2012 Third Quarterly Results Announcement
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take no responsibility for the contents of this announcement, make no representation
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the contents of this 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 THIRD QUARTERLY RESULTS ANNOUNCEMENT
This quarterly results announcement of Zhejiang Expressway Co., Ltd. (the "Company")
for the nine months ended September 30, 2012 (the "Period") is made pursuant to 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 nine months
ended September 30,
2012 2011
Notes Rmb'000 Rmb'000
------------ ------------
Revenue 1 5,022,210 5,088,656
Operating costs (3,191,201) (3,008,659)
------------ ------------
Gross profit 1,831,009 2,079,997
Securities investment gains 71,899 3,148
Other income 2 203,389 187,899
Administrative expenses (50,042) (51,093)
Other expenses (23,428) (25,730)
Share of loss of associates (21,152) (10,017)
Finance costs (42,787) (62,918)
------------ ------------
Profit before tax 1,968,888 2,121,286
Income tax expense (489,377) (533,077)
------------ ------------
Profit for the Period 1,479,511 1,588,209
------------ ------------
Other comprehensive (loss) income
Available-for-sale financial assets and
securities lending:
- Fair value loss during the Period (2,229) (4,632)
- Reclassification adjustments for
cumulative loss (gain) included
in profit or loss upon disposal 24 (4,072)
Income tax relating to components of
other comprehensive loss 551 2,176
------------ ------------
Other comprehensive loss
for the Period (net of tax) (1,654) (6,528)
------------ ------------
Total comprehensive income for the
Period 1,477,857 1,581,681
============ ============
Profit for the Period attributable to:
Owners of the Company 1,334,292 1,380,042
Non-controlling interests 145,219 208,167
------------ ------------
1,479,511 1,588,209
============ ============
Total comprehensive income for
the Period attributable to:
Owners of the Company 1,333,429 1,376,638
Non-controlling interests 144,428 205,043
------------ ------------
1,477,857 1,581,681
============ ============
Earnings per share - basic 3 30.72 cents 31.78 cents
============ ============
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
September 30, December 31,
2012 2011
Rmb'000 Rmb'000
Unaudited Unaudited
------------ ------------
Non-current assets 13,344,010 14,126,326
Current assets 15,423,073 15,006,633
Current liabilities 9,654,858 9,301,793
------------ ------------
Net current assets 5,768,215 5,704,840
------------ ------------
Total assets less current liabilities 19,112,225 19,831,166
------------ ------------
Non-current liabilities 227,055 1,232,066
------------ ------------
18,885,170 18,599,100
============ ============
Capital and reserves
Share capital 4,343,115 4,343,115
Reserves 11,083,074 10,835,424
------------ ------------
Equity attributable to owners of the Company 15,426,189 15,178,539
Non-controlling interests 3,458,981 3,420,561
------------ ------------
18,885,170 18,599,100
============ ============
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the nine months
ended September 30,
2012 2011
Rmb'000 Rmb'000
------------ ------------
Net cash from operating activities 1,094,084 1,410,895
Net cash used in investing activities (124,909) (1,157,463)
Net cash used in financing activities (1,520,534) (1,528,530)
------------ ------------
Net decrease in cash and cash equivalents (551,359) (1,275,098)
Cash and cash equivalents at beginning of the Period 3,120,430 5,682,053
------------ ------------
Cash and cash equivalents at end of the Period 2,569,071 4,406,955
============ ============
Notes:
1. Revenue
An analysis of the Group's revenue, net of discounts and taxes, for the Period
is as follows:
For the nine months
ended September 30,
2012 2011
Rmb'000 Rmb'000
Unaudited Unaudited
------------ ------------
Toll operation revenue 2,657,101 2,646,680
Service area business revenue 1,442,608 1,372,091
Advertising business revenue 68,772 57,860
Commission income from securities operation 627,736 774,358
Interest income from securities operation 225,937 237,667
Others 56 -
Total 5,022,210 5,088,656
============ ============
2. Other Income
For the nine months
ended September 30,
2012 2011
Rmb'000 Rmb'000
Unaudited Unaudited
------------ ------------
Interest income on bank balances and
entrusted loan receivables 121,855 102,598
Interest income from structured deposit 1,357 -
Rental income 52,051 48,955
Net exchange (loss) gain (2,460) 8,501
Handling fee income 4,781 12,999
Towing income 9,138 9,195
Others 16,667 5,651
------------ ------------
Total 203,389 187,899
============ ============
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 Rmb1,334,292,000 (corresponding period
of 2011: Rmb1,380,042,000) 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 during both periods.
BUSINESS REVIEW
Due to the uncertainties amid global economic recovery and slowing domestic economic
growth, the GDP growth rate in China recorded an increase of 7.7% year-on-year in
the first three quarters of 2012. During the Period, the GDP growth in Zhejiang
Province for the first three quarters, where there were indicators that economy
growth rate was stable in the third quarter, was 7.7% higher than that for the
corresponding period of last year, in line with the economic growth level nationwide.
Given that the current macro economy has not rebound yet, income of the Group
during the Period slightly decreased by 1.4% year-on-year achieving a total of
Rmb5,165.04 million generated from various income sources. Of such income,
Rmb2,748.32 million was generated from the two major expressways owned and operated
by the Group, representing an increase of 0.4% year-on-year and accounting for
53.2% of total income; and Rmb1,523.32 million was generated from toll
road-related businesses, representing an increase of 5.7% year-on-year and
accounting for 29.5% of total income. The securities business contributed an
income of Rmb893.40 million to the Group, representing a decrease of 15.5%
year-on-year and accounting for 17.3% of total income, which continued to be
affected by the dampened stock market in China during the Period.
TOLL ROAD OPERATIONS
In the third quarter, due to the increase in export size in foreign trading,
investment in fixed assets and consumer spending in Zhejiang Province, the
traffic volume of the Group's expressways recorded a higher organic growth than
that of the first half of the year. In particular, with respect to Shangsan
Expressway, along which many small-and medium-sized enterprises are located, the
growth of traffic volume recovered rapidly. However, as the total number of
small- and medium-sized trucks continued to slightly decrease under the impact of
the rapid increase in the number of container trucks following the implementation
of the toll-by-weight policy, the number of trucks to the total traffic volume
decreased moderately. This was also the reason for the lower increase in toll
income from expressways than the increase in traffic volume during the Period.
Meanwhile, since the implementation of the tolling policy based on actual travel
routes in Zhejiang Province on May 15, 2012, the Company has organized a number of
promotional campaigns in order to boost traffic volume of certain sections of
Shanghai-Hangzhou-Ningbo Expressway and Shangsan Expressway.
Moreover, in addition to the abolition of the "Unified Toll Card" policy since
January 1, 2012, the adjustment to the rounding method of the last figures of tolls
for passenger vehicles on May 15, 2012 and the introduction of the adjustment policy
in relation to passenger vehicle classes on August 1, 2012 all led to a slight
decrease in the Group's toll revenue. The new toll-free policy for passenger vehicles
with seven seats and less to travel toll-free on expressways during major festivals
and holidays was first launched on September 30 2012. After this new policy took
effect, during the first long eight-day holiday period, the number of vehicles
travelling through the Group's toll booths increased by approximately 34%
year-on-year (the number of toll-free passenger vehicles with less than seven seats
increased by approximately 52% year-on-year), though the toll revenue of the Group
dropped by approximately Rmb56 million, or approximately 64% as compared to the
corresponding period of last year due to a year-on-year decrease of approximately
26% in trucks and other toll-paying vehicles.
Average daily traffic volume in full-trip equivalents along Shanghai-Hangzhou-Ningbo
Expressway was 43,022 during the Period, representing an increase of 3.7%
year-on-year. In particular, average daily traffic volume in full-trip equivalents
along the Shanghai-Hangzhou Section of Shanghai-Hangzhou-Ningbo Expressway was
43,540, increased by 4.6% year-on-year, and that along the Hangzhou-Ningbo Section
was 42,652, increased by 3.1% year-on-year. Average daily traffic volume in
full-trip equivalents along Shangsan Expressway was 16,956 during the Period,
representing an increase of 3.0% year-on-year.
Toll income from Shanghai-Hangzhou-Ningbo Expressway amounted to Rmb2,224.58 million
during the Period, representing an increase of 1.0% year-on-year; while toll income
from Shangsan Expressway amounted to Rmb523.74 million during the Period,
representing a decrease of 1.9% year-on-year.
TOLL ROAD-RELATED BUSINESS OPERATIONS
The Company also operates certain toll road-related businesses along its expressways
through its subsidiaries and associated companies, including gas stations,
restaurants, and shops in service areas, as well as roadside advertising and vehicle
services.
During the Period, the customer flow in the service areas along the Group's two
expressways decreased as a result of the slackened growth in the traffic volume of
the two expressways, the traffic diversions from the Shaoxing Section of
Shanghai-Hangzhou-Ningbo Expressway upon the opening of Shaozhu Expressway, and the
closure of Yuyao Service Area for expansion works from June 2012 onwards.
Accordingly, the total revenue generated from service areas during the Period
decreased as compared to the corresponding period of last year.
Meanwhile, as the prices of petroleum products continued to rise, the sales amount
of petroleum products continued to increase year-on-year. Consequently, revenue from
the expressway-related businesses amounted to Rmb1,523.32 million during the Period,
representing an increase of 5.7% year-on-year.
SECURITIES BUSINESS
During the third quarter of 2012, the aggregate trading volume of China's securities
market declined by 29.4% year-on-year as the market remained weak. Despite the
lowering commission rate as a result of the slump in the stock market, the decline
in the commission rate tended to be stable and was generally consistent with the
corresponding period of last year, due to the implementation of a new commission
policy - the "Notice on Further Strengthening Customer Services and the Management
of Securities Trading Commissions of Securities Firms" in early 2011.
Meanwhile, due to the low volatility in the securities market, revenue from the
brokerage, investment banking and assets management businesses of Zheshang Securities
showed a decline in varying degrees year-on-year during the Period.
Notwithstanding the above, Zheshang Securities has continued to promote sustainable
growth by expanding its sales network to increase the total number of clients.
During the Period, Zheshang Securities had 62 sales outlets, representing an increase
of 4 outlets as compared to that at the beginning of the Period.
During the Period, Zheshang Securities recorded an operating income of
Rmb893.40 million, representing a decrease of 15.5% year-on-year. Of such income,
commission income amounted to Rmb667.46 million, representing a decrease of 18.6%
year-on-year; interest income from securities business amounted to Rmb225.94 million,
representing a decrease of 4.9% year-on-year. In addition, during the Period, gain on
securities investment of Zheshang Securities included in the condensed consolidated
statement of income was Rmb64.86 million.
LONG-TERM INVESTMENTS
Zhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associate company
of the Company) realized a sales income of Rmb4,468.64 million, representing an
increase of 17.4% year-on-year during the Period due to a rise in the prices of
petroleum products and a growth in sales of petroleum products. During the Period,
the associate company achieved a net profit of Rmb17.59 million (for the same
period in 2011: net profit of Rmb20.61 million).
Zhejiang Jinhua Yongjin Expressway Co., Ltd. (a 23.45% owned associate company of
the Company) operates the 69.7km Jinhua Section of the Ningbo-Jinhua Expressway.
During the Period, the slowing domestic macro economy affected the toll income of
the Company. The Jinhua Section of the Ningbo-Jinhua Expressway recorded an average
daily traffic volume in full-trip equivalents of 11,903, representing an increase
of 11.8% year-on-year; while toll income amounted to Rmb171.68 million, representing
an increase of 6.6% year-on-year. Since its financial burden remained heavy, the
associate company incurred a loss of Rmb44.82 million during the Period (for the
same period in 2011: loss of Rmb45.98 million).
During the Period, JoinHands Technology Co., Ltd. (a 27.582% owned associate company
of the Company), revenue of which was mainly derived from house leasing, did not show
any improvement in its operation and therefore realized a loss of Rmb1.36 million
(for the same period in 2011: loss of Rmb1.38 million).
The Company entered into a transfer agreement with Guangzhou Kaixin Consulting Co.,
Ltd. ("Kaixin Company") in July 2011. However, as Kaixin Company has failed to pay
the consideration for the equity interest transfer as specified in the agreement,
the Company instituted a lawsuit against Kaixin Company in respect thereof in
August 2011 at the People's Court of Xihu District, Hangzhou. The Court ruled in
favour of the Company in March 2012. However, both the Company and Kaixin Company
filed appeals because of their respective objections against the Court's decision.
At present, the Company has made a phased achievement.
On July 6, 2012, the Company entered into a transfer agreement with Shaoxing
Communications Investment Group Co., Ltd. ("SXCI") for the acquisition of a 50%
equity interest in Shengxin Expressway Co., Ltd. ("Shengxin Company", a limited
company that plans to own the toll collection rights to the Shaoxing Section of
Yongjin Expressway), a wholly-owned subsidiary of SXCI, for a cash consideration
of Rmb355.03 million plus interest accrued thereon. In August 2012, the acquisition
has been approved by the relevant State-owned Assets Supervision and Administration
Commission of the PRC, in relation to the transfer of the operating rights from SXCI
to Shengxin Company.
FINANCIAL ANALYSIS Liquidity and Financial Resources
As at September 30, 2012, current assets of the Group amounted to Rmb15,423.07 million
in aggregate (December 31, 2011: Rmb15,006.63 million), of which bank balances and
cash accounted for 30.1% (December 31, 2011: 37.2%), bank balances held on behalf of
customers accounted for 46.9% (December 31, 2011: 47.8%), and held-for-trading
investments accounted for 6.8% (December 31, 2011: 8.4%). The current ratio (current
assets over current liabilities) of the Group as at September 30, 2012 was 1.6
(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
bank balances held on behalf of customers over current liabilities less balance of
accounts payable to customers arising from the securities dealing business) was 3.3
(December 31, 2011: 3.6).
During the Period, net cash inflow generated from the Group's operating activities
amounted to Rmb1,094.08 million. The Directors do not expect the Company to
experience any problem with liquidity or financial resources in the foreseeable
future.
Borrowings and Solvency
As at September 30, 2012, total liabilities of the Group amounted to
Rmb9,881.91 million (December 31, 2011: Rmb10,533.86 million), of which 0.5% was
short-term bank loans, 10.1% was corporate bonds and 72.5% was accounts payable to
customers arising from the securities dealing business.
Interest expense for the Period totaled Rmb42.79 million, while profit before
interest and tax amounted to Rmb2,011.68 million. Consequently, the interest cover
ratio (profit before interest and tax over interest expenses) stood at 47.0 times
(corresponding period of 2011: 34.7 times).
The asset-liability ratio (total liabilities over total assets) was 34.4% as at
September 30, 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 the
securities dealing business over total assets less bank balances held on behalf of
customers) of the Group was 12.6% (December 31, 2011: 15.4%).
Capital Structure
As at September 30, 2012, the Group had Rmb18,885.17 million equity in total,
Rmb8,166.12 million fixed-rate liabilities, Rmb50.00 million floating-rate
liabilities and Rmb1,665.79 million interest-free liabilities, representing 65.6%,
28.4%, 0.2% and 5.8% of the Group's total capital, respectively. The gearing ratio,
which was computed by dividing the total liabilities less accounts payable to
customers arising from the securities dealing business by total equity, was 14.4% as
at September 30, 2012 (December 31, 2011: 18.2%).
OUTLOOK
The organic growth of the traffic volume of the Group's two expressways has recovered
due to the economy of Zhejiang Province has stabilized in the third quarter, and
with the logistics industry in Zhejiang Province picked up in the third quarter, it
is expected to help the traffic volume of the Group's expressways to maintain stable
in the second half of the year.
As the implementation of the policy on small passenger vehicles to travel toll-free
during major festivals and holidays had a negative impact on toll road operators, it
is expected that the Group's toll roads will lose approximately 3.5% toll revenue
accordingly next year. At the same time, we anticipate chances of major adjustment
on policies in relation to the expressway industry in the short term will be slim.
Moreover, during the first half of 2012, due to eased domestic inflation pressures,
the expected moderate adjustment to tightening monetary policy is likely to be
beneficial to China's stock market. By taking the opportunity arising therefrom,
Zheshang Securities will further explore new businesses and broaden the sources of
income while strengthening cost control and risk management, in order to cope with
the challenges brought about by the market environment and keen competition.
The uncertainties in relation to the global economic recovery, in addition to many
unfavorable factors affecting the stability of domestic economy in the second half
of the year and the uncertain policy on the highway industry have brought
unprecedented pressures on and challenges to the operation and management of the
Group. The Company's management will conduct thorough research on industry policy
trends to adjust operation strategies in a timely manner, so that we are able to
continue to improve our core expressways business, and to seek for suitable
investment opportunities; will enhance the capital utilization efficiency through
strategic synergies with the parent company leveraging on the edges of financial
resources subject to controllable risks; and expect to improve the management level
and operation results.
By order of the Board
Zhan Xiaozhang
Chairman
Hangzhou, PRC, November 16, 2012
As at the date of this announcement, the executive directors of the Company are:
Mr. ZHAN Xiaozhang, Ms. LUO Jianhu and Mr. DING Huikang; the non-executive
directors of the Company are: Messrs. LI Zongsheng, WANG Weili and WANG Dongjie;
and the independent non-executive directors of the Company are: Messrs.
ZHANG Junsheng, ZHOU Jun and PEI Ker-Wei.
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