Características

The Target Group’s activities expose it to a variety of financial risks: market risk (including fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Target Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Target Group’s financial performance.

Risk management is carried out by finance department under the guidance of the Board of Directors.

(a) Market risk

Cash flow and fair value interest rate risk

As the Target Group has no significant interest-bearing assets other than cash and cash equivalents, the Target Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Target Group’s interest-rate risk arises from borrowings. Borrowings borrowed at variable rates expose the Target Group to cash flow interest rate risk. During the Relevant Periods, the Target Group’s borrowings bore interest at variable rates. The Target Group currently does not use any interest rate swaps to hedge its exposure to interest rate risk.

For the years ended 31 December 2013, 2014 and 2015, if interest rates on borrowings had been 0.5% higher/lower of existing interest rates with all other variables held constant, the Target Group’s profit for the year would have been approximately RMB298,000, RMB382,500 and RMB637,500 lower/higher, respectively, mainly as a result of higher/lower interest expense on variable rates borrowings.

(b) Credit risk

The Target Group’s maximum exposure to credit risk in relation to financial assets is the carrying amounts of cash and cash equivalents and trade and other receivables shown on the consolidated balance sheets.

As at 31 December 2013, 2014 and 2015, all of the Target Group’s bank deposits are deposited in major financial institutions located in the PRC, which management believes are of high credit quality without significant credit risk.

The Target Group categorises its cash at banks into the following:

Group 1: Top 4 banks in the PRC (China Construction Bank, Bank of China, Agricultural Bank of China and Industrial and Commercial Bank of China)

Group 2: Other major state-owned banks in the PRC

At 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 Group 1 35,572 37,720 103,002 Group 2 153 48 48 35,725 37,768 103,050

Other than those disclosed in note 17(f), the Target Group does not have significant concentration of credit risk in relation to trade and other receivables. The Target Group generally requests advances from customers. In circumstances of credit sales, to manage the credit risk in respect of trade and other receivables, the Target Group has policies in place to ensure that sales are made to customers with appropriate credit history and the Target Group performs periodic credit evaluations of its customers, and generally does not require collateral from the customers on the outstanding balances. Based on the expected recoverability and timing for collection of the outstanding balances, the Target Group has no significant credit risk in respect of its trade and other receivables as at 31 December 2013, 2014 and 2015.

(c) Liquidity risk

To manage the liquidity risk, the Target Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Target Group’s operations and mitigate the effects of fluctuations in cash flows. The Target Group expects to fund its future cash flow needs mainly through internally generated cash flows from operations and borrowings from financial institutions.

The table below analyses the Target Group’s and Target Company’s financial liabilities into relevant maturity groupings based on the remaining period at the end of reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

At 31 December

2013 2014 2015

RMB’000 RMB’000 RMB’000

Target Group

Less than one year

Trade and other payables 68,656 68,995 105,059 Dividend payable 29,767 32,744 – Bank borrowings 70,000 90,000 150,000

168,423 191,739 255,059

More than one year

Trade and other payables 3,931 3,779 3,430

Target Company

Less than one year

Trade and other payables 79,513 81,475 132,000 Dividend payable 29,767 32,744 – Bank borrowings 70,000 90,000 150,000

179,280 204,219 282,000

More than one year

Trade and other payables 3,931 3,779 3,430

3.2 Capital management

The Target Group’s objectives when managing capital are to safeguard the Target Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Target Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt.

The Target Group monitors capital risk on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including “current and non-current borrowings”

The gearing ratios as at 31 December 2013, 2014 and 2015 were as follows:

At 31 December

2013 2014 2015

RMB’000 RMB’000 RMB’000 Total borrowings 70,000 90,000 150,000 Less: cash and cash equivalents (35,837) (37,911) (103,165)

Net debt 34,163 52,089 46,835 Total equity 187,698 192,937 223,537

Total capital 221,861 245,026 270,372

Gearing ratio 15% 21% 17%

3.3 Fair value estimation

Fair value measurement by level of hierarchy is not disclosed as the Target Group has no financial instruments measured at fair value in the balance sheet as at 31 December 2013, 2014 and 2015.

The carrying values less impairment provision of receivables and payables are a reasonable approximation of their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Target Group for similar financial instruments.