Interim Results
Zhejiang Expressway Co
26 September 2003
Contents
2003 Interim Results 2
Business Review 3
Financial Analysis 7
Outlook 13
Disclosure of Interests and Other Matters 14
Condensed Consolidated Income Statement 16
Condensed Consolidated Balance Sheet 17
Condensed Consolidated Summary Statement of
Changes in Equity 19
Condensed Consolidated Cash Flow Statement 20
Notes to Condensed Financial Statements 21
Appendices
- Corporate Information 30
- Corporate Structure of the Group 32
- Financial Highlights 33
- Location Map of Expressways Operated
by the Group Center Spread
2003 Interim Results (Unaudited)
The directors ('Directors') of Zhejiang Expressway Co., Ltd. (the 'Company') are
pleased to announce the unaudited consolidated operating results of the Company
and its subsidiaries (collectively the 'Group') for the six months ended June
30, 2003 (the 'Period'), prepared in conformity with accounting policies
generally accepted in Hong Kong with basis of preparation as stated in Note 1 to
the condensed consolidated income statement below.
During the Period, turnover for the Group grew by 9.4% to reach Rmb1,099,917,000
and net profit from ordinary activities attributable to shareholders increased
by 10.3% to reach Rmb492,147,000. Earnings per share for the Period was Rmb11.3
cents, representing an increase of 10.3% over the same period in 2002.
The Directors recommend the payment of an interim dividend of Rmb4.0 cents per
share in respect of the Period, subject to approval at the extraordinary general
meeting of the shareholders of the Company to be held on October 9, 2003.
Business Review
Despite negative impact from the outbreak of the Severe Acute Respiratory
Syndrome ('SARS') in the PRC during the first half of 2003, the Group's business
operations continued to expand during the Period, buoyed by better-than-expected
economic performance at national and regional levels since the start of the
year, as well as greater-than-usual sales in passenger cars.
In Zhejiang Province, where all of the Group's operating activities are located,
GDP growth rate during the Period was 12.7%, 4.5 percentage points higher than
the national average of 8.2%, and 0.4 percentage point higher than the 12.3%
growth rate in 2002.
Having weathered the eventful first half of the year, business operations of the
Group continued to expand. Turnover for the Group during the Period was
Rmb1,099,917,000, representing an increase of 9.4% over the same period last
year, while net profit attributable to shareholders was Rmb492,147,000,
representing an increase of 10.3%.
With the Group's focus on toll road operations, toll income accounted for
approximately 94.7% of the Group's total income during the Period, while other
business operations grew at a faster pace, gaining an increasing share of the
Group's total income.
Toll Road Operations
Robust economic growth in the Yangtze River Delta region, evidenced by strong
GDP growth rates and increasing sales in passenger cars, led to continued rapid
growth in traffic volume on the expressways operated by the Group during the
Period, except for certain sections which were affected by traffic diversions
due to newly opened expressways.
Traffic volume on the Shanghai-Hangzhou-Ningbo Expressway grew by 6.4% during
the Period, equivalent to 25,231 full trips per day. The growth rate was less
than those achieved in previous years, mainly due to traffic diversion caused by
the newly opened eastern section of Hangzhou City Ring Road, as well as the SARS
outbreak.
The anticipated traffic diversion by Hangzhou City Ring Road started at the end
of 2002 when the eastern section of the road was completed and opened to
traffic, providing an alternative to a 39.3km section of the
Shanghai-Hangzhou-Ningbo Expressway.
Measures to contain the spread of SARS, including travel controls, were
introduced with full force in Zhejiang Province starting from April 21, 2003.
Traffic volume growth rate on the Shanghai-Hangzhou-Ningbo Expressway plummeted
in the initial two weeks since such measures were introduced, but soon began to
recover as the spread of SARS was being quickly contained.
Business Review (Cont'd)
Toll Road Operations (Cont'd)
A further challenge but which did not cause traffic interruption on the
Shanghai-Hangzhou-Ningbo Expressway, was the construction works brought by the
expressway-widening project and road surface-overlaying project. While the
ongoing road surface-overlaying project progressed ahead of schedule, measures
in various aspects of construction works were taken to minimize its impact on
the normal traffic flow on the expressway, including shifting works which was
normally carried out during daytime to night-time to avoid causing major
congestions on the expressway.
On certain sections of the Shanghai-Hangzhou-Ningbo Expressway where the
surface-overlaying project has already been completed, substantial improvement
in the level of quality of service is already apparent, as reflected in greater
satisfaction enjoyed by the customers who are able to drive more smoothly and
comfortably on the expressway.
The Shangsan Expressway saw its traffic volume grow by 24.8% during the Period,
representing 13,613 full trips per day, continuing the strong growth momentum
since its full completion and opening to traffic in December 2000.
Overall toll income for the Group rose 8.0% to Rmb1,097,479,000 during the
Period, among which the Shanghai-Hangzhou-Ningbo Expressway accounted for
Rmb852,188,000, an increase of 4.7% over the same period last year, while the
Shangsan Expressway accounted for Rmb245,291,000, an increase of 21.2% over the
same period last year.
Benefiting from the increasingly enhanced expressway networks around Hangzhou
City, the 9.45km Shida Road, owned and operated by Hangzhou Shida Highway Co.,
Ltd. ('Shida Co'), a 50% jointly controlled entity of the Company, witnessed a
77.0% growth in traffic volume and a 58.1% growth in toll income. Net profit
generated by Shida Co was Rmb6.69 million.
Business Review (Cont'd)
Other Business Operations
With the addition of the opening for business of the Xinchang service area along
the Shangsan Expressway at the beginning of the year, there are now a total of
six service areas operated by the Group, compared to five during the first half
of 2002. Reflecting the growth in demand for such services, turnover generated
by the service areas grew by 52.8% to Rmb46,871,000 during the Period, while net
profit grew by 50.1% to Rmb7,421,000.
Zhejiang Expressway Petroleum Development Co., Ltd. ('Petroleum Co'), a 50%
owned associate of the Company, was able to substantially expand its wholesale
business in petroleum products while continuing to improve profit margins at its
retail outlets. Turnover during the Period grew by 74.4% to Rmb525.97 million,
and net profit increased by 166.7% to Rmb7.91 million.
Further expanding its billboard advertising business along the
Shanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway, Zhejiang
Expressway Advertising Co., Ltd. ('Advertising Co'), a 70% owned subsidiary of
the Company, achieved a turnover of Rmb11.25 million and net profit of Rmb3.04
million during the Period, representing increases of 4.1% and 14.8%,
respectively.
During the Period, JoinHands Technology Co., Ltd. ('JoinHands Technology'), a
27.58% owned associate of the Company, focused on developing new products in the
area of logistics and networking. Turnover realized by JoinHands Technology
increased slightly to Rmb8.88 million during the Period, as net profit fell by
26.4% to Rmb339,000.
In order to place a stronger focus on, and streamline the operations of,
ancillary businesses of the Group, a new subsidiary company named Zhejiang
Expressway Investment Development Co., Ltd. ('Development Co') was established
on May 28, 2003. Principal activities of Development Co include the operation of
service areas as well as roadside advertising along the expressways operated by
the Group, with a view to expanding into other non-toll road business operations
in the future.
Business Review (Cont'd)
Expressway Widening Project
Phase 1 of the project to widen the Shanghai-Hangzhou-Ningbo Expressway from
four lanes to eight lanes ('Expressway Widening Project') has progressed ahead
of schedule. Half of the expansion works along the 44km section from Hongken to
Guzhu has already been completed and opened to traffic in August 2003, while the
remaining works is expected to be completed by October 2003. Having been the
busiest section of the expressway, the widened section has greatly relieved
congestion experienced during peak hours, gaining both public recognition for
its improved traveling conditions and increased capacity for accommodating
further traffic growth in the future.
Phase 2 of the Expressway Widening Project, pertaining to an approximately 95km
section from Dajing to Fengjing, has commenced construction in July 2003 and is
slated for completion by the end of 2005.
Acquisitions
On May 8, 2003, the Company entered into an agreement with Xinchang County
Transport Development Company ('Xinchang Transport') to acquire an additional 2%
ownership interest in Zhejiang Shangsan Expressway Co., Ltd. ('Shangsan Co'), a
subsidiary of the Company, for a cash consideration of Rmb57.6 million after
ongoing negotiations between the Company and Xinchang Transport were concluded.
As a result of the acquisition, the Company's ownership interest in Shangsan Co
increased from 71.625% to 73.625%, while Xinchang Transport's ownership interest
decreased from 2% to zero.
Financial Analysis
During the Period, the Group continued to follow financial policies adopted in
previous financial years without making significant changes.
Profitability
Earnings per Share
The Group was able to maintain double-digit growth in earnings per share at
10.3% to Rmb11.3 cents during the Period.
Return on Equity
Return on equity was 5.02% during the Period, representing an increase of 6.1%
over the same period last year. The Group follows a policy of maintaining steady
growth in dividends, while seeking continued growth in return on equity, thereby
increasing shareholder value.
Profitability of Main Assets
Toll income from the Shanghai-Hangzhou-Ningbo Expressway, a main asset of the
Group, grew at a slower rate during the Period than the same period last year,
due to traffic diversion by Hangzhou City Ring Road and the SARS outbreak.
However, return on asset for the expressway, calculated by dividing the net
profit contribution from the expressway by its value, was maintained at a
relatively high rate of 9.81% during the Period.
The Shangsan Expressway, another main asset of the Group, continued to
experience more than 20% growth in toll income during the Period. With continued
improvement in profitability, return on asset for the expressway increased from
5.23% last year to the Period's 6.53%. Share of net profit of the Group
attributable to the Shangsan Expressway increased from 16% for the same period
last year to 20% for the Period.
Financial Analysis (Cont'd)
Financial Resources and Liquidity
Financial Resources
As at June 30, 2003, the Group held Rmb949,319,000 in cash, cash equivalents and
time deposits, and Rmb1,114,449,000 in short-term investments, totaling
Rmb2,063,768,000. 93.4% of the short-term investments are treasury bonds, and
the remaining investments are mostly close-ended security investment funds.
As at As at
June 30, 2003 December 31, 2002
Rmb'000 Rmb'000
Cash and cash equivalents 666,918 666,291
Renminbi 572,451 532,358
US dollar equivalent 93,983 131,744
Euro equivalent 59 22
HK equivalent 425 2,167
Fixed deposits 282,401 282,779
Renminbi 151,311 192,824
US dollar equivalent 120,354 79,967
Euro equivalent 0 0
HK equivalent 10,736 9,988
Short-term investments 1,114,449 858,114
Renminbi 1,114,449 858,114
Total 2,063,768 1,807,184
Renminbi 1,838,206 1,583,296
US dollar equivalent 214,337 211,711
Euro equivalent 59 22
HK equivalent 11,161 12,155
The Group has fully taken financial risks into account in its cash management,
hence its short-term investments mainly comprise products available domestically
that are relatively stable in returns and low in investment risk, such as
treasury bonds.
Financial Analysis (Cont'd)
Financial Resources and Liquidity (Cont'd)
Cash Flow and Liquidity
During the Period, the Group's net cash flow from operating activities was
Rmb902,770,000. The main assets of the Group, the Shanghai-Hangzhou-Ningbo
Expressway and the Shangsan Expressway, consistently generated strong and steady
cash inflow from their daily operations.
As at June 30, 2003, among the current assets of the Group, totaling
Rmb2,163,278,000, account receivables, other receivables and inventories
accounted for only 5.1% of the current assets, representing a decrease compared
with previous years (as at December 31, 2002: 7.4%).
Considering the performance of the Group, the Directors believe the Group has
sufficient financial resources to continue operations in the foreseeable future.
Borrowings and Debt Repayment Ability
Interest-bearing Borrowings
By the end of the Period, the Group had Rmb3,112,290,000 interest-bearing
borrowings, representing an increase of Rmb74,090,000 from the level at the
beginning of the Period. The structure of the Group's interest-bearing borrowing
changed during the Period as a result of the issuance of Rmb1 billion of 10-year
corporate bonds. Short-term interest-bearing borrowings with a maturity term of
under one year decreased by 40.5% from the level at the beginning of the Period,
while interest-bearing borrowings with a maturity term of one year or above
increased by 72.3%.
Financial Analysis (Cont'd)
Borrowings and Debt Repayment Ability (Cont'd)
Interest-bearing Borrowings (Cont'd)
The annual coupon rate for the 10-year Rmb1 billion corporate bonds is fixed at
4.29%, with interests payable annually. The interest rates of the domestic
commercial bank loans, US Dollar loans extended by the World Bank and the
government loans were the same as those applicable on December 31, 2002.
Financing cost for the Group decreased as a result of the issuance of corporate
bonds by the Company.
Maturity profiles
Gross Within 2-5 years Beyong
Amount 1 year Inclusive 5 years
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Floating rates
World Bank loan 869,690 41,820 375,997 451,873
Fixed rates
Commercial bank loans 970,000 840,000 130,000 -
Corporate bonds 1,200,000 200,000 - 1,000,000
Government loans 72,600 37,000 35,600 -
Total as at June 30, 2003 3,112,290 1,118,820 541,597 1,451,873
Total as at December 31, 2002 3,038,200 1,881,553 681,064 475,583
Debt Capital Structure
The Group's debt capital structure changed considerably from the structure at
the end of 2002. Short-term interest-bearing liabilities decreased from
Rmb1,881,553,000 at the beginning of 2003 to Rmb1,118,820,000, representing a
decrease in the percentage of total interest-bearing liabilities from 61.9% to
35.9% by the end of the Period. Long-term interest-bearing liabilities increased
from Rmb1,156,647,000 at the beginning of 2003 to Rmb1,993,470,000, representing
an increase from 38.1% to 64.1%.
Financial Analysis (Cont'd)
Borrowings and Debt Repayment Ability (Cont'd)
Debt Capital Structure (Cont'd)
The Group has the characteristics of its industry, that is a substantial
majority of assets are long-term assets such as fixed assets, and most of
current assets are cash. The management reviews the maturity profile of the
Group's debt portfolio from time to time, seeking to match its debt structure
with its asset characteristics, and makes corresponding adjustments when
necessary so as to ensure the Group has sufficient financial resources to meet
the needs of debt repayment and operations. The Directors believe that the
adjustment in debt capital structure during the Period is more suitable to the
Group's present asset structure.
Gearing Ratio
During the Period, interest-bearing liabilities, non-interest-bearing
liabilities and shareholders' equity amounted to Rmb3,112,290,000,
Rmb1,895,030,000 and Rmb9,803,058,000, respectively. As at June 30, 2003, the
gearing ratio (total liabilities over shareholders' equity) was 51.1% (December
31, 2002: 49.5%).
Profit to Interest Ratio
The Group's profit to interest ratio increased during the Period, due to lower
financing costs resulted from the corporate bonds issued by the Company at a
lower cost than domestic bank borrowings.
During the Period, interest expense was approximately Rmb80,691,000 (for the six
months ended June 30, 2002: Rmb83,544,000). With profit before interest and
taxation at approximately Rmb806,675,000, the profit to interest expense ratio
was 10.0 (for the six months ended June 30, 2002: 9.5).
Capital Expenditure Commitments and Utilization
As at December 31, 2002, capital expenditure committed by the Group was Rmb5,454
million, among which Rmb189 million was mainly used on the Expressway Widening
Project during the Period.
With another Rmb57.6 million used for the acquisition of an additional 2%
ownership interest in Shangsan Co, the total capital expenditure for the Group
during the Period was Rmb247 million.
As at June 30, 2003, the Group had Rmb5,265 million capital expenditure
commitments, of which Rmb4,300 million was committed to the Expressway Widening
Project.
Financial Analysis (Cont'd)
Contingent Liabilities and Pledge of Assets
Contingent Liabilities
Other than a loan guarantee of Rmb30 million provided in favor of Shida Co, a
jointly controlled entity, in respect of a commercial bank loan of the same
amount extended to Shida Co from September 2001 to September 2009, the Group did
not have any contingent liabilities as at June 30, 2003.
Pledge of Assets
The Group had no pledge of assets during the Period.
Foreign Exchange Exposure
The Group's liabilities in foreign currencies mainly comprise a World Bank loan
of approximately US$100 million borrowed for the construction of the Zhejiang
section of the Shanghai-Hangzhou Expressway.
In addition, dividends for H shares payable by the Company are settled in Hong
Kong Dollars.
As the exchange rate between Renminbi and US Dollar remains stable, and the
operating income and cost of the Group are limited to the activities within the
PRC, the Directors do not foresee any material foreign exchange exposure for the
Group, although there is no assurance that any foreign exchange exposure will
not affect the operating results of the Group.
Human Resources
In addition to providing training for existing employees and recruiting new
talents, the Group increased its effort in outsourcing professional advisories
during the Period. The strategy has led to technological solutions that
successfully reduced costs in major construction and maintenance works carried
out by the Group.
Other than the above, the Group had no significant changes in the number of
employees, remuneration policies and training schemes during the Period.
Outlook
The new session of China's central government, taking office in March 2003, has
shown determination to further integrate cities and provinces in the Yangtze
River Delta region. Ranked as the largest economic region in China earlier this
year, for the first time in more than twenty years, the region is expected to
foster greater cooperation between the various cities and provinces, with
interaction between Zhejiang Province and Shanghai expected to intensify in
particular.
With the impact of the SARS outbreak largely subsided by July 2003, and many
local enterprises putting in extra effort to recover earnings lost during the
SARS outbreak, we already see a stronger-than-usual growth in traffic volumes on
the two expressways operated by the Group, indicating a return to robust
economic growth for Zhejiang Province in the second half of the year.
As future transport demand in the Yangtze River Delta region is expected to
exceed previous forecasts, local transport authorities are planning more
transportation infrastructure projects. On June 7, 2003, the Hangzhou Bay Bridge
commenced construction, and is scheduled for completion by the end of 2008.
Although the Hangzhou Bay Bridge, along with several other expressways and
bridges tentatively planned for the Yangtze River Delta region, will result in
diversions in traffic flow from certain sections of existing expressways such as
the Shanghai-Hangzhou-Ningbo Expressway in the immediate years upon their
opening to traffic - the exact degree of which is still being studied by the
Company, these expressways and bridges also serve to help enhance the networking
effect, thereby benefiting the existing expressways operated by the Group.
The increasingly comprehensive expressway network within and around Zhejiang
Province, coupled with the rapidly growing volume of containers handled by the
Port of Shanghai and Port of Ningbo, have already resulted in substantially
increased container truck traffic on the expressways operated by the Group. With
major expressways connecting Zhejiang Province and the neighboring provinces
expected to be completed in the next few years, thereby linking inland provinces
directly to the ports, increasing heavy truck traffic is expected to be
generated on the expressways operated by the Group.
Rapid economic development in cities and townships along the expressways
operated by the Group has also led to proposals currently being studied by the
Company to increase the number of interchanges along these expressways, as well
as to extend connecting roads between the expressways and the cities and
townships, so as to provide better access and wider reach for the expressways
operated by the Group.
In view of the above, the challenge for the Company is to take full advantage of
the enormous opportunities presented by an increasingly integrated Yangtze River
Delta region, while limiting the impact of potential traffic diversions from
existing expressways operated by the Group.
Disclosure of Interests and Other Matters
Purchase, Sale or Redemption of the Company's Shares
Neither the Company nor any of its subsidiaries had purchased, sold or redeemed
any of the Company's shares during the Period.
Disclosure of Directors', Supervisors' and Chief Executive's Interests and Short
Positions in the Shares, Underlying Shares and Debentures
As at June 30, 2003, none of the Directors, Supervisors and chief executive of
the Company and their respective associates had any interests or short positions
in the shares, underlying shares and debentures of the Company or any of its
associated corporations (within the meaning of Part XV of the Securities and
Futures Ordinance (the 'SFO')) as recorded in the register required to be kept
under Section 352 of the SFO or as otherwise notified to the Company and The
Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities
Transactions by Directors of Listed Companies.
Other Interests Discloseable under the SFO
As at June 30, 2003, the following persons (other than the Directors,
Supervisors and chief executive of the Company) had interests in the shares of
the Company as recorded in the register required to be kept by the Company
pursuant to Section 336 of the SFO:
Percentage of
share capital
Name Number of shares (domestic shares)
Zhejiang Communications Investment Group Co., Ltd. 2,432,500,000 83.61%
Huajian Transportation Economic Development Center 476,760,000 16.39%
Percentage of
share capital
Name Number of shares (H shares)
The Capital Group Companies, Inc. 129,199,300 9.01%
J.P. Morgan Chase & Co. 95,404,000 6.65%
State Street Corporation 71,976,912 5.02%
Save as disclosed above, the Company is not aware of any other person having any
interests or short positions (other than the Directors, Supervisors and chief
executive of the Company) in the shares and underlying shares of the Company as
recorded in the register required to be kept pursuant to Section 336 of the SFO.
Disclosure of Interests and Other Matters (Cont'd)
Compliance with Code of Best Practice
The Directors are not aware of any information that would reasonably indicate
that the Company is not, or was not for any part of the Period, in compliance
with the Code of Best Practice set out in Appendix 14 to the Rules Governing the
Listing of Securities on the Stock Exchange.
Appreciations
I would like to thank our frontline employees who have worked diligently
throughout the SARS outbreak on implementing measures to contain the disease and
minimizing the impact on our business operations, as well as to thank all
employees for their contribution in achieving an excellent first-half.
By Order of the Board
GENG Xiaoping
Chairman
Hangzhou, August 18, 2003
Condensed Consolidated Income Statement
(Unaudited)
For the six months ended June 30,
2003 2002
Notes Rmb'000 Rmb'000
(Re-stated)
Turnover 2 1,099,917 1,005,306
Operating cost (316,266) (228,964)
Gross profit 783,651 776,342
Other revenue 3 56,033 56,069
Administrative expenses (29,908) (28,091)
Other operating expenses (12846) (11,987)
Profit from operating activities 2, 4 796,930 792,333
Finance costs (66,518) (83,544)
Share of profit of associates 5,936 2,791
Share of profit of a jointly-controlled entity 3,810 630
Profit before taxation 740,158 712,210
Tax 5 (203,370) (212,896)
Profit before minority interests 536,788 499,314
Minority interests (44,641) (53,296)
Net profit from ordinary activities
attributable to shareholders 492,147 446,018
Interim dividends 6 173,725 173,725
Earnings per share (Rmb cents) 7 11.3 10.3
Condensed Consolidated Balance Sheet
As of As of
June 30, 2003 December 31, 2002
Rmb'000 Rmb'000
Notes Unaudited Audited
Non-current assets
Fixed assets 8 12,112,993 12,014,986
Interest in a jointly-controlled entity 56,422 54,464
Interest in associates 162,410 159,829
Expressway operating rights 210,301 214,645
Long term investments 1,000 2,867
Goodwill 103,975 106,798
12,647,101 12,553,589
Current assets
Short term investment 1,114,449 858,114
Inventories 5,061 2,022
Trade receivables 9 20,332 14,367
Other receivables 74,117 128,672
Cash and cash equivalents 949,319 949,070
2,163,278 1,952,245
Current liabilities
Trade payables 10 205,112 207,166
Profit tax payable 120,971 109,289
Other taxes payable 11,039 15,724
Other payables and accruals 301,576 214,955
Interest-bearing bank and other borrowings 918,820 1,681,553
Long-term bonds repayable within one year 200,000 200,000
1,757,518 2,428,687
Condensed Consolidated Balance Sheet (Cont'd)
As of As of
June 30, 2003 December 31, 2002
Rmb'000 Rmb'000
Notes Unaudited Audited
Net current liabilities 405,760 (476,442)
Total assets less current liabilities 13,052,861 12,077,147
Non-current liabilities
Interest-bearing bank and other borrowings 993,470 1,156,647
Long term bonds 1,000,000 -
Deferred tax 11 286,104 240,920
2,279,574 1,397,567
Minority interests 970,229 977,789
9,803,058 9,701,791
Capital and reserves
Issued capital 4,343,115 4,343,115
Reserves 5,286,218 4,967,796
Proposed interim dividend 173,725 390,880
9,803,058 9,701,791
Condensed Consolidated Summary Statement of Changes in Equity (Unaudited)
For the six months ended
June 30,
2003 2002
Rmb'000 Rmb'000
Total equity
Balance at beginning of year 9,701,791 9,289,081
Net profit from ordinary activities attributable
to shareholders 492,147 446,081
Dividends paid on ordinary shares (390,880) (304,018)
Balance at end of year 9,803,058 9,431,081
Condensed Consolidated Cash Flow Statement (Unaudited)
For the six
months ended
June 30,
2003 2002
Rmb'000 Rmb'000
(Re-stated)
Net cash inflow from operating activities 902,770 694,018
Net cash inflow from investing activities (477,825) (518,523)
Net cash inflow from financing activities (421,318) (145,597)
Increase in cash and cash equivalents 3,627 29,898
Cash and cash equivalents at the beginning
of the Period 666,291 739,926
Cash and cash equivalents at the end of the Period 669,918 769,824
3,627 29,898
Analysis of cash and cash equivalents
Cash and bank balances 372,430 415,478
Time deposits with original maturity
of less than 3 months 297,488 354,346
669,918 769,824
Notes to Condensed Financial Statements
1. Basis of Presentation
The condensed consolidated interim financial statements are prepared in
accordance with the Hong Kong Statement of Standard Accounting Practice
('SSAP') No. 25 'Interim Financial Reporting' and the relevant disclosure
requirements as stipulated in Appendix 16 of the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited (the 'Listing
Rules'). Except for the first-time adoption of the revised SSAP No.12
'Income Taxes', the accounting policies and the basis of preparation adopted
are consistent with those adopted in the financial statements of the Group
for the year ended December 31, 2002.
2. Turnover and Segment Information
During the Period, the principal activities of the Group did not
change. The operating results by principal activities are summarized as
follows:
For the six months ended June 30,
2003 2002
Unaudited Unaudited Unaudited Unaudited
Profit Profit
Turnover contribution Turnover contribution
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Segment by business activities
- Toll 1,040,329 764,572 963,081 764,022
- Service Areas 46,871 11,549 30,678 6,645
- Advertising 12,717 7,530 11,547 5,675
1,099,917 783,651 1,005,306 776,342
Others 56,033 56,069
Administrative expenses (29,908) (28,091)
Other operating expenses (12,846) (11,987)
Profit from operating activities 796,930 792,333
No further analysis of the turnover and profit from operating
activities by geographical segment was prepared as the turnover and profit
from operating activities of the Group were all generated from Zhejiang
Province, the PRC during the Period.
Notes to Condensed Financial Statements (Cont'd)
3. Other Revenue
For the six months ended June 30,
2003 2002
Unaudited Unaudited
Rmb'000 Rmb'000
Revenue from short-term securities investments 30,683 37,382
Interest income 8,208 7,147
Rental income 11,199 4,351
Trailer income 4,573 4,620
Exchange gain - 1,962
Other miscellaneous income 1,370 607
Total 56,033 56,069
4. Profit from operating activities
For the six months ended June 30,
2003 2002
Unaudited Unaudited
Rmb'000 Rmb'000
Depreciation 113,508 109,288
Amortization of expressway operating rights 4,350 4,350
Amortization of goodwill 6,317 5,481
Staff costs 39,428 31,833
Notes to Condensed Financial Statements (Cont'd)
5. Taxation
As the Group had no taxable profits in Hong Kong during the Period, no
Hong Kong profits tax has been provided.
The Group was subject to Corporate Income Tax ('CIT') levied at a rate
of 33% of taxable income based on income for financial reporting purposes
prepared in accordance with the laws and accounting standards in the PRC.
According to the relevant national tax rules, Zhejiang Shangsan
Expressway Co., Ltd. ('Shangsan Co'), a 73.625% owned subsidiary of the
Company, was entitled to a 50% CIT exemption for the year ended December 31,
2002 under the category of 'Enterprise providing employment opportunities to
redundant city and country workers'. Approved by the local taxation
authorities, Rmb33.25 million in taxation was refunded to Shangsan Co during
the Period. Since the refund status needs to be reviewed by relevant
authorities on an annual basis, there is no guarantee that Shangsan Co will
continue to qualify for such refund in the future.
For the six months Ended June 30,
2003 2002
Unaudited Unaudited
Rmb'000 Rmb'000
Group:
Accounting profit before tax 740,158 712,210
Tax at the applicable tax rate of 33% 244,252 235,029
Tax effect of net (income)/expense that is not
(taxable)/deductible in determining taxable profit (43,237) (23,578)
Share of taxation attributable to associates 2,601 3,136
Share of deferred taxation attributable to associates (712) (2,183)
Share of deferred taxation attributable
To a jointly-controlled entity 466 492
Taxation charged for the period 203,370 212,896
Analyzed by principal components
Current tax expense 158,186 165,419
Deferred tax expense relating to
The temporary differences 45,184 47,477
203,370 212,896
Notes to Condensed Financial Statements (Cont'd)
6. Dividends
The Directors recommend the payment of an interim dividend of Rmb4.0
cents (approximately HK3.8 cents) per share (for the six months ended June
30, 2002: Rmb4.0 cents). The recommendation has been set out in the
financial statements.
7. Earnings per Share
The calculation of basic earnings per share is based on the net profit
from ordinary activities attributable to shareholders for the Period of
Rmb492,147,000 (for the six months ended June 30, 2002: Rmb446,018,000) and
the 4,343,114,500 shares (June 30, 2002: 4,343,114,500 shares) in issue
during the Period.
Diluted earnings per share for the six months ended June 30, 2003 have
not been calculated, as no diluting event occurred during the Period.
8. Fixed Assets
There were no significant changes to the Group's fixed assets during
the Period.
9. Trade Receivables
The aging analysis of trade receivables as at June 30, 2003 and the
comparative figures of December 31, 2002 are as follows:
As of As of
June 30, 2003 December 31, 2002
Rmb'000 Rmb'000
Unaudited Audited
Within 1 year 14,338 11,720
1 to 2 years 5,994 2,647
Total 20,332 14,367
The Group allows an average credit period of approximately 180 days to
its trade customers.
Notes to Condensed Financial Statements (Cont'd)
10. Trade Payables
The aging analysis of trade payables as at June 30, 2003 and the
comparative figures of December 31, 2002 are as follows:
As of As of
June 30, 2003 December 31, 2002
Rmb'000 Rmb'000
Unaudited Audited
Within 1 year 189,135 200,181
1 to 2 years 13,965 4,863
2 to 3 years 2,012 1,901
Over 3 years - 221
Total 205,112 207,166
11. Deferred Tax
As of As of
June 30, 2003 December 31, 2002
Rmb'000 Rmb'000
Unaudited Audited
At beginning of period/year 240,920 131,533
(Income)/Expense for the period/year 45,184 47,477
At end of period/year 286,104 240,920
Analysed by principal components
Revaluation on marketable securities
at market price of the end of period/year 11,517 3,158
Temporary differences resulting from
depreciation method 275,143 238,318
Fixed assets write-off (556) (556)
286,104 240,920
Notes to Condensed Financial Statements (Cont'd)
12. Reserves
For the six months ended
June 30, 2003
Share Capital/ Statutory Public
premium (goodwill) surplus welfare Retained
account reserve reserve fund profits Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
As at January 1, 2003 3,645,726 (352,860) 533,815 253,511 887,604 4,967,796
Net profit for the Period - - - - 492,147 492,147
Proposed interim dividend - - - - (173,725) (173,725)
As at June 30, 2003 3,645,726 (352,860) 533,815 253,511 1,206,025 5,286,218
For the six months ended June 30, 2002
Share Capital/ Statutory Public
premium (goodwill) surplus welfare Retained
account reserve reserve fund profits Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
As at January 1, 2002 3,645,726 (352,860) 415,298 190,764 743,020 4,641,948
Net profit for the Period - - - - 446,018 446,018
Proposed interim dividend - - - - (173,725) (173,725)
As at June 30, 2002 3,645,726 (352,860) 415,298 190,764 1,015,313 4,914,241
Notes to Condensed Financial Statements (Cont'd)
13. Commitments
For the six months ended June 30,
2003
Commitments Utilization Balance
Rmb million Rmb million Rmb million
Shanghai-Hangzhou-Ningbo expressway
widening project
From Hongken to Guzhu 350 11 339
From Dajing to Fengjing 2,508 172 2,336
From Guzhu to Dazhujia 1,625 - 1,625
Acquisition of additional 18.4% equity interest
in Shangsan Co 485 - 485
Renovation of Sanjiang service area 14 2 12
Construction works under contract No.11 of
the Shanghai-Hangzhou Expressway 11 4 7
Remaining construction works
of the Shangsan Expressway 461 - 461
Total 5,454 189 5,265
Notes to Condensed Financial Statements (Cont'd)
14. Related Party Transactions
The following is a summary of related party transactions carried out in
the ordinary course of business between the Company, its subsidiaries during
the Period.
Under a reorganization agreement, Zhejiang Provincial High Class
Highway Investment Co., Ltd. (replaced by Zhejiang Communications Investment
Group Co., Ltd. 'CIG') gave a number of undertakings to the Company pursuant
to the reorganizations and general indemnity provisions against any breach
of representation warranty and undertakings contained in the agreement.
A new subsidiary company named Zhejiang Expressway Investment
Development Co., Ltd. ('Development Co') was established on May 28, 2003,
with subscription in cash by the Company and the management staff and key
employees of the Group. The registered capital of Development Co is Rmb80
million, with 49% equity interest owned by the members of management staff
and key employees of the Group among which the directors, supervisors and
chief executives of the Company and its subsidiaries account for 20.95% and
the remaining 51% owned by the Company. Development Co will place its focus
on development and operation of non-toll road businesses, including the
operation of service areas, billboard advertising and vehicle towing and
rescue services along the expressway owned by the Group.
Since the transaction consideration represents less than 3% of the book
value of the net tangible assets of the Company as disclosed in its latest
published audited accounts, no shareholder approval is required under the
Listing Rules.
15. Post Balance Sheet Events
The assets and liabilities in respect of six service areas along the
expressways owned by the Group and 70% of the equity interest in Zhejiang
Expressway Advertising Co., Ltd. ('Advertising Co') owned by the Company
were transferred to Development Co on June 1, 2003 at a consideration based
on valuation of the assets and liabilities performed by an independent
valuation company. Such consideration was valued at Rmb87.8 million. Related
agreements of transfer were confirmed effective by the board of directors on
August 18, 2003. Relevant items adjustments were calculated in the financial
statements for the Period.
A newly established subsidiary of the Development Co, Zhejiang
Expressway Vehicle Towing and Rescue Services Co., Ltd. ('Service Co'), was
established on July 31, 2003, having a registered capital of Rmb8 million,
in which 85% of the equity interest is owned by Development Co and an
aggregate of 15% of the equity interest is owned by management staff and key
employees of the Service Co. Service Co is principally engaged in the
business of providing towing and repair of vehicles and emergency rescue
services to users of the expressways owned by the Group.
Notes to Condensed Financial Statements (Cont'd)
16. Contingent Liabilities and Pledge of Assets
Contingent Liabilities
Other than a loan guarantee of Rmb30 million provided in favor of Shida
Co, a jointly controlled entity, in respect of a commercial bank loan of the
same amount extended to Shida Co from September 2001 to September 2009, the
Group did not have any contingent liabilities as at June 30, 2003.
Pledge of Assets
The Group had no pledge of assets during the Period.
17. Comparative Amounts
Due to the adoption of certain new and revised SSAPs in the 2003
interim financial statements, the presentation of the 2002 interim financial
statements and certain supporting notes have been revised to comply with the
new requirements during the Period. Accordingly, certain comparative figures
have been reclassified to conform to the presentation of 2003 interim
financial statements.
18. Approval of Financial Statements
The financial statements were approved and authorized for issue by the
board of directors on August 18, 2003.
Appendix I Corporate Information
Executive Directors
Geng Xiaoping
Fang Yunti
Zhang Jingzhong
Xuan Daoguang
Non-Executive Directors
Zhang Luyun
Zhang Yang
Independent Non-Executive Directors
Tung Chee Chen
Zhang Junsheng
Zhang Liping
Supervisors
Ma Kehua
Fang Zhexing
Sun Xiaoxia
Zheng Qihua
Jiang Shaozhong
Company Secretary
Zhang Jingzhong
Authorised Representatives
Geng Xiaoping
Zhang Jingzhong
Statutory Address
19/F, Zhejiang World Trade Centre
15 Shuguang Road
Hangzhou City, Zhejiang Province
PRC 310007
Tel: 86-571-8798 5588
Fax: 86-571-8798 5599
Representative Office in
Suite 2910
29/F, Bank of America Tower
12 Harcourt Road
Hong Kong
Tel: 852-2537 4295
Fax: 852-2537 4293
Legal Advisers
As to Hong Kong law:
Herbert Smith
23rd Floor, Gloucester Tower
11 Pedder Street, Central
Hong Kong
As to English and US law:
Herbert Smith
Exchange House
Primrose Street
London EC2A 2HS
United Kingdom
As to PRC law:
T & C Law Firm
11/F, Block A, Dragon Century Square
1 Hangda Road
Hangzhou, Zhejiang
PRC 310007
Appendix I Corporate Information (Cont'd)
Auditors and Reporting Accountants
Ernst & Young
Certified Public Accountants
15th Floor
Hutchison House
10 Harcourt Road, Central
Hong Kong
Financial Advisor & Corporate Broker
in the United Kingdom
Cazenove & Co. Ltd
12 Tokenhouse Yard
London EC2R 7AN
United Kingdom
Principal Bankers
Bank of China, Zhejiang Branch
Industrial and Commercial Bank of China,
Zhejiang Branch
Agriculture Bank of China, Zhejiang Branch
Shanghai Pudong Development Bank,
Hangzhou Branch
H Share Registrar and Transfer Office
Hong Kong Registrars Limited
Room 1901-1905
19th Floor, Hopewell Centre
183 Queen's Road East
Hong Kong
H Shares Listing Information
The Stock Exchange of Hong Kong Limited
Code: 0576
London Stock Exchange plc
Code: ZHEH
ADRs Information
US Exchange: OTC
Symbol: ZHEXY
CUSIP: 98951A100
ADR: H Shares 1:30
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