25th Apr 2007 08:05
Zhejiang Expressway Co., Ltd. (A joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 0576) 2006 Annual Results Announcement
-- Revenue increased by 37.8% to Rmb4,763.8 million -- Profit attributable to equity holders of the Company increased by 15.5% to
Rmb1,652.9 million-- Earnings per share was Rmb38.06 cents-- Final dividend of Rmb20.0 cents per share recommendedThe directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the"Company") are pleased to announce the audited consolidated operating resultsof the Company and its subsidiaries (the "Group") for the year ended December31, 2006 (the "Period"), prepared in conformity with accounting principlesgenerally accepted in Hong Kong, with the basis of preparation as stated innote 1 to the consolidated financial statements set out below.
RESULTS AND DIVIDENDS
During the Period, revenue for the Group was Rmb4,763.8 million, representingan increase of 37.8% over 2005. Profit attributable to equity holders of theCompany was Rmb1,652.9 million, representing an increase of 15.5% over 2005.Earnings per share for the Period was Rmb38.06 cents (2005: Rmb32.95 cents).
The Directors have recommended to pay a final dividend of Rmb20.0 cents per share (2005: Rmb15.0 cents), subject to shareholders' approval at the 2006 annual general meeting of the Company to be held on June 11, 2007. Together with an interim dividend of Rmb7.0 cents per share paid on November 30, 2006, total dividend for the Period amounted to Rmb27.0 cents per share (2005: Rmb22.0 cents).
The audit committee of the Company has reviewed the annual results of the Groupfor the Period. Set out below are the audited consolidated income statement andconsolidated balance sheet for the Period, together with comparative figuresfor 2005:
CONSOLIDATED INCOME STATEMENT
Year ended December 31, 2006 2005 Notes Rmb'000 Rmb'000 Revenue 3 4,763,780 3,456,385Operating costs (2,076,670) (1,195,428) ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Gross profit 2,687,110 2,260,957Other income 3 203,952 185,947Administrative expenses (71,022) (62,766)Other operating expenses (32,901) (41,635)Finance costs (71,991) (101,343)Share of profit of associates 4,435
7,217
Share of profit of a jointly-controlled
entity 23,344 16,285 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ Profit before tax 2,742,927 2,264,662Income tax expense 4 (884,036) (692,366) ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ Profit for the Period 1,858,891 1,572,296 =========== =========== Attributable to: Equity holders of the Company 1,652,871 1,431,192Minority interest 206,020 141,104 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 1,858,891 1,572,296 =========== ===========Dividends Interim, paid-Rmb7 cents (2005: Rmb7 cents) per share 304,018 304,018
Final, proposed-Rmb20 cents
(2005: Rmb15 cents) per share 868,623 651,467 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 1,172,641 955,485 =========== =========== Earnings per share 5 Rmb38.06 Rmb32.95 cents cents =========== =========== CONSOLIDATED BALANCE SHEET As at As at December December 31, 2006 31, 2005 Notes Rmb'000 Rmb'000Non-current assets Property, plant and equipment 13,775,621 13,422,605Prepaid lease payment 390,658 387,448Goodwill 91,428 85,472Other intangible assets 144,727 -Interest in associates 224,857 226,871Interest in a jointly-controlled entity 87,982
79,907
Available for sale investments 1,000
1,000
Expressway operating rights 179,845 188,545 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 14,896,118 14,391,848 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ Current assets Inventories 12,255 6,446Loan to an associate - 116,000Trade receivables 6 54,451 21,744Other receivables 180,514 316,238Prepaid lease payment 18,626 18,138Held-for-trading investments 229,880
612,097
Bank balances held on behalf of customers 2,507,763
-Bank balances and cash 1,670,385 829,145 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 4,673,874 1,919,808
Assets classified as held for sale 427
- ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 4,674,301 1,919,808 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ Current liabilities Trade payables 7 369,323 402,221Trade payable to customers arising from securities dealing business 2,501,593 - Tax liabilities 537,265 334,048Other taxes payable 20,293 31,779Other payables and accruals 409,740 327,471Dividend payable 41,595 33,379Interest-bearing bank and other borrowings 397,141 886,539Provision 34,800 - ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 4,311,750 2,015,437 Liabilities associated with assets classified as held for sale 995
- ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 4,312,745 2,015,437 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Net current assets (liabilities) 361,556
(95,629)
¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Total assets less current liabilities 15,257,674 14,296,219 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ Non-current liabilities Interest-bearing bank and other borrowings 448,266 548,198Long-term bonds 1,000,000 1,000,000Deferred tax liabilities 456,956 384,153
¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼
1,905,222
1,932,351
¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼
13,352,452 12,363,868 =========== ===========Capital and reserves Share capital 4,343,115 4,343,115Reserves 7,550,189 6,852,803 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Equity attributable to equity holders of the Company 11,893,304 11,195,918 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Minority interests 1,459,148 1,167,950 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 13,352,452 12,363,868 =========== =========Notes:1 Basis of Preparation
The consolidated financial statements have been prepared in accordance with
Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong
Institute of Certified Public Accountants ("HKICPA"). In addition, the
consolidated financial statements include applicable disclosures required by
the Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited (the "Listing Rules") and by the Hong Kong Companies Ordinance.
2 Principle Accounting Policies
The consolidated financial statements have been prepared on the historical cost
basis except for certain financial instruments, which are measured at fair
values. The accounting policies used in the consolidated financial statements are consistent with those followed in the preparation of the Group's annual
financial statements for the year ended December 31, 2005 except as described
below.
During the Period, the Group has applied, for the first time, a number of new
standards, amendments and interpretations ("new HKFRSs") issued by the HKICPA,
which are either effective for accounting periods beginning on or after
December 1, 2005 or January 1, 2006. The adoption of the new HKFRSs had no
material effect on how the results for the current or prior accounting periods
have been prepared and presented. Accordingly, no prior period adjustment has
been required.
The Group has not early applied the following new standards, amendments or
interpretations that have been issued but are not yet effective. The directors
of the Company anticipate that the application of these standards, amendments
or interpretations apart from HKFRS8 and HK(IFRIC) - Int 12 will have no
material impact on the results and the financial position of the Group. The
directors of the Company are in the process of assessing the impact of HKFRS8
and HK(IFRIC) - Int 12 on the result and the financial position of the Group:
HKAS 1 (Amendment) Capital Disclosures1
HKFRS 7 Financial Instruments: Disclosures1 HKFRS 8 Operating Segments2
HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial
Reporting in Hyperinflationary Economies3 HK(IFRIC) -Int 8 Scope of HKFRS 24 HK(IFRIC) -Int 9 Reassessment of Embedded Derivatives5 HK(IFRIC) -Int 10 Interim Financial Reporting and Impairment6 HK(IFRIC) - Int11 HKFRS2 - Group and Treasury Share Transactions7 HK(IFRIC) -Int 12 Service Concession Arrangements8
1 Effective for annual periods beginning on or after January 1, 20072 Effective for annual periods beginning on or after January 1, 20093 Effective for annual periods beginning on or after March 1, 20064 Effective for annual periods beginning on or after May 1, 20065 Effective for annual periods beginning on or after June 1, 20066 Effective for annual periods beginning on or after November 1, 20067 Effective for annual periods beginning on or after March 1, 20078 Effective for annual periods beginning on or after January 1, 2008
3 Revenue and other income
An analysis of the Group's revenue, net of revenue taxes, and other income for the year is as follows: Year ended December 31, 2006 2005 Rmb'000 Rmb'000 Toll operation revenue 3,562,289 3,182,807Service areas business revenue 962,418 225,702Advertising business revenue 50,239 45,374Road maintenance revenue 5,464 2,502Securities operation revenue 183,370 - ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 4,763,780 3,456,385 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Interest income 26,481 40,151Rental income 21,362 45,341Towing income 21,691 20,318Net exchange gains 22,299 18,461Gain on fair value changes on held-for-trading investments 80,421 33,982Others 31,698 27,694 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Total other income 203,952 185,947 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ 4,967,732 3,642,332 =========== =========
The Company and its subsidiaries are subject to the business tax, levied at 3%on toll income and 5% on other services income. In addition, the subsidiariesare subject to the following types of revenue taxes and surcharge:
- City development tax, levied at 1% to 7% of business tax; - Education surcharge, levied at 2% to 5% of business tax; and - Culture and education fees, levied at 3% on advertising income.
4 Income Tax Expenses
No Hong Kong profits tax has been provided as the Group had no taxable profits
derived in Hong Kong during the year.
The Group was subject to enterprise income tax ("EIT") levied at a rate of 33%
of taxable income determined in accordance with the PRC laws and financial reporting system. Year ended December 31, 2006 2005 Rmb'000 Rmb'000 Group Tax charged 876,874 654,471Deferred 7,162 37,895 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼
Tax charge for the Period 884,036 692,366 ============ ========A reconciliation of the tax expense applicable to profit before tax using thestatutory rates for the PRC to the tax expense at the effective tax rates is asfollows: Year ended December 31, 2006 2005 Rmb'000 Rmb'000 Group Profit before tax 2,742,927 2,264,662 =========== ========= Tax at the statutory tax rate of 33% 905,166
747,338
Tax effect of share of profits of associates (1,464)
(2,382)
Tax effect of share of profit of a jointly-controlled
entity (7,703) (5,374) Tax exemption of a subsidiary -
(51,408)
Tax effect of net (income)/expense that is not (taxable)/ deductible in determining taxable profit
(11,963) 4,192 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Tax charge at the Group's effective tax rate 884,036
692,366
===========
=========
In 2005, in accordance with the approval from the Zhejiang Provincial Local TaxBureau, Zhejiang Shangsan Expressway Co., Ltd. ("Shangsan Co"), one of theCompany's subsidiaries, was entitled to a 30% EIT exemption for the year endedDecember 31, 2005 under the category of "Enterprises providing employmentopportunities to redundant workers with an employment term of a minimum ofthree years" as defined in the relevant national tax rules. As a result, thetax exemption for the year ended December 31, 2005 amounted to Rmb51,408,000had been applied directly to reduce the EIT for 2005.
No such exemption has been granted to the Group in 2006.
5 Earnings per Share
The calculation of basic earnings per share is based on the profit attributable
to equity holders of the Company for the Period of Rmb1,652,871,000 (2005:
Rmb1,431,192,000) and the 4,343,114,500 shares (2005: 4,343,114,500 shares) in
issue during the Period.
No diluted earnings per share has been presented as there were no potential
dilutive ordinary shares in issue for the years ended December 31, 2006 and
2005.
6 Trade Receivables
The aging analyses of trade receivables at the balance sheet dates are as
follows: As at As at December December 31, 31, 2005 2006 Rmb'000 Rmb'000 Within 1 year 52,773 20,4701 to 2 years 471 1,274Over 2 years 1,207 - ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Total 54,451 21,744 ============ ========
The Group allows an average credit period of approximately 180 days to its trade customers.
7 Trade Payables
An aged analysis of trade payables at the balance sheet date, based on invoice date, is as follows: As at As at December December 31, 31, 2005 2006 Rmb'000 Rmb'000 Within 1 year 357,172 368,6721 to 2 years 11,323 26,7862 to 3 years 714 3,211Over 3 years 114 3,552 ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Total 369,323 402,221 ============ ========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. 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.
Under the amended Company Law of the PRC, the Group is no longer required to
make appropriation to the statutory public welfare fund. Pursuant to a circular
on enterprise financial treatments following the implementation of the amended
Company law of the PRC issued by the ministry of Finance (Cai Qi [2006] No.67),
the Group transferred the balance of the statutory public welfare fund at
December 31, 2005 amounting to Rmb431,448,000 to the statutory surplus reserve.
BUSINESS REVIEWAs the first year in the eleventh Five-Year National Economic Development Plan,year 2006 saw the economy in Zhejiang Province expand by 13.6% in GDP comparedto the national GDP growth rate of 10.7%. More important than the rate ofeconomic growth was improved quality of economic growth achieved in theprovince: better coordination among various industries and a more balancedgrowth throughout different regions of the province.The strong economic growth in Zhejiang Province during the Period continued togenerate increased demand for road transport. Such demand was in turn met by anexpanding road network, providing an impetus for sustained traffic volumegrowth on roadways in general and expressways in particular.While toll income from expressway operations remained the mainstay of the Groupduring the Period, the proportion of contribution to total income from theGroup's other business operations, such as gas stations, restaurants and shopsin service areas, continued to grow. Together with revenue contribution in thesecond half of 2006 from the newly acquired securities business, total revenueof the Group during the Period amounted to Rmb4,763.8 million, representing anincrease of 37.8% over 2005.A detailed breakdown of the Group's income for the Period is set out below:
2006 2005 Rmb'000 Rmb'000 % Change Toll income Shanghai-Hangzhou-Ningbo Expressway 2,810,489 2,519,676 11.5%Shangsan Expressway 833,823 830,994 0.3%Other income Service areas businesses income 968,476 230,183 320.7%Advertising businesses income 53,228 48,045 10.8%Road maintenance income 5,633 2,568 119.4%Security operation income Commission and brokerage income 173,372 - - Bank interest income 20,491 - - ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Subtotal 4,865,512 3,631,466 34.0%Less: Revenue taxes (101,732) (175,081) -41.9% ¯¼¯¼¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼ ¯¼¯¼¯¼¯¼¯¼Revenue 4,763,780 3,456,385 37.8% =========== =========== ===========Expressway OperationsTotal toll income from the 248km Shanghai-Hangzhou-Ningbo Expressway and the142km Shangsan Expressway amounted to Rmb3,644.3 million during the Period,representing an increase of 8.8% over 2005 and contributing to 74.9% of theGroup's total income. Traffic volume growth during the Period, however, variedsubstantially for different sections of the expressways.After the completion of the second phase of the widening project along theShanghai-Hangzhou-Ningbo Expressway by the end of 2005, traffic volume on theShanghai-Hangzhou Expressway experienced a strong rebound with a 17.4% increaseover 2005, averaging 42,297 full-trip equivalents per day.Traffic volume on the Hangzhou-Ningbo Expressway grew by a substantially lowerrate of 2.7% during the Period, averaging 35,806 full-trip equivalents per day,mainly due to the ongoing third phase widening works carried out along thesection, and to a lesser degree, due to traffic diversions to other expresswaysthat had been newly opened.The Shangsan Expressway saw its traffic volume dip by 0.2% during the Period,averaging 19,783 full-trip equivalents per day, mainly due to a parallelnational road reopened to traffic after an extended period of partial closurefor renovation, and also to a lesser degree, due to traffic diversions to otherexpressways that had been newly opened.As part of the Company's continued effort to increase operating efficiency andreduce cash transactions in its expressway operations, starting from November1, 2006, toll stations along the Shanghai-Hangzhou-Ningbo Expressway and theShangsan Expressway began to accept widely distributed China UnionPay bankcards, the first such adoption of the bankcards on expressways in China.
Expressway-related Business Operations
The Company operates gas stations, shops and restaurants in service areas, aswell as roadside advertising and vehicle service businesses along theexpressways through its subsidiaries. In the past few years, demand for theseservices has been growing at a faster rate than the rate of traffic volumegrowth.During the Period, benefiting from a change in operating mode of gas stationsfrom consigning to self-operating, as well as increased capacities after thecompletion of the current phase of service area expansion, income from theabove business operations reached Rmb1,043.4 million, representing an increaseof 249.5% over 2005.Securities Business
The Company took over the management of Kinghing Securities Co., Ltd. on July 1, 2006 after participating in a successful reorganization of the securities company during the first half of 2006, and subsequently renamed the securities company as "Zheshang Securities Co., Ltd."("Zheshang Securities").
After the reorganization, the Company has strengthened the risk control forZheshang Securities and enhanced its management quality. Meanwhile, benefittingfrom an upturn of China's securities market, Zheshang Securities has achievedbeter-than-expected operating results. Income of the securities company duringthe second half of the year was Rmb193.9million, while profit realized aftertaxation was Rmb121.9million.
Details of the reorganization had been provided in a circular to the shareholders of the Company dated May 16, 2006.
Long-term Investments
During the Period, Hangzhou Shida Highway Co., Ltd., a 50%-ownedjointly-controlled entity of the Company that owns and operates the 9.45kmShida Road, saw its traffic volume increased by 17.3% over 2005 and toll incomeincreased by 16.4% over 2005. Profit for the Period realized by thejointly-controlled entity was Rmb46.7 million, representing an increase of43.3% over 2005. The much higher rate of increase in profit for the Period wasprimarily due to lower-than-usual maintenance expenditures.Demand for gasoline products in Zhejiang Province continued to growsubstantially during the Period, leading to a 41.3% increase in revenue over2005 for Zhejiang Expressway Petroleum Development Co., Ltd., a 50%-ownedassociate of the Company. Profit for the Period attributable to equity holdersof the parent realized by the associated company during the Period was Rmb19.3million, representing an increase of 38.5% over 2005.JoinHands Technology Co., Ltd., a 27.582%-owned associate of the Company,failed to pull out of a slump in its main printing business despite improvedsales for its computer hardware and software products. Revenue for theassociated company decreased by 10.1% over 2005 during the Period, resulting ina loss attributable to equity holders of the parent of Rmb7.5 million.
Expressway Widening Project
The third and last phase of the project to widen the Shanghai-Hangzhou-NingboExpressway from four lanes to eight lanes (the "Widening Project") continuedalong the Hangzhou-Ningbo section during the Period, with most of thefoundation and structure works finished.The Company has taken every measure available to minimize the impact of relatedconstruction works upon normal traffic flow along the Hangzhou-Ningbo section.It is expected that the section will be kept open for traffic, though withreduced capacity, throughout the rest of construction works until itscompletion by the end of 2007.Upon completion of the Widening Project, the Shanghai-Hangzhou-NingboExpressway will be the first eight-lane expressway in Zhejiang Province, withsubstantially increased carrying capacity and improved quality of service interms of greater reliability and safer traveling conditions.
Project Investment
On March 10, 2007, the Company entered into agreements to acquire an aggregateof 23.45% equity interest in Zhejiang Jinhua Yongjin Expressway Co., Ltd.("Jinhua Co.") from the Jinhua Municipal Road Management Bureau and Dongyang Municipal Transport Investment Co., Ltd. for a total consideration of Rmb281.4 million in cash.Jinhua Co. is the project company holding 100% equity interests in the JinhuaSection of the Ningbo-Jinhua Expressway for a concession period of 25 years. The Jinhua Section is a four-lane expressway totaling 69.7km that was completed and opened to traffic on December 28, 2005.The investment in Jinhua Co. is in line with the Company's development strategyof further expanding its expressway network within Zhejiang Province to capturea greater share of growing expressway traffic and to derive additional synergyfrom an expanded network.The parent company of the Company, Zhejiang Communications Investment GroupCo., Ltd., is another substantial shareholder of Jinhua Co. with its 35% equityinterest. Pursuant to the Rules Governing the Listing of Securities on TheStock Exchange of Hong Kong Limited, the above acquisition is not considered asa connected transaction or a discloseable transaction.
FINANCIAL ANALYSIS
The Group adopts a prudent financial policy with an aim to providing shareholders with sound returns over the long-term.
During the Period, the Group's profit attributable to equity holders of the Company was approximately Rmb1,652.9 million, representing an increase of 15.5% over 2005, while earnings per share for the Group was Rmb38.06 cents.
Profitability
The compound annual growth rates of earnings per share and return on equity in the last five years were 16.7% and 10.9%, respectively.
During the Period, the annual dividend payout ratio was 71.0%, reflecting a stable dividend payout policy that the management maintained in past years.
Liquidity and Financial Resources
The financial position of the Group remained sound and healthy during the yearunder review. As at December 31, 2006, current assets of the Group amounted toRmb4,674.3 million in aggregate (2005: Rmb 1,919.8 million), of which cash andcash equivalents accounted for 85.8% (2005: 37.7%), while time depositsaccounted for 2.8% (2005: 5.5%) and short-term investments accounted for 4.9%(2005: 31.9%).
Amongst Rmb4,011.8 million that the Group held in cash and cash equivalent as at December 31, 2006 (2005: Rmb723.5million), 62.5% was held on behalf of customers of Zheshang Securities.
As at December 31, 2006, the Group had Rmb229.9 million in short-term investments that were fully attributable to Zheshang Securities, and was invested in the stock market.
During the Period, net cash inflow generated from the Group's operating activities amounted to Rmb2,668.6 million, representing an increase of 34.6% over 2005.
The Directors do not expect the Company to experience any problem with liquidity and financial resources in the near future.
Borrowings and Solvency
As at December 31, 2006, the total liabilities of the Group were Rmb6,218.0 million, of which 29.7% were borrowings and 40.2% were client deposits arising from securities dealing.
The borrowings comprised mainly outstanding balances of the World Bank loans ofRmb657.8 million in Renminbi equivalent, loans from several domestic commercialbanks totaling Rmb125.0 million and corporate bonds amounting to Rmb1 billionthat was issued by the Company in 2003 for a term of 10 years. Among Rmb1,845.4million of the Group's total borrowings, 78.5% were not repayable within oneyear (2005: Rmb2,434.7 million and 63.6%, respectively).As at December 31, 2006, the interest rates of the Group's semi-annual andannual domestic commercial bank borrowings, totaling Rmb125.0million, werefixed between 5.02% and 5.58% per annum; the interest rate for Rmb62.6 milliongovernment loans remained fixed at 3.00% per annum; the annual coupon rate forthe Rmb1 billion corporate bonds was fixed at 4.29%, with interest payableannually; the annual interest rate for client deposits arising from securitiesdealing was fixed at 0.72%; the floating rate of the Group's Rmb657.8 millionWorld Bank loans, denominated in US dollar, varied from 4.51% to 5.16%.
Total interest expense for the Period amounted to Rmb102.8 million, while profit before interest and tax amounted to Rmb2,829.4 million. The interest cover ratio (profit before interest and tax over interest expenses) stood at 27.5 (2005: 22.1).
The asset-liability ratio (total liabilities over total assets) was 31.8% as at December 31, 2006 (2005: 24.2%).
Capital Structure
The total equity of the Group increased by 8.0% from Rmb12,363.9 million as atDecember 31, 2005 to Rmb13,352.5 million as at December 31, 2006. Thefixed-rate liabilities of the Group amounted to Rmb3,689.2 million, while thefloating-rate liabilities of the Group amounted to Rmb657.8 million and theinterest-free liabilities of the Group amounted to Rmb1,871.0 million,representing 18.9%, 3.4% and 9.6% of the Group's capital, respectively.As at December 31, 2006, the Group's gearing ratio, measured on the basis ofthe sum of fixed-rate liabilities, floating-rate liabilities and interest-freeliabilities as a percentage of total equity, was 46.6% (2005: 31.9%).
Capital Expenditure Commitments and Utilization
Total capital expenditures of the Group and of the Company for the Period amounted to Rmb1,169.6 million and Rmb555.3 million, respectively, with Rmb468.9 million incurred by the investment in Zheshang Securities and Rmb485.9 million incurred by the Widening Project.
The capital expenditures committed by the Group and by the Company as atDecember 31, 2006 were Rmb3,873.3 million and Rmb2,941.1 million, respectively.Amongst the Rmb3,873.3 million committed by the Group, 47.1% will be used onthe Widening Project, 28.7% will be used on the construction of JiashaoExpressway and 7.3% will be used on the equity acquisition of Jinhua Co.The Group will finance its abovementioned capital expenditure commitments withinternally generated cash flow, with a preference for debt financing to meetany shortfalls thereof.
Contingent Liabilities and Pledge of Assets
Fourteen customers of Zheshang Securities previously entered into state bondinvestment agency agreements with Kinghing Trust Investment Co., Ltd ("KinghingInvestment"), whereby Zheshang Securities kept in custody state bonds in anaggregate principal amount of Rmb106.5 million. These state bonds were pledgedas security for certain third party repo trading transactions and the fundsobtained were misappropriated by Kinghing Investment. Kinghing Investment wasunable to return the misappropriated funds in time and as a result, thesecurity over the state bonds was enforced to settle the relevant repo tradingtransactions.In the opinion of directors, Kinghing Investment should take fullresponsibility for breach of the state bond investment agency agreements.Currently, Kinghing Investment has ceased its operations and its restructuringis underway. It is understood that the 14 customers have already registeredtheir claims with Kinghing Investment's restructuring team. At the date of thisreport, one of the 14 customers has started legal proceedings against ZheshangSecurities for disputes over the state bond investment agency agreement.After consultation with their legal advisors and other legal experts, thedirectors believe that, from a legal point of view, Zheshang Securities shouldnot take any legal responsibility, whether or not all the 14 customers chooseto take them to court. However, one should not rule out the possibility thatthe court may, after considering, inter alia, Zheshang Securities role in theperformance of the state bond investment agency agreements, request ZheshangSecurities to share part of the liability. The impact to the consolidatedfinancial statements as a whole is not expected to be material though shouldthis situation arise.In addition, a full provision has been made for guarantees issued in respect ofthe state bond investment agency agreements and fund trust agreements enteredinto between Kinghing Investment and its corporate customers.No provision has been made for guarantees amounting to Rmb17.8 million issuedin respect of the fund trust agreements entered into between KinghingInvestment and its individual customers because (i) these individuals havealready registered their claims with Kinghing Investment's restructuring team;and (ii) under the relevant state policies, these individuals are expected tobe compensated in full by the state.
Other than the aforementioned, the Group did not have any other contingent liabilities nor any pledge of assets as at December 31, 2006.
Foreign Exchange Exposure
Except for the repayment of a World Bank loan of Rmb657.8 million in USdollars, as well as dividend payments to overseas shareholders in Hong Kongdollars, the Group's principal operations are transacted and booked inRenminbi. Therefore, the Group's exposure to foreign exchange fluctuations islimited and the Group has not entered into any financial instrument for hedgingpurposes.
Although the Directors do not foresee any material foreign exchange risks for the Group, there is no assurance that any further changes in the foreign exchange environment will not adversely affect the operating results of the Group in the future.
OUTLOOK FOR 2007
The Chinese economy is expected to continue with its rapid growth in 2007 underthe new focus on scientific development and on quality over speed. Being themost economically vibrant province, Zhejiang Province's GDP will continue togrow in double digits in 2007, higher than the national average GDP growthrate. At the same time, cars are widely used by families; the era of rapidgrowth in vehicle consumption has arrived. There will be a substantial increasein the total number of vehicles in China.Owing to the positive impact of fundamentals above, we estimate optimisticallythat growth rates for both traffic volume and toll income on theShanghai-Hangzhou-Ningbo Expressway will be higher in 2007 than in 2006. Afterthe gradual dissipation of vehicle diversion impact on the Shangsan Expressway,traffic volume on the Shangsan Expressway will also enjoy a certain level ofrebound growth.
To meet the growing traffic flow, and following the Company's introduction of Unionpay bankcards for the first time in China, we will start to introduce non-stop toll collection booths and automatic IC card issuance at entrance booths in 2007, with an aim to further improve the carrying capacity and rapid-through capabilities of the expressways operated by the Company.
In 2007, there will be a new pair of service areas completed and put into operation. Having grown rapidly for three consecutive years, the Company's non-core business operations will continue to enjoy excellent performance in 2007.
Following the successful reorganization of Zheshang Securities, and theunusually robust performance of the Chinese stock market, Zheshang Securitieswill be bringing sizable profit contributions to the Company. However, theCompany intends to maintain investment in and operation of expressways as itscore business.
PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARES
Neither the Company nor any of its subsidiaries had purchased, sold, redeemed or cancelled any of the Company's shares during the Period.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company was in compliance with the code provisions in the Code on CorporateGovernance Practices set out in Appendix 14 to the Rules Governing the Listingof Securities on The Stock Exchange of Hong Kong Limited during the Period.
By Order of the Board Geng Xiaoping Chairman Hangzhou, PRC, April 24, 2007
As at the date of this announcement, the executive directors of the Companyare: Messrs. Geng Xiaoping, Fang Yunti, Zhang Jingzhong and Jiang Wenyao; thenon-executive directors are: Messrs. Zhang Luyun and Zhang Yang; and theindependent non-executive directors are: Messrs. Tung Chee Chen, Zhang Junshengand Zhang Liping.
ZHEJIANG EXPRESSWAY CO LDRelated Shares:
ZHEH.L