Annual Result Announcement

Zhejiang Expressway Co
30 March 2005



 

 (A joint stock limited company incorporated in the People's Republic of China  
                            with limited liability)                             
 

                               (Stock code: 0576)                               

                        2004 Annual Results Announcement  
 
                     
-      Turnover up 26.7% to Rmb3,131,993,000                                    
                                                                                
-      Net profit increased by 21.5% to Rmb1,225,699,000                         
                                                                                
-      Earnings per share up 21.5% to Rmb28.22 cents                            
                                                                                
-      A final dividend of Rmb15.0 cents per share is 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,
2004 (the 'Period'), prepared in conformity with accounting principles generally
accepted in Hong Kong.

 

RESULTS AND DIVIDENDS

 

During the Period, the Group achieved strong business growth. Turnover for the
Group was Rmb3,132.0 million, representing a growth of 26.7% over 2003. Net
profit from ordinary activities attributable to shareholders was
Rmb1,225.7million, representing a growth of 21.5% over 2003, while earnings per
share for the Period was Rmb28.22 cents (2003: Rmb23.23 cents).

 

The Directors are satisfied with the results, and have recommended to pay a
final dividend of Rmb15.0 cents per share (2003: Rmb11.0 cents per share),
subject to shareholders' approval at the Company's annual general meeting to
be held on May 23, 2005. Together with an interim dividend of Rmb4.0 cents per
share paid on November 9, 2004, total dividend for the Period amounted to
Rmb19.0 cents per share.

 

The audit committee of the Company has reviewed the annual results. Set out
below are the audited Consolidated Income Statement and Consolidated Balance
Sheet for the Period, together with comparative figures for 2003:

 

CONSOLIDATED INCOME STATEMENT

 
                                                         Year ended December 31,
                                                                2004        2003
                                                Notes        Rmb'000     Rmb'000
                                                                                
Turnover                                          2        3,131,993   2,471,805
Operating costs                                            (845,875)   (731,451)
Gross profit                                               2,286,118   1,740,354
Other revenue                                     2           41,646     127,285
Administrative expenses                                    (109,986)   (114,629)
Other operating expenses                                   (243,823)    (54,243)
Profit from operating activities                  3        1,973,955   1,698,767
Finance costs                                              (103,457)   (132,801)
Share of profit of associates                                 15,016      17,394
Share of profit of a jointly-controlled                       25,467       9,829
entity                                                                          
Profit before tax                                          1,910,981   1,593,189
Tax                                               4        (554,524)   (497,166)
Profit before minority interests                           1,356,457   1,096,023
Minority interests                                         (130,758)    (87,231)
Net profit from ordinary activities                        1,225,699   1,008,792
attributable to shareholders                                                    
Dividends                                                                       
Interim                                                    (173,724)   (173,724)
Proposed final                                             (651,467)   (477,743)
                                                           (825,191)   (651,467)
Earnings per share                                5      28.22 cents 23.23 cents

 

CONSOLIDATED BALANCE SHEET

 
                                                           As at December 31,   
                                                                2004        2003
                                                Notes        Rmb'000     Rmb'000
Non-current assets                                                              
Fixed assets                                              12,988,659  12,537,616
Interest in a jointly-controlled entity                       79,812      62,554
Interest in associates                                       176,744     164,498
Expressway operating rights                                  197,245     205,945
Long-term investments                                          1,000       1,000
Goodwill                                                      85,472      97,717
Deferred tax assets                                           38,319           -
                                                          13,567,251  13,069,330
Current assets                                                                  
Short-term investment                                        676,447   1,104,266
Inventories                                                    6,416       3,056
Accounts receivable                               6           26,569      21,771
Other receivables                                            381,017      51,469
Cash and cash equivalents                                    803,739     818,795
                                                           1,894,188   1,999,357
Current liabilities                                                             
Accounts payable                                  7          297,213     367,521
Profit tax payable                                           185,482     189,848
Other taxes payable                                           24,343      27,946
Other payables and accruals                                  294,786     260,077
Interest-bearing bank and other loans                        787,892     975,950
Dividend payable                                              19,070      19,070
                                                           1,608,786   1,840,412
Net current assets/(liabilities)                             285,402     158,945
Total assets less current liabilities                     13,852,653  13,228,275
Non-current liabilities                                                         
Interest-bearing bank and other loans                        655,570     744,176
Long-term bonds                                            1,000,000   1,000,000
Deferred tax liabilities                                     384,577     325,703
                                                           2,040,147   2,069,879
Minority interests                                         1,092,295   1,012,417
                                                          10,720,211  10,145,979
Capital and reserves                                                            
Issued capital                                             4,343,115   4,343,115
Reserves                                          8        5,725,629   5,325,121
Proposed final dividend                                      651,467     477,743
                                                          10,720,211  10,145,979

 

Notes:

 

1.      Basis of preparation

 

These financial statements have been prepared in accordance with HKFRSs (which
also include Statements of Standard Accounting Practice and Interpretations)
issued by the Hong Kong Institute of Certified Public Accountants (the 
'HKICPA'), and accounting principles generally accepted in Hong Kong
(collectively referred to as 'HK GAAP') and the disclosure requirements of the
Hong Kong Companies Ordinance. They have been prepared under the historical cost
convention, modified with respect to the measurement of investments in
securities.

 

In addition, HKICPA has issued a number of new Hong Kong Financial Reporting
Standards and Hong Kong Accounting Standards, herein collectively referred to as
the new HKFRSs, which are generally effective for accounting periods beginning
on or after January 1, 2005. The Group has not early adopted these new HKFRSs in
the financial statements for the year ended December 31, 2004. The Group has
already commenced an assessment of the impact of these new HKFRSs but is not yet
in a position to state whether these new HKFRSs would have a significant impact
on its results of operations and financial position.

 

2.      Turnover and revenue

 
                                                           Year ended December  
                                                                   31,          
                                                                  2004      2003
                                                               Rmb'000   Rmb'000
                                                                                
Toll income                                                  3,066,954 2,458,726
Service areas income                                           183,637   117,205
Advertising income                                              41,159    26,138
Road maintenance income                                          7,244     2,669
                                                             3,298,994 2,604,738
Less: Revenue taxes                                          (167,001) (132,933)
Turnover                                                     3,131,993 2,471,805
Income /(loss) on investments                                 (36,158)    53,838
Interest income                                                 12,514    12,593
Rental income                                                   22,941    21,343
Trailer income                                                  18,352    11,162
Exchange gains, net                                                220     2,282
Subsidy income                                                       -    17,394
Other miscellaneous income                                      23,777     8,673
Other revenue                                                   41,646   127,285
                                                             3,173,639 2,599,090

 

The Company and its subsidiaries are subject to the business tax, levied at 5%
on toll income and 3% to 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 supplementary tax, levied at 3.5% to 4% of business tax; and

 

-         Culture and education fees, levied at 3% on advertising income.

 

3.      Profit from operating activities

 

The Group's profit from operating activities is arrived at after charging the
following:

 
                                                            Year ended December 
                                                                    31,         
                                                                   2004     2003
                                                                Rmb'000  Rmb'000
                                                                                
Depreciation                                                    323,661  257,817
Amortization of expressway operating rights                       8,700    8,700
Amortization of goodwill                                         12,245   12,221
Staff costs                                                     129,207  103,561

 

With effect from January 1, 2004, depreciation of communications and signaling
equipment is calculated to write off their cost less directors' estimate of
their residual values (3% of cost) on the straight-line basis over their
estimated useful lives of five years.

 

In prior years, depreciation of communications and signaling equipment was
calculated to write off their cost less the Directors' estimate of their
residual value (3% of cost) on the straight-line basis over their estimated
useful lives of 10 years. This represents a change in accounting estimate and is
accounted for prospectively. The consolidated net book value of fixed assets as
at December 31, 2004 has been decreased by Rmb51,336,000 in the form of an
increase in the depreciation charge for the year as a result of this change.
Accordingly, the consolidated net profit from ordinary activities attributable
to shareholders for the year then ended has been decreased by Rmb33,165,000.

 

4.      Tax

 

No Hong Kong profits tax has been provided as the Group had no taxable profits
in Hong Kong during the Period.

 

The Group was subject to corporate income tax ('CIT') levied at a rate of 33%
of taxable income based on income for financial reporting purposes prepared in
accordance with the laws and regulations in the PRC.

 
                                                           Year ended December  
                                                                   31,          
                                                                  2004      2003
Group                                                          Rmb'000   Rmb'000
                                                                                
Tax charged                                                    556,566   439,812
Tax refunded                                                  (34,372)  (33,249)
                                                               522,194   406,563
Deferred                                                        20,555    84,783
                                                               542,749   491,346
Share of tax attributable to associates                          6,081     5,791
Share of tax attributable to a jointly-controlled entity         4,964         -
Share of deferred tax attributable to an associate               (151)     (906)
Share of deferred tax attributable to a                            881       935
jointly-controlled entity                                                       
Tax charge for the year                                        554,524   497,166

 

During the Period, according to the approvals 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% CIT exemption for the two years
ended December 31, 2004 under the category of 'Enterprise providing employment
opportunities to redundant workers with a minimum of three-year employment term'
as defined in the relevant national tax rules. As a result, the tax refund
received by Shangsan Co in 2004 for the year ended December 31, 2003 amounted to
Rmb27,004,000 and a tax exemption for the year ended December 31, 2004 amounted
to Rmb36,914,000, respectively (2003: 50% CIT exemption for the year ended
December 31, 2002 amounting to Rmb33,249,000 was refunded under the category of
'New enterprises providing employment opportunities to redundant urban workers'
as defined in the relevant national tax rules).

 

During the Period, according to the approvals from the Zhejiang Provincial
National Tax Bureau, Zhejiang Expressway Investment Development Co., Ltd. 
('Development Co') and Zhejiang Expressway Vehicle Towing and Rescue Service
Co., Ltd. ('Service Co'), two of the Company's subsidiaries, were entitled to a
100% CIT exemption for the year ended December 31, 2003 and accordingly received
tax refund amounting to Rmb6,554,000 and Rmb814,000, respectively, under the
category of 'New enterprise providing employment opportunities to redundant
urban workers' as defined in the relevant national tax rules.

 

A reconciliation of the tax expense applicable to profit before tax using the
statutory rates for the PRC in which the Company and its subsidiaries,
jointly-controlled entity and associates are domiciled to the tax expense at the
effective tax rates is as follows:

 
                                                           Year ended December  
                                                                   31,          
                                                                  2004      2003
Group                                                          Rmb'000   Rmb'000
Profit before tax                                            1,910,981 1,593,189
Tax at the statutory tax rate                                  630,624   525,752
Tax refunded                                                  (34,372)  (33,249)
Tax exemption of a subsidiary-                                (36,914)         -
Income not subject to tax                                     (13,451)  (10,451)
Expenses not deductible for tax                                  8,637    15,114
Tax charge at the Group's effective tax rate                   554,524   497,166

 

5.      Earnings per share

 

The calculation of basic earnings per share is based on the net profit from
ordinary activities attributable to shareholders for the year of
Rmb1,225,699,000 (2003: Rmb1,008,792,000) and the 4,343,114,500 ordinary shares
(2003: 4,343,114,500 ordinary shares) in issue during the year.

 

Diluted earnings per share amounts for the years ended December 31,2004 and 2003
have not been calculated as no diluting event existed during these years.

 

6.      Accounts receivable

 

An aged analysis of the accounts receivable as at the balance sheet date, based
on invoice date, is as follows:

 
                                                Group             Company      
                                              2004      2003     2004      2003
                                           Rmb'000   Rmb'000  Rmb'000   Rmb'000
Within 1 year                               25,636    19,116   16,160     6,978
1 to 2 years                                   933        54        -         -
Over 2 years                                     -     2,601        -     2,601
                                            26,569    21,771   16,160     9,579

 

7.      Accounts payable

 

An aged analysis of the accounts payable as at the balance sheet date, based on
invoice date, is as follows:

 
                                                Group              Company      
                                              2004      2003      2004      2003
                                           Rmb'000   Rmb'000   Rmb'000   Rmb'000
Within 1 year                              262,085   318,116   143,152   202,554
1 to 2 years                                10,037    44,844     9,508    10,498
2 to 3 years                                20,930     2,218       109       365
Over 3 years                                 4,161     2,343       686        31
                                           297,213   367,521   153,455   213,448

 

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. As a result, Rmb121,117,000 was transferred
to SSR for the Period. 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.

 

In accordance with the Company Law of the PRC, the Entities are required to
transfer 5% to 10% of their profit after tax, as determined in accordance with
the PRC accounting standards and regulations applicable to the Entities, to the
statutory public welfare fund (the 'PWF'), which is a non-distributable
reserve other than in the event of the liquidation of the Entities. For the
Period, Rmb60,558,000 was transferred to the PWF. The PWF must be used for
capital expenditure on staff welfare facilities and these facilities remain as
the properties of the Entities.

 

BUSINESS REVIEW

 

Economic growth in the PRC was brought to a steadier pace in 2004 with the
introduction of a series of macro economic control measures by the government at
the start of the year. Amid a favorable economic environment in Zhejiang
Province, the ongoing process of rapid industrialization and urbanization
continued to generate a strong demand for road transport, which was met with a
rapidly expanding expressway network and growing number of vehicle sales, both
for passenger cars and trucks.

 

In contrast to an estimated 14.3% GDP growth rate in Zhejiang Province during
the Period, traffic volumes on the two expressways operated by the Group grew
more than 20% and 30%, respectively, while expressway-related business
operations, such as the operation of service areas, advertising and vehicle
servicing along the expressways, grew at an even higher rate of more than 50%.

 

A detailed breakdown in turnover for the Group during the Period is set out
below:

 
                                             Year ended December 31,            
                                                    2004        2003            
                                                 Rmb'000     Rmb'000    % Change
                                                                                
Toll income                                    3,066,954   2,458,726       24.7%
Shanghai-Hangzhou-Ningbo Expressway            2,327,733   1,908,764       21.9%
Shangsan Expressway                              739,221     549,962       34.4%
Other income                                                                    
Service areas                                    183,637     117,205       56.7%
Advertising                                       41,159      26,138       57.5%
Road maintenance                                   7,244       2,669      171.4%
                                               3,298,994   2,604,738       26.7%
Revenue taxes                                  (167,001)   (132,933)       25.6%
                                                                                
Turnover                                       3,131,993   2,471,805       26.7%

 

Toll Road Operations

 

The operation of the two toll roads, namely the Shanghai-Hangzhou-Ningbo
Expressway and the Shangsan Expressway, continued to be the mainstay of the
Group, together contributing 92.8% of the Group's total turnover.

 

In its sixth year of operation since full completion and opening to traffic in
late 1998, the 248km Shanghai-Hangzhou-Ningbo Expressway recorded an average
daily traffic volume in full-trip equivalents of 33,525, generating a toll
income of Rmb2,327.7 million during 2004, representing growth rates of
approximately 20.3% and 21.9% over 2003, respectively.

 

The 142km Shangsan Expressway, on the other hand, was in its fourth year of
operation since its full completion and opening to traffic in late 2000. Average
daily traffic volume in full-trip equivalents during 2004 was 19,401 while toll
income was Rmb739.2 million, representing growth rates of approximately 29.9%
and 34.4% over 2003, respectively.

 

The growth rates in traffic volume in 2004 for the two expressways were
amplified by a lower-than-usual comparison basis in 2003, especially for the
Shanghai-Hangzhou-Ningbo Expressway where traffic diversions by a local city
ring road as well as a short-term disruption brought about by the outbreak of
SARS had dampened traffic volume growth in 2003.

 

Coordinated actions taken by the relevant PRC authorities starting from mid 2004
to curb the widespread practice of overloading trucks on the roads had
effectively increased the proportion of heavy trucks amongst the traffic mix,
aside from creating a safer traveling environment on the roads. As a result, the
two expressways had higher growth rates in toll income than traffic volume
growth rates during the second half of 2004.

 

Traveling conditions on the Shanghai-Hangzhou-Ningbo Expressway also improved
substantially following the conclusion of the major road surface-overlaying
project in 2004. Initiated in 2002, the project incurred a total cost of
approximately Rmb411.1 million during the three-year span, amongst which Rmb95.4
million was incurred in 2004.

 

Phase II of the ongoing project to widen the Shanghai-Hangzhou-Ningbo Expressway
from four lanes to eight lanes proceeded as scheduled in 2004 without causing
any significant impact on the normal traffic flow along the Dajing-Fengjing
section between Shanghai and Hangzhou. Phase III of the widening project, to be
carried out along the Guzhou-Duantang section between Hangzhou and Ningbo,
commenced construction in October 2004, and is targeted for completion by the
end of 2007.

 

During the Period, the Company assessed the status of expressway assets along
the section of Shanghai-Hangzhou-Ningbo Expressway under widening, and disposed
of the remaining value of demolished expressway assets that amounted to Rmb202.4
million, thus reducing the net profit attributable to shareholders by Rmb139.1
million.

 

Expressway-Related Business Operations

 

The Group's expressway-related business operations, such as the operation of
service areas, advertising and vehicle servicing along the expressways, were
carried out by Zhejiang Expressway Investment Development Co., Ltd. (the '
Development Co'), a 51% owned subsidiary of the Company.

 

Benefiting from growing traffic volumes on the expressways, improved quality of
service provided to passing travelers and expanded facilities at the service
areas, the expressway-related business operations enjoyed a strong
across-the-board growth in 2004. Turnover for Development Co grew 55.2% during
the Period to reach Rmb218.5 million, while net profit realized was Rmb38.7
million, representing a growth of 58.9% over 2003 on a pro forma basis.

 

Long-Term Investments

 

Networking effect had a greater impact on the 9.45km Shida Road due to its
proximity to Hangzhou City Ring Road. Owned and operated by Hangzhou Shida
Highway Co., Ltd. (a 50% owned jointly-controlled entity of the Company), Shida
Road saw its traffic volume grow 64.9% whereas its toll income grow 67.4% over
2003. Net profit realized by the jointly-controlled entity during the Period was
Rmb39.2 million, representing an increase of 120.5% over 2003.

 

The retail gas station business, operated by Zhejiang Expressway Petroleum
Development Co., Ltd. (a 50% owned associate of the Company) within Zhejiang
Province, encountered growing demand as well as increasing competition. While
turnover for the associate company grew 27.5% in 2004, net profit realized
during the Period was Rmb16.0 million, representing a decrease of 24.7% over
2003.

 

Digital printing business and network equipment business, both carried out by
JoinHands Technology Co., Ltd. (a 27.58% owned associate of the Company),
experienced both rising costs and increasing market competition in 2004. Net
profit realized by the associate company was Rmb3.8 million, representing a
decrease of 43.7% over 2003.

 

PROJECT INVESTMENT

 

On October 25, 2004, Development Co invested Rmb9 million to acquire a 45%
equity interest in a newly established company, Zhejiang Concord Property
Investment Company, with the remaining 55% being owned by World Trade Center
Zhejiang Real Estate Development Co., Ltd. Zhejiang Concord Property Investment
Company is principally involved in real estate development and management, as
well as sales in related building materials.

 

On November 26, 2004, the Company entered into an agreement to invest a total of
Rmb1,145,375,000 for a 35% shareholders' interest in Zhejiang Jiashao
Expressway Co., Ltd. that was established for the development and operation of
Jiashao Expressway, a proposed 69km expressway connecting the Shangsan
Expressway with the Zajiasu Expressway across the Qiantang River. Details of the
investment were set out in a circular of the Company dated December 20, 2004.

 

HUMAN RESOURCES

 

To better equip frontline staff of the Group to deal with heavy demand and
workload as a result of the higher than anticipated traffic volume growth on the
expressways operated by the Group, the Company placed greater emphasis on
providing adequate training and improved remunerations for the staff working in
the fields of toll collection, maintenance, as well as monitoring and controls
during the Period.

 

As at December 31, 2004, there were a total of 2,744 employees under the Group,
amongst whom 205 were administrative staff, 419 were engineering technicians,
and 2,120 were staff working in the fields of toll collection, maintenance and
service areas. Total remunerations for the Period amounted to Rmb118.0 million.

 

FINANCIAL ANALYSIS

 

The Group adopts a financial policy that is both prudent and active in realizing
its long-term strategic goal of maximizing shareholders' wealth.

 

During the Period, turnover and net profit attributable to shareholders for the
Group were approximately Rmb3,132.0 million and Rmb1,225.7 million,
respectively, representing increases of 26.7% and 21.5% over 2003, respectively;
earnings per share increased by 21.5% to Rmb28.22 cents, while return on equity
for the Period increased from 9.9% to 11.4%.

 

Liquidity and Financial Resources

 

Liquidity

 

As at December 31, 2004, the total current assets held by the Group amounted to
Rmb1,894.2 million, of which 21.9% were account receivables, other receivables
and inventories.

 

Due to the nature of its core business operations, the Group had adequate net
cash inflows from operating activities, which amounted to Rmb1,497.8 million as
at the end of the Period.

 

As an indication of the Group's ability to meet short-term debt obligations,
the current ratio was 1.2 as at December 31, 2004, representing a high level of
financial liquidity for the Group.

 

Financial resources

 

As at December 31, 2004, the Group held Rmb722.0 million in cash and cash
equivalents, Rmb81.7 million in time deposits and Rmb676.4 million in short-term
investments, totaling Rmb1,480.1 million.

 

Amongst the total short-term investments of Rmb676.4 million held by the Group
during the Period, approximately 91.3% were treasury bonds, with the remaining
being close-ended security investment funds. The Company intends to further
reduce the size of its short-term investments by the end of 2005 to meet its
capital expenditure needs.

 

The Directors believe that the Group has sufficient financial resources to meet
its operational as well as capital expenditure needs in the foreseeable future.

 

Borrowings and Solvency

 

As at December 31, 2004, the Group had total interest-bearing borrowings of
Rmb2,443.5 million, representing a decrease of 10.2% since the beginning of the
year. Of the Rmb2,443.5 million total interest-bearing borrowings, short-term
interest-bearing borrowings decreased by 19.3% to Rmb787.9 million by the end of
the year, while long-term interest-bearing borrowings decreased by 5.1% to
Rmb1,655.6 million.

 

During the Period, the interest rate of the Group's semi-annual borrowings was
4.536%, whereas the interest rates of the Group's annual borrowings were
4.779%, 5.045%, and 5.310%, corresponding to 50.0%, 37.5%, and 12.5% of the
total annual borrowings, respectively. The floating rates of the Group's
Rmb800.9 million World Bank loans, denominated in US dollars, varied from 4.850%
to 3.800% during the Period, averaging at approximately 4.325%. The interest
rate of government loans in Renminbi remained at 3.000%, the same as that
applicable as at December 31, 2003. The annual coupon rate for the Rmb1 billion
corporate bonds issued by the Company for a term of 10 years was fixed at
4.290%, with interests payable annually.

 

Due to further reduction in the borrowings from domestic commercial banks and
reduction in interest rates on the World Bank loans, interest expenses of the
Group for the Period decreased by 27.3% to Rmb103.5 million. With profit before
interest and tax at approximately Rmb2,014.4 million, the Group's interest
cover ratio (profit before interest and tax over interest expenses) for the
Period was 19.5 (2003: 12.2), representing the Group's strong ability to meet
its interest obligations.

 

Furthermore, the asset-liability ratio, which is the proportion of the Group's
assets that are financed through debt, was 23.6% during the Period, representing
strong solvency of the Group.

 

Capital Structure

 

As at December 31, 2004, the Group's capital structure comprised Rmb10,720.2
million in shareholders' equity, Rmb1,642.6 million in fixed rate liabilities,
Rmb800.9 million in floating rate liabilities and Rmb2,297.8 million in
interest-free liabilities and minority interests, representing approximately
69.3%, 10.6%, 5.2% and 14.9%, respectively, of the Group's total capital.

 

With long-term interest bearing liabilities at approximately Rmb1,655.6 million,
the Group's gearing ratio (total amount of the long-term interest-bearing
liabilities vs. the shareholders' equity) as at December 31, 2004 was 15.4%
(2003: 17.2%).

 

Capital Expenditure Commitments and Utilization

 

During the Period, capital expenditure incurred by the Group amounted to
approximately Rmb994.5 million, while capital expenditure incurred by the
Company amounted to approximately Rmb322.6 million. Amongst the total amount of
the Group's capital expenditure, Rmb890.0 million was used on the project to
widen the Shanghai-Hangzhou-Ningbo Expressway.

 

Capital expenditure commitments for the Group and the Company as at December 31,
2004 amounted to Rmb5,377.1 million and Rmb3,786.3 million, respectively.
Amongst the capital expenditure that will be spent by the Group for 2005 and
beyond, 67.4% will be used on the expressway-widening project, while 21.3% will
be used toward construction of the Jiaxing-Shaoxing Expressway.

 

The aforementioned capital expenditure of the Group will firstly be funded with
its internal financial resources, with a preference for debt financing in
meeting any shortfalls.

 

Contingent Liabilities and Pledge of Assets

 

As at December 31, 2004, the Group did not have any contingent liabilities nor
any pledge of assets.

 

Foreign Exchange Exposure

 

The Group has a World Bank loan of approximately Rmb800.9 million, denominated
in US Dollars and borrowed for the construction of the Shanghai-Hangzhou-Ningbo
Expressway. In addition, dividends for H shares payable by the Company are
settled in HK dollars.

 

In view of the status of the exchange rate between Renminbi and US Dollars, the
Directors do not foresee any material foreign exchange risk for the Group.
However, there is no assurance that any foreign exchange exposure will not
adversely affect the operating results of the Group in the future.

 

OUTLOOK FOR 2005

 

First introduced in 2004, the macro economic control measures will continue into
2005. With a series of structural adjustments that are expected to take place as
well as a growing emphasis on sustainability and equitability in the process of
economic development, the general consensus on the PRC economic prospects for
2005 points to continued strong growth, although the growth has slowed down.

 

Taking advantage of economic growth in the Yangtze River Delta Region, which is
the most economically robust region in China and Zhejiang Province in
particular, is expected to continue with its double-digit growth in 2005 amid an
ongoing process of rapid industrialization and urbanization in the region.

 

As an integral part of the effort to reinforce the rules and regulations against
the practice of overloading trucks and to ease the financial burden on truck
operators for not overloading, toll rates for heavy trucks of above 10 tons were
lowered by varying degrees across roadways in the PRC, including the two
expressways operated by the Group, starting from January 1, 2005. The measure
has proven to be both effective and positive for expressway operators, as the
resulting higher truck traffic volume has led to a higher growth rate in toll
income that has more than compensated the impact brought about by lowered toll
rates. More importantly, it has provided a safer traveling environment and led
to lower maintenance costs in the long run.

 

Following completion of Phase I of the ongoing project to widen the
Shanghai-Hangzhou-Ningbo Expressway from four lanes to eight lanes by the end of
2003, Phase II of the project is expected to be fully completed by the end of
2005, thereby substantially increasing the carrying capacity while improving
traveling conditions between Shanghai and Hangzhou.

 

To accommodate the growing economy and the demand generated on road transport,
the Ministry of Communications of the PRC has recently announced a long-term
national expressway plan, calling for the construction of more than 50,000km
expressways, in addition to the 34,000km expressways already in operation.

 

The newly announced plan includes an addition of 3,500km expressways to be
constructed in Zhejiang Province in the next 15 years. This should provide more
investment and acquisition opportunities for the Company, in addition to the
sustained impetus for continued traffic growth on the existing expressways
through networking effect for many more years to come.

 

PURCHASE, SALE AND RECEMPTION OF THE COMPANY'S SHARES

 

Neither the Company nor its subsidiaries had purchased, sold, redeemed or
cancelled any of the Company's shares during the Period.

 

COMPLIANCE WITH THE CODE OF BEST PRACTICE

 

The Directors are not aware of any information that would reasonably indicate
that the Company was during any part of the Period not in compliance with the
Code of Best Practice set out in Appendix 14 to the Rules Governing the Listing
of Securities on the Stock Exchange of Hong Kong.

 

ANNUAL GENERAL MEETING AND CLOSURE OF REGISTER

 

Details regarding the book closure period of share register, record date and
date for convening annual general meeting are set out in the notice of annual
general meeting published separately by the Company on the same date as this
announcement.

 
                                                          By Order of the Board 
                                                              Geng, Xiaoping    
                                                                 Chairman       

 

Hangzhou, the PRC, March 29, 2005

 

As at the date of this announcement, the executive directors of the Company are:
Messrs. Geng Xiaoping, Fang Yunti, Zhang Jingzhong and Xuan Daoguang; the
non-executive directors are: Messrs. Zhang Luyun and Zhang Yang; and the
independent non-executive directors are: Messrs. Tung Chee Chen, Zhang Junsheng
and Zhang Liping.

                     Notice of 2004 Annual General Meeting                      

 

NOTICE IS HEREBY GIVEN that the 2004 Annual General Meeting ('AGM') of
Zhejiang Expressway Co., Ltd. (the 'Company') will be held at 10:00a.m. on
Monday, May 23, 2005, at 18th Floor, Zhejiang World Trade Center, 122 Shuguang
Road, Hangzhou 310007, the PRC to conduct the following businesses:

 

A.     As ordinary resolutions:

 

1.      To consider and approve the report of the directors for the year 2004;

 

2.      To consider and approve the report of the supervisory committee for the
year 2004;

 

3.      To consider and approve the audited financial statements for the year
2004;

 

4.      To consider and approve the proposed distribution of profits for the
year 2004; and

 

5.      To consider and approve the financial budget for the year 2005;

 

B.       As special resolutions:

 

To consider and, if thought fit, pass the following as a special resolution:

 

'THAT the board of directors of the Company (the 'Board') is hereby
authorized:

 

(1)     subject to paragraphs (2) and (3) below, to exercise during the Relevant
Period (as defined in paragraph (4) hereunder) all the powers of the Company to
allot, issue or otherwise deal with, either separately or concurrently, each of
the existing issued domestic shares ('Domestic Shares') and overseas listed
foreign shares ('H Shares') in the capital of the Company;

 

(2)     subject to the approval as required under paragraph (1) above, to allot
or issue Domestic Shares and H Shares, either separately or concurrently, of not
more than 20 per cent. of each of the existing issued Domestic Shares and H
Shares in the capital of the Company as at the date of passing this resolution;

 

(3)     approval as required in paragraph (1) above is subject to the granting
of approval from the China Securities Regulatory Commission;

 

(4)     for the purpose of this resolution, 'Relevant Period' means the period
from the date upon which this resolution is passed until whichever is the
earliest of:

 

(a)     from the passing of this special resolution, until conclusion of the
Company's next annual general meeting; or

 

(b)    the expiry of the twelve month period from the date of the passing of
this resolution; or

 

(c)     the date of revocation or variation of the authority given under this
resolution by ordinary resolution (subject to any applicable PRC laws and
regulations) of the Company at a shareholders' general meeting;

 

(5)     to make appropriate amendments to the relevant articles of the Articles
of Association of the Company after the completion of the allotment and issuance
as provided in paragraph (1) above, to increase the share capital of the Company
and reflect the new share structure of the Company, and to complete the related
registration formalities at the relevant regulatory government authorities.'

 
                                                           By Order of the Board
                                                              Zhang Jingzhong   
                                                             Company Secretary  

 

Hangzhou, the PRC

March 29, 2005

 

Notes:

 

1.      Registration procedures for attending the AGM

 

(1)     Holders of H Shares of the Company ('H Shares') and domestic shares of
the Company ('Domestic Shares') intending to attend the AGM should return the
reply slip for attending the AGM to the Company on or before May 2, 2005.

 

(2)     A shareholder or his/her/its proxy should produce proof of identity when
attending the AGM. If a corporate shareholder appoints its legal representative
to attend the meeting, such legal representative shall produce proof of identity
and a copy of the resolution of the board of directors or other governing body
of such shareholder appointing such legal representative to attend the meeting.

 

2.      Proxy

 

(1)     A shareholder eligible to attend and vote at the AGM is entitled to
appoint, in written form, one or more proxies to attend and vote at the AGM on
behalf of him. A proxy need not be a shareholder of the Company.

 

(2)     A proxy should be appointed by a written instrument signed by the
appointor or his/her/its attorney. If the appointor is a corporation, the same
shall be affixed with its common seal or signed by its director(s) or duly
authorized representative(s). If the form of proxy is signed by the attorney of
the appointor, the power of attorney or other authorization document(s) of such
attorney should be notarized.

 

(3)     To be valid, the power of attorney or other authorization document(s)
(which have been notarized) together with the completed form of proxy must be
delivered, in the case of holders of Domestic Shares, to the Company at the
address shown in paragraph 5(3) below and, in the case of holders of H Shares,
to Hong Kong Registrars Limited at 46th Floor, Hopewell Center, 183 Queen's Road
East, Wanchai, HongKong, not less than 24 hours before the time designated for
holding of the AGM.

 

(4)     A proxy may exercise the right to vote by a show of hands or by poll.
However, if more than one proxy is appointed by a shareholder, such proxies
shall only exercise the right to vote on a poll.

 

3.      Closure of Register of Members

 

The register of members holding H shares of the Company will be closed from
April 23, 2005 to May 22, 2005 (both days inclusive).

 

4.       Eligibility for attending the Annual General Meeting

 

Holders of Domestic Shares and H Shares whose names appear on the register of
members of the Company as at the close of April 28, 2005 shall have the right to
attend the AGM.

 

Holders of H Shares who intend to attend the AGM must deliver all transfer
instruments and the relevant share certificates to the share registrar for H
shares of the Company, Hong Kong Registrars Limited (which address is set out in
paragraph 5(2) below), at or before 4:00p.m. on Friday, April 22, 2005.

 

5.      Miscellaneous

 

(1)     The AGM will not last for more than one day. Shareholders who attend
shall bear their own traveling and accommodation expenses.

 

(2)     The address of the share registrar for the H Shares, Hong Kong
Registrars Limited, is:

 

46th Floor, Hopewell Center

183 Queen's Road East

Hong Kong

 

(3)     The address of the Company is:

 

19th Floor, Zhejiang World Trade Center

122 Shuguang Road

Hangzhou 310007

The PRC

Telephone No.: ([phone]

Facsimile No.: ([phone] 
 
END 

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