30th Aug 2006 07:30
ZHEJIANG EXPRESSWAY CO., LTD. (a joint stock limited company incorporated in the People's Republic of China with limited liability) (Stock Code: 0576) 2006 Interim Results Announcement -- Revenue increased by 30.6% to Rmb2,186.4 million-- Profit attributable to equity holders of the Company increased by 8.9% toRmb688.7 million-- Earnings per share increased by 8.9% to Rmb15.86 cents-- Interim dividend of Rmb7.0 cents per share is recommendedThe directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the"Company") are pleased to announce the unaudited consolidated operating resultsof the Company and its subsidiaries (collectively the "Group") for the sixmonths ended June 30, 2006 (the "Period"), prepared in conformity withaccounting principles generally accepted in Hong Kong, with the basis ofpreparation as stated in Note 1 to the consolidated financial statements setout below.RESULTS AND DIVIDENDSDuring the Period, revenue for the Group grew 30.6% over the same period in2005 to reach Rmb2,186.4 million, while profit attributable to equity holdersof the Company for the Period grew 8.9% to reach Rmb688.7 million. Earnings pershare for the Period amounted to Rmb15.86 cents, representing an increase of8.9% over the same period in 2005.The Directors have recommended to pay an interim dividend of Rmb7.0 cents pershare, subject to the approval of the shareholders at the Company's proposedextraordinary general meeting to be held on November 16, 2006.The audit committee of the Company has reviewed the interim results. Set outbelow are the unaudited consolidated income statement and balance sheet for thePeriod, together with comparative figures for 2005 and relevant notes:CONSOLIDATED INCOME STATEMENT (UNAUDITED) For the six months ended June 30, 2006 2005 Notes Rmb'000 Rmb'000 (Re-stated) Revenue 3 2,186,404 1,673,912 Operating costs (1,031,346) (647,269) Gross profit 1,155,058 1,026,643 Other income 4 55,956 62,221 Administrative expenses (29,011) (26,026) Other operating expenses (13,878) (10,015) Profit from operating activities 5 1,168,125 1,052,823 Finance costs (47,358) (46,480) Share of profits of associates 2,084 3,497 Share of profit of a jointly-controlled 10,149 10,677entity Profit before tax 1,133,000 1,020,517 Income tax expense 6 (372,501) (328,871) Profit for the Period 760,499 691,646 ========== ========== Attributable to: Equity holders of the Company 688,729 632,693 Minority interest 71,770 58,953 760,499 691,646 ========== ========== Dividends Proposed interim 7 (304,018) (304,018) ========== ========== Earnings per share 8 15.86 cents 14.57 cents ========== ==========CONSOLIDATED BALANCE SHEET As at As at June 30, December 31, 2006 2005 Rmb'000 Rmb'000 Notes Unaudited Audited Non-current assets Property, plant and equipment 13,386,230 13,422,605 Prepaid lease payments 378,380 387,448 Goodwill 85,472 85,472 Interest in a jointly-controlled entity 82,698 79,907 Interests in associates 232,632 226,871 Available-for-sale investments 1,000 1,000 Expressway operating rights 184,194 188,545 14,350,606 14,391,848 Current assets Inventories 13,164 6,446 Loan to an associate - 116,000 Trade receivables 9 49,495 21,744 Other receivables 651,571 316,238 Prepaid lease payments 18,137 18,138 Investments held for trading 10,000 612,097 Cash and bank balances 996,573 829,145 1,738,940 1,919,808 Current liabilities Trade payables 10 433,344 402,221 Tax liabilities 304,830 334,048 Other taxes payable 15,148 31,779 Other payables and accruals 346,632 327,471 Dividend payable 7,355 33,379 Interest-bearing bank and other borrowings 744,705 886,539 1,852,014 2,015,437 Net current liabilities (113,074) (95,629) Total assets less current liabilities 14,237,532 14,296,219 Non-current liabilities Interest-bearing bank and other borrowings 502,804 548,198 Long-term bonds 1,000,000 1,000,000 Deferred tax liabilities 372,806 384,153 1,875,610 1,932,351 12,361,922 12,363,868 ========== ========== Capital and reserves Share capital 4,343,115 4,343,115 Reserves 6,586,047 6,201,336 Proposed dividend 304,018 651,467 Equity attributable to equity holders of the 11,233,180 11,195,918Company Minority interests 1,128,742 1,167,950 Total equity 12,361,922 12,363,868 ========== ========== Notes:1. Basis of PreparationThe condensed financial statements have been prepared in accordance with theapplicable disclosure requirements of Appendix 16 to the Rules Governing theListing of Securities on The Stock Exchange of Hong Kong Limited (the "ListingRules") and with Hong Kong Accounting Standard 34 ("HKAS 34") "InterimFinancial Reporting".2. Principal Accounting PoliciesThe condensed financial statements have been prepared on the historical costbasis except for certain financial instruments, which are measured at fairvalues.The accounting policies used in the condensed financial statements areconsistent with those followed in the preparation of the Group's annualfinancial statements for the year ended December 31, 2005 except as describedbelow.During the Period, the Group has applied, for the first time, a number of newstandards, amendments and interpretations ("new HKFRSs") issued by the HongKong Institute of Certified Public Accountants ("HKICPA"), which are eithereffective for accounting periods beginning on or after December 1, 2005 orJanuary 1, 2006. The adoption of the new HKFRSs had no material effect on howthe results for the current or prior accounting periods have been prepared andpresented. Accordingly, no prior period adjustment has been required.The Group has not early applied the following new standards, amendments orinterpretations that have been issued but are not yet effective. The Directorsof the Company anticipate that the application of these standards, amendmentsor interpretations will have no material impact on the results and thefinancial position of the Group:HKAS 1 Capital Disclosures(1) (Amendment) HKFRS 7 Financial Instruments: Disclosures(1) HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies(2) HK(IFRIC)-Int 8 Scope of HKFRS 2(3) HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives(4) (1) Effective for annual periods beginning on or after January 1, 2007(2) Effective for annual periods beginning on or after March 1, 2006(3) Effective for annual periods beginning on or after May 1, 2006(4) Effective for annual periods beginning on or after June 1, 20063. Segment InformationDuring the Period, there was no change in the principal activities of theGroup. The operating results by principal activities are summarized as follows: For the six months ended June 30, 2006 2005 Profit Profit Revenue Contribution Revenue Contribution Rmb'000 Rmb'000 Rmb'000 Rmb'000 Unaudited Unaudited Unaudited Unaudited (Re-stated) Segment by business activities - Toll 1,732,700 1,114,125 1,537,003 1,002,598 - Service areas 429,150 26,862 114,449 10,419 - Advertising 24,554 14,071 22,460 13,626 2,186,404 1,155,058 1,673,912 1,026,643 ========= ========= Other revenue 55,956 62,221 Administrative expenses (29,011) (26,026) Other operating expenses (13,878) (10,015) Profit from operating activities 1,168,125 1,052,823 ========= ========= No further analysis of the revenue and profit from operating activities bygeographical segment was prepared as the revenue and profit from operatingactivities of the Group were all generated from Zhejiang Province, the People'sRepublic of China (the "PRC"), during the Period.4. Other Income For the six months ended June 30, 2006 2005 Rmb'000 Rmb'000 Unaudited Unaudited Profit from short term securities investment 4,775 20,275 Interest income 16,670 12,901 Rental income 7,162 13,348 Trailer income 11,478 9,578 Exchange gain/(loss) 6,556 (778) Other miscellaneous income 9,315 6,897 Total 55,956 62,221 ========== ==========5. Profit from Operating ActivitiesThe Group's profit from operating activities is arrived at after charging thefollowing: For the six months ended June 30, 2006 2005 Rmb'000 Rmb'000 Unaudited Unaudited (Re-stated) Depreciation 306,918 259,946 Amortization of expressway operating rights 4,350 4,350 Amortization of prepaid lease payments 9,068 9,069 Staff costs 56,318 55,2626. Income Tax ExpensesAs the Group had no taxable profits in Hong Kong during the Period, no HongKong profits tax had been provided.The Group was subject to Corporate Income Tax ("CIT") in the PRC levied at arate of 33% of taxable income based on income for financial reporting purposesprepared in accordance with the laws and regulations in the PRC. For the six months ended June 30, 2006 2005 Rmb'000 Rmb'000 Unaudited Unaudited (Re-stated) Group Tax charged 383,848 328,805 Deferred (11,347) 66 Tax charge for the Period 372,501 328,871 ========== ==========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: For the six months ended June 30, 2006 2005 Rmb'000 Rmb'000 Unaudited Unaudited (Re-stated)Group Profit before tax 1,133,000 1,020,517 ========== =========== Tax at the statutory tax rate of 33% 373,890 336,771 Tax effect of share of profits of associates (688) (1,154) Tax effect of share of profit of a jointly-controlled (3,349) (3,523)entity Tax effect of net (income)/expense that is not (taxable) 2,648 (3,223)/deductible in determining taxable profit Tax charge at the Group's effective tax rate 372,501 328,871 ========== ===========7. DividendsThe Directors have recommended the payment of an interim dividend of Rmb7.0cents per share (2005: Rmb7.0 cents), subject to the approval of theshareholders at the Company's proposed extraordinary general meeting to be heldon November 16, 2006. The recommendation has been set out in the financialstatements.8. Earnings per ShareThe calculation of basic earnings per share is based on the net profitattributable to equity holders of the Company for the Period of Rmb688,729,000(2005: Rmb632,693,000) and the 4,343,114,500 shares (2005: 4,343,114,500shares) in issue during the Period.Diluted earnings per share for the Period have not been calculated, as nodiluting event occurred during these years.9. Trade ReceivablesThe aging analyses of trade receivables at the balance sheet dates are asfollows: As at As at June 30, December 31, 2006 2005 Rmb'000 Rmb'000 Unaudited Audited Within 1 year 47,235 20,470 1 to 2 years 1,011 1,274 Over 2 years 1,249 - Total 49,495 21,744 ========== ============The Group allows an average credit period of approximately 180 days to itstrade customers.10. Trade PayablesThe aging analyses of trade payables at the balance sheet dates are as follows: As at As at June 30, December 31, 2006 2005 Rmb'000 Rmb'000 Unaudited Audited Within 1 year 344,003 368,672 1 to 2 years 68,199 26,786 2 to 3 years 21,057 3,211 Over 3 years 85 3,552 Total 433,344 402,221 ========== ============11. Comparative FiguresStarting with the financial year 2005, expressways and bridges are depreciatedby straight-line method in the residual years, which is a change in accountingestimate, and is considered by the Directors to be suitable in the future. Dueto this change of accounting estimate for the six months ended June 30, 2005,the carrying value of property, plant and equipment and the profit before taxwere decreased, while the depreciation expense was increased by an amount ofRmb130,614,000. Accordingly, profit attributable to equity holders of theCompany was decreased by Rmb78,764,000 for the six months ended June 30, 2005.Therefore, certain comparative figures have been restated to conform to thePeriod's presentation.BUSINESS REVIEWAmid a drive to adjust economic structures for a more sustainable growth, theeconomy of Zhejiang Province grew 14.1% during the Period, compared to thenational average GDP growth rate of 10.9%, and continued its double-digitgrowth trend. This has resulted in an even higher growth in demand fortransportation needs in the province as well as in the larger Yangtze RiverDelta region.Strong growth in transportation needs did not, however, translate intoexpressway traffic in a commensurate manner, as the growing number of newexpressways completed and opened to traffic had not only contributed toeconomic growth, but had also served to mitigate traffic growth on existingexpressways.Among the total income of Rmb2,212.0 million realized by the Group during thePeriod, Rmb1,754.0 million, or approximately 79.3%, was attributable to tollincome generated by the two major expressways owned and operated by the Group,with the remaining Rmb458.0 million, or approximately 20.7%, attributable tothe Group's toll road-related business operations.During the Period, income from toll road operations grew 8.4% compared to thesame period in 2005, while income from toll road-related business operationsgrew 226.0%. A breakdown of the Group's income during the Period is set outbelow: Six months ended June 30, 2006 2005 Rmb'000 Rmb'000 % Change Toll income Shanghai-Hangzhou-Ningbo Expressway 1,344,554 1,215,355 10.6 Shangsan Expressway 409,504 402,549 1.7 Other income Service areas 432,007 116,696 270.2 Advertising 25,965 23,786 9.2 Subtotal 2,212,030 1,758,386 25.8 Less: Revenue taxes (25,626) (84,474) -69.7 Revenue 2,186,404 1,673,912 30.6 =========== =========== ===========Toll Road OperationsDaily average traffic volume on the Shanghai-Hangzhou-Ningbo Expressway duringthe Period was 37,759 in full-trip equivalent, representing a growth of 7.8%year-on-year. The traffic on the expressway's two sections underwent varyingdegrees of growth: the growth rate for the Shanghai-Hangzhou section was 13.4%year-on-year, while that for the Hangzhou-Ningbo section was 3.5% year-on-year.Meanwhile, daily average traffic volume on the Shangsan Expressway during thePeriod was 19,922 in full-trip equivalent, representing a reduction in trafficby 1.5% year-on-year.Slower traffic growth on the Hangzhou-Ningbo section was partly due to trafficdiversions to other newly built expressways, and partly due to safety measuresintroduced along certain areas on the section affected by the ongoing wideningworks. The slight decline in traffic on the Shangsan Expressway was the resultof traffic diversions to both newly built expressways and a parallel nationalroad reopened to traffic after renovation.The rate of growth in toll income was slightly higher than that in trafficvolume on the two expressways, thanks to a continued improvement in trafficmix, where the higher fee-paying heavy trucks have taken up a greaterproportion of the overall traffic.Toll income from the Shanghai-Hangzhou-Ningbo Expressway during the Periodamounted to Rmb1,344.6 million, representing an increase of 10.6% year-on-year,while toll income from the Shangsan Expressway during the Period amounted toRmb409.5 million, representing an increase of 1.7% year-on-year.Toll Road-Related Business OperationsThrough its subsidiaries, the Group also carried out toll road-related businessoperations along expressways, including gas stations, restaurants and shops inservice areas, roadside billboard advertising and vehicle services.During the Period, the toll road-related business operations continued toexpand. With a change in the operating mode of its gas stations from consigningto self-operating, income from toll road-related business operations reachedRmb458.0 million, representing an increase of 226.0% year-on-year. Discountingthe effect of change in the operating mode of gas stations, the growth inincome would be 16.1%.Long-term InvestmentsTraffic volume on Shida Road, a 9.45km toll road owned and operated by HangzhouShida Highway Co., Ltd. ("Shida Co.", a 50% owned jointly controlled entity ofthe Company), grew 16.5% year-on-year during the Period, leading to a 15.8%growth in toll income for the jointly controlled entity. Net profit realized byShida Co. during the Period was Rmb20.3 million.During the Period, Zhejiang Expressway Petroleum Development Co., Ltd.("Petroleum Co.", a 50% owned associate of the Company) saw its revenue grow43.6% year-on-year, while net profit realized was Rmb7.8 million, representinga decrease of 3.6%. The decrease in net profit was mainly attributable to itsinability to adjust its retail gas prices in line with rises in purchase pricesunder the current regulatory control regime.JoinHands Technology Co., Ltd. ("JoinHands Technology", a 27.58% ownedassociate of the Company) continued to experience weak demand for its computerproducts. Revenue for the associate company was Rmb8.1 million during thePeriod, representing a decrease of 11.5% year-on-year, while a net profit ofRmb17.0 thousand was realized.Updates on the Acquired Securities BusinessFollowing the acquisition of 70.46% equity interest in Kinghing Securities Co.,Ltd. ("Kinghing Securities") by Zhejiang Shangsan Expressway Co., Ltd. (a73.625% owned subsidiary of the Company) on April 20, 2006, the acquisition wasapproved by the China Securities Regulatory Commission on June 14, 2006, withthe Company assuming control over the securities company starting from July 1,2006. On August 4, 2006, the securities company was renamed as "ZheshangSecurities Co., Ltd." ("Zheshang Securities"), thereby signifying a new chapterof the company.The results of Zheshang Securities have not yet been consolidated into thefinancial statements of the Group. Based on accounting principles generallyaccepted in the PRC, the company realized Rmb192.8 million in revenue andRmb100.1 million in profit before taxation during the Period amid favorablesentiment in the domestic capital market.As at June 30, 2006, and based on accounting principles generally accepted inthe PRC, the net asset value of Zheshang Securities stood at Rmb548.5 million.Expressway Widening ProjectPhase III of the project to widen the Shanghai-Hangzhou-Ningbo Expressway fromfour lanes to eight lanes (the "Widening Project") progressed as planned duringthe Period along the Hangzhou-Ningbo section. With ground preparation being thecurrent focus of ongoing works, the laying of foundation was completed by theend of June 2006 and overall completion is expected by the end of 2007.While every effort was made to minimize the impact of construction works on thenormal traffic flow along the Hangzhou-Ningbo section, some of the safetymeasures introduced in areas affected by the Widening Project did slow downtravel speed and subsequently reduce the carrying capacity of existing lanes atcertain times.FINANCIAL ANALYSISThe Group adopts a prudent financial policy with an aim to provide shareholderswith sound returns over the long-term.During the Period under review, profit attributable to equity holders of theCompany recorded a growth of 8.9% to Rmb688.7 million (2005 restated: Rmb632.7million), while earnings per share was Rmb15.86 cents (2005 restated: Rmb14.57cents), resulting in an increase in return on equity from 5.7% for the sameperiod last year to 6.1% for the Period.Liquidity and Financial ResourcesAs at June 30, 2006, current assets of the Group amounted to Rmb1,738.9million, amongst which Rmb600.0 million held as other receivables was capitalcontribution to Kinghing Securities (subsequently renamed as ZheshangSecurities Co., Ltd.). This has increased the percentage of accountreceivables, other receivables and inventories amongst total current assetsfrom 24.0% as at the start of the Period to 41.1% as at the end of the Period.As at June 30, 2006, the Group had adequate net cash inflow generated fromoperating activities amounting to Rmb1,106.9 million, representing an increaseof 4.2% over the same period last year.The Group's financial position remained healthy. As at June 30, 2006, theGroup's cash and cash equivalents amounted to Rmb846.9 million as compared withRmb723.5 million as at December 31, 2005. In addition, the Group held Rmb149.6million in time deposits and Rmb10.0 million in money market funds as at June30, 2006.The Directors do not expect the Company to experience any problem withliquidity and financial resources in the near future.Borrowings and SolvencyAs at June 30, 2006, the Group's total interest-bearing borrowings stood atapproximately Rmb2,247.5 million (December 31, 2005: Rmb2,434.7 million), ofwhich Rmb1,502.8 million were not repayable within one year (December 31, 2005:Rmb1,548.2 million). The borrowings mainly comprised outstanding balances ofthe World Bank loans of Rmb699.9 million in Renminbi equivalent, loans fromseveral domestic commercial banks totaling Rmb475.0 million and corporate bondsamounting to Rmb1 billion that was issued by the Company in 2003 for a term of10 years.During the Period, the interest rates of the Group's semi-annual and annualdomestic commercial bank borrowings, totaling Rmb475.0 million, were fixedbetween 5.022% and 5.58% per annum; the interest rate for Rmb72.6 milliongovernment loans remained fixed at 3.00% per annum; and the annual coupon ratefor the Rmb1 billion corporate bonds was fixed at 4.29%, with interest payableannually. During the Period, the floating rate of the Group's Rmb699.9 millionWorld Bank loans, denominated in US dollar was 4.51% per annum.During the Period, interest expenses amounted to Rmb54.8 million and profitbefore interest and tax amounted to Rmb1,180.4 million. The interest coverratio (profit before interest and tax over interest expenses) stood at 21.6(2005 restated: 22.3).The asset-liability ratio (total liabilities over total assets) was 23.2% as atJune 30, 2006 (December 31, 2005: 24.2%).Capital StructureThe total equity of the Group as at June 30, 2006 amounted to Rmb12,361.9million (December 31, 2005: Rmb12,363.9 million), while fixed-rate liabilitiesof the Group amounted to Rmb1,547.6 million, floating-rate liabilities of theGroup amounted to Rmb699.9 million and interest-free liabilities of the Groupamounted to Rmb1,480.1 million, representing 76.8%, 9.6%, 4.4% and 9.2% of theGroup's capital, respectively.The gearing ratio, which represents the sum of fixed-rate liabilities,floating-rate liabilities and interest-free liabilities over total equity, was30.2% as at June 30, 2006 (December 31, 2005: 31.9%).Capital Expenditure Commitments and UtilizationTotal capital expenditures of the Group and the Company for the Period amountedto Rmb741.3 million and Rmb215.1 million, respectively, with Rmb468.9 millionincurred by the investment in Kinghing Securities and Rmb226.0 million incurredby the Widening Project.As at June 30, 2006, capital expenditures committed by the Group and theCompany were Rmb3,836.7 million and Rmb2,934.3 million, respectively. Of thetotal capital expenditure commitments of the Group, 55.6% will be used on theWidening Project and 28.9% will be used on the construction of JiashaoExpressway.The above capital expenditure needs will mainly be financed by the Group'sinternal financial resources, with a preference for debt financing to meet anyshortfalls thereof.Contingent Liabilities and Pledge of AssetsAs at June 30, 2006, the Group did not have any contingent liabilities nor anypledge of assets.Foreign Exchange ExposureAs at June 30, 2006, except for the World Bank loans of approximately Rmb699.9million, denominated in US dollar, and dividends for H shares payable by theCompany that are settled in HK dollar, the Group's principal operations aretransacted and booked in Renminbi. Therefore, the Group's exposure to foreignexchange fluctuations is limited and the Group has not entered into anyfinancial instrument for hedging purposes.Although the Directors do not foresee any material foreign exchange risks forthe Group, there is no assurance that any further changes in the foreignexchange environment will not adversely affect the operating results of theGroup in the future.HUMAN RESOURCESThere were no significant changes to the Company's overall number of employees,remuneration policies, bonus schemes and training schemes from what have beendisclosed in the Company's latest annual report.OUTLOOKBeing the first year in the Eleventh Five-Year National Economic DevelopmentPlan, 2006 started off well for Zhejiang Province, and there is good reason tobelieve that strong economic growth will continue with the relevant authoritieshaving placed growing emphasis on stability and balance in managing economicaffairs. The provincial economy is expected to further benefit from adouble-digit growth in the national economy and the ongoing globalization thatcontinues to generate robust growth in world trade.While traffic on the two expressways operated by the Group is expected tocontinue to grow into the second half of 2006, the proportion of higherfee-paying heavy trucks among the overall traffic is expected to stabilizeafter having more than doubled over the past two years. Therefore, the rate ofgrowth in toll income should more closely mirror that of traffic volume as weapproach the end of the year.As a trial case to further develop toll road-related businesses, ZhejiangExpressway Investment Development Co., Ltd. (a 51% owned subsidiary of theCompany) is planning to join local investors to develop a shopping complex nearthe Wangdian exit along the Shanghai-Hangzhou Expressway. The complex, expectedto be completed by the end of 2008, will house a multitude of shops,restaurants, as well as leisure and entertainment facilities.PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARESNeither the Company nor its subsidiaries has purchased, sold, redeemed orcancelled any of the Company's shares during the Period.COMPLIANCE WITH APPENDIX 14 TO THE LISTING RULESThe Company was in compliance with the code provisions in the Code on CorporateGovernance Practices set out in Appendix 14 to the Listing Rules during thePeriod. By order of the Board GENG Xiaoping Chairman Hangzhou, the PRC, August 29, 2006As 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 of the Company are: Messrs. Zhang Luyun and Zhang Yang;and the independent non-executive directors of the Company are: Messrs. TungChee Chen, Zhang Junsheng and Zhang Liping.ENDZHEJIANG EXPRESSWAY CO LDRelated Shares:
ZHEH.L