2008 Interim 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)
2008 Interim Results Announcement
The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the
"Company") hereby announce the unaudited consolidated operating results of the
Company and its subsidiaries (collectively the "Group") for the six months
ended June 30, 2008 (the "Period"), with the basis of preparation as stated in
note 1 to the condensed consolidated financial statements set out below.
RESULTS AND DIVIDENDS
During the Period, revenue for the Group was Rmb3,410.1 million, representing
an increase of 0.8% over the same period in 2007. Profit attributable to equity
holders of the Company was Rmb1,049.4 million, representing a decrease of 12.3%
year-on-year. Earnings per share for the Period was Rmb24.16 cents,
representing a decrease of 12.3% over the same period in 2007.
The Directors have recommended to pay an interim dividend of Rmb7 cents per
share, subject to shareholders' approval at the extraordinary general meeting
of the Company expected to be held on September 22, 2008.
The audit committee of the Company has reviewed the interim results. Set out
below are the unaudited condensed consolidated income statement and unaudited
condensed consolidated balance sheet for the Period, together with comparative
figures for 2007 and relevant notes to the financial statements:
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the six months
ended June 30,
2008 2007
Notes Rmb'000 Rmb'000
Revenue 3 3,410,095 3,381,505
Operating costs (1,628,366) (1,504,904)
Gross profit 1,781,729 1,876,601
Other (loss) income 4 (64,511) 236,941
Administrative expenses (35,720) (34,588)
Other expenses (18,520) (54,459)
Finance costs (42,521) (26,160)
Share of profit of associates 15,459 1,316
Share of profit of a jointly-controlled 10,627 10,222
entity
Profit before tax 1,646,543 2,009,873
Income tax expense 5 (366,604) (392,786)
Profit for the Period 1,279,939 1,617,087
=========== ==========
Attributable to:
Equity holders of the Company 1,049,372 1,197,119
Minority interest 230,567 419,968
1,279,939 1,617,087
=========== =========
Dividends
Proposed interim 6 (304,018) (304,018)
=========== =========
Basic earnings per share 7 24.16 cents 27.56 cents
=========== =========
CONDENSED CONSOLIDATED BALANCE SHEET
Notes As at As at
December
June 30, 31, 2007
2008
Rmb'000 Rmb'000
Unaudited Audited
(Restated)
Non-current assets
Property, plant and equipment 945,846 906,877
Prepaid lease payment 57,963 58,712
Goodwill 86,867 86,867
Other intangible assets 159,901 162,226
Interests in associates 494,697 479,238
Interest in a jointly-controlled entity 111,132 100,505
Available-for-sale investments 1,000 1,000
Expressway operating rights 13,193,025 13,523,269
15,050,431 15,318,694
Current assets
Inventories 18,945 14,558
Trade receivables 8 78,450 82,677
Other receivables 597,565 587,362
Prepaid lease payments 1,498 1,498
Held-for-trading investments 227,894 621,220
Available-for-sale investments 436,532 595,758
Held-to-maturity investments 200,000 -
Bank balances held on behalf of customers 6,938,363 7,239,389
Bank balances and cash
- Restricted bank balances 35,000 35,000
- Time deposits with original maturity over 188,817 226,972
three months
- Cash and cash equivalents 2,782,297 2,773,811
11,505,361 12,178,245
Assets classified as held for sale 15,865 15,865
11,521,226 12,194,110
Current liabilities
Trade payables 9 522,423 736,890
Accounts payable to customers arising from 6,925,192 7,211,261
securities dealing business
Tax liabilities 388,078 994,727
Other taxes payable 20,950 37,888
Other payables and accruals 490,484 556,320
Dividends payable 65,144 33,385
Interest-bearing bank and other loans 796,741 288,045
Provisions 10 164,013 164,024
9,373,025 10,022,540
Net current assets 2,148,201 2,171,570
Total assets less current liabilities 17,198,632 17,490,264
Non-current liabilities
Interest-bearing bank and other loans 272,365 333,945
Long-term bonds 1,000,000 1,000,000
Deferred tax liabilities 265,468 392,005
1,537,833 1,725,950
15,660,799 15,764,314
=========== ===========
Capital and reserves
Share capital 4,343,115 4,343,115
Reserves 8,804,061 8,883,238
Equity attributable to equity holders of the 13,147,176 13,226,353
Company
Minority interests 2,513,623 2,537,961
15,660,799 15,764,314
=========== ===========
Notes:
1 Basis of Preparation
The condensed consolidated financial statements have been prepared in
accordance with the applicable disclosure requirements of Appendix 16 to the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the "Listing Rules") and with Hong Kong Accounting Standard 34 ("HKAS
34") "Interim Financial Reporting".
2 Principal Accounting Policies
The condensed 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 condensed consolidated financial statements
are consistent with those followed in the preparation of the Group's annual
financial statements for the year ended December 31, 2007 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 Hong
Kong Institute of Certified Public Accountants (the "HKICPA"), which are
effective for accounting periods beginning on or after January 1, 2008.
HK(IFRIC) - Int 11 HKFRS 2 - Group and Treasury Share Transactions
HK(IFRIC) - Int 12 Service Concession Arrangements
HK(IFRIC) - Int 14 HKAS 19 - The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction
HK(IFRIC)-Int 12 gives guidance on the accounting by operators for
public-to-private service concession arrangements and sets out the general
principles on recognizing and measuring the obligations and related rights in
service concession arrangements. For arrangements falling within its scope,
depending on the terms of the arrangement, the infrastructure assets will,
instead of being recognized as property, plant and equipment, be recognized as
either (i) a financial asset; (ii) an intangible asset; or (iii) both a
financial asset and an intangible asset.
The Group was granted by the Zhejiang Provincial Government the concessions for
operating its two expressways, Shanghai-Hangzhou-Ningbo Expressway and Shangsan
Expressway, which included during the operating period the rights to design and
construction, redevelopment and expansion, investment, operation, management
and maintenance on the expressways and their ancillary facilities; and the
rights to propose and collect toll incomes from vehicles using the expressways
and other fees relating to the expressways and their ancillary facilities.
Prior to January 1, 2008, the expressways and bridges within the scope of
operation were included in property, plant and equipment, while the land use
rights relating to the expressways were included in prepaid lease payments. As
at January 1, 2008, due to the retrospective application of HK(IFRIC) - Int 12
being impracticable, the Group reclassified the expressways and bridges as well
as the land use rights relating to the expressways as expressway operating
rights, and amortized them over the remaining operating periods in accordance
with the transitional provisions of HK(IFRIC) - Int 12. The restatement of the
assets' book values for 2007 has no impact on the profit for 2007 and retained
profits at the beginning of the year.
Other than as described above, the adoption of the new HKFRSs had no material
effect on the results and financial position of the Group. Accordingly, no
prior period adjustment is required.
The effects of changes in the accounting policies are as follows:
December Change December
31, 2007
31, 2007
Rmb'000 Rmb'000 Rmb'000
(originally (restated)
stated)
Items on Balance Sheet
Non-current assets
Property, plant and equipment 13,906,689 (12,999,812) 906,877
Prepaid lease payments 393,424 (334,712) 58,712
Expressway operating rights 171,145 13,352,124 13,523,269
Current assets
Prepaid lease payments 19,098 (17,600) 1,498
Total effects on assets 14,490,356 - 14,490,356
=========== ============ ==========
The Group has not early adopted the following new standards, amendments or
interpretations that have been issued but are not yet effective.
HKAS 1 (Revised) Presentation of Financial Statements1
HKAS 23 (Revised) Borrowing Costs1
HKAS 27 (Revised) Consolidated and Separate Financial Statements2
HKAS 32 and HKAS 1(Amendments) Puttable Financial Instruments and Obligations
Arising on Liquidation1
HKFRS 2 (Amendments) Vesting Conditions and Cancellations1
HKFRS 3 (Revised) Business Combinations2
HKFRS 8 Operating Segments1
HK(IFRIC) - Int 13 Customer Loyalty Programmes3
1 Effective for annual periods beginning on or after January 1, 2009
2 Effective for annual periods beginning on or after July 1, 2009
3 Effective for annual periods beginning on or after July 1, 2008
The Directors of the Company expect that the adoption of these standards,
amendments and interpretations will have no material effect on the results and
financial position of the Group. The adoption of HKFRS 8 is expected to affect
the presentation of segment information of the Group only.
3. Segment Information
Comparing to the same period last year, there were no material changes in the
principal activities of the Group during the Period. The operating results by
principal activities are summarized as follows:
For the six months ended June 30,
2008 2007
Revenue Gross Profit Revenue Gross Profit
Contribution Contribution
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Unaudited Unaudited Unaudited Unaudited
Segment by business activities
- Toll income 1,820,284 1,259,100 1,889,388 1,265,378
- Service areas 883,465 33,295 576,390 26,471
- Advertising 39,900 20,129 32,446 10,535
- Securities operation 666,446 469,205 883,281 574,217
3,410,095 1,781,729 3,381,505 1,876,601
====== ======
Other (loss) income (64,511) 236,941
Administrative expenses (35,720) (34,588)
Other expenses (18,520) (54,459)
1,662,978 2,024,495
=========== ==========
No further analysis of the revenue and gross profit from operating activities
by geographical segment was prepared as the revenue and gross profit from
operating activities of the Group were all generated from within the People's
Republic of China (the "PRC") during the Period.
4. Other (Loss) Income
For the six months
ended June 30,
2008 2007
Rmb'000 Rmb'000
Unaudited Unaudited
(Loss) Gain on fair value changes on held-for-trading (172,468) 163,465
investments
Interest income 24,704 10,618
Net exchange gain 41,398 16,563
Towing income 9,845 11,327
Rental income 15,238 13,478
Others 16,772 21,490
Total (64,511) 236,941
============= ==========
5. Income Tax Expenses
As the Group had no taxable profits derived in Hong Kong during the Period, no
Hong Kong profits tax has been provided.
The Group was subject to the PRC enterprise income tax levied at a tax rate of
25% (2007: 33%) of taxable income based on income for financial reporting
purposes prepared in accordance with the laws and accounting standards in the
PRC.
For the six months
ended June 30,
2008 2007
Rmb'000 Rmb'000
Unaudited Unaudited
Current PRC enterprise income tax 493,141 500,657
Deferred tax:
Current period (126,537) (8,706)
Attributable to a change in tax rate - (99,165)
(126,537) (107,871)
366,604 392,786
============ ==========
The tax expenses for the Period can be reconciled to the profit before tax per
the condensed consolidated income statement as follows:
For the six months
ended June 30,
2008 2007
Rmb'000 Rmb'000
Unaudited Unaudited
Profit before tax 1,646,543 2,009,873
============= ==========
Tax at the PRC statutory income tax rate of 25% 411,636 663,258
(2007: 33%)
Tax effect of share of profits of associates (3,865) (434)
Tax effect of share of profit of a jointly (2,657) (3,373)
controlled entity
Tax effect of (income)/expense that is not taxable (38,510) 19,128
and deductible in determining taxable profit
Utilization of tax losses previously not recognized - (186,628)
as deferred tax assets (i)
Effect on deferred tax balances due to the change in - (99,165)
income tax rate from 33% to 25% (ii)
Tax expenses for the Period 366,604 392,786
============= ==========
(i) The tax loss arose mainly from a bad debt provision made by Zheshang
Securities Co., Ltd. (a 70.46% owned subsidiary of Zhejiang Shangsan Expressway
Co., Ltd.) ("Zheshang Securities") in 2005 prior to its acquisition by the
Group in relation to misappropriation of assets perpetrated by Kinghing Trust
Investment Co., Ltd. ("Kinghing Investment"), the former majority equity owner
of Zheshang Securities. The bad debt provision was treated as a non-deductible
expense at the date of acquisition of Zheshang Securities by the Group in 2006.
In 2007, the relevant tax authorities granted Zheshang Securities a
dispensation to claim tax deduction on the bad debt provision and accordingly,
the resulting tax loss was utilized in 2007.
(ii) On March 16, 2007, the PRC promulgated Law of the People's Republic of
China on Enterprise Income Tax (the "New Law") by Order No.63 of the President
of the PRC. On December 6, 2007, the State Council of the PRC issued
Implementation Regulations of the New Law. The New Law and Implementation
Regulations will change the income tax rate from 33% to 25% for the Group from
January 1, 2008. The deferred tax balance has been adjusted to reflect the tax
rates that are expected to apply to the respective periods when the assets are
realized or the liability is settled.
6. Dividends
The Directors have recommended the payment of an interim dividend of Rmb7 cents
per share (2007: Rmb7 cents per share), subject to shareholders' approval at
the extraordinary general meeting of the Company expected to be held on
September 22, 2008. The recommendation has been set out in the condensed
consolidated financial statements.
7. Basic 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 Rmb1,049,372,000 (2007:
Rmb1,197,119,000) and the 4,343,114,500 shares (2007: 4,343,114,500 shares) in
issue during the Period.
No diluted earnings per share has been calculated as there were no potential
dilutive ordinary share in issue in both periods.
8. Trade Receivables
The aging analyses of trade receivables at the balance sheet dates are as
follows:
As at As at
December
June 30, 31, 2007
2008
Rmb'000 Rmb'000
Unaudited Audited
Within 1 year 73,406 76,930
1 to 2 years 4,181 4,181
Over 2 years 863 1,566
Total 78,450 82,677
============= ==========
The Group allows an average credit period of approximately 180 days.
9. Trade Payables
The aging analyses of trade payables at the balance sheet dates are as follows:
As at As at
December
June 30, 31, 2007
2008
Rmb'000 Rmb'000
Unaudited Audited
Within 1 year 491,375 701,106
1 to 2 years 20,198 25,244
2 to 3 years 8,874 9,867
Over 3 years 1,976 673
Total 522,423 736,890
============= ==========
10. Provisions
Subsequent to the disclosure in the Company's 2007 annual report (pages 100 -
101) relating to "Provisions", as at the date of this announcement, the
Intermediate People's Court of Jinhua Municipal had accepted the application
for bankruptcy and liquidation of Kinghing Investment on January 15, 2008, and
assigned the liquidation team of Kinghing Investment as the administrator.
Fourteen customers of Zheshang Securities (involving an amount of Rmb111.41
million) have all claimed their creditors' rights with the liquidation team of
Kinghing Investment. Among nine of the fourteen customers who have initiated
lawsuits, one has been ruled by the court of second instance to have won the
proceeding and the ruling has been executed (involving an amount of Rmb3.4
million). Four customers have withdrawn while one customer has terminated the
proceeding. The litigation of one customer has been referred to the
Intermediate People's Court of Jinhua Municipal for judgement and those of the
other two customers have been remanded by the court of second instance.
Zheshang Securities has provided guarantees for the state bond investment
agency agreements entered into between Kinghing Investment and its corporate
customers and individual customers involving a total amount of Rmb52.6 million.
Such corporate customers and individual customers have claimed their creditors'
rights with the liquidation team of Kinghing Investment.
The liquidation team of Kinghing Investment has confirmed the above claims of
creditors' rights.
BUSINESS REVIEW
The impact from the implementation of the macro-economic control measures in
recent years on the economy of the PRC has gradually surfaced. The unusually
damaging snowstorm and earthquake occurring in the first half of 2008 further
affected the economy in most of the regions in the PRC. As a result, the
national rate of economic growth in the first half of 2008 witnessed an obvious
slowdown compared to last year and the GDP increased by 10.4% year-on-year,
with the growth rate decreased by 1.1 percentage point. Affected by the overall
atmosphere during the Period, the economy of Zhejiang Province - which had
undergone continued substantial growth during the past decade - came across an
apparent slowdown. Zhejiang Province's GDP grew by 11.4 #% year-on-year in the
first half of the year, with the growth rate decreased by 3.3 percentage
points.
Due to the decelerating growth in the macro-economy and diversion impact
arising from successive opening-to-traffic of surrounding new expressway and
bridge in the first half of 2008, the Group's income for the Period was
basically at par with that of last year. The Group realized a total income of
Rmb3,517.2 million, of which Rmb1,880.5 million was attributable to the two
major expressways owned and operated by the Group, representing 53.5% of the
total income; Rmb930.2 million was attributable to the Group's toll
road-related businesses, representing 26.4 #% of the total income; and Rmb706.5
million was attributable to the securities business against the backdrop of a
bearish stock market in the PRC, representing 20.1% of the total income.
During the Period, toll income from toll road operations decreased by 3.7% over
the same period in 2007, while income from toll road-related businesses grew
51.4% over the same period in 2007. A breakdown of the Group's income for the
Period is set out below:
For the six months
ended June 30,
2008 2007
Rmb'000 Rmb'000 % Change
Toll income
Shanghai-Hangzhou-Ningbo Expressway 1,453,567 1,521,028 -4.4%
Shangsan Expressway 426,970 430,778 -0.9%
Other incomes
Service areas 888,000 579,844 53.1%
Advertising 42,196 34,400 22.7%
Securities business 706,454 943,018 -25.1%
Subtotal 3,517,187 3,509,068 0.2%
Less: Revenue taxes (107,092) (127,563) -16.0%
Revenue 3,410,095 3,381,505 0.8%
=========== ===========
Toll Road Operations
Toll income from the two expressways owned by the Group declined due to a
slowdown in the rate of growth of the macro-economy as well as the successive
completion and opening-to-traffic of the Hangpu Expressway and the Hangzhou Bay
Bridge which had led to marked diversions in traffic on the two expressways. In
addition, the major snowstorm at the beginning of the year impeded vehicle
traffic, and the Zhejiang Provincial Government rolled out preferential
policies for certain truck traffic in view of the snowstorm, both of which led
to a decline in toll income from the two expressways.
The main reasons for a marked slowdown of the daily average traffic volume in
full-trip equivalents along the Shanghai-Hangzhou section of the
Shanghai-Hangzhou-Ningbo Expressway during the Period were: 1) traffic on the
Shanghai-Hangzhou section was initially diverted after the official
opening-to-traffic of the Hangpu Expressway on January 29, 2008; and 2) traffic
on the Shanghai-Hangzhou section was further diverted upon the trial
opening-to-traffic of the Hangzhou Bay Bridge on May 1, 2008.
The Hangzhou-Ningbo section of the Shanghai-Hangzhou-Ningbo Expressway was also
affected by traffic diversions caused by the Hangzhou Bay Bridge. However, the
completion of the phase III widening works at the end of 2007 had positive
impacts upon this section, which resulted in a lower rate of decrease in
traffic volume on this section than the Shanghai-Hangzhou section.
During the Period, the Shangsan Expressway lost some through-traffic because of
the opening-to-traffic of the Hangzhou Bay Bridge in May, resulting in a
relatively substantial decline in traffic volume since May.
In addition, given the impact brought by the snowstorm at the beginning of the
year, to ease the pressure of inflation, as well as to ensure the timely supply
of agriculture good and products to the market, the Zhejiang Provincial
Government implemented a measure on the opening of "Green Lanes" for
transporting fresh agricultural good and products on all toll roads in the
entire province effective from February 7, 2008. This refers to the waiving of
toll fees for trucks travelling on toll roads originating from both within and
outside the province that delivered fresh agricultural products. The
implementation of such measures had reduced the toll income of the two
expressways operated by the Group.
Accordingly, traffic volumes and toll incomes generated on all expressway
sections operated by the Group recorded year-on-year decreases during the
Period. The average daily traffic volume in full-trip equivalents along the
Shanghai-Hangzhou-Ningbo Expressway was 40,193 during the Period, representing
a decrease of 5.1% year-on-year. In particular, the average daily traffic
volume in full-trip equivalents along the Shanghai-Hangzhou section of the
Shanghai-Hangzhou-Ningbo Expressway experienced a decrease of 13.4%
year-on-year, and that along the Shanghai-Ningbo section experienced a decrease
of 2.9% year-on-year. The average daily traffic volume in full-trip equivalents
along the Shangsan Expressway was 21,265 during the Period, representing a
decrease of 1.9% year-on-year.
The toll income from the Shanghai-Hangzhou-Ningbo Expressway during the Period
was Rmb1,453.5 million, representing a decrease of 4.4% year-on-year. The toll
income from the Shangsan Expressway during the Period was Rmb427.0 million,
representing a decrease of 0.9% year-on-year.
Toll Road-Related Business Operations
The Company also operates certain toll road-related businesses through its
subsidiaries and associated companies along its expressways, including gas
stations, restaurants and shops in service areas, as well as roadside
advertising and vehicle service businesses.
During the Period, the rate of increase in income from the service areas along
the Shanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway slowed down
due to the decline in traffic volume along the two expressways. However, there
were other service areas opened for business in the first half of 2008,
including the Pinghu Service Area on the Hangpu Expressway, and the Wangqing
Tuo Service Area and the Sicun Dian Service Area on the Beijing-Shanghai
Expressway, all of which the Company won biddings in 2007. The addition of
these service areas led to further growth to the income from the service area
business. Meanwhile, the increase in unit retail prices of petroleum products
also brought about considerable growth in income from the gas station
operation. As a result, during the Period, income from toll road-related
business operations amounted to Rmb930.2 million, representing a year-on-year
increase of 51.4%. During the Period, leveraging its impressive operating
results and extensive management experience in the service area business, the
Company further obtained 10-year operating rights of the North-shore Service
Area on the Hangzhou Bay Bridge, 5-year operating rights of the Ningbo Cicheng
Service Area on the Shenhai Expressway, and 8-year operating rights of the
Zhangching Service Area on the Shandong Jihe Expressway.
Securities Business
During the Period, trading volume on the stock markets shrank substantially in
May and June in the PRC against the backdrop of a continued ailing stock market
in the first half of 2008, having substantial impact on the performance of the
securities business of the Group. During the Period, the Group's securities
business realized an operating income of Rmb706.5 million during the Period,
representing a year-on-year decrease of 25.1%. Of such income, Rmb626.8 million
was brokerage commission income, representing a year-on-year decrease of 30.3%;
bank interest income amounted to Rmb79.7million, representing a year-on-year
increase of 82.7%; and the proprietary securities trading business recorded a
loss of Rmb172.5 million as accounted for in the income statement.
Long-term Investments
During the Period, the ancillary works following the widening works on the
9.45km Shida Road owned and operated by Hangzhou Shida Highway Co., Ltd.
("Shida Co", a 50% owned jointly-controlled entity of the Company) hindered
traffic capacity on certain sections of the road, resulting in an 8.0% decrease
in traffic volume year-on-year. Toll income from Shida Road during the Period
decreased by 7.1% year-on-year, amounting to Rmb43.4 million; while net profit
realized during the Period was Rmb21.3 million, representing a year-on-year
increase of 4.0%.
Zhejiang Expressway Petroleum Development Co., Ltd. ("Petroleum Co", a 50%
owned associate of the Company) benefited from the surge in gasoline prices,
leading to a 10.1% growth in income year-on-year for the associate company,
while net profit realized during the Period was Rmb12.0 million, representing a
year-on-year increase of 43.2%.
Zhejiang Jinhua Yongjin Expressway Co., Ltd. ("Jinhua Co", a 23.45% owned
associate of the Company) owns 100% interest in the Jinhua section of
Ningbo-Jinhua Expressway. During the Period, the average daily traffic volume
in full-trip equivalents along the section was 7,614, representing an increase
of 6.6% year-on-year; while toll income amounted to Rmb73.7 million, an
increase of 6.5% year-on-year. However, due to heavy financial burdens, the
associate company incurred a loss of Rmb53.1 million during the Period.
Zhejiang Concord Property Investment Co., Ltd. ("Concord Property", an
associate 45% owned by Zhejiang Expressway Investment Development Co., Ltd., a
subsidiary of the Company) realized a properties sales income of Rmb583.0
million and recorded a net profit of Rmb48.7 million during the Period.
Human Resources
There were no significant changes to the Company's overall number of employees,
remuneration policies, bonus schemes and training schemes from what have been
disclosed in the Company's latest annual report.
FINANCIAL ANALYSIS
The Group adopts a prudent financial policy with an aim to provide shareholders
with sound returns over the long-term.
During the Period, the Group's return on equity was 8.0%, representing a
decrease of 18.5% over the same period in 2007.
Liquidity and Financial Resources
As at June 30, 2008, current assets of the Group amounted to Rmb11,521.2
million in aggregate (December 31, 2007: Rmb12,194.1 million), of which bank
balance and cash accounted for 26.1% (December 31, 2007: 24.9%), bank balance
held on behalf of customers accounted for 60.2% (December 31, 2007: 59.4%) and
held-for-trading investments accounted for 2.0% (December 31, 2007: 5.1%).
Current ratio (current assets over current liabilities) as at June 30, 2008 was
1.2 (December 31, 2007: 1.2).
Held-for-trading investments of the Group as at June 30, 2008 amounted to
Rmb227.9 million (December 31, 2007: Rmb621.2 million), of which 77.8% was
invested in the stock market, of which 13.4% was invested in corporate bonds
while the rest was invested in open-end equity funds.
During the Period, net cash inflow generated from the Group's operating
activities was sufficient, amounting to Rmb1,160.2 million.
The Directors do not expect the Company to experience any problem with
liquidity and financial resources in foreseeable future.
Borrowings and Solvency
As at June 30, 2008, total liabilities of the Group amounted to Rmb10,910.9
million (December 31, 2007: Rmb11,748.5 million), of which 19.0% was borrowings
and 63.5% was customer deposits arising from securities dealings.
Total interest-bearing borrowings of the Group as at June 30, 2008 amounted to
Rmb2,069.1 million, representing an increase of 27.6% over the beginning of the
year. The borrowings comprised outstanding balances of the World Bank loans,
denominated in US dollar, of approximately Rmb505.1 million in Renminbi
equivalent; loans from foreign-owned banks in the country, denominated in HK
dollar, of Rmb336.6 million in Renminbi equivalent; government loans of Rmb37.4
million; loans from domestic commercial banks totaling Rmb190.0 million; and
corporate bonds amounting to Rmb1 billion that was issued by the Company in
2003 for a term of 10 years. Of the interest-bearing borrowings, 61.5% were not
repayable within one year.
As at June 30, 2008, the Group's loans from domestic commercial banks comprised
half-year and one-year short-term loans, with interest rates fixed between
5.913% and 7.47% p.a.; the interest rate for government loans was fixed at
3.00% per annum; and the annual coupon rate for corporate bonds was fixed at
4.29%, with interest payable annually. The annual interest rate for customer
deposits arising from securities dealing was fixed at 0.72%; the annual
floating rate of the Group's World Bank loans, denominated in US dollar, was
5.36%; and the annual interest rate of the Group's loans, denominated in HK
dollar, was fixed at 5.371%.
Total interest expense for the Period amounted to Rmb42.5 million, while profit
before interest and tax amounted to Rmb1,689.1 million. The interest cover
ratio (profit before interest and tax over interest expenses) stood at 39.7
(June 30, 2007: 45.2).
The asset-liability ratio (total liabilities over total assets) was 41.1% as at
June 30, 2008 (December 31, 2007: 42.7%).
Capital Structure
As at June 30, 2008, the Group had Rmb15,660.8 million total equity, Rmb8,489.2
million fixed-rate liabilities, Rmb505.1 million floating-rate liabilities and
Rmb1,916.6 million interest-free liabilities, representing 58.9%, 32.0%, 1.9%
and 7.2% of the Group's total capital, respectively. The gearing ratio, which
was computed by dividing the total liabilities less balance of customer
deposits arising from securities dealing by total equity, was 25.4% as at June
30, 2008 (December 31, 2007: 28.8%).
Capital Expenditure Commitments and Utilization
Capital expenditures of the Group and of the Company for the Period totaled
Rmb83.0 million and Rmb31.8 million, respectively, with Rmb38.2 million
attributable to the acquisition of equipment and Rmb39.7 million attributable
to the widening project.
Capital expenditures committed by the Group and by the Company as at June 30,
2008 totaled Rmb1,659.4 million and Rmb836.0 million, respectively. Amongst the
total capital expenditures committed by the Group, Rmb1,041.4 million will be
used on the remaining construction work of the widening project, while Rmb49.2
million will be used on service area renovation and/or expansion.
The Group will finance its above mentioned 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
The Company's commodity-linked 1-year structured deposits of Rmb200.0 million
with minimum yield rate of 4% was a pledge provided to a domestic foreign-owned
bank for a Hong Kong dollar-denominated loan of Rmb336.6 in Renminbi equivalent
which had the same term as a Hong Kong dollar loan.
Save as disclosed above, the Group did not have any other contingent
liabilities, pledge of assets or guarantees as at June 30, 2008.
Foreign Exchange Exposure
Except for the repayment of a World Bank loan of Rmb505.1 million equivalent in
US dollars, as well as repayment of the loan from foreign-owned bank in the
country of Rmb336.6 million equivalent in HK dollars and dividend payments to
holders of H shares 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 used any financial
instrument for hedging purposes during the Period.
Although the Directors do not foresee any material foreign exchange risks for
the Group, there is no assurance that foreign exchange risks will not affect
the operating results of the Group in the future.
OUTLOOK
The detrimental natural disasters in the first half of 2008 had a negative
impact on the PRC economy which had used to enjoy a fast-growing GDP.
Zhejiang's provincial economy showed an obvious slowdown amid macro-economic
control measures, leading to a certain decline in the rate of growth on the
volume of transport in goods and passengers within the province in the first
half of 2008. As a result, the growth of traffic volume on various expressways
within the province, which was closely related to the above factors, had shown
various degrees of decline.
As the Hangzhou Bay Bridge will be open to trucks in the future, further
diversions of truck traffic along the Group's expressways is expected. Except
for the above-mentioned truck diversions, traffic diversions caused by the
HangPu Expressway's opening to traffic have been gradually stablilizing. The
diversion impact has been largely in line with the expectations of the Company.
Meanwhile, it is expected that upon a further stabilization of diversions in
the future, networking effects among different expressways will generate new
growth for the two expressways operated by the Group.
During the Period, the Group's toll road-related business operations continued
its robust growth. The service area operation, having extended beyond Zhejiang
Province, experienced new growth of income in the first half of the year.
Meanwhile, for the securities business that had brought certain uncertainties
to the Group, the introduction of new securities products in the future is
expected to create new income platforms for the securities business, thereby
generating higher profitability.
The Company's self-developed non-stop electronic toll collection system fully
opened to the general public in early April upon the completion of various
trials. Meanwhile, the Company actively pursued efforts to facilitate the works
on the inter-connected non-stop toll system for expressways within the Yangtze
River Delta Region. It is believed that such system would bring further
convenience to users who shuttle across expressways within the region in the
future.
Meanwhile, a toll-by-weight policy for trucks is scheduled to be implemented by
end of the year or in early 2009. We believe that the implementation of such
policy will help reduce the amount of overloaded trucks along expressways,
which will in turn reduce road maintenance costs of the Group in the long run.
Even though Zhejiang Province's economic growth rate had slowed down, it has
maintained a healthy and rapid momentum, with its growth rate continuing to
take a lead above the national average. Through concerted efforts of all staff
of the Group, we will study measures to draw greater traffic volumes, actively
seek suitable acquisitions, identify new sources of income, and achieve greater
profitability so as to bring satisfactory operating results to our investors.
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 Listing Rules during the
Period.
By Order of the Board
Geng Xiaoping
Chairman
Hangzhou, the PRC, August 4, 2008
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 of the Company are: Messrs. Zhang Luyun and Zhang Yang;
and the independent non-executive directors of the Company are: Messrs. Tung
Chee Chen, Zhang Junsheng and Zhang Liping.
Friday, 10th January 2025
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