2006 Annual Results Announcement
Zhejiang Expressway Co., Ltd.
(A joint stock limited company incorporated in
the People's Republic of China with limited liability)
(Stock Code: 0576)
2006 Annual Results Announcement
-- Revenue increased by 37.8% to Rmb4,763.8 million
-- Profit attributable to equity holders of the Company increased by 15.5% to
Rmb1,652.9 million
-- Earnings per share was Rmb38.06 cents
-- Final dividend of Rmb20.0 cents per share recommended
The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the
"Company") are pleased to announce the audited consolidated operating results
of the Company and its subsidiaries (the "Group") for the year ended December
31, 2006 (the "Period"), prepared in conformity with accounting principles
generally accepted in Hong Kong, with the basis of preparation as stated in
note 1 to the consolidated financial statements set out below.
RESULTS AND DIVIDENDS
During the Period, revenue for the Group was Rmb4,763.8 million, representing
an increase of 37.8% over 2005. Profit attributable to equity holders of the
Company was Rmb1,652.9 million, representing an increase of 15.5% over 2005.
Earnings per share for the Period was Rmb38.06 cents (2005: Rmb32.95 cents).
The Directors have recommended to pay a final dividend of Rmb20.0 cents per
share (2005: Rmb15.0 cents), subject to shareholders' approval at the 2006
annual general meeting of the Company to be held on June 11, 2007. Together
with an interim dividend of Rmb7.0 cents per share paid on November 30, 2006,
total dividend for the Period amounted to Rmb27.0 cents per share (2005:
Rmb22.0 cents).
The audit committee of the Company has reviewed the annual results of the Group
for the Period. Set out below are the audited consolidated income statement and
consolidated balance sheet for the Period, together with comparative figures
for 2005:
CONSOLIDATED INCOME STATEMENT
Year ended December 31,
2006 2005
Notes Rmb'000 Rmb'000
Revenue 3 4,763,780 3,456,385
Operating costs (2,076,670) (1,195,428)
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Gross profit 2,687,110 2,260,957
Other income 3 203,952 185,947
Administrative expenses (71,022) (62,766)
Other operating expenses (32,901) (41,635)
Finance costs (71,991) (101,343)
Share of profit of associates 4,435 7,217
Share of profit of a jointly-controlled
entity 23,344 16,285
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Profit before tax 2,742,927 2,264,662
Income tax expense 4 (884,036) (692,366)
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Profit for the Period 1,858,891 1,572,296
=========== ===========
Attributable to:
Equity holders of the Company 1,652,871 1,431,192
Minority interest 206,020 141,104
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
1,858,891 1,572,296
=========== ===========
Dividends
Interim, paid-Rmb7 cents (2005: Rmb7 cents)
per share 304,018 304,018
Final, proposed-Rmb20 cents
(2005: Rmb15 cents) per share 868,623 651,467
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
1,172,641 955,485
=========== ===========
Earnings per share 5 Rmb38.06 Rmb32.95
cents cents
=========== ===========
CONSOLIDATED BALANCE SHEET
As at As at
December December
31, 2006 31, 2005
Notes Rmb'000 Rmb'000
Non-current assets
Property, plant and equipment 13,775,621 13,422,605
Prepaid lease payment 390,658 387,448
Goodwill 91,428 85,472
Other intangible assets 144,727 -
Interest in associates 224,857 226,871
Interest in a jointly-controlled entity 87,982 79,907
Available for sale investments 1,000 1,000
Expressway operating rights 179,845 188,545
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
14,896,118 14,391,848
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Current assets
Inventories 12,255 6,446
Loan to an associate - 116,000
Trade receivables 6 54,451 21,744
Other receivables 180,514 316,238
Prepaid lease payment 18,626 18,138
Held-for-trading investments 229,880 612,097
Bank balances held on behalf of customers 2,507,763 -
Bank balances and cash 1,670,385 829,145
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
4,673,874 1,919,808
Assets classified as held for sale 427 -
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
4,674,301 1,919,808
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Current liabilities
Trade payables 7 369,323 402,221
Trade payable to customers arising from
securities dealing business 2,501,593 -
Tax liabilities 537,265 334,048
Other taxes payable 20,293 31,779
Other payables and accruals 409,740 327,471
Dividend payable 41,595 33,379
Interest-bearing bank and other borrowings 397,141 886,539
Provision 34,800 -
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
4,311,750 2,015,437
Liabilities associated with assets
classified as held for sale 995 -
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
4,312,745 2,015,437
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Net current assets (liabilities) 361,556 (95,629)
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Total assets less current liabilities 15,257,674 14,296,219
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Non-current liabilities
Interest-bearing bank and other borrowings 448,266 548,198
Long-term bonds 1,000,000 1,000,000
Deferred tax liabilities 456,956 384,153
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
1,905,222 1,932,351
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
13,352,452 12,363,868
=========== ===========
Capital and reserves
Share capital 4,343,115 4,343,115
Reserves 7,550,189 6,852,803
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Equity attributable to equity holders of the
Company 11,893,304 11,195,918
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Minority interests 1,459,148 1,167,950
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
13,352,452 12,363,868
=========== =========
Notes:
1 Basis of Preparation
The consolidated financial statements have been prepared in accordance with
Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong
Institute of Certified Public Accountants ("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 (the "Listing Rules") and by the Hong Kong Companies Ordinance.
2 Principle Accounting Policies
The consolidated financial statements have been prepared on the historical cost
basis except for certain financial instruments, which are measured at fair
values.
The accounting policies used in the consolidated financial statements are
consistent with those followed in the preparation of the Group's annual
financial statements for the year ended December 31, 2005 except as described
below.
During the Period, the Group has applied, for the first time, a number of new
standards, amendments and interpretations ("new HKFRSs") issued by the HKICPA,
which are either effective for accounting periods beginning on or after
December 1, 2005 or January 1, 2006. The adoption of the new HKFRSs had no
material effect on how the results for the current or prior accounting periods
have been prepared and presented. Accordingly, no prior period adjustment has
been required.
The Group has not early applied the following new standards, amendments or
interpretations that have been issued but are not yet effective. The directors
of the Company anticipate that the application of these standards, amendments
or interpretations apart from HKFRS8 and HK(IFRIC) - Int 12 will have no
material impact on the results and the financial position of the Group. The
directors of the Company are in the process of assessing the impact of HKFRS8
and HK(IFRIC) - Int 12 on the result and the financial position of the Group:
HKAS 1 (Amendment) Capital Disclosures1
HKFRS 7 Financial Instruments: Disclosures1
HKFRS 8 Operating Segments2
HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial
Reporting in Hyperinflationary Economies3
HK(IFRIC) -Int 8 Scope of HKFRS 24
HK(IFRIC) -Int 9 Reassessment of Embedded Derivatives5
HK(IFRIC) -Int 10 Interim Financial Reporting and Impairment6
HK(IFRIC) - Int11 HKFRS2 - Group and Treasury Share Transactions7
HK(IFRIC) -Int 12 Service Concession Arrangements8
1 Effective for annual periods beginning on or after January 1, 2007
2 Effective for annual periods beginning on or after January 1, 2009
3 Effective for annual periods beginning on or after March 1, 2006
4 Effective for annual periods beginning on or after May 1, 2006
5 Effective for annual periods beginning on or after June 1, 2006
6 Effective for annual periods beginning on or after November 1, 2006
7 Effective for annual periods beginning on or after March 1, 2007
8 Effective for annual periods beginning on or after January 1, 2008
3 Revenue and other income
An analysis of the Group's revenue, net of revenue taxes, and other income for
the year is as follows:
Year ended December
31,
2006 2005
Rmb'000 Rmb'000
Toll operation revenue 3,562,289 3,182,807
Service areas business revenue 962,418 225,702
Advertising business revenue 50,239 45,374
Road maintenance revenue 5,464 2,502
Securities operation revenue 183,370 -
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
4,763,780 3,456,385
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Interest income 26,481 40,151
Rental income 21,362 45,341
Towing income 21,691 20,318
Net exchange gains 22,299 18,461
Gain on fair value changes on held-for-trading
investments 80,421 33,982
Others 31,698 27,694
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Total other income 203,952 185,947
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
4,967,732 3,642,332
=========== =========
The Company and its subsidiaries are subject to the business tax, levied at 3%
on toll income and 5% on other services income. In addition, the subsidiaries
are subject to the following types of revenue taxes and surcharge:
- City development tax, levied at 1% to 7% of business tax;
- Education surcharge, levied at 2% to 5% of business tax; and
- Culture and education fees, levied at 3% on advertising income.
4 Income Tax Expenses
No Hong Kong profits tax has been provided as the Group had no taxable profits
derived in Hong Kong during the year.
The Group was subject to enterprise income tax ("EIT") levied at a rate of 33%
of taxable income determined in accordance with the PRC laws and financial
reporting system.
Year ended December
31,
2006 2005
Rmb'000 Rmb'000
Group
Tax charged 876,874 654,471
Deferred 7,162 37,895
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Tax charge for the Period 884,036 692,366
============ ========
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:
Year ended December
31,
2006 2005
Rmb'000 Rmb'000
Group
Profit before tax 2,742,927 2,264,662
=========== =========
Tax at the statutory tax rate of 33% 905,166 747,338
Tax effect of share of profits of associates (1,464) (2,382)
Tax effect of share of profit of a jointly-controlled
entity (7,703) (5,374)
Tax exemption of a subsidiary - (51,408)
Tax effect of net (income)/expense that is not (taxable)/
deductible in determining taxable profit (11,963) 4,192
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Tax charge at the Group's effective tax rate 884,036 692,366
=========== =========
In 2005, in accordance with the approval from the Zhejiang Provincial Local Tax
Bureau, Zhejiang Shangsan Expressway Co., Ltd. ("Shangsan Co"), one of the
Company's subsidiaries, was entitled to a 30% EIT exemption for the year ended
December 31, 2005 under the category of "Enterprises providing employment
opportunities to redundant workers with an employment term of a minimum of
three years" as defined in the relevant national tax rules. As a result, the
tax exemption for the year ended December 31, 2005 amounted to Rmb51,408,000
had been applied directly to reduce the EIT for 2005.
No such exemption has been granted to the Group in 2006.
5 Earnings per Share
The calculation of basic earnings per share is based on the profit attributable
to equity holders of the Company for the Period of Rmb1,652,871,000 (2005:
Rmb1,431,192,000) and the 4,343,114,500 shares (2005: 4,343,114,500 shares) in
issue during the Period.
No diluted earnings per share has been presented as there were no potential
dilutive ordinary shares in issue for the years ended December 31, 2006 and
2005.
6 Trade Receivables
The aging analyses of trade receivables at the balance sheet dates are as
follows:
As at As at
December
December 31, 31, 2005
2006
Rmb'000 Rmb'000
Within 1 year 52,773 20,470
1 to 2 years 471 1,274
Over 2 years 1,207 -
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Total 54,451 21,744
============ ========
The Group allows an average credit period of approximately 180 days to its
trade customers.
7 Trade Payables
An aged analysis of trade payables at the balance sheet date, based on invoice
date, is as follows:
As at As at
December
December 31, 31, 2005
2006
Rmb'000 Rmb'000
Within 1 year 357,172 368,672
1 to 2 years 11,323 26,786
2 to 3 years 714 3,211
Over 3 years 114 3,552
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Total 369,323 402,221
============ ========
8 Transfer to reserves
In accordance with the Company Law of the PRC and the companies' articles of
association, the Company, its subsidiaries, its associates and its
jointly-controlled entity (collectively, the "Entities") are required to
allocate 10% of their profit after tax, as determined in accordance with the
PRC accounting standards and regulations applicable to the Entities, to the
statutory surplus reserve (the "SSR") until such reserve reaches 50% of the
registered capital of the 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 SSR may be converted to increase the Entities' share
capital.
Under the amended Company Law of the PRC, the Group is no longer required to
make appropriation to the statutory public welfare fund. Pursuant to a circular
on enterprise financial treatments following the implementation of the amended
Company law of the PRC issued by the ministry of Finance (Cai Qi [2006] No.67),
the Group transferred the balance of the statutory public welfare fund at
December 31, 2005 amounting to Rmb431,448,000 to the statutory surplus reserve.
BUSINESS REVIEW
As the first year in the eleventh Five-Year National Economic Development Plan,
year 2006 saw the economy in Zhejiang Province expand by 13.6% in GDP compared
to the national GDP growth rate of 10.7%. More important than the rate of
economic growth was improved quality of economic growth achieved in the
province: better coordination among various industries and a more balanced
growth throughout different regions of the province.
The strong economic growth in Zhejiang Province during the Period continued to
generate increased demand for road transport. Such demand was in turn met by an
expanding road network, providing an impetus for sustained traffic volume
growth on roadways in general and expressways in particular.
While toll income from expressway operations remained the mainstay of the Group
during the Period, the proportion of contribution to total income from the
Group's other business operations, such as gas stations, restaurants and shops
in service areas, continued to grow. Together with revenue contribution in the
second half of 2006 from the newly acquired securities business, total revenue
of the Group during the Period amounted to Rmb4,763.8 million, representing an
increase of 37.8% over 2005.
A detailed breakdown of the Group's income for the Period is set out below:
2006 2005
Rmb'000 Rmb'000 % Change
Toll income
Shanghai-Hangzhou-Ningbo Expressway 2,810,489 2,519,676 11.5%
Shangsan Expressway 833,823 830,994 0.3%
Other income
Service areas businesses income 968,476 230,183 320.7%
Advertising businesses income 53,228 48,045 10.8%
Road maintenance income 5,633 2,568 119.4%
Security operation income
Commission and brokerage income 173,372 - -
Bank interest income 20,491 - -
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Subtotal 4,865,512 3,631,466 34.0%
Less: Revenue taxes (101,732) (175,081) -41.9%
ï¼ï¼ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼ ï¼ï¼ï¼ï¼ï¼
Revenue 4,763,780 3,456,385 37.8%
=========== =========== ===========
Expressway Operations
Total toll income from the 248km Shanghai-Hangzhou-Ningbo Expressway and the
142km Shangsan Expressway amounted to Rmb3,644.3 million during the Period,
representing an increase of 8.8% over 2005 and contributing to 74.9% of the
Group's total income. Traffic volume growth during the Period, however, varied
substantially for different sections of the expressways.
After the completion of the second phase of the widening project along the
Shanghai-Hangzhou-Ningbo Expressway by the end of 2005, traffic volume on the
Shanghai-Hangzhou Expressway experienced a strong rebound with a 17.4% increase
over 2005, averaging 42,297 full-trip equivalents per day.
Traffic volume on the Hangzhou-Ningbo Expressway grew by a substantially lower
rate of 2.7% during the Period, averaging 35,806 full-trip equivalents per day,
mainly due to the ongoing third phase widening works carried out along the
section, and to a lesser degree, due to traffic diversions to other expressways
that had been newly opened.
The Shangsan Expressway saw its traffic volume dip by 0.2% during the Period,
averaging 19,783 full-trip equivalents per day, mainly due to a parallel
national road reopened to traffic after an extended period of partial closure
for renovation, and also to a lesser degree, due to traffic diversions to other
expressways that had been newly opened.
As part of the Company's continued effort to increase operating efficiency and
reduce cash transactions in its expressway operations, starting from November
1, 2006, toll stations along the Shanghai-Hangzhou-Ningbo Expressway and the
Shangsan Expressway began to accept widely distributed China UnionPay bankcards,
the first such adoption of the bankcards on expressways in China.
Expressway-related Business Operations
The Company operates gas stations, shops and restaurants in service areas, as
well as roadside advertising and vehicle service businesses along the
expressways through its subsidiaries. In the past few years, demand for these
services has been growing at a faster rate than the rate of traffic volume
growth.
During the Period, benefiting from a change in operating mode of gas stations
from consigning to self-operating, as well as increased capacities after the
completion of the current phase of service area expansion, income from the
above business operations reached Rmb1,043.4 million, representing an increase
of 249.5% over 2005.
Securities Business
The Company took over the management of Kinghing Securities Co., Ltd.
on July 1, 2006 after participating in a successful reorganization of the
securities company during the first half of 2006, and subsequently renamed the
securities company as "Zheshang Securities Co., Ltd."("Zheshang Securities").
After the reorganization, the Company has strengthened the risk control for
Zheshang Securities and enhanced its management quality. Meanwhile, benefitting
from an upturn of China's securities market, Zheshang Securities has achieved
beter-than-expected operating results. Income of the securities company during
the second half of the year was Rmb193.9million, while profit realized after
taxation was Rmb121.9million.
Details of the reorganization had been provided in a circular to the
shareholders of the Company dated May 16, 2006.
Long-term Investments
During the Period, Hangzhou Shida Highway Co., Ltd., a 50%-owned
jointly-controlled entity of the Company that owns and operates the 9.45km
Shida Road, saw its traffic volume increased by 17.3% over 2005 and toll income
increased by 16.4% over 2005. Profit for the Period realized by the
jointly-controlled entity was Rmb46.7 million, representing an increase of
43.3% over 2005. The much higher rate of increase in profit for the Period was
primarily due to lower-than-usual maintenance expenditures.
Demand for gasoline products in Zhejiang Province continued to grow
substantially during the Period, leading to a 41.3% increase in revenue over
2005 for Zhejiang Expressway Petroleum Development Co., Ltd., a 50%-owned
associate of the Company. Profit for the Period attributable to equity holders
of the parent realized by the associated company during the Period was Rmb19.3
million, representing an increase of 38.5% over 2005.
JoinHands Technology Co., Ltd., a 27.582%-owned associate of the Company,
failed to pull out of a slump in its main printing business despite improved
sales for its computer hardware and software products. Revenue for the
associated company decreased by 10.1% over 2005 during the Period, resulting in
a loss attributable to equity holders of the parent of Rmb7.5 million.
Expressway Widening Project
The third and last phase of the project to widen the Shanghai-Hangzhou-Ningbo
Expressway from four lanes to eight lanes (the "Widening Project") continued
along the Hangzhou-Ningbo section during the Period, with most of the
foundation and structure works finished.
The Company has taken every measure available to minimize the impact of related
construction works upon normal traffic flow along the Hangzhou-Ningbo section.
It is expected that the section will be kept open for traffic, though with
reduced capacity, throughout the rest of construction works until its
completion by the end of 2007.
Upon completion of the Widening Project, the Shanghai-Hangzhou-Ningbo
Expressway will be the first eight-lane expressway in Zhejiang Province, with
substantially increased carrying capacity and improved quality of service in
terms of greater reliability and safer traveling conditions.
Project Investment
On March 10, 2007, the Company entered into agreements to acquire an aggregate
of 23.45% equity interest in Zhejiang Jinhua Yongjin Expressway Co., Ltd.
("Jinhua Co.") from the Jinhua Municipal Road Management Bureau and Dongyang
Municipal Transport Investment Co., Ltd. for a total consideration of
Rmb281.4 million in cash.
Jinhua Co. is the project company holding 100% equity interests in the Jinhua
Section of the Ningbo-Jinhua Expressway for a concession period of 25 years.
The Jinhua Section is a four-lane expressway totaling 69.7km that was completed
and opened to traffic on December 28, 2005.
The investment in Jinhua Co. is in line with the Company's development strategy
of further expanding its expressway network within Zhejiang Province to capture
a greater share of growing expressway traffic and to derive additional synergy
from an expanded network.
The parent company of the Company, Zhejiang Communications Investment Group
Co., Ltd., is another substantial shareholder of Jinhua Co. with its 35% equity
interest. Pursuant to the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited, the above acquisition is not considered as
a connected transaction or a discloseable transaction.
FINANCIAL ANALYSIS
The Group adopts a prudent financial policy with an aim to providing
shareholders with sound returns over the long-term.
During the Period, the Group's profit attributable to equity holders of the
Company was approximately Rmb1,652.9 million, representing an increase of 15.5%
over 2005, while earnings per share for the Group was Rmb38.06 cents.
Profitability
The compound annual growth rates of earnings per share and return on equity in
the last five years were 16.7% and 10.9%, respectively.
During the Period, the annual dividend payout ratio was 71.0%, reflecting a
stable dividend payout policy that the management maintained in past years.
Liquidity and Financial Resources
The financial position of the Group remained sound and healthy during the year
under review. As at December 31, 2006, current assets of the Group amounted to
Rmb4,674.3 million in aggregate (2005: Rmb 1,919.8 million), of which cash and
cash equivalents accounted for 85.8% (2005: 37.7%), while time deposits
accounted for 2.8% (2005: 5.5%) and short-term investments accounted for 4.9%
(2005: 31.9%).
Amongst Rmb4,011.8 million that the Group held in cash and cash equivalent as
at December 31, 2006 (2005: Rmb723.5million), 62.5% was held on behalf of
customers of Zheshang Securities.
As at December 31, 2006, the Group had Rmb229.9 million in short-term
investments that were fully attributable to Zheshang Securities, and was
invested in the stock market.
During the Period, net cash inflow generated from the Group's operating
activities amounted to Rmb2,668.6 million, representing an increase of 34.6%
over 2005.
The Directors do not expect the Company to experience any problem with
liquidity and financial resources in the near future.
Borrowings and Solvency
As at December 31, 2006, the total liabilities of the Group were Rmb6,218.0
million, of which 29.7% were borrowings and 40.2% were client deposits arising
from securities dealing.
The borrowings comprised mainly outstanding balances of the World Bank loans of
Rmb657.8 million in Renminbi equivalent, loans from several domestic commercial
banks totaling Rmb125.0 million and corporate bonds amounting to Rmb1 billion
that was issued by the Company in 2003 for a term of 10 years. Among Rmb1,845.4
million of the Group's total borrowings, 78.5% were not repayable within one
year (2005: Rmb2,434.7 million and 63.6%, respectively).
As at December 31, 2006, the interest rates of the Group's semi-annual and
annual domestic commercial bank borrowings, totaling Rmb125.0million, were
fixed between 5.02% and 5.58% per annum; the interest rate for Rmb62.6 million
government loans remained fixed at 3.00% per annum; the annual coupon rate for
the Rmb1 billion corporate bonds was fixed at 4.29%, with interest payable
annually; the annual interest rate for client deposits arising from securities
dealing was fixed at 0.72%; the floating rate of the Group's Rmb657.8 million
World Bank loans, denominated in US dollar, varied from 4.51% to 5.16%.
Total interest expense for the Period amounted to Rmb102.8 million, while
profit before interest and tax amounted to Rmb2,829.4 million. The interest
cover ratio (profit before interest and tax over interest expenses) stood at
27.5 (2005: 22.1).
The asset-liability ratio (total liabilities over total assets) was 31.8% as at
December 31, 2006 (2005: 24.2%).
Capital Structure
The total equity of the Group increased by 8.0% from Rmb12,363.9 million as at
December 31, 2005 to Rmb13,352.5 million as at December 31, 2006. The
fixed-rate liabilities of the Group amounted to Rmb3,689.2 million, while the
floating-rate liabilities of the Group amounted to Rmb657.8 million and the
interest-free liabilities of the Group amounted to Rmb1,871.0 million,
representing 18.9%, 3.4% and 9.6% of the Group's capital, respectively.
As at December 31, 2006, the Group's gearing ratio, measured on the basis of
the sum of fixed-rate liabilities, floating-rate liabilities and interest-free
liabilities as a percentage of total equity, was 46.6% (2005: 31.9%).
Capital Expenditure Commitments and Utilization
Total capital expenditures of the Group and of the Company for the Period
amounted to Rmb1,169.6 million and Rmb555.3 million, respectively, with
Rmb468.9 million incurred by the investment in Zheshang Securities and Rmb485.9
million incurred by the Widening Project.
The capital expenditures committed by the Group and by the Company as at
December 31, 2006 were Rmb3,873.3 million and Rmb2,941.1 million, respectively.
Amongst the Rmb3,873.3 million committed by the Group, 47.1% will be used on
the Widening Project, 28.7% will be used on the construction of Jiashao
Expressway and 7.3% will be used on the equity acquisition of Jinhua Co.
The Group will finance its abovementioned capital expenditure commitments with
internally generated cash flow, with a preference for debt financing to meet
any shortfalls thereof.
Contingent Liabilities and Pledge of Assets
Fourteen customers of Zheshang Securities previously entered into state bond
investment agency agreements with Kinghing Trust Investment Co., Ltd ("Kinghing
Investment"), whereby Zheshang Securities kept in custody state bonds in an
aggregate principal amount of Rmb106.5 million. These state bonds were pledged
as security for certain third party repo trading transactions and the funds
obtained were misappropriated by Kinghing Investment. Kinghing Investment was
unable to return the misappropriated funds in time and as a result, the
security over the state bonds was enforced to settle the relevant repo trading
transactions.
In the opinion of directors, Kinghing Investment should take full
responsibility for breach of the state bond investment agency agreements.
Currently, Kinghing Investment has ceased its operations and its restructuring
is underway. It is understood that the 14 customers have already registered
their claims with Kinghing Investment's restructuring team. At the date of this
report, one of the 14 customers has started legal proceedings against Zheshang
Securities for disputes over the state bond investment agency agreement.
After consultation with their legal advisors and other legal experts, the
directors believe that, from a legal point of view, Zheshang Securities should
not take any legal responsibility, whether or not all the 14 customers choose
to take them to court. However, one should not rule out the possibility that
the court may, after considering, inter alia, Zheshang Securities role in the
performance of the state bond investment agency agreements, request Zheshang
Securities to share part of the liability. The impact to the consolidated
financial statements as a whole is not expected to be material though should
this situation arise.
In addition, a full provision has been made for guarantees issued in respect of
the state bond investment agency agreements and fund trust agreements entered
into between Kinghing Investment and its corporate customers.
No provision has been made for guarantees amounting to Rmb17.8 million issued
in respect of the fund trust agreements entered into between Kinghing
Investment and its individual customers because (i) these individuals have
already registered their claims with Kinghing Investment's restructuring team;
and (ii) under the relevant state policies, these individuals are expected to
be compensated in full by the state.
Other than the aforementioned, the Group did not have any other contingent
liabilities nor any pledge of assets as at December 31, 2006.
Foreign Exchange Exposure
Except for the repayment of a World Bank loan of Rmb657.8 million in US
dollars, as well as dividend payments to overseas shareholders in Hong Kong
dollars, the Group's principal operations are transacted and booked in
Renminbi. Therefore, the Group's exposure to foreign exchange fluctuations is
limited and the Group has not entered into any financial instrument for hedging
purposes.
Although the Directors do not foresee any material foreign exchange risks for
the Group, there is no assurance that any further changes in the foreign
exchange environment will not adversely affect the operating results of the
Group in the future.
OUTLOOK FOR 2007
The Chinese economy is expected to continue with its rapid growth in 2007 under
the new focus on scientific development and on quality over speed. Being the
most economically vibrant province, Zhejiang Province's GDP will continue to
grow in double digits in 2007, higher than the national average GDP growth
rate. At the same time, cars are widely used by families; the era of rapid
growth in vehicle consumption has arrived. There will be a substantial increase
in the total number of vehicles in China.
Owing to the positive impact of fundamentals above, we estimate optimistically
that growth rates for both traffic volume and toll income on the
Shanghai-Hangzhou-Ningbo Expressway will be higher in 2007 than in 2006. After
the gradual dissipation of vehicle diversion impact on the Shangsan Expressway,
traffic volume on the Shangsan Expressway will also enjoy a certain level of
rebound growth.
To meet the growing traffic flow, and following the Company's introduction of
Unionpay bankcards for the first time in China, we will start to introduce
non-stop toll collection booths and automatic IC card issuance at entrance
booths in 2007, with an aim to further improve the carrying capacity and
rapid-through capabilities of the expressways operated by the Company.
In 2007, there will be a new pair of service areas completed and put into
operation. Having grown rapidly for three consecutive years, the Company's
non-core business operations will continue to enjoy excellent performance in
2007.
Following the successful reorganization of Zheshang Securities, and the
unusually robust performance of the Chinese stock market, Zheshang Securities
will be bringing sizable profit contributions to the Company. However, the
Company intends to maintain investment in and operation of expressways as its
core business.
PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARES
Neither the Company nor any of its subsidiaries had purchased, sold, redeemed
or cancelled any of the Company's shares during the Period.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company was in compliance with the code provisions in the Code on Corporate
Governance Practices set out in Appendix 14 to the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited during the Period.
By Order of the Board
Geng Xiaoping
Chairman
Hangzhou, PRC, April 24, 2007
As at the date of this announcement, the executive directors of the Company
are: Messrs. Geng Xiaoping, Fang Yunti, Zhang Jingzhong and Jiang Wenyao; 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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