2012 First Quarterly Results Announcement
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announcement.
Zhejiang Expressway Co., Ltd.
(A joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock code: 0576)
2012 FIRST QUARTERLY RESULTS ANNOUNCEMENT
This quarterly results announcement of Zhejiang Expressway Co., Ltd. (the "Company") for
the three months ended March 31, 2012 (the "Period") is made pursuant to Rule 13.09 of the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and
has been prepared in compliance with section 4.3 of the Disclosure and Transparency Rules
of the United Kingdom Listing Authority.
The audit committee of the Company has reviewed the quarterly results of the Company and
its subsidiaries (collectively the "Group") for the Period. Set out below are the Group's
unaudited condensed consolidated statement of comprehensive income, condensed consolidated
statement of financial position and condensed consolidated statement of cash flow for the
Period together with the comparative figures for the corresponding period of 2011:
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the three months
ended March 31,
Notes 2012 2011
Rmb'000 Rmb'000
------------ ------------
Revenue 1 1,584,489 1,627,592
Operating costs (990,040) (960,559)
------------ ------------
Gross profit 594,449 667,033
Securities investment gains (losses) 15,202 (3,949)
Other income 2 59,807 51,271
Administrative expenses (16,639) (19,680)
Other expenses (7,625) (10,159)
Share of (loss) profit of associates (3,651) 1,020
Finance costs (16,536) (19,489)
------------ ------------
Profit before tax 625,007 666,047
Income tax expense (157,973) (167,366)
------------ ------------
Profit for the Period 467,034 498,681
------------ ------------
Other comprehensive income (expense)
Available-for-sale financial assets:
-- Fair value gain (loss) during the Period 2,997 (4,130)
-- Reclassification adjustments for cumulative
gain included in profit or loss upon disposal -- (4,200)
Income tax relating to components of
other comprehensive income (749) 2,083
------------ ------------
Other comprehensive income (expense) for the
Period (net of tax) 2,248 (6,247)
------------ ------------
Total comprehensive income for the Period 469,282 492,434
============ ============
Profit for the Period attributable to:
Owners of the Company 416,943 425,004
Non-controlling interests 50,091 73,677
------------ ------------
467,034 498,681
============ ============
Total comprehensive income for the
Period attributable to:
Owners of the Company 418,115 421,746
Non-controlling interests 51,167 70,688
------------ ------------
469,282 492,434
============ ============
Earnings per share -- basic 3 9.60 cents 9.79 cents
============ ============
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
March 31, December 31,
2012 2011
Rmb'000 Rmb'000
Unaudited Audited
------------ ------------
Non-current assets 13,933,092 14,126,326
Current assets 16,323,440 15,006,633
Current liabilities 10,961,548 9,301,793
------------ ------------
Net current assets 5,361,892 5,704,840
------------ ------------
Total assets less current liabilities 19,294,984 19,831,166
------------ ------------
Non-current liabilities 226,602 1,232,066
------------ ------------
19,068,382 18,599,100
============ ============
Capital and Reserves
Share capital 4,343,115 4,343,115
Reserves 11,253,539 10,835,424
------------ ------------
Equity attributable to owners of the Company 15,596,654 15,178,539
Non-controlling interests 3,471,728 3,420,561
------------ ------------
19,068,382 18,599,100
============ ============
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the three months
ended March 31,
2012 2011
Rmb'000 Rmb'000
------------ ------------
Net cash from operating activities 494,690 378,600
Net cash used in investing activities (612,820) (812,459)
Net cash used in financing activities (50,000) (180,000)
------------ ------------
Net decrease in cash and cash equivalents (168,130) (613,859)
Cash and cash equivalents at beginning of the Period 3,120,430 5,682,053
------------ ------------
Cash and cash equivalents at end of the Period 2,952,300 5,068,194
============ ============
Notes:
1. REVENUE
An analysis of the Group's revenue, net of discounts and taxes, for the Period is as
follows:
For the three months
ended March 31,
2012 2011
Rmb'000 Rmb'000
Unaudited Unaudited
------------ ------------
Toll operation revenue 830,753 831,723
Service area business revenue 470,603 438,989
Advertising business revenue 22,688 19,364
Commission income from securities operation 194,655 262,680
Interest income from securities operation 65,790 74,836
------------ ------------
Total revenue 1,584,489 1,627,592
============ ============
2. OTHER INCOME
For the three months
ended March 31,
2012 2011
Rmb'000 Rmb'000
Unaudited Unaudited
------------ ------------
Interest income from bank balances and entrusted
loan receivables 35,305 27,655
Rental income 15,990 15,165
Net exchange gain 38 2
Handling fee income 2,008 3,126
Towing income 1,827 2,154
Others 4,639 3,169
------------ ------------
Total 59,807 51,271
============ ============
3. EARNINGS PER SHARE
The calculation of the basic earnings per share is based on profit for the Period
attributable to owners of the Company of Rmb416,943,000 (2011: Rmb425,004,000) and
the 4,343,114,500 (2011: 4,343,114,500) ordinary shares in issue during the Period.
No diluted earnings per share has been presented as there were no potential ordinary
shares outstanding in both periods.
BUSINESS REVIEW
China's economy maintained reasonable and moderate levels of growth despite a decline in
its rate of growth in the first quarter, during which the rate of in GDP growth increased
by 8.1% year-on-year. Economic growth in Zhejiang Province continued to demonstrate a
slowing trend during the period, recording GDP growth of 7.1% for the province in the
first quarter of the year over the corresponding period last year. Hit by the slowing rate
of growth both inside and outside the province, the Group's two expressways recorded
worse-than-expected performance during the Period in terms of traffic volume growth and
toll revenue.
During the Period, the Group realized total income of Rmb1,629.79 million, representing a
decrease of 2.7% year-on-year, of which Rmb858.77 million was attributable to the two
major expressways operated by the Group, representing 52.7% of the total income; Rmb497.35
million was attributable to the Group's toll road-related businesses, representing 30.5%
of total income; and Rmb273.67 million was attributable to the securities business,
representing 16.8% of total income.
TOLL ROAD OPERATIONS
Due to the slowing rate of growth at the macroeconomic level, the increase in the traffic
volume of the Group's expressways decelerated accordingly in the first quarter,
represented in particular by a year-on-year decrease of 1% in the traffic volume of trucks,
rendering overall toll revenue lower than expected during the period. The opening of the
Shaozhu Expressway on December 29, 2011 has since caused slight traffic diversions from
the Shaoxing section of the Shanghai-Hangzhou-Ningbo Expressway.
Meanwhile, the organic growth in the traffic volume of Shangsan Expressway had not yet
bottomed out during the period, showing a month-by-month downside trend, thus resulting in
the growth rate of toll revenue from the Shangsan Expressway falling further behind that
from the Shanghai-Hangzhou-Ningbo Expressway. Moreover, traffic congestion caused by
accidents and the frequent construction work on the Shangsan Expressway and its adjacent
expressways caused traffic flow to be diverted from the Shangsan Expressway. The impact of
this traffic diversion was especially substantial during the peak periods of the Spring
Festival and Qingming Festival periods as the positive impact of holidays and festivals on
toll revenue was significantly minimized.
The average daily traffic volume in full-trip equivalents along the Shanghai-Hangzhou-Ningbo
Expressway was 40,303 during the Period, representing an increase of 4.5% 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 was 40,955 an
increase of 6.4% year-on-year, and that along the Hangzhou-Ningbo section was 39,836, an
increase of 3.2% year-on-year. The average daily traffic volume in full-trip equivalents
along the Shangsan Expressway was 17,143 during the Period, representing a decrease of
3.5% year-on-year.
During the Period, toll income from the Shanghai-Hangzhou-Ningbo Expressway amounted to
Rmb694.80 million, an increase of 1.7% year-on-year, while toll income from the Shangsan
Expressway amounted to Rmb163.98 million, a decrease of 7.1% year-on-year.
TOLL ROAD-RELATED BUSINESS OPERATIONS
The Company also operates toll road-related businesses along its expressways through its
subsidiaries and associate companies, including gas stations, restaurants and shops in
service areas, as well as roadside advertising and vehicle service businesses.
As a result of slowing growth in traffic volume along the Group's two expressways and the
impact of traffic diversions from the Shaoxing Section of the Shanghai-Hangzhou-Ningbo
Expressway to the newly opened Shaozhu Expressway during the Period, the client volume of
service areas declined. However, owing to increases in the sale prices of petroleum
products, which in turn led to a substantial increase in sales revenue of petroleum
products, overall income from the service areas was satisfactory. Income from toll
road-related businesses amounted to Rmb497.35 million during the Period, representing a
year-on-year increase of 7.1%.
SECURITIES BUSINESS
The aggregate trading volume in the domestic stock market declined significantly as
compared to the corresponding period last year as the market continued to experience a
downward trend during the first quarter of 2012. Although commission rates continued to
decline, the declines tended to ease as an increasing number of local securities industry
associations introduced a minimum commission standard for new customers following the
implementation of the "Notice on Further Strengthening Customer Services of Securities
Companies and the Management of Commissions for Dealing in Securities" in early 2011.
Moreover, the increase in the number of operational networks and employees both raised
operational costs and undermined the profitability of the securities business during the
period.
During the period, revenue from both the investment banking and asset management businesses
decreased year-on-year but the market share of the securities brokerage increased over the
same period last year, while the customer base continued to rise and the operational
network increased to 60 branches.
During the Period, Zheshang Securities realized an operating income of Rmb273.67 million,
a decrease of 22.4% year-on-year. Of this income, brokerage commission income amounted to
Rmb207.88 million, a year-on-year decrease of 25.2%; and bank interest income amounted to
Rmb65.79 million, a year-on-year decrease of 12.1%. During the Period, securities
investment gains from Zheshang Securities accounted for in the condensed consolidated
statement of comprehensive income amounted to Rmb13.60 million.
LONg-TERM INVESTMENTS
Zhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associate company of the
Company) was blessed by a further increase in the retail prices of petroleum and
significant growth in petroleum sales during the Period, and consequently realized income
of Rmb1,386.80 million during the Period, representing an increase of 23.4% year-on-year.
During the Period, net profit amounted to Rmb3.08 million (corresponding period of 2011:
Rmb9.08 million).
The 69.7km Jinhua Section of the Ningbo-Jinhua Expressway, operated by Zhejiang Jinhua
Yongjin Expressway Co., Ltd. (a 23.45% owned associate company of the Company), was
affected by the continuous slowdown in domestic macroeconomic growth; therefore, its toll
income was affected during the Period. It recorded an average daily traffic volume of
11,910 in full-trip equivalents, representing an increase of 9.8% year-on-year, while toll
income amounted to Rmb55.19 million, representing an increase of 5.6% year-on-year. Due to
its heavy financial burden, the associate company still incurred a loss of Rmb15.28 million
during the Period (corresponding period of 2011: net loss amounted to Rmb15.20 million).
JoinHands Technology Co., Ltd. (a 27.582% owned associate company of the Company)
generated its income primarily from property leasing during the Period. It did not show
any improvement in its operations and realized a net loss of Rmb1.01 million during the
Period (corresponding period of 2011: net loss amounted to Rmb1.04 million).
As Guangzhou Kaixin Consulting Co., Ltd. failed to pay the consideration for the equity
transfer according to the terms of the contract entered into with the Company in July 2011,
the Company lodged a lawsuit against it in August 2011 at the People's Court of Xihu
District, Hangzhou City. The court ruled in favour of the Company in March 2012. However,
both the Company and Guangzhou Kaixin Consulting Co., Ltd. filed appeals because of their
objections against the court's decision.
FINANCIAL ANALYSIS
Liquidity and Financial Resources
As at March 31, 2012, the current assets of the Group aggregated to Rmb16,323.44 million
(December 31, 2011: Rmb15,006.63 million), of which bank balances and cash accounted for
35.5% (December 31, 2011: 37.2%), bank balances held on behalf of customers accounted for
50.6% (December 31, 2011: 47.8%), and held-for-trading investments accounted for 6.4%
(December 31, 2011: 8.4%). Current ratio of the Group (current assets over current
liabilities) as at March 31, 2012 was 1.5 (December 31, 2011: 1.6). Excluding the effect
of customer deposits arising from the securities business, the resultant current ratio of
the Group (current assets less balance of cash held on behalf of customers over current
liabilities less balance of accounts payable to customer arising from securities dealings)
was 3.0 (December 31, 2011: 3.6).
During the Period, net cash inflow generated from the Group's operating activities amounted
to Rmb494.69 million, representing an increase of 30.7%.
The Directors do not expect the Group to experience any problem with liquidity and
financial resources in the foreseeable future.
Borrowings and Solvency
As at March 31, 2012, total liabilities of the Group amounted to Rmb11,188.15 million
(December 31, 2011: Rmb10,533.86 million), of which 3.7% was short-term bank loans, 8.9%
was corporate bonds, and 73.6% was accounts payable to customers arising from securities
dealing business.
During the Period, total interest expenses amounted to Rmb16.54 million, while profit
before interest and tax amounted to Rmb641.54 million. The interest cover ratio (profit
before interest and tax over interest expenses) stood at 38.8 (corresponding period of
2011: 35.2).
The asset-liability ratio (total liabilities over total assets) was 37.0% as at March 31,
2012 (December 31, 2011: 36.2%). Excluding the effect of customer deposits arising from
the securities business, the resultant asset-liability ratio (total liabilities less
balance of accounts payable to customers arising from securities dealing business over
total assets less bank balances held on behalf of customers) of the Group was 13.4%
(December 31, 2011: 15.4%).
Capital Structure
As at March 31, 2012, the Group had Rmb19,068.38 million total equity, Rmb8,543.22 million
fixed-rate liabilities, Rmb100 million floating-rate liabilities and Rmb2,544.93 million
interest-free liabilities, representing 63.0%, 28.3%, 0.3% and 8.4% of the Group's total
capital, respectively. The gearing ratio, which was computed by dividing the total
liabilities less accounts payable to customer arising from securities dealing business by
total equity, was 15.5% as at March 31, 2012 (December 31, 2011: 18.2%).
PROSPECTS
The decelerating pace of economic growth in Zhejiang Province is anticipated to continue
to undermine the organic growth in the traffic volume of the Group's two expressways. In
particular, this is expected to have more of an impact on the organic growth in the
traffic volume of the Shangsan Expressway, along which mostly small and medium-sized
enterprises are located, than on the Shanghai-Hangzhou-Ningbo Expressway.
As the clean-up and rectification programme for toll roads is close to completion, two new
policies, the toll-by-driving route policy and the improved vehicle tolls charging method,
were introduced to the expressways throughout Zhejiang Province in the middle of April,
and will come into force on May 15, 2012. In particular, the toll-by-driving route policy
for expressways is expected to have a modest positive impact on the Group, while the
improved vehicle tolls charging method is expected to have a modest negative impact.
Entering into the second quarter of 2012, the steadily drop in inflation and the expected
possible relaxation of the monetary policy are likely to impact China's stock market
positively. Zheshang Securities will seize opportunities to continue to expand the
development of the investment banking, asset management, futures and other businesses
while strengthening cost control and risk control at the same time, to deal with the
uncertain impact from the market environment and intense competition.
Following the introduction of the changes in the policy for the toll road industry, new
toll rates have recently been unveiled for expressways in Zhejiang Province. Toll rates
for ordinary roads in the province are expected to be adjusted as well within the year.
This will then have an uncertain impact on the traffic volume of the Group's two
expressways. Amid various uncertain internal and external situations, the Company's
management will, as in the past, continue to excel in its principal expressway operations,
closely monitor any changes in policies relevant to the industry so as to adjust its
business strategy and continue to identify appropriate investment projects in the
precondition of controllable risk with a view to maximizing shareholder value.
By order of the Board
Zhejiang Expressway Co., Ltd.
Jisong Chen
Chairman
Hangzhou, PRC, May 11, 2012
As at the date of this announcement, the executive directors of the Company are:
Messrs. CHEN Jisong, ZHAN Xiaozhang, JIANG Wenyao, ZHANG Jingzhong and DING Huikang; the
non-executive director is Ms. ZHANG Luyun; and the independent non-executive directors
are: Messrs. TUNG Chee Chen, ZHANG Junsheng and ZHANG Liping.
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