As filed with the Securities and Exchange Commission on April 27, 201625, 2018

 

 

 

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, 20152017

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:number: 1-14362

 

 

 

LOGOLOGO

(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, Luohu District, Shenzhen, People’s Republic of China 518010

(Address of Principal Executive Offices)

Mr. Guo Xiangdong

Telephone:Telephone: (86-755)2558-8150

Email: ir@gsrc.com

Facsimile:Facsimile: (86-755)2559-1480

No. 1052 Heping Road, Luohu District, 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

 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, 2015:2017:

 

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 125,058,600103,311,450 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, or anon-accelerated filer.filer, or an emerging growth company. See definitiondefinitions of “large accelerated filer,” “accelerated filer, and large accelerated filer”“emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filerx  ☒  Accelerated Filer  ☐  ¨Non-Accelerated File  ☐  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 Board  x

 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 

PART I

   34 

ITEM 1.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

   34 

ITEM 2.

 

OFFER STATISTICS AND EXPECTED TIMETABLE

   34 

ITEM 3.

 

KEY INFORMATION

   34 

A.

 

Selected Financial Data

   34 

B.

 

Capitalization and Indebtedness

   7 

C.

 

Reasons for the Offer and Use of Proceeds

   7 

D.

 

Risk Factors

   7 

ITEM 4.

 

INFORMATION ON THE COMPANY

   1615 

A.

 

History and Development of the Company

   1615 

B.

 

Business Overview

   2019 

C.

 

Organizational Structure

   3128 

D.

 

Property, Plant and Equipment

   3129 

ITEM 4A.

 

UNRESOLVED STAFF COMMENTS

   3230 

ITEM 5.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

   3230 

A.

 

Operating Results

   3330 

B.

 

Liquidity and Capital Resources

   4943 

C.

 

Research and Development, Patents and Licenses, etc.etc

   5145 

D.

 

Trend Information

   5145 

E.

 

Off-Balance Sheet Arrangements

   5246 

F.

 

Tabular Disclosure of Contractual Obligations

   5246 

G.

 

Safe Harbor

   5346 

ITEM 6.

 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

   5347 

A.

 

Directors and Senior Management

47

B.

Compensation

   53 

B.C.

 

CompensationBoard Practices

   60

C.

Board Practices

6154 

D.

 

Employees

   6456 

E.

 

Share Ownership

   6557 

ITEM 7.

 

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

57

A.

Major Shareholders

57

B.

Related Party Transactions

58

C.

Interests of Experts and Counsel

65

i


TABLE OF CONTENTS

(continued)

Page

ITEM 8.

FINANCIAL INFORMATION   65 

A.

 

Major ShareholdersConsolidated Statements and Other Financial Information

   65 

B.

 

Related Party TransactionsSignificant Changes

   66

C.

Interests of Experts and Counsel

75 

ITEM 8.9.

 

FINANCIAL INFORMATIONTHE OFFER AND LISTING

   7566 

A.

 

Consolidated StatementsOffer and Other Financial InformationListing Details

   75

A.7

Legal Proceedings

75

A.8

Dividend Distributions

7666 

B.

 

Significant ChangesPlan of Distribution

   76


ITEM 9.

THE OFFER AND LISTING76

A.

Offer and Listing Details

76

B.

Plan of Distribution

7867 

C.

 

Markets

   7867 

D.

 

Selling Shareholders

   7867 

E.

 

Dilution

   7867 

F.

 

Expenses of the Issue

   7867 

ITEM 10.

 

ADDITIONAL INFORMATION

   7867 

A.

 

Share Capital

   7868 

B.

 

Memorandum and Articles of Association

   7968 

C.

 

Material Contracts

   8776 

D.

 

Exchange Controls

   8776 

E.

 

Taxation

   8776 

F.

 

Dividends and Paying Agents

   9584 

G.

 

Statement by Experts

   9584 

H.

 

Documents on Display

   9584 

I.

 

Subsidiary Information

   9684 

ITEM 11.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   9684 

ITEM 12.

 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

   9786 

A.

 

Debt Securities

   9786 

B.

 

Warrants and Rights

   9786 

C.

 

Other Securities

   9786 

D.

 

American Depositary Shares

   9886 

PART II

   9987 

ITEM 13.

 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

   9987 

ITEM 14.

 

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

   9987 

ITEM 15.

 

CONTROLS AND PROCEDURES

   9987 

ITEM 16.

    10088 

ITEM 16A.

 

AUDIT COMMITTEE FINANCIAL EXPERT

   10088 

ITEM 16B.

 

CODE OF ETHICS

   10088 

ITEM 16C.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

   10188 

ITEM 16D.

 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

   10189

ii


TABLE OF CONTENTS

(continued)

Page 

ITEM 16E.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

   10189 

ITEM 16F.

 

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

   10189 

ITEM 16G.

 

CORPORATE GOVERNANCE

   10290 

ITEM 16H.

 

MINE SAFETY DISCLOSURE

   10290 

PART III

   10291 

ITEM 17.

 

FINANCIAL STATEMENTS

   10291 

ITEM 18.

 

FINANCIAL STATEMENTS

   10291 

ITEM 19.

 

EXHIBITS

   10291 

iii


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 RMB6.4778RMB6.5063 to US$1.00, the certified exchange rate for December 31, 201529, 2017 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, 20112012 through April 20, 2016.13, 2018.

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

 

A.Selected Financial Data

The following selected consolidated data relating to our Consolidated Balance Sheets as of December 31, 20142016 and 2015,2017, 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, 2013, 20142015, 2016 and 20152017 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, 2011, 20122013, 2014 and 20132015 and our Consolidated Income Statements, Consolidated Statements of Changes in Equity and Consolidated Cash Flow Statements for each of the years ended December 31, 20112013 and 20122014 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,   Year ended December 31, 
  2011 2012 2013 2014 2015   2013 2014 2015 2016 2017 
  RMB RMB RMB RMB RMB US$(1)   RMB RMB RMB RMB RMB US$ 
  (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

   8,026,512    7,841,091    8,058,291    6,988,288    6,997,562    1,080,237     8,058,291  6,988,288  6,997,562  7,358,851  7,757,077  1,192,241 

- Freight transportation

   1,386,753    1,344,113    1,603,288    1,763,679    1,761,449    271,921     1,603,288  1,763,679  1,761,449  1,718,260  1,893,594  291,040 

- Railway network usage and other transportation related services

   4,255,996    4,890,640    5,034,676    5,031,241    5,874,727    906,902     5,034,676  5,031,241  5,874,727  7,093,198  7,644,230  1,174,897 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Subtotal

   13,669,261    14,075,844    14,696,255    13,783,208    14,633,738    2,259,060     14,696,255  13,783,208  14,633,738  16,170,309  17,294,901  2,658,178 

Revenue from other businesses

   1,021,574    1,016,042    1,104,422    1,017,573    1,091,571    168,509     1,104,422  1,017,573  1,091,571  1,110,195  1,036,521  159,310 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total revenue

   14,690,835    15,091,886    15,800,677    14,800,781    15,725,309    2,427,569     15,800,677  14,800,781  15,725,309  17,280,504  18,331,422  2,817,488 

Railroad and Related business operating expenses

   (11,123,133  (12,263,021  (12,878,816  (12,729,828  (13,150,405  (2,030,072   (12,878,816 (12,729,828 (13,150,405 (14,561,793 (15,850,056 (2,436,109

Other businesses operating expenses

   (977,868  (966,377  (1,048,553  (1,022,133  (1,006,330  (155,351   (1,048,553 (1,022,133 (1,006,330 (1,076,206 (1,082,531 (166,382
  

 

  

 

  

 

  

 

  

 

  

 

 

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

   (25,786  71,815    14,903    7,138    (114,627  (17,695
  

 

  

 

  

 

  

 

  

 

  

 

 

Othergains/(losses)-net

   14,903  7,138  (114,627 (108,270 (48,477 (7,451

Operating profit

   2,564,048    1,934,303    1,888,211    1,055,958    1,453,947    224,451     1,888,211  1,055,958  1,453,947  1,534,235  1,350,358  207,546 

Profit attributable to equity holders of the Company

   1,804,107    1,318,938    1,273,841    662,021    1,070,822    165,306     1,273,841  662,021  1,070,822  1,158,253  1,015,361  156,058 

Operating profit per share

   0.36    0.27    0.27    0.15    0.21    0.03     0.27  0.15  0.21  0.22  0.19  0.03 

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

              

- Basic and diluted

   0.25    0.19    0.18    0.09    0.15    0.02     0.18  0.09  0.15  0.16  0.14  0.02 

Dividends declared per share

   0.10    0.08    0.08    0.05    0.08    0.01     0.08  0.05  0.08  0.08  0.08  0.01 

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

   12.73    9.31    8.99    4.67    7.56    1.17     8.99  4.67  7.56  8.18  7.17  1.10 

Balance Sheet Data (at year end):

       

Working capital

   648,201  1,011,115  1,338,889  830,610  892,911  137,238 

Fixedassets-net

   24,302,653  24,179,210  24,073,759  24,278,032  23,617,138  3,629,888 

Leasehold land payments

   657,593  668,005  948,526  1,624,859  1,980,278  304,363 
  

 

  

 

  

 

  

 

  

 

  

 

 

Total assets

   33,231,989  30,536,663  31,943,272  32,870,258  33,994,238  5,224,819 

Equity attributable to equity holders of the Company

   26,650,544  26,745,843  27,462,488  28,054,058  28,684,677  4,408,754 

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  868,733 

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

Balance Sheet Data (at year end):

       

Working capital

   3,064,855    3,254,818    648,201    1,011,115    1,338,889    206,689  

Fixed assets-net

   23,987,080    24,524,248    24,302,653    24,179,210    24,073,759    3,716,350  

Leasehold land payments

   544,403    528,296    657,593    668,005    948,526    146,427  

Total assets

   32,207,347    32,867,182    33,231,989    30,536,663    31,943,272    4,931,191  

Equity attributable to equity holders of the Company

   25,334,606    25,945,190    26,650,544    26,745,843    27,462,488    4,239,478  

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    872,555  

H shares

   1,431,300    1,431,300    1,431,300    1,431,300    1,431,300    220,955  

Cash Flow Statement Data:

       

Net cash generated from operating activities

   3,329,058    2,177,673    1,883,411    1,945,576    2,259,691    348,836  

Net cash used in investing activities

   (3,983,623  (2,160,895  (1,572,961  3,373,821    (1,349,235  (208,286

Net cash (used in) /generated from financing activities

   (637,736  (708,522  (572,785  (4,067,018  (354,710  (54,758

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

   (943,390  (1,836,154  (1,376,601  (999,633  (1,292,273  (199,492

Dividends paid to the Company’s shareholders

   (637,533  (708,354  (566,680  (566,685  (354,177  (54,676

Other Data:

       

Railroad transportation operating income

   2,546,128    1,812,823    1,817,439    1,053,380    1,483,333    228,988  

Other businesses operating income

   43,706    49,665    55,869    (4,560  85,241    13,158  
   Year ended December 31, 
   2013  2014  2015  2016  2017 
   RMB  RMB  RMB  RMB  RMB  US$ 
   (in thousands except for per share/ADS data) 

H shares

   1,431,300   1,431,300   1,431,300   1,431,300   1,431,300   219,987 

Cash Flow Statement Data:

       

Net cash generated from operating activities

   1,883,411   1,945,576   2,259,691   1,641,238   2,634,839   404,967 

Net cash used in investing activities

   (1,572,961  3,373,821   (1,349,235  (1,935,702  (2,264,647  (348,070

Net cash used in financing activities

   (572,785  (4,067,018  (354,710  (566,683  (569,333  (87,504

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

   (1,376,601  (999,633  (1,292,273  (1,973,897  (2,273,426  (349,419

Dividends paid to the Company’s shareholders

   (566,680  (566,685  (354,177  (566,683  (569,333  (87,504

Other Data:

       

Railroad transportation operating income

   1,817,439   1,053,380   1,483,333   1,608,516   1,444,845   222,069 

Other businesses operating income/loss

   55,869   (4,560  85,241   33,989   (46,010  (7,072

 

(1)Translation of amounts from RMB into US$, for the convenience of the reader has been made at RMB6.4778RMB6.5063 to US$1.00, the certified exchange rate for December 31, 201529, 2017 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, 201529, 2017 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 = RMB6.4778,RMB6.5063, the certified exchange rate for December 31, 201529, 2017 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 = RMB6.4675RMB6.2725 on April 20, 2016.13, 2018.

The following table sets forth information for the daily RMB noon buyingper U.S. Dollar daily exchange rate in New York City for cable transfersthe periods indicated as certified for customs purposesset forth by the Federal Reserve BankBoard of New York for the periods indicated:United States in its weekly version of the H.10 release:

 

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

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  

2015

   6.4778     6.2869     6.1870     6.4896  

October 2015

   6.3180     6.3505     6.3180     6.3591  

November 2015

   6.3883     6.3640     6.3180     6.3945  

December 2015

   6.4778     6.4491     6.3883     6.4896  

2016

        

January 2016

   6.5752     6.5726     6.5219     6.5932  

February 2016

   6.5525     6.5501     6.5154     6.5795  

March 2016

   6.4480     6.5051     6.4480     6.5500  

April 2016 (through April 20, 2016)

   6.4675     6.4701     6.4571     6.4810  
   Renminbi per U.S. Dollar Daily Exchange Rate 
   Period End   Average(1)   Low   High 

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 

2017

        

October 2017

   6.6328    6.6254    6.5712    6.6533 

November 2017

   6.6090    6.6200    6.5967    6.6385 

December 2017

   6.5063    6.5932    6.5063    6.6210 

2018

        

January 2018

   6.3199    6.4302    6.3189    6.5263 

February 2018

   6.3280    6.3183    6.2649    6.3471 

March 2018

   6.2726    6.3174    6.2685    6.3565 

April 2018 (through April 13, 2018)

   6.2725    6.2889    6.2655    6.3045 

 

(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 29, 2016,28, 2018, the directors proposed a final dividend of RMB0.08 per ordinary share for the year ended December 31, 2015,2017, which is to be voted up on at our annual general meeting of shareholders scheduled on May 26, 2016.June 6, 2018.

This proposed dividend has not been reflected as a dividend payable in the financial statements as of December 31, 2015,2017, 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. AlthoughRecent 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. In particular, we experienced successive decreased freight volume in 2013, 2014 and 2015, 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 railwaysuncertainty for the passenger and freight transportation business.multi-national companies. 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.

Rising threats of international tariffs, including tariffs applied to goods traded between the United States and China, could materially and adversely affect the Chinese economy and our business.

In the beginning of 2018, there has been an increasing rhetoric, in some cases coupled with action, from several U.S. and foreign leaders about the possibility of instituting tariffs against foreign imports of certain materials. More specifically, in March and April of 2018, the U.S. and China have applied tariffs to each other’s exports. The institution of trade tariffs both globally and between the U.S. and China specifically carries the risk of negatively impacting China’s overall economic condition, which could have negative repercussions on the Company. Furthermore, imposition of tariffs could cause a decrease in freight traffic, which would directly impact our business.

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 PRC National Development and Reform Commission of the PRC (the “NDRC”) approved the construction of a “four horizontal and four vertical” high-speedhighspeed 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. TheGuangzhou- Shenzhen section of theGuangzhou-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, theNanning-Guangzhou andGuiyang-Guangzhou passenger lines commenced operation in December 2014, theGuangzhou-Foshan-Zhaoqing Intercity passenger line and the new section from Changping East Station to Xiaojinkou Station of theDongguan-Huizhou Intercity passenger line commenced operation in March 2016. As a result, the number of passengers using our 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 ourGuangzhou-Shenzhen intercity train and long-distance train services in the future (as we did from 2015 to 2016), 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 freight volume and revenue in 2015, partially due to the slowdown of GDP growth and the adjustment of the economic structure in the Pearl River Delta Region, which resulted in decreased freight volume transported by rail. 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 China Railway Nanning Railway Bureau. UponBureau Group Company. The Reform was completed on January 1, 2017 and as a result thereof, the completion of the transfer, the de facto controlactual controlling entity of our Company’s largest shareholder was transferred to China Railway Corporation. Currently, we are inbecame 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, thereCRC. There may be uncertainty in the division of functions with the MOR or the entities previously controlled or owned by it 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 12 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 13 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 in 2008 and 2009 and from 2012 to 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 2013, 20142015, 2016, and 2015,2017, we paid approximately RMB675.2RMB599.3 million, RMB585.8RMB599.2 million, and RMB599.3RMB520.2 million, respectively, in electricity charges. Accordingly, significantSignificant 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 assuminghave assumed 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, 2015,2017, 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 2015,2017, our environmentalprotection-related expenses were approximately RMB52.8RMB1.47 million, mainly related to constructionthe landscaping of fixed suction sewage facilities in railway stationsour railroad and office areas and environmental improvement of Shaoguan Training Base.fees.

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 finallyultimately 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 36 and 37Note 38 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 finallyultimately 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, 2013, 20142015, 2016 and 2015,2017, 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

RisksRelating 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 itsdecade-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 five the Big FourPRC-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 five the Big FourPRC-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 certainPRC-based companies that are publicly traded in the United States and which areStates. On January 22, 2014, the subjectadministrative law judge presiding over the matter rendered an initial decision that each of certain ongoing SEC investigations. We were not and are not the subjectfirms had violated the SEC’s rules of any SEC investigations nor are we involved in the proceedings broughtpractice 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 thefailing to produce audit of our company) losing, temporarily or permanently, the abilitywork papers to practice before the SEC.

In January 2014, anThe initial administrative law decision was issued, censuring these accountingcensured each of the firms and suspending four of these firmsbarred them from practicing before the SEC for a period of six months. The Big FourPRC-based accounting firms appealed the administrative law judge’s initial decision was neither final nor legally effectiveto the SEC. The administrative law judge’s decision does not take effect unless and until reviewed and approvedit is endorsed by the SEC. In February 2014,2015, the four of these PRC-basedChina-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-based accounting firms 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.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 twentytwenty-one years. Our legal name isLOGOLOGO , and its English translation is Guangshen Railway Company Limited. Our registered office is located at No. 1052 Heping Road, Luohu District, 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 thethe Shenzhen-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 onlyone of the main railway channelchannels 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, 2015, we operated 2392017, there were 251 pairs of passenger trains each day,in our operation area according to the then train schedule, including 105107 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including 1997 pairs of inter-city trains between Guangzhou East to Shenzhen (including22 stand-by pairs), pairs)10 pairs of Guangzhou East to theChaozhou-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 121131 pairs of long-distance trains.trains (including 12 pairs ofGuangzhou-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” operating model by dispatching one pair of our domestically manufactured electric multiple units trains, known as “China RailwayHigh-Speed trains” or “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 domesticmid-to long-distance transportation, and we enjoy competitive advantages in domesticmid-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,Ganzhou-Shaoguan Railway Company Limited, Nanning-Guangzhou Railway Company Limited, and 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,” 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 asub-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 27, 2016,25, 2018, 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 Guangdong Sanmao Railway Company,GSRC, a company in which GRGC holds a 49.1% equity interest, which 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 commenced 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 withGuangzhou-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 andsea-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 andconstruction-in-progress, and prepayments for fixed assets, net of related payables. In 2013, 20142015, 2016 and 2015,2017, our total capital expenditure were RMB1,376.6RMB1,292.3 million, RMB999.6RMB1,973.9 million and RMB1,292.3RMB2,273.4 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 - PROSPECTS—B. Liquidity and Capital Resources” and “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - 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 other transportation-related services, which collectively generated 93.1%94.3% of our total revenue in 2015.2017. The remaining 6.9%5.7% of our total revenue in 20152017 mainly consisted ofon-board catering services, leasing, sales of materials and supplies, sale of goods and other businesses related to railway transportation.

In 2015, affected byDue to deepening structural reform in supply, the unfavorable factors including the slowdownsteady improvement of the macro-economy,domestic economy, the competitionaddition of cross-network EMU trains between Guangzhou East andChaozhou-Shantou between February 2016 and September 2017, and our ongoing strengthened marketing efforts in the railway passenger transportation market and a weak demand in the railway freight transportation, market, our passenger and freight transportation business continuedbounced back in 2017 following a decline in 2016. As the Company seeks to decline, which resulted in weak growth in our total revenue. We responded with a series of measurescontinue to increase ourits revenue, and reduce expenses. With the goalwe will seek to increase our revenue, we have been exploring opportunitiescapitalize on an historic opportunity presented by the extensive railway construction, proactively adapt to the policy direction of railway system reform in order to establish a steadfast foothold in the Pan Pearl River Delta, and perfect and enhance its business portfolio centered on railway passenger and freight transportation marketsand complemented by making arrangements to open three new pairsthe railway-related businesses. We will also focus on improving quality of cross-network EMU traveling between Guangzhou East and Chaozhou-Shantou, strengthening the sales capability of the Hunan-Guangdong southern express lines for freight transportation, while extending the scope of our railway operation services,innovation around management, service and adding railway operating services for Ganzhou-Shaoguan Railway Company Limited, Guiyang-Guangzhou Railway Company Limited and Nanning-Guangzhou Railway Company Limited at the same time. At the same time, we enhanced our cost controls, which helped reduce our general and non-production expenses. As a result of those measures, we were able to record slight growth in the overall operating revenue with more substantial growth in operating profit and net profit year-on-year.technology.

In 2015,2017, we achieved a passenger delivery volume of 85.485.1 million persons, representing ayear-to-year decreaseincrease of 5.3%0.3%; a tonnage of outbound freight of 48.415.9 million tons, representing ayear-to-year decrease of 6.1%3.3%; generating operating revenues of RMB15,725RMB18,331 million, representing ayear-to-year increase of 6.3%6.1%; consolidated profits attributable to equity holders of RMB1,071RMB1,015 million, representing ayear-to-year increasedecrease of 61.8%12.3%; and basic earnings per share of RMB0.15.RMB0.14.

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

 

 Year ended December 31,  Year Ended December 31, 
 2011 2012 2013 2014 2015  2013 2014 2015 2016 2017 

Passenger Transportation

          

Total passenger transportation revenue (RMB millions)

  8,026.51    7,841.09    8,058.29    6,988.29    6,997.56   8,058.29  6,988.29  6,997.56  7,358.85  7,757.08 

Total passengers (millions)

  90.83    84.60    90.96    90.11    85.37   90.96  90.11  85.37  84.90  85.13 

Total passenger-kilometers (millions)

  28,523.99    26,788.80    27,844.65    27,953.94    25,989.28   27,844.65  27,953.94  25,989.28  25,479.15  25,528.73 

Revenue per passenger-kilometer (RMB)(1)

  0.28    0.29    0.29    0.25    0.27   0.29  0.25  0.27  0.29  0.34 

Freight Transportation

          

Total freight transportation revenue (RMB millions)

  1,386.75    1,344.11    1,603.29    1,763.68    1,761.45   1,603.29  1,763.68  1,761.45  1,718.26  1,893.59 

Total freight tons (millions)

  68.70    62.67    59.56    51.56    48.44   59.56  51.56  48.44  48.60  52.34 

Revenue per ton (RMB)(2)

  20.18    21.45    26.92    34.21    36.36   26.92  34.21  36.36  35.36  36.18 

Total ton-kilometers (millions)

  15,519.10    14,620.50    13,293.83    11,435.00    10,874.30   13,293.83  11,435.00  10,874.30  10,302.05  10,700.48 

Revenue per ton-kilometer (RMB)(3)

  0.09    0.09    0.12    0.15    0.16   0.12  0.15  0.16  0.17  0.18 

Railway Network Usage and othertransportation related services(RMB millions)

  4,256.00    4,890.64    5,034.68    5,031.24    5,874.73   5,034.68  5,031.24  5,874.73  7,093.20  7,644.23 

 

(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 44.5%42.3% of our total revenue and 47.8%44.9% of our railroad and related business revenue in 2015.2017. Our passenger train services can be categorized as follows:

 

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

 

long-distance trains; and

 

Through Trains in Hong Kong.

As of December 31, 2015, we operated2017, there were a total of 239251 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 increasea decrease of 5.52 pairs from 233.5253 pairs as of December 31, 2014,2016, of which:

 

105107 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including 97 pairs) of inter-city trains between Guangzhou East to Shenzhen (including1922 stand-by pairs), pairs)and 10 pairs of Guangzhou East to theChaozhou-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

 

121131 pairs of long-distance trains, representing an increasea decrease of 5.57 pairs from 115.5138 pairs as of December 31,2014. 2016. 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; Guangzhou and Chengdu; Guangzhou and Zhaoqing; Guangzhou and Xinyi; Guangzhou and Maoming East; Zhaoqing and Wuchang; Zhaoqing and Zhangjiajie; Zhaoqing and Chenzhou and Sanya and Beijing West.terminal stations:

Departure/ Terminal Station

Terminal/Departure Station

GuangzhouBeijing West, Lhasa, Shanghai South, Xi’ning, Xi’an, Wuchang, Yantai, Chongqing North, Taizhou, Wenzhou, Zhangjiajie, Jiujiang, Chengdu, Yueyang, Chenzhou, Pingshi, Maoming, Xinyi
Guangzhou EastBeijing West, Xiamen, Shantou, Meizhou
ShenzhenBeijing West, Shanghai South, Urumqi, Qingdao, Meizhou, Zhangjiajie, Suzhou
Shenzhen EastChengdu East
Dongguan EastChengdu
ShantouChongqing North, Shenzhen West
HuizhouDazhou
SanyaBeijing 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
transportation revenue
 Total passengers Revenue per passenger  Total passenger
transportation revenue
 Total passengers Revenue per passenger 
 2013 2014 2015 2013 2014 2015 2013 2014 2015  2015 2016 2017 2015 2016 2017 2015 2016 2017 
 (RMB millions)   (millions)     (RMB)    (RMB millions) (millions) (RMB) 

Guangzhou-Shenzhen Trains

  2,415.8    2,115.1    2,224.0    37.0    36.0    35.7    65.3    58.8    62.3   2,224.0  2,413.0  2,566.4  35.7  36.2  36.9  62.3  66.7  69.6 

Hong Kong Through Trains

  498.3    526.9    510.4    3.9    3.9    3.8    127.5    135.1    134.3   510.4  528.3  523.4  3.8  3.5  3.6  134.3  150.9  145.4 

Long-distance Trains(1)

  4,560.3    3,782.5    3,883.6    50.1    50.2    45.9    N/A(1)   N/A(1)   N/A(1)  3,883.6  4,019.3  4,206.2  45.9  45.2  44.6   N/A(1)   N/A(1)  N/A 

Other Revenues from Passenger Transportation(2)

  583.9    563.8    379.6    —      —      —      —      —      —     379.6  398.4  461.1   —     —     —     —     —     —   

Combined passenger operations

  8,058.3    6,988.3    6,997.6    91.0    90.1    85.4   N/A(1)   N/A(1)   N/A(1)  6,997.6  7,358.9  7,757.1  85.4  84.9  85.1   N/A(1)   N/A(1)  N/A 

 

(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 havere-categorized Revenue from Long-distance Trains for 2012 and 2013 to reflect this change.

Guangzhou

-ShenzhenGuangzhou-Shenzhen Trains. In 2015,2017, our passenger transportation services on the trains between Guangzhou and Shenzhen accounted for 31.8%33.1% of our railroad passenger transportation revenue. As of December 31, 2015,2017, we operated 105107 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 0.89%2% from 36.036.2 million in 20142016 to 35.736.9 million in 2015.2017. The revenue from ourGuangzhou-Shenzhen trains increased by 5.2%6.4% from RMB2,115.1RMB2,413.0 million in 20142016 to RMB2,224.0RMB2,566.4 million in 2015. The decrease in passenger volume was primarily due to 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.2017. The increase in revenue ofGuangzhou-Shenzhen trains was primarily due toto: (i) the recommencement of inter-city passenger transportation business at Pinghu Railway Station since September 26, 2016, (ii) the commencement of the service of threeseven pairs of cross-network EMU trains between Guangzhou andChaozhou-Shantou on between February 1, 2015,2016 and September 2017, and the revenue from such trains is accounted for in the revenue fromGuangzhou-Shenzhen trains.

trains, (iii) the increase in ticket prices in April 2017 for Guangzhou East toChaozhou-Shantou EMU trains, which led to a revenue increase.

Hong Kong Through Trains. In 2015,2017, our passenger transportation services on Hong Kong through trains accounted for 7.3%6.7% 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 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.

In 2015,2017, the volume of passengers who traveled on the Hong Kong Through Trains decreasedincreased by 2.6%2.9% from 3.93.5 million in 20142016 to 3.83.6 million in 2015.2017. The revenue from Hong Kong Through Trains decreased by 3.1%0.1% from RMB526.9RMB528.3 million in 20142016 to RMB510.4RMB523.4 million in 2015.2017. This decreaseincrease in passenger volume andwas mainly due to the recovery of Hong Kong tourism, including more visitors from the mainland. This decrease in revenue was mainly due to the “Occupy Central” movement infalling exchange rate from RMB to Hong Kong.Kong dollars.

Domestic Long-distanceLong-distance Trains. In 2015,2017, our passenger transportation services on domestic long-distance trains accounted for 55.5%54.2% of our railroad passenger transportation revenue. As of December 31, 2015,2017, we operated on a daily basis 121131 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 2015,2017, the number of passengers traveled on our long-distance trains was 45.944.6 million, representing a decrease of 8.6%1.3% from 50.245.2 million in 2014.2016. Our revenue from long-distance trains in 20152017 was RMB3,883.6RMB4,206.2 million, compared to RMB3,782.5RMB4,019.3 million in 2014.2016. The decrease of the passenger volume of long-distance trains was primarily due to the increasing number of high-speed railways between the Pearl River- Delta Area and other major cities in China,railway’s diversion effect, which has greatly drawn away passengers from us.resulted in a continuous decrease of passenger volume of long-distance trains. The increase in revenue of long-distance trains was primarily due to the commencement of the service of one pair of long-distance trains between GuangzhouShenzhen and Ganzhou on September 30, 2014.Urumqi.

Major Stations. The following are the major train stations owned and operated by us as of December 31, 2015:2017:

 

Station

  

Location

  

Connected Railways

  

Passenger

Transportation

Business

  Total
Passengers
for 20152017
(millions)
 

Guangzhou Station

  Yuexiu District, Guangzhou  Beijing-Guangzhou Railway,Guangzhou-Maoming Railway,Guangzhou-Shenzhen Railway,Guangzhou-Foshan-Zhaoqing Intercity Railway, Line 2 and Line 5 of Guangzhou’s subway system  Long-distance trains, inter-city trains between Guangzhou and Shenzhen   26.8725.27 

Guangzhou East Station

  Tianhe District, Guangzhou  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   20.4620.97

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   19.2518.24 

Shaoguan East Station

  Shaoguan  Beijing-Guangzhou Railway  Long-distance trains   3.322.94 

Freight Transportation

Revenue from our freight transportation accounted for 11.2%10.3% of our total revenue and 12.0%10.9% of our railroad and related business revenue in 2015.2017. 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 20152017 was RMB1,761.4RMB1,893.6 million, an decreaseincrease of 0.1%10.2% from RMB1,763.7RMB1,718.3 million in 2014.2016. The total tonnage of freight we transported in 20152017 was 48.452.2 million tons, representing a decreasean increase of 6.1%7.4% from 51.648.6 million tons in 2014.2016. The decreaseincrease in freight revenuetransportation revenues and volume of freight transportationvolumes was mainly due to deepening structural reform in supply, the slowingsteady improvement of the Chinese domestic economy, in China, the structural adjustment in the Pearl River Delta regionour ongoing marketing efforts, and the heightened competition in therebound of freight transportation market in 2015.railway delivery of bulk goods such as iron ore and coal.

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 other Transportation-Related Services Business

Revenue from our railway network usage and other transportation-related services accounted for 37.4%41.7% of our total revenue and 40.1%44.2% of our railroad and related business revenue in 2015.2017. In 2015,2017, our revenue from railway network usage and other transportation-related services was RMB5,874.7RMB7,644.2 million, representing an increase of 16.8%7.8% from RMB5,031.2RMB7,093.2 million in 2014.2016. The increase in revenue from railway network usage andwas primarily due to improvements in the workload for the locomotive towing services. The increase in revenue from other transportation-relatedtransportation services was principallyprimarily due to:

an increase into improvements to the workload for the railway operation services we provided to railway companies we have been serving in the past, 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 Limitedoperations and Ganzhou-Shaoguan Railway Company Limited.passenger services.

the railway operating services we newly provided to Guiyang-Guangzhou Railway Company Limited and Nanning-Guangzhou Railway Company Limited.

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

 

  2013   2014   2015   2015   2016   2017 
  (RMB millions)   (RMB millions) 

Railway Network Usage(1)

   3,326.5     2,860.2     2,933.5     2,933.5    3,178.5    3,306.5 

Passenger transportation network usage services

   2,920.3     2,630.9     2,701.2     2,701.2    2,940.5    3,044.1 

Freight transportation network usage services

   406.2     229.3     232.3     232.3    238.0    262.4 

Other Transportation-Related Services(2)(1)

   1,708.2     2,171.0     2,941.2     2,941.2    3,914.7    4,337.7 

Railway operation services

   1,383.9     1,773.3     2,387.2     2,387.2��   2,614.3    2,850.0 

Other Services(3)(2)

   324.3     397.7     554.0     554.0    1,300.4    1,487.7 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   5,034.7     5,031.2     5,874.7     5,874.7    7,093.2    7,644.2 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)In the past, we divided the Railway Network Usage Service into locomotive traction, track usage, electric catenary (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)Other transportation-related services include provision of railway operation services and other services.
(3)(2)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%5.7% of our total revenue in 2015.2017. Our other businesses mainly consist ofon-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 RMB1,091.6RMB1,036.5 million in 2015,2017, compared to RMB1,017.6RMB1,110.2 million in 2014.2016.

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.

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-cityGuangzhou-Shenzhen inter-city trains online. As of 2015,December 31, 2017, we had a total of 173253 automatic ticket selling machines, 130149 automatic ticket inspection machines and 135214 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 bureaucompany that operates that train. The railway bureaucompany in turn pays other railway bureauscompanies 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 bureauscompanies 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 theShenzhen-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, 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 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, the 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 State Railway Bureaus (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 State Railway Bureaus (including GRGC) pay the CRC a fee for railway 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

In June 2013, the CRC implemented thedoor-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 chargedone-time on the consignor’s account and evidenced by consignment invoice, which lists all chargeable services with corresponding prices.

Since January 1, 2018, the Company has collected the whole-route freight transportation fees for the outbound freight delivered by the Company, and has paid the service fees to other railway companies providing the freight transportation service.

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 traveling passengers against other railway service providers operating within our service territory. TheGuangzhou-Shenzhen section of theGuangzhou-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 highspeed 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” 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 themedium-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, 2015,2017, we operated 137185 diesel locomotives, 73 electric locomotives, 2226 EMUs and 1,3112,410 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 2013, 20142015, 2016 and 20152017 were approximately RMB231.5RMB251.3 million, RMB269.1RMB261.9 million and RMB251.3RMB254.2 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 bureauscompanies 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 2013, 20142015, 2016 and 2015,2017, we replaced approximately 957 kilometers, 13341 kilometers and 776 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 2015,2017, we purchased approximately RMB384.3RMB455,716 million in materials and supplies from GRGC and its subsidiaries, which represented 31.4%34.8% 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 2015,2017, we collected approximately RMB2,508.9RMB3,595.96 million from GRGC and its subsidiaries, which represented 16.0%19.6% 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 2013, 20142015, 2016 and 2015,2017, we paid approximately RMB675.2RMB599.3 million, RMB585.8RMB599.2 million and RMB599.3RMB520.2 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 threecategories: 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 were assigned to the MOT and the National Railway Administration, while the commercial functions formerly performed by the MOR were 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 bureauscompanies or railway group companies regarding routings on trunk lines, allocation of transportation capacities between railway bureauscompanies or railway group companies at the connection points and allocation of freight cars to railway bureauscompanies 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 bureaucompany 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 2015,2017, our environmentalprotection-related expenses were approximately RMB52.75RMB1.47 million, mainly related to constructionthe landscaping of fixed suction sewage facilities in railway stationsour railroad and office areas and environmental improvement of Shaoguan Training Base.fees.

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.”

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.Organizational Structure

The following table lists our significant subsidiaries as of December 31, 2015:2017:

 

Name

  Country of
Incorporation
  Percentage of Interest
held by our Company

Dongguan Changsheng Enterprise Company Limited

  PRC  51%

Shenzhen Fu Yuan Enterprise Development Company Limited

  PRC  100%

Shenzhen Pinghu Qun Yi Railway Store Loading and Unloading Company Limited

  PRC  100%

Shenzhen Nantie Construction Supervision Company Limited

  PRC  76.66%

Shenzhen Railway Property Management Company Limited

  PRC  100%

Shenzhen Shenhuasheng Storage and Transportation Company Limited

  PRC  100%

Shenzhen Guangshen Railway Economic and Trade Enterprise Company Limited

  PRC  100%

Shenzhen Railway Station Passenger Services Company Limited

  PRC  100%

Guangshen Railway Station Dongqun Trade and Commerce Service Company Limited

  PRC  100%

Guangzhou Railway Huangpu Service Company Limited

  PRC  100%

Zengcheng Lihua Stock Company Limited (1)

  PRC  44.72%

In 2015, Shenzhen Guangshen Railway Travel Service Ltd, a 100% owned subsidiary of the Company, was liquidated. The financial impact of the liquidation on the consolidated financial statements of the Company is insignificant.

 

(1)(i) According to the Articles of Association of Zengcheng Lihua, the remaining shareholders are all natural persons and none of these individuals 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 in 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 over the board and the substantial financial and operating decisions of Zengcheng Lihua.

D.Property, Plant and Equipment

We occupy a total area of approximately 41.1 million square meters, among which, we own the land use right of approximately 13.1 million square meters on which our buildings and facilities ofGuangzhou-Shenzhen railway are located, 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 20312027 and 2055. Pursuant to relevant PRC regulations currently in effect, these2047. We 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, 2015,2017, we had not obtained the land use right certificates, or Land Certificates, of certain parcels of land with an aggregate area of approximately 1,928,603 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, 2015,2017, we had not obtained the ownership certificates of certain buildings, or Building Ownership Certificates, which had an aggregate carrying value of approximately RMB1,753.3RMB1,858.3 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 27, 2016,25, 2018, we had 48 stations situated on our rail line, of which the Guangzhou East Station is the largest, occupying an area of 41,925 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 IASB.

Overview

Our principal businesses are railroad passenger and freight transportation as well as railway network usage and other 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 other 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, 2015,2017, our total revenue was RMB15,725.3RMB18,331.4 million, profit attributable to equity holders was RMB1,070.8RMB1,015.4 million, and earnings per share were RMB0.15.RMB0.14. Railroad and related business revenue accounted for 93.0%93.1%, 93.1%93.6% and 93.1%94.3% of our total revenue in 2013, 20142015, 2016 and 2015,2017, respectively.

Passenger transportation is our principal business. In 2015,2017, the total number of our passengers was 85.485.1 million, representing a decreasean increase of 5.3%0.3% from 90.184.9 million in 2014.2016. Our passenger transportation revenue was RMB6,997.6RMB7,757.1 million in 2015,2017, representing an increase of 0.1%5.4% from RMB6,988.3RMB7,358.9 million in 2014.2016.

We transported a total of 48.452.2 million tons of freight in 2015,2017, representing a decreasean increase of 6.1%7.5% from 51.648.6 million tons in 2014.2016. Our freight transportation revenue in 20152017 was RMB1,761.4RMB1,893.6 million, representing a decreasean increase of 0.1%10.2% from RMB1,763.7RMB1,718.3 million in 2014.2016.

Revenue from our railway network usages and other transportation related services business was RMB5,874.7RMB7,644.2 million in 2015,2017, representing an increase of 16.8%7.8% from RMB5,031.2RMB7,093.2 million in 2014.2016.

Revenue from our other businesses was RMB1,091.6RMB1,036.5 million in 2015,2017, compared to RMB1,017.6RMB1,110.2 million in 2014.2016.

 

A.Operating Results

Principal Factors Affecting Our Results of Operations

Economic Development in the Pearl River Delta Region and the 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 is large-volume,large-volume,medium-to 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 global financial crisis and economic downturn in 2008 had adversely affected economies and businesses around the world, including in China. 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. For example, we experienced2017 saw a decreasestrong trend of steady and favorable growth in China’s economy, in which a rebound in GDP growth rate occurred for the volumefirst time since 2011, representing ayear-on-year increase of 6.9%. It was also the first time that the GDP exceeded RMB80 trillion, reaching RMB82.71 trillion. Meanwhile, the national railway showed solid improvements both in its passenger and freight transportation, partially duewith its passenger delivery volume reaching 3.039 billion people over the course of the year, ayear-on-year increase of 9.6%, and outbound freight tonnage of 2.918 billion tons, ayear-on-year increase of 10.1%. Given this sound macroeconomic environment, we were able to the slowdown of China’s economic growthadhere to and a shift in the Pearl River Delta economy towards technology businesses, which require less freightachieve business objectives while upholding our working theme to be transported by rail.“strengthen foundation, obtain achievement, improve quality and raise efficiency”.

Competitive Pressure from other Railway Operators and other Means of Transportation.Sales 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 theGuangzhou-Shenzhen section of theGuangzhou-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 theGuangzhou-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.

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.We 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, 20152017 compared with year ended December 31, 20142016

Revenue

In 2015,2017, our total revenue was RMB15,725.3RMB18,331.4 million, representing an increase of 6.2%6.1% from RMB14,800.8RMB17,280.5 million in 2014.2016. Our revenue from railroad passenger transportation service, freight transportation service and railway network usage and other transportation related services was RMB6,997.6RMB7,757.1 million, RMB1,761.4RMB1,893.6 million and RMB5,874.7RMB7,644.2 million, respectively, accounting for approximately 44.5%,11.2%42.3%, 10.3% and 37.4%41.7% of our total revenue in 2015,2017, respectively.

Passenger transportation.transportation. Revenue from passenger transportation accounted for 44.5%42.3% of our total revenue and 47.8%44.9% of our railroad and related business revenue in 2015.2017. As of December 31, 2015,2017, we operated 239251 pairs of passenger trains each day, including 105107 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including 1997 pairs of inter-city trains between Guangzhou East to Shenzhen (including22 stand-by pairs), 10 pairs of Guangzhou East to theChaozhou-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 121131 pairs of long-distance trains.trains (including 12 pairs ofGuangzhou-Foshan-Zhaoqing intercity trains, 3 pairs of Guangzhou to Guilin North, NaningEast and Guiyang North cross-network EMU trains).

In 2015,2017, the total number of our passengers was 85.485.1 million, representing an increase of 0.3% from 84.9 million in 2016. Our passenger transportation revenue was RMB7,757.1 million in 2017, representing an increase of 5.4% from RMB7,358.9 million in 2016. The increase in passenger transportation revenues was mainly due to: (i) the Company’s addition of 2 pairs, 3 pairs and 2 pairs of cross-network EMU trains between Guangzhou East toChaozhou-Shantou on February 1, 2016, May 15, 2016 and September 21, 2017, respectively; and 1 pair of long-distance trains between Shenzhen and Urumqi and 1 pair of long-distance trains between Guangzhou and Yueyang, both of which commenced operations on May 15, 2016; (ii) the recommencement ofGuangzhou-Shenzhen inter-city passenger transportation business at Pinghu Railway Station on September 26, 2016; and (iii) the implementation of an increase in ticket prices on April 21, 2017, for the Guangzhou East toChaozhou-Shantou cross-network EMU trains. The increase in passenger volume was primarily due to the recommencement of the Guangzhou Shenzhen inter-city passenger transportation business at Pinghu Station on September 26, 2016.

The following table sets forth our revenue from passenger transportation and the number of passengers for 2016 and 2017:

   Year ended December 31,   Change from 
   2016   2017   2016 to 2017 

Revenue from passenger transportation (RMB thousands)

   7,358,851    7,757,077    5.4

Total passengers (thousands)

   84,896    85,133    0.3

Total passenger-kilometers (millions)

   25,479    25,529    0.2

Revenue per passenger-kilometer (RMB)

   0.29    0.30    3.4

Freight transportation.Revenue from our freight transportation accounted for 10.3% of our total revenue and 10.6% of our railroad and related business revenue in 2017.

Revenue from our freight transportation business in 2017 was RMB1,893.6 million, an increase of 10.2% from RMB1,718.3 million in 2016. The total tonnage of freight we transported in 2017 was 52.2 million tons, representing an increase of 7.5% from 48.6 million tons in 2016. The increase in freight transportation revenues and freight volumes was mainly due to the deepening structural reform in supply, the steady improvement of the domestic economy, our ongoing marketing efforts, and the rebound of the freight railway delivery of bulk goods such as iron ore and coal.

The following table sets forth our revenue from freight transportation and the volumes of commodities we shipped for 2016 and 2017:

           Change 
   Year ended December 31,   from 
   2016   2017   2016 to 2017 

Revenue from freight transportation (RMB thousands)

   1,718,260    1,893,594    10.2

- Revenue from outbound freight transportation

   476,505    475,849    (0.1%) 

- Revenue from inbound and pass-through transportation

   1,105,061    1,266,122    14.6

- Revenue from other freight transportation services

   136,694    151,623    10.9

Total freight tons (thousands of tons)

   48,603    52,239    7.5

- Outbound freight tonnage

   15,356    15,864    3.3

- Inbound and pass-through freight tonnage

   33,247    36,375    9.4

Revenue per ton (RMB)

   35.4    36.2    2.3

Totalton-kilometers (millions)

   10,302    10,700    3.9

Revenue perton-kilometer (RMB)

   0.17    0.18    5.9

Railway network usage and other transportation related services. Revenue from our railway network usage and other transportation related services accounted for 41.7% of our total revenue and 44.2% of our railroad and related business revenue in 2017. Railway network usage and other transportation related services mainly include locomotive traction, track usage, electric catenary, vehicle coupling and other services. Revenue from our railway network usages and other transportation related services business was RMB7,644.2 million in 2017, representing an increase of 7.8% from RMB7,093.2 million in 2016. The increase in revenue from railway network usage was primarily due to improvements in the workload for the locomotive towing services. The increase in revenue from other transportation services was primarily due to improvements to the workload for the railway operations and passenger services.

Other Businesses. Our other businesses mainly consist of the sale of materials and supplies,on-board catering services, labor services, train repair and other businesses related to railway transportation. Revenue from our other businesses was RMB1,036.5 million in 2017, representing a decrease of 6.6% from RMB1,110.2 million in 2016, primarily due to the decreases in revenue fromon-board catering services.

Operating Expenses

In 2017, our total operating expenses were RMB16,932.6 million, representing an increase of 8.3% from RMB15,638.0 million in 2016.

The following table sets forth the principal operating expenses associated with our railroad and related business, as a percentage of our railroad and related business revenue for 2016 and 2017.

   Year ended December 31, 
   2016  2017 

Railroad and related business revenue (RMB millions)

   16,170.3   17,294.9 

Business tax

   0.2  0.1

Employee benefits

   35.0  36.4

Equipment leases and services

   25.9  25.3

Land use right leases

   0.3  0.3

Materials and supplies

   8.3  7.6

Repairs and facilities maintenance costs, excluding materials and supplies

   3.8  5.1

Depreciation of fixed assets

   9.2  9.4

Cargo logistics and outsourcing service charges

   1.3  1.4

Amortization of leasehold land payments

   0.2  0.2

Social services expenses

   0.1  0.0

Utility and office expenses

   0.3  0.3

Others

   5.5  5.4

Operating expenses ratio

   90.1  91.6

Railroad and related business operating margin

   9.9  8.4

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

Railway Operating Expenses.Our total railway operating expenses increased by 8.8% to RMB15,850.1 million in 2017 from RMB14,561.8 million in 2016. This increase was primarily driven by:

The increase in the number of staff for the provision of railway operations and passenger services, as well as the corresponding rise in wages in the industry, resulting in the increase of remuneration and benefits expenses.

The increase in the number of pairs of Guangzhou East to theChaozhou-Shantou cross-network EMU trains, and the commencement of operations of the long-distance trains between Shenzhen to Urumqi and between Guangzhou to Yueyang since May 15, 2016, resulting into the increase in equipment leases and services.

The company’s acquisition of part of the operating assets of GMSR and SR at the end of October 2016 and newly added fixed assets during the reporting period, which incurred the increase in the depreciation of fixed assets.

The increase in the workload of the fifth-grade maintenance of the EMU trains, resulting in the increase of the repair costs of trains.

Profit from Operations

Our profit from operations decreased by 12.0% to RMB1,350.4 million in 2017 from RMB1,534.2 million in 2016, primarily due to a rise in the cost of railway, primarily attributable to (i) an increase in the number of staff for the provision of railway operations and passenger services, as well as a corresponding rise in wages in the industry, resulting in an increase of remuneration and benefits expenses; (ii) an increase in the number of pairs of Guangzhou East toChaozhou-Shantou cross-network EMU trains, and the commencement in May 2016 of operations of the long-distance trains between Shenzhen and Urumqi and between Guangzhou and Yueyang resulting in an increase in equipment leases and services; (iii) our acquisition of part of the operating assets of Guangmeishan Railway Limited Company (“GMSR”) and Guangdong Sanmao Railway Limited Company (“SR”) in 2016 and newly added fixed assets during the reporting period, which incurred a depreciation charge; and (iv) an increase in the work required in connection with the fifth-grade maintenance of the EMU trains, resulting in an increase in repair costs.

Taxation

In 2017, according to relevant tax regulations, our subsidiaries were subject to income tax at the rate of 25%. Our income tax expense was RMB335.4 million in 2017, representing a decrease of 14.1%, compared to RMB390.3 million in 2016. The effective tax rate in 2017 of 24.9% was consistent with the effective tax rate of 25.3% in 2016.

Profit attributable to equity holders of our Company

As a result of the above, our profit attributable to equity holders of our Company decreased by 12.3% to RMB1,015.4 million in 2017 from RMB1,158.3 million in 2016.

Year ended December 31, 2016 compared with year ended December 31, 2015

Revenue

In 2016, our total revenue was RMB17,280.5 million, representing an increase of 9.9% from RMB15,725.3 million in 2015. Our revenue from railroad passenger transportation service, freight transportation service and railway network usage and other transportation related services was RMB7,358.9 million, RMB1,718.3 million and RMB7,093.2 million, respectively, accounting for approximately 42.6%, 9.9% and 41.0% of our total revenue in 2016, respectively.

Passenger transportation. Revenue from passenger transportation accounted for 42.6% of our total revenue and 45.5% of our railroad and related business revenue in 2016. As of December 31, 2016, we operated 253 pairs of passenger trains each day, including 102 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including 94 pairs of inter-city trains between Guangzhou East to Shenzhen (including 20stand-by pairs), 8 pairs of Guangzhou East to theChaozhou-Shantou cross-network EMU trains), 13 pairs of Hong Kong Through Trains (including 11 pairs of Canton-Kowloon Through Trains, 1 pair of Zhaoqing-Kowloon Through Trains and 1 pair of Beijing/Shanghai-Kowloon Through Trains) and 138 pairs of long-distance trains (including 10 pairs ofGuangzhou-Foshan-Zhaoqing intercity trains, 3 pairs of Guangzhou to Guilin North, NaningEast and Guiyang North cross-network EMU trains).

In 2016, the total number of our passengers was 84.9 million, representing a decrease of 5.3%0.6% from 90.185.4 million in 2014.2015. Our passenger transportation revenue was RMB6,997.6RMB7,358.9 million in 2015,2016, representing an increase of 0.1%5.2% from RMB6,988.3RMB6,997.6 million in 2014.2015. 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 andChaozhou-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 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” movementdecrease in mainland visitors travelling to and shopping 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 the commencement of service of one new pair of long-distance trains between Guangzhou and Ganzhou and three new pairs of cross-network EMU trains between Guangzhou East and Chaozhou-Shantou on September 30, 2014 and February 1, 2015 respectively.

The following table sets forth our revenue from passenger transportation and the number of passengers for 20142015 and 2015:2016:

 

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

Revenue from passenger transportation (RMB thousands)

   6,988,288     6,997,562     0.1   6,997,562    7,358,851    5.2

Total passengers (thousands)

   90,113     85,367     (5.3%)    85,367    84,896    (0.6%) 

Total passenger-kilometers (millions)

   27,954     25,989     (7.0%)    25,989    25,479    (2.0%) 

Revenue per passenger-kilometer (RMB)

   0.25     0.27     8.0   0.27    0.29    7.4

Freight transportation.Revenue from our freight transportation accounted for 11.2 %9.9% of our total revenue and 12.0 %10.6% of our railroad and related business revenue in 2015.2016.

Revenue from our freight transportation business in 20152016 was RMB1,761.4RMB1,718.3 million, a decrease of 0.1%2.5% from RMB1,763.7RMB1,761.4 million in 2014.2015. The total tonnage of freight we transported in 20152016 was 48.6 million tons, representing an increase of 0.3% from 48.4 million tons representing a decrease of 6.1% from 51.6 million tons in 2014.2015. The decrease in freight revenue and freight volume werewas mainly due to the decrease in outbound freight tonnage and outbound freight transportation revenue, which resulted from the slowing economy in China, the structural adjustment in the Pearl River-DeltaRiver Delta region and the heightened competition in the freight transportation market in 2015. Despite the fact that both freight revenue and total tonnage decreased between 2014 and 2015, the amount of total tonnage transported decreased at a greater rate than the decrease in total revenue; and there has been an2016. The increase in the unified nationalvolume 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 fee by RMB0.01 per ton kilometer since February 1, 2015, as a result, revenue per tonand the increased operations of southern express trains (containers, single load cargo), and freight tonnage (mainly in 2015 increased by 6.4% compared to 2014 (RMB36.4 in 2015 and RMB34.2 in 2014).containers) through each station we managed.

The following table sets forth our revenue from freight transportation and the volumes of commodities we shipped for 20142015 and 2015:2016:

 

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

Revenue from freight transportation (RMB thousands)

   1,763,679     1,761,449     (0.1%)    1,761,449    1,718,260    (2.5%) 

- Revenue from outbound freight transportation

   590,448     565,392     (4.2%)    565,392    476,505    (15.7%) 

- Revenue from inbound and pass-through transportation

   920,255     1,022,025     11.1   1,022,025    1,105,061    8.1

- Revenue from other freight transportation services

   252,976     174,032     (31.2%)    174,032    136,694    (21.5%) 

Total freight tons (thousands of tons)

   51,562     48,438     (6.1%)    48,438    48,603    0.3

- Outbound freight tonnage

   18,318     16,882     (7.8%)    16,882    15,356    (9.0%) 

- Inbound and pass-through freight tonnage

   33,244     31,556     (5.1%)    31,556    33,247    5.4

Revenue per ton (RMB)

   34.2     36.4     6.4   36.4    35.4    (2.7%) 

Total ton-kilometers (millions)

   11,435     10,874     (4.9%)    10,874    10,302    (5.3%) 

Revenue per ton-kilometer (RMB)

   0.15     0.16     6.7   0.16    0.17    6.3

Railway network usage and other transportation related services.services. Revenue from our railway network usage and other transportation related services accounted for 37.4%41.0% of our total revenue and 40.1%43.9% of our railroad and related business revenue in 2015.2016. Railway network usage and other transportation related services mainly include locomotive traction, track usage, electric catenary, vehicle coupling and other services. Revenue from our railway network usages and other transportation related services business was RMB5,874.7RMB7,093.2 million in 2015,2016, representing an increase of 16.8%20.7% from RMB5,031.2RMB5,874.7 million in 2014.2015. The increase in revenue from railway network usage and other transportation related services was principally due to (i) the acquisition of locomotive assets of GSRC, which induced an increase in the usage of locomotive towing services, and an increase in the revenue from such services; (ii) an increase in the railway operation services we provided to railway companies we have been serving in the past, 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, and Ganzhou-Shaoguan Railway Company Limited, and (ii) the railway operating services we newly provided to Guiyang-Guangzhou Railway Company Limited, and Nanning-Guangzhou Railway Company Limited.Limited; and (iii) the acquisition of part of the operating assets and personnel of GRCL and GSRC, which resulted in us providing transportation service to them and adding new transportation services among Pearl River Delta cities.

Other Businesses.Businesses. Our other businesses mainly consist of the sale of materials and supplies,on-board catering services, labor services, train repair and other businesses related to railway transportation. Revenue from our other businesses was RMB1,110.2 million in 2016, representing an increase of 1.7% from RMB1,091.6 million in 2015, representing an increase of 7.3%primarily due to the increased profit we received from RMB1,017.6 milliontrain repair services and food and beverage we provided in 2014, primarily because we included fueling service for locomotives and passenger cars as other businesses in 2015, which used to be categorized as part of the principal business mentioned above before then.trains.

Operating Expenses

In 2015,2016, our total operating expenses were RMB14,156.7RMB15,638.0 million, representing an increase of 2.9%10.5% from RMB13,752.0RMB14,156.7 million in 2014.2015.

The following table sets forth the principal operating expenses associated with our railroad and related business, as a percentage of our railroad and related business revenue for 20142015 and 2015.2016.

 

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

Railroad and related business revenue (RMB millions)

   13,783.2    14,633.7     14,633.7  16,170.3 

Business tax

   0.4  0.3   0.3 0.2

Labor and benefits

   32.2  32.6

Employee benefits

   32.6 35.0

Equipment leases and services

   26.3  26.7   26.7 25.9

Land use right leases

   0.4  0.4   0.4 0.3

Materials and supplies

   9.5  8.4   8.4 8.3

Repairs and facilities maintenance costs, excluding materials and supplies

   6.6  4.9   4.9 3.8

Depreciation of fixed assets

   10.2  9.5   9.5 9.2

Cargo logistics and outsourcing service charges

   1.1 1.3

Amortization of leasehold land payments

   0.1  0.1   0.1 0.2

Social services expenses

   0.1  0.1   0.1 0.1

Utility and office expenses

   0.5  0.4   0.4 0.3

Impairment for trade and other receivables and materials and supplies

       0.4   0.4 0.0

Others

   5.9  6.1   5.0 5.5

Operating expenses ratio(1)

   92.4  89.9   89.9 90.1

Railroad and related business operating margin

   7.6  10.1   10.1 9.9

 

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

Railway Operating Expenses.Our total railway operating expenses increased by 3.3%10.7% to RMB14,561.8 million in 2016 from RMB13,150.4 million in 2015 from RMB12,729.8 million in 2014.2015. This increase 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.companies. In 2015,2016, our expenses relating to equipment leases and services amounted to RMB3,908.5RMB4,193.6 million, representing an increase of 7.7%7.3% from RMB3,629.8RMB3,908.5 million in 2014.2015. This increase was mainly due to the commencement of threefive newly added cross-network EMU pairs traveling across Guangzhou andChaozhou-Shantou the increase in leasing fees and one new pair of locomotiveslong distance trains between Shenzhen and management fees of railway operation services settled by GRGC.

Urumqi, and newly provided transportation service to GRCL and GSRC.

 

Labor and benefits.Depreciation of Fixed Assets. In 2015,2016, our labor and benefits expenses of depreciation of fixed assets amounted to RMB4,767.1RMB1,488.3 million, representing an increase of 7.3% from RMB4,441.6RMB1,387.5 million in 2014.2015. The increase was mainly due to increases in the numberacquisition of employeespart of the operating assets of GRCL and the average monthly staff cost by person.GSRC.

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 2015, our materials and supplies amounted to RMB1,224.3 million, representing a decrease of 6.5% from RMB1,310.1 million in 2014. The decrease was mainly due to the completion of certain locomotive maintenance projects in 2014 and no occurrence of similar new projects in 2015. See “ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS—B. Related Party Transactions” and Note 36 to our audited consolidated financial statements included elsewhere in this annual report.

Repairsby repairs and facilities maintenance costs, excluding materials and supplies. In 2015,2016, our repairs and facilities maintenance costs, excluding materials and supplies, amounted to RMB716.2RMB612.5 million, representing a decrease of 20.9%14.5% from RMB905.5RMB716.2 million in 2014.2015. This was mainly due to athe decrease of repairs and facilities maintenance work on locomotives and rolling stock.

costs in 2016.

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 increased by 37.7%5.5% to RMB1,534.2 million in 2016 from RMB1,453.9 million in 2015, from RMB1,056.0 million in 2014, primarily due to the increased profit we received from passenger business, railway network usage and other transportation related services and other businesses in 2015.2016.

Taxation

In 2015,2016, according to relevant tax regulations, our subsidiaries were subject to income tax at the rate of 25%. Our income tax expense was RMB388.5RMB390.3 million in 2015,2016, representing an increase of 77.0%0.5%, compared to RMB219.5RMB388.5 million in 2014. The2015. This increase was primarily due to the increase in our profit from operations.operations. The effective tax rate in 20152016 was 26.8%25.3%, representing an increasea decrease of 1.9%1.5% from 24.9%26.8% in 2014. The increase2015. This decrease was mainly due to expenses and losses incurred, which are not deductible for tax assessment purposes, andthe reversal of deferred tax asset associated withassets for the impairment loss of investmentlosses in investments in associates and other receivablereceivables recognized in prior years.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 increased by 61.8%8.2% to RMB1,158.3 million in 2016 from RMB1,070.8 million in 2015 from RMB662.0 million in 2014.

2015.

Year ended December 31, 2014 compared with year ended December 31, 2013

Revenue

In 2014, our total revenue was RMB14,800.8 million, representing a decrease of 6.3% from RMB15,800.7 million in 2013. Our revenue from railroad passenger transportation service, freight transportation service and railway network usage and other transportation related services was RMB6,988.3 million, RMB1,763.7 million and RMB5,031.2 million, respectively, accounting for approximately 47.2%, 11.9% and 34.0% of our total revenue in 2014, respectively.

Passenger transportation.Revenue from passenger transportation accounted for 47.2% of our total revenue and 50.7% of our railroad and related business revenue in 2014. As of December 31, 2014, we operated 233.5 pairs of passenger trains each day, including 105 pairs of intercity high-speed passenger trains between Guangzhou and Shenzhen (including 19stand-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 115.5 pairs of long-distance trains.

In 2014, the total number of our passengers was 90.1 million, representing a decrease of 1.0% from 91.0 million in 2013. Our passenger transportation revenue was RMB6,988.3 million in 2014, representing a decrease of 13.3% from RMB8,058.3 million in 2013. The decrease in passenger volume was primarily due to the establishment of the “four horizontal and four vertical” high-speed railway network. The increasing number of high speed railways between the Pearl River Delta Area and other major cities in Mainland China is drawing 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 the railway transportation industry on January 1, 2014. Value-added tax is a tax on top of but distinct from price. According to the relevant accounting standard in the PRC 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 in the prior 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) the decrease in passenger volume in 2014.

The following table sets forth our revenue from passenger transportation and the number of passengers for 2013 and 2014:

   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%) 

Total passenger-kilometers (millions)

   27,845     27,954     0.4

Revenue per passenger-kilometer (RMB)

   0.29     0.25     (13.8%) 

Freight transportation.Revenue from our freight transportation accounted for 11.9% of our total revenue and 12.8% of our railroad and related business revenue in 2014.

Revenue from freight transportation business in 2014 was RMB1,763.7 million, an increase of 10.0% from RMB1,603.3 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. The total tonnage of freight 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 (i) factors including the slowdown of economic growth in China and the economic shift of the industry structure towards technology-driven business in the Pearl River Delta region, which contributed to a decrease of goods volume transported via the railway network; and (ii) Guangzhou-Zhuhai Railway, which has been drawing away freight transportation demand from the Guangzhou-Shenzhen area since commencing operations.

The following table sets forth our revenue from freight transportation and the volumes of commodities we shipped for 2013 and 2014:

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

Revenue from freight transportation (RMB thousands)

   1,603,288     1,763,679     10.0

- Revenue from outbound freight transportation

   527,412     590,448     12.0

- Revenue from inbound and pass-through transportation

   904,908     920,255     1.7

- Revenue from other freight transportation services

   170,968     252,976     48.0

Total freight tons (thousands of tons)

   59,556     51,562     (13.4%) 

- Outbound freight tonnage

   20,344     18,318     (10.0%) 

- Inbound and pass-through freight tonnage

   39,212     33,244     (15.2%) 

Revenue per ton (RMB)

   26.9     34.2     27.1

Total ton-kilometers (millions)

   13,293.8     11,426.0     (14.1%) 

Revenue per ton-kilometer (RMB)

   0.12     0.15     25

Railway network usage and other transportation related services.Revenue from our railway network usage and other transportation related services accounted for 34.0% of our total revenue and 36.5% of our railroad and related business revenue in 2014. Railway network usage and other transportation related services mainly include locomotive traction, track usage, electric catenary, vehicle coupling and other services. Revenue from our railway network usages and other transportation related services business was RMB5,031.2 million in 2014, representing a decrease of 0.1% from RMB5,034.7 million in 2013. The decrease in revenue from railway network usage and other transportation related services was principally due to (i) the reduction in the revenues after November 30, 2013, when we acquired 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; (ii) the Pilot Scheme, which was implemented for 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 the PRC 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 in the prior year; and (iii) the drop in the prices for the national railway network usage services.

Other Businesses.Our 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 RMB1,017.6 million in 2014, representing a decrease of 7.9% from RMB1,104.4 million in 2013, primarily because 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.

Operating Expenses

In 2014, our total operating expenses were RMB13,752.0 million, representing a decrease of 1.3% from RMB13,927.4 million in 2013.

The following table sets forth the principal operating expenses associated with our railroad and related business, as a percentage of our railroad and related business revenue for 2013 and 2014.

   Year ended December 31, 
   2013  2014 

Railroad and related business revenue (RMB millions)

   14,696.3    13,783.2  

Business tax

   2.4  0.4

Labor and benefits

   26.8  32.2

Equipment leases and services

   28.4  26.3

Land use right leases

   0.4  0.4

Materials and supplies

   10.8  9.5

Repairs and facilities maintenance costs, excluding materials and supplies

   3.4  6.6

Depreciation of fixed assets

   9.5  10.2

Amortization of leasehold land payments

   0.1  0.1

Social services expenses

   0.5  0.1

Utility and office expenses

   0.5  0.5

Others

   5.0  5.9

Operating expenses ratio(1)

   87.6  92.4

Railroad and related business operating margin

   12.4  7.6

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

Railway Operating Expenses.Our total railway operating expenses decreased by 1.2% to RMB12,729.8 million in 2014 from RMB12,878.8 million in 2013. This decrease was driven primarily by:

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, our expenses relating to equipment leases and services amounted to RMB3,629.8 million, representing a decrease of 3.6% from RMB4,166.3 million in 2013. 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 decrease was mainly due to the implementation of the Pilot Scheme on January 1, 2014 such that the revenue from railway transportation is no longer subject to business tax.

Materials and supplies. Our materials and supplies consist of expenses for materials, fuel, water and electricity. In 2014, our materials and supplies amounted to RMB1,310.1 million, representing a decrease of 17.5% from RMB1,587.3 million in 2013. The decrease was mainly due to the implementation of the Pilot Scheme on January 1, 2014, decreased tax burden on procurement of supplies, and lowered workload on locomotive-towing services.

The decrease 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.

Repairs and facilities maintenance costs, excluding materials and supplies. In 2014, our repairs and facilities maintenance costs, excluding materials and supplies, amounted to RMB905.5 million, representing an increase of 80.5% from RMB501.7 million in 2013. This was mainly due to an increase of maintenance work on EMU, locomotives and passenger compartments.

Profit from Operations

Our profit from operations decreased by 44.1% to RMB1,056.0 million in 2014 from RMB1,888.2 million in 2013, primarily due to the extension of the Pilot Scheme to the railway transportation industry on January 1, 2014. As a result, our operating revenues shrank significantly during the reporting period as compared with the previous year, resulting in a sharp decline in profit year-on-year despite only a slight decline in operating costs.

Taxation

In 2014, 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 RMB219.5 million in 2014, representing a decrease of 49.0%, compared to RMB430.7 million in 2013. The decrease was primarily due to the decrease in our profit from operations.

Profit attributable to equity holders of our Company

As a result of the above, our profit attributable to equity holders of our Company decreased by 48.0% to RMB662.0 million in 2014 from RMB1,273.8 million in 2013.

Critical Accounting Policies and Estimates

OurThe consolidated financial statements have been prepared in accordance with IFRS.all applicable International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standards Board (“IASB”). 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 activities. Revenue is shown net of value-added tax, rebates and discounts and after eliminating our sales.sales within the Group.

We recognize revenue when the services are rendered and the amount of revenue can be reliable measured, future economic benefits will probably flow to the entity with reasonably certainty, and specific criteria have been met for each of our activities as described below. The recognition also involves use of estimates exercised by management based on historical results, takes into consideration the different type of customers, 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 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 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 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 companies 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 outbound 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 when 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 other transportation related business

Revenue from railway network usage and other transportation related business, mainly consist of network usage services (locomotive traction, track usage and electric catenary service, etc.) and railway operation services 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 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 services are rendered solely by us and they 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 business mainly consist ofon-board catering services, leasing, sales of materials, sale of goods and other businesses related to railway transportation. Revenues fromon-board catering services are recognized when the related services are rendered. Revenues from sales of materials and supplies and sale of goods are recognized when the respective materials and goods are delivered to customers. Revenue from operating lease arrangements on certain properties and locomotives is recognized on a straight-line basis over the period of the respective leases.

The subsidiaries of the Group also offer various insignificant auxiliary services to facilitate the other businesses undertaken by the Company.

Fixed assets

The railway industry is capital intensive. Under IFRS, fixed assets are initially recorded at historical cost with the balance subsequently adjusted for depreciation and 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).

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 item 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 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:

 

Buildings(Note a)

   20 to 40 years 

Track, bridges and service roads(Note aa))

   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.

Pursuant toWe will renew the term of land use rights upon their 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, we are able to apply and renew the respective leases of the land use right acquiredrenewal except for periods of more than 50 years with additional consideration to be paid.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 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.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within “other income and other gains/(losses) - 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 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 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 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 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.

Trade 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.

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 the balance sheet.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of 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 recognized immediately as an expense and is not subsequently reversed.

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

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.

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 (CGUs).Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

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 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 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 liabilities are provided on taxable temporary differences arising from 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 pay contributions to defined contribution schemes operated by the local government for employee benefits in respect of pension and unemployment. We also pay contributions to defined contribution schemes operated by Guangzhou Railway Group for employee supplementary pension benefit. We have no further payment obligations once the contributions have been paid. The contributions to the defined contribution schemes are recognized as staff costs when they are due.

 

 (b)Termination benefits

Termination benefits are payable when employment is terminated by us before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. We recognize termination benefits at 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 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.

Critical Accounting Estimates and Judgments

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 addressed below:

(a)Depreciable lives of fixed assets

The estimateImpairment of depreciable lives of fixed assets, especially tracks, bridges and service roads, was made by our Directors with reference to the following: (1) the historical usage of the assets; (2) their expected physical wear and tear; (3) results of recent durability assessment performed; (4) technical or commercial obsolescence arising from changes or improvements in production of similar fixed assets; (5) our right to renew the land use right grants and the land use right lease on which these assets are located; (6) the changes in market demand for, or legal or comparable limits imposed on, the use of such fixed assets. The useful lives and residual values for the year have been reviewed by our directors and no change was made in the current year.receivables

See “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS—A. Operating Results—Critical Accounting Policies and Estimated—Fixed Assets” 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 extended/shortened by 10%, the depreciation expenses of fixed assets for the year ended December 31, 2015 would have been decreased/increased by approximately RMB19.4 million and RMB23.7 million, respectively, compared to RMB19.1 million and RMB23.4 million in 2014, respectively.

(b)Impairment assessment of goodwill

We test annually whether goodwill has suffered any 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 CGUs have been determined based on value-in-use calculations. These calculations require the use of estimates. See Note 9 to our consolidated financial statements included elsewhere in this annual report.

(c)Impairment assessment 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 judgment, 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 assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

(d)Impairment of receivables

We make provision for impairment of receivables based on an assessment of the recoverability of trade and other receivables with reference to the extent and duration that the amount will be recovered. Provisions are applied where events or changes in 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 difference will impact the carrying amount of trade and other receivables and the impairment charge in the period in 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, 2015:2017:

Income taxes — Amendments to IAS 12;

Statement of cash flows — Amendments to IAS 7; and

Disclosure of interest in other entities — Amendment to IAS 19 on contributions from employees or third parties to defined benefit plans distinguishes between contributions that are linked to service only inIFRS 12.

The directors of the period in which they arise and those linked to service in more than one period. The amendment allows contributions that are linked to service, and do not vary with the length of employee service, to be deducted from the cost of benefits earned in the periodCompany consider that the service is provided. Contributions that are linked to service, and vary according to the length of employee service, must be spread over the service period using the same attribution method that is applied to the benefits.

Amendments from annual improvements to IFRSs – 2010 - 2012 Cycle, on IFRS 8, “Operating segments,” IAS 16, “Property, plant and equipment” and IAS 38, “Intangible assets” and IAS 24, “Related party disclosures.”

Amendments from annual improvements to IFRSs – 2011 - 2013 Cycle, on IFRS 3, “Business combinations,” IFRS 13, “Fair value measurement.”

The adoption of these amendments did not have any impact on the above new/revised standards had no significant financial effect on our consolidated financial statements.

amounts recognized in prior periods. Most of the amendments will also not affect the current or future periods.

New accounting pronouncements

The followingDetails of the new standards, amendments and interpretations have been issued as of December 31, 2015 butaccounting pronouncements are not yet effective for IFRSset out in Note 2.1.1 to our audited consolidated financial statements for the year ended December 31, 2015:included elsewhere in this annual report.

 

Effective for annual
periods beginning on

or after

Annual improvements to IFRSs 2012-2014 Cycle

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

January 1, 2016

Amendment to IAS 27 on equity method in separate financial statements

January 1, 2016

Amendments to IFRS 10 , IFRS 12 and IAS 28 on investment entities: applying the consolidation exception

January 1, 2016

IFRS15 Revenue from Contracts with Customers

January 1, 2018

IFRS 9 Financial Instruments

January 1, 2018

IFRS16 Leases

January 1, 2019

Our management is in the process of making an assessment of the impact of the above new and amended 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.

B.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 RMB2,259.7RMB2,634.8 million of net cash flow from operating activities in 2015.2017. 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 2015,2017, other than operating expenses, our cash outflow mainly related to the following:

 

capital expenditures of approximately RMB1,292.3RMB2,273.4 million, representing an increase of 29.3%15.2% from RMB999.6RMB1,973.9 million in 2014;

2016;

 

payment of dividends of approximately RMB354.7RMB569.3 million; and

 

income tax expenses of approximately RMB260.7RMB327.9 million.

Our capital expenditures for 20152017 consisted primarily of the following projects:

 

improvement of the computer interlocking system for Shaoguan East Station;

the reconstruction of automatic inter-locking equipment from the Guangzhou to Pingshi section of the Beijing-Guangzhou railway;

improvements in system adaptability for the traction power supply system from the Pingshi to Guangzhou section of the Beijing-Guangzhou railway;

fifth-grade transformation of uses for CRH1A EMU trains (10 trains);

Phase I construction of the newly built staff apartment in Shipai, Guangzhou district;

section repair, capacity expansion and renovation of the Guangzhou North vehicle section; and

reconstruction of the Guangzhou East Station to Xintang Stationsection of Guangsheng Linethe Guangshen lines III and IV; andIV.

the addition of Pinghu intercity station to Guangshen line I and II.

Funds not required for immediate use are kept inshort-term investments and bank deposits. We had cash and cash equivalents of approximately RMB2,220.8RMB1,160.5 million as of December 31, 2015.2017.

As of December 31, 2015,2017, we did not have any entrusted deposits placed with any financial institutions in the PRC and we did not engage in any trust business.

As of December 31, 2015,2017, we did not have any banking facilities.

Cash Flow

Our net cash and cash equivalents as of December 31, 2015 increased2017 decreased by approximately RMB555.7RMB199.1 million from December 31, 2014.2016. 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 2013, 20142015, 2016 and 2015,2017, and the percentage change in these items from 20142016 to 2015:2017:

 

  Year ended December 31,   Change from  2014
to 2015
   Year ended December 31,   Change from 2016
to 2017
 
  2013   2014   2015     2015   2016   2017   
  (RMB thousands)       (RMB thousands)     

Net cash generated from operating activities

   1,883,411     1,945,576     2,259,691     16.1   2,259,691    1,641,238    2,634,839    60.5

Net cash (used in)/generated from investing activities

   (1,572,961   3,373,821     (1,349,235   N/A  

Net cash used in investing activities

   (1,349,235   (1,935,702   (2,264,647   17.0

Net cash used in financing activities

   (572,785   (4,067,018   (354,710   (91.3%)    (354,710   (566,683   (569,333   0.5

Net (decrease) /increase in cash and cash equivalents

   (262,335   1,252,379     555,746     N/A  

Net (decrease)/increase in cash and cash equivalents

   555,746    (861,147   (199,141   (76.9%) 

Our net cash inflow from operating activities increased to RMB2,259.7RMB2,634.8 million in 20152017 from RMB1,945.6RMB1,641.2 million in 2014,2016, primarily due to (i) the increase of our revenue in 2015, which further increased our net cash inflow by RMB99.2of RMB614.7 million generated from a decrease of trade receivables, and (ii) the decrease of cash payments ofin income tax by RMB47.3 millionpaid in 2015 compared to 2014, and (iii) the paymentamount of RMB167.7 million interest accrued from the RMB3.5 billion bond that was repaid in December 2014 and no occurrence of new long-term debts or other interest in 2015.RMB243.8 million. Our net cash inflow from operating activities increaseddecreased to RMB1,945.6RMB 1,641.2 million in 20142016 from RMB1,883.4RMB2,259.7 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 RMB514.3 million in 2014,2015, primarily due to the Pilot Scheme, (iii) a decreaseincrease in prepayments and other receivablesrevenue of RMB15.1RMB1,555.2 million, primarily due tooffset by (i) the Pilot Scheme, (iv) a decreaseincrease of payments in employee benefits obligationsin the amount of RMB7.9RMB984.4 million and (v) interest income tax of RMB90.1 million.RMB310.9 million, and (ii) the increase in revenue of RMB1,555.2 million offsets by cash flow outflow of RMB855.7 million as a result of changes in accounts receivable and account payables.

Our net cash used in investment activities in 2015 was RMB1,349.2 million and our net cashincreased from investment activities was RMB3,373.8RMB1,935.7 million in 2014,2016 to RMB2,264.6 million in 2017, primarily due to the collection of depositincrease in purchase expenses and construction of fixed terms over three months at the end of 2015 and increase in expenses on investment of fixed assets.

Our net cash used in investment activities was RMB1,573.0increased from RMB1,349.2 million in 2013,2015 to RMB1,935.7 million in 2016, primarily due to a decreasean increase in short-term deposits with maturities more than three months.expenses on investment of certain fixed assets of GRCL and GSRC.

Our net cash used in financing activities decreasedincreased to RMB354.7RMB569.3 million in 20152017 from RMB4,067.0RMB566.7 million in 2014,2016, primarily due cash dividends paid to the repayment of the medium-term notes with face value of RMB3.5 billion at the end of 2014 and no occurrence of cash outflow for financing activities in 2015.certainnon-controlling shareholders.

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 working capital was mainly used for capital expenditures, operating expenses and payment of taxes and dividends and investments. In 2015,2017, our expenses for the purchase of fixed assets and payments forconstruction-in-progress totaled RMB1,292.3RMB2,273.4 million. In addition, we paid RMB260.7RMB327.9 million for income taxes and approximately RMB354.2RMB569.3 million for dividends.

We believe we have sufficient financial resources to meet our operational and development requirements in 2016.2018.

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 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 2016.2018. 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 2016.2018.

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. 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. Finally, the institution by some governments of new trade tariffs generally, and specifically between the United States and China, poses a potential risk to the Chinese economy and to our 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 2016,2018, we believe China remains in a strategic opportunity phase for its 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 2016,2018, 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 nooff-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, 20152017 for the periods indicated.

 

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

Contractual Obligations

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

Capital Expenditure Obligation(1)

   304,199     304,199                    1,341,055    1,341,055    —      —      —   

Operating Lease Obligations(2)

   814,000     74,000     148,000     148,000     444,000     666,000    74,000    148,000    148,000    296,000 

Total

   1,118,199     378,199     148,000     148,000     444,000     2,007,055    1,415,055    148,000    148,000    296,000 

 

(1)See Note 35(a)36(a) to our audited consolidated financial statements, “Capital Commitments”.Commitments.”
(2)See Note 35(b)36(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 20162018 will amount to approximately RMB2.27RMB2.88 billion and will consist primarily of the following projects:

 

the reconstructionExtending construction of the section from Guangzhou East Station to Xintang Station of Guangshen Line to be connected with Guangzhou-Dongguan-Shenzhen Intercity Passenger Lines;

Guanghzou North Vehicle Section;

 

the additionPurchase of Pinghu Intercity Station to Guangshen line I and II;

new EMU;

 

the additionConstruction and improvement of the Inspection Depotvideo monitoring system of Guangzhou East EMUs Operation Room;

key sections alongGuangzhou-Pingshi line andGuangzhou-Shenzhen line;

 

the improvementImprovement of railway catenary;CTC system and

train control system ofGuangzhou-Shenzhen line; and

 

the replacementConstruction of steel tracks, railroad switches and railroad switch ties.

staff apartment in Shipai, Guangzhou district.

G.Safe Harbor

See“Forward-Looking Statements.”

 

G.Safe Harbor

See “Forward-Looking Statements.”

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.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 and Mr. Chen Jianping, allAll of our directors were elected or re-elected at our annual shareholders’ general meeting held on May 29, 2014June 15, 2017 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. The business address of each of our directors is No. 1052 Heping Road, Luohu District, Shenzhen, People’s Republic of China 518010.

The table below sets forth the information relating to our directors as of April 27, 2016:25, 2018:

 

        Date First
        Elected or

Name

  Age  

Position

  Appointed  Age  

Position

  Date First
Elected or
Appointed

Wu Yong

  52  Chairman of the Board of Directors  2014  54  Chairman of the Board of Directors  2014

Shen Yi

  60  Executive Director  2008

Hu Lingling

  54  Executive Director  2016

Sun Jing

  50  Director  2012  52  Director  2012

Yu Zhiming

  57  Director  2008  59  Director  2008

Chen Jianping

  49  Director  2015  51  Director  2015

Luo Qing

  50  Executive Director  2009  53  Executive Director  2009

Chen Song

  43  Independent Non-executive Director  2014  45  IndependentNon-executive Director  2014

Jia Jianmin

  58  Independent Non-executive Director  2014  60  IndependentNon-executive Director  2014

Wang Yunting

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

Wu Yong is our Chairman. Mr. Wu holds a bachelor’s degree and is a senior engineer. Heengineer with advanced engineering remuneration. Mr. Wu started his career in July 1986, and served as the deputy bureau chief of the track divisions of Suxian, Huaibei, Fuyang and Suzhou of Bengbu BenghuSub-bureau of Shanghai Railway Bureau, the bureau chief assistant and deputy bureau chief of Benghu Sub-bureau of Shanghai Railway Bureau, 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.Bureau, the chairman and the general manager of GRGC and the deputy secretary of the party committee. Since August 2014,November 2017, he has been the chairman of GRGC and general manager of Guangzhou Railway (Corporation) Company (“GRGC”) and deputythe secretary of the party committee.

committees.

Shen YiHu Lingling is our executive Director.Director and general manager. Mr. ShenHu holds a bachelor’s degree. He has more than 30 years of experiencedegree and is an engineer. Mr. Hu started to work in the 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, Huaihuaformer Yangcheng Railway Company of GRGC and Shichang Railway Company Limited. He was athe director of the transportation department of GRGC, and the deputy general manager of GRGC. 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 ofGuangzhou-Shenzhen-Hong Kong Express Rail Link Company Limited. Mr. Hu has been serving as our Company from October 2008 to Decembergeneral manager since November 2015.

Sun Jing is ournon-executive Director. Mr. Sun holds a bachelor’s degree and a master’s degree and is a senior engineer. Before June 2004, 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. He has been served asand the deputy general manager of GRGC since May 2007.GRGC. He is currently a director and the general manager of China Railway Zhengzhou Group Limited.

Yu Zhiming is ournon-executive Director. Mr. Yu holds a bachelor’s degree and a master’s degree and is a senior accountant. He has many years of experienceMr. Yu started his career in finance. Before April 2008, heMay 1980. 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, he has beenHe is currently the director and the chief accountant of GRGC.

Chen Jianping is ournon-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 ournon-executive Director. Mr. Chen worked with the First High School of Guangzhou Railway and Locomotive Sports Association of GRGC and is working with GRGC. From 1997 to 2007, Mr. Chen 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 trade union of the mechanized line center of GRGC. 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 development center, deputy secretary of the Party Work 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. SinceFrom October 2014 to December 2017, Mr. Chen has beenwas the chief of the passenger transportation department of GRGC. Mr. Chen is currently the deputy chairman of Beijing Xinhua Airport Aeronautics Food Limited Company of the Hainan Airlines. Mr. Chen was also a Supervisor representing employee of the Company from May 2014 to May 2015.

Luo Qing is our executive Director. Mr. Luo holdsis a bachelor’s degree and a master’s degreepostgraduate at the Party School of the Communist Party of China and is a political engineer. Before April 2006,Mr. Luo has been working in the railway transportation industry since August 1981. Previously, he 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. SinceFrom May 2010 to April 2018, he has beenwas 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. He is currently the chairman of the trade union of the Company.

Chen Song is our independentnon-executive Director. Mr. Chen holds a doctorate degree in finance and investment from the Management School of SunYat-sen University, and is a certified public accountant of China and a certified internal auditor registered in the 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 SunYat-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. He currently serves asLtd, the deputy general manager and CFO of Chongqing Brewery Co., Ltd. He currently serves as a director and general manager of Chongqing Brewery Co., Ltd.

Jia Jianmin is our independentnon-executive Director. Mr. Jia holds a master’s degree and doctorate degree.degree 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 independentnon-executive Director. Mr. Wang holds a bachelor’s degree from the Medical School of Xi’an Jiaotong University and an EMBA degree.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 27, 2016.25, 2018:

 

        Date First
        Elected or

Name

  Age  

Position

  Appointed  Age  

Position

  Date First
Elected or
Appointed

Liu Mengshu

  52  Chairman of the supervisory committee.  2014  54  Chairman of the supervisory committee.  2014

Chen Shaohong

  49  Supervisor  2008  51  Supervisor  2008

Shen Jiancong

  47  Supervisor  2011  49  Supervisor  2011

Li Zhiming

  54  Supervisor  2005  57  Supervisor  2005

Zhou Shangde

  45  Supervisor  2015  47  Supervisor  2015

Song Min

  45  Supervisor  2014  47  Supervisor  2014

Liu Mengshu is chairman of our supervisory committee. Mr. Liu holds a bachelor’s degree and is an engineer. He served in the HuaihuaSub-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 the 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 beenand as the deputy secretary of CPC and the secretary of Committee for Discipline Inspection of GRGC from December 2013 to December 2017. Mr. Liu is currently a director, the deputy secretary of the party committee and the secretary of the Committee for Discipline Inspection of GRGC.

Chen Shaohong is our Supervisor. Mr. Chen holds a bachelor’s degree and is ana senior 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. Since June 2008 to July 2015, Mr. Chen has beenwas the vice-chief economist and director of corporate and legal affairs department of GRGC.

From August 2015 to December 2017, Mr. Chen was the director of the Corporate and Legal Affairs department of GRGC. He is currently the chief legal advisor and the director of the Corporate and Legal Affairs department for GRGC.

Shen Jiancong is our Supervisor. Mr. Shen holds a bachelor’s degree and is an 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 Station 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. Mr. Li holds a bachelor’s degree in economics and management from the Party School of the Communist Party of China and 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. SinceFrom April 2005 Mr. Li has beento November 2017, he was deputy chief and chief of the audit department of GRGC. He is currently the Supervisor and chief of the audit department of GRGC.

Zhou Sangde is our Supervisor and represents employees of our Company. Mr. Zhou 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 secretary of the Communist Youth League of Sungang Station (formerly known as the Shenzhen North Station), deputy chief of the organization and human resources department, director of the party committee office, and chairman of the trade union of the integrated service center of our Company. From July 2007 to March 2011, Mr. Zhou was transferred to GRGC and served as the deputy chief of the human resources office, deputy office manager and concurrently director of the reception office, and chief party secretary of the administrative office of GRGC. In March 2011, Mr. Zhou was transferred back to our Company and served as party secretary and station supervisor of Shenzhen Station. Since December 2014, Mr. Zhou has beenis currently the supervisorstation master and the deputy secretary of the Sungangparty committee for Shenzhen North Station.

Song Min is our Supervisor and represents employees of our Company. Ms. Song holds a bachelor’s degree in accounting from Lanzhou University 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 27, 2016:25, 2018:

 

        Date First
        Elected or

Name

  Age  

Position

  Appointed  Age  

Position

  Date First
Elected or
Appointed

Hu Lingling

  52  General Manager  2015  54  General Manager  2015

Mu Anyun

  55  Deputy General Manager  2009

Guo Xiangdong(1)

  50  Deputy General Manager and  2010
    Company Secretary  2004

Luo Jiancheng

  45  Deputy General Manager  2016

Guo Xiangdong

  52  

Deputy General Manager and

Company Secretary

  2010

2004

Tang Xiangdong

  47  Chief Accountant  2008  49  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.

Hu Lingling is a general manager of our Company. Mr. Hu holds a bachelor’s degree and is an engineer. Mr. Hu started his career in the railway transportation industry since 1985. From 1985 to 2003, Mr. Hu served as the deputy chief engineer and the deputy station supervisor of Shaoguan East Station (formerly known as Shaoguan Station) and the deputy general manager of a subsidiary of GRGC, and the director of the transportation department of GRGC. From July 2003 to March 2006, Mr. Hu served as the deputy general manager of GRGC and a Director of our Company. From March 2006 to February 2012, Mr. Hu worked in the global business department in the headquarters of the International Union of Railways in Paris, France. From February 2012 to December 2015, Mr. Hu served as the deputy general manager of Guangzhou-Shenzhen-Hong Kong Express Rail Link Company Limited.

Mu AnyunLuo Jiancheng is a deputy general manager of our Company. Mr. MuLuo holds a bachelor’s degree and an MBA degreeis a senior engineer. Mr. Luo served successively as the chief of the 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 is an economist. 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.manager.

Guo Xiangdong is the Deputy General Manager and secretary of the Board. Mr. Guo holds a bachelor’s degree from Central China Normal University and an 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 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. 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.

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

Sun Jing

Director of:

Guangzhou Electric Locomotive Co., Ltd.

Yu Zhiming

Chairman of the Board of Directors of:

China Railway (HK) Holdings Ltd

Chairman of the Supervisory Committee of:

Yuehai Railway Company Limited

Guangdong Guangzhou–Zhuhai Inter-city Railway Traffic Co., Ltd.

MaoZhan Railway Company Limited

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

Director of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Co., Ltd.

Shichang Railway Company Limited

Sun Jing

Director and General Manager of:

China Railway Zhengzhou Group Limited

Name

Position

Yu Zhiming

Chairman of the Board of Directors of:

China Railway (Hong Kong) Holdings Limited

Chairman of the Supervisory Committee of:

Yuehai Railway Company Limited

Guangdong Guangzhou–Zhuhai Inter-city Railway Traffic Co., Ltd.

MaoZhan Railway Company Limited

Guangdong Pearl River Delta Inter-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-speedHuai Shao Heng Railway Co., Ltd.

Qian Zhang Chang Railway Company Limited (formerly known as Hainan Eastern Ring Railway Company Limited)

Ganshao Railway Company Limited

China Railway Container Transportation Company Limited

China Railway Special Goods Transportation Company Limited

Huai Shao Heng Railway Co., Ltd.

Qian Zhang ChangSupervisor of:

Guangzhou–Zhuhai Railway Company Limited

China Railway Express Co., Ltd.

Chen Jianping

Deputy Chairman of:

Beijing Xinhua Airport Aeronautics Food Limited Company of the Hainan Airlines

Chen Song

SupervisorDirector and General Manager of:

Guangzhou–Zhuhai Railway CompanyChongqing Brewery Co., Ltd.

Jia Jianmin

Professor and Chairman of the Department of Marketing of Faculty of Business Administration and Changjiang Scholar Professor of the Ministry of Education of:

The Chinese University of Hong Kong

Wang Yunting

Chairman of the Board of Directors of:

Shaanxi Fortune Investment Limited

Chen Jianping

Liu Mengshu

  

Director of:

Hainan Railway Economic and Technological Development Corporation Company

Supervisor of:

China Railway Commemorative Ticket Company

Liu Mengshu

Chairman of Supervisory Committee of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Co., Ltd.

Chen Shaohong

  

Chairman of Supervisory Committee of:

Shichang Railway Company Limited

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

Hainan Railway Economic and TechnologicalYangcheng Industrial Development Corporation CompanyCo., Ltd.

 

Director of:

Guangmeishan Railway Company Limited

YuehaiHainan Railway Co., Ltd.

Qian Zhang Chang Railway Company Limited

Xiamen-Shenzhen Railway (Guangdong) Company Limited

Jingyue Railway Company Limited

Guangdong Shenmao Railway Company Limited

Qian Zhang Chang 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 Zhiming

Name

  

Position

Li Zhiming

Chairman of the Supervisory Committee of:

Guangzhou Tiecheng Enterprise Company Limited

Xingguangji Trade Company Limited

Guangdong Shenmao Railway Company Limited

Guangdong Tieqing International Travel Agency Co., Ltd

Director of:

Hong Kong Qiwen Company Limited

Hainan Railway Economic and Technological Development Corporation Company

Supervisor of:

Guangmeishan Railway Company Limited

Guangdong Sanmao Railway Co., Ltd.

Yuehai Railway Company Limited

Shichang Railway Company Limited

Hainan Railway Co., Ltd.

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

HuaishaohengHuai Shao Heng Railway Company LimitedCo., Ltd.

Xiamen-Shenzhen Railway (Guangdong) Company Limited

Ganzhou-Shaoguan Railway Company Limited

Guiyang-Guangzhou Railway Co., Ltd.Company Limited

Nanning-Guangzhou Railway Co., Ltd.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

Mu AnyunLuo Jiancheng

  

Director of:

Guangzhou Tiecheng Enterprise Company Limited

Shenzhen Guangshen Railway Civil Engineering Company

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. Beijing Xinhua Airport Aeronautics Food Limited Company of the Hainan Airlines is a subsidiary of HNA Group. China Railway Zhengzhou Group Limited, China Railway Container Transportation Company Limited, China Railway Special Goods Transportation Company Limited, and China Railway Express Co., Ltd., 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 Guangzhou 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 20152017 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, 20152017 is listed as follows:

 

Name

  

Position

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

Wu Yong

  Chairman of the Board of Directors   —   

Shen YiHu Lingling

  Executive Director and General Manager   388.0441.0 

Sun Jing

  Non-executive Director   —   

Yu Zhiming

  Non-executive Director   —   

Chen Jianping

  Non-executive Director   —   

Luo Qing

  Executive Director   327.0367.0 

Chen Song

  IndependentNon-executive Director   112.0 

Jia Jianmin

  IndependentNon-executive Director   135.0146.0 

Wang Yunting

  IndependentNon-executive Director   112.0 

Liu Mengshu

  Chairman of the Supervisory Committee   —   

Chen Shaohong

  Supervisor   —   

Shen Jiancong

  Supervisor   —   

Li Zhiming

  Supervisor   —   

Zhou Shangde

  Supervisor Representing Employees   331.0387.0 

Song Min

  Supervisor Representing Employees   294.0320.0 

Hu Lingling

General Manager30.0

Mu AnyunLuo Jiancheng

  Deputy General Manager   328.0365.0 

Guo Xiangdong

  Deputy General Manager, Secretary of the Board   328.0366.0 

Tang Xiangdong

  Chief Accountant   325.0366.0

 

Total:

     2,710.02,982.0 

The aggregate amount of cash remuneration paid by our Company in 20152017 to all individuals who are our directors, supervisors and senior management members was approximately RMB2.7RMB3.0 million, of which approximately RMB1.3RMB1.5 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, 20152017 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, 2015,2017, 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, 20152017 or as of December 31, 20152017 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 his/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 (except for Chen Jianping whose term is two years).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 six meetings during the year ended December 31, 2017.

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, Zhou 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.June 15, 2017. Zhou Shangde and Song Min were elected as the Supervisors of our Company as employee representatives at the employees’ congress held in 2014. Except for Zhou Shangde, whose term is two years, the2017. The term of the remaining supervisors is three years. Our supervisory committee held four meetings during the year ended December 31, 2015,2017, 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, 2015.2017. 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 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 151 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, 2017. 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, Shen Yi,Hu Lingling, Chen Song (chairman of remuneration committee), Jia Jianmin and Wang 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, 2013, 20142015, 2016 and 2015,2017, we had approximately 36,886, 37,30143,824, 44,609 and 43,82443,767 employees, respectively. The increasedecrease in the number of our employees in 20152017 was primarily due to an increasea decrease in passenger transportationelectricity and water personnel and drivingin public works personnel. The following chart sets forth the number of our employees by function as of December 31, 2015:2017:

 

Function

  Employees 

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

   10,03520,022 

Freight transportationEngineering personnel(2)(4)

   1,9335,467 

Transit operationDriving personnel(3)(5)

   6,8604,198 

EngineeringPublic works personnel(4)(6)

   5,5524,014 

DrivingElectricity personnel(5)(7)

   4,5101,932 

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

   4,5112,176 

ElectricityBuilding construction personnel(7)(9)

   1,6931,149 

Electricity and water supplies personnel(8)

2,232

Building construction personnel(9)

1,026

Various operations and other employees of subsidiaries(10)

   381125 

Technical and administrative personnel(11)

   4,8554,669 

Other employees(12)

   23615

 

Total

   43,82443,767

 

 

(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 catenary 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 2015,2017, we paid approximately RMB5,210.1RMB6,839.4 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 24 and 2728 to our audited consolidated financial statements included elsewhere in this annual report.

 

E.Share Ownership

As of April 27, 2016,25, 2018, 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 acted 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 performed direct regulatory oversight functions with respect to us, including determining and enforcing technical standards and implementing special transportation directives.

After the dissolution of MOR on March 14, 2013, the MOR’s administrative functions were transferred to the MOT and its subordinate body, the newly established State Railway Administration, whereas its commercial functions, together with its underlying assets, liabilities and staff, were transferred to the newly incorporated the CRC. Since GRGC was a railway corporation directly under the former MOR, its interests would bewere also transferred to CRC (the “Transfer”). Uponthe CRC. After 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, 2016,2018, we had 390328 record holders holding our H shares (including ADSs) and 292,780228,620 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 the date hereof:

 

Name of Shareholders

  

Type of
Shares

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

Other Public Shareholders of A shares(1)

   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 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 27, 2016,20, 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 20, 2016.18, 2018.

 

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.

   272,414,089 (L)  19.03 3.85
   10,936,000 (S)  0.76 0.15

BlackRock Global Funds

   214,747,049 (L)  15.00 3.03

FIL Limited

   171,814,000     12.00     2.43     156,872,000 (L)  10.96 2.21

BlackRock, Inc.

   237,326,538     16.58     3.35  

BlackRock Global Funds

   174,655,000     12.20     2.47  

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

As of the date 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,” 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, 2015.2017. 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

  

GRGCGuangzhou Railway Group

  Single largest shareholder

Guangzhou Railway Group YangchengYangCheng Railway Enterprise Development Company

  Subsidiary of GRGCthe single largest shareholder

Guangmeishan Railway Company LimitedGRCL

  Subsidiary of GRGCthe single largest shareholder

Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company (“GEDC”)

  Subsidiary of GRGCthe single largest shareholder

Guangzhou Railway Material Supply Company

  Subsidiary of GRGC

Guangzhou Railway Engineer Construction Enterprise Development Company

Subsidiary of GRGC

Yangcheng Construction Company of Yangcheng Railway Enterprise Development Company

Subsidiary of GRGC

Guangzhou Railway Real Estate Construction Company

Subsidiary of GRGCthe single largest shareholder

Yuehai Railway Company Limited

  Subsidiary of GRGCthe single largest shareholder

Shichang Railway Company Limited

  Subsidiary of GRGCthe single largest shareholder

Guangzhou Railway Station Service Centre

  Subsidiary of GRGCthe single largest shareholder

Changsha Railway Construction Company Limited

  Subsidiary of GRGCthe single largest shareholder

Guangdong Sanmao RailwayEnterprise Development Company Limited

  Subsidiary of GRGC

Guangzhou Qingda Transportation Company Limited

Subsidiary of GRGCthe single largest shareholder

Guangzhou Yuetie Operational Development Company

  Subsidiary of GRGCthe single largest shareholder

Guangzhou Railway Rolling Stock Works

  Subsidiary of GRGCthe single largest shareholder

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 GRGCthe single largest shareholder

Guangdong Tieqing International Travel Agency Company Limited

  Subsidiary of GRGC

Guangdong Sanmao Enterprise Development Company Limited

Subsidiary of GRGCthe single largest shareholder

Huaihua Railway Engineer Construction Company

  Subsidiary of GRGC

Lechang Anjie Railway Sleeper Company Limited

Subsidiary of GRGCthe single largest shareholder

Xiashen Railway Guangdong Company Limited

  Subsidiary of GRGCthe single largest shareholder

Ganshao Railway Company Limited

  Subsidiary of GRGC

Guangzhou Railway Economic Technology Development Corporation

Subsidiary of GRGCthe single largest shareholder

Hunan Changtie Industrial Development Co. Ltd.

  Subsidiary of GRGCthe single largest shareholder

Guangzhou Railway Real Estate Construction Company

Subsidiary of the single largest shareholder

Guangzhou Beiyang Information Technology Company Limited

Subsidiary of the single largest shareholder

Guangdong Sanmao Railway Capital Construction Company

Subsidiary of the single largest shareholder

Associates of the Group

  

Guangzhou Tiecheng Enterprise Company Limited

  

Associate of the

Group

Shenzhen Guangzhou Railway Civil Engineering CompanyShentu

  Associate of the Group

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 infrastructure and transportation equipment;

 

 (iii)railway network services (including but not limited to passenger-related services, provision of water to trains, railway track usage, locomotive traction and electricity provision and ticket sale services);communication services;

 

 (iv)railway network services (including but not limited to passenger services, water to supply in trains, use of railway lines, traction and electricity supply for locomotives and ticket services);

(v)crew services; and

 

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

 

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

 

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

 

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

 

 (iii)purchaseprocurement and salesales services of railway-relatedrailway 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 nonconnected transactions between the connected parties and independent third parties; and

 

 (i)(f)if neither comparable market prices nor prices ofnon-connected transactions are available for reference, the prices willshall be determined in accordance with applicable industry standard fees and agreed between the parties subjectupon negotiation according to the aggregate 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,   Year Ended December 31, 
 2013 2014 2015   2015   2016   2017 
 (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)

  367,745    424,743    751,956     751,956    1,425,538    1,505,348 

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

  1,255,572    1,153,630    1,180,852  

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

   1,180,852    1,400,876    1,428,752 

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

  76,480    359,740    550,168     550,168    579,253    660,847 
 

 

  

 

  

 

 
  1,699,797    1,938,113    2,482,976    

 

   

 

   

 

 
 

 

  

 

  

 

    2,482,976    3,405,667    3,594,947 

Other Businesses

         

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

  24,174    22,579    25,940     25,940    29,449    23,386 
 

 

  

 

  

 

 

Services received and purchases made

         

Railroad and Related Business

         

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

  665,189    633,382    888,903     888,903    989,778    1,048,524 

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

  1,564,499    1,436,711    1,406,962  

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

   1,406,962    1,628,336    1,720,849 

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

  56,000    53,962    55,090     55,090    55,090    57,358 
 

 

  

 

  

 

   

 

   

 

   

 

 
  2,285,688    2,124,055    2,350,955     2,350,955    2,673,204    2,826,731 
 

 

  

 

  

 

   

 

   

 

   

 

 

Other Businesses

         

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

  67,990    12,430    16,080     16,080    11,297    —   

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

  346,831    295,283    489,038     489,038    306,988    298,040 

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

  666,771    560,034    384,262     384,262    469,273    455,716 

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

  229,999    280,983    226,089     226,089    347,409    272,390 

Others

  12,889    8,729    —    
 

 

  

 

  

 

    1,115,469    1,134,967    1,026,146 
  1,324,480    1,157,459    1,115,469    

 

   

 

   

 

 
 

 

  

 

  

 

 

 

(i)The service charges are determined based on a pricing scheme set by the CRC or based on negotiation between the contracting parties with reference to the fullactual cost principle.incurred.

(ii)Such revenues/charges are determined by the CRC based on its standard charges applied on a nationwide basis.
(iii)The service charges are levied based on contract prices determined based on a “cost plus a profit margin” and explicitly agreed between both contract parties.
(iv)The prices are determined based on mutual negotiation between the contracting parties with reference to the 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 ranging 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, 
  2014   2015   2016   2017 
  (RMB thousands)   (RMB thousands) 

Trade receivables

   765,098     862,199     730,061    1,435,421 

- GRGC(i)

   260,554     96,314     229,056    132,830 

- Subsidiaries of GRGC(i)

   504,544     765,885     501,005    1,302,591 

Prepayments and other receivables

   47,733     7,788     25,961    44,329 

- GRGC

   5,399     6,011     691    3,277 

- Subsidiaries of GRGC

   37,560     1,777     25,270    41,052 

- Associates

   17,086       

Less: impairment provision(iii)

   (12,312     

Prepayments for fixed assets and construction-in-progress

   1,092     1,092     225    4,352 

- GRGC

   1,092     1,092     —      —   

- Subsidiaries of GRGC(ii)

   225    4,352 

Trade payables

   617,822     431,650     533,051    681,587 

- GRGC(i)

   119,953     24,467     61,486    61,899 

- Subsidiaries of GRGC(ii)

   433,805     366,015     432,712    619,509 

- Associates

   64,064     41,168     38,853    179 

Payables for fixed assets and construction-in-progress

   208,955     185,339     249,308    342,519 

- GRGC

   12,610     18,829     10,805    53,821 

- Subsidiaries of GRGC

   159,381     128,871     168,038    220,377 

- Associates

   36,964     37,639     70,465    68,321 

Accruals and other payables

   29,057     399,634     430,331    439,509 

- GRGC

   4,133     1,891     5,663    7,390 

- Subsidiaries of GRGC(iv)

   20,600     396,590  

- Associates(v)

   4,324     1,153  

- Subsidiaries of GRGC(iii)

   422,877    430,041 

- Associates(iv)

   1,791    2,078 

 

(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)In 2015, the Company has consolidated Zengcheng Lihua Stock Company Limited and nil balance was shown in 2015.
(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, 2015,2017, 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 2015.2017. 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 20152017 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 CRC and other railway companies

BeforeOn March 14, 2013, pursuant to the dissolutionapproved plan on State Council Institutional Reform and Transformation of Government Functions and Approval On Setting Up China Railway Company by the MOR, it wasState 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. After the dissolution of the MOR, the CRC 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 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.CRC. As of December 31, 2015,2017, 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, 
   2013   2014   2015 
   (RMB thousands) 

Provision of services and sales of goods

      

Railroad and Related Business

      

Provision of train transportation services to CRC Group(i)

   30,450     5,229     36,515  

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

   2,070,966     1,706,558     1,752,666  

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

   968,477     950,966     1,421,995  
  

 

 

   

 

 

   

 

 

 
   3,069,893     2,662,753     3,211,176  
  

 

 

   

 

 

   

 

 

 

Other Businesses

      

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

   286,265     259,470     284,348  

Sales of materials and supplies to CRC Group(iv)

   65,897     43,239     38,395  

Provision of apartment leasing services to CRC Group(iv)

   780     732     762  
  

 

 

   

 

 

   

 

 

 
   352,942     303,441     323,505  
  

 

 

   

 

 

   

 

 

 

Services received and purchases made

      

Railroad and Related Business

      

Provision of train transportation services by CRC Group(i)

   264,372     292,866     277,138  

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

   1,457,451     1,265,873     1,365,352  
  

 

 

   

 

 

   

 

 

 
   1,721,823     1,558,739     1,642,490  
  

 

 

   

 

 

   

 

 

 

Other Businesses

      

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

   68,963     28,531     2,813  

Purchase of materials and supplies from CRC Group(v)

   131,061     9,317     33,591  

Provision of construction services by CRC Group(vi)

   —       —       13,538  
  

 

 

   

 

 

   

 

 

 
   200,024     37,848     49,942  
  

 

 

   

 

 

   

 

 

 
   Year Ended December 31, 
   2015   2016   2017 
   (RMB thousands) 

Provision of services and sales of goods

      

Railroad and Related Business

      

Provision of train transportation services to CRC Group(i)

   36,515    29,794    81,396 

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

   1,752,666    1,777,640    1,877,719 

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

   1,421,995    1,628,143    1,800,692 
  

 

 

   

 

 

   

 

 

 
   3,211,176    3,425,577    3,759,807 
  

 

 

   

 

 

   

 

 

 

Other Businesses

      

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

   284,348    323,993    333,917 

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

   38,395    7,073    7,185 

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

   762    641    722 
  

 

 

   

 

 

   

 

 

 
   323,505    331,707    341,824 

Services received and purchases made

      

Railroad and Related Business

      

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

   277,138    292,754    306,208 

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

   1,365,352    1,376,047    1,395,591 
  

 

 

   

 

 

   

 

 

 
   1,642,490    1,668,801    1,701,799 
  

 

 

   

 

 

   

 

 

 

Other Businesses

      

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

   2,813    42,954    31,089 

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

   33,591    15,220    19,258 

Provision of construction services by the CRC Group(vi)

   13,538    4,385    —   
  

 

 

   

 

 

   

 

 

 
   49,942    62,559    50,347 
  

 

 

   

 

 

   

 

 

 

 

(i)The service charges are determined based on a pricing scheme set by the CRC or based on negotiation between the contracting parties with reference to the full cost principle.actual costs incurred.
(ii)Such revenues/charges are determined by the CRC based on its standard charges applied on a nationwide basis.
(iii)The service charges are levied based on contract prices determined based on a “cost plus a profit margin” and explicitly agreed between both contracting parties.
(iv)The prices are determined based on mutual negotiation between the contracting parties with reference to the 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, 
  2013   2014   2015   2015   2016   2017 
  (RMB thousands)   (RMB thousands) 

Passenger transportation

   7,740,887     6,630,629     6,642,129     6,642,129    6,960,491    7,295,985 

Freight transportation

   871,173     920,255     1,022,025     1,022,025    1,105,061    1,266,122 

Luggage and parcel

   100,884     148,863     86,199  

Other transportation related services

   86,199    86,883    112,267 
  

 

   

 

   

 

   

 

   

 

   

 

 
   8,712,944     7,699,747     7,750,353     7,750,353    8,152,435    8,674,374 
  

 

   

 

   

 

   

 

   

 

   

 

 

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, 20142016 and December 31, 2015:2017:

 

  As of December 31,   As of December 31, 
  2014   2015   2016   2017 
  (RMB thousands)   (RMB thousands) 

Due from CRC Group

    

Due from the CRC Group

    

Trade receivables

   643,182     897,030     1,443,272    1,372,631 

Other receivables

   9,411     6,700     4,672    1,207 

Due to CRC Group

    

Due to the CRC Group

    

Trade payables

   37,843     62,709     65,496    62,620 

Other payables

   294     19,968     15,901    6,413 

 

C.Interests of Experts and Counsel

Not applicable

 

ITEM 8.FINANCIAL INFORMATION

 

A.Consolidated Statements and Other Financial Information

A.1 – A.6:

See pagesF-1 toF-81F-78 following ITEM 19.

 

A.7Legal Proceedings

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 29, 2016,28, 2018, our Board of Directors proposed a final dividend distribution of RMB0.08 per share to our shareholders for the year ended December 31, 2015.2017. The final dividend payment is expected to be approved by our shareholders at our annual general meeting of shareholders to be held on May 26, 2016.June 6, 2018.

 

B.Significant Changes

Other than events already mentioned in this annual report, there have been no significant changes since December 31, 2015.2017.

 

ITEM 9.THE OFFER AND LISTING

 

A.Offer and Listing Details

Price Range of our H shares and ADSs

As of December 31, 20152017 and April 20, 2016,18, 2018, there were 1,431.3 million H shares issued and outstanding. As of December 31, 20152017 and April 20, 2016,18, 2018, there were 2,501,1722,066,229 ADSs and 2,334,4122,005,981 ADSs outstanding held by 148136 and 146136 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

        

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  

2015

   34.85     18.92     5.43     2.92  

Quarterly highs and lows

        

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  

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  

Monthly highs and lows

        

October 2015

   25.92     19.93     4.03     3.13  

November 2015

   26.46     23.96     4.12     3.62  

December 2015

   26.69     24.40     4.34     3.72  

January 2016

   24.43     20.94     3.90     3.20  

February 2016

   23.75     20.51     3.70     3.11  

March 2016

   24.05     20.65     3.71     3.15  

April 2016 (through April 20, 2016)

   24.45     21.22     3.83     3.30  
   New York Stock
Exchange
   HKSE 

Calendar Period

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

Annual highs and lows

        

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 

2017

   33.56    24.43    5.31    3.72 

   New York Stock
Exchange
   HKSE 

Calendar Period

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

Quarterly highs and lows

        

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 

First Quarter 2017

   33.18    29.96    5.17    4.63 

Second Quarter 2017

   31.60    24.43    4.97    3.72 

Third Quarter 2017

   29.65    24.78    4.69    3.85 

Fourth Quarter 2017

   33.56    26.46    5.31    4.13 

Monthly highs and lows

        

October 2017

   30.36    28.40    4.84    4.40 

November 2017

   29.15    26.46    4.57    4.13 

December 2017

   33.56    27.81    5.31    4.30 

January 2018

   37.43    33.21    5.89    5.17 

February 2018

   33.21    29.65    5.31    4.61 

March 2018

   32.93    29.49    5.25    4.58 

April 2018 (through April 18, 2018)

   29.63    27.01    4.71    4.16 

During the year ended December 31, 2015,2017, 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.Plan of Distribution

Not applicable.

 

C.Markets

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.” Our A shares are listed for trading on the Shanghai Stock Exchange under the stock code “601333.”

 

D.Selling Shareholders

Not applicable.

 

E.Dilution

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.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, 2015,2017, our issued share capital consisted of:

 

  Number of   Percentage of 
  shares   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 27, 2016,25, 2018, 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.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 onForm 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 onForm 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 was filed as an exhibit to our annual report on Form20-F with the SEC on April 27, 2017. On June 15, 2017, our shareholders passed resolutions to make additional amendments to 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.

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 for Economic Restructuring. We were registered with and obtained a business license from the Administration for Industry and 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:

 

 (1)cancellation of shares for capital reduction;

 

 (2)merging with another company that holds our shares;

 

 (3)paying shares to our employees as bonus; or

 

 (4)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.

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

 

byoff-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 anoff-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.

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 20142016 and 20152017 were made in the ordinary course of business.

 

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 itsdecade-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 2015,2017, we incurred a foreign exchange gainloss of approximately RMB3.0RMB7.3 million mainly due to the depreciation 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 RMB2.7RMB1.2 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, 2015,2017, we maintained the equivalent of approximately RMB72.1 millionRMB32.9million 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 33.1(a)(i) 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.Taxation

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 EIT Law and the implementation regulations for the EIT Law (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 could gradually transition to the tax rate provided for therein 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).

Value Added Tax

Pursuant to the Provisional Regulations of the PRC Concerning Value Added Tax effective from 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 rates 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.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 “Circular 81”) issued by the Ministry of Finance, State Tax Bureau and CSRC on October 31, 2014, which became effective November 17, 2014, a PRC company that pays dividends to a PRC individual investor, with respect to H shares listed on the HKSE through the Shanghai-Hong Kong Stock Connect, must first request from the China Securities Depository and Clearing Company Limited (hereinafter referred to as the “CSDC”) a list of PRC individual investors. The PRC company shall then withhold PRC individual income tax at a rate of 20% on payments to such individual investors. For a foreign individual who is not a resident of the PRC, the receipt of dividends from a PRC company with A shares listed on the Shanghai Stock Exchange is normally subject to PRC 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, foreignnon-resident individual shareholders receiving dividends from shares in a PRCnon-foreign-invested enterprise may be subject to PRC withholding tax at a rate of 10%, subject to reduction under an applicable tax treaty. Anon-PRC individual that is a resident of a country that has not entered into a tax treaty with the PRC or in any other case will be subject to PRC withholding 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 details of an investor’s identity and stock holding period to CSDC, must withhold PRC tax at a rate of 10%, rather than applying the exemptions based on the stock holding period discussed in the following paragraph, and should also apply for a withholding declaration from the appropriate 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. Individual PRC resident holders of A Sharesshares who have held such shares for more than one month, but not more than one year, shall temporarily include 50% of all cash and share distributions in their taxable income. 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 Circular 81, PRC enterprise investors’ dividends from investment in stocks listed on the HKSE through the Shanghai-Hong Kong Stock Connect shall be included in income and shall be subject to PRC enterprise income tax. However, a PRC enterprise investor’s dividends in respect of H shares, which have been continuously held by such investor for a period of over 12 months, shall be exempt from PRC enterprise income tax. According to the EIT Law and its 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 anon-PRC resident enterprise with no establishment or office in the PRC receives dividends from a company in the PRC, or anon-PRC resident enterprise with an establishment or office in the PRC receives dividends from a company in the PRC, and such dividends are not effectively connected with an establishment or office in the PRC, thenon-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 any PRC resident enterprise that is listed on an overseas stock exchange must withhold PRC enterprise income tax at a rate of 10% on dividends that it distributes tonon-PRC resident enterprises, subject to reduction under an applicable tax treaty.

Capital Gains Tax

For An Individual Investor.According to the Notice Concerning the Continuation of Exemption from Individual Income Tax on the Income from Stock 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 stock of listed companies are not subject to individual income tax.

After the latest amendment to the Individual Income Tax Law on June 30, 2011 and its implementation 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 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,Notice on the Continuation of the Individual Income Tax Policy of the Trading Connectivity Mechanism in the Shanghai and Hong Kong Stock Markets (Cai Shui [2017] No. 78), PRC individual investors’ gains from transferring stock of a company listed on the HKSE through the Shanghai-Hong Kong Stock Connect shall be temporarily were exempted from PRC individual income tax from November 17, 20142017 to November 16, 2017.December 4, 2019. Moreover, the gains received by individual investors from Hong Kong from transferring A shares listed on the Shanghai Stock Exchange shall bealso were temporarily exempted from income tax.

For An Enterprise.In accordance with the EIT Law and its 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 premises in the PRC or has an establishment or premises in the PRC but thePRC-sourced income is not connected with such establishment or premises in the PRC. According to Circular 81, the gains derived from transferring A shares listed on the Shanghai Stock Exchange received by Hong Kong enterprise investors through the Shanghai-Hong Kong Stock Connect shall be temporarily exempted from income tax. In addition, such gains 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, PRC 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

Fornon-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 limits the rate of PRC withholding tax upon dividends paid by our Company to a U.S. holder (as defined below under “United States“U.S. Federal Income Taxation”) who is a resident of the United States resident for purposes of theUS-PRC tax treaty to 10%. It is uncertain if theUS-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 StatesU.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 StatesU. S. expatriates;

 

tax-exempt entities;

 

certain insurance companies;

 

broker-dealers;

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. Tax legislation enacted in December 2017 (the “2017 Act”) made significant changes to the Code, many of which are open to interpretation and for which administrative guidance is not yet available. We urge you to consult with your own tax advisor as to the potential impact of the 2017 Act.

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 United StatesU.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-Unitednon-U.S. States 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-Unitednon-U.S. States tax consequences of the purchase, ownership and disposition of the H shares or 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—U.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 dividendDividends paid by us will not be eligible for thedividends-received deduction generally allowed to United StatesU.S. corporations in respect of dividends received from United States corporations.U.S. corporations unless the U.S. corporation holds stock representing at least 10% of the total voting power or a total value of all of our stock, in which case the U.S. corporation may be entitled to a 100% deduction for dividends we pay. 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—U.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-Unitednon-U.S. States 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 StatesU.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 States 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—PRCU.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, 20152017 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” 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 themarket-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.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.Subsidiary Information

Not applicable.

 

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, 20142016 and 2015.2017.

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, 20142016 and 20152017 are set forth below.

 

  As of December 31, 
  Currency          As of December 31, 
Monetary assets and liabilities  Denomination  2014   2015   Currency
Denomination
   2016   2017 
  (RMB thousands)   (RMB thousands) 

Cash and cash equivalents

  USD   —       —       USD    96    146 

Cash and cash equivalents

  HKD   62,093     72,140     HKD    115,680    32,650 

Other receivables

  HKD   93     71     HKD    66    67 

Other payables

  HKD   —       —       HKD    —      —   

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 gainloss of RMB3.0RMB7.3 million for the year ended December 31, 2015.2017. As of December 31, 2015,2017, 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 RMB72.1RMB32.9 million. If the applicable market exchange rates were to change by 5%, this would result in a change in fair value of approximately RMB2.7RMB1.2 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, 2015,2017, 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, 2015,2017, at present and in our normal course of business, we are not subject to any other material market-related risks.

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A.A.Debt Securities

Not applicable.

 

B.Warrants and Rights

Not applicable.

 

C.Other Securities

Not applicable.

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,383 Madison Avenue, Floor 11, New York, NY 10004.10179. On April 25, 2008, JPMorgan Chase Bank, N.A. signed an agreement with Wells Fargo Bank,Equiniti Trust Company, pursuant to which Wells Fargo BankEquiniti Trust Company 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 theForm 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 theForm F-6 we filed with the SEC on May 12, 2015.

Fees Payable by ADS Holders

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 administrationaggregate fee of US$0.02 per ADS per calendar year (or portion thereof), provided, however, thatfor services performed by the aggregate amountDepositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders as of the record date or record dates set by the Depositary during each calendar year and shall be payable at the sole discretion of the Depositary by billing such administration fee and theholders or by deducting such charge from one or more cash distribution fee shall not exceed US$0.02 per ADS in any calendar year;

dividends or other cash distributions);

 

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, 2015:2017:

 

Category of Expenses

  Amount (US$)

NYSE list fee

64,285.7 

Broker reimbursements

   43,121.322,912.54 

U.S. Representative FeeMiscellaneous

   3,214.312,102.75 
  

 

 

 

Total

   110,621.335,015.29 
  

 

 

 

PART II

 

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

 

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

 

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 ActRules13a-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, 2015.2017. 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 ActRules13a-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, 2015,2017 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, 2015.2017.

The effectiveness of our Company’s internal control over financial reporting as of December 31, 20152017 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, 20152017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16.

 

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. Jia 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.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 2015 have been approved at the annual general meeting of our shareholders held on May 28, 2015.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 20142016 and 2015.2017.

 

  2014   2015   2016   2017 
  (RMB millions)   (RMB millions) 

Audit Fees

   8.08     8.08     8.08    8.40 

Audit-related Fees

   —       —       —      —   

Tax Fees

   —       —       —      —   

All Other Fees

   0.33     0.25     0.19    0.95 
  

 

   

 

   

 

   

 

 

Total

   8.41     8.33     8.27    9.35 
  

 

   

 

   

 

   

 

 

Notes:

 

1.Traveling expenses and certain tax surcharge fees are included in the audit fees and do not require additional payment.
2.As of December 31, 2015,2017, 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.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

 

ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During the year ended December 31, 2015,2017, 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 year ended December 31, 2015 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 year ended December 31, 2015 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 year ended December 31, 2015 and the subsequent interim period through December 30, 2016, there were no “reportable events” (as defined in Item 16F(a)(1)(v) ofForm 20-F).

(2) New independent registered public accounting firm.

PwC China was appointed to be our independent registered public accounting firm for the years ended December 31, 2016 and December 31, 2017. During the fiscal year ended December 31, 2015 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) ofForm 20-F and the related instructions thereto, or a “reportable event”, as that term is defined in Item 16F(a)(1)(v) ofForm 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, was filed as Exhibit 16.1 to our annual report on Form20-F filed with the SEC on April 26, 2017.

(b) Not applicable.

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.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.FINANCIAL STATEMENTS

Seepages F-1 toF-81 following ITEM 19.

 

ITEM 19.EXHIBITS

 

 (a)Seepages F-1 toF-81 following this item.

 

 (b)Index of ExhibitsExhibits.

Documents filed as exhibits to this annual report:

 

Exhibit


Number

  

Description

  1.1  Amended and Restated Articles of Association
  2.1*2.1(1)  Form of Amendment toAmended and Restated 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)Group Company
  4.2ß4.2(3)  Master comprehensive services agreementsEnglish Translation of the Comprehensive Services Framework Agreement, dated October 18, 2013November  1, 2016, between Guangshen Railway Company Limited and eachChina Railway Corporation
  4.3English Translation of GRGC, Guangzhou Railway (Group)the Resumption Compensation Agreement, dated April 19, 2018, between Guangshen Railway EnterpriseCompany Limited, Guangzhou Land Development CompanyCenter, and Yangcheng Railway Companyother vendors
  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, 20152017
11.1¥(4)  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
16.1(3)Letter from PricewaterhouseCoopers to the SEC
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

 

*(1)Incorporated by reference from the Registrant’sForm F-6 filed with the SEC on May 12, 2015.
**(2)Incorporated by reference from the Registrant’s annual report onForm 20-F filed with the SEC on June 28, 2005.
ß(3)Incorporated by reference from the Registrant’s annual report on FormForm 20-F filed with the SEC on April 24, 2014.26, 2017.
¥(4)Incorporated by reference from the Registrant’s annual report onForm 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 27, 201625, 2018  

By:

 

/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, 20142016 and 20152017

   F-4F-5 

Consolidated Comprehensive Income Statements for the years ended December 31, 2013, 20142015, 2016 and 20152017

   F-5,6F-6,7 

Consolidated Cash Flow Statements for the years ended December 31, 2013, 20142015, 2016 and 20152017

   F-7F-8 

Consolidated Statements of Changes in Equity for the years ended December 31, 2013, 20142015, 2016 and 20152017

   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,Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Guangshen Railway Company Limited and its subsidiaries as of December 31, 2017 and 2016, 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, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Guangshen Railwaythe Company Limited (the “Company”) and its subsidiaries (the “Group”) atas of December 31, 20152017 and 2014,2016, and the results of their operations and their cash flows for each of the threetwo years in the period ended December 31, 2015 in2017in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the GroupCompany maintained, in all material respects, effective internal control over financial reporting as atof December 31, 2015,2017, based on criteria established inInternal Control - Control—Integrated Framework 2013 (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated 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 on Internal Control over Financial Reporting appearing under Item 15 appearing on pages 99 and 100 of the 2015 Annual Report.15. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements and on the Group’sCompany’s internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financialconsolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

PricewaterhouseCoopers Zhong Tian LLP, 11/F PricewaterhouseCoopers Center

Link Square 2, 202 Hu Bin Road, Huangpu District, Shanghai 200021, PRC

T: +86 (21) 2323 8888, F: +86 (21) 2323 8800,www.pwccn.com

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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 25, 2018

We have served as the Company’s auditor since 2016.

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 statements of comprehensive income, of cash flows, and of changes in equity for the year ended December 31, 2015 present fairly, in all material respects, the results of operations and cash flows of Guangshen Railway Company Limited (the “Company”) and its subsidiaries (the “Group”) for the year 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers

Hong Kong

April 27, 2016

PricewaterhouseCoopers, 22/F Prince’s Building, Central, Hong Kong

T: +852 2289 8888, F: +852 2810 9888,www.pwchk.com

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS AT DECEMBER 31, 20142016 AND 20152017

(Amounts in thousands)

 

     December 31       December 31 
  Note  2014   2015 2015   Note   2016 2017 2017 
     RMB   RMB US$*       RMB RMB US$* 

ASSETS

             

Non-current assets

             

Fixed assets-net

  6   24,179,210     24,073,759    3,716,350     6    24,278,032   23,617,138   3,629,888 

Construction-in-progress

  7   401,434     569,573    87,927     7    790,308   1,430,671   219,890 

Prepayments for fixed assets and construction-in-progress

     13,499     46,546    7,185       60,095   54,368   8,356 

Leasehold land payments

  8   668,005     948,526    146,427     8    1,624,859   1,980,278   304,363 

Goodwill

  9   281,255     281,255    43,418     9    281,255   281,255   43,228 

Investments in associates

  11   147,102     168,711    26,044     11    167,604   174,548   26,828 

Deferred tax assets

  12   67,584     93,249    14,395     12    79,929   37,005   5,688 

Long-term prepaid expenses

  13   22,004     14,485    2,236     13    7,824   33,401   5,134 

Available-for-sale investments

  15   53,826     53,826    8,309     15    53,826   296,414   45,558 

Long-term receivable

  16   30,197     30,804    4,755     16    31,406   31,274   4,806 
    

 

   

 

  

 

     

 

  

 

  

 

 
     25,864,116     26,280,734    4,057,046       27,375,138   27,936,352   4,293,739 
    

 

   

 

  

 

     

 

  

 

  

 

 

Current assets

             

Materials and supplies

  17   400,509     307,056    47,401     17    332,607   330,727   50,832 

Trade receivables

  18   2,313,405     2,886,066    445,531     18    3,364,366   4,142,210   636,646 

Prepayments and other receivables

  19   189,576     142,613    22,016     19    330,491   314,251   48,299 

Short-term deposits

  20   104,000     106,000    16,364     20    108,000   108,000   16,599 

Cash and cash equivalents

  20   1,665,057     2,220,803    342,833     20    1,359,656   1,160,515   178,368 

Assets classified as held for sale

     —     2,183   336 
    

 

   

 

  

 

     

 

  

 

  

 

 
     4,672,547     5,662,538    874,145       5,495,120   6,057,886   931,080 
    

 

   

 

  

 

     

 

  

 

  

 

 

Total assets

     30,536,663     31,943,272    4,931,191       32,870,258   33,994,238   5,224,819 
    

 

   

 

  

 

     

 

  

 

  

 

 

EQUITY AND LIABILITIES

             

Capital and reserves attributable to the Company’s equity holders

             

Share capital

  21   7,083,537     7,083,537    1,093,510     21    7,083,537   7,083,537   1,088,720 

Share premium

     11,562,738     11,562,738    1,784,979       11,562,738   11,562,738   1,777,160 

Other reserves

  22   2,596,783     2,708,543    418,127     22    2,825,593   3,109,516   477,924 

Retained earnings

     5,502,785     6,107,670    942,862       6,582,190   6,928,886   1,064,950 
    

 

   

 

  

 

     

 

  

 

  

 

 
     26,745,843     27,462,488    4,239,478       28,054,058   28,684,677   4,408,754 
    

 

   

 

  

 

     

 

  

 

  

 

 

Non-controlling interests

     40,617     (18,226  (2,814     (24,003  (27,596  (4,241
    

 

   

 

  

 

     

 

  

 

  

 

 

Total equity

     26,786,460     27,444,262    4,236,664       28,030,055   28,657,081   4,404,513 
    

 

   

 

  

 

     

 

  

 

  

 

 

Liabilities

             

Non-current liabilities

             

Deferred income relating to government grants

  23   88,771     103,985    16,053  

Deferred tax liabilities

  12   —       71,376    11,018     12    68,883   66,391   10,204 

Deferred income

   23    106,810   105,791   16,260 
    

 

   

 

  

 

     

 

  

 

  

 

 
     88,771     175,361    27,071       175,693   172,182   26,464 
    

 

   

 

  

 

     

 

  

 

  

 

 

Current liabilities

             

Trade payables

  25   1,438,444     1,105,291    170,628     25    1,143,523   1,325,077   203,661 

Payables for fixed assets and construction-in-progress

     1,094,814     1,425,998    220,136       1,765,185   2,214,547   340,370 

Dividends payable

     548     14,318    2,210       15,542   12,893   1,982 

Income tax payable

     157,865     313,656    48,420       121,513   149,227   22,936 

Accruals and other payables

  26   969,761     1,464,386    226,062     26    1,618,747   1,463,231   224,893 
    

 

   

 

  

 

     

 

  

 

  

 

 
     3,661,432     4,323,649    667,456       4,664,510   5,164,975   793,842 
    

 

   

 

  

 

     

 

  

 

  

 

 

Total liabilities

     3,750,203     4,499,010    694,527       4,840,203   5,337,157   820,306 
    

 

   

 

  

 

     

 

  

 

  

 

 

Total equity and liabilities

     30,536,663     31,943,272    4,931,191       32,870,258   33,994,238   5,224,819 
    

 

   

 

  

 

     

 

  

 

  

 

 

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$1.00=RMB6.4778,RMB6.5063, the certified exchange rates for December 31, 201529, 2017 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 201529, 2017 or on any other date.

ChairmanGeneral ManagerChief Accountant

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2013, 20142015, 2016 AND 20152017

(Amounts in thousands, except per share and per ADS data)

 

   Years ended December 31    Years ended December 31 
  Note 2013 2014 2015 2015   Note 2015 2016 2017 2017 
   RMB RMB RMB US$*    RMB RMB RMB US$* 

Revenue from Railroad and Related Business

            

Passenger transportation

    8,058,291    6,988,288    6,997,562    1,080,237  

Freight transportation

    1,603,288    1,763,679    1,761,449    271,921  

Passenger

    6,997,562   7,358,851   7,757,077   1,192,241 

Freight

    1,761,449   1,718,260   1,893,594   291,040 

Railway network usage and other transportation related services

    5,034,676    5,031,241    5,874,727    906,902      5,874,727   7,093,198   7,644,230   1,174,897 
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 
    14,696,255    13,783,208    14,633,738    2,259,060      14,633,738   16,170,309   17,294,901   2,658,178 

Revenue from other businesses

    1,104,422    1,017,573    1,091,571    168,509      1,091,571   1,110,195   1,036,521   159,310 
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Total revenue

    15,800,677    14,800,781    15,725,309    2,427,569      15,725,309   17,280,504   18,331,422   2,817,488 

Operating expenses

            

Railroad and Related business

      

Business tax

    (357,824  (61,021  (46,785  (7,222

Labour and benefits

  27  (3,932,120  (4,441,615  (4,767,083  (735,911

Railroad business

      

Business tax and surcharge

    (46,785  (38,723  (21,658  (3,329

Employee benefits

  28  (4,767,083  (5,654,869  (6,300,223  (968,327

Equipment leases and services

    (4,166,329  (3,629,757  (3,908,545  (603,375    (3,908,545  (4,193,555  (4,372,330  (672,015

Land use right leases

  35(b)  (56,000  (53,962  (55,090  (8,504  36(b)  (55,090  (55,090  (57,358  (8,816

Materials and supplies

    (1,587,251  (1,310,106  (1,224,262  (188,993    (1,224,262  (1,336,614  (1,314,002  (201,958

Repair and facilities maintenance costs, excluding materials and supplies

    (501,711  (905,540  (716,193  (110,561    (716,193  (612,484  (879,597  (135,192

Depreciation of fixed assets

    (1,392,010  (1,405,580  (1,387,534  (214,198  6  (1,387,534  (1,488,324  (1,632,926  (250,976

Cargo logistics and outsourcing service charges

    (158,947  (206,195  (246,563  (37,896

Amortisation of leasehold land payments

    (15,001  (18,245  (17,949  (2,771  8  (17,949  (27,338  (34,348  (5,279

Social services expenses

    (67,990  (12,430  (16,080  (2,482    (16,080  (11,297  —     —   

Utility and office expenses

    (71,525  (74,740  (63,602  (9,818    (63,602  (55,718  (60,360  (9,277

Impairment for trade and other receivables and materials and supplies

    —      —      (59,637  (9,206

Others

    (731,055  (816,832  (887,645  (137,031    (788,335  (881,586  (930,691  (143,044
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 
    (12,878,816  (12,729,828  (13,150,405  (2,030,072    (13,150,405  (14,561,793  (15,850,056  (2,436,109
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Other businesses

            

Business tax

    (37,098  (29,957  (31,759  (4,903

Labour and benefits

  27  (493,072  (469,273  (443,014  (68,390

Employee benefits

  28  (443,014  (564,478  (541,997  (83,303

Materials and supplies

    (338,547  (306,128  (341,386  (52,701    (341,386  (360,552  (313,990  (48,259

Depreciation of fixed assets

    (22,002  (23,694  (24,208  (3,737  6  (24,208  (30,646  (29,534  (4,539

Amortisation of leasehold land payments

    (920  (919  (10,464  (1,615  8  (10,464  (11,332  (11,332  (1,742

Utility and office expenses

    (156,914  (192,162  (155,499  (24,005    (30,080  (23,051  (34,488  (5,301

Others

    (157,178  (86,147  (151,190  (23,238
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 
    (1,048,553  (1,022,133  (1,006,330  (155,351    (1,006,330  (1,076,206  (1,082,531  (166,382
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Total operating expenses

    (13,927,369  (13,751,961  (14,156,735  (2,185,423    (14,156,735  (15,637,999  (16,932,587  (2,602,491

Other income and other gains/(losses) - net

  28  14,903    7,138    (114,627  (17,695

Other losses - net

  29  (114,627  (108,270  (48,477  (7,451
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Operating profit

    1,888,211    1,055,958    1,453,947    224,451      1,453,947   1,534,235   1,350,358   207,546 

Finance costs

  29  (191,686  (180,373  (4,608  (711

Share of results of associates

  11  5,228    5,048    2,499    385  

Finance(costs)/income-net

  30  (4,608  2,551   (10,170  (1,563

Share of results of associates, net of tax

  11  2,499   7,223   6,944   1,067 
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Profit before income tax

    1,701,753    880,633    1,451,838    224,125      1,451,838   1,544,009   1,347,132   207,050 

Income tax expense

  30  (430,670  (219,507  (388,530  (59,979  31  (388,530  (390,309  (335,364  (51,544
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Profit for the year

    1,271,083    661,126    1,063,308    164,146      1,063,308   1,153,700   1,011,768   155,506 
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2013, 20142015, 2016 AND 20152017

(Amounts in thousands, except per share and per ADS data)

 

     Years ended December 31       Years ended December 31 
  Note  2013 2014 2015 2015   Note   2015 2016 2017 2017 
     RMB RMB RMB US$*       RMB RMB RMB US$* 

Profit for the year

     1,271,083    661,126    1,063,308    164,146       1,063,308   1,153,700   1,011,768   155,506 

Other comprehensive income

     —      —      —      —           

Items that may be reclassified to profit or loss

       

Changes in the fair values ofavailable-for-sale financial assets

   22    —     —     242,588   37,285 

Deferred tax liabilities for the changes in the fair values ofavailable-for-sale financial assets

   22    —     —     (60,647  (9,321
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Total comprehensive income for the year, net of tax

     1,271,083    661,126    1,063,308    164,146       1,063,308   1,153,700   1,193,709   183,470 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Profit attributable to:

              

Equity holders of the Company

     1,273,841    662,021    1,070,822    165,306       1,070,822   1,158,253   1,015,361   156,058 

Non-controlling interests

     (2,758  (895  (7,514  (1,160     (7,514  (4,553  (3,593  (552
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 
     1,271,083    661,126    1,063,308    164,146       1,063,308   1,153,700   1,011,768   155,506 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Total comprehensive income attributable to:

              

Equity holders of the Company

     1,273,841    662,021    1,070,822    165,306       1,070,822   1,158,253   1,197,302   184,022 

Non-controlling interests

     (2,758  (895  (7,514  (1,160     (7,514  (4,553  (3,593  (552
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 
     1,271,083    661,126    1,063,308    164,146       1,063,308   1,153,700   1,193,709   183,470 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

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

              

- Basic and diluted

  31  RMB0.18   RMB0.09   RMB0.15   US$0.02     32   RMB0.15  RMB0.16  RMB0.14  US$0.02 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

Earnings per equivalent ADS

              

- Basic and diluted

  31  RMB8.99   RMB4.67   RMB7.56   US$1.17     32   RMB7.56  RMB8.18  RMB7.17  US$1.10 
    

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

 

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$1.00=RMB6.4778,RMB6.5063, the certified exchange rates for December 31, 201529, 2017 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 201529, 2017 or on any other date.

ChairmanGeneral ManagerChief Accountant

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2013, 20142015, 2016 AND 20152017

(Amounts in thousands)

 

   Year ended December 31     Year ended December 31 
  Note 2013 2014 2015 2015   Note 2015 2016 2017 2017 
   RMB RMB RMB US$*     RMB RMB RMB US$* 

Cash flows from operating activities:

            

Cash generated from operations

  33(a)  2,423,086    2,421,206    2,520,379    389,079     34(a)   2,520,379   2,212,863   2,962,704   455,359 

Interest paid

    (167,650  (167,650  —      —    

Income tax paid

    (372,025  (307,980  (260,688  (40,243    (260,688  (571,625  (327,865  (50,392
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

��

Net cash generated from operating activities

    1,883,411    1,945,576    2,259,691    348,836      2,259,691   1,641,238   2,634,839   404,967 
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Cash flows from investing activities:

            

Payments for acquisition of fixed assets and construction-in-progress and prepayment for fixed assets, net of related payables

    (1,376,601  (999,633  (1,292,273  (199,492

Proceeds from disposal of fixed assets and leasehold land

  33(b)  75,250    708    7,821    1,207  

Payments for acquisition of fixed assets,construction-in-progress and prepayment for fixed assets, net of related payables

    (1,292,273  (1,973,897  (2,273,426  (349,419

Proceeds from disposal of fixed assets

   34(b)   7,821   17,950   527   81 

Government grants received

    647    —      8,160    1,260      8,160   6,082   —     —   

Interest received

    127,318    128,139    2,895    447      2,895   1,949   1,779   273 

Payment for investment in associates

    —      —      (19,110  (2,950    (19,110  —     —    

(Increase)/ decrease in short-term deposits with maturities more than three months, net

    (309,600  4,379,600    (2,000  (309

Increase in short-term deposits with maturities more than three months, net

    (2,000  (2,000  —     —   

Dividends received

    4,904    4,904    5,884    908      5,884   14,214   6,473   995 

Payment for business combination, net of cash acquired

    (94,879  (139,897  (60,612  (9,357    (60,612  —     —     —   
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Net cash (used in)/generated from investing activities

    (1,572,961  3,373,821    (1,349,235  (208,286

Net cash used in investing activities

    (1,349,235  (1,935,702  (2,264,647  (348,070
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Cash flows from financing activities:

            

Repayments of bond payables

    —      (3,500,000  —      —    

Dividends paid to non-controlling interests’ shareholders

    —      —      (533  (82    (533  —     —     —   

Dividends paid to the Company’s shareholders

    (566,680  (566,685  (354,177  (54,676    (354,177  (566,683  (569,333  (87,504

Acquisition of additional interests in subsidiary from non-controlling interests

    (5,947  — ��    —      —    

Payments for management fee of bond payables

    (158  (333  —      —    
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Net cash used in financing activities

    (572,785  (4,067,018  (354,710  (54,758    (354,710  (566,683  (569,333  (87,504
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Net (decrease)/increase in cash and cash equivalents

    (262,335  1,252,379    555,746    85,792  

Net increase/(decrease) in cash and cash equivalents

    555,746   (861,147  (199,141  (30,607
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Cash and cash equivalents, at beginning of year

    675,013    412,678    1,665,057    257,041      1,665,057   2,220,803   1,359,656   208,975 
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

Cash and cash equivalents, at end of year

  20  412,678    1,665,057    2,220,803    342,833     20   2,220,803   1,359,656   1,160,515   178,368 
   

 

  

 

  

 

  

 

    

 

  

 

  

 

  

 

 

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$1.00=RMB6.4778,RMB6.5063, the certified exchange rates for December 31, 201529, 2017 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 201529, 2017 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, 2013, 20142015, 2016 AND 20152017

(Amounts in thousands)

 

 Attributable to equity holders of the Company      Attributable to equity holders of the Company     
 

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

  

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

 

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  

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

  —      —      —      —      —      1,273,841    1,273,841    (2,758  1,271,083    —     —     —     —     —     1,070,822   1,070,822   (7,514  1,063,308 

Profit for the year

  —      —      —      —      —      1,273,841    1,273,841    (2,758  1,271,083    —     —     —     —     —     1,070,822   1,070,822   (7,514  1,063,308 

Other comprehensive income

  —      —      —      —      —      —      —      —      —      —     —     —     —     —     —     —     —     —   

Special reserve-Safety Production Fund (Note 22)

  —      —      —      —      —      —      —      —      —      —     —     —     —     —     —     —     —     —   

Appropriation

  —      —      —      —      200,839    (200,839  —      —      —      —     —     —     —     192,860   (192,860  —     —     —   

Utilisation

  —      —      —      —      (200,839  200,839    —      —      —      —     —     —     —     (192,860  192,860   —     —     —   

Acquisition of additional interests in subsidiary from non-controlling interests

  —      (1,804  —      —      —      —      (1,804  (4,143  (5,947

Business combination

  —     —     —     —     —     —     —     (49,902  (49,902

Appropriations from retained earnings (Note 22)

  —      —      128,481    —      —      (128,481  —      —      —      —     —     111,760   —     —     (111,760  —     —     —   

Dividends relating to 2012

  —      —      —      —      —      (566,683  (566,683  (127  (566,810

Dividends relating to 2014

  —     —     —     —     —     (354,177  (354,177  (1,427  (355,604
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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, 2015

  7,083,537   11,562,738   2,404,484   304,059   —     6,107,670   27,462,488   (18,226  27,444,262 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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 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

Transaction with owners:

  —     —     —     —     —     (566,683  (566,683  (1,224  (567,907

Dividends relating to 2015 (Note 33)

  —     —     —     —     —     (566,683  (566,683  (1,224  (567,907

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

  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, 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  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2013, 20142015, 2016 AND 20152017

(Amounts in thousands)

 

 Attributable to equity holders of the Company      Attributable to equity holders of the Company     
 

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

  

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

 

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  

Balance at January 1, 2017

  7,083,537   11,562,738   2,521,534   304,059   —     6,582,190   28,054,058   (24,003  28,030,055 

Total comprehensive income

  —      —      —      —      —      1,070,822    1,070,822    (7,514  1,063,308    —     —     —     —     181,941   1,015,361   1,197,302   (3,593  1,193,709 

Profit for the year

  —      —      —      —      —      1,070,822    1,070,822    (7,514  1,063,308    —     —     —     —     —     1,015,361   1,015,361   (3,593  1,011,768 

Other comprehensive income

  —      —      —      —      —      —      —      —      —    

Other comprehensive income(Note 22)

  —     —     —     —     181,941   —     181,941   —     181,941 

Special reserve-Safety Production Fund (Note 22)

  —      —      —      —      —      —      —      —      —      —     —     —     —     —     —     —     —     —   

Appropriation

  —      —      —      —      192,860    (192,860  —      —      —      —     —     —     —     227,250   (227,250  —     —     —   

Utilisation

  —      —      —      —      (192,860  192,860    —      —      —      —     —     —     —     (227,250  227,250   —     —     —   

Business combination

  —      —      —      —      —      —      —      (49,902  (49,902

Appropriations from retained earnings (Note 22)

  —      —      111,760    —      —      (111,760  —      —      —      —     —     101,982   —     —     (101,982  —     —     —   

Dividends relating to 2014

  —      —      —      —      —      (354,177  (354,177  (1,427  (355,604

Transaction with owners

  —     —     —     —     —     (566,683  (566,683  —     (566,683

Dividend relating to 2016 (Note 33)

  —     —     —     —     —     (566,683  (566,683  —     (566,683

Balance at December 31, 2017

  7,083,537   11,562,738   2,623,516   304,059   181,941   6,928,886   28,684,677   (27,596  28,657,081 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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  

Balance at December 31, 2017(*)

 US$1,088,720  US$1,777,160  US$403,227  US$46,733  US$27,964  US$1,064,950  US$4,408,754  US$(4,241 US$4,404,513 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2015(*)

 US$1,093,510   US$1,784,979   US$371,188   US$46,939    —     US$942,862   US$4,239,478   US$(2,814 US$4,236,664  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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$1.00=RMB6.4778,RMB6.5063, the certified exchange rates for December 31, 201529, 2017 as published by the Federal Reserve Board of the United States. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 201529, 2017 or on any other date.

 

 

 

 

 

 

Chairman General Manager Chief Accountant

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THECONSOLIDATEDFINANCIAL 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”), certain subsidiaries of the Predecessor; and by Guangzhou Railway (Group) Company (the “Guangzhou Railway Group”) and certain of its subsidiaries prior to the formation of the Company.

The Predecessor was controlled by and was 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 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”) for the exchange of 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 onof 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, was dissolved. The administrative functions of MOR will bewere transferred to the Ministry of Transport and a newly established authority called the National Railway Bureau. TheAdministration; while 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, willwere also be transferred to the CRC. OnceCRC (“Reform”). The Reform was completed on 1 January 2017 and CRC has become the transfer is completed, the actual controlling entity of the Company’s largestprincipal shareholder will become since that date, Guangzhou Railway Group,CRC, (See Note 37 for more details).together with subsidiaries which were wholly controlled by MOR previously (hereinafter collectively as “CRC Group”) became related parties of the Group.

The principal activities of the Group are the provision of passenger and freight transportation on railroads. The Group also operates certain railroad and 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. 1052No.1052 Heping Road, Luohu District, Shenzhen, Guangdong Province, the People’s Republic of China. The business license for the Company will expire in 2056.

The financial statements were authorised for issue by the board of directors of the Company on 2725 April 2016.2018.

The English names of all companies listed in the financial statements are direct translations of their registered names in Chinese.Chinese if no registered names in English are available.

 

2PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies applied 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.convention except for certainavailable-for-sale investments.

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

The following amendments to standards have been adopted by the Group for the first time for the financial year beginning on 1 January 2015:2017:

 

AmendmentIncome taxes- Amendments to IAS 19 on contributions from employees or third parties to defined benefit plans.

The amendment distinguishes between contributions that are linked to service only in the period in which they arise and those linked to service in more than one period. The amendment allows contributions that are linked to service, and do not vary with the length of employee service, to be deducted from the cost of benefits earned in the period that the service is provided. Contributions that are linked to service, and vary according to the length of employee service, must be spread over the service period using the same attribution method that is applied to the benefits.

Amendments from annual improvements to IFRSs – 2010 – 2012 Cycle, on IFRS 8, ‘Operating segments’, IAS 16, ‘Property, plant and equipment’ and IAS 38, ‘Intangible assets’ and IAS 24, ‘Related party disclosures’.12;

 

Statement of cash flows- Amendments from annual improvements to IFRSs – 2011 – 2013 Cycle, onIAS 7; and

Disclosure of interest in other entities- Amendment to IFRS 3, ‘Business combinations’, IFRS 13, ‘Fair value measurement’.12

The directors of the Company consider that the adoption of thethese amendments to standardsdid not have no materialany impact on the Group’s operating results and financial position.amounts recognised in prior periods. Most of the amendments will also not affect the current or future periods.

(b)The following new standards, amendments and interpretations have been issued as at 31 December 2017 but are not effective for the financial statements for the year ended 31 December 2017:

Title of standard

Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions

Nature of change

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.

Impact

Management has assessed the effects of applying the new standard on the Group’s financial statements. Given there were no share based payment transactions undertaken by the Company and the Group, no significant impact has been identified.

Date of adoption by Group

These amendments 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)(continued)

 

(b)The following new standards, amendments and interpretations have been issued as at 31 December 20152017 but are not effective for the financial statements for the year ended 31 December 2017 (continued):

Title of standardIFRS 9 Financial Instruments
Nature of changeIFRS 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.
Impact

The Group has reviewed its financial assets and liabilities and is expecting the following impact from the adoption of the new standard on 1 January 2018:

(i) The majority of the Group’s equity instruments that were currently classified asavailable-for-sale investments as at 31 December 2017 will satisfy the conditions for classification as at fair value through other comprehensive income (FVOCI) and hence there will be no significant change to the accounting for these assets. The other financial assets held by the Group which include loans and receivables, will meet the conditions for classification as financial instruments recorded at amortised cost under IFRS9. Accordingly, the Group does not expect the new provision of the new standard would affect the classification and measurement of these financial assets. However, gains or losses realised on the sale of financial assets at FVOCI will no longer be transferred to profit or loss upon sales of the instruments, but instead be reclassified from the FVOCI reserve to retained earnings.

(ii)  There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting of financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities.

(iii)  The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39 Financial Instruments: Recognition and Measurement. It applies to financial assets classified at amortised cost, debt instruments measured at FVOCI, contract assets under IFRS 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee contracts. Based on the assessments undertaken to date, the Group expects an increase in the provision for impairment by approximately 1% of debt balances.

F-14


GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THECONSOLIDATEDFINANCIAL 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 2017 but are not effective for IFRS financial statements for the year ended 31 December 2015(continued)2017 (continued):

 

Amendment to IFRS 11 “Accounting for acquisitions of interests in joint operations”. The amendment requires an investor to apply the principles of business combination accounting when it acquires an interest in a joint operation that constitutes a business (as defined in IFRS 3, Business combinations). Specifically, an investor will need to: measure identifiable assets and liabilities at fair value; expense acquisition-related costs; recognise deferred tax; and recognise the residual as goodwill. All other principles of business combination accounting apply unless they conflict with IFRS 11. The amendment is applicable to both the acquisition of the initial interest and a further interest in a joint operation. The previously held interest is not remeasured when the acquisition of an additional interest in the same joint operation with joint control maintained. This amendment will be effective for annual periods beginning on or after 1 January 2016.

 

Amendments to IAS 16 and IAS 38 “Clarification of acceptable methods of depreciation and amortisation”. The amendments clarify when a method of depreciation or amortisation based on revenue may be appropriate. The amendment to IAS 16 clarifies that depreciation of an item of property, plant and equipment based on revenue generated by using the asset is not appropriate. The amendment to IAS 38 establishes a rebuttable presumption that amortisation of an intangible asset based on revenue generated by using the asset is inappropriate. The presumption may only be rebutted in certain limited circumstances: where the intangible asset is expressed as a measure of revenue; or where it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated. These amendments will be effective for annual periods beginning on or after 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 in the sale and contribution of assets between an investor 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 has now been deferred/removed.

Amendment to IAS 27 “Equity method in separate financial statements”. The amendment allows entities to use equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. This amendment will be effective for annual periods beginning on or after 1 January 2016.

Title of standardIFRS 9 Financial Instruments
ImpactThe new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of adoption of the new standard.
Date of adoption by GroupMust be applied for financial years commencing on or after 1 January 2018. The Group will apply the new rules using modified retrospective method from 1 January 2018, with the practical expedients permitted under the standard. Comparatives for 2017 will not be restated.
Title of standardIFRS 15 Revenue from Contracts with Customers
Nature of change

The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts.

The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer.

The standard permits either a full retrospective or a modified retrospective approach for the adoption.

ImpactManagement has assessed the effects of applying the new standard on the group’s financial statements. Given the nature and mode of provision of services, revenue transactions are expected not to trigger significant differences in the accounting treatments under the requirements of the new standards, no significant impact has been identified.
Date of adoption by groupMandatory for financial years commencing on or after 1 January 2018. The group intends to adopt the standard using the modified retrospective approach which means that the cumulative impact of the adoption will be recognised in retained earnings as of 1 January 2018 and that comparatives will not be restated.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THECONSOLIDATEDFINANCIAL 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 20152017 but are not effective for IFRS financial statements for the year ended 31 December 2015(continued):

Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment entities: applying the consolidation exception”. The amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. The amendments to IFRS 10 clarify that the exception from preparing consolidated financial statements is available to intermediate parent entities which are subsidiaries of investment entities. The exception is available when the investment entity parent measures its subsidiaries at fair value. The intermediate parent would also need to meet the other criteria for exception listed in IFRS 10. The amendments also clarify that an investment entity should consolidate a subsidiary which is not an investment entity and which provides services in support of the investment entity’s investment activities, such that it acts as an extension of the investment entity. However, the amendments also confirm that if the subsidiary is itself an investment entity, the investment entity parent should measure its investment in the subsidiary at fair value through profit or loss. This approach is required regardless of whether the subsidiary provides investment-related services to the parent or to third parties. The amendments to IAS 28 allow an entity which is not an investment entity, but has an interest in an associate or a joint venture which is an investment entity, a relief to retain the fair value measurement applied by the investment entity associate or joint venture, or to unwind the fair value measurement and instead perform a consolidation at the level of the investment entity associate or joint venture for their subsidiaries when applying the equity method. These amendments will be effective for annual periods beginning on or after 1 January 2016.

Annual improvements 2014. The amendments include changes from the 2012-2014 cycle of the annual improvements project that affect 4 standards: IFRS 5, “Non-current assets held for sale and discontinued operations”, IFRS 7, “Financial instruments: Disclosures”, IAS 19, “Employee benefits”, and IAS 34, “Interim financial reporting”. These amendments will be effective for annual periods beginning on or after 1 January 2016.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THECONSOLIDATEDFINANCIAL 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 2015 but are not effective for IFRS financial statements for the year ended 31 December 2015(continued):

Amendments to IAS 1 “Disclosure initiative”. The amendments clarify guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. Although the amendments do not require specific changes, they clarify a number of presentation issues and highlight that preparers are permitted to tailor the format and presentation of the financial statements to their circumstances and the needs of users. The key areas addressed by the changes are as follows: 1) Materiality: an entity should not aggregate or disaggregate information in a manner that obscures useful information. An entity need not provide disclosures if the information is not material; 2) Disaggregation and subtotals: the amendments clarify what additional subtotals are acceptable and how they should be presented; 3) Notes: an entity is not required to present the notes to the financial statements in a particular order, and management should tailor the structure of their notes to their circumstances and the needs of their users; 4) Accounting policies: how to identify a significant accounting policy that should be disclosed; 5) Other comprehensive income from equity accounted investments: other comprehensive income of associates and joint ventures should be separated into the share of items that will subsequently be reclassified to profit or loss and those that will not. These amendments will be effective for annual periods beginning on or after 1 January 2016.

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. Where non-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 THECONSOLIDATEDFINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2.2Basis of preparation2017 (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 2015 but are not effective for IFRS financial statements for the year ended 31 December 2015(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 a 5-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 and SIC-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 recognize 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 of low-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.

Management is in the process of making an assessment of the impact of the above new and amended standards. Management is not yet in a position to state what impact they would have, if any, on the Group’s results of operations and financial position.
Title of standardIFRS 16 Leases
Nature of change

IFRS16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term andlow-value leases.

The accounting for lessors will not significantly change.

ImpactThe standard will affect primarily the accounting for the Group’s operating leases. Management is currently assessing the impact of applying the new standard on the Group’s financial statements.
Date of adoption by groupMandatory for financial years commencing on or after 1 January 2019. At this stage, the Group does not intend to adopt the standard before its effective date. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption.
Title of standardAmendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its associate or joint venture
Nature of changeThe amendments address an inconsistency between IFRS 10 and IAS 28 in the sale and contribution of assets between an investor 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 within a subsidiary.
ImpactManagement has assessed the effects of applying the new standard on the Group’s financial statements and no significant impact has been identified.
Date of adoption by GroupThe effective date of these amendments is to be determined pending the outcome of the IASB’s research project on equity accounting.

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

 

2.2.1Consolidation

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.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

 

(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.Non-controlling interests in the acquiree 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.

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. 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 any non-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 statementprofit or loss (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)

 

2.2.1Consolidation (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 meanliabilities, which means 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)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.3Associates

An 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 investments in associates include 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.

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)

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,profit or loss, 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.

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 towithin ‘share of result of associates’ ,included in the consolidated comprehensive income statement.

Profits or losses and other comprehensive income resulting from upstream and downstream transactions between the Group and its associateassociates 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.

In the Company’s balance sheet, investments in 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.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.4Segment 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 of the Company that make strategic decisions.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.5Foreign 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.profit or loss.

Foreign exchange gains and losses are presented in the consolidated comprehensive income statement within ‘Finance costs’“Finance(costs)/income-net”.

 

2.6Fixed assets

Fixed assets are initially recordedstated at historical cost with the balance subsequently adjusted forless depreciation and impairment.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 statementprofit or loss during the financial period in which they are incurred.

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)

 

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:

Buildings (Note a)(a)

   20 to 40 years 

Tracks, bridges and service roads (Note a)(a)

   16 to 100 years 

Locomotives and rolling stock

   20 years 

Communications and signalingsignalling 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 land use rights from operation lease( details contained in Note 35(b)
(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 (details contained in Note 36(b)); and the initial period of certain land use right acquired (Note 2.8), on which these assets are located.

The Group will renew the term of land use right acquired (Note 2.8), on which these assets are located.

Pursuant to theupon 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 is able to apply and renew the respective leases of the land use right acquiredrenewal except for periods of more than 50 years with additional consideration to be paid.public interests. In addition, based on the provision of the land use right operating lease agreement entered into with the single largest shareholderGuangzhou Railway Group (Note 35(b)36(b)), the Company can renew the lease at its own discretion upon expiry of the operating lease term. Based on the above consideration, the directors of the company consider the current estimated useful lives of those assets to be reasonable.

The assets’assets residual values and estimated useful lives are reviewed, and adjusted if appropriate, at the end of each 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/(losses) - losses—net”, included in the consolidated comprehensive income statement.

2.7Construction-in-progress

Construction-in-progress represents buildings, tracks, bridges and service roads under construction, and mainly includes the construction related costs for the associated facilities of the existing railway lines 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. From time to time, certain railway assets of the Group require major modifications and improvements. The carrying amounts are transferred from fixed assets toconstruction-in-progress. The carrying amounts, including costs of modifications, are transferred back to fixed assets upon completion of the improvement projects.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.7Construction-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.

2.8Leasehold land payments

The Group acquired the right to use certain parcelspieces of land for certain of its rail lines, railway stations and other businesses. The paymentconsideration 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.

 

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 consolidated balance sheet.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of 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 at least 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)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.10Impairment of investment in subsidiaries, associates and non-financial assets other than goodwill

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.

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 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)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.11Non-current assets held for sale

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, financial assets and investment property that are carried at fair value, which are specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of thenon-current asset (or disposal group) is recognised at the date of derecognition.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

2.12Financial assets

 

2.11.12.12.1Classification

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 consolidated balance sheet (Notes 2.16 and 2.17).

(b)Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.sheet.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.112.12Financial assets (continued)

 

2.11.22.12.1Classification (continued)

(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.

2.12.2Recognition and measurement

Regular way purchases and sales of financial assets are recognised on the trade-date - 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 statementprofit or loss as “other income and other gains/(losses) - gain/losses—net”.

Dividends onavailable-for-sale equity instruments are recognised in the comprehensive income statement as part of other incomeprofit or loss 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 reasonable valuation techniques, they are measured at cost, subject to impairment review.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2.122PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.13Offsetting 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)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.132.14Impairment 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’“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 lossloss: 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;

 

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;

 

 (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.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.14Impairment of financial assets (continued)

(a)Assets carried at amortised cost (continued)

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.profit or loss. 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.profit or loss.

 

(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 an 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 statementprofit or loss on equity instruments are not reversed through the consolidated comprehensive income statement.profit or loss.

 

2.142.15Long-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 incurred, net of accumulated amortisation.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2.152PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.16Materials 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. The 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 less applicable variable expenses.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.162.17Trade 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.

 

2.172.18Cash 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.

 

2.182.19Share 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.

 

2.192.20Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. AccountsTrade 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.

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)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.20Borrowings

Borrowings 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.

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,profit or loss, 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.

 

(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 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 substantiallysubstantively 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 liabilities are provided on taxable temporary differences arising from 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)

2.21Current 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.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.232.22Employee 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.

 

(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.

 

2.242.23Provisions

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.

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, rebates and discounts and after eliminating sales within the Group.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.252.24Revenue recognition (CONTINUED)

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

The Group recognizesrecognises revenue when the services are rendered and the amount of revenue can be reliable measured, 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 recognition also involves use of estimates exercised by management based on historical results, takes into consideration the different type of customers, transactions and the specifics of each arrangement.

 

(a)Revenue from railroad and related business

The operations of the railway business of the Group form part of the nationwide railway system in the PRC and they are supervised and governed by CRC. The Group renders 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.

Revenue from passenger transportation

The passengerPassenger transportation is generally classified byinclude 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 PRCmainland China and Hong Kong, and the corresponding revenue information is captured and processed by CRC through athe 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 their collectability is certain. The revenue is presented net of value-added tax but before deduction of any sales handling commissions.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.24Revenue recognition (continued)

(a)Revenue from railroad and related business (continued)

Revenue from freight transportation

The Group also operates with other railway companies in the 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.

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

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.25Revenue recognition (continued)

(a)Revenue from railroad and related business (continued)

Revenue from railway network usage and other transportation related services

Revenue from railway network usage and other transportation related services, mainly consist of network usage services (locomotive traction, track usage and electric catenarycatenaries service, etc.) and railway operation services and other services, are rendered by the Group together with other railway companies in the 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 services are rendered solely by the Group and they 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 mainly consist of on-board catering services, leasing, sales of materials, sale of goods and other businesses related to railway transportation. Revenues from on-board catering services are recognized when the related services are rendered. Revenues from sales of materials and supplies and sale of goods are recognized when the respective materials and goods are delivered to customers. Revenue from operating lease arrangements on certain properties and locomotives is recognized on a straight-line basis over the period of the respective leases.

The subsidiaries of the Group also offer various insignificant auxiliary services to facilitate the Other Businesses undertaken by the Company.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

 

2.262.24Revenue recognition (continued)

(b)Revenue from other businesses

Revenue from other business mainly consist ofon-board catering services, leasing, sales of materials, sale of goods and other businesses related to railway transportation. Revenues fromon-board catering services are recognised when the related services are rendered. Revenues from sales of materials and supplies and sale of goods are recognised when the respective materials and goods are delivered to customers. Revenue from operating lease arrangements on certain properties and locomotives is recognised on a straight-line basis over the period of the respective leases.

2.25Interest 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.

 

2.272.26Dividend income

Dividend income is recognised when the right to receive payment is established.

 

2.282.27Government 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 statementprofit or loss 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 grantsincome and are credited to the comprehensive income statementprofit or loss on a straight-line basis over the expected lives of the related assets.

 

2.292.28Operating 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 statementprofit or loss on a straight-line basis over the period of the lease.

2.30Dividend distribution

Dividend distribution to the shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the shareholders.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

2.29Dividend distribution

Dividend distribution to the shareholders is recognised as a liability in the Group’s and the Company’s financial statements in the period in which the dividends are approved by the shareholders of the Company.

 

3FINANCIAL RISK MANAGEMENT

 

3.1Financial risk factor

The Group’s activities expose it to a variety of financial risks: market risk (including 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)Foreign currency risk

The Group mainly operates in the PRC with most of the transactions settled in RMB. RMB is also the functional and presentation 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 being 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 (in RMB thousands equivalent):

 

Monetary assets and liabilities  

Currency

denomination

  As at 31 December 
  2014   2015 

Monetary assets

  

Currency

denomination

   As at 31 December 
  2016   2017 
     (RMB’000)   (RMB’000)       (RMB’000)   (RMB’000) 

Cash and cash equivalents

  HKD   62,093     72,140     HKD    115,680    32,650 

Cash and cash equivalents

   USD    96    146 

Other receivables

  HKD   93     71     HKD    66    67 
    

 

   

 

 
     115,842    32,863 
    

 

   

 

 

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.

As at 31 December 2015, 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 RMB2,708,000 (2014: RMB2,332,000) higher/lower, mainly as a result of foreign exchange gains/losses on translation of HKD-denominated cash in banks.

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)

 

(i)Foreign currency risk (continued)

As at 31 December 2017, 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 RMB1,232,000 (2016: RMB4,340,000) 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 expected to be significant.

(ii)Cash flow and fair value interest rate risk

Other than deposits held in banks, the Group does not have significant interest-bearing assets.assets or liabilities. The average interest rate of deposits held in banks in the PRC throughout the year was approximately 1.71% (2013: 2.87% and 2014: 2.59%1.54% (2016: 1.38%). per annum. 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.

As at 31 December 20152017 and 2014,2016, the Group had no interest bearing debts, which may expose the Group to any interest rate risk.

 

(b)Credit risk

Credit risk is managed on a group basis. Credit risk arises from 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 natureidentity of counterparties as follows:

 

   

As at 31 December

2014

RMB’000

   

As at 31 December

2015

RMB’000

 

Trade receivables

    

Due from CRC together with its subsidiaries (“CRC Group”)

   628,576     885,472  

Due from related parties

   736,737     804,845  

Due from third parties

   585,572     499,946  
  

 

 

   

 

 

 
   1,950,885     2,190,263  
  

 

 

   

 

 

 

Other receivables excluding prepayments

    

Due from CRC Group

   8,904     6,378  

Due from related parties

   1,076     6,953  

Due from third parties

   86,034     69,536  
  

 

 

   

 

 

 
   96,014     82,867  
  

 

 

   

 

 

 

Long-term receivable

    

Due from a third party

   30,197     30,804  
  

 

 

   

 

 

 

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.

  

As at

31 December 2016

RMB’000

  

As at

31 December 2017

RMB’000

 

Trade receivables

  

Due from Guangzhou Railway Group and its subsidiaries

  721,557   1,261,244 

Due from CRC Group (excluding Guangzhou Railway Group and its subsidiaries)

  1,314,352   1,106,311 

Due from third parties

  481,372   431,473 
 

 

 

  

 

 

 
  2,517,281   2,799,028 
 

 

 

  

 

 

 

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 2016
RMB’000

  

As at

31 December 2017
RMB’000

 

Other receivables excluding prepayments

  

Due from Guangzhou Railway Group and its subsidiaries

  2,619   9,460 

Due from CRC Group (excluding Guangzhou Railway Group and its subsidiaries)

  3,846   381 

Due from third parties

  220,035   194,245 
 

 

 

  

 

 

 
  226,500   204,086 
 

 

 

  

 

 

 

Long-term receivable

  

Due from a third party

  31,406   31,274 
 

 

 

  

 

 

 

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 realisability 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.

 

  

As at December 31,

2014

RMB’000

   

As at December 31,

2015

RMB’000

  

As at

December 31, 2016
RMB’000

 

As at

December 31, 2017
RMB’000

 

Cash at bank and short-term deposits

      

Placed in listed banks in the PRC

   1,769,023     2,326,757    1,467,616   1,268,478 

Placed in unlisted banks in the PRC

   —       —    
  

 

   

 

  

 

  

 

 
   1,769,023     2,326,757  
  

 

   

 

 

Cash and short term deposits 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.

None of the financial assets that are fully performing has been renegotiated in the current year.

 

(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.

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)

 

(c)Liquidity risk (continued)

 

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

   

Between 1


and 2 years

   

Between 2


and 5 years

 
   RMB’000   RMB’000   RMB’000 

At 31 December 20152017

      

Trade and other payables excluding other tax payables, employee salary and benefits payables and advances

   2,136,5702,356,953—  —  

Payables for fixed assets andconstruction-in-progress

2,214,547    —      —   

Dividends payable

   14,318—  —  

Payables for fixed assets and construction-in-progress

1,425,99812,893    —      —   
  

 

 

   

 

 

   

 

 

 

At 31 December 20142016

      

Trade and other payables excluding other tax payables, employee salary and benefits payables and advances

   1,942,4312,201,483—  —  

Payables for fixed assets andconstruction-in-progress

1,765,185    —      —   

Dividends payable

   548—  —  

Payables for fixed assets and construction-in-progress

1,094,81415,542    —      —   
  

 

 

   

 

 

   

 

 

 

 

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.

As at December 20152017 and 2014,2016, the Group did not have borrowings and bonds. The directors are of the opinionconsidered that the Group’s capital risk is low.manageable as the Group is continuously able to generate sufficient working capital from its daily operation.

GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

 

3FINANCIAL RISK MANAGEMENT (CONTINUED)

 

3.3Fair 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 2015,2017, the Group did not have any financial instruments that were measured at fair value except for certainavailable-for-sale financial assets (Note 15). As at 31 December 2016,the Group did not have any financial instrument that were measured at fair value.

As at 31 December 2015,2017 and 2016, the fair values of other financial instruments approximated their carrying values.

(i)Fair value hierarchy


At 31 December 2017 
  Note   Level 1
RMB’000
   Level 2
RMB’000
   Level 3
RMB’000
   Total
RMB’000
 

Available-for-sale financial assets

   15    —      —      280,088    280,088 
    

 

 

   

 

 

   

 

 

   

 

 

 

 

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.

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.

(a)Depreciable lives of fixed assets

The estimateImpairment of depreciable lives of fixed assets, especially tracks, bridges and service roads, was made by the directors with reference to the following: (1) the historical usage of the assets; (2) their expected physical wear and tear; (3) results of recent durability assessment performed; (4) technical 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 2.6 and 36(b)); (6) the changes in market demand for, or legal or comparable limits imposed on, the use of such fixed assets. The useful lives and residual values for the year have been reviewed by the directors and no change was made in current year.receivables

The current estimated useful lives are stated in Note 2.6. If the estimated depreciable lives of tracks, bridges and service roads had been extended/shortened by 10%, the depreciation expenses of fixed assets for the year ended 31 December 2015 would have been decreased/increased by approximately RMB19,362,000 and RMB23,665,000 respectively (2013: RMB18,502,000 and RMB22,613,000 respectively; 2014: RMB19,149,000 and RMB23,404,000).

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 (CONTINUED)

(b)Impairment assessment 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)Impairment assessment 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 assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

(d)Impairment of receivables

The Group makes provision for impairment of receivables based on an assessment of the recoverability of trade and other receivables with reference to the extent and duration that the amount will be recovered. Provisions are applied where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment requires the use of judgmentjudgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying amount of trade and other receivables and the impairment charge in the period in 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)

 

4CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

Estimation of the fair value of certainavailable-for-sale financial assets

The Group makes estimates of the fair value of theavailable-for-sale financial assets with consideration of the assessed enterprise value, which is regarded as the best estimate of the fair value. The assessment of fair value requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying amount ofavailable-for-sale financial assets and changes in the fair value ofavailable-for-sale financial assets recorded in other comprehensive income.

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 the senior executives.executives of the Company. Senior executives of the Company review the Group’s internal reporting in order to assess performance and allocate resources. The operating segments were determined based on these management reports.

Senior executives evaluate the business from a perspective of revenues and operating results generated from the railroad and related business (details described in Note 2.25 conducted by the Company (“the Railway Transportation Business”). Other segments mainly include insignificant auxiliaryon-board catering services, offeredleasing, sales of materials, sale of goods and other businesses related to railway transportation provided by certainthe subsidiaries of the Group.Company. Senior executives of the Company 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 of the Company is measured in a manner consistent with that in the consolidated financial statements.

The segment results for 2013, 20142015, 2016 and 20152017 are as follows:

 

  The Railway Transportation
Business
  Others  Elimination  Total 
  2013  2014  2015  2013  2014  2015  2013  2014  2015  2013  2014  2015 
  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 and Related Business

  14,696,255    13,783,208    14,633,738    —      —      —      —      —      —      14,696,255    13,783,208    14,633,738  

- Other Businesses

  664,635    586,564    672,455    —      —      —      —      —      —      664,635    586,564    672,455  

- Others

  —      —      —      464,827    473,204    458,944    (25,040  (42,195  (39,828  439,787    431,009    419,116  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenue

  15,360,890    14,369,772    15,306,193    464,827    473,204    458,944    (25,040  (42,195  (39,828  15,800,677    14,800,781    15,725,309  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Segment result

  1,706,027    869,701    1,487,249    (5,011  13,394    (28,549  737    (2,462  (6,862  1,701,753    880,633    1,451,838  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Finance costs

  191,501    180,208    4,448    185    165    160    —      —      —      191,686    180,373    4,608  

Share of results of associates

  5,228    5,048    2,499    —      —      —      —      —      —      5,228    5,048    2,499  

Depreciation

  1,409,325    1,423,023    1,404,439    4,687    6,251    7,303    —      —      —      1,414,012    1,429,274    1,411,742  

Amortisation of leasehold land payments

  15,001    18,245    17,950    920    919    10,463    —      —      —      15,921    19,164    28,413  

Amortisation of long-term prepaid expenses

  12,697    13,610    13,842    201    321    337    —      —      —      12,898    13,931    14,179  

Impairment of fixed assets

  —      —      80,393    —      —      —      —      —      —      —      —      80,393  

Impairment of construction-inprogress

  —      —      2,434    —      —      —      —      —      —      —      —      2,434  

Investment loss

  —      —      —      —      —      45,073    —      —      —      —      —      45,073  

Impairment of materials and supplies

  —      —      64,096    —      —      —      —      —      —      —      —      64,096  

Provision for/(reversal of) impairment of receivables

  (5,788  1,150    (4,449  (49  —      (10  —      —      —      (5,837  1,150    (4,459
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  The Railway Transportation
Business
  All other segments  Elimination  Total 
  2015  2016  2017  2015  2016  2017  2015  2016  2017  2015  2016  2017 
  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 and Business

  14,633,738   16,170,309   17,294,901   —     —     —     —     —     —     14,633,738   16,170,309   17,294,901 

- Other Businesses

  672,455   663,418   705,423   458,944   487,097   395,661   (39,828  (40,320  (64,563  1,091,571   1,110,195   1,036,521 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenue

  15,306,193   16,833,727   18,000,324   458,944   487,097   395,661   (39,828  (40,320  (64,563  15,725,309   17,280,504   18,331,422 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Segment result

  1,487,249   1,549,120   1,341,601   (28,549  3,548   14,519   (6,862  (8,659  (8,988  1,451,838   1,544,009   1,347,132 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Finance costs/(income)—net

  4,448   (2,728  10,011   160   177   159   —     —     —     4,608   (2,551  10,170 

Share of results of associates, net of tax

  2,499   7,223   6,944   —     —     —     —     —     —     2,499   7,223   6,944 

Depreciation of fixed assets

  1,404,439   1,511,570   1,655,657   7,303   7,400   6,803   —     —     —     1,411,742   1,518,970   1,662,460 

Amortisation of leasehold land payments

  17,949   27,338   34,348   10,464   11,332   11,332   —     —     —     28,413   38,670   45,680 

Amortisation of long-term prepaid expenses

  13,842   6,729   3,256   337   239   (88  —     —     —     14,179   6,968   3,168 

Impairment of fixed assets

  80,393   —     11,185   —     —     —     —     —     —     80,393   —     11,185 

Impairment ofconstruction-in progress

  2,434   5,662   —     —     —     —     —     —     —     2,434   5,662   —   

Loss arising from business combination

  —     —     —     45,073   —     —     —     —     —     45,073   —     —   

Provision for/(reversal of) impairment of materials and supplies

  64,096   (5,209  7,844   —     —     —     —     —     —     64,096   (5,209  7,844 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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 2013, 20142015, 2016 and 20152017 is as follows:

 

 The Railway Transportation Business All other segments Elimination Total  The Railway Transportation Business All other segments Elimination Total 
 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015  2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 
 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

  1,706,027    869,701    1,487,249    (5,011  13,394    (28,549  737    (2,462  (6,862  1,701,753    880,633    1,451,838    1,487,249   1,549,120   1,341,601   (28,549  3,548   14,519   (6,862  (8,659  (8,988  1,451,838   1,544,009   1,347,132 

Income tax expense

  (426,445  (214,389  (372,142  (4,225  (5,118  (16,388  —      —      —      (430,670  (219,507  (388,530  (372,142  (385,840  (328,727  (16,388  (4,469  (6,637  —     —     —     (388,530  (390,309  (335,364
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Profit/(loss) for the year

  1,279,582    655,312    1,115,107    (9,236  8,276    (44,937  737    (2,462  (6,862  1,271,083    661,126    1,063,308    1,115,107   1,163,280   1,012,874   (44,937  (921  7,882   (6,862  (8,659  (8,988  1,063,308   1,153,700   1,011,768 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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 Railway Transportation Business All other segments Elimination Total   The Railway Transportation Business   All other segments   Elimination Total 
 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015   2016   2017   2016   2017   2016 2017 2016   2017 
 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

  33,183,049    30,498,118    31,554,271    221,612    234,430    595,173    (172,672  (195,885  (206,172  33,231,989    30,536,663    31,943,272     32,483,625    33,621,101    586,519    535,840    (199,886  (162,703  32,870,258    33,994,238 
  

 

   

 

   

 

   

 

   

 

  

 

  

 

   

 

 

Total segment assets include:

                          

Investment in associates

  142,054    147,102    168,711    —      —      —      —      —      —      142,054    147,102    168,711     167,604    174,548    —      —      —     —     167,604    174,548 

Additions to non-current assets (other than financial instruments and deferred tax assets)

  1,399,997    1,376,436    1,625,915    16,900    3,302    363,926    —      —      —      1,416,897    1,379,738    1,989,841     2,817,557    2,415,143    3,279    1,083    —     —     2,820,836    2,416,226 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

   

 

 

Total segment liabilities

  6,544,338    3,770,778    4,066,001    105,449    121,647    578,754    (112,163  (142,222  (145,745  6,537,624    3,750,203    4,499,010     4,398,759    4,908,103    588,128    545,500    (146,684  (116,446  4,840,203    5,337,157 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

   

 

 

Revenues of approximately RMB2,508,916,000 (2013: RMB1,723,972,000 and 2014: RMB1,958,375,000) areRMB3,595,959,000 (2015: RMB2,508,916,000and 2016: RMB3,407,998,000) were derived from Guangzhou Railway Group and its subsidiaries. These revenues are attributable to the Railway 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

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

6FIXEDASSETS-NET

 

 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
  Buildings Tracks,
bridges and
service roads
 Locomotives
and rolling
stock
 Communications
and signalling
systems
 Other
machinery and
equipment
 Total 

At 1 January 2014

      
 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

At 1 January 2016

      

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

  114,062    26,948    —      64    10,972    152,046    —     —     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 improvements/modifications (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

  —     (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 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Year ended 31 December 2015

      

Year ended 31 December 2017

      

Opening 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 

Additions due to business combination

  22,550    1,346    —      —      599    24,495  

Other additions

  8,991    —      488,335    11,845    113,443    622,614    1,849   —     69,311   13,086   123,436   207,682 

Transfer from construction-in-progress (Note 7)

  241,860    234,030    38,470    90,469    218,690    823,519  

Transfer in fromconstruction-in-progress (Note 7)

  345,676   179,842   843,489   80,867   203,557   1,653,431 

Transfer out toconstruction-in-progress for improvement/modifications (Note 7)

  (305,208  —     (987,236  (299  (18,903  (1,311,646

Transfer in fromconstruction-in-progress after repair

  310,885   —     875,497   299   16,697   1,203,378 

Reclassifications

  616    —      —      —      (616  —      1,342   7,116   25   —     (8,483  —   

Impairment (a)

  —      —      (80,393  —      —      (80,393

Reclassified to leasehold land payments

  —     (403,282  —     —     —     (403,282

Disposals

  (5,187  (48,341  (26,408  (293  (3,715  (83,944  (15,942  (69,516  (234,830  (744  (15,780  (336,812

Depreciation charges

  (273,380  (217,204  (431,070  (132,392  (357,696  (1,411,742  (332,581  (216,075  (571,640  (115,870  (426,294  (1,662,460

Impairment charge

  —     —     (9,865  —     (1,320  (11,185
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Closing net book amount

  4,652,791    12,634,453    4,069,331    465,967    2,251,217    24,073,759    4,851,311   11,198,306   4,840,070   470,213   2,257,238   23,617,138 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

At 31 December 2015

      

At 31 December 2017

      

Cost

  6,989,242    15,615,264    7,657,021    1,807,311    6,022,269    38,091,107    7,441,605   14,588,338   7,903,204   1,993,168   6,628,084   38,554,399 

Accumulated depreciation

  (2,336,451  (2,980,811  (3,587,690  (1,341,344  (3,769,890  (14,016,186  (2,590,294  (3,390,032  (3,053,269  (1,522,955  (4,368,375  (14,924,925

Impairment

  —      —      —      —      (1,162  (1,162  —     —     (9,865  —     (2,471  (12,336
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net book amount

  4,652,791    12,634,453    4,069,331    465,967    2,251,217    24,073,759    4,851,311   11,198,306   4,840,070   470,213   2,257,238   23,617,138 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

6FIXEDASSETS-NET (CONTINUED)

(a)In June 2015, the management of the Company made an impairment loss of approximately RMB80,393,000 against the carrying amounts of certain locomotives, which had ceased to be deployed for commercial operations due to technological changes and developments. The impairment loss reflects the portion of their carrying amounts in excess of their assessed recoverable amounts. As at 31 December 2015, the locomotives were disposed and approximately RMB10,000 has been recognised in “other income and other gains/(losses)-net”.

 

(b)(a)As at 31 December 2015,2017, the ownership certificates of certain buildings of the Group with an aggregate carrying value of approximately RMB1,753,314,000 (2014: RMB1,921,120,000)RMB 1,858,288,000 (2016: RMB1,819,505,000) 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.

 

(c)(b)As at 31 December 2015,2017, fixed assets of the Group with an aggregate net book value of approximately RMB100,888,000 (2014: RMB85,941,000)RMB155,125,000 (2016: RMB116,953,000) had been fully depreciated but they were still in use.

 

7CONSTRUCTION-IN-PROGRESS

 

  2014   2015   2016   2017 
  RMB’000   RMB’000   RMB’000   RMB’000 

At 1 January

   543,350     401,434     569,573    790,308 

Additions due to business combination

   1,665     —       59,992    —   

Transfer in from fixed assets for improvement/modifications (Note 6)

   206,386    1,311,646 

Other additions

   995,931     994,092     1,448,767    2,185,526 

Transfer to fixed assets (Note 6)

   (1,109,936   (823,519   (1,017,713   (1,653,431

Transfer to leasehold land

   (29,576   —    

Transfer out to fixed assets after improvement/modifications (Note 6)

   (471,035   (1,203,378

Impairment

   —       (2,434   (5,662   —   
  

 

   

 

   

 

   

 

 

At 31 December

   401,434     569,573     790,308    1,430,671 
  

 

   

 

   

 

   

 

 

Construction-in-progress as at 31 December 20152017 mainly wascomprise of improvement projects for road existing railway equipment in the PRC.

For the year ended 31 December 2015,2017, no interest expense (2014:(2016: Nil) had been capitalised in theconstruction-in-progress balance as there were no third party borrowings during the impact of interest capitalisation was not material.year.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(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 2014

Cost

935,572

Accumulated amortisation

(277,979

Net book amount

657,593

Year ended 31 December 2014

Opening net book amount

657,593

Additions

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

Addition due to business combination

308,934

Amortisation charges

(28,413

Closing net book amount

948,526

At 31 December 20152016

  

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 fixed 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

Year ended 31 December 2017

Opening net book amount

1,624,859

Transfer from fixed assets (Note 6)

403,282

Assets classified as held for sale

(2,183

Amortisation charges

(45,680

Closing net book amount

1,980,278

At 31 December 2017

Cost

2,388,326

Accumulated amortisation

(408,048

Net book amount

1,980,278

As at 31 December 2015,2017, land use right certificates of certain parcelspieces of land of the Group with an aggregate carrying value of approximately RMB236,522,000 (2014: RMB228,630,000)RMB1,318,686,000 (2016: RMB936,304,000) had not been obtained. After consultation made with the Company’s legal counsel, the directors of the Company 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 or the Company.

The remaining lease period of leasehold land as at 31 December 2015 was as follows:

   2015   2014 
   RMB’000   RMB’000 

Lease of between 10 to 50 years

   948,526     668,005  
  

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

8LEASEHOLD LAND PAYMENTS (CONTINUED)

The remaining lease period of leasehold land as at 31 December 2017 was as follows:

   2016   2017 
   RMB’000   RMB’000 

Lease of between 10 to 20 years

   873,411    1,257,346 

Lease of between 20 to 30 years

   751,448    722,932 
  

 

 

   

 

 

 
   1,624,859    1,980,278 
  

 

 

   

 

 

 

 

9GOODWILL

 

   RMB’000 

Year ended 31 December 20142016 and 20152017

  

Opening net book amount

   281,255 

Additions

   —   

Impairment

   —   
  

 

 

 

Closing net book amount

   281,255 
  

 

 

 

At 31 December 20142016 and 20152017

  

Cost

   281,255 

Accumulated impairment

   —   
  

 

 

 

Net book amount

   281,255 
  

 

 

 

As at 31 December 20152017 and 2014,2016, the outstanding balance of goodwill 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.Company in 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. As a result, the goodwill balance has been allocated to the CGU comprising the Combined Railway Business.

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.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

9GOODWILL (CONTINUED)

 

The key assumptions used forvalue-in-use calculations are as follows:

 

Railroad business  2014 2015   2016 2017 

Gross margin

   24.64  18.02   18.92  17.76

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.

IfEven 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 2015,2017, the Group would have nonot need to recognise impairment recognisedcharges against goodwill.

IfEven 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 2015,2017, no impairment charges had to be recognised by the Group would have no impairment recognised against goodwill.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

10SUBSIDIARIES

The following is a list of the principal subsidiaries at 31 December 2015:2017:

 

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 (%)
  

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 

China, limited liability company

 

Warehousing in the PRC

  51  51  49

Shenzhen Fu Yuan Enterprise Development Company Limited

 

China, limited liability company

 

Hotel management in PRC

  100  100  —     

China, limited liability company

 

Hotel management in the 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  —     

China, limited liability company

 

Cargo loading and unloading, warehousing, freight transportation in the 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 

China, limited liability company

 

Supervision of construction projects in the PRC

  67.46  76.66  23.34

Shenzhen Railway Property Management Company Limited

 

China, limited liability company

 

Property management in PRC

  —      100  —     

China, limited liability company

 

Property management in the PRC

  —     100  —   

Shenzhen Shenhuasheng Storage and Transportation Company Limited

 

China, limited liability company

 

Warehousing, freight transport and packing agency services

  41.50  100  —     

China, limited liability company

 

Warehousing, freight transport and packing agency services in the PRC

  41.50  100  —   

Shenzhen Guangshen Railway Economic and Trade Enterprise Company Limited

 

China, limited liability company

 

Catering management in PRC

  —      100  —     

China, limited liability company

 

Catering management in the PRC

  —     100  —   

Shenzhen Railway Station Passenger Services Company Limited

 

China, limited liability company

 

Catering services and sales of merchandise in PRC

  100  100  —     

China, limited liability company

 

Catering services and sales of merchandise in the PRC

  100  100  —   

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

10SUBSIDIARIES (CONTINUED)

 

The following is a list of the principal subsidiaries at 31 December 20152017 (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”) (a)

 

China, limited liability company

 

Real estate construction, provision of warehousing, cargo uploading and unloading services

  44.72  44.72  55.28

In 2015, Shenzhen Guangshen Railway Travel Service Ltd. (“Guangshen Tielv”), a 100% owned subsidiary of the Company was liquidated. The comprehensive income statement of Guangshen Tielv are continuously be consolidated in 2015.

As at 31 December 2015, the non-wholly owned subsidiaries is not significant to the Group. Therefore, financial information of the non-wholly owned subsidiaries are not disclosed.

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 the PRC

  100  100  —   

Guangzhou Railway Huangpu Service Company Limited

 

China, limited liability company

 

Cargo loading and unloading, warehousing, freight transportation in the 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 in the PRC

  44.72  44.72  55.28

 

(i)(a)In 2015, the Company acquired additional 17.74% equity interest of a then associate, Zengcheng Lihua, with a cash consideration of RMB 4,704,000. Upon completion of the acquisition, the Company began to hold 44.72% equity interests in Zengcheng Lihua in aggregate. According to the Articles of Association of Zengcheng Lihua, the remaining shareholders are all natural persons and none of individualthese individuals 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 asin 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 onand the substantial financial and operating decisions of Zengcheng Lihua. On 12 February 2015, the company obtained control of Zengcheng Lihua and began to consolidate the financial statements of Zengcheng Lihua from then onwards.

As at 31 December 2017, thenon-wholly owned subsidiaries individually and in aggregate is not significant to the Group. Therefore, financial information of thenon-wholly owned subsidiaries are not disclosed.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

11INVESTMENTS IN ASSOCIATES

 

   2016   2017 
   RMB’000   RMB’000 

Share of net assets

   167,604    174,548 

Less: provision for impairment

   —      —   
  

 

 

   

 

 

 
   167,604    174,548 
  

 

 

   

 

 

 

The movement of investments in associates of the Group during the year is as follows:

   2016   2017 
   RMB’000   RMB’000 

Beginning of the year

   168,711    167,604 

Share of results after tax

   7,223    6,944 

Dividend

   (8,330   —   
  

 

 

   

 

 

 

End of the year

   167,604    174,548 
  

 

 

   

 

 

 

As at 31 December 2015,2017, the Group had direct interests in the following companies which are incorporated/established and are operating in the PRC:

 

Name of the entity

  DatePercentage of equity
incorporation/interest attributable
establishmentto the Company
 Percentage of
equity interest
attributable to the
Company
 Paid-in capital  

Principal activities

Guangzhou Tiecheng Enterprise Company Limited (“Tiecheng”)

  2 May 19954949%%  RMB343,050,000  Properties leasing and trading of
merchandise

Shenzhen Guangzhou Railway Civil Engineering Company (“Shentu”)

  1 March 19844949%%  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

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

11INVESTMENTS IN ASSOCIATES (CONTINUED)

 

Set out below are the summarised financial information for Tiecheng and Shentu which are accounted for using the equity method in the consolidated financial statements.

Summarised balance sheets

 

  Tiecheng   Shentu 
  Tiecheng   Shentu   2016   2017   2016   2017 
  2015
RMB’000
   2014
RMB’000
   2015
RMB’000
   2014
RMB’000
   RMB’000   RMB’000   RMB’000   RMB’000 

Current assets

   71,947     58,149     871,300     772,956     87,733    105,556    921,761    780,104 

Non-current assets

   346,761     352,300     7,734     9,291     339,409    333,602    7,614    12,151 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total assets

   418,708     410,449     879,034     782,247     427,142    439,158    929,375    792,255 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Current liabilities

   211,121     207,378     742,313     685,109     210,553    210,546    803,713    664,646 

Non-current liabilities

   202    —      —      —   
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total liabilities

   211,121     207,378     742,313     685,109     210,755    210,546    803,713    664,646 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Equity

   207,587     203,071     136,721     97,138     216,387    228,612    125,662    127,609 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Share of net assets

   101,718     99,505     66,993     47,597     106,030    112,020    61,574    62,528 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Carrying amount of interest in associates

   101,718     99,505     66,993     47,597     106,030    112,020    61,574    62,528 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Summarized comprehensive income statements

   Tiecheng   Shentu 
   2015   2016   2017   2015   2016   2017 
   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Revenue

   32,955    41,217    44,351    467,911    493,277    506,608 

Net profit

   4,516    8,800    12,225    583    5,941    1,947 

Other comprehensive income

   —      —      —      —      —      —   

Total comprehensive income for the year

   4,516    8,800    12,225    583    5,941    1,947 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of the summarised financial information presented to the carrying amount of its interests in associates as follows:

 

  Tiecheng Shentu Total   Tiecheng Shentu Total 
Summarised financial information  2015
RMB’000
 2014
RMB’000
 2015
RMB’000
 2014
RMB’000
 2015
RMB’000
 2014
RMB’000
 
  2016 2017 2016 2017 2016 2017 
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 

Opening net assets

   203,071    197,975    97,138    91,932    300,209    289,907     207,587   216,387   136,721   125,662   344,308   342,049 

Profit for the year

   4,516    5,096    583    5,206    5,099    10,302     8,800   12,225   5,941   1,947   14,741   14,172 

Increase in paid-in capital

   —      —      39,000    —      39,000    —    

Dividend

   —     —     (17,000  —     (17,000  —   
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Closing net assets

   207,587    203,071    136,721    97,138    344,308    300,209     216,387   228,612   125,662   127,609   342,049   356,221 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Percentage of ownership interest

   49  49  49  49  49  49   49  49  49  49  49  49
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Carrying value

   101,718    99,505    66,993    47,597    168,711    147,102     106,030   112,020   61,574   62,528   167,604   174,548 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

12DEFERRED TAX ASSETS/(LIABILITIES)

 

  2016   2017 
  2015
RMB’000
   2014
RMB’000
   RMB’000   RMB’000 

Deferred tax assets

   113,418     88,906     98,862    115,716 

Less: Offsetting of deferred tax liabilities

   (20,169   (21,322   (18,933   (78,711
  

 

   

 

   

 

   

 

 

Deferred tax assets (net)

   93,249     67,584  

Deferred tax assets(net)

   79,929    37,005 
  

 

   

 

   

 

   

 

 

Deferred tax liabilities

   (91,545   (21,322   (87,816   (145,102

Less: Offsetting of deferred tax assets

   20,169     21,322     18,933    78,711 
  

 

   

 

   

 

   

 

 

Deferred tax liabilities(net)

   (71,376   —       (68,883   (66,391
  

 

   

 

   

 

   

 

 
   21,873     67,584     11,046    (29,386
  

 

   

 

   

 

   

 

 

The analysis of deferred tax assets and deferred tax liabilities is as follows:

 

   

As at

31 December

2014
RMB’000

   

As at

31 December

2015
RMB’000

 

Deferred tax assets:

    

-Deferred tax assets to be recovered after more than 12 months

   84,497     112,511  

-Deferred tax assets to be recovered within 12 months

   4,409     907  
�� 

 

 

   

 

 

 
   88,906     113,418  
  

 

 

   

 

 

 

Deferred tax liabilities:

    

-Deferred tax liabilities to be recovered after more than 12 months

   (19,976   (88,325

-Deferred tax liabilities to be recovered within 12 months

   (1,346   (3,220
  

 

 

   

 

 

 
   (21,322   (91,545
  

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2015

(All amounts expressed in Renminbi unless otherwise stated)

12DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED)

   

As at
31 December

2016

   

As at
31 December

2017

 
   RMB’000   RMB’000 

Deferred tax assets:

    

-Deferred tax assets to be recovered after more than 12 months

   97,706    114,387 

-Deferred tax assets to be recovered within 12 months

   1,156    1,329 
  

 

 

   

 

 

 
   98,862    115,716 
  

 

 

   

 

 

 

Deferred tax liabilities:

    

-Deferred tax liabilities to be recovered after more than 12 months

   (83,937   (142,159

-Deferred tax liabilities to be recovered within 12 months

   (3,879   (2,943
  

 

 

   

 

 

 
   (87,816   (145,102
  

 

 

   

 

 

 

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
2014
RMB’000
   

Charged/

(Credited)

to the

comprehensive

income

statement
RMB’000

  

At

31 December 2014
RMB’000

   

Charged/

(Credited)

to the

comprehensive

income

statement
RMB’000

  

At

31 December 2015
RMB’000

 

Deferred tax assets:

       

Impairment provision for receivables

   19,285     288    19,573     (11,745  7,828  

Impairment provision for fixed assets and construction-in-progress

   2,533     (403  2,130     609    2,739  

Impairment provision for interests in associates

   7,422     —      7,422     (7,422  —    

Impairment provision for materials and supplies

   4,511     —      4,511     7,326    11,837  

Difference in accounting base and tax base of the government grants

   21,271     (284  20,987     3,965    24,952  

Difference in accounting base and tax base of employee benefits obligations

   54,622     (20,738  33,884     1,323    35,207  

Loss on disposal of fixed assets

   2,915     (2,566  349     30,456    30,805  

Other

   50     —      50     —      50  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
   112,609     (23,703  88,906     24,512    113,418  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

   At 1 January
2014
RMB’000
   

Credited/

(Charged)

to the

comprehensive

income

statement
RMB’000

  

At

31 December

2014
RMB’000

   Business
combination
RMB’000
   

Credited/

(Charged)

to the

comprehensive

income

statement
RMB’000

  

At

31 December

2015
RMB’000

 

Deferred tax liabilities:

         

Difference in accounting base and tax base in recognition of fixed assets

   11,031     (166  10,865     —       (1,258  9,607  

Difference in accounting base and tax base in recognition of intangible assets

   —       — ��    —       73,661     (2,285  71,376  

Others

   10,351     106    10,457     —       105    10,562  
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 
   21,382     (60  21,322     73,661     (3,438  91,545  
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(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.

   At 1 January
2016
RMB’000
   (Charged)/
Credited to
the
comprehensive
income
statement
RMB’000
  At
31 December 2016
RMB’000
   (Charged)/
Credited to
the
comprehensive
income
statement
RMB’000
  At
31 December 2017
RMB’000
 

Deferred tax assets:

       

Impairment provision for receivables

   7,828    (825  7,003    (2,230  4,773 

Impairment provision for fixed assets andconstruction-in-progress

   2,739    1,416   4,155    2,793   6,948 

Impairment provision for materials and supplies

   11,837    (5,843  5,994    1,126   7,120 

Differences in accounting base and tax base of government grants

   24,952    768   25,720    (201  25,519 

Differences in accounting base and tax base of employee benefits obligations

   35,207    4,448   39,655    992   40,647 

Loss on disposal of fixed assets

   30,805    (14,520  16,285    14,424   30,709 

Others

   50    —     50    (50  —   
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
   113,418    (14,556  98,862    16,854   115,716 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

   At 1 January
2016
RMB’000
   Charged/
(Credited) to
the
comprehensive
income
statement
RMB’000
  At
31 December
2016
RMB’000
   Charged/
(Credited) to
the
comprehensive
income
statement
RMB’000
  At
31 December
2017
RMB’000
 

Deferred tax liabilities:

        

Differences in accounting base and tax base in recognition of fixed assets

   9,607    (1,340  8,267    (404  7,863 

Differences in accounting base and tax base in recognition of leasehold land payments

   71,376    (2,493  68,883    (2,493  66,390 

Changes in the fair value ofavailable-for-sale financial assets

   —      —     —      60,647   60,647 

Others

   10,562    104   10,666    (464  10,202 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
   91,545    (3,729  87,816    57,286   145,102 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed in Renminbi unless otherwise stated)

12DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED)

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 RMB75,926,000 (2014: RMB62,368,000) that can be carried forward against future taxable income as follows:RMB95,370,000 (2016: RMB89,630,000) arising from operations of subsidiaries which do not foresee to have enough tax deductible assessable profits in the near future.

 

  

As at

31 December

2014
RMB’000

   

As at

31 December

2015
RMB’000

   

As at
31 December

2016
RMB’000

   

As at
31 December

2017
RMB’000

 

Tax losses can be carried forward (Note a)

   49,379     63,452  

Tax losses that can be carried forward (Note a)

   77,328    82,918 

Deductible temporary differences

   12,989     12,474     12,302    12,452 
  

 

   

 

   

 

   

 

 
   62,368     75,926     89,630    95,370 
  

 

   

 

   

 

   

 

 

Note a:

The tax loss carry-forwards in which no deferred income tax assets were recognised amounting to RMB63,452,000 (2014: RMB49,379,000) will expire in the following years:

 

  

As at

31 December

2014
RMB’000

   

As at

31 December

2015
RMB’000

   

As at
31 December

2016
RMB’000

   

As at
31 December

2017
RMB’000

 

2015

   1,839     —    

2016

   10,984     8,746  

2017

   15,405     15,405     15,405    —   

2018

   14,418     14,307     14,307    13,499 

2019

   6,733     6,516     6,516    6,371 

2020

   —       18,478     18,478    18,478 

2021

   22,622    22,325 

2022

   —      22,245 
  

 

   

 

   

 

   

 

 
   49,379     63,452     77,328    82,918 
  

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

13LONG-TERM PREPAID EXPENSES

The long-term prepaid expenses represented staff uniforms. The movements of long-term prepaid expenses are set forth as follows:

 

  2014
RMB’000
   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

At 1 January

        

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 
  

 

   

 

   

 

   

 

 

Year ended 31 December

        

Opening net book amount

   33,528     22,004     14,485    7,824 

Additions

   2,407     6,660     307    28,745 

Amortisation

   (13,931   (14,179   (6,968   (3,168
  

 

   

 

   

 

   

 

 

Closing net book amount

   22,004     14,485     7,824    33,401 
  

 

   

 

   

 

   

 

 

At 31 December

        

Cost

   57,110     63,770     64,077    92,822 

Accumulated amortisation

   (35,106   (49,285   (56,253   (59,421
  

 

   

 

   

 

   

 

 

Net book amount

   22,004     14,485     7,824    33,401 
  

 

   

 

   

 

   

 

 

 

14FINANCIAL INSTRUMENTS BY CATEGORY

 

  

Loans and

receivables
RMB’000

   

Available-

for-sale
RMB’000

   Total
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 2014:

      

Financial assets as at 31 December 2017

      

Available-for-sale investments (Note 15)

   —       53,826     53,826     —      296,414    296,414 

Long-term receivable (Note 16)

   30,197     —       30,197     31,274    —      31,274 

Trade and other receivables excluding prepayments (Notes 18 and 19)

   2,456,619     —       2,456,619     4,417,317    —      4,417,317 

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     1,160,515    —      1,160,515 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   4,255,873     53,826     4,309,699     5,717,106    296,414    6,013,520 
  

 

   

 

   

 

   

 

   

 

   

 

 

As at 31 December 2015:

      

Financial assets as at 31 December 2016

      

Available-for-sale investments (Note 15)

   —       53,826     53,826     —      53,826    53,826 

Long-term receivable (Note 16)

   30,804     —       30,804     31,406    —      31,406 

Trade and other receivables excluding prepayments (Notes 18 and 19)

   3,022,923     —       3,022,923     3,665,646    —      3,665,646 

Short-term deposits (Note 20)

   106,000     —       106,000     108,000    —      108,000 

Cash and cash equivalents (Note 20)

   2,220,803     —       2,220,803     1,359,656    —      1,359,656 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   5,380,530     53,826     5,434,356     5,164,708    53,826    5,218,534 
  

 

   

 

   

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

14FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)

 

 

   

Other financial
Financial

liabilities
RMB’000

 

LiabilitiesFinancial liabilities as per consolidated balance sheet

As at 31 December 2014:2017

  

Trade and other payables excluding other tax payables, employee salary and benefits payables and advances (Notes 25 and 26)

   1,942,4312,356,953

Payables for fixed assets andconstruction-in-progress

2,214,547 

Dividends payable

   548

Payables for fixed assets and construction-in-progress

1,094,81412,893 
  

 

 

 

Total

   3,037,7934,584,393 
  

 

 

 

AsFinancial liabilities as at 31 December 2015:2016

  

Trade and other payables excluding other tax payables, employee salary and benefits payables and advances (Notes 25 and 26)

   2,136,5702,201,483

Payables for fixed assets andconstruction-in-progress

1,765,185 

Dividends payable

   14,318

Payables for fixed assets and construction-in-progress

1,425,99815,542 
  

 

 

 

Total

   3,576,8863,982,210 
  

 

 

 

 

15AVAILABLE-FOR-SALE INVESTMENTS

 

   2014
RMB’000
   2015
RMB’000
 

Beginning and the end of the year

   53,826     53,826  
  

 

 

   

 

 

 
   2016
RMB’000
   2017
RMB’000
 

Investments in unlisted companies

   53,826    296,414 
  

 

 

   

 

 

 

Theavailable-for-sale investments mainly represent equity interests held by the Group in these investments are allcertain unlisted companies with percentage ownership less than 10%. No quoted market price in an active market was available for these investments and the directors of the Company are of the opinion that their fair values could not be reliably measured by alternative valuation methods. As a result, the above non-current available-for-sale investments had been carried at cost, subject to review for impairment loss. As at 31 December 2014 and 2015, no impairment provision was considered necessary by the directors.2% individually.

(i)In 2017, one substantial investee company withinavailable-for sale instruments sent a written proposal to all its shareholders, requesting for additional capital injections to be made according to the respective percentage of equity interests held by each investor at the assessed enterprise value of that investee company (“Assessed Fair Value”). Accordingly, the carrying amount of the whole investment in this investee company as at 31 December 2017 had been stated at fair value(RMB 280,088,000) determined based on the Assessed Fair Value and an amount of fair value changes of RMB 242,588,000 had been included in other comprehensive income (Note 22).

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

15AVAILABLE-FOR-SALE INVESTMENTS(CONTINUED)

The following table presents the changes in level 3 items for the periods ended 31 December 2017:

Investments in
unlisted companies

RMB’000

Closing balance 31 December 2016

—  

Transfer from cost

��37,500

Fair value changes recognised in other comprehensive income

242,588

Closing balance 31 December 2017

280,088

(ii)Due to the fact that there is no quoted market price in an active market available for the assessment of the fair values of other remaining investments, the directors of the Company are of the opinion that their fair values could not be reliably measured by any reasonable valuation methods. As a result, the investments in other unlisted companies had been carried at cost, subject to review for impairment loss. As at 31 December 2017, no impairment provision was considered necessary by the directors.

16LONG-TERM RECEIVABLE

   2014
RMB’000
   2015
RMB’000
 

Opening net book amount

   29,588     30,197  

Unwinding of interest accrued (Note 28)

   2,609     2,607  

Repayment received

   (2,000   (2,000
  

 

 

   

 

 

 

Closing net book amount

   30,197     30,804  
  

 

 

   

 

 

 

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 2015.2017.

 

17MATERIALS AND SUPPLIES

 

   

As at

31 December

2014
RMB’000

   

As at

31 December

2015
RMB’000

 

Raw materials

   167,543     156,441  

Reusable rail-line track materials

   147,115     93,134  

Accessories

   83,616     55,264  

Retailing consumables

   2,235     2,217  
  

 

 

   

 

 

 
   400,509     307,056  
  

 

 

   

 

 

 

The costs of materials and supplies consumed by the Group during the year were recognised as ‘operating expenses’ in the amount of approximately RMB1,565,648,000 (2013:RMB1,925,798,000 and 2014: RMB1,616,234,000).

As at 31 December 2015, the balance of the provision for writing down the materials and supplies to their net realizable values was approximately RMB47,348,000 (2014: RMB18,044,000). During the year, RMB64,096,000 additional provision had been made and RMB34,792,000 was written off due to the reusable rail-line track materials and accessories disposal (2014: Nil).

   

As at
31 December

2016
RMB’000

   

As at
31 December

2017
RMB’000

 

Raw materials

   184,520    185,639 

Reusable rail-line track materials

   79,311    76,017 

Accessories

   67,236    67,493 

Retailing consumables

   1,540    1,578 
  

 

 

   

 

 

 
   332,607    330,727 
  

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

17MATERIALS AND SUPPLIES (CONTINUED)

The costs of materials and supplies consumed by the Group during the year were recognised as “operating expenses” in the amount of RMB1,627,992,000 (2016: RMB1,697,166,000 and 2015: RMB1,565,648,000).

As at 31 December 2017, the balance of the provision for writing down the materials and supplies to their net realisable values was approximately RMB28,466,000 (2016: RMB23,976,000). During the year, additional provision of RMB7,844,000 was made and RMB3,354,000 was written off arising from realization of losses in the disposal of these assets (2016: RMB18,163,000).

18TRADE RECEIVABLES

 

  

As at

31 December 2014

   

As at

31 December 2015

 
  RMB’000   RMB’000   

As at

31 December 2016
RMB’000

   

As at

31 December 2017
RMB’000

 

Trade receivables

   2,320,408     2,894,461     3,369,331    4,148,413 

Including: receivables from related parties

   765,098     862,199     730,061    2,808,052 

Less: Provision for impairment of receivables

   (7,003   (8,395   (4,965   (6,203
  

 

   

 

   

 

   

 

 
   2,313,405     2,886,066     3,364,366    4,142,210 
  

 

   

 

   

 

   

 

 

As at 31 December 2015,2017 and 2016, the Group’s trade receivables were all denominated in RMB (2014: RMB).RMB. The majority of the trade receivable were from state-owned railroad companies or companies in transportation industry.

The passenger transportationrailroad services are usually transacted on a cash basis. The Group does not have formal contractual credit terms agreed with its customers for freight transportation services and other businesses but the trade receivables are usually settled within a period less than one year. As a result, the Group regards any receivable balance within a one-year credit periodone year being not overdue. The aging analysis of the outstanding trade receivables is as follows:

 

   

As at

31 December 2014

   

As at

31 December 2015

 
   RMB’000   RMB’000 

Within 1 year

   1,950,885     2,190,263  

Over 1 year but within 2 years

   324,455     547,527  

Over 2 years but within 3 years

   17,444     133,764  

Over 3 years

   27,624     22,907  
  

 

 

   

 

 

 
   2,320,408     2,894,461  
  

 

 

   

 

 

 

As at 31 December 2015, the Group’s trade receivables of approximately RMB695,803,000 (2014: RMB362,520,000), were past due but not impaired. These relate to a number of independent customers for whom there is no significant financial difficulty and based on past experience, the overdue amounts can be recovered. The aging analysis of these trade receivables is as follows:

  As at
31 December 2014
   As at
31 December 2015
   

As at

31 December 2016

   

As at

31 December 2017

 
  RMB’000   RMB’000   RMB’000   RMB’000 

Within 1 year (Note 3.1(b))

   2,517,281    2,799,028 

Over 1 year but within 2 years

   324,189     547,527     588,640    763,812 

Over 2 year but within 3 years

   17,444     133,764  

Over 2 years but within 3 years

   223,675    522,122 

Over 3 years

   20,887     14,512     39,735    63,451 
  

 

   

 

   

 

   

 

 
   362,520     695,803     3,369,331    4,148,413 
  

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

18TRADE RECEIVABLES (CONTINUED)RECEIVABLES(CONTINUED)

 

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 realisability and timing for collection of the outstanding balances, the Group maintains a provision for impairment of trade receivables and actual losses incurred have been within management’s expectation.

As at 31 December 2015,2017, the Group’s trade receivables of approximately RMB8,395,000 (2014: RMB7,003,000),RMB1,343,182,000 (2016: RMB847,085,000) were past due but not impaired. These relate to a number of independent customers that are state-owned companies engaged in the railroad and transportation business, including High Speed train operations in the PRC. There had been continuous businesses transactions carried out with the Group with these customers and there was continuous repayment made and no history of default. The aging analysis of these trade receivables is as follows:

   

As at

31 December 2016

   

As at

31 December 2017

 
   RMB’000   RMB’000 

Over 1 year but within 2 years

   588,640    758,141 

Over 2 years but within 3 years

   223,675    522,122 

Over 3 years but within 5 years

   34,770    62,919 
  

 

 

   

 

 

 
   847,085    1,343,182 
  

 

 

   

 

 

 

As at 31 December 2017, the Group’s trade receivables of approximately RMB6,203,000 (2016:RMB4,965,000) had been impaired and provided for. The amount of the provision made by the Group was approximately RMB8,395,000 as at 31 December 2015 (2014: RMB7,003,000). 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 2014
   As at
31 December 2015
   2016   2017 
  RMB’000   RMB’000   RMB’000   RMB’000 

Over 1 year but within 2 years

   266     —       —      5,671 

Over 3 years

   6,737     8,395  

Over 5 years

   4,965    532 
  

 

   

 

   

 

   

 

 
   7,003     8,395     4,965    6,203 
  

 

   

 

   

 

   

 

 

Movements on the provision for impairment of trade receivables are as follows:

 

  2014   2015   2015   2016   2017 
  RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

At 1 January

   6,195     7,003     7,003    8,395    4,965 

Provision for impairment loss

   808     3,305     3,305    6    5,904 

Reversal

   —       (127   (127   —      —   

Written-off

   —       (1,786   (1,786   (3,436   (4,666
  

 

   

 

   

 

   

 

   

 

 

At 31 December

   7,003     8,395     8,395    4,965    6,203 
  

 

   

 

   

 

   

 

   

 

 

The creation and release of provision for impaired receivables have been included

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed 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.Renminbi unless otherwise stated)

18TRADE RECEIVABLES(CONTINUED)

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

FOR THE YEAR ENDED 31 DECEMBER 2015

(All amounts expressed in Renminbi unless otherwise stated)

 

19PREPAYMENTS AND OTHER RECEIVABLES

 

  As at
31 December 2014
   As at
31 December 2015
   

As at

31 December 2016

   

As at

31 December 2017

 
  RMB’000   RMB’000   RMB’000   RMB’000 

Due from third parties

   141,843     134,825     304,530    268,715 

Due from other related parties

   47,733     7,788  

Due from related parties

   25,961    45,536 
  

 

   

 

   

 

   

 

 
   189,576     142,613     330,491    314,251 
  

 

   

 

   

 

   

 

 
  As at
31 December 2014
   As at
31 December 2015
   

As at

31 December 2016

   

As at

31 December 2017

 
  RMB’000   RMB’000   RMB’000   RMB’000 

Other receivables

   205,274     150,234     314,616    288,432 

Less: Provision for impairment loss

   (62,060   (13,377   (13,336   (13,325
  

 

   

 

   

 

   

 

 

Other receivables, net (Note (a))

   143,214     136,857     301,280    275,107 

Prepayments (Note (b))

   46,362     5,756     29,211    39,144 
  

 

   

 

   

 

   

 

 
   189,576     142,613     330,491    314,251 
  

 

   

 

   

 

   

 

 

 

(a)Other receivables mainly represent miscellaneous deposits and receivables arising from the course of provision ofnon-railway transportation services by the Group. As of 31 December 2017, the input VAT with related invoices not been received or verified amounted to RMB122,190,000 (2016: RMB 156,072,000).

Movements on the provision for impairment of other receivables are as follows:

   2015   2016   2017 
   RMB’000   RMB’000   RMB’000 

At 1 January

   62,060    13,377    13,336 

Provision for impairment loss

   62    —      —   

Reversal of impairment loss provision

   (7,699   (1   (3

Written-off

   (28,734   (40   (8

Elimination arising from business combination

   (12,312   —      —   
  

 

 

   

 

 

   

 

 

 

At 31 December

   13,377    13,336    13,325 
  

 

 

   

 

 

   

 

 

 

 

(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:

   2014   2015 
   RMB’000   RMB’000 

At 1 January

   61,718     62,060  

Provision for impairment loss

   346     62  

Reversal of impairment loss provision

   (4   (7,699

Written-off

   —       (28,734

Elimination arising from business combination

   —       (12,312
  

 

 

   

 

 

 

At 31 December

   62,060     13,377  
  

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(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 2014
   As at
31 December 2015
   

As at

31 December 2016

   

As at

31 December 2017

 
  RMB’000   RMB’000   RMB’000   RMB’000 

RMB

   189,483     142,542     330,425    314,184 

HKD

   93     71     66    67 
  

 

   

 

   

 

   

 

 
   189,576     142,613     330,491    314,251 
  

 

   

 

   

 

   

 

 

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 2014
   As at
31 December 2015
   

As at 31

December
2016

   

As at 31

December
2017

 
  RMB’000   RMB’000   RMB’000   RMB’000 

Cash at bank and on hand

   1,213,057     1,268,803     1,007,156    1,108,015 

Term deposits with initial term not more than three months

   452,000     952,000     352,500    52,500 
  

 

   

 

   

 

   

 

 

Cash and cash equivalents

   1,665,057     2,220,803     1,359,656    1,160,515 

Term deposits with initial term of over three months (Note a)

   104,000     106,000  

Term deposits with initial term of over three months (Note)

   108,000    108,000 
  

 

   

 

   

 

   

 

 
   1,769,057     2,326,803     1,467,656    1,268,515 
  

 

   

 

   

 

   

 

 

Note a:Note: The original effective interest rate of term deposits was 2.50%p.a (2014: 3.05%p.a)1.56% per annum (2016: 1.65% per annum).

The carrying amounts of the cash and cash equivalents and short-term deposits are denominated in the following currencies:

 

  As at
31 December 2014
   As at
31 December 2015
   

As at

31 December 2016

   

As at

31 December
2017

 
  RMB’000   RMB’000   RMB’000   RMB’000 

RMB

   1,706,964     2,254,663     1,351,880    1,235,719 

HKD

   62,093     72,140     115,680    32,650 

USD

   96    146 
  

 

   

 

   

 

   

 

 
   1,769,057     2,326,803     1,467,656    1,268,515 
  

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

21SHARE CAPITAL

As at 31 December 2015,2017 and 2016, the total authorised number of ordinary shares is 7,083,537,000 shares (2014: 7,083,537,000 shares) with a par value of RMB1.00 per share (2014: RMB1.00 per share).share. These shares are divided into A shares and H shares. They rank pari passu against each other and they were fully paid up (2014: same).up.

 

  

As at

31 December

2013

   Movement   

As at

31 December

2014

   Movement   

As at

31 December

2015

   

As at

31 December
2015

   Movement   

As at

31 December
2016

   Movement   

As at

31 December
2017

 
  RMB’000   RMB’000   RMB’000   RMB’000   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 articlesArticles of associationAssociation 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 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

22RESERVES (CONTINUED)

 

For the year ended 31 December 20142015, 2016 and 2015,2017, the directors proposed the following appropriations to reserves of the Company:

 

   2014
RMB’000
  2014
RMB’000
   2015
Percentage
  2015
RMB’000
 

Statutory surplus reserve

   10  66,036     10  111,760  
  

 

 

  

 

 

   

 

 

  

 

 

 
   2015
Percentage
  2015
RMB’000
   2016
Percentage
  2016
RMB’000
   2017
Percentage
  2017
RMB’000
 

Statutory surplus reserve

   10  111,760    10  117,050    10  101,982 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

In accordance with the provisions of the articlesArticles of associationAssociation 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 20142015,2016 and 2015,2017, the movement of ‘Special reserve - Safety Production Fund’ of the Group isare as below:

 

  2014
RMB’000
   2015
RMB’000
   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Beginning of the year

   —       —       —      —      —   

Appropriation

   208,250     192,860  

Appropriation for retained earnings

   192,860    204,792    227,250 

Utilisation

   (208,250   (192,860   (192,860   (204,792   (227,250
  

 

   

 

   

 

   

 

   

 

 

End of the year

   —       —       —      —      —   
  

 

   

 

   

 

   

 

   

 

 

The Company is engaged in passenger and freight transportation business. In accordance with the regulationregulations issued by Ministry of Finance and State Administration of Work Safety of the PRC, 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 DECEMBER2015 2017

(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 profit or loss.

For the year 2015,2016 and 2017, the movement of other comprehensive income statement. Meanwhile,of the corresponding Safety Production Fund reserveGroup are as below:

2015
RMB’000
2016
RMB’000
2017
RMB’000

Beginning of the year

—  —  —  

Addition due to fair value changes onavailable-for-sale investments

—  —  242,588

Addition due to deferred liabilities related to fair value changes onavailable-for-sale investments

—  —  (60,647

End of the year

—  —  181,941

The additions of other comprehensive income in current year is released backattributable to retained earnings.the fair value changes of investment in anavailable-for-sale financial instrument as mentioned in Note 15.

 

23DEFERRED INCOME RELATING TO GOVERNMENT GRANTS

 

   2014
RMB’000
   2015
RMB’000
 

Beginning of the year

   90,404     88,771  

Additions

   6,330     22,563  

Credited to comprehensive income statement

   (7,963   (7,349

Including: amortisation

   (3,249   (2,529
  

 

 

   

 

 

 

End of the year

   88,771     103,985  
  

 

 

   

 

 

 
   2016
RMB’000
   2017
RMB’000
 

Government grants

   106,810    105,754 

Others

   —      37 
  

 

 

   

 

 

 

Total

   106,810    105,791 
  

 

 

   

 

 

 

Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included innon-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets.

 

24EMPLOYEE BENEFITS OBLIGATIONS

 

   

As at

31 December 2014
RMB’000

   

As at

31 December 2015
RMB’000

 

Employee benefits obligations

   44,928     13,380  

Less: current portion included in accruals and other payables (Note 26)

   (44,928   (13,380
  

 

 

   

 

 

 
   —       —    
  

 

 

   

 

 

 
   

As at 31

December 2016
RMB’000

   

As at 31

December 2017
RMB’000

 

Employee benefits obligations(Note 26)

   34,043    30,745 

Less: current portion included in accruals and other payables

   (34,043   (30,745
  

 

 

   

 

 

 
   —      —   
  

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed in Renminbi unless otherwise stated)

24EMPLOYEE BENEFITS OBLIGATIONS (CONTINUED)

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 and Guangmeishan Railway Company Limited(“GRCL”) Business and Guangdong Sanmao Railway Company Limited (“GSRC”) Business in 2016 (Note37), the Group has also assumed certain retirement and termination benefits obligations associated with the operations of Yangcheng Railway Business, GSRL Business and GSRC 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 LIMITEDrespective acquisitions.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2015

(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 markettreasury bond 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 theduring current year is as follows:

 

  2014
RMB’000
   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

At 1 January

   113,733     44,928     13,380    34,043 

Additions

   32,410     —       24,727    —   

Amortisation of interest (Note 29)

   4,594     226  

Payments

   (105,809   (31,774   (4,064   (3,298
  

 

   

 

   

 

   

 

 

At 31 December

   44,928     13,380     34,043    30,745 
  

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

25TRADE PAYABLES

 

  

As at

31 December 2014

RMB’000

   

As at

31 December 2015

RMB’000

   

As at

31 December 2016
RMB’000

   

As at

31 December 2017
RMB’000

 

Payables to third parties

   820,622     673,641     610,472    614,822 

Payables to related parties

   617,822     431,650     533,051    710,255 
  

 

   

 

   

 

   

 

 
   1,438,444     1,105,291     1,143,523    1,325,077 
  

 

   

 

   

 

   

 

 

The aging analysis of trade payables was as follows:

 

  

As at

31 December 2014

RMB’000

   

As at

31 December 2015

RMB’000

   

As at

31 December 2016
RMB’000

   

As at

31 December 2017
RMB’000

 

Within 1 year

   1,322,771     939,640     860,315    1,075,298 

Over 1 year but within 2 years

   68,497     138,648     258,227    180,294 

Over 2 years but within 3 years

   23,391     9,545     7,477    49,359 

Over 3 years

   23,785     17,458     17,504    20,126 
  

 

   

 

   

 

   

 

 
   1,438,444     1,105,291     1,143,523    1,325,077 
  

 

   

 

   

 

   

 

 

 

26ACCRUALS AND OTHER PAYABLES

 

  

As at

31 December 2014

RMB’000

   

As at

31 December 2015

RMB’000

   

As at

31 December 2016
RMB’000

   

As at

31 December 2017
RMB’000

 

Due to third parties

   940,704     1,064,752     1,188,416    1,017,309 

Due to related parties

   29,057     399,634     430,331    445,922 
  

 

   

 

   

 

   

 

 
   969,761     1,464,386     1,618,747    1,463,231 
  

 

   

 

   

 

   

 

 

 

  

As at

31 December 2014
RMB’000

   

As at

31 December 2015

RMB’000

   

As at

31 December 2016
RMB’000

   

As at

31 December 2017
RMB’000

 

Payables to GEDC assumed by the business combination with Zengcheng Lihua

   —       368,560  

Payables to GEDC assumed by business combination with Zengcheng Lihua

   368,560    377,703 

Advances received from customers

   237,095     249,825     295,088    152,010 

Other deposits received

   204,116     232,776     242,104    226,453 

Deposits received for construction projects

   124,253     188,416     207,877    203,886 

Salary and welfare payables

   129,977     152,727     172,299    178,427 

Amount received on behalf of Labour Union

   68,914    73,463 

Other taxes payable

   59,357    70,173 

Deposits received from ticketing agencies

   35,762     37,543     36,018    34,298 

Other taxes payable

   53,774     17,175  

Employee benefits obligations (Note 24)

   34,043    30,745 

Housing maintenance fund

   15,802     15,859     15,692    15,740 

Employee benefits obligations (Note 24)

   44,928     13,380  

Other payables

   124,054     188,125     118,795    100,333 
  

 

   

 

   

 

   

 

 
   969,761     1,464,386     1,618,747    1,463,231 
  

 

   

 

   

 

   

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

27LABOUR ANDAUDITORS’ REMUNERATION

Auditors’ remuneration in respect of audit andnon-audit services provided by the auditors for the year ended 31 December 2017 were RMB8,400,000 and RMB950,000 respectively (2016: RMB8,080,000 and RMB190,000 respectively and 2015: RMB8,080,000 and RMB250,000, respectively).

28EMPLOYEE BENEFITS

 

 2013 2014   2015 
 RMB’000 RMB’000   RMB’000   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Wages and salaries

  3,127,540    3,414,192     3,672,234     3,672,234    4,362,506    4,848,830 

Provision for medical, housing scheme and other employee benefits (a)

  779,845    857,203     916,965     916,965    1,114,918    1,220,708 

Contributions to the defined contribution scheme (b)

  517,807    639,493     620,898     620,898    741,923    772,682 
 

 

  

 

   

 

   

 

   

 

   

 

 
  4,425,192    4,910,888     5,210,097     5,210,097    6,219,347    6,842,220 
 

 

  

 

   

 

   

 

   

 

   

 

 

 

(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 ornor constructive obligation fortowards housing benefits of these employees offered 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.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2015

(All amounts expressed in Renminbi unless otherwise stated)

 

28(c)OTHER INCOME AND OTHER GAINS/(LOSSES) – NETFive highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include one director (2016: one), three senior executives (2016: four) and one supervisor (2016: Nil).

   2013   2014   2015 
   RMB’000   RMB’000   RMB’000 

Loss on disposal of fixed assets and leasehold land

   (136,986   (123,567   (49,008

Interest income from banks

   137,958     122,020     38,145  

Dividend income on available-for-sale investments

   4,904     4,904     5,884  

Government grants (Note 23)

   5,143     7,963     7,349  

Unwinding of interest accrued on long-term receivable (Note 16)

   3,725     2,609     2,607  

Impairment of long lived assets and investment loss (Note 5)

   —       —       (127,900

Income from compensation

   —       —       1,167  

Others

   159     (6,791   7,129  
  

 

 

   

 

 

   

 

 

 
   14,903     7,138     (114,627
  

 

 

   

 

 

   

 

 

 

The emolument range of each individual is within the band of Nil to RMB498,000 (2016: Nil to RMB 447,255).

29FINANCE COSTS

   2013   2014   2015 
   RMB’000   RMB’000   RMB’000 

Interest expense

   167,650     160,760     —    

Bank charges

   5,522     7,332     7,387  

Amortisation of bonds payable

   7,250     7,277     —    

Amortisation of interest for employee benefit obligations (Note 24)

   9,127     4,594     226  

Net foreign exchange (gains)/losses

   2,137     410     (3,005
  

 

 

   

 

 

   

 

 

 
   191,686     180,373     4,608  
  

��

 

   

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

29OTHER LOSSES– NET

   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Loss on disposal of fixed assets—net

   (49,008   (133,073   (77,026

Interest income from banks

   38,145    24,772    18,974 

Dividend income onavailable-for-sale investments

   5,884    5,884    6,473 

Government grants

   7,349    9,769    13,272 

Impairment of fixed assets(Note 6)

   (80,393   —      (11,185

Loss arising from business combination

   (45,073   —      —   

Impairment ofconstruction-in-progress(Note 7)

   (2,434   (5,662   —   

Income from compensation

   1,167    749    295 

Impairment of trade receivables (Note 18)

   —      (6   (5,904

Unwinding of interest accrued on long-term receivable

   —      2,602    2,868 

Others

   9,736    (13,305   3,756 
  

 

 

   

 

 

   

 

 

 
   (114,627   (108,270   (48,477
  

 

 

   

 

 

   

 

 

 

30FINANCE (COSTS)/INCOME—NET

   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Bank charges

   (7,387   (3,823   (2,866

Amortisation of interest for employee benefit obligations (Note 24)

   (226   —      —   

Net foreign exchange (losses)/gains

   3,005    6,374    (7,304
  

 

 

   

 

 

   

 

 

 
   (4,608   2,551    (10,170
  

 

 

   

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed in Renminbi unless otherwise stated)

31INCOME TAX EXPENSE

In 2015, 20142016 and 2013,2017, the applicable income tax rate of the Company was 25%.

An analysis of the current year taxation chargesincome tax expense is as follows:

 

  2013   2014   2015 
  RMB’000   RMB’000   RMB’000   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Current income tax

   412,736     195,864     416,480     416,480    379,482    355,579 

Deferred income tax (Note 12)

   17,934     23,643     (27,950   (27,950   10,827    (20,215
  

 

   

 

   

 

   

 

   

 

   

 

 
   430,670     219,507     388,530     388,530    390,309    335,364 
  

 

   

 

   

 

   

 

   

 

   

 

 

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:

 

   2013   2014   2015 
   RMB’000   RMB’000   RMB’000 

Profit before tax

   1,701,753     880,633     1,451,838  
  

 

 

   

 

 

   

 

 

 

Tax calculated at the statutory rate of 25% (2014 and 2013: 25%)

   425,438     220,158     362,960  

Effect of tax rates differentials

   119     118     —    

Effect of income not subject to tax

   (2,533   (2,498   (2,096

Effect of expenses and losses not deductible for tax purposes

   3,969     451     13,188  

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 recognized in prior years

   4,010     1,683     4,619  

Utilisation of previously unrecognized tax losses

   (333   (405   (641
  

 

 

   

 

 

   

 

 

 

Income tax expense

   430,670     219,507     388,530  
  

 

 

   

 

 

   

 

 

 
   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Profit before tax

   1,451,838    1,544,009    1,347,132 
  

 

 

   

 

 

   

 

 

 

Tax calculated at the statutory rate of 25% (2016 and 2015: 25%)

   362,960    386,002    336,783 

Effect of income not subject to tax

   (2,096   (3,277   (3,354

Effect of expenses not deductible for tax purposes

   1,920    1,928    663 

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

   4,619    5,656    5,561 

Over provision of previous year’s income tax

   —      —      (3,886

Utilisation of previously unrecognised tax losses

   (641   —      (403
  

 

 

   

 

 

   

 

 

 

Income tax expense

   388,530    390,309    335,364 
  

 

 

   

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

3132EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit for the year attributable to equity holders of approximately RMB1,015,361,000 (2015 and 2016: RMB1,070,822,000 (2013 and 2014: RMB1,273,841,000 and RMB662,021,000)RMB1,158,253,000), divided by the weighted average number of ordinary shares outstanding during the year of 7,083,537,000 shares (2013(2015 and 2014:2016: 7,083,537,000 shares). There were no dilutive potential ordinary shares during each of the three years in the period ended December 31, 2015.2017. 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 (2013(2015 and 2014:2016: 141,670,740 ADSs).

 

  2013   2014   2015   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 
  RMB’000   RMB’000   RMB’000 

Profit attributable to owners of the company

   1,273,841     662,021     1,070,822  

Profit attributable to owners of the Company

   1,070,822    1,158,253    1,015,361 
  

 

   

 

   

 

   

 

   

 

   

 

 

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

   RMB0.18     RMB0.09     RMB0.15     RMB0.15    RMB0.16    RMB0.14 
  

 

   

 

   

 

   

 

   

 

   

 

 

Basic and diluted earnings per equivalent ADS

   RMB8.99     RMB4.67     RMB7.56     RMB7.56    RMB8.18    RMB7.17 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

3233DIVIDENDS

The dividends paid to the ordinary shareholders of the Group in 2013, 20142015, 2016 and 20152017 were all RMB566,683,000 (RMB0.08 per share), RMB566,683,000 (RMB0.08 per share) and RMB354,177,000 (RMB0.05 per share) respectively.

 

   2013   2014   2015 
   RMB’000   RMB’000   RMB’000 

Final, proposed, of RMB0.08 (2013: RMB0.08 2014: RMB0.05) per ordinary share

   566,683     354,177     566,683  
  

 

 

   

 

 

   

 

 

 
   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Final, proposed, of RMB0.08 (2015 and 2016: RMB0.08) per ordinary share

   566,683    566,683    566,683 
  

 

 

   

 

 

   

 

 

 

At the meeting of the directors held on 2928 March 2016,2018, the directors proposed a final dividend of RMB0.08 per ordinary share for the year ended 31 December 2015,2017, which is subject to the approval by the shareholders in general meeting. This proposed dividend was not reflected as a dividend payable in the Group’s and the Company’s financial statements as at 31 December 2015.2017.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

3334CASH FLOW GENERATED FROM OPERATIONS

 

(a)Reconciliation from profit before income tax to net cash generated from operations:

 

   2013   2014   2015 
   RMB’000   RMB’000   RMB’000 

Profit before income tax:

   1,701,753     880,633     1,451,838  

Adjustments for:

      

Depreciation of fixed assets (Note 6)

   1,414,012     1,429,274     1,411,742  

Impairment of long lived assets and investment loss

   —       —       127,900  

Impairment of materials and supplies (Note 17)

   —       —       64,096  

Amortisation of leasehold land payments (Note 8)

   15,921     19,164     28,413  

Loss on disposal of fixed assets and leasehold land (Note 28)

   136,986     123,567     49,008  

Amortisation of long-term prepaid expenses (Note 13)

   12,898     13,931     14,179  

Amortisation of interest for employee benefit obligations (Note 24)

   9,127     4,594     226  

Share of results of associates (Note 11)

   (5,228   (5,048   (2,499

Dividends income on available-for-sale investments (Note 28)

   (4,904   (4,904   (5,884

Investment income from liquidation of a subsidiary

   —       (39   —    

Provision for/(reversal of) impairment of receivables

   (5,837   1,150     (4,459

Write-off of long outstanding of payables

   (295   —       —    

Amortisation of bonds payable

   7,250     7,277     —    

Amortisation of government grants related to property, plant and equipment (Note 23)

   (3,107   (3,249   (2,529

Interest expense

   167,650     160,760     —    

Interest income

   (129,711   (90,112   (5,502
  

 

 

   

 

 

   

 

 

 

Operating profit before working capital changes

   3,316,515     2,536,998     3,126,529  

Increase in trade receivables

   (550,421   (752,684   (553,980

Decrease in materials and supplies

   70,264     44,909     34,843  

Decrease/(increase) in prepayments and other receivables

   (94,178   15,083     83,553  

Decrease in long-term receivable

   5,000     2,000     2,000  

Increase/(decrease) in trade payables

   (282,972   514,289     (270,151

Decrease in employee benefit obligations

   (105,992   (7,909   —    

Increase in accrued and other payables

   64,870     68,520     97,585  
  

 

 

   

 

 

   

 

 

 

Cash generated from operations

   2,423,086     2,421,206     2,520,379  
  

 

 

   

 

 

   

 

 

 
   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Profit before income tax:

   1,451,838    1,544,009    1,347,132 

Adjustments for:

      

Depreciation of fixed assets (Note 6)

   1,411,742    1,518,970    1,662,460 

Impairment of fixed assets (Note 6)

   80,393    —      11,185 

Impairment ofconstruction-in-progress (Note 7)

   2,434    5,662    —   

Loss arising from business combination

   45,073    —      —   

Provision for/ (reversal of) impairment of materials and supplies (Note 17)

   64,096    (5,209   7,844 

Amortisation of leasehold land payments (Note 8)

   28,413    38,670    45,680 

Loss on disposal of fixed assets and costs on repairs

   49,008    133,073    321,741 

Amortisation of long-term prepaid expenses (Note 13)

   14,179    6,968    3,168 

Amortisation of interest for employee benefit obligations (Note 24)

   226    —      —   

Share of results of associates , net of tax (Note 11)

   (2,499   (7,223   (6,944

Dividend income onavailable-for-sale investments (Note 29)

   (5,884   (5,884   (6,473

Provision for impairment of receivables

   (4,459   5    5,901 

Amortisation of deferred income

   (2,529   (3,258   (3,282

Interest income

   (5,502   (4,353   (4,647
  

 

 

   

 

 

   

 

 

 

Operating profit before working capital changes

   3,126,529    3,221,430    3,383,765 

Increase in trade receivables

   (553,980   (1,034,064   (419,349

Decrease in materials and supplies

   34,843    14,432    6,121 

Increase in prepayments and other receivables

   83,553    (47,594   (12,975

Decrease in long-term receivable

   2,000    2,000    3,000 

Increase in trade payables

   (270,151   34,178    181,554 

(Decrease)/increase in accruals and other payables

   97,585    22,481    (179,412
  

 

 

   

 

 

   

 

 

 

Net cash generated from operations

   2,520,379    2,212,863    2,962,704 
  

 

 

   

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

3334CASH FLOW GENERATED FROM OPERATIONS (CONTINUED)

 

(b)In the cash flow statement, proceeds from disposal of fixed assets and leasehold land comprise:

 

   2013   2014   2015 
   RMB’000   RMB’000   RMB’000 

Net book amount (Note 6)

   249,072     179,745     83,944  

Receivable arising from disposal of fixed assets and leasehold land

   (12,334   (2,089   (21,627

Transfer to inventories

   (24,502   (53,381   (5,488

Loss on disposal of fixed assets and leasehold land

   (136,986   (123,567   (49,008
  

 

 

   

 

 

   

 

 

 

Proceeds from disposal of fixed assets and leasehold land

   75,250     708     7,821  
  

 

 

   

 

 

   

 

 

 

(c)No non-cash investing or financing activities incurred in the year ended 31 December 2015 (2013 and 2014: Nil).
   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Net book amount (Note 6)

   83,944    142,336    336,812 

Receivable arising from disposal of fixed assets

   (21,627   20,349    —   

Payable arising from disposal of fixed assets

   —      —      (2,457

Transfer to materials and supplies

   (5,488   (11,662   (12,087

Loss on disposal of fixed assets and costs on repairs

   (49,008   (133,073   (321,741
  

 

 

   

 

 

   

 

 

 

Proceeds from disposal of fixed assets

   7,821    17,950    527 
  

 

 

   

 

 

   

 

 

 

 

3435CONTINGENCY

There were no significant contingent liabilities as at 31 December 2017 and up to the date of approval of these financial statements.

 

3536COMMITMENTS

 

(a)Capital commitments

As at 31 December 2014 and 2015,2017, the Group had the following capital commitments which are authorised but not contracted for, and contracted but not provided for:commitments:

 

  

As at

31 December 2014

   

As at

31 December 2015

   

As at

31 December 2016
RMB’000

   

As at

31 December 2017
RMB’000

 

Contracted but not provided for

   769,013    1,341,055 
  RMB’000   RMB’000   

 

   

 

 

Authorised but not contracted for

   1,309,633     1,967,894     1,165,237    518,945 
  

 

   

 

   

 

   

 

 

Contracted but not provided for

   146,979     304,199  
  

 

   

 

 

A substantial amount of these commitments is related to the reform of stations or facilities relating to the existing railway linelines 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 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

3536COMMITMENTS (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 2015,2017, the related lease rental paid and payable was approximately RMB55,090,000 (2013RMB57,358,000 (2015 and 2014: RMB56,000,000 and RMB53,962,000)2016: RMB55,090,000).

 

3637BUSINESS COMBINATIONS

On 26 October 2016, the Company entered into agreements to acquire certain railway service businesses of Guangzhou Railway Group, Guangmeishan Railway Company Limited (“GRCL”) and Guangdong Sanmao Railway Company Limited(“GSRC”). GRCL and GSRC are subsidiaries of Guangzhou Railway Group which operate freight service business (the “Acquisition”).

The purchase considerations payable to Guangzhou Railway Group, GRCL and GSRC were approximately RMB28,657,000, RMB453,658,000 and RMB249,677,000, respectively.

On 26 October 2016, the Company obtain control over above mentioned railway service businesses and the directors of the Company determined that it was the completion date of the Acquisition. The results of the operations of the above-mentioned entities have been included in the Group’s consolidated comprehensive income statement from 26 October 2016 onwards accordingly.

The following table summarizes the consideration paid for Guangzhou Railway Group, GRCL and GSRC, 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

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed in Renminbi unless otherwise stated)

37BUSINESS 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 GSRC to the Group. Therefore, no actual cash outflow occurred in the business acquisition.

As at the completion date of the Acquisition, the fair value of the identifiable assets and liabilities acquired were as below:

Inventories

23,110

Fixed assets (Note 6)

648,890

Construction-in-progress (Note 7)

59,992

Other liabilities

(24,727

Total identifiable net assets

707,265

Total consideration

707,265

Goodwill

—  

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.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed in Renminbi unless otherwise stated)

38RELATED 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 principal 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 DECEMBER2015

(All amounts expressed in Renminbi unless otherwise stated)

36RELATED PARTY TRANSACTIONS (CONTINUED)

 

(b)Nature of the principal related parties that do not control/are not controlled by the Company:

 

(i)Guangzhou Railway Group and its subsidiaries

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 Limited

Subsidiary of the single largest shareholder

Guangzhou Qingda TransportationEnterprise Development Company Limited

  Subsidiary of the single largest shareholder

Guangzhou Yuetie Operational Development Company

  Subsidiary of the single largest shareholder

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(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):

(i)Guangzhou Railway Group and its subsidiaries (continued):

Name of related parties

Relationship with the Company

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

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

Guangzhou Railway Economic Technology Development Corporation

Subsidiary of the single largest shareholder

Hunan Changtie Industrial Development Co. Ltd.

  Subsidiary of the single largest shareholder

Guangzhou Railway Real Estate Construction Company

Subsidiary of the single largest shareholder

Guangzhou Beiyang Information Technology Company Limited

Subsidiary of the single largest shareholder

Guangdong Sanmao Railway Capital Construction Company

Subsidiary of the single largest shareholder

Associates of the Group

  

Tiecheng

  Associate of the Group

Shentu

  Associate of the Group

(ii)Relationship with CRC and other railway companies

On 14 March 2013, pursuant to the Approval, the previous controlling entity of Guangzhou Railway Group, MOR, had been dismantled. The administrative function of MOR were transferred to the Ministry of Transport and the newly established National Railway Bureau, and its business functions were transferred to the CRC. Accordingly, the equity interests of Guangzhou Railway Group which was wholly controlled by MOR previously were transferred to the CRC (“Reform”). The Reform was completed since 1 January 2017 and the Company disclosed details of transactions undertaken with CRC Group for both years of 2017 and 2016 for reference. Unless otherwise specified, the transactions with CRC Group disclosed below have excluded transactions undertaken with Guangzhou Railway Group and its subsidiaries.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

3638RELATED PARTY TRANSACTIONS (CONTINUED)

 

(c)In addition to those disclosed elsewhere in the financial statements, during the year, the Group had the following material transactions undertaken with related parties:

 

  2013  2014  2015 
  RMB’000  RMB’000  RMB’000 

Provision of services and sales of goods

   

Railroad and Related Business

   

Provision of train transportation services to Guangzhou Railway Group and its subsidiaries (i)

  367,745    424,743    751,956  

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

  1,255,572    1,153,630    1,180,852  

Revenue from railway operation service provided to Guangzhou Railway Group’s subsidiaries (iii)

  76,480    359,740    550,168  
 

 

 

  

 

 

  

 

 

 
  1,699,797    1,938,113    2,482,976  
 

 

 

  

 

 

  

 

 

 

Other businesses

   

Sales of materials and supplies to Guangzhou Railway Group and its subsidiaries (iv)

  24,174    22,579    25,940  
 

 

 

  

 

 

  

 

 

 

Services received and purchase made

   

Railroad and Related Business

   

Provision of train transportation services by Guangzhou Railway Group and its subsidiaries (i)

  665,189    633,382    888,903  

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

  1,564,499    1,436,711    1,406,962  

Operating lease rental paid to Guangzhou Railway Group for the leasing of land use rights (Note 35 (b))

  56,000    53,962    55,090  
 

 

 

  

 

 

  

 

 

 
  2,285,688    2,124,055    2,350,955  
 

 

 

  

 

 

  

 

 

 

Other businesses

   

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

  67,990    12,430    16,080  

Provision of repair and maintenance services by Guangzhou Railway Group and its subsidiaries (iv)

  346,831    295,283    489,038  

Purchase of materials and supplies from Guangzhou Railway Group and its subsidiaries (v)

  666,771    560,034    384,262  

Provision of construction services by Guangzhou Railway Group and its subsidiaries (vi)

  229,999    280,983    226,089  

Others

  12,889    8,729    —    
 

 

 

  

 

 

  

 

 

 
  1,324,480    1,157,459    1,115,469  
 

 

 

  

 

 

  

 

 

 
(I)Material transactions undertaken with Guangzhou Railway Group and its subsidiaries:

   2015   2016   2017 
   RMB’000   RMB’000   RMB’000 

Provision of services and sales of goods

      

Transportation related services

      

Provision of train transportation services to Guangzhou Railway Group and its subsidiaries (i)

   751,956    1,425,538    1,505,348 

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

   1,180,852    1,400,876    1,428,752 

Revenue from railway operation service provided to Guangzhou Railway Group’s subsidiaries (iii)

   550,168    579,253    660,847 
  

 

 

   

 

 

   

 

 

 
   2,482,976    3,405,667    3,594,947 
  

 

 

   

 

 

   

 

 

 

Other services

      

Sales of materials and supplies to Guangzhou Railway Group and its subsidiaries (iv)

   25,940    29,449    23,386 
  

 

 

   

 

 

   

 

 

 

Services received and purchase made

      

Transportation related services

      

Provision of train transportation services by Guangzhou Railway Group and its subsidiaries (i)

   888,903    989,778    1,048,524 

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

   1,406,962    1,628,336    1,720,849 

Operating lease rental paid to Guangzhou Railway Group for the leasing of land use rights (Note 36 (b))

   55,090    55,090    57,358 
  

 

 

   

 

 

   

 

 

 
   2,350,955    2,673,204    2,826,731 
  

 

 

   

 

 

   

 

 

 

Other services

      

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

   16,080    11,297    —   

Provision of repair and maintenance services by Guangzhou Railway Group and its subsidiaries (iv)

   489,038    306,988    298,040 

Purchase of materials and supplies from Guangzhou Railway Group and its subsidiaries (v)

   384,262    469,273    455,716 

Provision of construction services by Guangzhou Railway Group and its subsidiaries (vi)

   226,089    347,409    272,390 
  

 

 

   

 

 

   

 

 

 
   1,115,469    1,134,967    1,026,146 
  

 

 

   

 

 

   

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 20152017

(All amounts expressed in Renminbi unless otherwise stated)

 

3638RELATED PARTY TRANSACTIONS (CONTINUED)

 

(c)In addition to those disclosed elsewhere in the financial statements, during the year, the Group had the following material transactions undertaken with related parties (continued):

 

(I)Material transactions undertaken with Guangzhou Railway Group and its subsidiaries:

 (i)The service charges are determined based on a pricing scheme set by the CRC 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 CRC based on its standard charges applied on a nationwide basis.

 

 (iii)The service charges are levied based on contract prices determined based on a “cost plus a profit margin” 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 costs 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)(II)Key management compensationMaterial transactions with CRC and other railway companies

The compensation paid or payable to key management for employee services is shown in Note 27(c).

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER2015

(All amounts expressed in Renminbi unless otherwise stated)

36RELATED PARTY TRANSACTIONS (CONTINUED)

(e)As at 31 December 2015 and 2014, the Group had the following material balances maintained with related parties:

   2014   2015 
   RMB’000   RMB’000 

Trade receivables

   765,098     862,199  

- Guangzhou Railway Group (i)

   260,554     96,314  

- Subsidiaries of Guangzhou Railway Group (i)

   504,544     765,885  

Prepayments and other receivables

   47,733     7,788  

- Guangzhou Railway Group

   5,399     6,011  

- Subsidiaries of Guangzhou Railway Group

   37,560     1,777  

- Associates(v)

   17,086     —    

Less: impairment provision (v)

   (12,312   —    

Prepayments for fixed assets and construction-in-progress

   1,092     1,092  

- Guangzhou Railway Group

   1,092     1,092  

Trade payables

   617,822     431,650  

- Guangzhou Railway Group (i)

   119,953     24,467  

- Subsidiaries of Guangzhou Railway Group (ii)

   433,805     366,015  

- Associates

   64,064     41,168  

Payables for fixed assets and construction-in-progress

   208,955     185,339  

- Guangzhou Railway Group

   12,610     18,829  

- Subsidiaries of Guangzhou Railway Group

   159,381     128,871  

- Associates

   36,964     37,639  

Accruals and other payables

   29,057     399,634  

- Guangzhou Railway Group

   4,133     1,891  

- Subsidiaries of Guangzhou Railway Group (iii)

   20,600     396,590  

- Associates (iv)

   4,324     1,153  

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2015

(All amounts expressed in Renminbi unless otherwise stated)

36RELATED PARTY TRANSACTIONS (CONTINUED)

(e)As at 31 December 2015 and 2014, 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 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 Guangzhou Railway Group 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)The other payables due to subsidiaries of Guangzhou Railway Group mainly represented the performance deposits received for construction projects and deposits received from ticketing agencies.

(iv)The other payables due to associates mainly represented the performance deposits received for construction projects operated by associates.

(v)In 2015, the Company has consolidated Zengcheng Lihua and nil balance was shown in 2015.

As at 31 December 2014 and 2015, 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

FOR THE YEAR ENDED 31 DECEMBER 2015

(All amounts expressed in Renminbi unless otherwise stated)

37TRANSACTIONS WITH CRC AND OTHER RAILWAY COMPANIES

On 14 March 2013, pursuant to the Approval, the previous controlling entity of Guangzhou Railway Group MOR, had been dismantled. According to the Approval, the administrative function of MOR will be 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 be transferred to the CRC. Accordingly, the equity interests of Guangzhou Railway Group which was wholly controlled by MOR previously will be transferred to the CRC. Once the transfer is completed, the controlling entity of the Company’s largest shareholder will become CRC. In the current year, 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 are disclosed considering the requirements of the accounting standards. In order to facilitate user’s comprehensive understanding of the Company’s business transactions, the Company discloses these transactions with CRC Group for 2013, 2014 and 2015. Unless otherwise specified, the transactions disclosed below have excluded the transactions with Guangzhou Railway Group and its subsidiaries disclosed in Note 36.

The Company workswork in cooperation with the CRC and other railway companies owned and controlled by the CRC for the operationoperations of certain long distance passenger train and freight transportation businesses within the PRC. The revenues generated from these long-distance passenger and freight transportation businessestherefrom are collected and settled by the CRC according to its central recording and settlement systems.systems (see details in Note 2.24). The charges for the use of the rail lines and services provided by other railway companies are also instructed by the CRC and settled by the CRC based on its systems. Since March 2013, the collecting,collection, processing and distribution functions of revenues which were executed by CRCMOR previously hadhave been transferred to CRC. As at 31 December 2015,2017, the cooperation mode and pricing model had not been subject to any material changes.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

3738RELATED PARTY TRANSACTIONS WITH CRC AND OTHER RAILWAY COMPANY (CONTINUED)

 

(a)(c)In addition to those disclosed elsewhere in the financial statements, during the year, the Group had the following material transactions undertaken with the CRC Group:

  2013
RMB’000
  2014
RMB’000
  2015
RMB’000
 

Provision of services and sales of goods

   

Railroad and Related Business

   

Provision of train transportation services to CRC Group (i)

  30,450    5,229    36,515  

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

  2,070,966    1,706,558    1,752,666  

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

  968,477    950,966    1,421,995  
 

 

 

  

 

 

  

 

 

 
  3,069,893    2,662,753    3,211,176  
 

 

 

  

 

 

  

 

 

 

Other businesses

   

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

  286,265    259,470    284,348  

Sales of materials and supplies to CRC Group (iv)

  65,897    43,239    38,395  

Provision of apartment leasing services to CRC Group (iv)

  780    732    762  
 

 

 

  

 

 

  

 

 

 
  352,942    303,441    323,505  
 

 

 

  

 

 

  

 

 

 

Services received and purchases made

   

Railroad and Related Business

   

Provision of train transportation services by CRC Group (i)

  264,372    292,866    277,138  

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

  1,457,451    1,265,873    1,365,352  
 

 

 

  

 

 

  

 

 

 
  1,721,823    1,558,739    1,642,490  
 

 

 

  

 

 

  

 

 

 

Other businesses

   

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

  68,963    28,531    2,813  

Purchase of materials and supplies from CRC Group (v)

  131,061    9,317    33,591  

Provision of construction services by CRC Group (vi)

  —      —      13,538  
 

 

 

  

 

 

  

 

 

 
  200,024    37,848    49,942  
 

 

 

  

 

 

  

 

 

 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2015

(All amounts expressed in Renminbi unless otherwise stated)

37TRANSACTIONS WITH CRC AND OTHER RAILWAY COMPANY (CONTINUED)related parties (continued):

 

(a)(II)In addition to those disclosed elsewhere in the financial statements, during the year, the Group had the following materialMaterial transactions undertaken with the CRC Groupand other railway companies (continued):

In addition to those disclosed elsewhere in the financial statements, during the year, the Group had the following material transactions undertaken with the CRC Group:

   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

Provision of services and sales of goods

      

Transportation related services

      

Provision of train transportation services to CRC Group (i)

   36,515    29,794    81,396 

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

   1,752,666    1,777,640    1,877,719 

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

   1,421,995    1,628,143    1,800,692 
  

 

 

   

 

 

   

 

 

 
   3,211,176    3,435,577    3,759,807 
  

 

 

   

 

 

   

 

 

 

Other services

      

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

   284,348    323,993    333,917 

Sales of materials and supplies to CRC Group (iv)

   38,395    7,073    7,185 

Provision of apartment leasing services to CRC Group (iv)

   762    641    722 
  

 

 

   

 

 

   

 

 

 
   323,505    331,707    341,824 
  

 

 

   

 

 

   

 

 

 

Services received and purchases made

      

Transportation related services

      

Provision of train transportation services by CRC Group (i)

   277,138    292,754    306,208 

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

   1,365,352    1,376,047    1,395,591 
  

 

 

   

 

 

   

 

 

 
   1,642,490    1,668,801    1,701,799 
  

 

 

   

 

 

   

 

 

 

Other services

      

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

   2,813    42,954    31,089 

Purchase of materials and supplies from CRC Group (v)

   33,591    15,220    19,258 

Provision of construction services by CRC Group (vi)

   13,538    4,385    —   
  

 

 

   

 

 

   

 

 

 
   49,942    62,559    50,347 
  

 

 

   

 

 

   

 

 

 

 

 (i)The service charges are determined based on a pricing scheme set by the CRC or based on negotiation between the contracting parties with reference to full cost principle.actual costs incurred.

 

 (ii)Such revenues/revenue/charges are determined by the CRC based on its standard charges applied on a nationwide basis.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed in Renminbi unless otherwise stated)

38RELATED PARTY TRANSACTIONS (CONTINUED)

(c)In addition to those disclosed elsewhere in the financial statements, during the year, the Group had the following material transactions undertaken with related parties (continued):

(II)Material transactions with CRC and other railway companies (continued):

In addition to those disclosed elsewhere in the financial statements, during the year, the Group had    the following material transactions undertaken with the CRC Group (continued):

 

 (iii)The service charges are levied based on contract prices determined based on a “cost plus a profit margin” 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 costs 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)(III)RevenueRevenues collected and settled through the CRC:

 

  2013
RMB’000
   2014
RMB’000
   2015
RMB’000
   2015
RMB’000
   2016
RMB’000
   2017
RMB’000
 

- Passenger transportation

   7,740,887     6,630,629     6,642,129     6,642,129    6,960,491    7,295,985 

- Freight transportation

   871,173     920,255     1,022,025     1,022,025    1,105,061    1,266,122 

- Luggage and parcel

   100,884     148,863     86,199  

- Other transportation related services

   86,199    86,883    112,267 
  

 

   

 

   

 

   

 

   

 

   

 

 
   8,712,944     7,699,747     7,750,353     7,750,353    8,152,435    8,674,374 
  

 

   

 

   

 

   

 

   

 

   

 

 

The Company works

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed in cooperationRenminbi unless otherwise stated)

38RELATED PARTY TRANSACTIONS (CONTINUED)

(d)As at 31 December 2016 and 2017, the Group had the following material balances maintained with related parties:

(I)Material balances with Guangzhou Railway Group and its subsidiaries:

   2016
RMB’000
   2017
RMB’000
 

Trade receivables

   730,061    1,435,421 

- Guangzhou Railway Group (i)

   229,056    132,830 

- Subsidiaries of Guangzhou Railway Group (i)

   501,005    1,302,591 

Prepayments and other receivables

   25,961    44,329 

- Guangzhou Railway Group

   691    3,277 

- Subsidiaries of Guangzhou Railway Group

   25,270    41,052 

Prepayments for fixed assets andconstruction-in-progress

   225    4,352 

- Guangzhou Railway Group

   —      —   

- Subsidiaries of Guangzhou Railway Group (ii)

   225    4,352 

Trade payables

   533,051    681,587 

- Guangzhou Railway Group (i)

   61,486    61,899 

- Subsidiaries of Guangzhou Railway Group (ii)

   432,712    619,509 

- Associates

   38,853    179 

Payables for fixed assets andconstruction-in-progress

   249,308    342,519 

- Guangzhou Railway Group

   10,805    53,821 

- Subsidiaries of Guangzhou Railway Group

   168,038    220,377 

- Associates

   70,465    68,321 

Accruals and other payables

   430,331    439,509 

- Guangzhou Railway Group

   5,663    7,390 

- Subsidiaries of Guangzhou Railway Group (iii)

   422,877    430,041 

- Associates (iv)

   1,791    2,078 

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

(All amounts expressed in Renminbi unless otherwise stated)

38RELATED PARTY TRANSACTIONS (CONTINUED)

(e)As at 31 December 2016 and 2017, the Group had the following material balances maintained with related parties (continued):

(I)Material balances with Guangzhou Railway Group and its subsidiaries:

(i)The trade balances due from/to Guangzhou Railway Group, subsidiaries of Guangzhou Railway Group mainly represent 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 represent 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 represent the performance deposits received for construction projects and deposits received from ticketing agencies.

(iv)The other payables due to associates mainly represent the performance deposits received for construction projects operated by associates.

As at 31 December 2016 and 2017, all the balances maintained with related parties were unsecured,non-interest bearing and were repayable on demand.

(II)Material balances with CRC Group:

   As at 31 December 
   2016
RMB’000
   2017
RMB’000
 

Due from CRC Group

    

- Trade receivables

   1,443,272    1,372,631 

- Other receivables

   4,672    1,207 
  

 

 

   

 

 

 

Due to CRC Group

    

- Trade payables and payables for fixed assets andconstruction-in-progress

   65,496    62,620 

- Other payables

   15,901    6,413 
  

 

 

   

 

 

 

As at 31 December 2017, all 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 thebalances maintained with CRC Group were unsecured,non-interest bearing and were repayable on behalf of the Group through the CRC’s settlement systems.demand.

GUANGSHEN RAILWAY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FORFOR THE YEAR ENDED 31 DECEMBER2015 2017

(All amounts expressed in Renminbi unless otherwise stated)

 

37TRANSACTIONS WITH CRC AND OTHER RAILWAY COMPANY (CONTINUED)

(c)Balances due from/to CRC Group:

   As at 31 December 
   2014
RMB’000
   2015
RMB’000
 

Due from CRC Group

    

- Trade receivables

   643,182     897,030  

- Other receivables

   9,411     6,700  
  

 

 

   

 

 

 

Due to CRC Group

    

- Trade payables

   37,843     62,709  

- Other payables

   294     19,968  
  

 

 

   

 

 

 

3839SUBSEQUENT EVENTS

Save as already disclosed in the notes to the financial statements, the Group had no other significant subsequent event.

(a)At the meeting of the directors held on 28 March 2018, the directors proposed a final dividend of RMB 0.08 per ordinary share for the year ended 31 December 2017, which is subject to the approval by the shareholders in general meeting (Note 33). This proposed dividend was not reflected as a dividend payable in the Group’s and the Company’s financial statements as at 31 December 2017.

(b)On 27 December 2017, the directors of the Company proposed to hand over the land use rights of certain land parcels owned by the Company for resumption in accordance with laws in response to the urban renewal demand in Guangzhou City.

On 19 April 2018, the Company entered into the Resumption Compensation Agreement with the Guangzhou Land Development Center (“GLDC” or the “Purchaser”) and other vendors, pursuant to which the Purchaser agreed to resume the land use rights over the land with an initial total compensation of RMB 6.00 billion (subject to adjustments), of which the initial compensation amount payable to the Company will be approximately RMB 1.30 billion (subject to adjustments). GLDC is a public institution under the Guangzhou Land Resources and Planning Commission, which is responsible for the administration of government land reserve. The transaction is subject to the certain conditions, including the approval from the shareholders at the general meeting of the Company, and such conditions may or may not be fulfilled. If the conditions required for the completion of the transaction are not fulfilled, the transaction may not proceed.

 

F-81