ZHEH.L Regulatory News (ZHEH)

Zhejiang Expressway Co Ld - 2017 Annual Report

PR Newswire

London, April 3

2017 Annual ReportAchieve Growth through Innovation and Prudence

Corporate Vision :

To be"an international investment holdings company with a primary focus on expressway infrastructure investment and operation"

Content

Definition of TermsCompany ProfileCorporate Structure of the GroupReview of Major Corporate EventsParticulars of Major Road ProjectsFinancial and Operating HighlightsChairman's StatementManagement Discussion and AnalysisPrincipal Risks and UncertaintiesCorporate Governance ReportDirectors, Supervisors and Senior Management ProfilesReport of the DirectorsReport of the Supervisory CommitteeConnected TransactionsIndependent Auditor's ReportConsolidated Financial Statements & NotesIndependent Auditor's Report (Issued by a third country auditor registered with the UK Financial Reporting Council)Corporate InformationLocation Map of Expressways in Zhejiang Province

Definition of Terms

Company Profile

Zhejiang Expressway is an infrastructure company principally engaged in investing in, developing and operating of high-grade roads. The Company and its subsidiaries are also engaged in the expressway related development and operation, as well as securities business.

Major assets under management of the Group include the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142 km Shangsan Expressway, the 70 km Jinhua section of Ningbo-Jinhua Expressway, the 122 km Hanghui Expressway and the 82 km Huihang Expressway, ancillary facilities along the five expressways, and Zheshang Securities. Among which, apart from Huihang Expressway which is situated within Anhui Province in the PRC, the rest of the four expressways are situated within Zhejiang Province in the PRC. As at December 31, 2017, total assets of the Company and its subsidiaries amounted to Rmb73,650.52 million.

The Company was incorporated on March 1, 1997 as the main vehicle of the Zhejiang Provincial Government for investing in, developing and operating expressways and Class 1 roads in Zhejiang Province.

Incorporated on December 29, 2001, Communications Group, the controlling shareholder of the Company, is a provincial-level communications company which is wholly-owned by the State and established by the Zhejiang Provincial Government. It mainly operates a diversity of businesses, such as investment, operations, maintenance, toll collection and ancillary services of expressways; construction and building of transportation project, ocean and coastal transport; as well as real estates. On July 11, 2016, Zhejiang Provincial Government carried out a merger and restructuring of Communications Group and Zhejiang Railroad Investment Group Co., Ltd. Upon merger and restructuring, Communications Group will be responsible for the investment and financing, construction, operation and management of transport related fundamental facilities including expressways, railroads, key cross-region mass transit railways and integrated transport hubs.

The H Shares of the Company, which represent approximately 33% of the issued share capital of the Company, were listed on the Hong Kong Stock Exchange on May 15, 1997, and the Company subsequently obtained a secondary listing on the London Stock Exchange on May 5, 2000.

With a solid foundation built on the Group's expressway business, the Company will expand its main businesses scale, enhance its core competitiveness, and grow its financial and securities business so as to increase its profit contribution to the Group. Looking ahead, the Company will seize investment opportunities to acquire new projects, and strive to develop the Company into an international investment holdings company with a primary focus on expressway infrastructure investment and operation.

Corporate Structure of the Group

For the corporate and business structure of the Group as at December 31, 2017, please visit:https://photos.prnasia.com/prnk/20180328/2089938-1-a

Review of Major Corporate Events

1. On March 27, 2017, the Company announced its 2016 annual results in Hong Kong and thereafter conducted its annual results presentation in Hong Kong and Singapore.

2. On April 21, 2017, the Company issued zero coupon convertible bonds due 2022 in an aggregate amount of Euro365,000,000.

3. On April 28, 2017, the Company published its 2017 first quarterly results.

4. On May 15, 2017, the Company orga nised a hiking activity in celebration of the 20th anniversary of its establishment and listing.

5. On May 18, 2017, the Company held its Annual General Meeting to approve, inter alia, the resolutions regarding the payment of a final dividend of Rmb0.295 per share, the reappointment of Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong as the Hong Kong auditors of the Company, the re-appointment of Pan-China Certified Public Accountants LLP. as the PRC auditors of the Company, and the grant of general mandate to the Board to issue, allot and deal in new H shares of no more than 20% of the issued H shares of the Company.

6. On June 26, 2017, Zheshang Securities Co., Ltd., a subsidiary of the Company, was officially listed on the Shanghai Stock Exchange (Stock Code: 601817). The total number of issued shares of Zheshang Securities was 333,333,400 and the issue price was Rmb8.45 per share.

7. On August 23, 2017, the Company published its 2017 interim results and thereafter conducted its interim results presentation in Hong Kong and Singapore.

8. On September 27, 2017, the Company, as one of the syndicate members, participated in the PPP project in relation to the North Link Expressway of Jiaxing Qiantang River Tunnel, responsible for the construction and management of the project and the operation and maintenance upon completion of construction.

9. On October 31, 2017, the Company announced its 2017 third quarterly results.

10. On December 18, 2017, the Company held its Extraordinary General Meeting to approve, among others, the resolutions regarding the payment of the 2017 interim dividend of Rmb0.06 per share and the inclusion of party construction into the articles of association. In addition, upon listing of Zheshang Securities, the amount representing 10% of the total issued shares of the listed company held by Shangsan Co will be transferred to National Social Security Fund and Communications Group, the state-owned shareholder of the Company, shall compensate Rmb0.0328 per share to the H shareholders of the Company. The compensation was paid to the H shareholders of the Company together with the interim dividend on January 19, 2018.

11. On December 27, 2017, the Company entered into the Agreement on Outsourced Operation and Management of S45 Yiwu-Dongyang Expressway with Yiwu Transportation Investment and Construction Group Co., Ltd. with respect to the outsourced management of expressway from Yiwu to Dongyang with a length of approximately 21.6 km, marking the first outsourcing project regarding the management of expressway of the Company.

12. On February 8, 2018, the Company and Zhejiang Hongtu Transportation Construction Company Limited obtained the notice of bid award from Deqing Transportation Bureau, responsible for the PPP project in relation to the construction of bridges, tunnels and public service stations in Deqing.

Particulars of Major Road Projects

CURRENT TOLL RATES ON THE EXPRESSWAYS UNDER THE GROUP

1. Passenger vehicle classification and toll rates

2. Toll rates on goods vehicles on the Zhejiang Expressway

3. Toll rates on goods vehicles on the Huihang Expressway

Financial and Operating Highlights

Results

 RETURN ON EQUITY (ROE)

For Segmental Revenue 2017 and Segmental Net Profit 2017, please view:https://photos.prnasia.com/prnk/20180328/2089938-1-b 

For the Financial and Opearting Highlights, please visit:https://photos.prnasia.com/prnk/20180328/2089938-1-c

Zhan XiaozhangChairman

Chairman's Statement

Dear Shareholders,

It is my pleasure to present the annual results of Zhejiang Expressway ("ZJE" or "the Company", collectively referred to as "the Group" with subsidiaries) for the year 2017 on behalf of the Board of Directors.

In 2017, China's economy grew 6.9%, which was the first year-over-year improvement in the last seven years and beat the official target of "around 6.5%." The encouraging performance was driven by growth in both the old and new economic sectors. Foreign trade has been recovering, consumer demand remained steady, and a variety of high-tech sectors saw strong growth. Against this backdrop, the economic transformation of Zhejiang Province continued as the Province's GDP reached a record-high of over RMB5 trillion, up 7.8% over the last year.

In line with the macro trend, the Company's operating results in 2017 saw steady growth, with net profit hitting a new high. In particular, toll revenue in the Company's core toll-road operations business rose 13.4% to RMB5.99 billion, contributing 62.2% of the Group's overall revenue.

Our strong toll road operating performance was mainly driven by Zhejiang Province's favorable economic development momentum, and further boosted by our efforts to improve service quality and control costs, in particular by implementing a variety of new technologies, including the ETC (Electronic Toll Collection) lane for trucks and mobile payment. We are also exploring more technology solutions in early 2018 to build a solid foundation as we look to upgrade our technology to a comprehensive smart logistics system that will give us the opportunity to take advantage of big data. We believe advanced technologies will not only help us remain competitive by lowering costs and enhancing efficiency, but will also enable us to become a crucial player in the smart mobility value chain.

On the financial side of our business, we achieved a major milestone when our subsidiary Zheshang Securities successfully listed on the Shanghai Stock Exchange on June 26, 2017. The period since the listing has been especially challenging due to a decline in commission rates in the market, which caused a decline in revenue and net profit for Zheshang Securities. Its investment banking business segment, however, continued to progress steadily. Meanwhile, our minority investments in the financial sector continued to yield positive results. Taiping Science and Technology Insurance Co., Ltd. successfully launched its business in January 2018, and Yangtze United Financial Leasing Co., Ltd. grew rapidly and contributed Rmb265 million in net profit in 2017.

Another highlight of the Company is the financing breakthrough. In addition to the IPO of Zheshang Securities which allows us to have A+H equity platforms, we raised Euro365 million in April by issuing zero coupon convertible bonds on the offshore market, the first Euro-denominated convertible bonds among Chinese issuers. We have demonstrated strong financing capability on both domestic and offshore markets, which will facilitate our business expansion going forward.

2017 also marked the Company's 20th anniversary since its public listing on the Hong Kong Stock Exchange. Back in 1997, when we filed for an IPO, we were only operating the Shanghai- Hangzhou-Ningbo Expressway. 20 years later, as of 31 December 2017, we have become a diversified holdings company that not only has five major expressways under operation within and outside of Zhejiang Province, but also controls the A-share listed Zheshang Securities and holds a range of minority stakes in a number of financial-related businesses, with the aiming of becoming an international investment holdings company. Over the past two decades, the Company's total assets increased by over 6 times from RMB11.5 billion in 1997 to RMB73.7 billion by the end of 2017, and its net assets increased by over 4 times from RMB8.2 billion to RMB29.2 billion, making it the largest subsidiary under the parent Zhejiang Communications Investment Group Co., Ltd. in terms of asset scale.

The Company strives to create shareholder value and improve shareholder return. Throughout the past 20 years, despite cyclical fluctuations in the global and Chinese economy, the Company has delivered a stable dividend policy and distributed a total of nearly RMB20 billion in dividends to shareholders. We remain in continuous dialogue with shareholders and potential investors and uphold a policy of open communication and fair disclosure.

Looking ahead to 2018, we will remain focused on our core toll road business and aim to become "the leading toll-road operator in China and a top-notch operator globally". To create further synergies, we will explore investment opportunities in the infrastructure sector. For Zheshang Securities, we will strengthen its risk management capabilities and expand into more new areas. We will continue to explore suitable investment and development projects via different channels, thereby growing its management capability to operate diversified businesses, with the goal of achieving high-quality and sustainable development.

On behalf of the Board, I would like to thank everyone who has supported the Group, including our investors, shareholders, business partners, customers, management team and employees. As we look ahead to new achievements, we will work hard to safeguard the overall interests of the Company and add value for shareholders.

Zhan XiaozhangChairman

March 16, 2018

Celebrating 20th Listing Anniversary with 2 Decades of Success

2017 marked the Company's 20th anniversary since its public listing on the Hong Kong Stock Exchange. Over the past 20 years, the Company has become a diversified investment holdings company that not only operate five major expressways within and outside of Zhejiang Province, but also controls the A-share listed Zheshang Securities and holds a range of minority stakes in a number of financial-related businesses. The Company's total assets increased by 6 times to RMB73.7 billion over the past two decades, making it the largest subsidiary under the parent Zhejiang Communications Investment Group Co., Ltd.

Management Discussion and Analysis

BUSINESS REVIEW

The global economy recovered substantially in 2017, continuing with the revival trend. China's economy steadily expanded, with a 6.9% increase in national GDP during the Period compared with last year. During the Period, Zhejiang Province's economy benefited from a stable increase in services, manufacturing, and import and export trade as well as strong consumer demand. In 2017, Zhejiang Province's GDP grew by 7.8% year-on-year, 0.9 percentage points higher than the national rate.

During the Period, revenue from the Group's overall operations decreased 1.1% year-on-year. Total revenue reached Rmb9,626.34 million, of which Rmb5,986.25 million was generated from the five major expressways operated by the Group, representing an increase of 13.4% year-on-year and 62.2% of the total revenue, and Rmb3,491.25 million was from the securities business, representing a decrease of 16.4% year-on-year and 36.3% of the total revenue. A breakdown of the Group's revenue for the Period is set out below:

LUO JianhuDirector and General Manager

Toll Road Operations

Benefiting from Zhejiang Province's favorable economic development momentum, during the Period, traffic volume on the Group's expressways registered satisfactory organic growth. During the Period, the organic traffic volume growth rates for the Group's five expressways, namely the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway, the Jinhua Section of the Ningbo-Jinhua Expressway, the Hanghui Expressway, and Huihang Expressway, were 9.8%, 10.8%, 9.6%, 9.8% and 7.4%, respectively, with the varied rates of growth due to the different regions where the five expressways are located.

During the Period, driven by a number of positive factors, traffic volume on the Company's expressways registered steady growth. Since the G20 Hangzhou Summit was held in 2016, the "post-G20 effect" has positively impacted the region, leading to rapid development of tourism in Zhejiang Province and also further development of the Internet economy as well as transformation and upgrade of the real economy, leading to different sections of the expressways having recorded varied growth in traffic volume and toll revenue. In addition, the Ministry of Communication and Transport started nationwide special rectification measures following the release of "Regulations on Overloaded Trucks on Roadways" on September 21, 2016. As a result, the increase of truck traffic on the expressways operated by the Company were approximately 5 percentage points higher than that of passenger vehicles. In addition, starting from November 25, 2016, trucks were able to resume and use the Second Bridge over Qiantang River along the Shanghai-Hangzhou- Ningbo Expressway, which is also conducive to the growth of traffic volume between Qiaosi Interchange and Hongken Interchange of the Shanghai-Hangzhou-Ningbo Expressway, a section of approximately 23.7 kilometers. 

Upgrading the Core expressway Business with Smart Technologies

The Company is one of the first operators to adapt smart technologies into its core expressway business, including the deployment of smart toll station on a trial basis, the expansion of ETC lanes and the utilization of a mobile payment processing system. These initiatives help the Company reduce operating costs and improve management efficiency.

In the future, Internet, big data and artificial intelligence are expected to be integrated with the transportation industry, which will gradually change the current industry operating model. The Company will proactively adapt to the smart transportation trend and enhance the competitiveness of its core expressway business by taking advantage of various advanced technologies.

During the Period, the opening of neighboring new roadways caused certain traffic volume diversion for some expressways operated by the Group. On December 1, 2016, the Hangzhou-Xin'anjiang- Jingdezhen Expressway was opened, and during the Period this expressway continued to cause various degrees of diversion impact on traffic volume along the Hanghui Expressway and the Huihang Expressway. In addition, the Dongyang-Yiwu Provincial Highway was opened to traffic on June 30, 2017, leading to a decline in short-distance traffic volume on the Jinhua Section of the Ningbo-Jinhua Expressway.

During the Period, the average daily traffic volume in full-trip equivalents along the Group's Shanghai-Hangzhou-Ningbo Expressway was 57,275, representing an increase of 13.2% year- on-year. In particular, the average daily traffic volume in full trip equivalents along the Shanghai- Hangzhou section of the Shanghai-Hangzhou-Ningbo Expressway was 59,814, representing an increase of 22.1% year-on-year, and that along the Hangzhou-Ningbo Section was 55,461, representing an increase of 10.1% year-on-year. Average daily traffic volume in full-trip equivalents along the Shangsan Expressway was 30,223, representing an increase of 11.6% year-on-year. Average daily traffic volume in full-trip equivalents along the Jinhua Section of the Ningbo-Jinhua Expressway was 19,708, representing an increase of 9.9% year-on-year. Average daily traffic volume in full-trip equivalents along the Hanghui Expressway was 17,500 representing an increase of 8.2% year-on-year. Average daily traffic volume in full-trip equivalents along the Huihang Expressway was 7,240, representing a decrease of 2.3% year-on-year.

During the Period, total toll revenue from the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142km Shangsan Expressway, the 70km Jinhua Section of the Ningbo-Jinhua Expressway, the 122km Hanghui Expressway and the 82km Huihang Expressway was Rmb5,986.25 million. Among which, toll revenue from the Shanghai-Hangzhou-Ningbo Expressway was Rmb3,772.88 million, representing an increase of 12.9% year-on-year; toll revenue from the Shangsan Expressway was Rmb1,244.28 million, representing an increase of 11.9% year-on-year; toll revenue from the Jinhua Section of the Ningbo-Jinhua Expressway was Rmb362.35 million, representing an increase of 8.1% year-on-year; toll revenue from the Hanghui Expressway was Rmb477.66 million, representing an increase of 7.0% year-on-year; and toll revenue from the Huihang Expressway was Rmb129.09 million.

Securities Business

During the Period, domestic market conditions remained lackluster due to volatility, and trading volume on the Shanghai and Shenzhen stock markets decreased 11.7% year-on-year in aggregate. Though revenue from Zheshang Securities' investment banking business experienced growth, its other business segments including securities brokerage, margin financing and securities lending recorded varied levels of revenue decreases year-on-year.

Zheshang Securities Listed on Shanghai Stock Exchange

On June 26, 2017, Zheshang Securities Co., Ltd., a subsidiary of the Company, was listed on the Shanghai Stock Exchange under the short name "Zheshang Securities" with the stock code "601878". The IPO offering price was Rmb8.45 per share and the net proceeds raised was Rmb2,757 million.

The listing has created favorable conditions for market financing, market capitalization management and business development. Zheshang Securities continues to strengthen its internal control management and optimize its business structure, stepping up business expansion and bolstering its high-quality project pipeline to overcome the unfavorable operational impact brought about by market conditions.

During the Period, Zheshang Securities recorded total revenue of Rmb3,491.25 million, a decrease of 16.4% year-on-year. Of which, commission and fee income declined 21.6% year-on-year to Rmb2,088.31 million, and interest income from the securities business was Rmb1,402.94 million, representing a decrease of 7.1% year-on-year. In addition, during the Period, securities investment gains of Zheshang Securities included in the consolidated statement of profit or loss and other comprehensive income of the Group was Rmb778.80 million, representing an increase of 279.4% year-on-year (2016: securities investment gains of Rmb205.28 million).

Zheshang Securities was listed and issued new shares (A-shares) on the Shanghai Stock Exchange on June 26, 2017. The listing has created favorable conditions for market financing, market capitalization management and business development. Zheshang Securities continued to strengthen its internal control management, optimize its business structure, stepping up business expansion, and bolstering its high-quality project pipeline to overcome the unfavorable operational impact brought about by the market conditions.

Other Business Operations

Other business income was mainly derived from hotel operations and sales of ancillary apartments, namely the Qiyu Apartments.

Grand New Century Hotel, owned by Zhejiang Yuhang Expressway Co., Ltd. (a 51% owned subsidiary of the Company), realized revenue of Rmb100.98 million for the Period. Qiyu Apartments during the Period realized sales revenue of Rmb47.87 million.

Long-Term Investments

Zhejiang Shaoxing Shengxin Expressway Co., Ltd. ("Shengxin Co", a 50% owned joint venture of the Company) operates the 73.4km Shaoxing Section of the Ningbo-Jinhua Expressway. During the Period, the average daily traffic volume in full-trip equivalents was 19,211, representing an increase of 13.2% year-on-year. Toll revenue during the Period was Rmb399.34 million. During the Period, the joint venture reported a net profit of Rmb35.34 million (2016: net profit of Rmb19.59 million).

During the Period, Zhejiang Communications Investment Group Finance Co., Ltd. (a 35% owned associate of the Company), derived income mainly from interest, fees and commissions for providing financial services, including arranging loans and receiving deposits, for the subsidiaries of Zhejiang Communications Investment Group Co., Ltd., the controlling shareholder of the Company. During the Period, the associate company realized a net profit of Rmb321.40 million (2016: net profit of Rmb122.57 million).

During the Period, Yangtze United Financial Leasing Co., Ltd. (a 13% owned associate of the Company), was involved in the finance leasing business, transferring and receiving financial leasing assets, fixed-income securities investment businesses, and other businesses approved by the China Banking Regulatory Commission. During the Period, the associate company realized a net profit of Rmb265.25 million (2016: net profit of Rmb134.15 million).

FINANCIAL ANALYSIS

The Group adopts a prudent financial policy with an aim to provide shareholders of the Company with sound returns over the long term. 

During the Period, profit attributable to owners of the Company was approximately Rmb3,202.13 million, representing an increase of 5.4% year-on-year, basic earnings per share for the Company from continuing and discontinued operations was Rmb73.73 cents, representing an increase of 5.4%, diluted earnings per share for the Company from continuing and discontinued operations was Rmb71.36 cents, representing an increase of 2.0%, and return on owners' equity was 15.5%, representing a decline of 6.6% year-on-year.

Liquidity and Financial Resources

As at December 31, 2017, current assets of the Group amounted to Rmb53,952.25 million in aggregate (December 31, 2016: Rmb52,158.22 million), of which bank balances, clearing settlement fund, deposits and cash accounted for 10.4% (December 31, 2016: 14.1%), bank balances and clearing settlement fund held on behalf of customers accounted for 27.9% (December 31, 2016: 38.5%), held for trading investments accounted for 23.3% (December 31, 2016: 15.6%) and loans to customers arising from margin financing business accounted for 14.6% (December 31, 2016: 15.2%). The current ratio (current assets over current liabilities) of the Group as at December 31, 2017 was 1.7 (December 31, 2016: 1.2). Excluding the effect of the customer deposits arising from the securities business, the resultant current ratio of the Group (current assets less bank balances and clearing settlement fund held on behalf of customers over current liabilities less balance of accounts payable to customers arising from securities business) was 2.2 (December 31, 2016: 1.4).

The amount of held for trading investments of the Group as at December 31, 2017 was Rmb12,568.69 million (December 31, 2016: Rmb8,144.13 million), of which 97.0% was invested in bonds, 0.6% was invested in stocks, and the rest was invested in open-end equity funds.

During the Period, net cash used in the Group's operating activities amounted to Rmb829.67 million. The currency mix in which cash and cash equivalents are held has not substantially changed as compared to the same period last year.

The Directors do not expect the Company to experience any problems with liquidity and financial resources in the foreseeable future.

Borrowings and solvency

As at December 31, 2017, total liabilities of the Group amounted to Rmb 44,446.17 million (December 31, 2016: Rmb49,585.51 million), of which 1.1% was bank and other borrowings, 1.7% was short-term financing note payable, 22.8% was bonds payable, 6.1% was convertible bond, 23.7% was financial assets sold under repurchase agreements and 33.6% was accounts payable to customers arising from securities business.

As at December 31, 2017, total interest-bearing borrowings of the Group amounted to Rmb14,113.45 million, representing a decrease of 15.2% compared to that as at December 31, 2016. The borrowings comprised outstanding balances of a domestic financial institution of Rmb420.00 million, borrowings from a domestic institution of Rmb60.00 million, subordinated bonds of Rmb5.95 billion, corporate bonds of Rmb3.40 billion, beneficial certificates of Rmb1,562.80 million, and convertible bond denominated in Euro and equivalents to Rmb2,720.65 million. Of the interest-bearing borrowings, 82.4% was not payable within one year.

As at December 31, 2017, the annual floating interest rate of the Group's borrowings from a domestic financial institution was 4.2195%. The annual fixed interest rate from a domestic institution was 3.0%. Beneficial certificates amounted Rmb1.80 million with annual floating rate at 2.0%, and the beneficial certificates amounted Rmb1,561.00 million with annual fixed rates between 3.7% and 5.3%. The annual interest rates for subordinated bonds were fixed at rates between 3.63% and 6.3%. The annual interest rates for corporate bonds were fixed at 3.08% and 4.9%. The annual coupon rate for convertible bond was nil. While the annual interest rate for accounts payable to customers arising from the securities business was fixed at 0.35%.

Total interest expenses and profit before interest and tax for the Period amounted to Rmb611.75 million and Rmb5,795.05 million, respectively. The interest cover ratio (profit before interest and tax over interest expenses) stood at 9.5 (2016: 8.4) times.

As at December 31, 2017, the asset-liability ratio (total liabilities over total assets) of the Group was 60.3% (December 31, 2016: 67.2%). Excluding the effect of customer deposits arising from the securities business, the resultant asset-liability ratio (total liabilities less balance of accounts payable to customers arising from securities business over total assets less bank balances and clearing settlement fund held on behalf of customers) of the Group was 50.3% (December 31, 2016: 55.0%).

Capital structure

As at December 31, 2017, the Group had Rmb29,204.35 million in total equity, Rmb39,148.79 million in fixed-rate liabilities, Rmb421.80 million in floating-rate liabilities, and Rmb4,875.58 million in interest-free liabilities, representing 39.7%, 53.2%, 0.6% and 6.5% of the Group's total capital, respectively. The gearing ratio, which is computed by dividing the total liabilities less accounts payable to customers arising from the securities business by total equity, was 101.1% as at December 31, 2017 (December 31, 2016: 122.1%).

Capital expenditure commitments and utilization

During the Period, capital expenditure of the Group totaled Rmb436.31 million. Amongst the total capital expenditure, Rmb218.91 million was incurred for acquiring equity investments, Rmb51.06 million was incurred for acquisition and construction of properties, and Rmb166.34 million was incurred for purchase and construction of equipment and facilities.

As at December 31, 2017, the capital expenditure committed by the Group totaled Rmb812.14 million. Amongst the total capital expenditures committed by the Group, Rmb360.00 million will be used for acquiring equity investments, Rmb162.02 million will be used for acquisition and construction of properties and Rmb290.12 million for acquisition and construction of equipment and facilities.

The Group will consider financing the above-mentioned capital expenditure commitments with internally generated cash flow first and then will comprehensively consider using debt financing and equity financing to meet any shortfalls.

Contingent liabilities and pledge of assets

Pursuant to the board resolution of the Company dated November 16, 2012, the Company and Shaoxing Communications Investment Group Co., Ltd. (the other joint venture partner that holds 50% equity interest in Shengxin Co) provided Shengxin Co with joint guarantee for its bank loans of Rmb2.2 billion, in accordance with their proportionate equity interest in Shengxin Co. During the Period, Rmb209.00 million of the bank loans had been repaid. As at December 31, 2017, the remaining bank loan balance is Rmb1,683.00 million.

Except for the above, as at December 31, 2017, the Group did not have any other contingent liabilities, pledge of assets or guarantees.

Foreign exchange exposure

During the Period, save for (i) dividend payments to the holders of H shares in Hong Kong dollars, (ii) borrowing HK$432.53 million on June 8, 2016 and repayment on the borrowing on June 8, 2017, and (iii) Zheshang International Financial Holding Co., Limited. (a wholly owned subsidiary of Zheshang Securities) operating in Hong Kong, (iv) issuance of the zero coupon convertible bond in an aggregate principal amount of Euro 365.00 million in Hong Kong capital market, the Group's principal operations were transacted and booked in Renminbi.

During the Period, the Group completed one-year HK dollar forwards of equivalent amount to hedge the foreign exchange risk derived from the Hong Kong dollar borrowing, which was purchased in 2016. Except for the above, the Group has not used any other financial instruments for hedging purpose during the Period.

OUTLOOK

Looking ahead to 2018, the global economy continues to recover gradually, but still faces multiple uncertainties. Under the Chinese government's prudent macroeconomic policy, the domestic economy is expected to maintain stable growth as it transitions from a high-speed to a high-quality development stage. Zhejiang Province will focus on the real economy as well as growing the new economy with the digital sector as the core component, and accelerating economic restructuring, transformation and upgrading. The performance of the overall economy is expected to be steady and positive, which will provide a stable external environment for the Company's development. The overall traffic volume of the expressways operated by the Company is expected to maintain steady growth in 2018.

The Company will continue to promote the construction of electronic toll collection (ETC) lanes, fully promote mobile payment at all toll stations and set up self-service payment lanes on a trial basis to improve the efficiency of toll collection systems. The Company will continue to apply technological tools to attract more vehicles and improve its service standards in multiple aspects so as to enhance service quality and customer satisfaction. The Company will also increase the usage of big data applications, establish a vehicle confidence system, improve expressway operation capacity under the Group to assure safe and smooth traffic flow, with an aim to establish the Company's brand recognition in the industry. By fully leveraging advantages in expressway operations and management, the Group will seek to export its management capabilities in the expressway sector using market principles.

Achieving high-quality and sustainable development under the new economic environment

The Company will continue to leverage on its development advantages, expand and enhance the core expressway business, and strengthen its securities business. The management will continue to monitor government policies and the external environment to appropriately adjust the Company's operational strategy. With a focus on effective risk control, the Company will continue to explore suitable investment and development projects via different channels, thereby growing its management capability to operate diversified businesses, with the goal of achieving high- quality and sustainable development.

As the government continues to actively promote the healthy development of the multi-tiered capital market and the China Securities Regulatory Commission gradually improves the supervision system of the business chain and facilitates the enhancement of capital market services, these measures will bring new opportunities and challenges to the securities business of the Group. In order to address market and industry challenges and promote the sustainable and healthy development of all its businesses, Zheshang Securities will transform and upgrade its traditional businesses, actively grow innovative businesses, optimize and adjust its business structure and continuously improve profitability and competitiveness.

In order to adapt to the new economic transformation and developments in 2018, the Company will leverage on its development advantages, expand and enhance the core expressway business, and strengthen its securities business. The management will continue to monitor government policies and the external environment to appropriately adjust the Company's operational strategy. With a focus on effective risk control, the Company will continue to explore suitable investment and development projects via different channels, thereby growing its management capability to operate diversified businesses, with the goal of achieving high-quality and sustainable development.

HUMAN RESOURCES

During the Period, the Company actively revamped its human resource management, enhanced its remuneration and performance policy, and prompted the increase in overall payment of remuneration to be linked to the operating performance of Company and the productivity of employees. As at December 31, 2017, there were 6,871 employees within the Group, amongst whom 1,453 worked in the managerial, administrative and technical positions, while 5,418 worked in fields such as toll collection, maintenance, service areas, securities and futures business outlets.

Principal Risks and Uncertainties

TOLL ROAD BUSINESS RISKS

Economic Environment

As the global economy continues to struggle for recovery, China's economy is moving into a "new normal" as it downshifts from rapid growth to more moderate levels of growth. The overall economy is still subject to downside pressure to a certain extent. As the expressway toll road business is closely related to the macroeconomy, it is subject to the macroeconomic performance. Growth in the traffic volume and toll revenue of the Group's expressways is expected to remain uncertain, creating uncertainties for the operations, financial conditions and operating results of the Group.

Roads Competition

At present, since the commencement of service of Hangxinjing Expressway from Kaihua section to Jiande section in December 2016, there will be continuing considerable diversion impact on traffic volume of Hanghui Expressway and Huihang Expressway of the Group. Accordingly, we cannot be assured as to whether traffic volume to be generated on the Group's expressways will be maintained at the same levels as before or will increase in the future, or whether or not the operating results of the Group will be negatively affected.

Toll policy

With the implementation of the toll waiver policy on small passenger vehicles on key festivals and holidays by the PRC government on September 30, 2012, the expressway operators who charge for toll are negatively affected. In addition, due to the introduction of a special project by five ministries and commissions for the rectification of the toll road policy in Zhejiang province, a number of new policies focusing on adjusting the toll policy of expressways within the province such as "Provisions on the Administration of the Running of Transport Vehicles with Out-of-gauge Goods on the Road" were successively issued. At the same time, as the consultation paper "Regulation on Administration of Toll Roads" 2015 has not been officially promulgated at present, despite that we expect the possibility of further significant changes in the policies of the expressway industry in the near term is minimal, we cannot be assured that they will not have any adverse effects on the toll revenue of the Group.

SECURITIES BUSINESS RISKS

Market Fluctuations

The securities business is highly susceptible to market fluctuations and may experience periods of high volatility accompanied by reduced liquidity. It may be materially affected by economic and other factors such as the global market conditions; the availability and cost of capital; the liquidity of the global markets; the level and volatility of stock prices, commodity prices and interest rates; currency values and other market indices; inflation; natural disasters; acts of war or terrorism; as well as investor sentiment and confidence in the financial markets. There is no assurance as to whether our securities business will be adversely affected by fluctuations in the market, or whether our securities business will continue to contribute to our overall profit margin.

Regulation of the securities Business

We are subject to extensive regulations in the PRC that govern how we conduct our securities business, and we are subject to risks of intervention by the PRC regulatory authorities. We could be fined, prohibited from engaging in some of our business activities or subject to limitations or conditions on our business activities, among other things. Significant regulatory actions against us could have material adverse impacts on our financial position, cause us significant reputational harm, or harm our business prospects. New laws, regulations or changes in the enforcement of existing laws or regulations applicable to our clients may also adversely affect our business. 

FINANCIAL RISKS

For financial risks and uncertainties of the Group, please see notes 4, 51 and 52 to the ConsolidatedFinancial Statements.

STATEMENT OF RESPONSIBILITY FROM THE DIRECTORS WITH RESPECT TO THE ANNUAL REPORT AND THE COMPANY'S ACCOUNTS

The Directors of the Company, whose names and functions are listed on pages 45 to 52, duly confirm that to the best of their knowledge:

-- the consolidated financial statements prepared and subject to disclosure under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants give a true and fair view of the assets, liabilities, financial position and profit of the Group, and cover the enterprises that have been consolidated into the Company; and

-- the "Management Discussion and Analysis" section included in this annual report includes a fair review of the development and performance of the business and the position of the Group, covers the enterprises that have been consolidated into the Company and describes the principal risks and uncertainties faced by the Group.

From the beginning of year 2017 up to now, there has been no occurrence of significant events that would have a material impact on the normal operation of the Group.

By Order of the BoardTony ZHENGCompany Secretary

Hangzhou, Zhejiang Province, the PRCMarch 16, 2018

Corporate Governance Report

CORPORATE GOVERNANCE PRACTICES

To govern the daily functioning of the Board of Directors of the Company, the Company has adopted its own Guidelines on Corporate Governance that closely followed the principles of good governance in Appendix 14 of the Listing Rules (available at www.hkex.com.hk) ("CG Code").

During the Period, the Company has complied with all code provisions in the CG Code and adopted the recommended best practices in the CG Code as and when applicable.

DIRECTORS' SECURITIES TRANSACTIONS

The Company has adopted the Rules on Securities Dealings ("Rules on Securities Dealings") for the Directors, supervisors, senior management personnel and other employees of the Company on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") set out in Appendix 10 of the Listing Rules.

Upon specific inquiries to all the Directors, the Directors have confirmed their respective compliance with the required standards for securities transactions by Directors as set out in the Model Code and the Rules on Securities Dealings during the Period.

BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD")

The executive directors of the Company during the Period were:Mr. ZHAN Xiaozhang (Chairman)Mr. CHENG TaoMs. LUO Jianhu (General Manager)

The non-executive directors of the Company during the Period were:Mr. WANG DongjieMr. DAI BenmengMr. ZHOU Jianping (Resigned on December 22, 2017)

The independent non-executive directors of the Company during the Period were:Mr. ZHOU JunMr. PEI Ker-WeiMs. LEE Wai Tsang, Rosa

During the Period, the Board held a total of eight meetings. Individual attendances by the directors(as indicated by the numbers of meetings attended/numbers of relevant meetings held) are as follows:

During the Period, the Company held two general meetings of the shareholders. The meetings were chaired by Chairman, and all executive directors were present at the meetings.

The Board is charged with duties as well as given powers that are expressly specified in the articles of association of the Company, the scope of which includes, amongst others: to determine the business plans and investment proposals of the Company; to prepare the financial budget and final accounts of the Company; to determine the dividend policy of the Company; to appoint or dismiss senior managerial officers of the Company as well as to determine their remuneration; and to draw up proposals for any material acquisition or sale by the Company.

To assist the Board to effectively discharge its duties, the Board has set up the Audit Committee, theNomination Committee, the Remuneration Committee, and the Strategic Committee.

While the Board fully retains its power to decide on matters within its scope of duties and powers, relevant preparation and drawing up of plans or proposals were usually delegated to the management.

The Company has complied with the requirements under Rules 3.10(1) and (2) of the Listing Rules regarding the appointment of independent non-executive directors, with three independent non- executive directors appointed, representing at least one-third of the Board and at least one of whom possessing the appropriate professional qualification or accounting or related financial management expertise.

Pursuant to Rule 3.13 of the Listing Rules, the Company had specifically inquired with all three independent non-executive directors and received their respective confirmation of independence during the Period. The three independent non-executive directors have all confirmed their compliance with requirements regarding independence under Rule 3.13 of the Listing Rules. The Company still considers the independent non-executive directors to be independent.

There were no financial, business, family or other material or relevant relationships between members of the Board, including that between the Chairman and the General Manager of the Company.

Each newly appointed director receives induction on the first occasion of his or her appointment, so as to ensure that he or she has appropriate understanding of the business and operations of the Company and that he or she is fully aware of his or her responsibilities and obligations under the Listing Rules and relevant regulatory requirements. Directors are also regularly updated on the Group's business and industry environments where appropriate in the management's monthly reports to the Board as well as briefings and materials circulated to the Board before board meetings.

In addition, during the Period, the Company has arranged for all its executive and non-executive directors to undergo continuous trainings designed to develop and refresh their knowledge and skills so as to ensure that their contribution to the Board remains informed and relevant. However, as the management considers that the independent non-executive directors of the Company are very experienced, knowledgeable and resourceful, the Company did not arrange any professional briefings or training programs for its independent non-executive directors and has decided to leave it to the independent non-executive directors to undergo appropriate training as they see fit.

CHAIRMAN AND GENERAL MANAGER

During the Period, Mr. ZHAN Xiaozhang and Ms. LUO Jianhu served as Chairman and General Manager of the Company, respectively. The roles of Chairman and General Manager are fully segregated as expressly set out in the articles of association of the Company.

NON-EXECUTIVE DIRECTORS

Terms for the non-executive directors of current session of the Board started on July 1, 2015 and will expire on June 30, 2018.

SPECIAL COMMITTEES UNDER THE BOARD

The Board has set up the Audit Committee, the Nomination Committee, the Remuneration Committee, and the Strategic Committee. Roles and responsibilities for each committee are specified in its terms of reference, details of which can be found under the "Corporate Governance" section in the Company's website.

The Audit Committee comprised of the three independent non-executive directors and two non- executive directors, namely Mr. ZHOU Jun, Mr. PEI Ker-Wei, Ms. LEE Wai Tsang, Rosa, Mr. WANG Dongjie and Mr. ZHOU Jianping, of whom Mr. ZHOU Jun serves as the Chairman of the Audit Committee.

The Nomination Committee comprised of the three independent non-executive directors, one executive director and one non-executive director, namely Mr. ZHAN Xiaozhang, Mr. ZHOU Jun, Mr. PEI Ker-Wei, Ms. LEE Wai Tsang, Rosa and Mr. DAI Benmeng, of whom Mr. ZHAN Xiaozhang serves as Chairman of the Nomination Committee.

The Company believes that diversification of board members is a key element to maintain the Company's competitive advantage, improve business performances, and promoting the Company's continued development. When setting up the board member composition, the Company takes into consideration a number of aspects that determine board member diversification, including but not limited to gender, age, culture, education background, professional experience, work and living background, knowledge and skill, etc. The Company's Nomination Committee is responsible for assessing the board's structure, number of members, as well as a diversified composition, providing recommendation or suggestion on candidates to serve as new directors of the Company to the board when needed. The assessment as well as recommendation or suggestion above would have fully taken into consideration any pros and cons to the diversification of board members.

The Remuneration Committee comprised of the three independent non-executive directors and two non-executive directors, namely, Mr. PEI Ker-Wei, Mr. ZHOU Jun, Ms. LEE Wai Tsang Rosa, Mr. DAI Benmeng and Mr. ZHOU Jianping, of whom Mr. PEI Ker-Wei, serves as Chairman of the Remuneration Committee.

The Strategic Committee comprised of the three executive directors, namely Mr. ZHAN Xiaozhang, Mr. CHENG Tao and Ms. LUO Jianhu as well as Mr. ZHANG Jingzhong, Mr. WANG Dehua, Mr. Tony ZHENG and several outside experts and advisors, of whom Mr. ZHAN Xiaozhang serves as chairman of the Strategic Committee.

During the Period, the Audit Committee held a total of four meetings. Individual attendances by the members of the Audit Committee (as indicated by the numbers of meetings attended/numbers of meetings held) are as follows:

In the meetings held during the Period, the Audit Committee conducted, amongst others, review of financial statements for the quarterly, interim and annual results, discussed the internal audit, the effectiveness of internal control system, and total risk management of the Company, as well as recommendation on the re-appointment of external auditors.

During the Period, there were no changes to the remuneration policies of the members of the Board or senior management of the Company.

During the Period, Mr. ZHOU Jianping submitted his resignation to the Company on December22, 2017 due to his reaching retirement age. Furthermore, due to posting elsewhere by the Communications Group, Mr. FANG Zhexing was relieved from his position as Deputy General Manager of the Company on December 18, 2017.

Other than the above, there were no other changes to members of the Board of Directors and senior management of the Company.

During the Period, the Remuneration Committee, the Nomination Committee and the StrategicCommittee did not hold any meeting.

The Board is responsible for developing and reviewing the Company's corporate governance policies and practices, monitoring the Company's compliance with the Code and its disclosure within this report; the Board reviews and monitors the training and continuous professional development of Directors and senior management through the works of human resources department, and review and monitor the Company's policies and practices on compliance with legal and regulatory requirements through the works of legal and internal audit department.

During the Period, the Directors have all confirmed their responsibility for preparing the accounts, and that there were no events or conditions which would have a material impact on the Company's ability to continue to operate as a going concern basis.

AUDITORS' REMUNERATION

During the Period, the Company had paid approximately Rmb3.56 million and Rmb0.89 million to Deloitte Touche Tohmatsu Certified Accountants (the Hong Kong auditors) and Pan-China Certified Public Accountants LLP (the PRC auditors), respectively, for audit services conducted in 2017. Besides, the Company had paid Rmb0.26 million to Pan-China Certified Public Accountants LLP (the PRC auditors) for other assurance service provided.

SECRETARY TO THE BOARD

During the Period, the Secretary to the Board had complied with Rule 3.29 of the Listing Rules regarding undergoing relevant professional trainings.

DIRECTORS , SUPER VISORS AND CHIEF EXECUTIVE'S INTERESTS IN SHARES AND UNDERLYING SHARES OF THE COMPANY

As at December 31, 2017, none of the Directors, Supervisors and General Manager had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.

INTERESTS AND SHORT POSITIONS OF OTHER PERSONS IN SHARES AND UNDERLYING SHARES

As at December 31, 2017, the interests and short positions of other persons in the shares and underlying shares of the Company according to the register required to be kept by the Company pursuant to Section 336 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange are set out below:

The letter "L" denotes a long position. The letter "S" denotes a short position. The letter "P" denotes interest in a lending pool.

Save as disclosed above, as at December 31, 2017, no other persons had any interests or short positions in the shares or underlying shares of the Company that was required to be recorded pursuant to Section 336 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange.

SHAREHOLDERS' RIGHTS

Pursuant to the Articles of Association of the Company, two or more Shareholders who in aggregate hold 10% or more of the voting rights of all the shares of the Company having the right to vote may write to the Board to request the convening of an extraordinary general meeting and specifying the agenda of the meeting. Upon receipt of the request in writing, the Board shall convene the extraordinary general meeting as soon as possible. Shareholders who hold in aggregate 5% or more of the voting rights of all the shares of the Company having the right to vote are entitled to propose additional motions in annual general meeting, provided that such motions are served on the Company within 30 days after the issue of the notice of annual general meeting.

Written requests, proposals and enquiries may be sent to the Company through contact details listed at the end of this report.

INVESTOR RELATIONS

The Board is committed to ensuring that all shareholders and the investment community have equal and timely access to information about the Company so as to enable their accurate assessment of the Company's fair value. Such information is available through channels including financial reports, shareholder meetings, statutory announcements, the Hong Kong Stock Exchange website (www.hkexnews.hk) and the Company's own website (www.zjec.com.cn).

Activities such as investor and analyst briefings, one-on-one meetings, conference calls, roadshows, and press conferences are held regularly by senior management of the Company, particularly after results announcements.

Great importance is also attached to maintaining clear and effective communications channels with investors as part of the Company's bid to enhance its transparency and to promote the understanding of its business in the investment community. Any parties who wish to learn more about the Company may do so via the contact details listed below:

Mr. Tony ZHENGCompany Secretary5/F, #2 Mingzhu International Business Center,199 Wuxing Road, Hangzhou, Zhejiang 310020 the PRC. Tel: 86-571-87987700Fax: 86-571-87950329mail: zhenghui@zjec.com.cn

During the Period, the last shareholders' meeting of the Company took place at 10:00 a.m. on Monday, December 18, 2017 at the headquarters of the Company. Details of this extraordinary general meeting of the shareholders were set out in the announcement dated December 18, 2017 on resolutions passed at the extraordinary general meeting of the shareholders.

The next annual general meeting of the Company is expected to be held in June, 2018 with exact date and resolutions for review to be specified in notice of annual general meeting when it is published.

The Company has an issued share capital of 4,343,114,500 shares comprised of domestic shares and H shares. The domestic shares are held by Zhejiang Communications Investment Group Co., Ltd. as to 2,909,260,000 shares, representing approximately 67% of the total issued capital of the Company. The remaining 1,433,854,500 shares are H shares, representing approximately 33% of the total issued capital of the Company. As at the date of this report, and to the best of the Directors' knowledge, 100% of the H shares of the Company are held by the public.

There were some changes made to the articles of association of the Company during the Period, which were set out in the circular to shareholders dated November 3, 2017.

INTERNAL CONTROLS AND RISK MANAGEMENT

The Company has set up an internal monitoring system that aims to protect assets, preserve accounting and financial information, as well as to ensure the accuracy of financial statements, including the establishment of departments and units, setting out responsibilities, execution of management systems and quality control mechanisms, and the management system on environment, occupational health and safety. The system is capable of taking necessary steps to react to possible changes in our businesses as well as external operating environments. Throughout the operating process, the Company's various internal control measures are being continuously enhanced, fulfilled and are deemed effective.

The Company attaches great importance to risk management. The Company established its risk management mechanism and relevant regulations, implemented risk management responsibilities of various branches and departments, conducted risk investigation and assessment, established risk management strategy and took risk control measures in response to major risks faced by the Company.

The Board takes overall responsibility for the risk management and internal control systems, and is responsible for reviewing the effectiveness of these systems.

The Company's Audit Committee is charged with the duties of reviewing internal controls, directing monitoring activities. Aside from reviewing the annual reporting by external auditors, the committee also reviews the effectiveness of internal control system and risk management mechanism through reviewing the internal special audit report on the Company's various core businesses prepared by internal audit department on a regular basis. During the Period, the Audit Committee focused on a special audit of electro-mechanic projects of the Company, as well as control of liquidity risk at Zheshang Securities. The internal audit department carried out specific audit into these compliance issues and monitored relevant rectifications, ensuring the effectiveness of the Company's management systems.

The Company's risk management and internal control systems will be reviewed by the Board on an annual basis, which covers the period from 1 January to 31 December each year. During the Period, the Directors of the Company had carried out a view on the effectiveness of the Company's internal control system, covering all material aspects of internal control, including financial control, operational control, compliance control and risk management functions. There were no major breaches in the internal control system that may have had an impact to Shareholders' interests, and the internal control system was deemed to be effective and sufficient. The risk management of the Company was deemed to be effective and controllable.

DISCLOSURE OF INSIDE INFORMATION

The Company has developed its disclosure policy to provide a general guide to the Company's Directors, supervisors, senior management and relevant employees in handling confidential information, monitoring information disclosure and responding to enquiries, Control procedures have been implemented to ensure that unauthorized access and use of inside information are strictly prohibited.

MANAGEMENT FUNCTIONS

The management functions of the Board and the management are expressly stipulated in the articles of association of the Company. Pursuant to the articles of association of the Company, the management of the Company is assigned the functions to be in charge of the production and business operation of the Company and to organize the implementation of the resolutions of the board of directors, to organize the implementation of the annual business plan and investment program of the Company, to prepare plans for the establishment of the internal management structure of the Company, to prepare the basic management systems of the Company, and to formulate basic rules and regulations of the Company, etc.

Directors, Supervisors and Senior Management Profiles

DIRECTORS

Chairman

Mr. YU Zhihong

Born in 1964, is a graduate from the Department of Electro-mechanic Engineering, Zhejiang University, and holds a Master's Degree in management from the Management Institute of Zhejiang University. Starting from 1985, Mr. Yu Zhihong worked at Xiushui Township in Central District of Jiaxing City as Deputy Manager of Township I ndust rial Company and Deput y Head of T ownship, f rom 1987 successively served as Secretary to Central District Office, Secretary of the Central District Youth League, Deputy Party Secretary and Party Secretary of Tanghui Township in Central District, from 1995 working as Deputy Director, Deputy Party Secretary, Director and then Party Secretary of Management Committee for the Economic Development Zone of Jiaxing City, from 2005 as Party Secretary of Haining City and as Member of Party Standing Committee of Jiaxing City, from 2010 as Deputy Mayor of Hangzhou City, Party Secretary of Qianjiang New Development Zone's Construction Committee, and then Party Secretary of Xiaoshan District, Member of Party Standing Committee of Hangzhou City, before he became the Deputy Party Secretary and then Mayor of Shaoxing City in 2013. Mr. Yu Zhihong assumed the position of Chairman and Party Secretary of Zhejiang Communications Investment Group Co., Ltd. since October 2016, and became Member of Provincial Party Committee since June 2017.

Mr. ZHAN Xiaozhang

Born in 1964, is a Senior Economist. He has been appointed as the Chairman of the Company since June 2012. Mr. Zhan holds a bachelor's degree in law. He further obtained a master's degree in public administration from the Business Institute of Zhejiang University in 2005.

From 1985 to 1991, Mr. Zhan worked as an officer at Transport Administrative Division under Waterway Transport Authority of Zhejiang Provincial Bureau of Construction. From 1991 to 1998, he served as Deputy Secretary and Secretary of the Communist Youth League Commission at Zhejiang Provincial Bureau of Communications. From 1998 to 2002, he was Deputy Director of Waterway Transport Authority under Zhejiang Provincial Bureau of Communications. From 2002 to 2003, he was Deputy Director of Human Resources Department at Zhejiang Provincial Bureau of Communications. From 2003 to 2006, Mr. Zhan was Chairman of Zhejiang Wenzhou Yongtaiwen Expressway Co., Ltd. From 2006 to 2008, he became Chairman of Zhejiang Jinji Property Co., Ltd. Mr. Zhan has been Deputy General Manager, Assistant to General Manager and Manager of Research and Development Department at Zhejiang Communications Investment Group Co., Ltd from 2006 to 2016.

He served as an Executive Director and the General Manager of the Company from March 2009 to June 2012. Mr. ZHAN currently also serves as General Manager of Zhejiang Communications Investment Group Co., Ltd.

Mr. ZHAN resigned the position of Chairman of the Company on April 2, 2018.

Executive Directors

Mr. CHENG Tao

Born in 1964, is the party committee secretary of the Company. Mr. Cheng graduated from Changsha University of Science & Technology with a bachelor's degree in transportation engineering. He is a Senior Administration Engineer and Senior Economist. Mr. Cheng has been appointed as an Executive Director of the Company since July 2015.

Mr. Cheng began his career in September 1983 and held the positions of Secretary of CYL Committee at Zhejiang Shipping and Technical School; Secretary of CYL Committee at Zhejiang Road and Bridge Engineering Office; Secretary of Party General branch at No.3 Company of Zhejiang Provincial Transportation Engineering & Construction Group Co., Ltd.; Party Committee Deputy Secretary of Zhejiang Provincial Transportation Engineering & Construction Group Co., Ltd.; Vice Chairman, Party Committee Secretary and Chairman of Zhejiang Provincial Transportation Engineering & Construction Group Co., Ltd.

Ms. LUO Jianhu

Born in 1971, successively graduated from the Hangzhou University and the Zhejiang University with a bachelor's degree in law and a master's degree in international trade. She graduated from the National Accounting Institute in 2016 with an EMBA degree, majoring in Financial Accounting.. She is a lawyer and Senior Economist. Ms. Luo has been appointed as an Executive Director and the General Manager of the Company since June 2012.

Since she started her career in August 1994, Ms. Luo had held such positions as the board secretary of Zhejiang Transportation Engineering Construction Group Co., Ltd., the Deputy Director, Director of the Legal Affairs Department, the Deputy Director, Director of the Secretarial Office to the Board, Board Secretary and the Manager of the Investment and Development Department of Zhejiang Communications Investment Group Co., Ltd.

Non-Executive Directors

Mr. DAI Benmeng

Born in 1965, graduated from the Party School of the Zhejiang Committee of the Communist Party of China with a bachelor's degree specialising in economics and management and is a Senior Economist. He began working in February 1987 and has been a director and the Deputy General Manager of Wenzhou Shipping Co., Ltd., a Director and the General Manager of Zhejiang Wenzhou Yongtaiwen Expressway Co., Ltd., a Director and the General Manager of Zhejiang Jinji Property Co., Ltd., the person in charge of Zhejiang Province North Zhejiang Expressway Management Co., Ltd., the Chairman of Zhejiang ShenSuZheWan Expressway Co., Ltd., and the General Manager of the Shanghai-Jiaxing-Huzhou-Hangzhou branch of the Communications Group. Mr. Dai is currently the Department Head of Organization Department of the Communications Group.

Mr. YU Qunli

Born in 1968, graduated from Xi'an Roadway Institute with a Bachelor's Degree in Roads and Bridges Engineering. Mr. Yu Qunli also holds a Master's Degree in Structure Engineering and a MBA Degree in Business Administration, both from Zhejiang University. Mr. Yu Qunli started his career in 1990 at Zhejiang Provincial Roads and Bridges Bureau and Zhejiang Communications Engineering Construction Group Co., moved to Zhejiang Communications Engineering Group Co., Ltd. in 2000, and to Zhejiang Communications Investment Group Co., Ltd. in 2002. Starting from 2005, Mr. Yu Qunli served as Deputy General Manager at Zhejiang Zhoushan Continent to Island Construction Expressway Co., Ltd., and from 2006, as Deputy General Manager at Zhejiang Ningbo Yongtaiwen Expressway Co., Ltd. and Zhejiang Zhoushan Bay Bridge Co., Ltd. Beginning from 2010, Mr. Yu Qunli served as Deputy Manager of Safety Management Department and Manager of Safety Monitoring Management Department at Zhejiang Communications Investment Group Co., Ltd. He served as General Manager at Zhejiang Ningbo Yongtaiwen Expressway Co., Ltd. in 2013, and as General Manager at Zhejiang Taizhou Expressway Co., Ltd. and Zhejiang Zhoushan Bay Bridge Co., Ltd. Since 2015, Mr. Yu Qunli served as General Manager of Expressway Operations Management Department at Zhejiang Communications Investment Group Co., Ltd., and as General Manager at Communications Operations Management Department since 2016.

Mr. WANG Dongjie

Born in 1977, graduated from Southeast University majoring in Highway and Railway Engineering with a Master's degree in engineering. He is a Senior Engineer.

Since he started his career in March 2002, Mr. Wang had served as an Engineer of the Executive Commission of Hangzhou Ring Road North Line Project, the Deputy Executive Chief of the Executive Commission for the interflow renovation of Hangzhou airport road, the Engineering Division Chief of Management Office of Chun'an section of Hangqian Expressway and the Director and Deputy General Manager of Hangzhou Transportation Road and Bridge Construction Company.

He joined Zhejiang Communications Investment Group Co., Ltd. in January 2007 and is currently the chairman of Zhejiang Communications Investment Group Industrial Development Co., Ltd.

Mr. WANG resigned the position of Non-Executive Director of the Company on April 2, 2018.

Mr. YU Ji

Born in 1975, is an Engineer. He graduated from Zhejiang University with a Master's Degree in Structure Engineering. Mr. Yu Ji began his career at Jinwen Railroad Engineering Construction Project Management Division (Qingtian County Lianggang section) and General Headquarter from 1996, worked at Zhejiang Local Railroad Survey and Design Bureau and Zhejiang Tiezi Engineering Co., Ltd. from 1998, and became a Structure Design Engineer at Zhejiang Urban Construction Design and Research Institute from 2005. Starting from 2007, Mr. Yu Ji worked as staff, Deputy Manager and then Manager at Project Management Department of Zhejiang Railroad Investment Group Co., Ltd., and became General Manager of Railroad Project Department in 2015, Manager of Communications Investment Department of Zhejiang Communications Investment Group Co., Ltd. in 2016. Since 2018, Mr. Yu Ji became General Manager of Strategic Development and Legal Affairs Department of Zhejiang Communications Investment Group Co., Ltd.

Mr. ZHOU Jianping

Born in 1957, graduated from Xi'an Highway College with a bachelor's degree specialising in vehicular transport and is a Senior Engineer at professor level. He began working in September 1975 and has been the Deputy Supervisor of the Business Management Office, Supervisor of the office, Assistant of the General Manager, and Deputy General Manager of Zhejiang Province Vehicular Transport General Company, the Deputy Head of Quzhou Municipal Communications Bureau, Zhejiang Province, the manager of the Asset Management Department of the Communications Group, and the person in charge of the Hangjinqu Branch of the Communications Group.

Mr. ZHOU resigned the position of Non-executive Director of the Company on December 22, 2017.

Independent Non-Executive Directors

Mr. PEI Ker-Wei

Born in 1957, is a full Professor of Accountancy at the School of Accountancy at the W. P. Carey School of Business Arizona State University.

Mr. Pei received his Ph.D. degree in Accounting from University of North Texas in 1986. He served as the chairman of the Globalization Committee of the American Accounting Association in 1997 and as the president of the Chinese Accounting Professors Association-North America in 1993 to 1994.

Mr. Pei currently also serves as an External Director of Baosteel Group and China Merchant Group, and Independent Director of Want Want China Holdings (HK Stock Code: 00151), Zhong An Real Estate (HK Stock Code: 00672) and MMG Limited (HK Stock Code: 01208).

Ms. LEE Wai Tsang, Rosa

Born in 1977, has been an Executive Director of Grand Investment International Lt d. (Stock code: 1160) since 1 June 2005 and appointed as its Chairman for the period from 1 May 2013 to 15 June 2017. Ms. Lee holds a Bachelor degree from the University of Southern California. She also holds Master of Science in Finance from Boston College and MBA from University of Chicago. Ms. Lee has been working with Grand Investment International Ltd. since its incorporation in April 2003 and overseeing its investment, operation and administration. Ms. Lee is a licensed person for the regulated activities of dealing and advising in securities and asset management under the Securities and Futures Ordinance ("SFO"). Ms. Lee is a Director of Grand Finance Group Company Ltd ("GFG"), and Tianjin Yishang Friendship Holdings Company Ltd.

Mr. CHEN Bin

Born in 1967, is a graduate from University of South China in computer science. He also holds a second Bachelor's degree from Chongqing University in management engineering. Mr. Chen worked at Tianshi Network Company of TCL Group as Deputy General Manager from 1998 to 2004, at Webex Group as General Manager of China Investment from 2005 to 2006, and at Cybernaut China Investment Fund as Senior Partner from 2007 to 2008. Mr. Chen became Chief Executive and Funding Partner of Zhejiang Cybernaut Investment Management Co., Ltd. since 2008. Mr. Chen also serves as Director at Sundy Land Investment Co., Ltd., (a company listed on Shanghai Stock Exchange, SH Stock Code: 600077) and Shenzhen Fountain Corporation (a company listed on Shenzhen Stock Exchange, SZ Stock Code: 000005).

Mr. ZHOU Jun

Born in 1969, is the Executive Director and President of Shanghai Industrial Investment (Holdings) Co. Ltd. ("SIIC"). Mr. Zhou graduated from Nanjing University and Fudan University with a bachelor's degree of arts and a master's degree of economics in international finance.

He also serves as the Chairman of S.I. Infrastructure Holdings Ltd. and seven other companies, the Chairman of SIIC Environment Holdings Ltd. in Singapore (SGX: BHK), Executive Director and CEO of Shanghai Industrial Holdings Ltd. (HK Stock Code: 0363), Executive Director of Shanghai Industrial Urban Development Group Ltd. (HK Stock Code: 0563). He worked for Guotai Securities Co., Ltd. (now Guotai Junan Securities Co).

Before joining SIIC in April 1996, the management positions he had held within the SIIC group of companies were Deputy General Manager of SIIC Real Estate Holdings (Shanghai) Co., Ltd., Shanghai Pharmaceuticals Holding Co., Ltd. (SH Stock Code: 601607 / HK Stock Code: 02607), Managing Director of Shanghai Cyber Galaxy Investment Co., Ltd. and General Manager of the Strategic Investment Department of SIIC. Mr. Zhou has about 20 years' professional experience in general management, financial investment, real estate and project planning.

Mr. Zhou is a member of the Standing Committee of the CPC Shanghai Municipal Committee and is currently the Chairman of Shanghai Shengtai Investment Management Co., Ltd. of Shanghai Charity Foundation.

Mr. ZHOU resigned the position of Independent Non-Executive Director on April 2, 2018.

SUPERVISOR

Supervisor Representing Shareholders

Mr. YAO Huiliang

Born in 1972, graduated from the Zhejiang University and is a senior accountant.

Since he started his career in August 1990, Mr. YAO had served as Project Management Manager at Zhejiang Zhetong Road Operation Co., Ltd., Finance Manager of the Management Committee of the Ningbo Second Phase of Yongtaiwen Expressway, Assistant to the General Manager and Finance Manager of the Zhejiang Ningbo- Taizhou-Wenzhou Expressway Co., Limited and Deputy Manager of the Finance Management Department, and Vice Manager of the Finance Center of the Communications Group.

Mr. YAO currently serves as General Manager of the Finance Management Centre of the Communications Group.

Independent Supervisors

Ms. HE Meiyun

Born in 1964, is a Senior Economist. She graduated from the Zhejiang University in 1986 and later received an Executive Master of Business Admiration (EMBA) in Cheung Kong Graduate School of Business.

Ms. He had served as the Secretary of Youth League Committee at the Hangzhou Business School and as a Deputy General Manager, General Manager and Vice Chairman at Baida Group Co., Ltd., a company listed on the Shanghai Stock Exchange (stock code: 600865). Ms. He currently serves as a General Manager of Ping An Securities Company Limited, Zhejiang Branch. She is also a Vice Chairman of the Professional Committee of the Board Secretary of Listed Company Association of Zhejiang.

Mr. WU Qingwang

Born in 1965, is a PRC lawyer. He graduated from Hangzhou University with a Bachelor degree in law in 1989 and later received a Master's degree and a Doctoral degree in Civil and Commercial Law in Southwest University of Political Science and Law in 1995 and 2004, respectively.

Mr. Wu had worked in Chun'an Justice Bureau since 1989 and in Zhejiang Securities Co., Ltd. from 1995 to 1996. Since May 1996, Mr. Wu has been working in Zhejiang Xinyun Law Firm and is currently a Partner, specializing in civil and commercial litigation, arbitration and project negotiation. Mr. Wu is on the panel of arbitrators in China International Economic and Trade Arbitration Commission. Mr. Wu serves as an Independent Director of the following companies: Yiwu Huading Nylon Co., Ltd. (stock code: 601113), and Top Choice Medical Investment Co., Inc. (stock code: 600763), both companies listed on the Shanghai Stock Exchange. From August 2011 to April 2016, Mr. Wu served as an Independent Director of OB Telecom Electronics Co., Ltd (stock code: 300270), a company listed on the Shenzhen StockExchange.

Mr. ZHAN Huagang

Born in 1961, is the party committee member and labour union chairman of the Company. He is a professor-level Senior Engineer. Mr. Zhan graduated from Zhejiang University with a bachelor's degree of engineering in internal combustion engine from the department of thermophysical engineering.

From July 1982 to June 1991, he worked at Zhejiang Province Vehicular Transport Company, Zhejiang Office of Motor Vehicles and Zhejiang Highway Management Bureau. From June 1991 to January 1996, he worked at Zhejiang Road and Bridge Engineering Office. From January 1996 to March 1997, he worked at the Operation Division and Maintenance Division of the Zhejiang Provincial Expressway Executive Commission as Senior Engineer.

Since March 1997, he has been working at Zhejiang Expressway Co., Ltd. as Deputy Manager and Manager of the Operations Management Depar t m ent , M anager of t he I nv es t m ent Dev elopm ent Div is ion, Manager of the Equipment Management Department, Manager of the Engineering Management Department and Head of the Maintenance Management Office. He is concurrently the Deputy General Manager of Zhejiang Expressway Investment Development Co., Ltd. and Chairman and General Manager of Zhejiang Expressway Advertising Co., Ltd.

Mr. LU Xinghai

Born in 1967, graduated from the Department of Psychology of the Hangzhou University with a doctorate degree in Management Psychology and is a Senior Economist, the Supervisor Representing Employees of the Company.

Mr. Lu had served as Manager of the Human Resources Department of Hangzhou BC Foods Co., Ltd., Deputy Manager of the Human Resources Department of the Company.

He currently also serves as the Head of the Party-Staff Work Department and Director of Labour Union Office of the Company.

OTHER MEMBERS OF SENIOR MANAGEMENT

Mr. FANG Zhexing

Born in 1965, is a Senior Engineer, the Deputy General Manager of the Company. Mr. Fang graduated from Zhejiang University where he received a master's degree in engineering in 1991.

From 1986 to 1988 he was the Assistant Engineer in the Project Management Office of the Electric Power and Water Conservancy Bureau in Taizhou, Zhejiang Province. From 1991 until 1997, he was the Engineer in the Project Management Office of Zhejiang Provincial Expressway Executive Commission, where he participated in the project management of Shanghai-Hangzhou-Ningbo Expressway.

Since March 1997, he has served as the Deputy Manager and the Manager of the Planning and Development Department, the Manager of the Project Development Department, the Director of Quality Management Office, the Director of Internal Audit Department of the Company, the Manager of the Human Resources Department and the Secretary of Disciplinary Committee.

Mr. Fang resigned the position of the Deputy General Manager of the Company on December 18, 2017.

Mr. ZHU Yimin

Born in 1961, is an Engineer, Mr. Zhu graduated from Chang'an University with professional programme in Roads and Transportation Engineering in July 2007. He joined the People's Liberation Army garrison 83026 from December 1978 to January 1982. From January 1982 to December 1998, he worked in Anji County Water Traffic Control Department, Huzhou Port and Water Traffic Administration Department and Huzhou City Water Traffic Administration Department. From June 1994 to December 1998, he was the Director of Huzhou City Traffic Engineering Department. From December 1998 to September 2000, he served as the Assistant to Director of Huzhou City Water Traffic Control and Administration Department. From January 2003 to August 2004, he was the Assistant Manager of Huzhou City Transportation Investment and Development Corporation. From August 2004 to May 2015, Mr. Zhu has served in different positions including the Deputy General Manager of Zhejiang Shenjiahuhang Expressway Co., Ltd, the Deputy General Manager of Zhejiang Province North Zhejiang Expressway Management Co., Ltd., the Deputy General Manager of Zhejiang Shensuzhewan Expressway Co. Ltd., the Deputy General Manager of Zhejiang Province West Zhejiang Expressway Co., Ltd., and Deputy General Manager of Zhejiang Hanghui Expressway Co. Ltd.

He has been the Deputy General Manager and party committee member of the Company since July 1, 2015.

Mr. WANG Dehua

Born in 1974, graduated with an undergraduate degree in Accounting from Hangzhou Institute of Electronics Engineering in 1996. He worked in the Foreign Funds Utilization Audit Department of Zhejiang Provincial Audit Office from 1996 to 2003. Mr. Wang worked at the Corporation Division of the Administrative and Finance Department of Liaison Office of the Central Government in the Hong Kong S.A.R. from 2003 to 2011, serving as its Deputy Director upon departure. Mr. Wang studied at School of Economics and Finance of the Faculty of Business and Economics of the University of Hong Kong from 2005 to 2007, and graduated in 2007 with a master's degree in Economics. Mr. Wang has professional accounting qualifications, including CPA, HKICPA, FCCA, etc. He worked at Zhejiang Communications Investment Group Co., Ltd. from 2011 to 2014, serving as its Deputy General Manager upon departure.

Mr. Wang Dehua has been appointed as the Chief Financial Officer of the Company with effect from March 17, 2014.

Mr. Tony ZHENG

Born in 1969, is the Deputy General Manager and Company Secretary of the Company. Mr. Zheng graduated from University of California at Berkeley in 1995 with a BS degree in Civil Engineering. He joined the Company in June 1997, and has served as Deputy Director of the Secretarial Office to the Board and Assistant Company Secretary. Mr. Zheng continues to serve as Director of the Secretarial Office to the Board, and Director of Hong Kong Representative Office of the Company.

Ms. ZHANG Xiuhua

Born in 1969, is a Senior Economist, the Deputy General Manager of the Company. Ms. Zhang graduated from Chongqing Jiaotong University majoring in transportation management with a bachelor's degree in science, and obtained a master's degree in business administration from Zhejiang University in 2006.

From July 1991 to February 1997, she worked in the Operation Division of the Zhejiang Provincial Expressway Executive Commission. She joined the Company since March 1997, and had served as Assistant manager, Deputy Manager, Manager of the Operation Department and Assistant to General Manager.

Report of the Directors

The Directors of the Company hereby present their report and the audited financial statements of the Group for the year ended December 31, 2017.

PRINCIPAL ACTIVITIES

The principal activities of the Group comprise the operation, management of high grade roads, as well as provision of security broking service and proprietary securities trading.

BUSINESS REVIEW

A review of the business of the Group and analysis of the Group's performance using key performance indicators is provided in the section headed "Management Discussion and Analysis" of this annual report.

In addition, discussions on the Group's environmental policies and performance and an account of the Group's key relationships with its employees, customers, suppliers and others that have a significant impact on the Group and on which the Group's success depends are provided in the Company's 2017 Environmental and Social Responsibility Report.

SEGMENT INFORMATION

During the Period, the entire revenue and segment profit of the Group were derived from the People's Republic of China ("PRC"). Accordingly, no further analysis of the revenue and segment profit by geographical area is presented. An analysis of the Group's revenue and segment profit by principal activities for the year ended December 31, 2017 is set out in note 5 to the financial statements.

RESULTS AND DIVIDENDS

The Group's profit for the year ended December 31, 2017 and the state of financial position at that date are set out in the financial statements.

An interim dividend of Rmb0.06 per share (approximately HK$0.072) was paid on January 19,2018. The Directors have recommended the payment of a final dividend of Rmb0.30 (approximately HK$0.363) per share in respect of the year. The final dividend is subject to shareholders' approval at the 2017 annual general meeting of the Company and is expected to be paid by no later than August 31, 2018. This recommendation has been incorporated in the financial statements as an allocation of retained earnings within the capital and reserves section in the consolidated statement of financial position. The dividend payout ratio reached 48.8% during the Period. Further details of the dividends are set out in note 15 to the financial statements.

FIVE YEAR SUMMARY FINANCIAL INFORMATION

The following is a summary of the published consolidated results, and of the assets, liabilities and non-controlling interests of the Group prepared on the basis set out in the notes below.

Notes:

1. The consolidated results of the Group for the three years ended December 31, 2015 have been restated in accordance with relevant Hong Kong Financial Reporting Standard issued by Hong Kong Institute of Certified Public Accountants, while those for the year ended December 31, 2017 and December 31, 2016 were prepared based on the consolidated statement of profit or loss and other comprehensive income as set out on the financial report.

2. The 2017 basic earnings per share (from continuing and discontinued operations) is based on the profit attributable to owners of the Company for the year ended December 31, 2017 of Rmb3,202,130,000 (2016: Rmb3,037,405,000) and the 4,343,114,500 (2016: 4,343,114,500) ordinary shares in issue during the year.

The 2017 diluted earnings per share (from continuing and discontinued operations) is based on the profit for the purpose of diluted earnings per share attributable to owners of the Company for the year ended December 31, 2017 of Rmb3,218,310,000 and the 4,509,861,000 weighted average number of ordinary shares for the purpose of diluted earnings per share during the year. The diluted earnings per share is the same as the basic earnings per share for 2016.

3. Differences in financial statements prepared under PRC GAAP and HKFRSs

MAJOR CUSTOMERS AND SUPPLIERS

In the year under review, the five largest customers and suppliers of the Group accounted for less than 30% of the total turnover and purchases, respectively.

None of the directors of the Company or any of their associates or any shareholders (which, to the best knowledge of the directors, own more than 5% of the Company's issued share capital) had any beneficial interest in the Group's five largest customers.

RELATED PARTY TRANSACTIONS

During the year, details of the related party transactions that the company and its subsidiaries have entered into with Communications Group and its subsidiaries of are set out in note to the consolidated financial statements. The transactions including the deposit services provided by Zhejiang Communications Finance, the road maintenance services provided by Zhejiang Expressway Maintenance Co., Ltd, the asphalt road geothermal power regeneration services provided by Zhejiang Shunchang High-grade Expressway Maintenance Co., Ltd, the information system redevelopment services, the data center infrastructure platform development project, the highway equipment management system, the monitoring system improvement phase II project, and the electronic toll collection construction project provided by Zhejiang Expressway Information Engineering Technology Co., Ltd, the technological cooperation and service provided by Zhejiang Intelligent Expressway Services Co., Ltd, and etc, constitute non-exempt continuing connected transactions as defined in Chapter 14A of the Listing Rules. For further details in relation to the connected transactions, please refer to the section of "Connected Transactions". Save as disclosed in the Company's announcement dated March 16, 2018, the Company has complied with the disclosure requirements in respect of such connected transactions in accordance with Chapter 14A of the Listing Rules.

DONATION

During the year, the total amount of donation made by the group is Rmb5,373,000 for charitable or other purposes.

PROPERTY, PLANT AND EQUIPMENT

Details of movements in property, plant and equipment of the Group during the year are set out in note 17 to the financial statements.

CAPITAL COMMITMENTS

Details of the capital commitments of the Group as at December 31, 2017 are set out in note 50 to the financial statements.

RESERVES

Details of movements in the reserves of the Group during the year are set out in the consolidated statement of changes in equity under the financial statements.

DISTRIBUTABLE RESERVES

As at December 31, 2017, before the proposed final dividend, the Company's reserves available for distribution by way of cash or in kind, as determined based on the lower of the amount determined under PRC accounting standards and the amount determined under HKGAAP, amounted to Rmb3,491,910,000. In addition, in accordance with the Company Law of the PRC, the amount of approximately Rmb3,645,726,000 standing to the credit of the Company's share premium account as prepared in accordance with the PRC accounting standards was available for distribution by way of capitalization issues.

TRUST DEPOSITS

As at December 31, 2017, other than the deposits placed with a non-bank financial institution of Rmb1,301,639,000, the Group's deposits have been placed with commercial banks in the PRC and the Group has not encountered any difficulty in the withdrawal of funds.

PURCHASE, REDEMPTION OR SALE OF THE LISTED SECURITIES OFTHE COMPANY

Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company's listed securities during the year.

DIRECTORS

The Directors of the Company during the year and as at the date of this report are:

EXECUTIVE DIRECTORSMr. ZHAN Xiaozhang (Chairman)Mr. CHENG TaoMs. LUO Jianhu (General Manager)

NON-EXECUTIVE DIRECTORSMr. WANG DongjieMr. DAI BenmengMr. ZHOU Jianping (Resigned on December 22, 2017)

INDEPENDENT NON-EXECUTIVE DIRECTORSMr. ZHOU JunMr. PEI Ker-WeiMs. LEE Wai Tsang, Rosa

DIRECTORS' AND SENIOR MANAGEMENT'S BIOGRAPHIES

Biographical details of the Directors of the Company and the senior management of the Group are set out in the Company's annual report.

DIRECTORS' SERVICE CONTRACTS

Each of the Directors of the Company has entered into a service agreement with the Company, which effect from July 1, 2015 to June 30, 2018.

Save as disclosed above, none of the Directors and Supervisors has entered into any service contract with the Company which is not terminable by the Company within one year without payment of compensation, other than statutory compensation.

DIRECTORS' AND SUPERVISORS' INTERESTS IN CONTRACTS

As at December 31, 2017 or during the year, none of the Directors or Supervisors had a material interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company, its holding company, or any of its subsidiaries or fellow subsidiaries was a party.

DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE'S RIGHTS TO SUBSCRIBE FOR SHARES OR DEBENTURES

At no time during the year were there rights to acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any Director, Supervisor and chief executive or their respective spouse or minor children, or were any such rights exercised by them; or was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries a party to any arrangement to enable any such persons to acquire such rights in any other body corporate.

SHARE CAPITAL

There were no movements in the Company's issued share capital during the year.

PRE-EMPTIVE RIGHTS

There is no provision for pre-emptive rights in the Company's Articles of Association or the laws of the PRC which would require the Company to offer new shares on a pro rata basis to existing shareholders.

DIRECTORS' AND CONTROLLING SHAREHOLDERS' INTERESTS IN COMPETING BUSINESS

Save for their respective interests in the Group, none of the directors and controlling shareholders of the Company was interested in any business which competes or is likely to complete with the businesses of the Group for the Period.

CONTRACT OF SIGNIFICANCE WITH CONTROLLING SHAREHOLDERS

Save as disclosed in this annual report, there is no contract of significance entered into between the Company, or one of its subsidiary companies, and a controlling shareholder or any of its subsidiaries.

TAXATION AND TAX RELIEF

According to a Notice issued jointly by PRC Ministry of Finance and State Administration of Taxation regarding individual income tax policies (Caishuizi [1994] No.020), the dividend incomes received by foreign individuals from a foreign-invested enterprise are exempt from individual income tax.

As stipulated by a Notice issued by the PRC State Administration of Taxation in relation to the withholding and payment of enterprise income tax by Chinese resident enterprises for payment of dividend to H shareholders Who are overseas non-resident enterprises (Guoshuihan [2008] No.897), the Company as a Chinese resident enterprises is required to withhold 10% enterprise income tax when it distributes dividends for the year 2008 and thereafter to all non-resident enterprise holders of H shares of the Company (including HKSCC Nominees Limited, other nominees, trustees or other entities and organizations, who will be deemed as non-resident enterprise holders of H shares) whose names appear on the H share register of members of the Company on the record date.

Dividends payable to the Shareholders who are mainland individual investors or corporate investors investing in the H Shares via the Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect will be paid in Rmb by China Securities Depository and Clearing Corporation Limited Shanghai Branch ("CSDC Shanghai Branch") or Shenzhen Branch ("CSDC Shenzhen Branch") as entrusted by the Company.

According to the requirements of the "Notice on Taxation Policies Concerning the Shanghai-Hong Kong Stock Connect Pilot Program (Finance Tax [2014] No. 81) and "Notice on Taxation Policies Concerning the Shenzhen-Hong Kong Stock Connect Pilot Program (Finance Tax [2016] No. 127) jointly published by the Ministry of Finance, State Administration of Taxation and China Securities Regulatory Commission, the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect tax arrangements are as follows: (i) for Chinese Mainland individual investors who invest in the H Shares via the Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect, the Company will withhold individual income tax at the rate of 20% in the distribution of final dividend. Individual investors may, by producing valid tax payment proofs, apply to the competent tax authority of China Securities Depository and Clearing Company Limited for tax credit relating to the withholding tax already paid abroad; and (ii) for Chinese Mainland securities investment funds that invest in the H Shares via the Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect, the Company will withhold individual income tax in the distribution of final dividend pursuant to the foregoing provisions.

For Chinese mainland corporate investors that invest in the H Shares via the Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect, the Company will not withhold the income tax in the distribution of final dividend and such investors shall file the tax returns on their own.

Under current practice of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in respect of dividends paid by the Company.

Shareholders of the Company are taxed and/ or enjoy tax relief in accordance with the aforementioned regulations.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information that is publicly available to the Company and within the knowledge of the Directors, as at the latest practicable date prior to the issue of this annual report, the Company has maintained sufficient amount of public float as required under the Listing Rules.

DIRECTORS' PERMITTED INDEMNITY PROVISION

Pursuant to insurance arrangements taken out by the Company, every director or other officer of the Company shall be indemnified and secured harmless out of the assets and profits of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them may sustain or incur in connection with their duties or the exercise of their powers. The Company arranged appropriate directors' and officers' liability insurance coverage for the director and officers of the Group during the year ended 31 December 2017.

AUDITORS

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong, who has served as the Company's Hong Kong auditors since 2005, will retire and a resolution for their re-appointment as Hong Kong auditors of the Company will be proposed at the forth coming Annual General Meeting of the shareholders.

By Order of the BoardZhan XiaozhangChairman

Hangzhou, Zhejiang Province, the PRCMarch 16, 2018

Report of the Supervisory Committee

During the Period, the Supervisory Committee duly performed its supervisory responsibilities, and safe guarded the legitimate interests of the shareholders and the Company in accordance with relevant rules and regulations under the Company Law of the PRC, the Company's Articles of Association and the Rules of the Supervisory Committee.

Main tasks undertaken by the Supervisory Committee during the Period were to assess and supervise lawfulness and appropriateness of the activities of the Directors, General Manager and other senior management of the Company in their business decision-making and daily management processes, through a combination of activities including holding meetings of the Supervisory Committee and attending general meetings of shareholders and meetings of the Board. The Supervisory Committee has carefully examined the operating results and the financial standing of the Company, discussed and reviewed the financial statements to be submitted by the Board to the general meeting of shareholders.

During the Period, the Supervisory Committee held a total of two meetings of its own, and attended six meetings held by the Board and two general meetings. The Supervisory Committee considered that the Company has strengthened the accountability system, stepped up reform and innovation and seized the implementation of tasks by capitalising on the strategic positioning of "three platforms" and centering around the growth objective of becoming the "leading operator in China and a top-notch operator globally" to fully accomplish various targets set at the beginning of the year. The operating results of the Company set another record high alongside with full-scale optimisation and upgrade of the highway business as well as effective attempts made in the capital operations. Industry development continued to grow steadily with a more comprehensive and effective risk management system.

The Supervisory Committee has reviewed the financial statements of the Company for 2017 prepared by the Board for submission to the general meeting of shareholders, and concluded that the financial statements accurately reflected the financial position of the Company in 2017, and complied with the relevant laws, regulations and the Company's Articles of Association. The Company maintained a relatively stable dividend in recent years, providing satisfactory return to its shareholders.

During the Period, the members of the Board, General Manager and other senior management of the Company have complied with their fiduciary duties and have acted in good faith and diligently while carrying out their responsibilities. There was no incident of abuse of power or infringement of the interests of shareholders or employees.

The Supervisory Committee is satisfied with the performances across various lines of business achieved by the Board and the management of the Company.

By the order of the Supervisory Committee YAO HuiliangChairman of the Supervisory Committee

Hangzhou, Zhejiang Province, the PRCMarch 16, 2018

Connected Transactions

During the year ended December 31, 2017, the Company had the following non-exempt connected transactions and continuing connected transactions.

Connected Transaction

1. Financial Adviser Agreement

On May 12, 2017, Zheshang Securities entered into the Independent Financial Adviser Agreement with Zhejiang Communications Technology Co., Ltd. ("Zhejiang Communications Technology"), pursuant to which Zheshang Securities agreed to provide financial advisory services with respect to its substantial assets transaction to Zhejiang Communications Technology at the consideration of Rmb19,200,000. Such assets transaction refers to the acquisition of 100% equity interests in Zhejiang Communications Engineering Group Co., Ltd. by Zhejiang Communications Technology and the raising of counterpart funds (please refer to the announcement of the Company dated March 16, 2018 on Connected Transaction -- Independent Financial Adviser Agreement for details).

Communications Group, which holds approximately 67% of the issued share capital of the Company, is a controlling shareholder of the Company. Zhejiang Communications Technology is a non-wholly-owned subsidiary of Communications Group. Zheshang Securities is an indirect non-wholly owned subsidiary of the Company. Therefore, Zhejiang Communications Technology is a connected person of the Company and as a result, the transaction under the Independent Financial Adviser Agreement constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules.

Continuing Connected Transactions

1. Daily Road Maintenance Services

On April 8, 2016, the Company and the relevant subsidiaries of the Company entered into a number of Road Maintenance Agreements with Zhejiang Expressway Maintenance Co., Ltd. ("Maintenance Co"), pursuant to which Maintenance Co agreed to provide the daily maintenance services to the Group's four expressways, namely: the Shanghai-Hangzhou- Ningbo Expressway, the Shangsan Expressway, Jinhua section, Ningbo-Jinhua Expressway and the Hanghui Expressway. Each of the Road Maintenance Agreements has a term of three years from January 1, 2016 to December 31, 2018. The total service fees in respect of the daily maintenance services shall be Rmb182,307,362 and the aggregate annual service fees payable by the Group to Maintenance Co in respect of the daily maintenance services shall not exceed Rmb85 million (please refer to the announcement of the Company dated April 8, 2016 on Continuing Connected Transactions for details).

Communications Group is a controlling shareholder of the Company. Maintenance Co (being a subsidiary of Communications Group) is a connected person of the Company. As such, under the Chapter 14A of the Listing Rules, the provision of daily maintenance services constitutes a continuing connected transaction for the Company.

During the period, the total service fees paid by the Company and its subsidiaries to Maintenance Co in respect of the daily road maintenance services amounted to Rmb63,411,000.

2. Information System Redevelopment

On September 13, 2016, the Company and the relevant subsidiaries of the Company entered into the Information System Redevelopment Agreements with Zhejiang Expressway Information Technology Engineering Co., Ltd. ("Zhejiang Information", a wholly-owned subsidiary of the controlling shareholder of the Company), pursuant to which Zhejiang Information agreed to provide the Information System Redevelopment Services to the Target Expressways for a period of 12 months ending September 12, 2017 at the consideration of Rmb30,984,318.61 (please refer to the announcement of the Company dated September 13, 2016 on Continuing Connected Transaction -- Information System Redevelopment Agreements for details).

Communications Group is a controlling shareholder of the Company. Zhejiang Information (being a wholly-owned subsidiary of Communications Group) is a connected person of the Company. As such, under the Chapter 14A of the Listing Rules, the transaction under the Information System Redevelopment Agreements constitutes a continuing connected transaction for the Company.

During the period, the service fees paid by the Company and its subsidiaries to Zhejiang Information with respect to the continuing connected transaction under the Information System Redevelopment Agreements amounted to Rmb11,598,000.

3. Deposit Services with Zhejiang Communications Finance

Pursuant to the new financial services agreement (the "New Financial Services Agreement") dated March 30, 2016 entered into between the Company and Zhejiang Communications Finance, Zhejiang Communications Finance agreed to provide the Company and its subsidiaries with a range of financial services including certain deposit services (the "Deposit Services") for a term of three years from the date of the New Financial Services Agreement subject to the terms and conditions provided therein (please refer to the announcement of the Company dated March 30, 2016 on Continuing Connected Transactions in relation to New Financial Services Agreement with Zhejiang Communications Investment Group Finance Co., Ltd. for details).

As the issued share capital of Zhejiang Communications Finance is owned as to 35%, 40% and 25% by the Company, Communications Group and Zhejiang Ningbo Yongtaiwen Expressway Co., Ltd. ("Ningbo Expressway Co") respectively, Zhejiang Communications Finance is a connected person of the Company. As such, under the Chapter 14A of the Listing Rules, the provision of Deposit Services constitutes a continuing connected transaction for the Company.

Pursuant to the New Financial Services Agreement, the Deposit Services to be provided by Zhejiang Communications Finance to the Company and its subsidiaries include the current deposit, time deposit, call deposit and agreement deposit services. The Deposit Services will be provided under the New Financial Services Agreement on a non-exclusive basis and the Company and its subsidiaries are entitled to determine whether to accept the Deposit Services provided by Zhejiang Communications Finance or decide to accept deposit services provided by other financial institutions. The Company and its subsidiaries are not obliged to accept any Deposit Services provided by Zhejiang Communications Finance.

The interest rate to be paid by Zhejiang Communications Finance for the deposits of the Company and its subsidiaries with Zhejiang Communications Finance shall be determined based on the prevailing deposit interest rate promulgated by the People's Bank of China for the same period and should not be lower than the deposit interest rates offered by major commercial banks in the PRC for comparable deposits of comparable periods. The maximum amount of the daily deposit balance (including any interest accrued thereon) for the deposits of the Company and its subsidiaries with Zhejiang Communications Finance shall not be more than Rmb1,500,000,000 during the term of the New Financial Services Agreement.

During the period, the maximum amount of the daily deposit balance (including any interest accrued thereon) for the deposits of the Company and its subsidiaries with Zhejiang Communications Finance under the New Financial Services Agreement amounted to Rmb1,301,639,000.

4. Road Maintenance Agreement and Asphalt Road Geothermal Power Regeneration Agreement

On June 23, 2017, the Company entered into the Road Maintenance Agreement with Maintenance Co, pursuant to which Maintenance Co agreed to provide maintenance services to four expressways of the Group at the consideration of Rmb244,412,627 (please refer to the announcement of the Company dated June 23, 2017 on Continuing Connected Transactions in relation to the Provision of Services by Maintenance Co and Zhejiang Shunchang for details).

On June 23, 2017, the Company entered into the Asphalt Road Geothermal Power Regeneration Agreement with Zhejiang Shunchang High-grade Expressway Maintenance Co., Ltd. ("Zhejiang Shunchang"), pursuant to which Zhejiang Shunchang agreed to provide the Regeneration Services to the Group's five expressways at the consideration of Rmb34,683,906 (please refer to the announcement of the Company dated June 23, 2017 on Continuing Connected Transactions in relation to the Provision of Services by Maintenance Co and Zhejiang Shunchang for details).

Communications Group, is a controlling shareholder of the Company. Maintenance Co and Zhejiang Shunchang, as subsidiaries of Communications Group, are connected persons of the Company and as a result, the transactions under the Road Maintenance Agreement and the Asphalt Road Geothermal Power Regeneration Agreement constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. As the Road Maintenance Agreement and the Asphalt Road Geothermal Power Regeneration Agreement are entered into by the Group with parties who are connected with one another within a 12-month period and are similar in nature, the continuing connected transactions contemplated under the Road Maintenance Agreement and the Asphalt Road Geothermal Power Regeneration Agreement should be aggregated in accordance with Rule 14A.81 of the Listing Rules.

During the period, the total service fees in respect of the daily maintenance services paid to Maintenance Co by the Company and its subsidiaries under the Road Maintenance Agreement amounted to Rmb240,979,000; and Zhejiang Shunchang has fulfilled the Asphalt Road Geothermal Power Regeneration Agreement and the total Service Fees (Regeneration) paid by the Company and its subsidiaries to Zhejiang Shunchang under the Asphalt Road Geothermal Power Regeneration Agreement amounted to Rmb32,455,000.

5. Agreements on Data Center Infrastructure Platform Development Project and etc

5.1 Data Center Infrastructure Platform Development Project

On January 9, 2017, the Company entered into the Agreement on Data Center Infrastructure Platform Development Project with Zhejiang Information (a wholly owned subsidiary of the controlling shareholder of the Company), pursuant to which Zhejiang Information agreed to provide the data center infrastructure platform development services to the Company in 2017 at the consideration of Rmb8,985,000 (please refer to the supplemental announcement of the Company dated January 4, 2018 on the Continuing Connected Transactions -- Zhejiang Information Transactions for details).

5.2 Highway Equipment Management System

On January 12, 2017, the Company entered into the Agreement on Highway Equipment Management System with Zhejiang Information, pursuant to which Zhejiang Information agreed to provide the highway equipment management system development and implementation services to the Company in 2017 at the consideration of Rmb353,590 (please refer to the supplemental announcement of the Company dated January 4, 2018 on the Continuing Connected Transactions -- Zhejiang Information Transactions for details).

5.3 Monitoring System Improvement Phase II Project

On August 1, 2017, the Company entered into the Agreement on Monitoring System Improvement Phase II Project with Zhejiang Information, pursuant to which Zhejiang Information agreed to provide the monitoring system and security facilities improvement services to the Company in 2017 at the consideration of Rmb280,000 (please refer to the supplemental announcement of the Company dated January 4, 2018 on the Continuing Connected Transactions – Zhejiang Information Transactions for details).

5.4 Electronic Toll Collection ("ETC") Construction Project

On December 15, 2017, the Company and certain of its subsidiaries entered into the Agreement on ETC Construction Project with Zhejiang Information, pursuant to which Zhejiang Information agreed to provide the ETC construction services to the Company and certain of its subsidiaries for a term ended on March 15, 2018 at the consideration of Rmb19,955,733 (please refer to the supplemental announcement of the Company dated January 4, 2018 on the Continuing Connected Transactions – Zhejiang Information Transactions for details).

Communications Group is a controlling shareholder of the Company. Zhejiang Information is a wholly-owned subsidiary of Communications Group. Therefore, Zhejiang Information is a connected person of the Company. As such, under the Chapter 14A of the Listing Rules, the transaction under the Zhejiang Information Transactions constitutes a continuing connected transaction for the Company.

During the period, the total service fees in respect of road maintenance paid by the Company and certain of its subsidiaries pursuant to the Agreement on Data Center Infrastructure Platform Development Project to Zhejiang Information amounted to Rmb8,985,000; the total service fees paid by the Company and certain of its subsidiaries pursuant to the Agreement on Highway Equipment Management System to Zhejiang Information amounted to Rmb212,000; the total service fees paid by the Company and certain of its subsidiaries pursuant to the Agreement on Monitoring System Improvement Phase II Project to Zhejiang Information amounted to Rmb280,000; and the total service fees paid by the Company and certain of its subsidiaries pursuant to the Agreement on ETC Construction Project to Zhejiang Information amounted to Rmb17,532,000.

6. Technological Cooperation and Service Agreements

On December 22, 2017, the Company and certain of its subsidiaries entered into the Technological Cooperation and Service Agreements with Zhejiang Intelligent Expressway Services Co., Ltd. ("Zhejiang Intelligent", a non-wholly-owned subsidiary of the controlling shareholder of the Company), pursuant to which Zhejiang Intelligent agreed to provide the highway operations monitoring and public travel information services to the Company and certain of its subsidiaries in 2017 at the consideration of Rmb9,267,000 (please refer to the announcement of the Company dated December 22, 2017 on the Continuing Connected Transactions – Technological Cooperation and Service Agreements for details).

Communications Group is a controlling shareholder of the Company. Zhejiang Information is a wholly-owned subsidiary of Communications Group, and Zhejiang Intelligent is a 89.36% owned subsidiary of Zhejiang Information. Therefore, Zhejiang Information and Zhejiang Intelligent are connected persons of the Company and as a result, the transactions under the Zhejiang Information Transactions and the transactions under the Technological Cooperation and Service Agreements with Zhejiang Intelligent constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. Pursuant to Rules 14A.81 and 14A.82 of the Listing Rules, as the the Zhejiang Information Transactions and the transactions contemplated under the Technological Cooperation and Service Agreements were entered into with parties who are connected with one another and within a 12-month period, the Zhejiang Information Transactions and the transactions with Zhejiang Intelligent are required to be aggregated for the calculation of the relevant percentage ratios to determine the classification of the transactions.

During the period, the total service fees paid by the Company and certain of its subsidiaries pursuant to the Technological Cooperation and Service Agreements to Zhejiang Intelligent amounted to Rmb9,267,000.

The independent non-executive Directors have reviewed the continuing connected transactions described above and confirmed that the continuing connected transactions have been entered into:

(a) In the ordinary and usual course of business of the Company;

(b) On normal commercial terms or on terms no less favorable to the Company than terms available to or from independent third parties; and

(c) In accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole.

The Company's auditor was engaged to report on the Group's continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements HKSAE3000 "Assurance Engagements Other Than Audits or Reviews of Historical Financial Information" and with reference to Practice Note 740 "Auditor's Letter on Continuing Connected Transactions under the Hong Kong Listing Rules" issued by the Hong Kong Institute of Certified Public Accountants. The auditors have issued their unqualified letter containing their findings and conclusions in respect of the continuing connected transactions in accordance with the Rule 14A.56 of the Listing Rules. A copy of the auditor's letter has been provided to the Hong Kong Stock Exchange.

DeloitteTo the Members of Zhejiang Expressway Co., Ltd.(Incorporated in the People's Republic of China with limited liability)

Opinion

We have audited the consolidated financial statements of Zhejiang Expressway Co., Ltd. (the "Company") and its subsidiaries (collectively referred to as the "Group") set out on pages 83 to 208, which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at December 31, 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for Opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Independent Auditor's Report

Other Information

The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors of the Company are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors of the Company either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in the independent auditor's report is Tse Ming Fai.

Deloitte Touche TohmatsuCertified Public AccountantsHong Kong

March 16, 2018

Consolidated Statement of Profit or Loss and Other Comprehensive IncomeFor the year ended December 31, 2017

Consolidated Statement of Financial PositionAt December 31, 2017

The consolidated financial statements on pages 83 to 208 were approved and authorised for issue by the board of directors on March 16, 2018 and are signed on its behalf by:

DIRECTOR DIRECTORZHAN Xiaozhang LUO Jianhu

Consolidated Statement of Changes in EquityFor the year ended December 31, 2017

Notes:

(i) Statutory reserves comprise:

(a) Statutory surplus reserveIn accordance with the Company Law of the people's Republic of China (the "PRC") and the respective articles of association of the Company and its subsidiaries (collectively the "Entities"), the Entities are required to allocate 10% of the profit after tax, as determined in accordance with the PRC accounting standards and regulations applicable to the Entities, to the statutory surplus reserve until such reserve reaches 50% of the registered capital of the respective Entities. Subject to certain restrictions set out in the Company Law of the PRC and the respective articles of association of the Entities, part of the statutory surplus reserve may be converted to increase the respective Entities' capital.

(b) General risk reserveIn accordance with the Finance Regulation for Financial Enterprises, securities companies are required to allocate 10% of the profit after tax, as determined in accordance with the PRC accounting standards and regulations, to the general risk reserve. This general risk reserve may be used to cover potential losses on risk exposures.

(c) Transaction risk reserveIn accordance with the securities law of the PRC, securities companies are required to allocate not less than 10% of the profit after tax, as determined in accordance with the PRC accounting standards and regulations, to the transaction risk reserve. This transaction risk reserve may be used to cover potential losses on securities transactions.

(ii) As at January 1, 2017, special reserves mainly comprise:

(a) Other reserve which was arising from the Group's acquisition of additional interest in a subsidiary and the difference between the carrying value of net assets attributable to the Group acquired and the payment consideration arising from acquisition; and

(b) Merger reserve which was arising from the acquisition of subsidiaries under common control using the merger accounting method. This includes the capital of the combining entities at their existing book values since the first date they were under common control and were reduced by the Group's payment of cash consideration to the controlling party and the excess in payment for the acquisition of additional interest to non-controlling interest of its carrying amount to the controlling party.

(iii) On June 26, 2017, an indirect non-wholly-owned subsidiary of the Company, Zheshang Securities Co., Ltd. ("Zheshang Securities"), which is held by Zhejiang Shangsan Expressway Co., Ltd ("Shangsan Co"), has completed the spin-off and separate listing on the Shanghai Stock Exchange (the "Spin-off and Offering"). On the date of the Spin-off and Offering, Zheshang Securities issued 333,333,400 new ordinary shares at Rmb8.45 each, the net proceeds after deducting the issuance costs amounted to Rmb2,756,802,000 (representing proceeds on offering of Rmb2,816,668,000, net of the share issue cost of Rmb59,866,000). Upon completion of the Spin-off and Offering, the Group's effective interest in Zheshang Securities has been diluted from approximately 52.15% to approximately 46.93%, the directors of the Company (the "Directors") are of the view that, the Group is still able to exert control over Zheshang Securities. The dilution impact of the Group's interest in Zheshang Securities has resulted in an increase in non-controlling interests of Rmb1,994,449,000 and the resulting gain of Rmb762,353,000 recognised in special reserves.

Pursuant to the "Implementing Measures for the Transfer of Certain State-owned Shares from the Domestic Securities Market to the National Social Security Fund" (Cai Qi No. ?2009?94), the state-owned shareholders of Zheshang Securities are required, upon the listing, to transfer a number of shares in Zheshang Securities they hold which, in aggregate, represents 10% of the total number of shares issues under the Listing to the National Social Security Fund ("NSSF"). Such obligation was fully fulfilled by Shangsan Co, a non-wholly-owned subsidiary of the Company and the direct shareholder of Zheshang Securities in cash payment of Rmb193,618,000 on August 15, 2017, according to the "Reply on the Proposal of the State-owned Share Transfer in the Initial Public Offerings of Zheshang Securities Co., Ltd. In A Shares Market" (Zhe Guo Zi Chan Quan No.?2013?9). Such payment has been accounted for as deemed distribution.

Consolidated Statement of Cash FlowsFor the year ended December 31, 2017

Notes to the Consolidated Financial StatementsFor the year ended December 31, 2017

1. CORPORATE INFORMATION

Zhejiang Expressway Co., Ltd. (the "Company") was established in the People's Republic of China (the "PRC") with limited liability on March 1, 1997. The H shares of the Company ("H Shares") were subsequently listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") on May 15, 1997.

All of the H Shares of the Company were admitted to the Official List of the United Kingdom Listing Authority (the "Official List"). Dealings in the H Shares on the London Stock Exchange commenced on May 5, 2000.

On July 18, 2000, with the approval of the Ministry of Foreign Trade and Economic Co-operation of the PRC, the Company changed its business registration into a Sino-foreign joint stock limited company.

In the opinion of the Directors, the immediate and ultimate holding company of the Company is Zhejiang Communications Investment Group Co., Ltd. (the "Communications Group"), a state-owned enterprise established in the PRC.

The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information section of the annual report.

The consolidated financial statements are presented in Renminbi ("Rmb"), which is also the functional currency of the Company.

The Company is an investment holding company. The Company and its subsidiaries (collectively referred to as the "Group") are involved in the following principal activities:

(a) the operation, maintenance and management of high grade roads;

(b) the provision of securities broking services, margin financing and securities lending services, securities underwriting and sponsorship services, asset management, advisory services and proprietary trading;

(c) the operation of hotel, the provision of catering service and sales of properties.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ("HKFRSs")

Amendments to HKFRSs that are mandatorily effective for the current year

The Group has applied the following amendments to HKFRSs issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") for the first time in the current year.

Except as described below, the application of the amendments to HKFRSs in the current year has had no material impact on the Group's financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

Amendments to HKAS 7 Disclosure Initiative

The Group has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. In addition, the amendments also require disclosures on changes in financial assets if cash flows from those financial assets were, or future cash flows will be, included in cash flows from financing activities.

Specifically, the amendments require the following to be disclosed: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes.

A reconciliation between the opening and closing balances of these items is provided in note 53. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior year. Apart from the additional disclosure in note 53, the application of these amendments has had no impact on the Group's consolidated financial statements.

New and revised HKFRSs in issue but not yet effective

The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective:

Except for the new HKFRSs mentioned below, the Directors anticipate that the application of all other new and amendments to HKFRSs and interpretations will have no material impact on the consolidated financial statements in the foreseeable future.

HKFRS 9 Financial Instruments

HKFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities, general hedge accounting and impairment requirements for financial assets.

Key requirements of HKFRS 9 which are relevant to the Group are:

Based on the Group's financial instruments and risk management policies as at December 31, 2017, the Directors anticipate the following potential impacts on initial application of HKFRS 9:

Classification and measurement

Impairment

In general, the Directors anticipate that the application of the expected credit loss model of HKFRS 9 will result in earlier provision of credit losses which are not yet incurred in relation to the Group's financial assets measured at amortised costs and other items that subject to the impairment provision upon application of HKFRS 9 by the Group.

Based on the assessment by the Directors, the adoption of the new classification and measurement basis and expected credit loss model mentioned above in respect of financial assets will increase and decrease the retained profits and the investment revaluation reserve as at January 1, 2018 respectively by less than 1% of the total equity attributable to owners of the Company as at December 31, 2017. The net impact to the total equity attributable to owners of the Company as at January 1, 2018 is insignificant.

HKFRS 15 Revenue from Contracts with Customers

HKFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including HKAS 18 Revenue, HKAS 11 Construction Contracts and the related Interpretations when it becomes effective.

The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Under HKFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when 'control' of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in HKFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by HKFRS 15.

In 2016, the HKICPA issued Clarification to HKFRS15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

Revenue of the Group comprises primarily toll revenue, sales of properties, hotel and catering revenue, commission on securities and futures dealing and broking, interest income arising from margin financing and securities lending, deposits and financial assets under resale agreements, asset management and fund management fees and underwriting and financial advisory fees. Interest income is not under the scope of HKFRS15. The Group has assessed the impact of HKFRS 15 on the remaining revenue and does not expect that the application of HKFRS15 will have a significant impact on recognition or measurement of income from majority of these operations. However, the application of HKFRS 15 may result in more disclosures in the consolidated financial statements.

HKFRS 16 Leases

HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 Leases and the related interpretations when it becomes effective.

HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-for-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the Group currently presents upfront prepaid lease payments as investing cash flows in relation to leasehold lands for owned use and those classified as investment properties while other operating lease payments are presented as operating cash flows. Upon application of HKFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing and operating flows by the Group.

Under HKAS 17, the Group has already recognised an asset for prepaid lease payments for leasehold lands where the Group is a lessee. The application of HKFRS 16 may result in potential changes in classification of these assets depending on whether the Group presents right-of-use assets separately or within the same line item at which the corresponding underlying assets would be presented if they were owned.

In contrast to lessee accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by HKFRS 16.

As at December 31, 2017, the Group has non-cancellable operating lease commitments of Rmb101,668,000 as disclosed in note 54. A preliminary assessment indicates that these arrangements will meet the definition of a lease. Upon application of HKFRS 16, the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases.

In addition, the Group currently considers refundable rental deposits paid of Rmb8,126,000 and refundable rental deposits received of Rmb1,714,000 as rights and obligations under leases to which HKAS 17 applied. Based on the definition of lease payments under HKFRS 16, such deposits are not payments relating to the right to use the underlying assets, accordingly, the carrying amounts of such deposits may be adjusted to amortised cost and such adjustments are considered as additional lease payments. Adjustments to refundable rental deposits paid would be included in the carrying amount of right-of-use assets. Adjustments to refundable rental deposits received would be considered as advanced lease payments.

Furthermore, the application of new requirements may result changes in measurement, presentation and disclosure as indicated above.

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with HKFRs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ("Listing Rules") and by the Hong Kong Companies Ordinance.

The consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except leasing transactions that are within the scope of HKAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of Assets.

For financial instruments which are transferred at fair value and a valuation technique that unobservable inputs is to be used to measure fair value in subsequent periods, the valuation technique is calibrated so that the results of the valuation technique equals the transaction price.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

The principal accounting policies are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Group's voting rights in an investee are sufficient to give it power, including:

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Change in the Group's ownership interests in existing subsidiaries

Changes in the Group's ownership interests in existing subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's relevant components of equity and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries, including re-attribution of relevant reserves between the Group and the non-controlling interests according to the Group's and the non-controlling interests' proportionate interests.

Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the assets and liabilities of that subsidiary and non-controlling interests (if any) are derecognised. A gain or loss is recognised in the profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the carrying amount of assets (including goodwill), and liabilities of the subsidiary attributable to the owners of the Company. All amounts previously recognised in other comprehensive income in related to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e., reclassified to profit or loss or transferred to another category of equity as specified/ permitted by applicable HKFRSs). The fair value of any investment retained in the former subsidiary at the date when the control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39 or, when applicable, the cost on initial recognition of an investment in an associate of a joint venture.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net amount of the identifiable assets acquired and the liabilities assumed as at acquisition date. If, after re-assessment, the net amount of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the relevant subsidiary's net assets in the event of liquidation are initially measured at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets or at fair value. The choice of measurement basis is made on a transaction-by-transaction basis.

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination, which represent the lowest level at which the goodwill is monitored for internal management purpose and not larger than an operating segment.

A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is tested for impairment annually or more frequently when there is indication that the unit may be impaired. For goodwill arising on an acquisition in a reporting period, the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is tested for impairment before the end of that reporting period. If the recoverable amount is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit (or group of cash-generating units).

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the amount of the profit or loss on disposal (or any of the cash-generating unit within group of cash-generating units in which the Group monitors goodwill).

The Group's policy for goodwill arising on the acquisition of associates and joint venture is described below.

Investments in associates and a joint venture

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of associates and joint ventures are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income of the associate or joint venture. Changes in net assets of the associate/joint venture other than profit and loss and other comprehensive income are not accounted for unless such changes resulted in changes in ownership interest held by the Group. When the Group's share of losses of an associate or a joint venture exceeds the Group's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group's investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in the investee with a resulting gain or loss being recognised in profit or loss.

When a group entity transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture is recognised in the Group's consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Revenue is recognised when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group's activities, as described below.

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed.

Revenue from sale of properties in the ordinary course of business is recognised when the respective properties have been completed and delivered to the buyers. Deposits and instalments received from purchasers prior to meeting the above criteria for revenue recognition are included in the consolidated statement of financial position under current liabilities.

Service income is recognised when services are provided.

Revenue from room rental, food and beverage sales and other ancillary service in the hotel are recognised when the relevant service have been rendered.

Commission income from securities broking business is recognised on a trade date basis.

Advisory and handling fee income are recognised when the relevant transactions have been provided or the relevant services have been rendered.

Underwriting and sponsors fees are recognised as income in accordance with the terms of the underwriting agreement or deal mandate when the relevant significant acts have been completed.

Asset management fee income is recognised when management services are provided in accordance with the management contracts.

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably).

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

The Group's accounting policy for recognition of revenue from operating leases is described in the accounting policy for leasing below.

Property, plant and equipment

Property, plant and equipment including buildings, leasehold land (classified as finance leases) held for use in the production or supply of goods or services, or for administrative purposes (other than properties under construction as described below), are stated in the consolidated statement of financial position at cost, less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognised so as to write off the cost of assets (other than properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The estimated useful life and annual depreciation rate (except for construction in progress), after taking into account the residual value, adopted by the Group are set out below:

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Intangible assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible and intangible assets below).

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination with finite useful lives are reported at cost less accumulated amortisation and any accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Intangible assets with indefinite useful lives are carried at cost less subsequent accumulated impairment losses (see accounting policy in respect of impairment losses on tangible and intangible assets below).

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains and losses arising from derecognition of an intangible assets are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss in the period when the asset is derecognised.

Expressway operating rights under service concession arrangements

When the Group has a right to charge for usage of concession infrastructure, it recognises concession intangible assets based on fair value of the consideration paid upon initial recognition. Subsequent costs incurred on expressway widening projects and upgrading services are recognised as additional costs of the expressway operating rights. The concession intangible assets representing expressway operating rights are carried at cost less accumulated amortisation and any accumulated impairment losses.

The concession intangible assets are amortised to write-off their cost over their expected useful lives in the remaining concession period on a straight-line basis.

Costs in relation to the day-to-day servicing, repairs and maintenance of the expressway infrastructures are recognised as expenses in the periods in which they are incurred.

Impairment on tangible and intangible assets other than goodwill (see the accounting policy in respect of goodwill above)

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

When it is not possible to estimate the recoverable amount of an individual asset individually, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Inventories

Inventories include properties held for sale, consumables and parts for toll road operation, maintenance and hotel service and those commodities held for sale arising from the securities business.

Inventories are stated at the lower of cost and net realisable value. Cost of properties held for sale includes the costs of land, development expenditure incurred and, where appropriate, borrowing costs capitalised. Costs of other inventories are calculated using the weighted average method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

The Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Leasehold land and building

When the Group makes payments for a property interest which includes both leasehold land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is clear that both elements are operating leases in which case the entire property is accounted as an operating lease. Specifically, the entire consideration (including any lump-sum upfront payments) are allocated between the leasehold land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element at initial recognition.

To the extent the allocation of the relevant payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as 'prepaid lease payments' in the consolidated statement of financial position and is amortised over the lease term on a straight-line basis. When the lease payments cannot be allocated reliably between the leasehold land and building elements, the entire property is generally classified as if the leasehold land is under finance lease.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group's operations are translated into the presentation currency of the Group (i.e., Rmb) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of share of differences arising on translation (attributed to non-controlling interests as appropriate).

Borrowing costs

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.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred income in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

Retirement benefit costs

Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered services entitling them to the contributions.

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from 'profit before tax' as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and interests in associates and a joint venture, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss ("FVTPL"), AFS financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL, of which interest income is included in net gains or losses.

Financial assets at FVTPL

Financial assets classified as at FVTPL include financial asset held for trading.

A financial asset is classified as held for trading if:

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial asset and is included in the 'securities investment gains' line item. Fair value is determined in the manner described in Note 52(c).

AFS financial assets

AFS financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at FVTPL.

Equity and debt securities held by the Group that are classified as AFS financial assets and are traded in an active market are measured at fair value at the end of each reporting period except for unquoted equity investment whose fair value cannot be reliably measured. Changes in the carrying amount of AFS debt instruments relating to interest income calculated using the effective interest method are recognised in profit or loss. Dividends on AFS equity instruments are recognised in profit or loss when the Group's right to receive the dividends is established. Other changes in the carrying amount of AFS financial assets are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss (see the accounting policy in respect of impairment of financial assets below).

Dividends on AFS equity instruments are recognised in profit or loss when the Group's right to receive the dividends is established.

AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period (see the accounting policy in respect of impairment loss on financial assets below).

Loan and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade receivables, loans to customers arising from margin financing business, other receivables, financial assets held under resale agreements, bank balances and clearing settlement fund held on behalf of customers and bank balances, clearing settlement fund, deposits and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses (see the accounting policy in respect of impairment of financial assets below).

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For an AFS equity investment, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset's carrying amount and the present value of the estimated future cash flows, discounted at the financial asset's original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods (see the accounting policy below).

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables and loans to customers arising from margin financing business, where the carrying amount is reduced through the use of an allowance account.

When trade receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

For the loans to customers arising from margin financing business, the Group reviews its advances to customers to assess impairment on a periodic basis. In determining whether an impairment loss should be recognised in profit or loss, the Group reviews the value of the securities collateral received from the customers firstly on individual basis, then on collective basis in determining the impairment. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of AFS equity investments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. In respect of AFS debt investments, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis other than those financial liabilities classified as at FVTPL, of which the interest expense is included in net gains or losses.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is (i) held for trading or (ii) it is designated as at FVTPL.

A financial liability is classified as held for trading if:

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

Financial liabilities at amortised cost

Financial liabilities (including accounts payable to customers arising from securities business, trade payables, other payables, dividends payable, bank and other borrowings, placements from other financial institutions, short-term financing note payable, financial guarantee, financial assets sold under repurchase agreements, bonds payable and convertible bond) are subsequently measured at amortised cost, using the effective interest method.

Convertible bond

A conversion option that will be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group's own equity instruments is a conversion option derivative.

At the date of issue, both the debt component and derivative components are recognised at fair value. In subsequent periods, the debt component of the convertible bond is carried at amortised cost using the effective interest method. The derivative component is measured at fair value with changes in fair value recognised in profit and loss.

Transaction costs that relate to the issue of the convertible bond are allocated to the debt and derivative components in proportion to their relative fair values. Transactions costs relating to the derivative component are charged to profit or loss immediately. Transaction costs relating to the debt component are included in the carrying amount of the debt portion and amortised over the period of the convertible bond using the effective interest method.

Derivative financial instruments

Derivatives are initially recognised at fair value at the date derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately, unless the derivative is designated and effective as a hedging instruments, in which event the timing of recognition in profit or loss depends on the nature of the hedge relationship.

Embedded derivatives

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL. Generally, multiple embedded derivatives in a single instrument are treated as a single compound embedded derivative unless those derivatives relate to different risk exposures and are readily separable and independent of each other.

Financial assets held under resale agreements

Financial assets held under resale agreements where the Group acquires financial assets which will be resold at a predetermined price at a future date under resale agreements, the cash advanced by the Group is recognised as secured loans and receivables and presented as amounts held under resale agreements in the consolidated statement of financial position. The difference between the purchase and resale consideration is amortised over the period of the respective agreements using the effective interest method and is included in interest income.

Financial assets sold under repurchase agreements

Financial assets sold subject to agreements with a commitment to repurchase at a specific future date and price are not derecognised in the consolidated statement of financial position. The proceeds from selling such assets are presented under "financial assets sold under repurchase agreements" in the consolidated statement of financial position. The difference between the selling price and repurchasing price is recognised as interest expense during the term of the agreement using the effective interest method.

Securities lending arrangement

The Group lends investment securities to clients and requires cash and/or equity securities from customers held as collaterals under such securities lending agreements. The cash collaterals arisen from these are included in "accounts payable to customers arising from securities business". For those securities held by the Group and lent to client that do not result in the derecognition of financial assets, they are included in AFS investments.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts issued by the Group are initially measured at their fair values and are subsequently measured at the higher of:

(i) the amount of obligation under the contract, as determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and

(ii) the amount initially recognised less, where appropriate, cumulative amortisation recognised over the guarantee period.

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

4. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Critical judgements in applying accounting policies

The followings are the critical judgements, apart from those involving estimations (see below), that management has made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

Impairment of AFS investments

The determination of whether an AFS investment is impaired requires significant judgment. For listed AFS equity investments and other equity related investments measured at fair value, a significant or prolonged decline in fair value below cost is considered to be objective evidence of impairment. Judgment is required when determining whether a decline in fair value has been significant or prolonged. In making this judgment, the Group evaluates the duration and extent to which the fair value of an investment is less than its cost. In assessing whether it is prolonged, the decline is evaluated against the period in which the fair value of the asset has been below its original cost at initial recognition. In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial recognition. The Group also takes into account other factors, such as the historical data on market volatility and the price of the specific investment, significant changes in technology, markets, economics or the law, as well as industry and sector performance and the consolidated financial statements regarding the investee that provides evidence that the cost of the equity securities may not be recovered. Judgment is also required to determine whether historical performance remains representative of current and future economic conditions. For AFS debt instruments, the Group makes the judgments as to whether there is an objective evidence of impairment which indicates a measurable decrease in the estimated future cash flows of these debt instruments. For unlisted AFS equity instruments measured at cost, the Group makes the judgement as to whether there is an objective evidence of impairment exists based on the investee's financial conditions and business prospects, including industry environment, as well as operating and financing cash flows. This requires a significant level of management judgement which would affect the amount of impairment losses in profit or loss. Details of the AFS investments are set out in Note 25.

Determination of consolidation scope

All facts and circumstances must be taken into consideration in the assessment of whether the Group, as an investor, controls the investee. The principle of control sets out the following three elements of control: (a) power over the investee; (b) exposure, or rights, to variable returns from involvement with the investee; and (c) the ability to use power over the investee to affect the amount of the investor's returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

For collective asset management schemes and investment funds where the Group involves as a manager, the Group considers the scope of its decision-making authority and assesses whether the combination of investments it holds, if any, together with its remuneration and credit enhancements creates exposure to variability of returns from the activities of the collective asset management schemes and investment funds that is of such significance that it indicates that the Group is a principal. The collective asset management schemes and investment funds are consolidated if the Group acts in the role of principal.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year.

Estimated impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the recoverable amount use of the cash-generating units to which goodwill has been allocated, which is the higher of the value in use or fair value less costed The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at December 31, 2017, the carrying amount of goodwill is Rmb86,867,000 (without accumulated impairment loss) (2016: Rmb86,867,000 (without accumulated impairment loss)). Details of the impairment testing are disclosed in Note 22.

Estimated impairment of intangible assets with indefinite useful lives

Determining whether intangible assets with indefinite useful lives are impaired requires an estimation of the value in use of themselves or the cash-generating unit to which they belong. The value in use calculation requires the Group to estimate the future cash flows expected to arise from themselves or the cash-generating unit to which they belong and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at December 31, 2017, the carrying amounts of intangible assets with indefinite useful lives were Rmb68,235,000 (without accumulated impairment loss) (2016: Rmb66,563,000 (without accumulated impairment loss)). Details of the impairment testing are disclosed in Note 22.

Impairment of loans to customers arising from margin financing business and financial assets held under resale agreements

The Group reviews its loans to customers arising from margin financing business and financial assets held under resale agreements to assess impairment on a periodic basis. When there is objective evidence of impairment loss for loans to customers arising from margin financing business and financial assets held under resale agreements, the Group takes into consideration the estimation of future cash flows. Specifically, the Group reviews the value of the cash and securities collateral received from the customers firstly on an individual basis, then on a collective basis in determining the impairment.

The policy for collective impairment allowances for loans to customers arising from margin financing business and financial assets held under resale agreements of the Group is based on the evaluation of probability of default, loss given default and exposure at default of accounts and on the management's judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these loans to customers arising from margin financing business and financial assets held under resale agreements, including the current creditworthiness, and the past collection history. Details are set out in Notes 27 and 30.

Estimated impairment of interests in a joint venture and associates

The Group regularly reviews whether there are any indications of impairment and recognises an impairment loss if the carrying amount of the Group's interest in a joint venture or associates are lower than their respective recoverable amount. The Group tests for impairment for the interests in a joint venture and associates whenever there is an indication that the asset may be impaired. The recoverable amounts have been determined based on the higher of the fair value less costs of disposal and value in use calculations. These calculations require the use of estimates, such as discount rates, future profitability and growth rates. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at December 31, 2017, the carrying amount of interest in a joint venture was Rmb303,065,000 (without accumulated impairment loss) (2016: Rmb285,397,000 (without accumulated impairment loss)), and the carrying amount of interests in associates was Rmb1,686,227,000 (without accumulated impairment loss) (2016: Rmb1,310,486,000 (without accumulated impairment loss)).

Provision for financial guarantee contract

The Directors based on its best estimate of the financial position and credit rating of the guarantee to determine the probability of incurring a claim by the counterparty to the Company to estimate fair value or the respective obligation under the financial guarantee contract. Based on expectations at the end of the reporting period, the Group considers that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses. As at December 31, 2017, in respect of the financial guarantee contract provided to a joint venture of the Group in the amount of Rmb842,643,000 (2016: Rmb947,275,000), the Directors considered that the fair value of the financial guarantee obligation was insignificant on the date of initial recognition and determined that no provision was recognised for both years.

Fair value measurements and valuation processes

Some of the Group's assets and liabilities are measured at fair value for financial reporting purposes. The board of directors of the Group has set up a valuation team, which is headed up by the Chief Financial Officer ("CFO") of the Group, to determine the appropriate valuation techniques and inputs for fair value measurements.

In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available, Where Level 1 inputs are not available, the Group engages qualified valuers to perform the valuation.

The CFO works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. The CFO reports the valuation committee's findings to the board of directors of the Group at the end of each reporting period to explain the cause of fluctuations in the fair value of the assets and liabilities.

5. SEGMENT INFORMATION

Information reported to the General Manager of the Company, being the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses on types of goods or services delivered or provided.

Specifically, the Group's reportable and operating segments under HKFRS 8 are as follows:

(i) Toll operation – the operation and management of high grade roads and the collection of the expressway tolls.

(ii) Securities operation – the securities broking, margin financing and securities lending, securities underwriting and sponsorship, asset management, advisory services and proprietary trading.

(iii) Other operation – properties development, hotel operation and other ancillary services.

Segment revenue and results

The following is an analysis of the Group's revenue and results by reportable and operating segment.

The accounting policies of the operating segments are the same as the Group's accounting policies described in Note 3. Segment profit represents the profit after tax of each operating segment. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and performance assessment.

Segment assets and liabilities

The following is an analysis of the Group's assets and liabilities by reportable and operating segment:

Segment assets and segment liabilities represent the assets and liabilities of the subsidiaries operating in the respective reportable and operating segment.

Other segment information

Amounts included in the measure of segment profit/loss or segment assets:

Note: Non-current assets excluded financial instruments and deferred tax assets.

Revenue from major services

An analysis of the Group's revenue from continuing operations, net of discounts and taxes, for the year is as follows:

Geographical information

The Group's operations are located in the PRC. All non-current assets of the Group are located in the PRC.

All of the Group's revenue from external customers is attributed to the group entities' country of domicile (i.e., the PRC).

Information about major customers

During the years ended December 31, 2017 and 2016, there are no individual customer with sales over 10% of the total revenue of the Group.

6. SECURITIES INVESTMENT GAINS

7. OTHER INCOME AND GAINS AND LOSSES

Note: Rental income included contingent rent of approximately Rmb3,817,000 (2016: Rmb3,649,000) during the year.

8. FINANCE COSTS

9. PROFIT BEFORE TAX

The Group's profit before tax from continuing operations has been arrived at after charging (crediting):

10. INCOME TAX EXPENSE

Under the Law of the PRC on Enterprise Income Tax (the "EIT Law") and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25%.

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit. No Hong Kong Profits Tax has been provided as the Group has no estimated assessable profit in Hong Kong for both years.

The tax charge for the year can be reconciled to the profit before tax from continuing operations per the consolidated statement of profit or loss and other comprehensive income as follows:

11. DISCONTINUED OPERATION

As set out in Note 49, for the year ended December 31, 2016, the Company disposed of its 100% equity interest in Zhejiang Expressway Development Investment Co., Ltd ("Development Co"), which carried out substantially all of the Group's toll related operation. The disposal was effected in order to allow the Company to focus on the toll operation business. This disposal was completed on December 29, 2016, on which date control of Development Co passed to the acquirer.

The profit for the year ended December 31, 2016 from the discontinued toll related operation was set out below.

The results of the toll related operation for the period from January 1, 2016 to December 29, 2016, which had been included in the consolidated statement of profit or loss and other comprehensive income, were as follows:

During the year ended December 31, 2016, Development Co contributed Rmb82,622,000 to the Group's net operating cash inflows, paid Rmb41,542,000 in respect of investing activities, and paid Rmb28,716,000 in respect of financing activities.

The carrying amounts of the assets and liabilities of Development Co at the date of disposal were disclosed in Note 49.

12. OTHER COMPREHENSIVE INCOME

Tax effect relating to other comprehensive income is as follows:

13. DIRECTORS', SUPERVISORS' AND SENIOR MANAGEMENTS' EMOLUMENTS

The emoluments paid or payable to each of the 9 (2016: 9) directors and 5 (2016: 6) supervisors are as follows:

@ Executive directors. The emoluments shown above were for their services in connection with the management of the affairs of the Company and the Group.

^ Non-executive directors. The emoluments shown above were for their services as directors of the Company or its subsidiaries.

* Independent non-executive directors. The emoluments shown above were for their services as directors of the Company.

# Supervisors. The emoluments shown above were for their services as supervisors of the Company.

Notes:

(i) Resigned on March 17, 2016.(ii) Resigned on October 21, 2016.(iii) Resigned on August 18, 2016.(iv) Appointed on December 28, 2016.(v) Ms. Luo Jianhu and Cheng Tao are also the senior management of the Company and their emoluments disclosed above include those services rendered by them as senior management.(vi) Appointed on March 30, 2017.(vii) Appointed on April 3, 2017.(viii) Resigned on December 22, 2017.

Bonuses paid to directors and supervisors are performance-rated and are determined by the Remuneration Committee of the Company, which comprises three independent non-executive directors. No directors or supervisors waived any emoluments and no incentive was paid to any directors or supervisors as an inducement to join the Company and no compensation for loss of office was paid to any directors, supervisors, past directors or past supervisors during both years.

The emoluments paid or payable to each of the other 6 (2016: 8) senior managements are as follows:

Note: Resigned on February 18, 2016.

The emoluments of each of the senior managements were below HK$1,000,000 (equivalent to Rmb835,900 (2016: Rmb894,510)) in both years. Bonuses paid to senior managements are performance-rated and are determined by the board of Directors.

No senior management waived any emoluments and no incentive was paid to any senior management as an inducement to join the Company and no compensation for loss of office was paid to any senior management, past senior management during both years. Bonuses are determined by reference to the individual performance of the senior managements.

14. EMPLOYEES' EMOLUMENTS

The emoluments of the five highest paid individuals in the Group are as follows:

No emoluments nor incentive was waived as an inducement to join the Company and no compensation for loss of office was paid to any five highest paid individuals in the Group during both years. Bonuses are determined by reference to the individual performance of the five highest paid individuals in the Group.

The five individuals with the highest emoluments in the Group during the year included five (2016: five) non-director employees.

Their emoluments are within the following bands:

15. DIVIDENDS

Final dividend of Rmb30.0 cents per share in respect of the year ended December 31, 2017 (2016: final dividend of Rmb29.5 cents per share in respect of the year ended December 31, 2016) in the total amount of Rmb1,302,934,000 (2016: Rmb1,281,219,000) has been proposed by the Directors and is subject to approval by the shareholders in the annual general meeting.

16. EARNINGS PER SHARE

For continuing operations

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

Earnings figures are calculated as follows:

Number of shares

For continuing and discontinued operations

The calculation of the basic and diluted earnings per share from continuing and discontinued operations attributable to the owners of the Company is based on the following data: