Interim Results
Zhejiang Expressway Co
13 August 2001
(A joint stock limited company incorporated in the People's Republic of China)
2001 Interim Results Announcement
Financial Highlights
- Turnover up 26.0% to Rmb754,113,000
- Net profit up 16.8% to Rmb367,899,000
- Earnings per share up 16.4% to Rmb8.5 cents
- Interim dividend per share of Rmb3.0 cents recommended
Business Review
- Total toll income grew by 26.3% over the same period in 2000 to
approximately Rmb780,122,000.
- Shanghai-Hangzhou-Ningbo Expressway's average daily traffic
volume grew by 12.2% over the same period in 2000, with toll income growing by
8.1% to approximately Rmb635,933,000.
- Shangsan Expressway was open to traffic in December 2000,
increasing the total mileage of expressways operated by the Group from 248km to
390km, while contributing a toll income of approximately Rmb144,189,000 during
the Period.
- The Directors have approved a simulated share option scheme
which aimed at providing the management of the Company with an incentive
related to the performance of the Company.
The board of directors (the 'Directors') of Zhejiang Expressway Co., Ltd. (the
'Company') is pleased to present the unaudited consolidated operating results
of the Company and its subsidiaries (collectively the 'Group') for the six
months ended 30 June 2001 (the 'Period'). The interim report has been reviewed
by the audit committee of the Company and approved by the Directors on 10
August 2001. The accounting information given in the interim report has not
been audited.
During the Period, the Group realized a turnover of Rmb754,113,000 and a net
profit attributable to shareholders of Rmb367,899,000, representing a growth
of 26.0% and 16.8% respectively over the same period in 2000; earnings per
share realized were Rmb8.5 cents, representing a growth of 16.4% over the same
period in 2000.
The Directors have resolved to recommend the payment of an interim dividend of
Rmb3.0 cents (approximately HK$2.8 cents, based on an exchange rate of HK$1 to
Rmb1.07 (for reference only)) per share in respect of the Period (interim
dividend for 2000: Rmb2.0 cents). The recommendation is subject to approval at
the extraordinary general meeting of the shareholders of the Company to be
held on 28 September 2001. Please see a relevant notice for details.
CONDENSED CONSOLIDATED INCOME STATEMENT
For the six months
ended 30 June
2001 2000
Unaudited Unaudited
Notes Rmb'000 Rmb'000
TURNOVER 2 754,113 598,531
Operating cost (162,394) (141,503)
Gross profit 591,719 457,028
Other revenue 3 170,439 111,608
Administrative expenses (25,981) (28,700)
Other operating expenses (9,978) (6,403)
PROFIT FROM OPERATING ACTIVITIES 2,4 726,199 533,533
Finance costs (141,914) (97,881)
Share of profit of associates 16,627 5,390
Share of loss of a jointly-controlled entity (1,151) (2,369)
PROFIT BEFORE TAX 599,761 438,673
Tax 5 (176,737) (85,191)
PROFIT BEFORE MINORITY INTERESTS 423,024 353,482
Minority interests (55,125) (38,573)
NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO 367,899 314,909
SHAREHOLDERS
Transferred to reserves (2,424) --
Dividends 6 -- (86,862)
RETAINED PROFIT FOR THE PERIOD 365,475 228,047
EARNINGS PER SHARE 7 8.5 cents 7.3 cents
Notes:
1. ACCOUNTING POLICIES
The condensed consolidated interim financial statements are prepared in
accordance with Hong Kong Statement of Standard Accounting Practice ('SSAP')
No. 25 'Interim Financial Reporting' and the relevant disclosure requirements
as stipulated in Appendix 16 of the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited (the 'Listing Rules'). Other than
the goodwill arising from further acquisition of equity interests in
subsidiaries, which are stated as assets and amortized on a straight-line
basis over 10 years in accordance with the SSAP30 'Business Combination' which
was issued in January 2001 (however, no retrospective adjustment was made),
the accounting policies and basis of preparation used in preparing the interim
financial statements are the same as those used in preparing the financial
statements for the year ended 31 December 2000.
2. SEGMENT INFORMATION
There has been no change in the Group's principal activities during the
Period. The results of operations by principal activity are summarised as
follows:
By activity:
Toll Advertising Others Total
Unaudited Unaudited Unaudited Unaudited
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Six months ended 30 June 2001
-- Turnover 740,122 9,444 4,547 754,113
-- Contribution to profit from 720,278 5,826 95 726,199
operating activities
Six months ended 30 June 2000
-- Turnover 583,760 4,540 10,231 598,531
-- Contribution to profit from 527,118 3,590 2,825 533,533
operating activities
During the Period, the entire turnover and contribution to profit from
operating activities of the Group was derived from Zhejiang Province, the PRC.
Accordingly, a further analysis of the turnover and contribution to profit
from operating activities by geographical area is not presented.
3. OTHER REVENUE
For the six months
ended 30 June
2001 Unaudited 2000 Unaudited
Rmb'000 Rmb'000
Income on short term investments in securities 74,819 67,806
Interest income 29,848 38,427
Rental income 1,809 1,477
Trailer income 4,039 3,595
Exchange gain 53,172 --
Others 6,752 303
170,439 111,608
4. PROFIT FROM OPERATING ACTIVITIES
The Group's profit from operating activities is arrived at after charging:
For the six months
ended 30 June
2001 Unaudited 2000 Unaudited
Rmb'000 Rmb'000
Depreciation 96,879 68,742
Amortisation of expressway operating rights 4,350 4,350
Amortisation of goodwill 1,246 --
Interest on borrowings 141,914 97,881
5. TAX
According to the relevant national tax rules, Zhejiang Shangsan Expressway
Co., Ltd. ('Shangsan Co'), a 61% owned subsidiary of the Company, was
qualified for the exemptions under the category of 'New enterprise providing
employment opportunities to redundant workers', and therefore was entitled to
an exemption from Corporate Income Tax ('CIT') for three years starting from 1
January 1998. During the Period, however, as the three years exemption was no
longer applicable to Shangsan Co, it was subject to the CIT levied at a rate
of 33%.
Zhejiang Expressway Advertising Co., Ltd. ('Advertising Co'), a 70% owned
subsidiary of the Company, was no longer entitled to the CIT exemption under
the directive numbered Cai Shui (94)001 since 1 January 2001. Accordingly,
Advertising Co was subject to the CIT levied at a rate of 33%.
Save as above, the tax rate of other group companies and the preferential tax
treatment that certain companies are entitled to remained unchanged as those
used to prepare the financial statements for the year ended 31 December 2000.
For the six months
ended 30 June
2001 2000
Unaudited Unaudited
Rmb'000 Rmb'000
Group:
Tax charged 150,122 117,515
Tax refunded/refundable (36,115) (33,723)
114,007 83,792
Deferred 46,236 (380)
Share of tax attributable to associates 13,983 1,779
Share of deferred tax attributable to an associate 1,994 --
Share of deferred tax attributable to a 517 --
jointly-controlled entity
Tax charge for the Period 176,737 85,191
There was no material unprovided deferred tax in respect of the Period (six
months ended 30 June 2000: Nil).
6. DIVIDENDS
The Directors recommend the payment of an interim dividend of Rmb3.0 cents
(approximately HK$2.8 cents) per share (2000 interim: Rmb2.0 cents
(approximately HK$1.87 cents per share). The recommendation was not
incorporated into these financial statements.
7. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the net profit from
ordinary activities attributable to shareholders for the Period of
Rmb367,899,000 (six months ended 30 June 2000: Rmb314,909,000) and the
4,343,114,500 shares (30 June 2000: 4,343,114,500 shares) in issue during the
Period.
Diluted earnings per share for the periods ended 30 June 2001 and 2000 have
not been calculated as no diluting event existed during these periods.
Business Review and Outlook
The Group's unaudited net profit attributable to shareholders during the
Period was approximately Rmb367,899,000, representing a growth of 16.8% over
the same period in 2000. The growth was in line with the Directors'
expectations.
Strong national and local economic performance provided a favorable business
environment for the Group which achieved exceptional growth in its core
business operations of toll roads and continued expansion in its non-core
business operations.
Toll road operations
During the Period, traffic volume on the Shanghai-Hangzhou-Ningbo Expressway
continued to record satisfactory growth, with average daily traffic volume
growing by 12.2% over the same period in 2000 and toll income growing by 8.1%
to approximately Rmb635,933,000.
With the completion of the Shangsan Expressway in December 2000, total mileage
of expressways operated by the Group increased from 248km to 390km. In
addition, due to its direct linkage to the Group's main toll road, the
Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway's opening to
traffic had resulted in a 'networking' effect, which contributed to continued
growth in traffic volume on the Shanghai-Hangzhou-Ningbo Expressway.
With toll income contribution from the newly opened Shangsan Expressway being
approximately Rmb144,189,000, total toll income of the Group grew by 26.3%
over the same period in 2000 to approximately Rmb780,122,000.
Other businesses
Advertising Co, a subsidiary 70% owned by the Company, continued to expand its
business operations in advertising along the expressways operated by the Group
with sales techniques and incentives suitable to market conditions. During the
Period, turnover and net profit were approximately Rmb9,444,000 and
Rmb3,975,000, representing a growth of 109.3% and 65.3%, respectively, over
the same period in 2000. Newly acquired businesses accounted for approximately
73% of total turnover.
Joinhands Technology Co., Ltd., an associate 30% owned by the Company, had
begun to expand its technologies and instruments developed for the purpose of
anti-counterfeiting and logistics management in merchandising markets beyond
the provincial boundary, while continuing to improve relevant technologies for
application in other fields such as the use of information collection devices
in the power and telecommunication industries. During the Period, the
associate realized a net profit of approximately Rmb580,000.
In response to substantially reduced wholesale businesses and rising prices of
petroleum products on the global markets, Zhejiang Expressway Petroleum
Development Co., Ltd. ('Petroleum Co'), an associate 50% owned by the Company,
took measures to reduce costs on the one hand, and adopted active cash
management strategies on the other hand, including short-term investments. Net
profit realized by Petroleum Co during the Period was approximately
Rmb950,000.
Increased stake in Jiaxing Co
On 4 June 2001, the Company entered into agreements to further increase its
stake in the capital of Zhejiang Jiaxing Expressway Co., Ltd., a subsidiary of
the Company, from approximately 84.2% to 87.3% for an aggregate consideration
of Rmb93,369,024. Details of this acquisition were disclosed in the Company's
announcement dated 4 June 2001.
Outlook
Macro-economic growth prospects for China remain optimistic as the country
prepares for its imminent accession to the WTO which is expected to occur by
the end of the year.
Zhejiang province, which already boasts one of the most diverse and vibrant
economies in the country, is expected to be one of the biggest beneficiaries
of China's WTO accession.
In one of the published research reports compiled by a local research
institution, GDP growth rate in Zhejiang province, which has been growing on
average by 11% annually over the past five years, is estimated to increase by
an additional 1.3% annually during the five years immediately after the WTO
accession, with its garment, textile and leather industries benefiting the
most from this development.
As demand for road transport continues to grow, so will the competition
between different modes of transport. The Directors are confident that with
the convenience and flexibility unmatched by any other mode of transport,
expressway transport will continue to be the fastest growing sector in the
overall transport industry.
Robust economic growth prospects in the province, together with sizable growth
potential in the private ownership of passenger cars, are expected to sustain
the relatively high growth rates in traffic volumes on the existing
expressways operated by the Group.
While the Company intends to remain focused on its core business of toll road
investment and operations and seeks to further expand its expressway portfolio
in the province, it is also prepared to grasp opportunities presented by
China's WTO accession.
The Company has applied to the China Securities Regulatory Commission for the
issue of not more than 300 million domestic shares ('A Shares') to the public
in the People's Republic of China to raise approximately Rmb1,290 million for
the first and second stages of construction to widen the
Shanghai-Hangzhou-Ningbo Expressway. It is expected that the issue of A Shares
(the 'A Share Issue') will be completed before the end of the year 2001.
Financial Review
The Group will endeavour to achieve maximum return for its shareholders while
maintaining a sound and prudent investment strategy. In particular, in the
medium to long-term, the Company will focus on investing in highways and other
infrastructure projects while striving to maintain an appropriate level of
borrowings and gearing ratio. In the short-term, the Group will continuously
review its portfolio of borrowings and make any necessary adjustments in a
timely manner. The continuous inflow of cash generated from the Group's toll
road operations will be invested in short-term investments with low risk
exposure, which is in line with the Group's objective of achieving maximum
return for shareholders.
As at 30 June 2001, the Group's interest-bearing borrowings increased slightly
from 31 December 2000 to Rmb3,611,425,000 (31 December 2000:
Rmb3,446,598,000), of which 59% represented short-term borrowings repayable
within a year (31 December 2000: 53%), whereas the balance represented medium
to long-term borrowings and corporate bonds.
During the Period, interest rates to which the Group's borrowings were subject
did not experience any significant change compared with 2000. In particular,
the annual floating rates of the World Bank loans ranged from 5.11% to 8.76%,
while the annual interest rates of commercial banks were approximately
5.022%-5.643% for short-term borrowings. The Group's combined earnings to
interest multiple for the Period was approximately 5.0 times (the same period
in 2000: 5.3 times).
Furthermore, the Company made an early repayment of the loan obtained from the
World Bank for the construction of the Hangzhou-Ningbo Expressway on 31 July
2001. The early repayment caused an interest penalty charged by the World Bank
of approximately US$3 million, which was more than offset by an exchange gain
allocated by the World Bank of US$6.4 million. The event has been considered
as a significant adjusting post balance sheet event and has been incorporated
into the interim operating results.
Compared with 31 December 2000, there was no significant change in the capital
structure of the Group as at 30 June 2001. The gearing ratio by dividing the
total long-term liabilities by shareholders' equity was approximately 16.5%
(31 December 2000: 18.7%). The Directors are of the view that the current
gearing ratio is relatively low, thus providing more room for obtaining debt
financing for the future development of the Company.
During the Period, the cash flow generated from the Group's operating
activities amounted to approximately Rmb686,024,000. As a group principally
engaged in toll road operations, the Group has maintained a strong cash inflow
from its ordinary operating activities since its establishment. As at 30 June
2001, of the current assets of Rmb2,351,921,000 in aggregate, prepayments to
expressway contractors, accounts receivable and inventory represented only
about 5% (31 December 2000: 6%). In the foreseeable future, the Directors
anticipate that the Group will not experience any difficulty in liquidity.
As at 30 June 2001, the Group had in possession cash and cash equivalents,
fixed deposits and short-term investments in the amount of Rmb2,014,842,000.
The average interest rates for bank deposits in US dollars, Euro, Hong Kong
dollars and Renminbi were 5.1%, 9.0%, 4.5% and 1.3% respectively.
The short-term investments made by the Group principally comprised convertible
bonds and closed-end equity funds as follows:
As at As at
30 June 31 December
2001 2000
unaudited Audited
Rmb'000 Rmb'000
Government bonds 62,246 156,525
Convertible bonds 220,025 99,485
Closed-end equity funds 119,869 121,955
Total 402,140 377,965
During the Period, profit before taxation derived from short-term investments
was approximately Rmb74,819,000 (6 months ended 30 June 2000: Rmb67,806,000),
and the corresponding rate of return on investments was approximately 11% (six
months ended 30 June 2000: 9.8%).
As at 30 June 2001, details of the capital commitments of the Group were as
follows:
As at As at
30 June 31 December
2001 2000
unaudited audited
Rmb'000 Rmb'000
Contracted but not provided:
- construction of expressways 579,651 622,684
- proposed further acquisition in Shangsan Co 485,000 485,000
- others -- 1,886
Approved but not contracted:
- construction of expressway 2,267,334 2,500,980
3,331,985 3,610,550
Among the total capital commitments, Rmb1,209,129,000 for the widening project
of Hangzhou-Ningbo Expressway will be financed by the net proceeds arising
from the A Share Issue. The remaining capital commitments, comprising mainly
the residual construction work of the Shangsan Expressway, and the proposed
further acquisition in Shangsan Co will be financed by cash generated from
operating activities, any profits generated from short term investments and,
if necessary, commercial bank loans.
As at 30 June 2001, the interest-bearing borrowings and cash deposits
denominated in US dollars of the Group were US$216,097,000 and US$119,869,000,
respectively. Upon the completion of the aforesaid early repayment of the
World Bank loan in the amount of US$91,636,000 at the end of July 2001, the
interest-bearing borrowings and cash deposits of the Group denominated in US
dollars decreased to approximately US$124,461,000 and US$28,233,000
respectively.
As at 30 June 2001, other than a guarantee provided by the Group to Hangzhou
Shida Highway Co., Ltd., a jointly-controlled entity of the Group, for a loan
in the amount of Rmb30,000,000, the Group did not have any contingent
liabilities, nor did it have any pledged assets.
Simulated Share Option Scheme
The Directors have approved, and will recommend to the general meeting of
shareholders of the Company for approval, a simulated share option scheme
which will be valid for a period of ten years. The scheme is aimed to link
part of the remuneration of the management of the Company with the performance
of the Company's shares, including H Shares and the proposed A Shares. Details
of the scheme have been set out in the Company's announcement dated 4 June
2001. The Directors believe that the adoption of the scheme is beneficial to
the Company's long-term development, as it will provide management with a
Company performance-related incentive.
Appreciation
I would like to take this opportunity to thank Mr. Zhang Jingzhong, who
discharged his duties with distinction in his role as the Company Secretary. I
am pleased to note that having resigned from his post as the Company
Secretary, Mr. Zhang will continue to serve as a Director of the Company.
By Order of the Board
Geng Xiaoping
Chairman
Hangzhou, Zhejiang Province, the PRC
10 August 2001
A detailed interim results announcement containing all the information
required by paragraphs 46(1) to 46(6) of Appendix 16 to the Listing Rules will
be subsequently published on The Stock Exchange of Hong Kong Limited's website
at http://www.hkex.com.hk in due course.
Notice of Extraordinary General Meeting
NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the 'EGM') of
Zhejiang Expressway Co., Ltd. (the 'Company') will be held at 10:00a.m. on 28
September 2001 at 18th Floor, Zhejiang World Trade Center, 15 Shuguang Road,
Hangzhou 310007, the People's Republic of China (the 'PRC') for the conduct of
the following business:
1. to consider and approve the proposed interim dividend of the
Company for the six months ended 30 June 2001; and
2. to consider and approve the simulated share option scheme of the Company.
By Order of the Board
Jiang Wenyao
Company Secretary
Hangzhou, Zhejiang Province, the PRC
13 August 2001
Notes:
1. Eligibility for attending the EGM
Holders of Domestic Shares or H Shares whose names appear on the register of
shareholders of the Company at the close of trading on 28 August 2001 shall
have the right to attend the EGM.
Holders of H Shares who intend to attend the EGM must deliver all transfer
instruments and the relevant shares certificates to the share registrar for H
Shares, Hong Kong Registrars Limited (which address is set out in paragraph 5
below), at or before 4:00p.m. on 28 August 2001.
2. Registration procedures for attending the EGM
(1) Holders of H Shares and Domestic Shares intending to
attend the EGM should return the reply slip for attending the EGM to the
Company by post or by facsimile (address and facsimile numbers are shown in
paragraph 5 below) such that the same shall be received by the Company on or
before 8 September 2001.
(2) A shareholder or his/her/its proxy should produce proof
of identity when attending the meeting. If a corporate shareholder appoints a
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 at the meeting.
3. Proxy
(1) A shareholder eligible to attend and vote at the EGM is
entitled to appoint, in written form, one or more proxies to attend and vote
on his/her/its behalf. A proxy need not to be a shareholder.
(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 notarised.
(3) To be valid, the power of attorney or any other
authorization document(s) (which have been notarised) 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 below and, in the
case of holders of H Shares, to Hong Kong Registrars Limited at the address
shown in paragraph 5 below, not less than 24 hours before the time designated
for the holding of the EGM.
(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.
4. Closure of Register of Members
The register of members of H Shares will be closed from 29 August 2001 to 27
September 2001 (both days inclusive), during which no transfer of shares will
be registered.
5. Miscellaneous
(1) The EGM will not last for more than one day.
Shareholders who attend shall bear their own travelling and accommodation
expenses.
(2) The address of the share registrar for H Shares, Hong
Kong Registrars Limited is at:
2/F, Vicwood Plaza
199 Des Voeux Road, Central
Hong Kong
(3) The address of the Company is at:
19th Floor, Zhejiang World Trade Center
15 Shuguang Road
Hangzhou 310007
People's Republic of China
Telephone No.: (+86)-571-8798 7700
Facsimile No.: (+86)-571-8795 0329
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