Corporate Information Board of Directors Registered Office P.O. Box 309 Executive Directors Ugland House Chan Wing Kin, Alfred (Chairman) Grand Cayman Wong Wai Yee, Peter (Chief Executive Officer) KY1-1104 Ho Hon Ming, John (Company Secretary) Cayman Islands Kee Wai Ngai, Martin (Chief Operating Officer) Head Office and Principal Place Independent Non-Executive Directors of Business In 2017, we celebrated Towngas China’s Cheng Mo Chi, Moses th Li Man Bun, Brian David 23rd Floor, 363 Java Road 10 anniversary. During the first Kwan Yuk Choi, James North Point, Hong Kong Telephone : (852) 2963 3298 decade of our journey, the company has Authorised Representatives Facsimile : (852) 2561 6618 Stock Code : 1083 witnessed soaring growth Chan Wing Kin, Alfred Website : www.towngaschina.com Ho Hon Ming, John along with substantial market Principal Share Registrar and Company Secretary expansion, paving the way for even Transfer Office Ho Hon Ming, John SMP Partners (Cayman) Limited greater prospects in the future. Royal Bank House – 3rd Floor Board Audit and Risk Committee 24 Shedden Road P.O. Box 1586 Li Man Bun, Brian David (Chairman) Grand Cayman, KY1-1110 We continue to be Cheng Mo Chi, Moses Cayman Islands Asia’s clean energy supplier and Kwan Yuk Choi, James leading Hong Kong Branch Share Registrar Remuneration Committee quality service provider, Computershare Hong Kong Investor Services Limited Cheng Mo Chi, Moses (Chairman) 17M Floor with a focus on innovation and Li Man Bun, Brian David Hopewell Centre Kwan Yuk Choi, James 183 Queen’s Road East environmental-friendliness. Chan Wing Kin, Alfred Wanchai, Hong Kong Nomination Committee Hong Kong Branch Share Chan Wing Kin, Alfred (Chairman) Transfer Office Cheng Mo Chi, Moses Computershare Hong Kong Investor Services Limited Li Man Bun, Brian David Shops 1712-1716, 17th Floor Kwan Yuk Choi, James Hopewell Centre 183 Queen’s Road East Auditor Wanchai, Hong Kong Deloitte Touche Tohmatsu Principal Bankers Certified Public Accountants 35/F, One Pacific Place Bank of China (Hong Kong) Limited 88 Queensway China Merchants Bank, Shenzhen Branch Hong Kong TOWNGAS CHINA COMPANY LIMITED ANNUAL REPORT 2017 169 CONTENTS Business Overview 002 Five-Year Financial Summary 004 Financial Highlights 005 Chairman’s Statement 006 Financial Review 010 Review of Operations 014 Awards and Accolades 032 Risk Factors 034 Board of Directors 036 Report of the Directors 041 Corporate Governance Report 054 Independent Auditor’s Report 069 Consolidated Income Statement 075 Consolidated Statement of Comprehensive Income 076 Consolidated Statement of Financial Position 077 Consolidated Statement of Changes in Equity 079 Consolidated Statement of Cash Flows 080 Notes to the Consolidated Financial Statements 082 Corporate Information 169 Business Overview NO. OF PROJECTS 108 HeilongjiHaeniglongjiang Piped Gas Projects Anhui Anqing, Bowang, Chizhou, Huangshan, Huizhou, Maanshan, Tunxi, Wuhu Fanchang, Wuhu Jiangbei, Zhengpugang Xin Qu Modern Industrial Zone Jilin Jilin Chongqing Qijiang Fujian Changting Guangdong Fengxi, Foshan, Qingyuan, Shaoguan, Yangdong Guangxi Guilin, Liuzhou, Zhongwei (Fusui) LiaoningLiaoning Guizhou Xingyi Inner MoIngnoelr iaMongolia Hebei Baoding, Cangxian, Mengcun, Qinhuangdao, Shijiazhuang, Yanshan Heilongjiang Qiqihar Hubei Zhongxiang Hunan Miluo Hebei Hebei Inner Mongolia Baotou Jiangsu Dafeng, Nanjing Gaochun, Tongshan Jiangxi Changjiu, Fuzhou, Jiujiang, Wuning, Xiushui, Yifeng ShandonSghandong Jilin Changchun, Gongzhuling, Siping Liaoning Anshan, Beipiao, Benxi, Chaoyang, Dalian Changxingdao, Dalian Economic and Technical Development Zone, Fuxin, Jianping, Kazuo, Lvshun, Shenyang Coastal Economic Zone, Tieling, Wafangdian, Xinqiu, Yingkou Jiangsu Jiangsu Shandong Boxing Economic Development Zone, Chiping, Feicheng, Jimo, Anhui Anhui Jinan West, Laiyang, Laoshan, Linqu, Longkou, Pingyin, Taian, Hubei Hubei Weifang, Weihai, Wulian, Yangxin, Zhaoyuan, Zibo, Zibo Lubo SichuanSichuan Sichuan Cangxi, Chengdu, Dayi, Jiajiang, Jianyang, Lezhi, Mianyang, ChongqiCnhgongqing Mianzhu, Pengshan, Pengxi, Pingchang, Weiyuan, Xindu, Xinjin, ZhejiangZhejiang Yuechi, Zhongjiang, Ziyang Yunnan Luliang Zhejiang Huzhou, Songyang, Tongxiang, Yuhang Hunan Hunan Jiangxi Jiangxi GuizhouGuizhou Fujian Fujian Yunnan Yunnan GuangxiG u angxi Distributed Energy Projects Midstream Projects Vehicle Gas Refilling Stations Piping Prefabrication Project GuangdoGnugangdong Sichuan Energy Investment, Taian Taigang, Qiqihar (Lianfu), Maanshan Shenyang Economic and Xuancheng-Huangshan, Qiqihar (Xingqixiang) Technological Development Zone, Inner Mongolia Guyang Qingdao City Jimo Chuangzhi New District, Xuzhou Industrial Park (Jiawang District) TOWNGAS CHINA COMPANY LIMITED 002 ANNUAL REPORT 2017 HeilongjiHaeniglongjiang Jilin Jilin Liao n ingLiao n ing Inner MoIngnoelr iaMongolia Hebei Hebei ShandonSghandong Jiangsu Jiangsu Anhui Anhui Hubei Hubei SichuanSichuan ChongqiCnhgongqing ZhejiangZhejiang Hunan Hunan Jiangxi Jiangxi GuizhouGuizhou Fujian Fujian Yunnan Yunnan GuangxiGuangxi GuangdoGnugangdong TOWNGAS CHINA COMPANY LIMITED ANNUAL REPORT 2017 003 Five-Year Financial Summary For the year ended 31 December 2013 2014 2015 2016 2017 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 RESULTS Turnover 6,715,709 7,881,833 7,718,293 7,181,150 8,759,783 Profit before taxation 1,608,852 1,531,059 1,268,043 1,455,403 1,917,654 Taxation (382,509) (350,085) (343,511) (362,133) (405,373) Profit for the year 1,226,343 1,180,974 924,532 1,093,270 1,512,281 Profit for the year attributable to: Shareholders of the Company * 1,106,286 1,054,189 807,042 973,997 1,365,385 Non-controlling interests 120,057 126,785 117,490 119,273 146,896 Profit for the year 1,226,343 1,180,974 924,532 1,093,270 1,512,281 HK cents HK cents HK cents HK cents HK cents Earnings per share Basic 42.46 40.19 30.45 36.26 49.87 Diluted 42.34 40.08 30.43 N/A N/A As at 31 December 2013 2014 2015 2016 2017 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS AND LIABILITIES Total assets 25,628,676 27,350,239 28,870,524 28,027,110 32,774,810 Total liabilities (12,150,413) (12,905,761) (14,170,668) (13,362,927) (15,576,994) 13,478,263 14,444,478 14,699,856 14,664,183 17,197,816 Equity attributable to shareholders of the Company 12,531,303 13,253,951 13,478,084 13,499,351 15,845,033 Non-controlling interests 946,960 1,190,527 1,221,772 1,164,832 1,352,783 Total equity 13,478,263 14,444,478 14,699,856 14,664,183 17,197,816 * the Company: Towngas China Company Limited TOWNGAS CHINA COMPANY LIMITED 004 ANNUAL REPORT 2017 Financial Highlights Turnover Profit Attributable to Number of Customers (HK$ Millions) Shareholders of the Company (All Entities) (HK$ Millions) (Millions) 10,000 1,500 12 11.8 1,365 10.9 9,000 8,760 10.0 10 7,882 8,000 7,718 1,200 9.2 1,106 7,181 1,054 8.5 7,000 6,716 974 8 6,000 900 807 5,000 6 4,000 600 4 3,000 2,000 300 2 1,000 0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Turnover Analysis 23% 20% Gas Connection Gas Connection 2016 2017 77% 80% Piped Gas and Piped Gas and Related Products Related Products Percentage of Gas Volume by Customer Mix (All Entities) 27% 25% Residential Residential 2016 2017 55% 18% 58% 17% Industrial Commercial Industrial Commercial TOWNGAS CHINA COMPANY LIMITED ANNUAL REPORT 2017 005 Chairman’s Statement Economic Landscape The global economy picked up remarkably in showing an improvement in domestic economy 2017 with economic growth reaching 3.7%, recorded for the first time since 2010. Foreign generally better-than-expected economic trade recorded a growth of 14.2%, while the growth in major economies such as the United added value of industrial output increased 6.6% States and Europe, as well as the rebound in as compared to the corresponding period in the international oil prices. Also benefitting from previous year, representing a 0.6 percentage the improvements in supply-side reform, point higher than in 2016. Other macro data hand-in-hand with the implementation of the also suggested that market supply and “One Belt and One Road” initiative, mainland demand became more active and the business China’s domestic economy showed steady environment appeared in good shape with advancement. As a result, China posted a signs of steady improvement, both of which are growth of 6.9% in its economy for the year, beneficial to the development of energy market. TOWNGAS CHINA COMPANY LIMITED 006 ANNUAL REPORT 2017 and “Opinions on Accelerating the Utilisation of Natural Gas”, stating clearly that the development objective is to work towards a 10% share of natural gas in the composition of primary energy consumption by 2020, and further increasing to a 15% share in energy consumption by 2030. In December 2017, the “Plan for Clean Heating in Winter in Northern Areas (2017 to 2021)” was issued, stating that the objective is to achieve a 70% share of clean heating in northern areas by 2021, replacing the burning of 150 million tonnes of coal for heating. With the successful implementation of the above favourable policies, the future natural gas market in China will continue to grow rapidly, thus the prospects for the natural gas industry are more promising. Reforms in the Marketisation of Natural Gas In May 2017, the Central Government issued the “Certain Opinions on Further Structural Market Prospects for Natural Reforms of the Oil and Natural Gas Sector”, confirmed the direction of reforms in Gas Business the marketisation of natural gas. NDRC At the 19th National Congress of the promulgated the “Guidance Opinion on Communist Party of China, it is reported that Enhanced Regulation over the Pricing of Gas improving ecological environment, pursuing Distribution”, setting out the investment rates green development and building a beautiful of return on gas distribution and encouraging China would be important strategies for gas companies to enhance efficiency and the future development of the country.