Interim Results
Zhejiang Expressway Co
17 August 2004
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock code: 0576)
2004 Interim Results Announcement
• Turnover up 34.0% to Rmb1,474,367,000
• Net profit up 22.4% to Rmb602,410,000
• Earnings per share up 22.4% to Rmb13.87 cents
• Interim dividend of Rmb4.0 cents per share recommended
The directors (the '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, 2004 (the 'Period'), prepared in conformity with accounting principles
generally accepted in Hong Kong, with basis of preparations as stated in Note 1
to the consolidated financial statements below.
Results and Dividends
During the Period, the Group benefited from the continuing strong economic
expansion of the Yangtze River Delta Region, and achieved robust business
growth, a growth that was further amplified by a lower-than-usual comparison
basis of the same period in 2003. Turnover for the Group grew by 34.0% to
Rmb1,474.4 million while net profit from ordinary activities attributable to
shareholders increased by 22.4% to Rmb602.4 million. Earnings per share for the
Period was Rmb13.87 cents, representing an increase of 22.4% over the same
period in 2003.
The Directors have recommended the payment of an interim dividend of Rmb4.0
cents per share in respect of the Period (same period in 2003: Rmb4.0 cents per
share), subject to shareholders' approval at the extraordinary general meeting
of the Company to be held on October 12, 2004.
The audit committee of the Company has reviewed the interim results. Set out
below are the Group's unaudited consolidated income statement and balance sheet
for the Period, with comparative figures of 2003 and relevant notes:
Consolidated Income Statement (Unaudited)
For the six months ended June 30,
2004 2003
Notes Rmb'000 Rmb'000
Turnover 2 1,474,367 1,099,917
Operating costs (447,026) (316,266)
Gross profit 1,027,341 783,651
Other revenue 3 (6,361) 56,033
Administrative expenses (37,959) (29,908)
Other operating expenses (15,255) (12,846)
Profit from operating activities 2, 4 967,766 796,930
Finance costs (56,009) (66,518)
Share of profit of associates 8,940 5,936
Share of profit of a jointly-controlled entity 11,089 3,810
Profit before tax 931,786 740,158
Tax 5 (266,895) (203,370)
Profit before minority interests 664,891 536,788
Minority interests (62,481) (44,641)
Net profit from ordinary activities attributable to 602,410 492,147
shareholders
Proposed Interim dividends 6 173,725 173,725
Earnings per share 7 13.87 cents 11.33 cents
Consolidated Balance Sheet
As of June 30, As of December 31,
2004 2003
Unaudited Audited
Notes Rmb'000 Rmb'000
Non-current assets
Fixed assets 12,782,549 12,537,616
Interest in a jointly-controlled entity 70,831 62,554
Interest in associates 171,868 164,498
Expressway operating rights 201,595 205,945
Long-term investments 1,000 1,000
Goodwill 91,592 97,717
13,319,435 13,069,330
Current assets
Short-term investment 895,153 1,104,266
Inventories 4,885 3,056
Trade receivables 8 12,084 21,771
Other receivables 64,307 51,469
Cash and cash equivalents 767,176 818,795
1,743,605 1,999,357
Current liabilities
Trade payables 9 344,078 367,521
Profit tax payable 230,385 189,848
Other taxes payable 16,782 27,946
Other payables and accruals 289,570 260,077
Interest-bearing bank and other borrowings 725,950 975,950
Dividend payable 53,348 19,070
1,660,113 1,840,412
Net current assets/(liabilities) 83,492 158,945
Total assets less current liabilities 13,402,927 13,228,275
Non-current liabilities
Interest-bearing bank and other borrowings 721,260 744,176
Long-term bonds 1,000,000 1,000,000
Deferred tax 353,907 325,703
2,075,167 2,069,879
Minority interests 1,057,114 1,012,417
10,270,646 10,145,979
Capital and reserves
Issued capital 4,343,115 4,343,115
Reserves 5,753,806 5,325,121
Proposed dividend 173,725 477,743
10,270,646 10,145,979
Notes:
1. Basis of preparation
The consolidated interim financial statements have been prepared in accordance
with the Hong Kong Statement of Standard Accounting Practice ('SSAP') No. 25
'Interim Financial Reporting' and the disclosure requirements of the Hong Kong
Companies Ordinance. These statements have been prepared under the historical
cost convention, modified with respect to the measurement of investments in
securities.
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,
2004 2003
Turnover Profit Turnover Profit
contribution contribution
Unaudited Unaudited Unaudited Unaudited
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Segment by business activities
- Toll 1,376,019 997,021 1,040,329 764,572
- Service areas 79,921 20,099 46,871 11,549
- Advertising 18,427 10,221 12,717 7,530
1,474,367 1,027,341 1,099,917 783,651
Other revenue (6,361) 56,033
Administrative expenses (37,959) (29,908)
Other operating expenses (15,255) (12,846)
Profit from operating activities 967,766 796,930
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.
3. Other revenue
For the six months ended June 30,
2004 2003
Unaudited Unaudited
Rmb'000 Rmb'000
Revenue/(loss) from short-term securities investments (36,648) 30,683
Interest income 5,295 8,208
Rental income 10,629 11,199
Trailer income 8,719 4,573
Exchange gain 137 -
Other miscellaneous income 5,507 1,370
Total (6,361) 56,033
4. Profit from operating activities
The Group's profit from operating activities is arrived at after charging the
following:
For the six months ended June 30,
2004 2003
Unaudited Unaudited
Rmb'000 Rmb'000
Depreciation 139,721 113,508
Amortization of expressway operating rights 4,350 4,350
Amortization of goodwill 6,126 6,317
Staff costs 44,035 39,428
5. Tax
As the Group had no taxable profits in Hong Kong during the Period, no Hong Kong
profits tax had been provided.
The Group was subject to Corporate Income Tax ('CIT') in the PRC levied at a
rate of 33% of taxable income based on income for financial reporting purposes
prepared in accordance with the laws and regulations in the PRC.
For the six months
ended June 30,
2004 2003
Unaudited Unaudited
(Re-stated)
Rmb'000 Rmb'000
Group
Tax charged 270,078 189,081
Tax refunded (34,360) (33,250)
Deferred 28,204 45,184
263,922 201,015
Share of tax attributable to associates 2,242 2,601
Share of tax attributable to a joint-controlled entity 444 -
Share of deferred tax attributable to an associate (153) (712)
Share of deferred tax attributable to a jointly-controlled entity 440 466
Tax charge for the year 266,895 203,370
According to the relevant national tax rules, Zhejiang Shangsan Expressway Co.,
Ltd. ('Shangsan Co'), a subsidiary of the Company, was entitled to a 30% CIT
exemption for the year ended December 31, 2003 under the category of 'Enterprise
providing employment opportunities to redundant city and county workers', while
Zhejiang Expressway Investment Development Co., Ltd. ('Development Co'), a
subsidiary of the Company, and Zhejiang Expressway Vehicle Towing and Rescue
Services Co., Ltd. ('Services Co'), a subsidiary of the Development Co, were
each entitled to a 100% CIT exemption for the year ended December 31, 2003 under
the same category. In accordance with the approval given by relevant tax
authorities, Rmb27,000,000 taxation was refunded to Shangsan Co, while
Rmb6,550,000 and Rmb810,000 taxation were refunded to Development Co and
Services Co, respectively, during the Period.
A reconciliation of the tax expense applicable to profit before tax using the
statutory rates for the PRC to the tax expense at the effective tax rates is as
follows:
For the six months
ended June 30,
2004 2003
Unaudited Unaudited
(Re-stated)
Rmb'000 Rmb'000
Group
Profit before tax 931,786 740,158
Tax at the statutory tax rate of 33% 307,489 244,252
Tax refunded (34,360) (33,250)
Tax effect of net (income)/expense that is not (taxable)/deductible in (6,234) (7,632)
determining taxable profit
Tax charge at the Group's effective tax rate 266,895 203,370
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, 2003:
Rmb4.0 cents) to holders of domestic shares and H shares of the Company whose
names appear on the register of members of the Company as at September 17, 2004.
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
Rmb602,410,000 (2003: Rmb492,147,000) and the 4,343,114,500 shares (2003:
4,343,114,500 shares) in issue during the Period.
Diluted earnings per share for the Period have not been calculated, as no
diluting event occurred during these years.
8. Trade receivables
The aging analysis of trade receivables as at June 30, 2004 and the comparative
figures of December 31, 2003 are as follows:
As of As of
June 30, December 31,
2004 2003
Unaudited Audited
Rmb'000 Rmb'000
Within 1 year 9,483 19,116
1 to 2 years - 54
Over 2 years 2,601 2,601
Total 12,084 21,771
The Group allows an average credit period of approximately 180 days to its trade
customers.
9. Trade payables
The aging analysis of trade payables as at June 30, 2004 and the comparative
figures of December 31, 2003 are as follows:
As of As of
December 31,
June 30, 2003
2004
Unaudited Audited
Rmb'000 Rmb'000
Within 1 year 332,613 318,116
1 to 2 years 7,560 44,844
2 to 3 years 1,878 2,218
Over 3 years 2,027 2,343
Total 344,078 367,521
Business Review
During the Period, both the core business of toll road operations and other
businesses of toll road-related operations underwent substantial growth, a
growth fueled by an estimated year-on-year GDP growth rate of 15.5% in Zhejiang
Province where all of the Group's business operations are carried out.
Compared to the same period in 2003, overall turnover grew 34.0% to Rmb1,474.4
million during the Period, of which turnover attributable to toll road
operations grew 32.3% while turnover attributable to toll road-related business
operations grew at an extraordinary rate of 65.0%, reflecting a higher rate of
growth in demand for ancillary services along the expressways operated by the
Group.
Toll Road Operations
Shanghai-Hangzhou-Ningbo Expressway remained the major revenue generator of the
Group during the Period, contributing to approximately 76.2% of the Group's
total toll income. Traffic volume on the expressway grew 31.2% year-on-year,
averaging 32,926 full-trip equivalents per day, while toll income grew 29.8%,
totaling approximately Rmb1,106.1 million.
Phase I of the project to widen the Shanghai-Hangzhou-Ningbo Expressway from
four lanes to eight lanes (the 'Widening Project') was completed in December
2003. This had substantially improved traveling conditions along the 44km
section between Hongken and Guzhu, allowing higher average travel speed and less
congestion, in addition to increasing the vehicle handling capacity of the
widened section from 55,000 passenger-car-units ('pcu') per day to 100,000 pcu
per day.
As a newer expressway in terms of operation history, Shangsan Expressway
continued to enjoy a higher growth rate than the Shanghai-Hangzhou-Ningbo
Expressway in traffic volume and toll income, increasing its share of
contribution to the Group's total toll income from 22.4% in 2003 to 23.8% during
the Period. During the Period, traffic volume on the expressway grew 40.3%
year-on-year to an average of 18,987 full-trip equivalents per day, and toll
income grew 41.0%, totaling approximately Rmb345.9 million.
Large-scale maintenance works on the Shanghai-Hangzhou-Ningbo Expressway,
including the road surface-overlaying project that started in 2002, was drawing
to a conclusion for the most part during the first half of this year. While some
of these maintenance works have inevitably brought inconvenience to expressway
travelers at times, the overall impact on the normal traffic flow has been
limited as a result of the successful implementation of extensive site
management measures.
Toll Road-Related Business Operations
Established in May 2003, Zhejiang Expressway Investment Development Co., Ltd.
('Development Co'), a 51% owned subsidiary of the Company, is engaged in the
operation of service areas where facilities such as restaurants, gas stations
and shops are made available to travelers, as well as roadside advertising and
vehicle servicing businesses, along the two expressways operated by the Group.
The strong growth in traffic volume on the two expressways was accompanied by
tremendous increase in demand for ancillary services, leading to substantial
expansion in the relevant business operations during the Period. Turnover
attributable to service areas and roadside advertising operations grew 70.5% and
44.9%, respectively, compared to the same period in 2003 on a pro forma basis.
Net profit realized by Development Co was approximately Rmb13.7 million during
the Period, representing a pro forma increase of 43.5% compared to the same
period in 2003.
To further explore roadside advertising businesses opportunities along other
operational expressways within Zhejiang Province, a new subsidiary company named
Hangzhou Lutong Advertising Co., Ltd. was established under Development Co on
July 27, 2004, with Development Co holding 51% equity interest. Registered
capital for the new advertising company is Rmb3 million.
Long-term Investments
The Company also had a number of long-term investments that included a 50%
interest in Hangzhou Shida Highway Co., Ltd. ('Shida Co'), a jointly-controlled
entity that operates the 9.45km Shida Road; a 50% interest in Zhejiang
Expressway Petroleum Development Co., Ltd. ('Petroleum Co'), an associate
company that operates retail and wholesale petroleum products throughout
Zhejiang Province; and a 27.58% interest in JoinHands Technology Co., Ltd.
('JoinHands Technology'), a computer software and hardware company.
Owing to continued enhancement to the expressway network around Hangzhou City,
Shida Road had seen its traffic volume grow 72.2% and toll income grow 71.6%
during the Period, compared to the same period in 2003. Net profit achieved by
Shida Co was approximately Rmb20.4 million, representing an increase of 205.0%
over the same period in 2003.
Faced with oil supply shortages in China and rise in global oil prices,
Petroleum Co capitalized on its strong retail presence in key locations within
Zhejiang Province and expanded its turnover by 26.1% during the Period, while
increasing its net profit by 81.4% to Rmb14.3 million compared to the same
period in 2003.
During the Period, sales of computer networking equipments by JoinHands
Technology continued to slide due to market saturation, while additional efforts
were made in expanding its fledgling digital printing business and developing a
new technology software park located in Hangzhou High-tech Industrial
Development Zone. With a decrease of 38.5% in turnover, JoinHands Technology
recorded a loss of approximately Rmb1.2 million during the Period.
Financial Analysis
During the Period, the Group was able to maintain a high rate of growth in
operating results, with sound financial position and steady growth in cash flow
from operating activities.
For the six months ended June 30, 2004, the Group recorded turnover of
Rmb1,474.4 million and profit attributable to shareholders of Rmb602.4 million,
representing an increase of 34.0% and 22.4% respectively over the same period
last year. Earnings per share increased by 22.4% to Rmb13.87 cents.
Borrowings and Debt Repayment Ability
Interest-bearing Borrowings
As at June 30, 2004, the Group's interest-bearing borrowings was Rmb2,447.2
million in aggregate, representing a decrease of Rmb273.0 million from that in
the beginning of the Period. Of the total interest-bearing borrowings,
short-term interest-bearing borrowings and long-term interest-bearing borrowings
amounted to Rmb726.0 million and Rmb1,721.2 million respectively, representing a
decrease of 25.6% and 1.3% from that in the beginning of the Period.
The Group's finance costs decreased by 15.8% during the Period to Rmb56.0
million. The decrease was mainly attributable to the further reduction in the
borrowings from domestic commercial banks by the Company and its subsidiary,
Shangsan Co. At the end of the Period, the Group's borrowings from domestic
commercial banks decreased from Rmb1,170 million at the end of the same period
last year to Rmb550 million.
During the Period, the coupon rate of the corporate bonds issued by the Company
was 4.29% per annum, with interests payable once a year. Interest rates of the
Group's semi-annual and annual borrowings from domestic commercial banks in
Renminbi were 4.536% and 5.045% respectively during the Period, whereas the
effective interest rate of US Dollar loans extended by the World Bank was 4.85%.
Interest rate of government loans in Renminbi was the same as that applicable on
December 31, 2003.
Except for the US Dollar loans extended by the World Bank that bears interest at
a floating rate, the interest rates of the Group's other interest-bearing
borrowings were fixed.
Asset-liability Ratio
As at June 30, 2004, the Group's asset-liability ratio was 24.8%, representing a
decrease from 26.0% at the end of 2003. The continuous decrease in
asset-liability ratio during the recent years has provided ample room for debt
financing. Subject to the macroeconomic control measures introduced by the PRC
government during the first half of the year, the banks implemented more
stringent controls over credit facilities, which has enhanced the Group's
comparative advantage in obtaining debt financing.
Liability to Equity Ratio
Liability to equity ratio is also known as gearing ratio, which reflects the
Group's solvency in the context of capital structure.
As at June 30, 2004, shareholders' equity, fixed rate liabilities, floating rate
liabilities and interest-free liabilities of the Group amounted to Rmb10,270.6
million, Rmb1,622.6 million, Rmb824.6 million and Rmb2,345.2 million
respectively, representing 68.2%, 10.8%, 5.5% and 15.5% to total assets of the
Group. Gearing ratio (total liabilities over shareholders' equity) was 46.7%
(December 31, 2003: 51.1%), which reflected a relatively reasonable debt capital
structure and strong solvency of the Group.
Interest Cover Ratio
During the Period, with interest expenses at Rmb56.0 million (corresponding
period in 2003: Rmb80.7 million, including capitalized interests of Rmb14.1
million), profit before interest and tax at approximately Rmb987.8 million, the
Group's interest cover ratio (profit before interest and tax over interest
expenses) was 17.6 (corresponding period in 2003: 10.2).
Financial Resources and Liquidity
Financial Resources
As at June 30, 2004, the Group had cash and cash equivalents of Rmb508.4 million
in aggregate, time deposits of Rmb258.8 million and short-term investment of
Rmb895.1 million, totaling Rmb1,662.3 million, representing a decrease of 13.6%
compared with Rmb1,923.1 million at the end of 2003. Of which, short-term
investment decreased by 18.9% compared with Rmb1,104.3 million at the end of
2003.
During the Period, among the Group's short-term investment, the amount held in
treasury bonds fell by 23.6%. As at June 30, 2004, treasury bonds accounted for
86.7% of the Group's total investments whereas the remaining comprised mainly of
close-ended securities investment funds.
During the Period, average annual interest rates of the Group's bank deposits in
Renminbi, US Dollar, Euro and Hong Kong Dollar were similar to those at the end
of year 2003.
Cash Flow and Liquidity
The Group's ordinary operating activities generated strong and stable cash
inflow. As at June 30, 2004, net cash flow from operating activities amounted to
Rmb1,030.3 million.
As at June 30, 2004, the Group's current assets amounted to Rmb1,743.6 million
in aggregate, of which account receivables, other receivables and inventories
accounted for 4.7% (December 31, 2003: 3.8%). Current ratio (current assets over
current liabilities) was 1.1, reflecting adequate working capital held by the
Group.
Liquidity of the Group's assets was also reflected by 'cash ratio', which is the
ratio of cash asset (comprising cash, cash equivalents and time deposits and
short-term investment) to current liabilities. As at June 30, 2004, cash ratio
was 1.0, reflecting the Group's strong short-term solvency and relatively small
risks in loss of realization.
In view of the above, the Directors believe that the Group has sufficient
financial resources to meet its operational needs in the foreseeable future.
Capital Expenditure Commitments and Utilization
As at December 31, 2003, capital expenditure committed by the Group was
Rmb5,053.0 million. During the Period, Rmb408.0 million was utilized, of which
Rmb390.0 million was used on the Widening Project.
As at June 30, 2004, capital expenditure committed by the Group was Rmb4,645.0
million, of which approximately Rmb4,052.0 million would be used on the Widening
Project.
Contingent Liabilities and Pledge of Assets
Other than a loan guarantee of Rmb30.0 million provided in favor of Hangzhou
Shida Highway Co., Ltd. ('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, 2004. In addition, the Group had no pledge of assets during the Period.
Foreign Exchange Exposure
The Group has a World Bank loan of approximately Rmb824.6 million, denominated
in US Dollars and borrowed for the construction of the Shanghai-Hangzhou-Ningbo
Expressway. In addition, dividends for H shares payable by the Company are
settled in HK dollars.
In view of the stable exchange rate between Renminbi and US dollars, the
Directors do not foresee any material foreign exchange risk for the Group.
However, there is no assurance that any foreign exchange exposure will not
adversely affect the operating results of the Group in the future.
Human Resources
A main objective of the Company's human resources strategy is to build a team
that is highly professional, with leading qualifications in the toll road
industry across all levels. Since the beginning of this year, further emphasis
has been placed on attracting and retaining professional talents whose
qualifications are crucial to our business operations.
Other than the above, there were no significant changes to the Company's overall
number of employees, the remuneration policies, bonus schemes and training
schemes since December 31, 2003 as disclosed in its latest annual report.
Outlook
The macroeconomic controls that had taken place in the PRC during the Period are
expected to have lasting impact well into the second half of this year. In
Zhejiang Province, economic growth in the second half of the year is expected to
slow down from the extraordinary 15.5% GDP growth rate attained in the first
half. Latest forecasts on the annual GDP growth rate for the Province, however,
remains at 14.0%, a rate that should continue to create strong demand for road
transport in and around the Yangtze River Delta Area.
Since June 20, 2004, concerted efforts of the relevant authorities to crack down
on overloading practices by trucks are already showing encouraging results.
There may be additional corresponding measures to be carried out in the second
half of this year, the immediate impact of which is difficult to predict, but we
are confident that the stated goal of creating a safer, more orderly road
transport system will be achieved, and that such prospects should be beneficial
to toll road operators such as the Company in terms of increased truck traffic
and reduced damages to roads and bridges.
The ongoing Phase II of the Widening Project has been progressing as planned,
with completion date remaining unchanged around the end of 2005, though recent
fluctuations in the prices of construction materials have led to a small
increase in construction costs for the time being. Commencement of construction
for Phase III, however, has been delayed due to a slowdown by the relevant
authorities in granting land use rights, though it is not expected to adversely
affect the normal operation of the Shanghai-Hangzhou-Ningbo Expressway.
Slower traffic volume growth is expected for the expressways operated by the
Group for the second half of the year compared to the first half due to a number
of short-term factors: anticipated slowdown in economic growth; uncertainties
created by the efforts to stop overloading practices by trucks; short-term
interferences from the ongoing Widening Project and road maintenance projects at
certain sections of Shanghai-Hangzhou-Ningbo Expressway; and a higher basis of
comparison during the same period last year. Despite the above, however,
prospects for continued strong business growth for both the toll road operations
and the toll road-related operations of the Group remain positive, as economic
fundamentals of the Yangtze River Delta Region remain strong.
Purchase, Sale and Redemption of the Company's Shares
Neither the Company nor its subsidiaries had purchased, sold, redeemed or
cancelled any of the Company's shares during the Period.
Compliance with the Code of Best Practice
The Directors are not aware of any information that would reasonably indicate
that the Company is, or was for any part of the Period, not 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 of Hong Kong.
Appreciations
Let me take this opportunity to thank all our employees and staff for their good
work and dedication in bringing yet another set of satisfactory results.
By Order of the Board
GENG Xiaoping
Chairman
Hangzhou, August 16, 2004
As at the date of this announcement, the executive directors of the Company are:
Messrs. Geng Xiaoping, Fang Yunti, Zhang Jingzhong and
Xuan Daoguang; the non-executive directors are: Messrs. Zhang Luyun and Zhang
Yang; and the independent non-executive directors are:
Messrs. Tung Chee Chen, Zhang Junsheng and Zhang Liping.
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