,933
  

 

 

   

 

 

 

Deferred tax assets (net)

   93,249    (79,929
  

 

 

   

 

 

 

Deferred tax liabilities

   (91,545   (87,816

Less: Offsetting of deferred tax assets

   20,169    18,933 
  

 

 

   

 

 

 

Deferred tax liabilities (net)

   (71,376   (68,883
  

 

 

   

 

 

 
   21,873    11,046 
  

 

 

   

 

 

 

The analysis of deferred tax assets and deferred tax liabilities is as follows:

 

   As at
31 December 2013
   As at
31 December 2014
 
   RMB’000   RMB’000 

Deferred tax assets:

    

Deferred tax assets to be recovered after more than 12 months

   85,513     84,497  

Deferred tax assets to be recovered within 12 months

   27,096     4,409  
  

 

 

   

 

 

 
 112,609   88,906  
  

 

 

   

 

 

 

Deferred tax liabilities:

Deferred tax liabilities to crystallise after more than 12 months

 (20,954 (19,976

Deferred tax liabilities to crystallise within 12 months

 (428 (1,346
  

 

 

   

 

 

 
 (21,382 (21,322
  

 

 

   

 

 

 

Deferred tax assets - net

 91,227   67,584  
  

 

 

   

 

 

 

The gross movement on the deferred income tax account is as follows:

   2013   2014 
   RMB’000   RMB’000 

At 1 January

   109,161     91,227  

Charged to the comprehensive income statement (Note 31)

   (17,934   (23,643
  

 

 

   

 

 

 

At 31 December

 91,227   67,584  
  

 

 

   

 

 

 
   

As at
31 December

2015
RMB’000

   

As at
31 December

2016
RMB’000

 

Deferred tax assets:

    

-Deferred tax assets to be recovered after more than 12 months

   112,511    97,706 

-Deferred tax assets to be recovered within 12 months

   907    1,156 
  

 

 

   

 

 

 
   113,418    98,862 
  

 

 

   

 

 

 

Deferred tax liabilities:

    

-Deferred tax liabilities to be recovered after more than 12 months

   (88,325   (83,937

-Deferred tax liabilities to be recovered within 12 months

   (3,220   (3,879
  

 

 

   

 

 

 
   (91,545   (87,816
  

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

12DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED)

The movement in deferred tax assets and liabilities of the Group during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

 

  At
1 January
2013
   

Credited to the

comprehensive

income

statement

 At 31 December
2013
   

Charged/

(Credited)

to the

comprehensive

income

statement

 At 31 December
2014
 
  RMB’000   RMB’000 RMB’000   RMB’000 RMB’000   At 1 January
2015
RMB’000
   

(Credited)/

Charged

to the

comprehensive

income

statement
RMB’000

 

At

31 December 2015
RMB’000

   

(Credited)/

Charged

to the

comprehensive

income

statement
RMB’000

 

At

31 December 2016
RMB’000

 

Deferred tax assets:

               

Impairment provision for receivables

   20,803     (1,518 19,285     288   19,573     19,573    (11,745  7,828    (825  7,003 

Impairment provision for fixed assets and construction-in-progress

   2,546     (13 2,533     (403 2,130     2,130    609   2,739    1,416   4,155 

Impairment provision for interests in associates

   7,422     —     7,422     —     7,422     7,422    (7,422  —      —     —   

Impairment provision for materials and supplies

   4,511     —     4,511     —     4,511     4,511    7,326   11,837    (5,843  5,994 

Difference in accounting base and tax base of the government grants

   21,985     (714 21,271     (284 20,987     20,987    3,965   24,952    768   25,720 

Difference in accounting base and tax base of employee benefits obligations

   77,682     (23,060 54,622     (20,738 33,884     33,884    1,323   35,207    4,448   39,655 

Loss on disposal of fixed assets

   2,915     —     2,915     (2,566 349     349    30,456   30,805    (14,520  16,285 

Other

   50     —     50     —     50     50    —     50    —     50 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

  

 

   

 

  

 

 
 137,914   (25,305 112,609   (23,703 88,906     88,906    24,512   113,418    (14,556  98,862 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

  

 

   

 

  

 

 
  At
1 January
2013
   

Credited/
(Charged)

to the
comprehensive
income
statement

 At 31 December
2013
   

Credited/
(Charged)

to the
comprehensive
income
statement

 At 31 December
2014
 
  RMB’000   RMB’000 RMB’000   RMB’000 RMB’000 

Deferred tax liabilities:

        

Difference in accounting base and tax base in recognition of fixed assets

   19,173     (8,142 11,031     (166 10,865  

Others

   9,580     771   10,351     106   10,457  
  

 

   

 

  

 

   

 

  

 

 
 28,753   (7,371 21,382   (60 21,322  
  

 

   

 

  

 

   

 

  

 

 

   At 1 January
2015
RMB’000
   Business
combination
RMB’000
   

Charged/

(Credited)

to the

comprehensive

income

statement
RMB’000

  

At

31 December

2015
RMB’000

   

Charged/

(Credited)

to the

comprehensive

income

statement
RMB’000

  

At

31 December

2016
RMB’000

 

Deferred tax liabilities:

         

Differences in accounting base and tax base in recognition of fixed assets

   10,865    —      (1,258  9,607    (1,340  8,267 

Differences in accounting base and tax base in recognition of intangible assets

       73,661    (2,285  71,376    (2,493  68,883 

Others

   10,457    —      105   10,562    104   10,666 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
   21,322    73,661    (3,438  91,545    (3,729  87,816 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

12DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED)

 

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable.

Deferred income tax assets are recognised for tax loss carry-forwards and other temporary difference to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred income tax assets in respect of tax losses and other temporary difference amounting to RMB62,368,000 (2013: RMB59,577,000)RMB89,630,000 (2015: RMB75,926,000) that can be carried forward against future taxable income as follows:

 

  

As at
31 December

2013

   

As at
31 December

2014

   

As at
31 December

2015
RMB’000

   

As at
31 December

2016
RMB’000

 
  RMB’000   RMB’000 

Tax losses can be carried forward (Note a)

   46,288     49,379  

Tax losses that can be carried forward (Note a)

   63,452    77,328 

Deductible temporary differences

   13,289     12,989     12,474    12,302 
  

 

   

 

   

 

   

 

 
 59,577   62,368     75,926    89,630 
  

 

   

 

   

 

   

 

 

Note a:

The tax loss carry-forwards in which no deferred income tax assets were recognised amounting to RMB49,379,000 (2013: RMB46,288,000)RMB77,328,000 (2015: RMB63,452,000) will expire in the following years:

 

  

As at
31 December

2013

   

As at
31 December

2014

   

As at
31 December

2015

   

As at
31 December

2016

 
  RMB’000   RMB’000   RMB’000   RMB’000 

2014

   2,022     —    

2015

   1,839     1,839  

2016

   10,984     10,984     8,746    —   

2017

   15,405     15,405     15,405    15,405 

2018

   16,038     14,418     14,307    14,307 

2019

   —       6,733     6,516    6,516 

2020

   18,478    18,478 

2021

   —      22,622 
  

 

   

 

   

 

   

 

 
 46,288   49,379     63,452    77,328 
  

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

13LONG-TERM PREPAID EXPENSES

The movementmovements of long-term prepaid expenses isare set forth as follows:

 

  2013   2014 
  RMB’000   RMB’000   2015
RMB’000
   2016
RMB’000
 

At 1 January

        

Cost

   48,397     54,703     57,110    63,770 

Accumulated amortisation

   (8,277   (21,175   (35,106   (49,285
  

 

   

 

   

 

   

 

 

Net book amount

 40,120   33,528     22,004    14,485 
  

 

   

 

   

 

   

 

 

Year ended 31 December

    

Opening net book amount

 40,120   33,528     22,004    14,485 

Additions due to business combination

 450   —    

Other additions

 5,856   2,407  

Additions

   6,660    307 

Amortisation

 (12,898 (13,931   (14,179   (6,968
  

 

   

 

   

 

   

 

 

Closing net book amount

 33,528   22,004     14,485    7,824 
  

 

   

 

   

 

   

 

 

At 31 December

    

Cost

 54,703   57,110     63,770    64,077 

Accumulated amortisation

 (21,175 (35,106   (49,285   (56,253
  

 

   

 

   

 

   

 

 

Net book amount

 33,528   22,004     14,485    7,824 
  

 

   

 

   

 

   

 

 

 

14FINANCIAL INSTRUMENTS BY CATEGORY

 

  

Loans and

receivables

   

Available-

for-sale

   Total 
  RMB’000   RMB’000   RMB’000   

Loans and

receivables
RMB’000

   

Available-

for-sale
RMB’000

   Total
RMB’000
 

Assets as per consolidated balance sheet

            

As at 31 December 2013:

      

As at 31 December 2015:

      

Available-for-sale investments (Note 15)

   —       53,826     53,826     —      53,826    53,826 

Long-term receivable (Note 16)

   29,588     —       29,588     30,804    —      30,804 

Trade and other receivables excluding prepayments (Notes 18 and 19)

   1,725,513     —       1,725,513     3,022,923    —      3,022,923 

Short-term deposits (Note 20)

   4,483,600     —       4,483,600     106,000    —      106,000 

Cash and cash equivalents (Note 20)

   412,678     —       412,678     2,220,803    —      2,220,803 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

 6,651,379   53,826   6,705,205     5,380,530    53,826    5,434,356 
  

 

   

 

   

 

   

 

   

 

   

 

 

As at 31 December 2014:

As at 31 December 2016:

      

Available-for-sale investments (Note 15)

 —     53,826   53,826     —      53,826    53,826 

Long-term receivable (Note 16)

 30,197   —     30,197     31,406    —      31,406 

Trade and other receivables excluding prepayments (Notes 18 and 19)

 2,456,619   —     2,456,619     3,665,646    —      3,665,646 

Short-term deposits (Note 20)

 104,000   —     104,000     108,000    —      108,000 

Cash and cash equivalents (Note 20)

 1,665,057   —     1,665,057     1,359,656    —      1,359,656 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

 4,255,873   53,826   4,309,699     5,164,708    53,826    5,218,534 
  

 

   

 

   

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

14FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)

 

   

Other financial

liabilities
liabilitiesRMB’000

RMB’000

 

Liabilities as per consolidated balance sheet

  

As at 31 December 2013:2015:

  

Bonds payable (Note 24)

3,492,723

Trade and other payables excluding statutory liabilitiestax payables, employee benefits payables and advances (Notes 2625 and 27)26)

   1,417,6302,136,570 

Dividends payable

   14614,318 

Payables for fixed assets andconstruction-in-progress

   856,8371,425,998 
  

 

 

 

Total

  5,767,3363,576,886 
  

 

 

 

As at 31 December 2014:2016:

Trade and other payables excluding statutory liabilitiestax payables, employee benefits payables and advances (Notes 2625 and 27)26)

  1,942,4312,201,483 

Dividends payable

 54815,542 

Payables for fixed assets andconstruction-in-progress

  1,094,8141,765,185 
  

 

 

 

Total

  3,037,7933,982,210 
  

 

 

 

 

15AVAILABLE-FOR-SALE INVESTMENTS

 

   2013   2014 
   RMB’000   RMB’000 

Beginning and the end of the year

   53,826     53,826  
  

 

 

   

 

 

 
   2015
RMB’000
   2016
RMB’000
 

Beginning and the end of the year

   53,826    53,826 
  

 

 

   

 

 

 

Most ofTheavailable-for-sale investments mainly represent equity interests held by the Group in certain unlisted companies with percentage ownership less than 2% individually. Due to the fact that there is no quoted market price in an active market available for the assessment of the fair values of these investments, are less than 10%. Thethe directors of the Company are of the opinion that no quoted market price in an active market was available for these investments and their fair values could not be reliably measured by alternativeany reasonable valuation methods. In accordance withAs a result, the provisions under IFRS, the above non-current available-for-sale investments arehad been carried at cost, subject to review for impairment loss. As at 31 December, 2013 and 2014,2016, no impairment provision was considered necessary by the directors.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

16LONG-TERM RECEIVABLE

   2013   2014 
   RMB’000   RMB’000 

Opening net book amount

   30,863     29,588  

Unwinding of interest accrued (Note 29)

   3,725     2,609  

Repayment received

   (5,000   (2,000
  

 

 

   

 

 

 

Closing net book amount

 29,588   30,197  
  

 

 

   

 

 

 

The long-term receivable balance represents freight service fees receivable from a third party customer which was acquired from Yangcheng Railway Business. On the acquisition date of Yangcheng Railway Business, it was remeasured at its then fair value, which was assessed by the discounted cash flow method by making reference to the repayment schedule agreed by both parties.

The balance is subsequently carried at amortised cost using an average effective interest rate of 6.54%.

The balance approximated its fair value as at 31 December 2016.

 

17MATERIALS AND SUPPLIES

 

  

As at
31 December

2013

   

As at
31 December

2014

 
  RMB’000   RMB’000   

As at
31 December

2015
RMB’000

   

As at
31 December

2016
RMB’000

 

Raw materials

   183,676     167,543     156,441    184,520 

Reusable rail-line track materials

   104,338     147,115     93,134    79,311 

Accessories

   100,281     83,616     55,264    67,236 

Retailing consumables

   3,652     2,235     2,217    1,540 
  

 

   

 

   

 

   

 

 
 391,947   400,509     307,056    332,607 
  

 

   

 

   

 

   

 

 

The costs of materials and supplies consumed by the Group during the year were recognised as ‘operating expenses’“operating expenses” in the amount of approximately RMB1,616,234,000 (2012: RMB1,850,297,000 and 2013: RMB1,925,798,000)RMB1,697,166,000 (2015: RMB1,565,648,000).

As at 31 December 2014,2016, the balance of the provision for write-down ofwriting down the materials and supplies to their net realisablerealizable values was approximately RMB18,044,000 (31 December 2013: RMB18,044,000)RMB23,976,000 (2015: RMB47,348,000). NoDuring the year, no additional provision had been made and RMB18,163,000 was made in 2014.written off due to the reusable rail-line track materials disposal(2015: RMB34,792,000).

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

18TRADE RECEIVABLES

 

  

As at
31 December

2013

   

As at
31 December

2014

 
  RMB’000   RMB’000   As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Trade receivables

   1,561,109     2,320,408     2,894,461    3,369,331 

Including: receivables from related parties

   326,826     765,098     862,199    730,061 

Less: Provision for impairment of receivables

   (6,195   (7,003   (8,395   (4,965
  

 

   

 

   

 

   

 

 
 1,554,914   2,313,405     2,886,066    3,364,366 
  

 

   

 

   

 

   

 

 

As at 31 December 2014,2016, the Group’s trade receivables were all denominated in RMB (31 December 2013:(2015: RMB). The majority of the trade receivable customers were related parties, other state-owned railroad companies or companies in transportation industry.

The passenger railroad services are usually transacted on a cash basis. The Group does not have formal contractual credit terms agreed with its customers for freight services but the trade receivables are usually settled within a period less than one year. As a result, the Group regards any receivable balance within aone-year credit period being not overdue. The aging analysis of the outstanding trade receivables is as follows:

 

  As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Within 1 year (Note 3.1(b))

   2,190,263    2,517,281 

Over 1 year but within 2 years

   547,527    588,640 

Over 2 years but within 3 years

   133,764    223,675 

Over 3 years but within 5 years

   22,907    39,735 
  

 

   

 

 
  

As at

31 December 2013

   

As at

31 December 2014

    2,894,461    3,369,331 
  RMB’000   RMB’000   

 

   

 

 

Within 1 year

   1,460,387     1,950,885  

Over 1 year but within 2 years

   56,284     324,455  

Over 2 years but within 3 years

   27,235     17,444  

Over 3 years

   17,203     27,624  
  

 

   

 

 
 1,561,109   2,320,408  
  

 

   

 

 

As at 31 December 2014,2016, the Group’s trade receivables of approximately RMB362,520,000 (31 December 2013: RMB94,527,000)RMB847,085,000(2015: RMB695,803,000), were past due but not impaired. These relate to a number of independent customers for whomthat are State-owned companies engaged in the railroad and transportation business and there ishad been continuous businesses carried out with the Group and there was continuous repayment made and no significant financial difficulty and based on past experience, the overdue amounts can be recovered.history of default. The aging analysis of these trade receivables is as follows:

 

  

As at

31 December 2013

   

As at

31 December 2014

 
  RMB’000   RMB’000   As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Over 1 year but within 2 years

   56,284     324,189     547,527    588,640 

Over 2 year but within 3 years

   27,235     17,444     133,764    223,675 

Over 3 years

   11,008     20,887     14,512    34,770 
  

 

   

 

   

 

   

 

 
 94,527   362,520     695,803    847,085 
  

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

18TRADE RECEIVABLES (CONTINUED)

 

As at 31 December 2014,2016, the Group’s trade receivables of approximately RMB7,003,000 (2013: RMB6,195,000)RMB4,965,000(2015: RMB8,395,000), had been impaired and provided for. The amount of the provision made by the Group was approximately RMB7,003,000 as at 31 December 2014 (2013: RMB6,195,000). The impaired receivable balances were mainly related to the provision of freight transportation services. The related customers were in unexpected difficultsignificant financial conditions.difficulties. The aging analysis of these receivables is as follows:

 

   As at
31 December 2013
   As at
31 December 2014
 
   RMB’000   RMB’000 

Over 1 year but within 2 years

   —       266  

Over 3 years

   6,195     6,737  
  

 

 

   

 

 

 
 6,195   7,003  
  

 

 

   

 

 

 
   2015
RMB’000
   2016
RMB’000
 

Over 5 years

   8,395    4,965 
  

 

 

   

 

 

 

Movements on the provision for impairment of trade receivables are as follows:

 

  2014   2015   2016 
  2013   2014   RMB’000   RMB’000   RMB’000 
  RMB’000   RMB’000       

At 1 January

   5,907     6,195     6,195    7,003    8,395 

Provision for impairment loss

   591     808     808    3,305    6 

Reversal of impairment loss provision

   (19   —    

Receivables written-off

   (284   —    

Reversal

   —      (127   —   

Written-off

   —      (1,786   (3,436
  

 

   

 

   

 

   

 

   

 

 

At 31 December

 6,195   7,003     7,003    8,395    4,965 
  

 

   

 

   

 

   

 

   

 

 

The creation and release of provision for impaired receivables have been included in operating expenses in the comprehensive income statement. Amounts charged to the allowance account are generally written off against the gross accounts receivable balances when there is no expectation of recovering additional cash.

The maximum exposure to credit risk at the reporting date is the carrying value mentioned above. The Group does not hold any collateral as security.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

19PREPAYMENTS AND OTHER RECEIVABLES

 

  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

   

As at 31

December 2015
RMB’000

   

As at 31

December 2016
RMB’000

 

Due from third parties

   155,638     141,843     134,825    304,530 

Due from other related parties

   88,735     47,733     7,788    25,961 
  

 

   

 

   

 

   

 

 
 244,373   189,576     142,613    330,491 
  

 

   

 

   

 

   

 

 
  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

   As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Other receivables

   232,317     205,274     150,234    314,616 

Less: Provision for impairment loss (Note a)

   (61,718   (62,060

Less: Provision for impairment loss

   (13,377   (13,336
  

 

   

 

   

 

   

 

 

Other receivables, net (Note b)

 170,599   143,214  

Prepayments (Note c)

 73,774   46,362  

Other receivables, net (Note (a))

   136,857    301,280 

Prepayments (Note (b))

   5,756    29,211 
  

 

   

 

   

 

   

 

 
 244,373   189,576     142,613    330,491 
  

 

   

 

   

 

   

 

 

 

(a)Included in the amount was a provision of approximately RMB24,965,000 against the principal balance of a deposit placed with a deposit-taking agency, Zeng Cheng City Li Cheng Credit Cooperative (“Li Cheng”). The Group was unable to recover the deposit from Li Cheng upon maturity and the Group has initiated several legal proceedings against Li Cheng in order to enforce recovery but without success.
(b)Other receivables mainly represent miscellaneous deposits and receivables arising duringfrom the course of the provision ofnon-railway transportation services by the Group. As of 31 December 2016, the input VAT with related invoices not been received or verified amounted to 156,072,000.

(c)(b)Prepayments mainly represent amounts paid in advance to the suppliers for utilities and other operating expenses of the Group.

Movements on the provision for impairment of other receivables are as follows:

 

  2013
RMB’000
   2014
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

At 1 January

   68,127     61,718     61,718    62,060    13,377 

Provision for impairment loss

   43     346     346    62    —   

Reversal of impairment loss provision

   (6,452   (4   (4   (7,699   (1

Written-off

   —      (28,734   (40

Elimination arising from business combination

   —      (12,312   —   
  

 

   

 

   

 

   

 

   

 

 

At 31 December

 61,718   62,060     62,060    13,377    13,336 
  

 

   

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

19PREPAYMENTS AND OTHER RECEIVABLES (CONTINUED)

 

The carrying amounts of the Group’s prepayments and other receivables are denominated in the following currencies:

 

  As at
31 December 2015
   As at
31 December 2016
 
  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

   RMB’000   RMB’000 

RMB

   244,338     189,483     142,542    330,425 

HKD

   35     93     71    66 
  

 

   

 

   

 

   

 

 
 244,373   189,576     142,613    330,491 
  

 

   

 

   

 

   

 

 

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

 

20CASH AND CASH EQUIVALENTS AND SHORT-TERM DEPOSITS

 

  As at
31 December 2015
   As at
31 December 2016
 
  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

   RMB’000   RMB’000 

Cash at bank and on hand

   321,178     1,213,057     1,268,803    1,007,156 

Term deposits with initial term not more than three months

   91,500     452,000     952,000    352,500 
  

 

   

 

   

 

   

 

 

Cash and cash equivalents

 412,678   1,665,057     2,220,803    1,359,656 

Term deposits with initial term of over three months (Note a)

 4,483,600   104,000     106,000    108,000 
  

 

   

 

   

 

   

 

 
 4,896,278   1,769,057     2,326,803    1,467,656 
  

 

   

 

   

 

   

 

 

Note a: The original effective interest rate of timeterm deposits was 3.05% (2013: 3.05%1.65 %p.a. (2015: 2.50%p.a.).

The carrying amounts of the cash and cash equivalents and short-term deposits are denominated in the following currencies:

 

  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

 

RMB

   4,877,648     1,706,964  

HKD

   18,561     62,093  

USD

   69     —    
  

 

   

 

 
 4,896,278   1,769,057    As at
31 December 2015
   As at
31 December 2016
 
  

 

   

 

   RMB’000   RMB’000 

USD

   —      96 

RMB

   2,254,663    1,351,880 

HKD

   72,140    115,680 
  

 

   

 

 
   2,326,803    1,467,656 
  

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

21SHARE CAPITAL

As at 31 December 2014,2016, the total authorised number of ordinary shares is 7,083,537,000 shares (31 December 2013:(2015: 7,083,537,000 shares) with a par value of RMB1.00 per share (31 December 2013:(2015: RMB1.00 per share). These shares are divided into A shares and H shares. They rank pari passu against each other. (2013: divided into A sharesother and H shares. They rank pari passu against each other (see details below)they were fully paid up (2015: same).)

 

  

As at

31 December

2014

   Movement   

As at

31 December

2015

   Movement   

As at

31 December

2016

 
  

As at

31 December

2013
RMB’000

   Movement
RMB’000
   

As at

31 December

2013
RMB’000

   Movement
RMB’000
   

As at

31 December

2014
RMB’000

   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Authorised, issued and fully paid:

                    

Listed shares

                    

- H shares

   1,431,300     —       1,431,300     —       1,431,300     1,431,300    —      1,431,300    —      1,431,300 

- A shares

   5,652,237     —       5,652,237     —       5,652,237     5,652,237    —      5,652,237    —      5,652,237 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

 7,083,537   —     7,083,537   —     7,083,537     7,083,537    —      7,083,537    —      7,083,537 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

22RESERVES

According to the provisions of the articles of association of the Company, the Company shall first set aside 10% of its profit after tax attributable to shareholders as indicated in the Company’s statutory financial statements for the statutory surplus reserve (except where the reserve has reached 50% of the Company’s registered share capital) in each year. The Company may also make appropriations from its profit attributable to shareholders to a discretionary surplus reserve, provided that it is approved by a resolution passed in a shareholders’ general meeting. These reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends without the prior approval obtained from the shareholders in a shareholders’ general meeting under specific circumstances.

When the statutory surplus reserve is not sufficient to make good for any losses of the Company in previous years, the current year profit attributable to shareholders shall be used to make good the losses before any allocations are set aside for the statutory surplus reserve.

The statutory surplus reserve, the discretionary surplus reserve and the share premium account could be converted into share capital of the Company provided it is approved by a resolution passed in a shareholders’ general meeting with the provision that the ending balance of the statutory surplus reserve does not fall below 25% of the registered share capital amount. The Company may either allot newly created shares to the shareholders at the same proportion of the existing number of shares held by these shareholders, or it may increase the par value of each share.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

22RESERVES (CONTINUED)

 

For the year ended 31 December 20132015 and 2014,2016, the directors proposed the following appropriations to reserves of the Company:

 

   2013
Percentage
  2013
RMB’000
   2014
Percentage
  2014
RMB’000
 

Statutory surplus reserve

   10  128,481     10  66,036  
  

 

 

  

 

 

   

 

 

  

 

 

 
   2015
RMB’000
  2015
RMB’000
   2016
Percentage
  2016
RMB’000
 

Statutory surplus reserve

   10  111,760    10  117,050 
  

 

 

  

 

 

   

 

 

  

 

 

 

In accordance with the provisions of the articles of association of the Company, the profit after appropriation to reserves and available for distribution to shareholders shall be the lower of the retained earnings determined under (a) PRC GAAP or (b) IFRS. Due to the fact that the statutory financial statements of the Company have been prepared in accordance with PRC GAAP, the retained earnings so reported may be different from those reported in the statement of changes in shareholders’ equity prepared under IFRS contained in these financial statements. The main difference between the retained earnings of the Company determined under PRC GAAP and those determined under IFRS was relating to accounting policies in respect of investment in associates adopted under PRC GAAP and IFRS.

For the year 20132015 and 2014,2016, the movement of ‘Special reserve—reserve - Safety Production Fund’ of the Group isare as below:

 

  2013
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Beginning of the year

   —       —       —      —   

Appropriation

   200,839     208,250     192,860    204,792 

Utilisation

   (200,839   (208,250

Utilization

   (192,860   (204,792
  

 

   

 

   

 

   

 

 

End of the year

 —     —       —      —   
  

 

   

 

   

 

   

 

 

The Company is engaged in passenger and freight transportation business. In accordance with the regulation issued by Ministry of Finance and State Administration of Work Safety, the Company is required to establish a special reserve (“Safety Production Fund”) calculated based on the passenger and freight transportation revenue of the previous year using the following percentages:

 

 (a)1% for regular freight business;

 

 (b)1.5% for passenger transportation, dangerous goods delivery business and other special business.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

22RESERVES (CONTINUED)

 

The Safety Production Fund is mainly used for the renovation and maintenance of security equipment and facilities. For the purpose of the consolidated financial statements under IFRS, such reserve is established through an appropriation from retained earnings based on the aforementioned method. When the Safety Production Fund is actually utilised, the actual expenses incurred are charged to comprehensive income statement. Meanwhile, the corresponding Safety Production Fund reserve is released back to retained earnings.

 

23DEFERRED INCOME RELATEDRELATING TO GOVERNMENT GRANTS

 

  2013
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Beginning of the year

   92,864     90,404     88,771    103,985 

Additions

   2,683     6,330     22,563    12,594 

Credited to comprehensive income statement

   (5,143   (7,963

Credited to income statement

   (7,349   (9,769

Including: amortisation

   (3,107   (3,249   (2,529   (3,258
  

 

   

 

   

 

   

 

 

End of the year

 90,404   88,771     103,985    106,810 
  

 

   

 

   

 

   

 

 

 

24BONDS PAYABLEEMPLOYEE BENEFITS OBLIGATIONS

 

   At 1 January
2014
RMB’000
   Amortisation
RMB’000
   Repayment
RMB’000
   

At 31 December

2014

RMB’000

 

09 Guangshen Tie MTN1

   3,492,723     7,277     (3,500,000   —    
  

 

 

   

 

 

   

 

 

   

 

 

 
   At 1 January
2013
RMB’000
   Amortisation
RMB’000
   Repayment
RMB’000
   

At 31 December

2013

RMB’000

 

09 Guangshen Tie MTN1

   3,485,473     7,250     —       3,492,723  
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company issued bonds of medium terms at a nominal value of RMB3,500,000,000 on 17 December 2009. The bonds was matured in December 2014 at their nominal value of RMB3,500,000,000 and bore a coupon interest rate of 4.79% per annum.

On the issue date, the bonds were recognised based on the residual amounts of the principal after deduction of issuance costs of approximately RMB34,524,000. The bonds are subsequently carried at amortised cost using an average effective interest rate of 5.018% per annum. In December 2014, the bonds were matured and repaid by the Company.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2014

(All amounts expressed in Renminbi unless otherwise stated)

25EMPLOYEE BENEFITS OBLIGATIONS

  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

   As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Employee benefits obligations

   113,733     44,928     13,380    34,043 

Less: current portion included in accruals and other payables (Note 27)

   (105,824   (44,928

Less: current portion included in accruals and other payables (Note 26)

   (13,380   (34,043
  

 

   

 

   

 

   

 

 
 7,909   —       —      —   
  

 

   

 

   

 

   

 

 

Pursuant to a redundancy plan implemented by the Group in 2006, selected employees who had met certain specified criteria and accepted voluntary redundancy were provided with an offer of early retirement benefits, up to their official age of retirement. Such arrangements required specific approval granted by management of the Group.

With the acquisition of the Yangcheng Railway Business in 2007, the Group has also assumed certain retirement and termination benefits obligations associated with the operations of Yangcheng Railway Business. These obligations mainly include the redundancy termination benefits similar to those mentioned above, as well as the obligation for funding post-retirement medical insurance premiums of retired employees before the acquisition.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2016

(All amounts expressed in Renminbi unless otherwise stated)

24EMPLOYEE BENEFITS OBLIGATIONS (CONTINUED)

The employee benefits obligations have been provided for by the Group at amounts equal to the total expected benefit payments. Where the obligation does not fall due within twelve months, the obligation payable has been discounted using apre-tax rate that reflects management’s current market assessment of the time value of money and risk specific to the obligation. The discount rate was determined with reference to market yields when the liability was recognised at the inception date on high quality investments in the PRC.

The movement in the employee benefits obligation over the year is as follows:

 

  2013
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

At 1 January

   229,966     113,733     44,928    13,380 

Additions (Note 37)

   —       32,410  

Amortisation of interest (Note 30)

   9,127     4,594  

Additions (Note 36)

   —      24,727 

Amortisation of interest (Note 29)

   226    —   

Payments

   (125,360   (105,809   (31,774   (4,064
  

 

   

 

   

 

   

 

 

At 31 December

 113,733   44,928     13,380    34,043 
  

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

2625TRADE PAYABLES

 

  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

   As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Payables to third parties

   666,899     820,622     673,641    610,472 

Payables to related parties

   273,146     617,822     431,650    533,051 
  

 

   

 

   

 

   

 

 
 940,045   1,438,444     1,105,291    1,143,523 
  

 

   

 

   

 

   

 

 

The aging analysis of trade payables was as follows:

 

  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

   As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Within 1 year

   844,450     1,322,771     939,640    860,315 

Over 1 year but within 2 years

   71,241     68,497     138,648    258,227 

Over 2 years but within 3 years

   14,232     23,391     9,545    7,477 

Over 3 years

   10,122     23,785     17,458    17,504 
  

 

   

 

   

 

   

 

 
 940,045   1,438,444     1,105,291    1,143,523 
  

 

   

 

   

 

   

 

 

 

2726ACCRUALS AND OTHER PAYABLES

 

   

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

 

Due to third parties

   829,281     940,704  

Due to related parties

   50,298     29,057  
  

 

 

   

 

 

 
 879,579   969,761  
  

 

 

   

 

 

 
   

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

 

Advances received from customers

   120,914     237,095  

Other deposits received

   173,164     204,116  

Salary and welfare payables

   115,327     129,977  

Deposits received for construction projects

   116,600     124,253  

Other taxes payable

   59,929     53,774  

Employee benefits obligations (Note 25)

   105,824     44,928  

Deposits received from ticketing agencies

   26,106     35,762  

Housing maintenance fund

   16,045     15,802  

Other payables

   145,670     124,054  
  

 

 

   

 

 

 
 879,579   969,761  
  

 

 

   

 

 

 
   As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Due to third parties

   1,064,752    1,188,416 

Due to related parties

   399,634    430,331 
  

 

 

   

 

 

 
   1,464,386    1,618,747 
  

 

 

   

 

 

 

   As at
31 December 2015
RMB’000
   As at
31 December 2016
RMB’000
 

Payables to GEDC assumed by business combination with Zengcheng Lihua

   368,560    368,560 

Advances received from customers

   249,825    295,088 

Other deposits received

   232,776    242,104 

Deposits received for construction projects

   188,416    207,877 

Salary and welfare payables

   152,727    172,299 

Amount received on behalf of Labour Union

   58,993    68,914 

Other taxes payable

   17,175    59,357 

Deposits received from ticketing agencies

   37,543    36,018 

Employee benefits obligations (Note 24)

   13,380    34,043 

Housing maintenance fund

   15,859    15,692 

Other payables

   129,132    118,795 
  

 

 

   

 

 

 
   1,464,386    1,618,747 
  

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

2827LABOUR ANDEMPLOYEE BENEFITS

 

  2012
RMB’000
   2013
RMB’000
   2014
RMB’000
   2014
RMB’000
 2015
RMB’000
   2016
RMB’000
 

Wages and salaries

   2,786,721     3,127,540     3,414,192     3,414,192   3,672,234    4,362,506 

Provision for medical, housing scheme and other employee benefits (a)

   758,496     779,845     857,203     857,203   916,965    1,114,918 

Contributions to the defined contribution scheme (b)

   429,721     517,807     639,493     639,493   620,898    741,923 
  

 

   

 

   

 

   

 

  

 

   

 

 
 3,974,938   4,425,192   4,910,888     4,910,888   5,210,097    6,219,347 
  

 

   

 

   

 

   

 

  

 

   

 

 

 

(a)Housing scheme

In accordance with the PRC housing reform regulations, the Group is required to make contributions to a state-sponsored housing fund at 9%10% or 13%12% of the salaries of the employees. At the same time, the employees are also required to make a contribution at 9%10% or 13%12% of the salaries out of their payroll. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. The Group has no further legal or constructive obligation for housing benefits of these employees beyond the above contributions made.

 

(b)Defined contribution pension scheme

All the full-time employees of the Group are entitled to join a statutory pension scheme. The employees would receive pension payments equal to their basic salaries payable upon their retirement up to their death. Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are to be made monthly to a government agency based on 26% of the standard salary set by the provincial government, of which 18% is borne by the Company or its subsidiaries and the remainder 8% is borne by the employees. The government agency is responsible for the pension liabilities due to the employees upon their retirement. The Group accounts for these contributions on an accrual basis and charges the related contributions to expense in the year to which the contributions relate.

(c)Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include one directors (2015: two), no supervisor (2015: one) and four senior executives (2015: two), whose emoluments have already been reflected in the analysis presented above.

The emolument range of each individual is within the band of Nil to HK$500,000(equivalent to RMB 447,255) (2015: RMB418,890).

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

2928OTHER INCOME AND OTHER GAINSGAINS/(LOSSES) – NET

 

  2012
RMB’000
   2013
RMB’000
   2014
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Loss on disposal of fixed assets and leasehold land

   (90,024   (136,986   (123,567

Loss on disposal of fixed assets

   (123,567   (49,008   (133,073

Interest income from banks

   152,803     137,958     122,020     122,020    38,145    24,772 

Dividend income on available-for-sale investments

   5,254     4,904     4,904     4,904    5,884    5,884 

Government grants (Note 23)

   3,638     5,143     7,963     7,963    7,349    9,769 

Unwinding of interest accrued on long-term receivable (Note 16)

   4,755     3,725     2,609  

Impairment of fixed assets (Note 6)

   —      (80,393   —   

Loss arising from business combination

   —      (45,073   —   

Impairment ofconstruction-in-progress (Note 7)

   —      (2,434   (5,662

Income from compensation

   —      1,167    749 

Others

   (4,611   159     (6,791   (4,182   9,736    (10,709
  

 

   

 

   

 

   

 

   

 

   

 

 
 71,815   14,903   7,138     7,138    (114,627   (108,270
  

 

   

 

   

 

   

 

   

 

   

 

 

 

3029FINANCE COSTSINCOME/(COSTS)-NET

 

   2012
RMB’000
   2013
RMB’000
   2014
RMB’000
 

Interest expense

   167,650     167,650     160,760  

Bank charges

   3,609     5,522     7,332  

Amortisation of bonds payable (Note 24)

   6,905     7,250     7,277  

Amortisation of interest for employee benefit obligations (Note 25)

   9,415     9,127     4,594  

Net foreign exchange (gains)/losses

   (506   2,137     410  
  

 

 

   

 

 

   

 

 

 
 187,073   191,686   180,373  
  

 

 

   

 

 

   

 

 

 
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Interest expense

   (160,760   —      —   

Bank charges

   (7,332   (7,387   (3,823

Amortisation of bonds payable

   (7,277   —      —   

Amortisation of interest for employee benefit obligations (Note 24)

   (4,594   (226   —   

Net foreign exchange (losses)/gains

   (410   3,005    6,374 
  

 

 

   

 

 

   

 

 

 
   (180,373   (4,608   2,551 
  

 

 

   

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

3130INCOME TAX EXPENSE

In 2014, 20132015 and 2012,2016, the applicable income tax rate of the Company was 25%.

An analysis of the current year taxation charges is as follows:

 

  2012
RMB’000
   2013
RMB’000
   2014
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Current income tax

   442,233     412,736     195,864     195,864    416,480    379,482 

Deferred income tax (Note 12)

   (1,082   17,934     23,643     23,643    (27,950   10,827 
  

 

   

 

   

 

   

 

   

 

   

 

 
 441,151   430,670   219,507     219,507    388,530    390,309 
  

 

   

 

   

 

   

 

   

 

   

 

 

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:

 

  2012
RMB’000
   2013
RMB’000
   2014
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Profit before tax

   1,758,136     1,701,753     880,633     880,633    1,451,838    1,544,009 
  

 

   

 

   

 

   

 

   

 

   

 

 

Tax calculated at the statutory rate of 25% (2012 and 2013: 25%)

 439,534   425,438   220,158  

Tax calculated at the statutory rate of 25% (2015 and 2014: 25%)

   220,158    362,960    386,002 

Effect of tax rates differentials

 28   119   118     118    —      —   

Effect of income not subject to tax

 (4,040 (2,533 (2,498   (2,498   (2,096   (3,277

Effect of expenses not deductible for tax purposes

 2,462   3,969   451     451    1,920    1,928 

Effect of undeductible loss arising from business combination

   —      11,268    —   

Reversal of deferred tax assets for the impairment loss of investments in associates and other receivable recognized in prior years

   —      10,500    —   

Tax losses for which no deferred tax asset was recognised

 3,851   4,010   1,683     1,683    4,619    5,656 

Utilisation of previously unrecognised tax losses

 (684 (333 (405   (405   (641   —   
  

 

   

 

   

 

   

 

   

 

   

 

 

Income tax expense

 441,151   430,670   219,507     219,507    388,530    390,309 
  

 

   

 

   

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

3231EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit for the year attributable to equity holders of approximately RMB1,158,253,000 (2014 and 2015: RMB662,021,000 (2012 and 2013: RMB1,318,938,000 and RMB1,273,841,000)RMB1,070,822,000), divided by the weighted average number of ordinary shares outstanding during the year of 7,083,537,000 shares (2012(2014 and 2013:2015: 7,083,537,000 shares). There were no dilutive potential ordinary shares during each of the three years in the period ended December 31, 2014.2016. The calculation of earnings per equivalent ADS is based on the net profit for the year attributable to equity holders, divided by the weighted average equivalent ADSs (one ADS represents 50 H Shares) outstanding during the year of 141,670,740 ADSs (2012(2014 and 2013:2015: 141,670,740 ADSs).

 

  2012
RMB’000
   2013
RMB’000
   2014
RMB’000
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Profit attributable to owners of the company

   1,318,938     1,273,841     662,021     662,021    1,070,822    1,158,253 
  

 

   

 

   

 

   

 

   

 

   

 

 

Weighted average number of ordinary shares in issue

 7,083,537   7,083,537   7,083,537     7,083,537    7,083,537    7,083,537 
  

 

   

 

   

 

   

 

   

 

   

 

 

Weighted average equivalent ADSs

 141,670   141,670   141,670     141,670    141,670    141,670 
  

 

   

 

   

 

   

 

   

 

   

 

 

Basic and diluted earnings per share

 RMB0.19   RMB0.18   RMB0.09     RMB0.09    RMB0.15    RMB0.16 
  

 

   

 

   

 

   

 

   

 

   

 

 

Basic and diluted earnings per equivalent ADS

 RMB9.31   RMB8.99   RMB4.67     RMB4.67    RMB7.56    RMB8.18 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

3332DIVIDENDS

The dividends paid to the ordinary shareholders of the Group in 2012, 20132014, 2015 and 20142016 were, RMB566,683,000 (RMB0.08 per share), RMB566,683,000 (RMB0.08RMB354,177,000 (RMB0.05 per share) and RMB566,683,000 (RMB0.08 per share) respectively.

 

   2012
RMB’000
   2013
RMB’000
   2014
RMB’000
 

Final, proposed, of RMB0.05 (2012: RMB0.08 2013: RMB0.08) per ordinary share

   566,683     566,683     354,177  
  

 

 

   

 

 

   

 

 

 
   2014
RMB’000
   2015
RMB’000
   2016
RMB’000
 

Final, proposed, of RMB0.08 (2014: RMB0.05 2015: RMB0.08) per ordinary share

   354,177    566,683    566,683 
  

 

 

   

 

 

   

 

 

 

At the meeting of the directors held on 2529 March 2015,2017, the directors proposed a final dividend of RMB0.05 perRMB0.08per ordinary share for the year ended 31 December 2014,2016, which is subject to the approval by the shareholders in general meeting. This proposed dividend was not reflected as a dividend payable in the financial statements as at 31 December 2014.2016.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

3433CASH FLOW GENERATED FROM OPERATIONS

 

(a)Reconciliation from profit before income tax to shareholders to cash generated from operations:

 

  2014   2015   2016 
  2012
RMB’000
   2013
RMB’000
   2014
RMB’000
   RMB’000   RMB’000   RMB’000 

Profit before income tax:

   1,758,136     1,701,753     880,633     880,633    1,451,838    1,544,009 

Adjustments for:

            

Depreciation of fixed assets (Note 6)

   1,382,404     1,414,012     1,429,274     1,429,274    1,411,742    1,518,970 

Impairment of fixed assets (Note 6)

   —      80,393    —   

Impairment ofconstruction-in-progress (Note 7)

   —      2,434    5,662 

Loss arising from business combination

   —      45,073    —   

(Reversal) of/Provision of impairment of materials and supplies (Note 17)

   —      64,096    (5,209

Amortisation of leasehold land payments (Note 8)

   15,988     15,921     19,164     19,164    28,413    38,670 

Loss on disposal of fixed assets and leasehold land (Note 29)

   90,024     136,986     123,567  

Loss on disposal of fixed assets (Note 28)

   123,567    49,008    133,073 

Amortisation of long-term prepaid expenses (Note 13)

   7,237     12,898     13,931     13,931    14,179    6,968 

Recognition of employee benefits obligations

   66,650     —       —    

Amortisation of interest for employee benefit obligations (Note 25)

   9,415     9,127     4,594  

Amortisation of interest for employee benefit obligations
(Note 24)

   4,594    226    —   

Share of results of associates (Note 11)

   (10,906   (5,228   (5,048   (5,048   (2,499   (7,223

Dividends income on available-for-sale investments (Note 29)

   (5,254   (4,904   (4,904

Dividends income onavailable-for-sale investments
(Note 28)

   (4,904   (5,884   (5,884

Investment income from liquidation of a subsidiary

   —       —       (39   (39   —      —   

Provision/(Reversal of) for impairment of receivables

   1,576     (5,837   1,150  

Write-off of long outstanding of payables

   (3,134   (295   —    

Amortisation of bonds payable (Note 24)

   6,905     7,250     7,277  

Amortisation of government grants related to property, plant and equipment

   (3,158   (3,107   (3,249

Provision for/(reversal of) impairment of receivables (Note 18 and Note 19)

   1,150    (4,459   5 

Amortisation of bonds payable

   7,277    —      —   

Amortisation of government grants related fixed assets
(Note 23)

   (3,249   (2,529   (3,258

Interest expense

   167,650     167,650     160,760     160,760    —      —   

Interest income

   (129,688   (129,711   (90,112   (90,112   (5,502   (4,353
  

 

   

 

   

 

   

 

   

 

   

 

 

Operating profit before working capital changes

 3,353,845   3,316,515   2,536,998     2,536,998    3,126,529    3,221,430 

Increase in trade receivables

 (386,690 (550,421 (752,684   (752,684   (553,980   (1,034,064

(Increase)/decrease in materials and supplies

 (72,158 70,264   44,909  

Decrease in materials and supplies

   44,909    34,843    14,432 

Decrease/(increase) in prepayments and other receivables

 4,135   (94,178 15,083     15,083    83,553    (47,594

Decrease in long-term receivable

 8,000   5,000   2,000     2,000    2,000    2,000 

Increase/(decrease) in trade payables

 66,883   (282,972 514,289     514,289    (270,151   34,178 

Decrease in employee benefits obligations

 (54,375 (105,992 (7,909

(Decrease)/increase in accrued expenses and other payables

 (44,623 64,870   68,520  

Decrease in employee benefit obligations

   (7,909   —      —   

Increase in accrued and other payables

   68,520    97,585    22,481 
  

 

   

 

   

 

   

 

   

 

   

 

 

Cash generated from operations

 2,875,017   2,423,086   2,421,206     2,421,206    2,520,379    2,212,863 
  

 

   

 

   

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3433CASH FLOW GENERATED FROM OPERATIONS (CONTINUED)

 

(b)In the cash flow statement, proceeds from disposal of fixed assets and leasehold land comprise:

 

   2012
RMB’000
   2013
RMB’000
   2014
RMB’000
 

Net book amount (Note 6 and 8)

   165,499     249,072     179,745  

Receivable arising from disposal of fixed assets and leasehold land

   —       (12,334   (2,089

Transfer to inventories

   (34,404   (24,502   (53,381

Loss on disposal of fixed assets and leasehold land

   (90,024   (136,986   (123,567
  

 

 

   

 

 

   

 

 

 

Proceeds from disposal of fixed assets and leasehold land

 41,071   75,250   708  
  

 

 

   

 

 

   

 

 

 
   2014   2015   2016 
   RMB’000   RMB’000   RMB’000 

Net book amount (Note 6)

   179,745    83,944    142,336 

Receivable arising from disposal of fixed assets

   (2,089   (21,627   20,349 

Transfer to inventories

   (53,381   (5,488   (11,662

Loss on disposal of fixed assets (Note 28)

   (123,567   (49,008   (133,073
  

 

 

   

 

 

   

 

 

 

Proceeds from disposal of fixed assets

   708    7,821    17,950 
  

 

 

   

 

 

   

 

 

 

 

35(c)Except the business combination as set out in note 36, nonon-cash investing or financing activities incurred in the year ended 31 December 2016 (2015: Nil).

34CONTINGENCY

There were no significant contingent liabilities as at the date of approval of these financial statements.

 

3635COMMITMENTS

 

(a)Capital commitments

As at 31 December 20132015 and 2014,2016, the Group had the following capital commitments which are authorised but not contracted for, and contracted but not provided for:

 

  

As at

31 December 2015

   

As at

31 December 2016

 
  

As at

31 December 2013
RMB’000

   

As at

31 December 2014
RMB’000

   RMB’000   RMB’000 

Authorised but not contracted for

   1,305,943     1,309,633     1,967,894    1,165,237 
  

 

   

 

   

 

   

 

 

Contracted but not provided for

 150,677   146,979     304,199    769,013 
  

 

   

 

   

 

   

 

 

A substantial amount of these commitments is related to the reform of stations or facilities relating to the existing railway line of the Company, which would be financed by self-generated operating cash flow.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3635COMMITMENTS (CONTINUED)

 

(b)Operating lease commitments

In connection with the acquisition of Yangcheng Railway Business, the Company signed an agreement on 15 November 2004 with Guangzhou Railway Group for leasing the land use rights associated with the land on which the acquired assets of Yangcheng Railway Business are located. The agreement became effective upon the completion of the acquisition on 1 January 2007 and the remaining lease term is 20 years, renewable at the discretion of the Company. According to the terms of the agreement, the rental for such lease would be agreed by both parties every year with a maximum amount not exceeding RMB74,000,000 per year. During the year ended 31 December 2014,2016, the related lease rental paid and payable was approximately RMB55,090,000 (2014 and 2015: RMB53,962,000 (2012 and 2013: RMB54,800,000 and RMB56,000,000)RMB55,090,000).

 

3736BUSINESS COMBINATIONS

On 1 June 2014,26 October 2016, the Company entered into an agreementagreements to acquire thecertain railway service businesses of Guangzhou Railway Group, Guangmeishan Railway Company Limited (“GRCL”) and Guangdong Sanmao Railway Company Limited(“GSRC”). GRCL and CSRC are subsidiaries of Guangzhou Railway Group which operate freight service business and related assets of Guangzhou Railway Economic Technology Development Corporation (“GRETDC”(the “Acquisition”), the subsidiary of the Guangzhou Railway Group..

The purchase consideration for GRETDC wasconsiderations payable to Guangzhou Railway Group, GRCL and CSRC were approximately RMB122,390,000.RMB28,657,000, RMB453,658,000 and RMB249,677,000, respectively.

On 1 June 2014,26 October 2016, the Company obtain control of the assetsover above mentioned railway service businesses and operations of GRETDC was transferred to the Company. Accordingly, the directors of the Company determined that it was the effectivecompletion date of acquisition was 1 June 2014.the Acquisition. The results of the operations of the above-mentioned entityentities have been included in the Group’s consolidated comprehensive income statement from 1 June 2014 onwards.26 October 2016 onwards accordingly.

The following table summarizes the consideration paid for Guangzhou Railway Group, GRCL and CSRC, the fair value of identifiable assets acquired and liabilities assumed at the date of the Acquisition:

   Guangzhou
Railway Group
   GRCL   CSRC   Total 
   RMB’000   RMB’000   RMB’000   RMB’000 

Amount payables arising from the Acquisition(a)

   28,657    453,658    249,677    731,992 

Less: Employee benefits obligation undertaken to be borne by the Company

   —      (9,024   (15,703   (24,727
  

 

 

   

 

 

   

 

 

   

 

 

 

Total consideration(a)

   28,657    444,634    233,974    707,265 
  

 

 

   

 

 

   

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3736BUSINESS COMBINATIONS (CONTINUED)COMBINATIONS(CONTINUED)

 

(a)The total consideration of approximately RMB707,265,000 had been offset against the trade receivables due from Guangzhou Railway Group, GRCL and CSRC to the Group. Therefore, no actual cash outflow occurred in the business acquisition.

The following table summarisesAs at the consideration paid for GRETDC,completion date of the Acquisition, the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date:acquired were as below:

 

RMB’000

Cash consideration paidInventories

   60,00023,110 

Cash consideration payableFixed assets (Note 6)

   62,390

648,890
 

Total considerationConstruction-in-progress (Note 7)

  122,390

Recognised amounts of identifiable assets acquired and liabilities assumed:

Trade and other receivables

7,092

Inventories

9059,992 

Other current assetsliabilities

759

Property, plant and equipment

152,046

Construction-in-progress

1,665

Trade payables

 (1,771

Accruals and other payables

(5,081

Employee benefits obligations

(32,41024,727
  

 

 

 

Total identifiable net assets

 122,390707,265

Total consideration

707,265 
  

 

 

 

Goodwill

—  

Outflow of cash to acquire business, net of cash acquired

RMB’000

- Cash consideration paid for business acquired in 2014 (a)

60,000

- Cash consideration paid for business acquired in 2013 (b)

79,897

- Cash and cash equivalents balance acquired

   —   
  

 

 

 

- Net cash flows on acquisition

139,897

(a)In 2014, consideration amounting to RMB60,000,000 in relation to acquisition of GRETDC was paid.
(b)The Group had paid the remaining consideration of RMB79,897,000 in relation to the freight service business and related assets of China Railway Container Transport Co. Ltd. Dalang Processing Station acquired in year 2013.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2014

(All amounts expressed in Renminbi unless otherwise stated)

The directors of the Company made reference to the valuation report performed by an independent valuer on the acquired businesses when they determined the fair value of the identifiable assets and the liabilities acquired.

 

3837RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.

 

(a)Related parties that control the Company or are controlled by the Company:

See Note 10 for the subsidiaries.

None of the shareholders is the controlling entity of the Company.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2016

(All amounts expressed in Renminbi unless otherwise stated)

37RELATED PARTY TRANSACTIONS(CONTINUED)

 

(b)Nature of the principal related parties that do not control/are not controlled by the Company:

 

Name of related parties  Relationship with the Company

Single largest shareholder and its subsidiaries

  

Guangzhou Railway Group

  Single largest shareholder

Guangzhou Railway Group YangCheng Railway Enterprise Development Company

  Subsidiary of the single largest shareholder

Guangmeishan Railway Company LimitedGRCL

  Subsidiary of the single largest shareholder

GEDC

  Subsidiary of the single largest shareholder

Guangzhou Railway Material Supply Company

  Subsidiary of the single largest shareholder

Guangzhou Railway Engineer Construction Enterprise Development Company

  Subsidiary of the single largest shareholder

Yangcheng Construction Company of YangCheng Railway Enterprise Development Company

  Subsidiary of the single largest shareholder

Guangzhou Railway Real Estate Construction Company

  Subsidiary of the single largest shareholder

Yuehai Railway Company Limited

  Subsidiary of the single largest shareholder

Shichang Railway Company Limited

  Subsidiary of the single largest shareholder

Guangzhou Railway Station Service Centre

  Subsidiary of the single largest shareholder

Changsha Railway Construction Company Limited

  Subsidiary of the single largest shareholder

Guangdong Sanmao Railway Company LimitedGSRC

  Subsidiary of the single largest shareholder

Guangzhou Qingda Transportation Company Limited

  Subsidiary of the single largest shareholder

Guangzhou Yuetie Operational Development Company

  Subsidiary of the single largest shareholder

Guangzhou Railway Rolling Stock Works

  Subsidiary of the single largest shareholder

Foreign Economic & Trade Development Corporation of Guangzhou Railway Group

  Subsidiary of the single largest shareholder

Shenzhen Guangshen Railway Living Service Centre

  Subsidiary of the single largest shareholder

Guangzhou Yangcheng Living Service Centre

  Subsidiary of the single largest shareholder

Pajiangkou Stone Pit of YangCheng Railway Enterprise Development Company

  Subsidiary of the single largest shareholder

Guangdong Tieqing International Travel Agency Company Limited

  Subsidiary of the single largest shareholder

Guangdong Sanmao Enterprise Development Company Limited

  Subsidiary of the single largest shareholder

Guangshengang Passenger Special Line Company Limited (i)

Subsidiary of the single largest shareholder

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2014

(All amounts expressed in Renminbi unless otherwise stated)

38RELATED PARTY TRANSACTIONS (CONTINUED)

(b)Nature of the principal related parties that do not control/are not controlled by the Company (continued):

Name of related partiesRelationship with the Company

Single largest shareholder and its subsidiaries (Continued)

Guangdong Guangzhu Intercity Rail Transportation Company Limited (ii)

Subsidiary of the single largest shareholder

Huaihua Railway Engineer Construction Company

  Subsidiary of the single largest shareholder

Lechang Anjie Railway Sleeper Company Limited

  Subsidiary of the single largest shareholder

Xiashen Railway Guangdong Company Limited

  Subsidiary of the single largest shareholder

Ganshao Railway Company Limited

  Subsidiary of the single largest shareholder

GRETDCGuangzhou Railway Economic Technology Development Corporation

  Subsidiary of the single largest shareholder

Hunan Changtie Industrial Development Co. Ltd.

Subsidiary of the single largest shareholder

Associates of the Group

  

Zengcheng Lihua

Associate of the Group

Tiecheng

  Associate of the Group

Shentu

  Associate of the Group

(i)In March 2012, the Guangzhou Railway Group disposed of its investment in Guangshengang Passenger Special Line Company Limited. As a result, Guangshengang Passenger Special Line Company Limited was no longer considered as a related party of the Group since the day Guangzhou Railway Group lost control of Guangshengang Passenger Special Line Company Limited. However, the transactions with Guangshengang Passenger Special Line Company Limited during the period from January 1, 2012 to the date loss of control were still disclosed as related party transactions.
(ii)In November 2012, the Guangzhou Railway Group disposed of its investment in Guangdong Guangzhu Intercity Rail Transportation Company Limited. As a result, Guangdong Guangzhu Intercity Rail Transportation Company Limited was no longer considered as a related party of the Group since the day Guangzhou Railway Group lost control of Guangdong Guangzhu Intercity Rail Transportation Company Limited. However, the transactions with Guangdong Guangzhu Intercity Rail Transportation Company Limited during the period from January 1, 2012 to the date loss of control were still disclosed as related party transactions.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3837RELATED PARTY TRANSACTIONS (CONTINUED)

 

(c)Save asIn addition to those disclosed elsewhere in other notes to the financial statements, during the year, the Group had the following material transactions undertaken with related parties:

 

  2012   2013   2014   2014   2015   2016 
  RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Provide services and sales of goods

      

Transportation related services

      

Provision of services and sales of goods

      

Railroad and Related Business

      

Provision of train transportation services to Guangzhou Railway Group and its subsidiaries (i)

   352,973     367,745     424,743     424,743    751,956    1,425,538 

Revenue collected by CRC for railway network usage and related services provided to Guangzhou Railway Group and its subsidiaries (ii)

   1,238,431     1,255,572     1,153,630     1,153,630    1,180,852    1,400,876 

Revenue from railway operation service provided to Guangzhou Railway Group’s subsidiaries (iii)

   278,669     76,480     359,740     359,740    550,168    579,253 
  

 

   

 

   

 

   

 

   

 

   

 

 
 1,870,073   1,699,797   1,938,113     1,938,113    2,482,976    3,405,667 
  

 

   

 

   

 

   

 

   

 

   

 

 

Other services

Other Businesses

      

Sales of materials and supplies to Guangzhou Railway Group and its subsidiaries (iv)

 11,218   24,174   22,579     22,579    25,940    29,449 
  

 

   

 

   

 

   

 

   

 

   

 

 

Receive services and purchase

Transportation related services

Services received and purchase made

      

Railroad and Related Business

      

Provision of train transportation services by Guangzhou Railway Group and its subsidiaries (i)

 653,787   665,189   633,382     633,382    888,903    989,778 

Cost settled by CRC for railway network usage and related services provided by Guangzhou Railway Group and its subsidiaries (ii)

 1,578,108   1,564,499   1,436,711     1,436,711    1,406,962    1,628,336 

Operating lease rental paid to Guangzhou Railway Group for the leasing of land use rights (Note 36 (b))

 54,800   56,000   53,962  

Operating lease rental paid to Guangzhou Railway Group for the leasing of land use rights (Note 35 (b))

   53,962    55,090    55,090 
  

 

   

 

   

 

   

 

   

 

   

 

 
 2,286,695   2,285,688   2,124,055     2,124,055    2,350,955    2,673,204 
  

 

   

 

   

 

   

 

   

 

   

 

 

Other services

Social services (employee housing and public security services and other ancillary services) provided by GEDC and Yangcheng Railway (iii)

 93,090   67,990   12,430  

Other Businesses

      

Social services (employee housing and public security services and other ancillary services) provided by GEDC (iii)

   12,430    16,080    11,297 

Provision of repair and maintenance services by Guangzhou Railway Group and its subsidiaries (iv)

 240,761   346,831   295,283     295,283    489,038    306,988 

Purchase of materials and supplies from Guangzhou Railway Group and its subsidiaries (v)

 766,309   666,771   560,034     560,034    384,262    469,273 

Provision of construction services by Guangzhou Railway Group and its subsidiaries (vi)

 287,903   229,999   280,983     280,983    226,089    347,409 

Others

 —     12,889   8,729     8,729    —      —   
  

 

   

 

   

 

   

 

   

 

   

 

 
 1,388,063   1,324,480   1,157,459     1,157,459    1,115,469    1,134,967 
  

 

   

 

   

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3837RELATED PARTY TRANSACTIONS (CONTINUED)

 

(c)Save as disclosed in other notes to the Financial Statements, during the year, the Group had the following material transactions undertaken with related parties (continued):

 

 (i)The service charges are determined based on a pricing scheme set by the MORCRC or based on negotiation between the contracting parties with reference to full cost principle.actual costs incurred.

 

 (ii)Such revenues/charges are determined by the MORCRC based on its standard charges applied on a nationwide basis.

 

 (iii)The service charges are levied based on contract prices determined based on costa “cost plus a profit marginmargin” and explicitly agreed between both contracting parties.

 

 (iv)The prices are determined based on mutual negotiation between the contracting parties with reference to full cost principle.actual costs incurred.

 

 (v)The prices are determined based on mutual negotiation between the contracting parties with reference to procurement costcosts incurred plus a management fee ranged from 0.3% to 5%. on the costs.

 

 (vi)Based on construction amount determined under national railway engineering guidelines.

 

(d)Key management compensation

During the year ended December 31, 2012, 2013 and 2014, theThe compensation paid or payable to key management for employee services is RMB3,116,000, RMB2,110,000 and RMB2,686,000 respectively.shown in Note 27(c).

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3837RELATED PARTY TRANSACTIONS (CONTINUED)

 

(e)As at 31 December 20142015 and 2013,2016, the Group had the following material balances maintained with related parties:

 

  2013   2014   2015   2016 
  RMB’000   RMB’000   RMB’000   RMB’000 

Trade receivables

   326,826     765,098     862,199    730,061 

- Guangzhou Railway Group (i)

   196,439     260,554     96,314    229,056 

- Subsidiaries of Guangzhou Railway Group (i)

   130,387     504,544     765,885    501,005 

Prepayments and other receivables

   88,735     47,733     7,788    25,961 

- Guangzhou Railway Group

   40,170     5,399     6,011    691 

- Subsidiaries of Guangzhou Railway Group

   44,166     37,560     1,777    25,270 

- Associates

   16,711     17,086  

Less: impairment provision (v)

   (12,312   (12,312

Prepayments for fixed assets and construction-in-progress

   1,092     1,092     1,092    225 

- Guangzhou Railway Group

   1,092     1,092     1,092    —   

- Subsidiaries of Guangzhou Railway Group (ii)

   —      225 

Trade payables

   273,146     617,822     431,650    533,051 

- Guangzhou Railway Group (i)

   34,137     119,953     24,467    61,486 

- Subsidiaries of Guangzhou Railway Group (ii)

   237,847     433,805     366,015    432,712 

- Associates

   1,162     64,064     41,168    38,853 

Payables for fixed assets and construction-in-progress

   174,522     208,955     185,339    249,308 

- Guangzhou Railway Group

   3,859     12,610     18,829    10,805 

- Subsidiaries of Guangzhou Railway Group

   131,170     159,381     128,871    168,038 

- Associates

   39,493     36,964     37,639    70,465 

Accruals and other payables

   50,298     29,057     399,634    430,331 

- Guangzhou Railway Group

   1,179     4,133     1,891    5,663 

- Subsidiaries of Guangzhou Railway Group (iii)

   43,963     20,600     396,590    422,877 

- Associates (iv)

   5,156     4,324     1,153    1,791 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3837RELATED PARTY TRANSACTIONS (CONTINUED)

 

(e)As at 31 December 20142015 and 2013,2016, the Group had the following material balances maintained with related parties (continued):

 

 (i)The trade balances due from/to Guangzhou Railway Group, subsidiaries of Guangzhou Railway Group mainly representedrepresent service fees and charges payable and receivable balances arising from the provision of passenger transportation and cargo forwarding businesses jointly with these related parties within the PRC.

 

 (ii)The trade payables due to subsidiaries of Guangzhou Railway Group mainly representedrepresent payables arising from unsettled fees for purchase of materials and provision of other services according to various service agreements entered into between the Group and the related parties.

 

 (iii)The other payables due to subsidiaries of Guangzhou Railway Group mainly representedrepresent the performance deposits received for construction projects and deposits received from ticketing agencies.

 

 (iv)The other payables due to associates mainly representedrepresent the performance deposits received for construction projects operated by associates.

(v)Impairment loss provision set up against a receivable balance due from Zengcheng Lihua, which was brought forward from prior years.

As at 31 December 20132015 and 2014,2016, all the balances maintained with related parties were unsecured,non-interest bearing and were repayable on demand.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2014 2016

(All amounts expressed in Renminbi unless otherwise stated)

 

3938TRANSACTIONS WITH CRC AND OTHER RAILWAY COMPANIES

On 14 March 2013, pursuant to the approved plan on State Council Institutional Reform and Transformation of Government Functions and Approval, On Setting Up China Railway Company by the State Council, the previous controlling entity of Guangzhou Railway Group, MOR, had been dismantled. The administrative function of MOR will bewere transferred to the Ministry of Transport and the newly established National Railway Bureau, and its business functions and all related assets, liabilities and human resources will bewere transferred to the CRC. Accordingly, the equity interests of Guangzhou Railway Group which was wholly controlled by MOR previously will bewere transferred to the CRC. Once the transfer isCRC (“Reform”). The Reform was completed the actual controlling entity of the Company’s largest shareholder will become CRC. In the current accounting period, although the transfer has not been completed, the transactions between the Group and CRC together with the subsidiaries which were wholly controlled by MOR previously (“CRC Group”) are disclosed considering the requirements of the accounting standards.since 1 January 2017. In order to facilitate users’user’s comprehensive understanding of the Company’s business transactions, the Company disclosesdisclosed these transactions with CRC Group for 2012, 20132016 and 2014.2015. Unless otherwise specified, the transactions disclosed below have excluded the transactions undertaken with Guangzhou Railway Group and its subsidiaries disclosed in Note 38.37.

The Company works in cooperation with the MORCRC and other railway companies owned and controlled by the MORCRC for the operation of certain long distance passenger train and freight transportation businesses within the PRC. The revenues generated from these long-distance passenger and freight transportation businesses are collected and settled by the MORCRC according to its settlement systems. The charges for the use of the rail lines and services provided by other railway companies are also instructed by the MORCRC and settled by the MORCRC based on its systems. Since March 2013, the collecting, processing and distribution functionfunctions of revenues which were executed by MOR previously had been transferred to CRC. As at 31 December 2014,2016, the cooperation mode and pricing model didhad not change.been subject to any material changes.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3938TRANSACTIONS WITH CRC AND OTHER RAILWAY COMPANYCOMPANIES (CONTINUED)

 

(a)Save asIn addition to those disclosed elsewhere in other notes to the financial statements, during the year, the Group had the following material transactions undertaken with the CRC Group:

 

  2012   2013   2014   2014   2015   2016 
  RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Provide services and sales of goods

      

Transportation related services

      

Provision of services and sales of goods

      

Railroad and Related Business

      

Provision of train transportation services to CRC Group (i)

   141,664     30,450     5,229     5,229    36,515    29,794 

Revenue collected by CRC for services provided to CRC
Group (ii)

   2,235,810     2,070,966     1,706,558     1,706,558    1,752,666    1,777,640 

Revenue from railway operation service provided to CRC
Group (iii)

   824,126     968,477     950,966     950,966    1,421,995    1,628,143 
  

 

   

 

   

 

   

 

   

 

   

 

 
 3,201,600   3,069,893   2,662,753     2,662,753    3,211,176    3,435,577 
  

 

   

 

   

 

   

 

   

 

   

 

 

Other services

Other Businesses

      

Provision of repairing services for cargo trucks to CRC Group (ii)

 247,335   286,265   259,470     259,470    284,348    323,993 

Sales of materials and supplies to CRC Group (iv)

 107,759   65,897   43,239     43,239    38,395    7,073 

Provision of apartment leasing services to CRC Group (iv)

 —     780   732     732    762    641 
  

 

   

 

   

 

   

 

   

 

   

 

 
 355,094   352,942   303,441     303,441    323,505    331,707 
  

 

   

 

   

 

   

 

   

 

   

 

 

Receive services and purchase of goods

Transportation related services

Services received and purchases made

      

Railroad and Related Business

      

Provision of train transportation services by CRC Group (i)

 213,755   264,372   292,866     292,866    277,138    292,754 

Cost settled by CRC for services provided by CRC Group (ii)

 1,425,412   1,457,451   1,265,873     1,265,873    1,365,352    1,376,047 
  

 

   

 

   

 

   

 

   

 

   

 

 
 1,639,167   1,721,823   1,558,739     1,558,739    1,642,490    1,668,801 
  

 

   

 

   

 

   

 

   

 

   

 

 

Other services

Other Businesses

      

Provision of repair and maintenance services by CRC Group (iv)

 51,810   68,963   28,531     28,531    2,813    42,954 

Purchase of materials and supplies from CRC Group (v)

 390,314   131,061   9,317     9,317    33,591    15,220 

Provision of construction services by CRC Group (vi)

   —      13,538    4,385 
  

 

   

 

   

 

   

 

   

 

   

 

 
 442,124   200,024   37,848     37,848    49,942    62,559 
  

 

   

 

   

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3938TRANSACTIONS WITH CRC AND OTHER RAILWAY COMPANY (CONTINUED)

 

(a)Save asIn addition to those disclosed elsewhere in other notes to the Financial Statements,financial statements, during the year, the Group had the following material transactions undertaken with the CRC Group (continued)Group(continued):

 

 (i)The service charges are determined based on a pricing scheme set by the MORCRC or based on negotiation between the contracting parties with reference to full cost principle.actual costs incurred.

 

 (ii)Such revenues/charges are determined by the MORCRC based on its standard charges applied on a nationwide basis.

 

 (iii)The service charges are levied based on contract prices determined based on costa “cost plus a profit marginmargin” and explicitly agreed between both contracting parties.

 

 (iv)The prices are determined based on mutual negotiation between the contracting parties with reference to full cost principle.actual costs incurred.

 

 (v)The prices are determined based on mutual negotiation between the contracting parties with reference to procurement costcosts incurred plus a management fee ranged from 0.3% to 5%. on the costs.

(vi)Based on construction amounts determined under national railway engineering guidelines.

 

(b)RevenueRevenues collected and settled through the CRC:

 

  2012   2013   2014   2014   2015   2016 
  RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

- Passenger transportation

   7,522,886     7,740,887     6,630,629     6,630,629    6,642,129    6,960,491 

- Freight transportation

   764,359     871,173     920,255     920,255    1,022,025    1,105,061 

- Luggage and parcel

   —       100,884     148,863     148,863    86,199    86,883 
  

 

   

 

   

 

   

 

   

 

   

 

 
 8,287,245   8,712,944   7,699,747     7,699,747    7,750,353    8,152,435 
  

 

   

 

   

 

   

 

   

 

   

 

 

The Company works in cooperation with the CRC and other railway companies owned and controlled by the CRC for the operation of certain long distance passenger trains and freight transportation businesses within the PRC. The revenues generated from these long-distance passenger trains and freight transportation businesses are collected and settled by the CRC Group on behalf of the Group through the CRC’s nationwide settlement systems.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER 20142016

(All amounts expressed in Renminbi unless otherwise stated)

 

3938TRANSACTIONS WITH CRC AND OTHER RAILWAY COMPANY (CONTINUED)

 

(c)Balances due from/to CRC Group:

 

  As at 31 December   As at 31 December 
  2013   2014   2015   2016 
  RMB’000   RMB’000   RMB’000   RMB’000 

Due from CRC Group

        

- Trade receivables

   667,800     643,182     897,030    1,443,272 

- Other receivables

   1,452     9,411     6,700    4,672 
  

 

   

 

   

 

   

 

 

Due to CRC Group

    

- Trade payables

 150,292   37,843     62,709    65,496 

- Other payables

 321   294     19,968    15,901 
  

 

   

 

   

 

   

 

 

As at 31 December 2016, all the balances maintained with CRC Group were unsecured,non-interest bearing and were repayable on demand.

 

4039SUBSEQUENT EVENTS

Save as already disclosed in the notes to the financial statements, the Group had no other significant subsequent event.

 

F-79F-78