2nd Apr 2009 13:07
2008 Annual Report
Leveraging Opportunities, Pursuing Growth
In 2009, both global and China's economies will still be affected by thefinancial crisis, thereby bringing trials to the overall operations of thedomestic toll road industry. Meanwhile, the successive completion and openingof neighbouring toll roads will continue to cause traffic diversions from theCompany's toll road operations. Year 2009 will indeed be a challenging year forZhejiang Expressway.
Faced with adversities, staff of all levels at Zhejiang Expressway will be united to discharge their duties and strive to overcome different challenges. Based on our solid foundation, we will try every possible means to leverage opportunities and pursue growth, bringing the Company to a new platform.
Contents 2 Definition of Terms 4 Company Profile 6 Review of Major Corporate Events 7 Particulars of Major Road Projects 8 Financial and Operating Highlights 10 Chairman's Statement 14 Management Discussion and Analysis 26 Principle Risks and Uncertainties 28 Corporate Governance Report 33 Directors, Supervisors and Senior Management Profiles 37 Report of the Directors 43 Report of the Supervisory Committee 44 Independent Auditor's Report 46 Consolidated Financial Statements & Notes 112 Corporate Information 114 Location Map of Expressways in Zhejiang Province
Definition of Terms
ADR(s) American Depositary Receipt(s)ADS(s) American Depositary Share(s)Advertising Co Zhejiang Expressway Advertising Co., Ltd., a 70% owned subsidiary of Development CoAudit Committee the audit committee of the Company Board the board of directors of the Company
Company or Zhejiang Expressway Co., Ltd., a joint stock limited company incorporated in
the Zhejiang PRC with limited liability on March 1, 1997 Expressway Communications Zhejiang Communications Investment Group Co., Ltd., a Investment Group wholly State-owned enterprise established on December 29, 2001Development Co Zhejiang Expressway Investment Development Co., Ltd., a 51% owned subsidiary of the CompanyDirectors the directors of the CompanyGDP gross domestic productGroup the Company and its subsidiariesH Shares the overseas listed foreign shares of Rmb1.00 each in the share capital of the Company which are primarily listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars since May 15, 1997Hong Kong Stock The Stock Exchange of Hong Kong Limited Exchange Huajian Huajian Transportation Economic Development Center, a State-owned enterpriseJiaxing Co Zhejiang Jiaxing Expressway Co., Ltd., a 99.9995% owned subsidiary of the CompanyJinhua Co Zhejiang Jinhua Yongjin Expressway Co., Ltd., a 23.45% owned associate of the CompanyJoinHands JoinHands Technology Co., Ltd., a 27.582% owned associate Technology of the CompanyListing Rules the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong LimitedPeriod the period from January 1, 2008 to December 31, 2008Petroleum Co Zhejiang Expressway Petroleum Development Co., Ltd., a 50% owned associate of the CompanyPRC the People's Republic of ChinaRmb Renminbi, the lawful currency of the PRCServices Co Zhejiang Expressway Vehicle Towing and Rescue Services Co., Ltd.（, a 85% owned subsidiary of Development CoShangsan Co Zhejiang Shangsan Expressway Co., Ltd., a 73.625% owned subsidiary of the CompanyShareholders the shareholders of the CompanyShida Co Hangzhou Shida Highway Co., Ltd., a 50%
jointly-controlled
entity of the CompanySupervisory the supervisory committee of the Company Committee Yuhang Co Zhejiang Yuhang Expressway Co., Ltd., a 51% owned subsidiary of the CompanyZheshang Zheshang Securities Co., Ltd., a 70.46% owned subsidiary of Securities the Shangsan CoCompany Profile
Zhejiang Expressway is an infrastructure company principally engaged in investing in, developing and operating high grade roads. The Company and its subsidiaries also carry out certain ancillary businesses such as automobile servicing, operation of gas stations and billboard advertising along expressways, as well as securities business.
Major assets under management include the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142 km Shangsan Expressway, ancillary facilities along the two expressways, and Zheshang Securities. Both expressways are situated within Zhejiang Province in the PRC. As at December 31, 2008, total assets of the Company and its subsidiaries amounted to Rmb25,287.52 million.
The Company was incorporated on March 1, 1997 as the main vehicle of the Zhejiang Provincial Government for investing in, developing and operating expressways and Class 1 roads in Zhejiang Province.
Incorporated on December 29, 2001, Communications Investment Group, thecontrolling shareholder of the Company, is a provincial-level communicationscompany which is wholly-owned by the State and established by the ZhejiangProvincial Government. It mainly operates a diversity of businesses, such asinvestment, operations, maintenance, toll collection and ancillary services ofexpressways; construction and building of transportation project, ocean andcoastal transport; as well as real estates, etc. As at December 31, 2008, theconsolidated assets of Communications Investment Group totalled Rmb121.355billion.The H Shares of the Company, which represent approximately 33% of the issuedshare capital of the Company, were listed on the Hong Kong Stock Exchange onMay 15, 1997, and the Company subsequently obtained a secondary listing on theLondon Stock Exchange on May 5, 2000.
On February 14, 2002, a Level I American Depositary Receipt program sponsored by the Company in respect of its H Shares, with the Bank of New York as depositary, was established in the United States and became effective.
On August 12, 2005, a 10-year corporate bond of the Company, issued on January 24, 2003, was listed on the Shanghai Stock Exchange.
In addition to managing well the existing expressway operations under theGroup, the Company will continue to unearth potential and improve efficiency,while striving to explore the value-added of toll road-related businessoperations. Meanwhile, the Company will continue to improve the core competenceof the securities business, strengthen risk control capabilities and graspevery opportunity in new project investment and acquisition, with the aim ofbecoming a leading expressway operator in China.
Set out below is the corporate and business structure of the Group:
http://www.prnasia.com/sa/2009/04/01/200904011708.jpg
Review of Major Corporate Events
1. During the period from January to November of 2008, additional service
areas of the Company, including the Pinghu Service Area on the Hangpu
Expressway, the Wangqing Tuo Service Area and the Sicun Dian Service Area on
the Beijing-Shanghai Expressway, the Cicheng Service Area on the Shenhai
Expressway, the Changqing Service Area on the Shandong Jihe Expressway and the
North-shore Service Area on the Hangzhou Bay Bridge, consecutively started
official operation.
2. On March 10, 2008, the Company announced its 2007 annual results in
Hong Kong, and thereafter conducted its annual results presentations in Hong
Kong, Singapore and Europe.
3. On May 15, 2008, the Company convened its 2007 annual general meeting.
The meeting approved the distribution of a final dividend of Rmb 0.24 per
share, the re-appointment of Deloitte Touche Tohmatsu Certified Public
Accountants Hong Kong as the international auditors of the Company, and the
re-appointment of Zhejiang Pan China Certified Public Accountants as the PRC
auditors of the Company.
4. On May 15, 2008, the Company announced its 2008 first quarterly
results.
5. On August 4, 2008, the Company announced its 2008 interim results in
Hong Kong, and thereafter conducted its interim results presentations in Hong
Kong.
6. On September 22, 2008, the Company convened a 2008 extraordinary
general meeting. The meeting approved the distribution of an interim dividend
of Rmb 0.07 per share.
7. On November 11, 2008, the Company announced its 2008 third quarterly
results.
8. On November 27, 2008, the Company announced its withdrawal from
investment and participation in the development and operation of the
Jiaxing-Shaoxing Expressway.
9. On February 27, 2009, the Company convened an extraordinary general
meeting to elect and appoint members of the 5th Board of Directors and the
Supervisory committee of the Company, and approve the remuneration of all
directors and supervisors. The term of the 5th Board of Directors and the
Supervisory committee is for a period of three years from March 1, 2009 to
February 29, 2012.
10. On February 27, 2009, the Company convened the first meeting of the
5th Board of Directors to elect Mr. Chen Jisong as Chairman of the Company and
appoint him as Chairman of the Strategy Committee, Mr. Tung Chee Chen as
Chairman of the audit committee and Ms. Zhang Luyun as Chairwoman of the
Nomination and Remuneration Committee. At the meeting, the Company also
appointed other senior management members including the appointment of Mr. Zhan
Xiaozhang as General Manager of the Company, with a term of office of three
years from March 1, 2009 to February 29, 2012.
To view the Particulars of Major Road Projects, please visit: http://www.prnasia.com:80/xprn/sa/attachment/2009/04/20090401-42246.pdf
To view the Financial and Operating Highlights, please visit: http://www.prnasia.com:80/xprn/sa/attachment/2009/04/20090401-520087.pdf http://www.prnasia.com/sa/2009/04/01/200904011815.gif
Chairman's Statement
By leveraging new opportunities and pursuing new growth, we will build Zhejiang Expressway into a leading expressway operator in China.
Dear Shareholders,
Advancing to a New Platform with Renewed ForcesIt is my honour to present you this annual report as chairman of the Company.The new session of the Board of Directors of the Company was elected at theExtraordinary General Meeting and the Board meeting held on February 27, 2009.As the incoming chairman, I would like to extend my sincerest gratitude to MrGeng Xiaoping, the former chairman, who had led the management team during thelast decade and had made contributions to the Company.Year 2008 was the most challenging year in Zhejiang Expressway's corporatehistory. For the first fiscal year since its listing, Zhejiang Expresswayrecorded an earnings decline. For the year ended 31 December 2008, the Companyrecorded a total revenue of Rmb6,323.47 million, a decrease of 10.1%year-on-year, while net profit dropped 21.7% to Rmb1,892.79 million. Earningsper share was Rmb43.58 cents (2007: Rmb55.63 cents).Indeed, I assumed the chairmanship with both worries and high hopes. Worriesbecause the Company is faced with some very challenging prospects for itsbusiness, primarily due to the economic slowdown and the impact of trafficdiversions to competing expressways nearby. High hopes because given ZhejiangExpressway more than ten-years of solid development foundation - especially itstwo high-quality expressways, the Shanghai-Hangzhou-Ningbo Expressway and theShangsan Expressway - together with an experienced and fine management team, Ibelieve that the Company will advance to a new platform.
For a company that has gone through over ten years' double-digit growth, we at Zhejiang Expressway do not feel good about our first-ever earnings decline.
While we are well aware that Zhejiang Expressway performed quite well with areasonable amount of profits recorded for a year where many companies got"burnt" heavily, we cannot afford to be complacent. Instead, we would treatthe declined results in 2008 as a wake-up call to all of us at ZhejiangExpressway: growth is not guaranteed. In view of a much more challengingenvironment than before, we need to be better equipped than ever. Withcontinued traffic diversions from competing nearby highways, including theHangpu Expressway and the Hangzhou Bay Bridge, and with economic growth slowedfor the first time since many years, the Company can no longer expect that itsrevenue will be fuelled by organic traffic growth on its expressways. Instead,we must rely on our own efforts to re-build growth: by stimulating trafficgrowth, further trimming our operating costs, and seeking new ways to enhanceearnings.We will continue our efforts in enhancing comfort and convenience for ourexpressway users, with an aim to retain existing customers as well as toattract new ones. We will adopt active marketing and publicity measures toincrease the community's awareness about our expressways, their access pointsand the travelling benefits that they offer. Meanwhile, we will continue to becommitted to our maintenance endeavours which are critical for both loweringmaintenance costs and maintaining travel comfort for our customers. Our effortsin researching and developing new maintenance materials and technologies willbe strengthened, with an aim to extend the longevity of our road assets and toachieve better cost efficiency in our day-to-day operations.Whilst maintaining competitiveness of our core toll road business, we also needto be aggressive in seeking new income sources for the Company. Our effortswill include actively searching for the acquisition of quality expresswayassets, building Zhejiang Expressway into an excellent expressway operator inChina. The development of the service area management business has fared verywell in the past 2-3 years, with several new service area management contractsbeing won during 2008. The fact that we won several contracts granted byexpressway owners outside Zhejiang Province certainly demonstrates ourcompetitiveness in this business. Indeed, as Zhejiang Expressway is building abrand name in the service area management business, we will continue tocapitalize on such competitive advantage to seek further growth. Meanwhile, wewill continue to strengthen our own service area operations so as to attractmore travellers' patronage and expand revenue.As both the central government and Zhejiang's provincial government are rollingout various measures to stimulate the economy, and in particular the centralgovernment's long-term commitment to increase the country's transportationinfrastructure investments, as a leading expressway operator ZhejiangExpressway is faced with good development opportunities. Operating two ofZhejiang Province's key transportation trunks, one of which is the province'sonly eight-lane expressway to date, we at Zhejiang Expressway are wellpositioned to re-capture growth when better times return. All we need is tofurther strengthen ourselves in order to regain growth, a growth that in viewof the present tough environment is achievable only with hard-earned efforts.
With our renewed forces, I am confident that we will sail through the storms to a new platform with even greater competitiveness.
Chen JisongChairmanMarch 17, 2009The principal businessFaced with escalating competition among toll roads, the Company is determinedto enhance the competitive edge of its toll road operation. The Company hasproactively researched and introduced a whole package of electronic tollcollection equipment and services so as to upgrade the convenience and speed ofits toll collection system, thereby putting the Company's innovative standardsat the forefront of its industry peers. Meanwhile, the maintenance departmentof the Company has continuously enhanced the applications of new technologies,materials and equipment so as to provide a comfortable, safe and highlyefficient traffic environment for drivers. In the future, the Company willcontinue to exploit its management potential and to enhance its sales andmarketing and customer service, seeking the best possible development for theprincipal business of Zhejiang Expressway.
Management Discussion and Analysis
Business Review
In 2008, the global financial crisis, which was triggered by the US subprimecredit crisis, continued to spread, resulting in the increasing difficultiesfor China's economic operations. The growth rate of China's GDP exhibited asignificant slowdown compared to the past, with a decrease of 4 percentagepoints year-on-year. Faced with tough challenges presented by the unprecedentedglobal financial crisis as well as the severe impact caused by naturaldisasters such as the snowstorms and the mega earthquake in China, ZhejiangProvince's economic development could not escape unaffected. During the Period,Zhejiang Province's GDP grew by 10.1%, with the growth rate decreased by 4.6percentage points compared to 2007.To view the GDP Growth Rate, please visit:http://www.prnasia.com/sa/2009/04/01/200904011818.gifAffected by the external factors including the macro-economy, natural disastersand government policies, together with traffic diversions caused byexpressways' network construction, both traffic volumes and toll incomesgenerated on the Group's two expressways witnessed declines. During the Period,the Group realized a total income of Rmb6,510.21 million, representing adecrease of 10.7% year-on-year; of which Rmb3,569.75 million was attributableto the two major expressways operated by the Group, representing 54.8% of thetotal income; Rmb1,766.00 million was attributable to the Group's tollroad-related businesses such as service area operations, gas stations,advertising business and so forth, representing 27.1% of the total income; andRmb1,174.47 million was attributable to the securities business, representing18.1% of the total income.
To view the Mileage of Expressway in Operation in Zhejiang Province, please visit: http://www.prnasia.com/sa/2009/04/01/200904011824.gif
A breakdown of the Group's income for the Period is set out below:
2008 2007 Rmb'000 Rmb'000 %Change
Toll income
Shanghai-Hangzhou-Ningbo Expressway 2,758,286 3,145,276 -12.3%
Shangsan Expressway 811,460 879,087 -7.7%Service areas income 1,679,593 1,271,125 32.1%Advertising income 82,622 70,870 16.6%Securities business income 1,174,465 1,920,525 -38.9%Other income 3,787 1,217 211.2%Subtotal 6,510,213 7,288,100 -10.7%Less: Revenue taxes (186,743) (257,720) -27.5%Revenue 6,323,470 7,030,380 -10.1%Toll Road OperationsChina's macro-economic growth witnessed a slowdown, thereby causing the organicgrowth rates of traffic volumes of the Group's two expressways to continue tofall; of which the organic growth rate of traffic volume of theShanghai-Hangzhou-Ningbo Expressway reported a significant decrease while theShangsan Expressway hardly recorded any organic growth in traffic volume.During the Period, traffic volumes and toll incomes generated on theShanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway witnessedsubstantial decreases due to the direct impact of traffic diversions caused bythe expressway network. The Hangpu Expressway, which opened to traffic in early2008, has directly diverted part of the traffic from the Shanghai-Hangzhousection of the Shanghai-Hangzhou-Ningbo Expressway since February, therebyhaving material effect on toll income. The Hangzhou Bay Bridge, opened topassenger vehicles in early May 2008 and subsequently opened to truck trafficin mid October, has diverted traffic in stages from the entireShanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway.
To view the Daily Traffic Volume of Shanghai-Hangzhou-Ningbo Expresswayand Shangsan Expressway, please visit: http://www.prnasia.com/sa/2009/04/01/200904011839.gif
In view of the snowstorms in China in early 2008, Zhejiang Provincial Government implemented a toll-free policy for carrier vehicles of fresh agricultural goods and products in order to ensure the supply of those goods and products. Accordingly, toll income of the Company decreased.
Affected by the aforementioned unfavourable factors, the average daily trafficvolume in full-trip equivalents along the Shanghai-Hangzhou-Ningbo Expresswaywas 37,688 during the Period, representing a decrease of 12.4% year-on-year. Inparticular, the average daily traffic volume in full-trip equivalents along theShanghai-Hangzhou section of the Shanghai-Hangzhou-Ningbo Expressway was37,984, representing a decrease of 20.8% year-on-year, and that along theHangzhou-Ningbo section was 37,477, representing a decrease of 5.0%year-on-year. The average daily traffic volume in full-trip equivalents alongthe Shangsan Expressway was 19,895 during the Period, representing a decreaseof 8.1% year-on-year.Total toll income from the 248km Shanghai-Hangzhou-Ningbo Expressway and the142km Shangsan Expressway amounted to Rmb3,569.75 million during the Period,representing a decrease of 11.3% year-on-year. In respect of such income, tollincome from the Shanghai-Hangzhou-Ningbo Expressway amounted to Rmb2,758.29million, representing a decrease of 12.3% year-on-year, while toll income fromthe Shangsan Expressway amounted to Rmb811.46 million, representing a decreaseof 7.7% year-on-year.
Toll Road-related Business Operations
The Company also operates certain toll road-related businesses through its subsidiaries and associated companies along its expressways, including gas stations, restaurants and shops in service areas, as well as advertising and vehicle service businesses along its expressways.
During the Period, falling traffic volumes of the Group's two expressways andweakening consumption sentiments have brought slight income declines at theservice areas. However, due to the rising retail prices of petroleum productsduring the Period, income generated from gas station operations at the serviceareas realized a significant growth. In addition, income from the advertisingbusiness also witnessed a growth as a result of further development of theadvertising business.Leveraging on its impressive operating results and extensive managementexperience in the service area business, over the past two years, the Group hassuccessfully bid for the operating rights of a number of service areas withterms ranging between 5 to 10 years, including the Pinghu Service Area on theHangpu Expressway, the Wangqing Tuo Service Area and the Sicun Dian ServiceArea on the Beijing-Shanghai Expressway, the Cicheng Service Area on theShenhai Expressway, the North-shore Service Area on the Hangzhou Bay Bridge andthe Changqing Service Area on the Shandong Jihe Expressway. These service areaswere opened consecutively during the Period.
During the Period, income from the aforementioned toll road-related business operations amounted to Rmb1,781.10 million, representing a year-on-year increase of 30.7%.
Securities Business
The domestic stock market remained sluggish with various stock indices droppingsignificantly and trading volume continued to shrink. As a result, the Group'sincome from the securities business reported a significant decline. During thePeriod, the securities business realized an operating income of Rmb1,174.47million, representing a decrease of 38.9% year-on-year. Among such income, thebrokerage commission income was Rmb1,006.74 million, representing ayear-on-year decrease of 43.8%; bank interest income amounted to Rmb167.73million, representing a year-on-year increase of 30.7%. Apart from that, theproprietary securities trading business recorded a loss of Rmb316.21 million asaccounted for in the income statement (profit for 2007: Rmb475.83 million).
Long-term Investments
During the Period, traffic volume on the 9.45km Shida Road (operated byHangzhou Shida Highway Co., Ltd., a 50% owned jointly-controlled entity of theCompany) increased by 1.6% year-on-year, while toll income amounted to Rmb91.66million, up 3.6% year-on-year. Net profit realized was Rmb47.49 million,increased by 16.4% year-on-year.Petroleum Co. (a 50% owned associate of the Company) benefited from the surgein oil prices during the Period, realizing an income of Rmb3,077.86 million,representing an increase of 9.9% year-on-year while net profit realized wasRmb22.02 million.JoinHands Technology (a 27.582% owned associate of the Company) obtained itsincome mainly from its printing operations and property leasing during thePeriod. Due to a lack of improvement in the operations, the associate companyincurred a loss of Rmb5.05 million during the Period.Jinhua Co. (a 23.45% owned associate of the Company) operates the 69.7Km Jinhuasection of Ningbo-Jinhua Expressway. In 2008, the average daily traffic volumein full-trip equivalents along the section was 7,387, representing an increaseof 2.3% year-on-year; while toll income amounted to Rmb144.16 million, anincrease of 0.8% year-on-year. However, due to the associate company's heavyfinancial burdens, the associate company incurred a loss of Rmb118.09 millionduring the Period.On 26 November 2004, the Company entered into an agreement with Jiaxing Jiashaoand Shaoxing Communication to set up the Zhejiang Jiashao Expressway Co., Ltd,("JV Co"), for the purpose of investment and participation in the developmentand operation of the Jiaxing-Shaoxing Expressway. The Company has on November27, 2008 announced its withdrawal from such investment and participation. A sumof Rmb35 million representing the capital investment by the Company in theproject to date, together with disposal gain thereon in the amount of Rmb8.37million, calculated on the basis of the prevailing basic interest rate forone-year loans announced by the People's Bank of China, was reimbursed by theJV Co to the Company on November 28, 2008.
Financial Analysis
The Group adopts a prudent financial policy with an aim to provide shareholders with sound returns over the long-term.
During the Period, profit attributable to equity holders of the Company was approximately Rmb1,892.79 million, representing a decrease of 21.7% year-on-year, while earnings per share for the Company was Rmb43.58 cents.
Profitability
The compound annual growth rates of earnings per share and return on equity inthe last five years were 11.5% and 4.9%, respectively. Details are as follows: Year ended December 31, 2004 2005 2006 2007 2008EPS (Rmb cents) 28.22 32.95 38.06 55.63 43.58YoY Growth rate 21.5% 16.8% 15.5% 46.2% -21.7%ROE 11.4% 12.8% 13.9% 18.3% 13.8%YoY Growth rate 15.2% 11.8% 8.7% 31.4% -24.3%
Liquidity and Financial Resources
As at December 31, 2008, current assets of the Group amounted to Rmb10,450.20million in aggregate (2007: Rmb12,178.25 million), of which bank balance andcash accounted for 38.8% (2007: 24.9%), bank balance held on behalf ofcustomers accounted for 54.0% (2007: 59.4%) and held-for-trading investmentsaccounted for 2.4% (2007: 5.1%). Current ratio (current assets over currentliabilities) as at December 31, 2008 was 1.4 (2007: 1.2). Excluding the effectof customer deposits arising from the securities business, the resultantcurrent ratio of the Group (current assets less balance of cash held on behalfof customers over current liabilities less balance of customer deposits arisingfrom securities dealings ) of the Group was 2.6 (2007: 1.8). As at December 31, 2008 2007 Rmb'000 Rmb'000Cash and cash equivalent Rmb 3,710,493 2,748,980 US$ in Rmb equivalent 22,668 21,507 HK$ in Rmb equivalent 3,784 3,324Time deposits- Rmb 284,068 226,972Held-for-trading investments-Rmb 247,587 621,220Available-for-sale investments- Rmb 28,001 595,758Structure deposit- Rmb 204,667 -Total 4,501,268 4,217,761 Rmb 4,474,816 4,192,930 US$ in Rmb equivalent 22,668 21,507 HK$ in Rmb equivalent 3,784 3,324
The amount for held-for-trading investments of the Group as at December 31,2008 amounted to Rmb247.59 million (2007: Rmb621.22 million), of which 96.5%was invested in corporate bonds, 1.9% was invested in the stock market, whilethe rest was invested in open-end equity funds.
During the Period, net cash inflow generated from the Group's operating activities amounted to Rmb2,699.18 million, representing a decrease of 25.6% over 2007.
The Directors do not expect the Company to experience any problem with liquidity and financial resources in the foreseeable future.
Borrowings and Solvency
As at December 31, 2008, total liabilities of the Group amounted to Rmb8,990.25million, of which 17.9% was borrowings and 62.4% was customer deposits arisingfrom securities dealings.Total interest-bearing borrowings of the Group as at December 31, 2008 amountedto Rmb1,609.76 million, representing a decrease of 0.8% over the beginning ofthe year. The borrowings comprised outstanding balances of the World Bankloans, denominated in US dollar, of approximately Rmb477.36 million in Renminbiequivalent; government loans of Rmb37.40 million; loans from domesticcommercial banks totalling Rmb95.00 million; and corporate bonds amounting toRmb1 billion that was issued by the Company in 2003 for a term of 10 years. Ofthe interest-bearing borrowings, 76.3% were not repayable within one year.
Maturity Profiles Gross Within 2-5 years Beyond amount 1 year inclusive 5years Rmb'000 Rmb'000 Rmb'000 Rmb'000 Floating rates World Bank loan 477,364 248,497 228,867 - Commerical bank loans 65,000 65,000 - -Fixed rates Commercial bank loans 30,000 30,000 - - Government loans 37,400 37,400 - - Corporate bonds 1,000,000 - 1,000,000 -Total as at December 31, 2008 1,609,764 380,897 1,228,867 -Total as at December 31, 2007 1,621,990 288,045 333,945 1,000,000As at December 31, 2008, the Group's loans from domestic commercial bankscomprised semi-annual and annual short-term loans, with interest rates fixed at6.21% per annum for semi-annual loans and with interest rate floated from 6.21%to 7.20% per annum for annual loans; the interest rate for government loans wasfixed at 3.00% per annum; and the annual coupon rate for corporate bonds wasfixed at 4.29%, with interest payable annually. The annual interest rate forcustomer deposits arising from securities dealing was fixed at 0.72% and 0.36%;the annual floating rates of the Group's Rmb477.36 million World Bank loans,denominated in US dollar, were from 2.84% to 5.36%.
Toll road-related business operations
Amid unfavourable market circumstances, our toll road-related businessoperations have continued to develop rapidly and have become another source ofrevenue growth for Zhejiang Expressway. In 2007, the Company made abreakthrough by extending its service area operation beyond its operatingregion: within the following 2 years the Company has won the operating rightsof 3 service areas on the Tianjin Section of the Beijing-Shanghai Expresswayand the Jiaxing Section of the Hangpu Expressway, as well as the North-shoreService Area on the Hangzhou Bay Bridge, the Cicheng Service Area on theShenhai Expressway and the Changqing Service Area on the Shandong JiheExpressway. Looking forward, the Company will be committed to enhancing thequality of its service areas and providing more value-added services todrivers, establishing a quality and professional brand image for ZhejiangExpressway.Total interest expense for the Period amounted to Rmb76.81 million, whileprofit before interest and tax amounted to Rmb3,010.89 million. The interestcover ratio (profit before interest and tax over interest expenses) stood at39.2 (2007: 44.3). 2008 2007 Rmb'000 Rmb'000Profit before tax and interest 3,010,888 4,393,085Interest expenses 76,809 99,100Interest cover ratio 39.2 44.3The asset-liability ratio (total liabilities over total assets) was 35.6% as atDecember 31, 2008 (December 31, 2007: 42.7%). Excluding the effect of customerdeposits arising from the securities business, the resultant asset-liabilityratio (total liabilities less balance of customer deposits arising fromsecurities dealings over total assets less balance of cash held on behalf ofcustomers) of the Group was 17.2% (December 31, 2007: 22.4%).
Capital Structure
As at December 31, 2008, the Group had Rmb16,297.27 million total equity, Rmb6,674.87 million fixed-rate liabilities, Rmb542.36 million floating-rate liabilities and Rmb1,773.02 million interest-free liabilities, representing 64.5%, 26.4%, 2.1% and 7.0% of the Group's total capital, respectively. The gearing ratio, which was computed by dividing the total liabilities less balance of customer deposits arising from securities dealing by total equity, was 20.8% as at December 31, 2008 (December 31, 2007: 28.8%).
As at December 31, 2008 As at December 31, 2007 Rmb'000 % Rmb'000 %Total equity 16,297,268 64.5% 15,764,314 57.3%Fixed rate liabilities ,674,873 26.4% 8,268,661 30.1%Floating rate liabilities 42,364 2.1% 564,590 2.0%Interest-free liabilities 1,773,016 7.0% 2,915,239 10.6%Total 25,287,521 100.0% 27,512,804 100.0%Long-term interest-bearing liabilities 1,228,867 4.9% 1,333,945 4.8%Gearing ratio 1 (Note) 20.8% 28.8% Gearing ratio 2 (Note) 7.5% 8.5% Asset-liability ratio 1 (Note) 35.6% 42.7% Asset-liability ratio 2 (Note) 17.2% 22.4%
Note: Gearing ratio 1 represents the total liabilities less customer
deposits arising from securities dealing to the total equity; gearing ratio 2
represents the total amount of the long-term interest-bearing liabilities to
the total equity; Asset-liability ratio 1 represents total liabilities to total
assets; Asset-liability ratio 2 represents the total liabilities less customer
deposits arising from securities dealing to the total assets less bank balances
held on behalf of customers.
Capital Expenditure Commitments and Utilization
Capital expenditures of the Group and of the Company for the Period totalledRmb311.80 million and Rmb47.72 million, respectively, with Rmb97.40 millionincurred by the acquisition of equipment, Rmb60.25 million incurred by theremaining construction work of widening project, and Rmb60.67 million incurredby the service area renovation and expansion.Capital expenditures committed by the Group and by the Company as at December31, 2008 totalled Rmb1,712.56 million and Rmb849.93 million, respectively.Amongst the total capital expenditures committed by the Group, Rmb1,003.26million will be used on the remaining construction work of the wideningproject, while Rmb130.00 million will be used for the acquisition of equipmentand Rmb84.30 million will be used for the acquisition and construction ofproperties.
Please visit below for the summary as at December 31, 2008: http://www.prnasia.com/xprn/sa/attachment/2009/04/20090401-371033.pdf
The Group will finance its above mentioned capital expenditure commitments mainly with internally generated cash flow, with a preference for debt financing to meet any shortfalls thereof.
Contingent Liabilities and Pledge of Assets
As at December 31, 2008, the Group did not have any contingent liabilities nor any pledge of assets.
Foreign Exchange ExposureSave for the repayment of a World Bank loan of Rmb477.36 million equivalent inUS dollars, 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 used any financial instrument for hedgingpurposes.Although the Directors do not foresee any material foreign exchange risks forthe Group, there is no assurance that foreign exchange risks will not affectthe operating results of the Group in the future.
Human resources
As at December 31, 2008, there were 4,631 employees within the Group, amongst whom, 746 worked in the managerial, administrative and technical positions, while 3,885 worked in fields such as toll collection, maintenance, service areas, securities and futures business outlets.
The Company adopts a remuneration policy that aims to be competitive forattracting and retaining talents. Overall remuneration package for employeesmainly comprised basic salaries, bonuses and benefits. Bonuses are designed toreflect individual job performances, as well as business and share priceperformances of the Group, while benefits for employees come in the form ofcontributions made by the Group to various local social security agenciescovering pension, medical and accommodation concerns that are calculated as apercentage of employees' income and in accordance with relevant rules andregulations.
The Company continued to implement the corporate annuity scheme during the Period, and total pension cost charged to the income statement during the Period amounted to Rmb32.32 million.
Outlook
In 2008, in order to proactively cope with the negative impact brought by theglobal financial crisis to the China's economy, the Chinese government adoptedproactive fiscal policies and moderately loosened monetary policies,implementing a number of measures to boost domestic demand and to facilitate asteady but relatively rapid economic growth. Meanwhile, the Zhejiang ProvincialGovernment improved the economic environment through various measures such asincreasing investment, boosting consumption and stimulating exports. However,the trend of an economic slowdown has persisted since early 2009 and thebenefits of the macro-economic policies have yet to be seen. The economy ofZhejiang Province is expected to see a growth momentum in 2009 in general,though with the possibility of a continued decrease in GDP growth rate.Therefore, the organic growth rates of traffic volumes generated on expresswaysare expected to fall.The traffic diversions caused by the open-to-traffic of the Hangpu Expresswayand the Hangzhou Bay Bridge in 2008 had gradually stabilized at the end of thePeriod, but the Company will continue to be negatively affected by such trafficdiversions. Meanwhile, the entire Zhuyong Expressway will be opened to trafficin May 2009, which is expected to significantly divert traffic from certainsections on the Shangsan Expressway and the Hangzhou-Ningbo Expressway, therebyreducing the respective toll incomes of the Group.
The toll-by-weight policy for trucks is expected to be implemented on the expressways in Zhejiang Province in the second half of 2009 and will help reduce the amount of overloaded trucks, thereby lowering road maintenance costs for the Group in the long run.
A precise toll income allocation scheme for expressways in the ZhejiangProvince is expected to be implemented around mid-2009. The implementation ofthe scheme will help reduce losses in toll incomes on certain road sections ofthe Group due to traffic diversions, thereby making positive contribution totoll income on the Shanghai-Hangzhou-Ningbo Expressway.The non-stop electronic toll collection system within the expressway network inthe Yangtze River Delta Region, which was first implemented in Shanghai andJiangsu, is expected to be extended to other provinces including ZhejiangProvince within 2009. A real expressway network connection in the Yangtze RiverDelta Region will then materialize. The implementation of such a system willfurther enhance the traffic capacities of expressways, thereby providing a moreexpedient and highly efficient service to vehicles travelling on expressways.The fuel tax reform for vehicles implemented in early 2009 combines roadmaintenance fees and other fees previously levied into a single fuel tax, whichis imposed on sale of petroleum products. This fairer levy scheme will have along-term and positive impact on the highway transportation industry.The economic conditions will continue to be grave in 2009. Dragged by factorsincluding slowing economic growth and falling unit retail prices of petroleumproducts, income from toll road-related business operations is expected towitness a significant decline. The Group will proactively adopt variousmeasures to unearth unutilized potentials and to enhance efficiency, as well assaving energy and reducing consumption, so as to contain the rate of revenuedecrease as much as possible.Despite the great uncertainties facing China's stock market, policies adoptedby the government to maintain economic growth and expand domestic demands willbring forth considerable opportunities to the stock market for a turnoverrebound. Meanwhile, the launch of different new operations of the Group'ssecurities business will create room for new development.Faced with the new circumstances, the new session of the Board of the Groupwill proactively identify new opportunities and formulate new developmentplans. Supported by its entire staff, the Group will strive to mitigate andeliminate different negative impact through various means such as attractingmore traffic volumes, seeking new sources of profit growth and controllingcosts, so as to continue to reward our shareholders with satisfactory operatingresults.Other businessesBesides the toll road business and toll road-related business operations, otherbusinesses of the Company have been making contributions to the Company'sdevelopment. The securities business has been extending its presence to majorcities in the whole country, while other associates and jointly-controlledentities such as Petroleum Co have made considerable profit contributions tothe Company. From now on, the Company will proactively leverage opportunitiesand overcome obstacles, seeking further development for each of the otherbusinesses and unearthing new sources of profit growth for Zhejiang Expressway.
Principle Risks and Uncertainties
Toll Business Risks
Economic environment
Various evidences have indicated that the impact of the international financialcrisis that broke out in 2008 on the global real economy is deepening. Adecline in the growth of the PRC's macro economy is still possible. It isanticipated that toll income from the natural growth of traffic volume on theexpressways will drop. The operations, financial position and operating resultsof the Group may be adversely affected as a result.
Competition
The vehicle diversion as a result of the opening of Hangpu Expressway andHangzhou Bay Bridge will continue. Zhuyong Expressway will become fullyoperational in May 2009, which is expected to result in a significant vehiclediversion impact. Therefore, this will lead to competition withShanghai-Hangzhou-Ningbo Expressway and Shangsan Expressway of the Group. Wecannot guarantee traffic volume on the expressways under the Group willmaintain the same level or increase in the future, and that the operatingresults of the Group will not be affected.
Concession period extension
Since the expansion works of Shanghai-Hangzhou-Ningbo Expressway has beencompleted, we plan to apply for the extension of the concession period for theconstruction and management of Shanghai-Hangzhou-Ningbo Expressway and chargingtolls from Shanghai-Hangzhou-Ningbo Expressway. We cannot guarantee theZhejiang Provincial Government will timely approve the application forextending the concession or that no material delays or serious difficultieswill arise in the course of the application for extending the concessionperiod, which may may have an adverse impact on the operations, financialposition and operating results of the Group.
Toll-by-weight policy
It is anticipated that the toll-by-weight policy for trucks will beimplemented in Zhejiang Province in the second half of 2009. This means thattolls will be charged from trucks based on their weight. Although the impact ofsuch measure is still uncertain, we cannot guarantee the Zhejiang ProvincialGovernment will approve a charging policy for trucks which will not adverselyaffect the toll income of the Group.
Securities Business Risks
Market Fluctuations
Our securities business is susceptible to market fluctuates and may experienceperiods of high volatility accompanied by reduced liquidity and may bematerially affected by economic and other factors such as global marketconditions; the availability and cost of capital; the liquidity of globalmarkets, the level and volatility of equity prices, commodity prices andinterest rates currency values and other market indices; inflation, naturaldisasters; acts of war or terrorism; investor sentiment and confidence in thefinancial markets. There is no assurance that our securities business will notbe adversely affected by fluctuations in the market, or that our securitiesbusiness will continue to contribute to our overall profit margin.
Regulation of Securities Business
We are subject to extensive regulations in the PRC in which we conduct oursecurities business and face the risk of intervention by the PRC regulatoryauthorities. We could be fined, prohibited from engaging in some of ourbusiness activities or subject to limitations or conditions on our businessactivities, among other things. Significant regulatory action against us couldhave material adverse financial effects, cause us significant reputationalharm, or ham our business prospects. New laws or regulations or changes in theenforcement of existing laws or regulations applicable to our clients may alsoadversely affect our business.
Financial Risks
For financial risks and uncertainties of the Group, see notes 4, 5 and 6 to the Consolidated Financial Statements.
Responsibility Statement of the Directors in respect of the Annual Report and Accounts
The directors of the Company duly confirms that, to the best of their knowledge:
- the consolidated financial statements prepared in accordance with Hong
Kong Financial Reporting Standards issued by the Hong Kong Institute of
Certified Public Accountants give a true and fair view of the assets,
liabilities, financial position and profit of the Group and the undertakings
included in the consolidation taken as a whole; and
- the management discussion and analysis included in this annual report
includes a fair review of the development and performance of the business and
the position of the Group and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties that the Group faces.
Year 2009 up to now, there are no substantial events happen that will have material impact on the normal operation of the Group.
For and on behalf of the BoardZHANG JingzhongExecutive Director/Deputy General ManagerHangzhou, Zhejiang Province, the PRCMarch 17, 2009
Corporate Governance Report
Corporate governance practices
The Company has adopted the Guidelines on Corporate Governance that closely followed the principles of good governance in Appendix 14 ("Appendix 14") of the Rules Governing the Listing of Securities (the "Listing Rules") on the Stock Exchange of Hong Kong Limited ("Stock Exchange").
During the financial year 2008 (the "Period"), the Company met all code provisions in the Code on Corporate Governance Practices (the "Code") contained in Appendix 14, and adopted the recommended best practices contained in the Code whenever applicable.
Directors' securities transactions
The Company has formulated and adopted the Rules on Securities Dealings ("Ruleson Securities Dealings") for the directors, supervisors, senior managementpersonnel and other employees of the Company on terms no less exacting than therequired standard set out in the Model Code for Securities Transactions byDirectors of Listed Issuers (the "Model Code") contained in Appendix 10 of theListing Rules.
Upon specific inquiries to all the Directors, the Directors have confirmed their respective compliance with the required standards for securities transactions by directors as set out in the Model Code and the Rules on Securities Dealings.
Board of directors of the Company (the "Board")
The executive directors of the Company during the Period are:Mr. GENG Xiaoping (Chairman)Mr. FANG Yunti (General Manager)Mr. ZHANG JingzhongMr. JIANG Wenyao
The non-executive directors of the Company during the Period are: Ms. ZHANG Luyun Ms. ZHANG Yang
The independent non-executive directors of the Company during the Period are:Mr. TUNG Chee ChenMr. ZHANG JunshengMr. ZHANG Liping
During the Period, the Board held a total of five meetings. Individual attendances by the directors (as indicated by the numbers of meetings attended/ numbers of meetings held) are as follows:
Mr. GENG Xiaoping 5/5Mr. FANG Yunti 5/5Mr. ZHANG Jingzhong 5/5Mr. JIANG Wenyao 5/5Ms. ZHANG Luyun 4/5Ms. ZHANG Yang 5/5Mr. TUNG Chee Chen 5/5Mr. ZHANG Junsheng 4/5Mr. ZHANG Liping 5/5
The Board is charged with duties as well as given powers that are expresslyspecified in the articles of association of the Company, the scope of whichincludes, amongst others: to determine the business plans and investmentproposals of the Company; to prepare the financial budget and final accounts ofthe Company; to determine the dividend policy of the Company; to appoint ordismiss senior managerial officers of the Company as well as to determine theirremuneration; and to draw up proposals for any material acquisition or sale bythe Company.
To assist the Board effectively discharge its duties, the Board has set up four special committees: the Audit Committee, the Nomination and Remuneration Committee, the Strategic Committee, and the Connected Transaction Committee.
While the Board fully retains its power to decide on matters within its scopeof duties and powers, relevant preparation and drawing up of plans or proposalswere usually delegated to the management.The Company has complied with the requirements under Rules 3.10(1) and (2) ofthe Listing Rules, and the Board has appointed three Independent Non-executiveDirectors, with at least one possessing the appropriate professionalqualification or with accounting or related financial management expertise.
Pursuant to Rules 3.13 of the Listing Rules, the Company has specifically inquired all three Independent Non-executive Directors and received their respective confirmation of independence during the Period. The Company still considers the Independent Non-executive Directors to be independent.
There were no financial, business, family or other material/relevant relationships between members of the Board, including that between the Chairman and the General Manager of the Company.
Chairman and General Manager
During the Period, the positions of Chairman and General Manager of the Companywere separately held by Mr. GENG Xiaoping and Mr. FANG Yunti, respectively,with fully segregated roles expressly set out in the articles of association ofthe Company.Non-executive directors
The non-executive directors of the Company are appointed for a period of three years, from March 1, 2006 to February 28, 2009.
Nomination and remuneration of directors
The Board has a Nomination and Remuneration Committee, mainly responsible forreviewing and making recommendations for the selection standards and proceduresfor Directors, General Manager and other senior management of the Company;identifying qualified candidates and making reviews and recommendationsthereon; and determining, supervising and monitoring the implementation of theremuneration policies for the Directors and senior management personnel. Forthe details of its terms of reference, please refer to the "CorporateGovernance" section in the Company's web site.
The Nomination and Remuneration Committee comprised of three Independent Non-executive Directors, namely, Mr. TUNG Chee Chen, Mr. ZHANG Junsheng, and Mr. ZHANG Liping, with Mr. ZHANG Liping as the Chairman of the committee.
During the Period, there were no changes to the members of the Board and seniormanagement for the current session. Since their remuneration was alreadydetermined at an earlier time, the Nomination and Remuneration Committee of theCompany had not held any meetings during the Period.
Auditors' remuneration
During the Period, the Company had paid HK$3,600,000 (Rmb3,248,820 equivalent)and Rmb840,000 to Deloitte Touche Tohmatsu Certified Public Accountants (theHong Kong auditors) and Zhejiang Pan China Certified Public Accountants (thePRC auditors) for audit services for 2007, respectively. The auditors hadprovided no other non-audit services to the Company.
Audit committee
The Board has an Audit Committee which is mainly responsible for providingadvice to the Board regarding the appointment, reappointment and removal ofexternal auditors; the supervision of the integrity of the Company's financialstatements and annual reports and accounts, half-yearly and quarterly reports,and the review of important opinions in relation to financial reporting as setout in statements and reports, and the review of the Company's financialcontrol, internal control and risk management system. For the details of itsterms of reference, please refer to the "Corporate Governance" section in theCompany's web site.The Audit Committee comprised of five Non-executive Directors, three of whomare Independent Non-executive Directors, namely Mr. TUNG Chee Chen, Mr. ZHANGJunsheng and Mr. ZHANG Liping, and the remaining two are Non-executiveDirectors, namely Ms. ZHANG Luyun and Ms. ZHANG Yang, with Mr. TUNG Chee Chenas the Chairman of the committee.
During the Period, the Audit Committee held a total of four meetings. Individual attendances by the members of the committee (as indicated by the numbers of meetings attended/numbers of meetings held) are as follows:
Mr. TUNG Chee Chen 4/4Mr. ZHANG Junsheng 4/4Mr. ZHANG Liping 4/4Ms. ZHANG Luyun 3/4Ms. ZHANG Yang 4/4In the meetings held during the Period, the Audit Committee conducted, amongstothers, review of financial statements for the quarterly, interim and annualresults, the effectiveness of the system of internal control and the reportingthereof to the Board, as well as recommendation on the re-appointment ofexternal auditors.
During the Period, the Company has complied with the requirements on the composition of the audit committee as set out in Rule 3.21 of the Listing Rules.
During the Period, the Directors have all confirmed their responsibility forpreparing the accounts, and that there were no events or conditions which wouldhave a material impact on the Company's ability to continue to operate as agoing concern basis.
Directors, supervisors and chief executive's interests in shares and underlying shares of the Company
As at December 31, 2008, the interests of the Directors, Supervisors and ChiefExecutives in the share capital of the Company's associated corporations(within the meaning of Part XV of the Securities and Futures Ordinance (the"SFO")), as recorded in the register required to be kept by the Companypursuant to Section 352 of the SFO, or as otherwise notified to the Company andthe Stock Exchange pursuant to the Model Code are set out below:Interest in the shares of Zhejiang Expressway Investment Development Co., Ltd.* Percentage of the Contribution registered capital of capital Nature of of associatedName Position (Rmb) interest corporationMr. GENG Xiaoping Chairman 3,600,000 Legally and 3.00% beneficially ownedMr. FANG Yunti Director/ General Manager 2,880,000 Same as above 2.40%
Mr. JIANG Wenyao Director 1,980,000 Same as above 1.65% Mr. ZHANG Jingzhong Director 1,650,000 Same as above 1.38% Mr. FANG Zhexing Supervisor 1,050,000 Same as above 0.88%
* a 51% owned subsidiary of the Company
Save as disclosed above, as at December 31, 2008, none of the Directors,Supervisors and Chief Executives had any interests or short positions in theshares, underlying shares or debentures of the Company or any of its associatedcorporations (within the meaning of Part XV of the SFO) as recorded in theregister required to be kept pursuant to Section 352 of the SFO, or asotherwise notified to the Company and the Stock Exchange pursuant to the ModelCode.
Interests and short positions of other persons in shares and underlying shares of the Company
As at December 31, 2008, the interests and short positions of other persons inthe shares and underlying shares of the Company according to the registerrequired to be kept by the Company pursuant to Section 336 of the SFO, or asotherwise notified to the Company and the Stock Exchange are set out below:
http://www.prnasia.com/xprn/sa/attachment/2009/04/20090401-906047.pdf
Shareholders' rights
Pursuant to the Articles of Association of the Company, two or moreshareholders who in aggregate hold 10% or more of the voting rights of all theshares of the Company having the right to vote may write to the Board torequest the convening of an extraordinary general meeting and specifying theagenda of the meeting. Upon receipt of the request in writing, the Board shallconvene the extraordinary general meeting as soon as possible. Shareholders whohold in aggregate 5% or more of the voting rights of all the shares of theCompany having the right to vote are entitled to propose additional motions inannual general meeting, provided that such motions are served on the Companywithin 30 days after the issue of the notice of annual general meeting.
Written requests, proposals and enquiries maybe send to the Company at the following address:
Zhejiang Expressway Co., Ltd.12/F, Block A, Dragon Century Plaza1 Hangda RoadHangzhou, Zhejiang 310007The People's Republic of ChinaAttention: Company Secretary
Investor relations
There were no changes made to the Articles of Association of the Company during the Period.
During the Period, the last shareholders' meeting of the Company took place at9:00 a.m. on Thursday, May 15, 2008 at 12/F, Block A, Dragon Century Plaza, 1Hangda Road, Hangzhou, Zhejiang Province, the People's Republic of China.Shareholders voted by way of poll, and approved the reports of the directorsand of the supervisory committee for 2007, the audited financial statements for2007, a final dividend for 2007, the final report for 2007 and the financialbudget for 2008, as well as the re-appointment of external auditors.The next annual general meeting of the Company is expected to be held on May 4,2009 to consider the resolutions in respect of the reports of the directors andof the supervisory committee for 2008, the audited financial statements for2008, a final dividend for 2008, the final report for 2008 and the financialbudget for 2009, as well as the re-appointment of external auditors.The Company's shares comprised of Domestic Shares and H Shares. The DomesticShares were held by Zhejiang Communications Investments Group Co., Ltd as to2,432,500,000 shares and by Huajian Transportation Economic Development Centeras to 476,760,000 shares, representing 56% and 11% of the total shareholdingrespectively. As at the date of this report, and to the best of the Directors'knowledge, 100% of the H shares of the Company, with a total shareholding of1,433,854,500 shares, which accounts for approximately 33% of all issuedcapital of the Company, are held by the public.
Internal controls
The Company has set up internal monitoring system that included the protectionof assets as well as the preservation of accounting and financial information,capable of taking necessary steps in reaction to possible changes in ourbusiness and operating environment. The Company's Audit Committee is chargedwith the duties of monitoring, reviewing and directing the monitoringactivities. Aside from reviewing the annual reporting by outside auditors, theAudit Committee also reviews internal special investigation report by internalaudit department, covering all major business activities of the Company on aquarterly basis, to examine the effectiveness of internal control system andrisk management system. Any important comments and/or recommendations by theAudit Committee are implemented by relevant units under the supervision ofinternal audit department.During the Period, the directors of the Company had carried out a review of theeffectiveness of the system of internal control of the Company, covering allmaterial controls, including financial, operational and compliance controls andrisk management functions. There were no major breaches in the internal controlsystem that may have had an impact to shareholders' interests.
Management functions
The management functions of the Board and the management are specificallystipulated in the Articles of Association of the Company. Pursuant to theArticles of Association of the Company, the management of the Company isassigned the functions to be in charge of the production and business operationof the Company and to organize the implementation of the resolutions of theboard of directors, to organize the implementation of the annual business planand investment program of the Company, to prepare plans for the establishmentof the internal management structure of the Company, to prepare the basicmanagement systems of the Company, and to formulate basic rules and regulationsof the Company, etc.
Directors, Supervisors and Senior Management Profiles
DIRECTORS
EXECUTIVE DIRECTORS
Mr. CHEN Jisong, born in 1952, is a senior engineer with professorialcertification. Mr. Chen has been appointed as the chairman of the Company sinceMarch 1, 2009. In 1978, Mr. Chen graduated from Nanjing Institute of Technologymajoring in civil engineering with an emphasis on road construction. From 1978to 1982, Mr. Chen served as Deputy Chief then Chief of Division No. 1 under theMunicipal Construction Department in Hangzhou, Zhejiang Province. From 1982 to1990, he was Deputy Manager then Manager of the Municipal Construction Companyin Hangzhou, Zhejiang Province. From 1990 to 1997, he was Deputy Director thenDirector of Urban and Suburban Construction Commission of Hangzhou, ZhejiangProvince. From 1990 to 1993, he served as Deputy Director of EconomicDevelopment Zone in Hangzhou, Zhejiang Province. From 1997 to 2000, Mr. Chenwas Deputy Mayor of Hangzhou, Zhejiang Province. From 2000 to 2005, he becameDirector of the Bureau of Construction of Zhejiang Provincial Government. Mr.Chen has been Chairman of Communications Investment Group (the controllingshareholder of the Company) since 2005.Mr. ZHAN Xiaozhang, born in 1964, is a senior economist with a bachelor'sdegree in law. Mr. Zhan has been appointed as an Executive Director and theGeneral Manager of the Company since March 1, 2009. In 2005, Mr. Zhan obtaineda master's degree in public administration from the Business Institute ofZhejiang University. From 1985 to 1991, Mr. Zhan worked as an officer atTransport Administrative Division under Waterway Transport Authority ofZhejiang Provincial Bureau of Construction. From 1991 to 1998, he served asDeputy Secretary then Secretary of the Communist Youth League Commission atZhejiang Provincial Bureau of Communications. From 1998 to 2002, he was DeputyDirector of Waterway Transport Authority under Zhejiang Provincial Bureau ofCommunications. From 2002 to 2003, he was Deputy Director of Human ResourcesDepartment at Zhejiang Provincial Bureau of Communications. From 2003 to 2006,Mr. Zhan was Chairman of Zhejiang Wenzhou Yongtaiwen Expressway Co., Ltd. From2006 to 2008, he became Chairman of Zhejiang Jinji Property Co., Ltd. Mr. Zhanhas been Assistant to General Manager and Manager of Research and DevelopmentDepartment at Zhejiang Communications Investment Group Co., Ltd. (thecontrolling shareholder of the Company) from 2006 to 2009.Mr. ZHANG Jingzhong, born in 1963, is a senior lawyer, Executive Director andCompany Secretary of the Company. Mr. Zhang graduated from Zhejiang University(previously known as Hangzhou University) in July 1984 with a bachelor's degreein law. In 1984, he joined the Zhejiang Provincial Political Science and LawPolicy Research Unit. From 1988 to 1994, he was Associate Director of HangzhouMunicipal Foreign Economic Law Firm. In 1992, he obtained the qualificationsrequired by the regulatory authorities in China to practice securities law. InJanuary 1994, Mr. Zhang became Senior Partner at T&C Law Firm in Hangzhou. Mr.Zhang has been Executive Director and Company Secretary of the Company sinceMarch 1997, and was appointed Deputy General Manager in March 2002. He wasre-appointed as Company Secretary in March 2003 and as Deputy General Managerin March 2006. Mr. Zhang also serves as Director at Shangsan Co., DevelopmentCo., Petroleum Co., and Vice Chairman at Zheshang Securities.Mr. JIANG Wenyao, born in 1966, is Deputy General Manager of the Company. Mr.Jiang graduated from Zhejiang University, majoring in industrial automation andmanufacturing mechanics, and obtained a master's degree in engineering. FromMarch 1991 to February 1997, he worked in the Engineering Division, thePlanning and Finance Division and the Equipment Division of the ZhejiangProvincial Expressway Executive Commission. He joined the Company since March1997, and has served as Deputy Manager of the General Department, Manager ofthe Equipment Department, Manager of the Operation Department, Assistant toGeneral Manager and Company Secretary. He has been serving as Deputy GeneralManager since March 2003 and Executive Director and Deputy General Managersince March 2006. Mr. Jiang also serves as Director and General Manager atDevelopment Co., and Director at Yuhang Co., both subsidiaries of the Company.
Non-executive Directors
Ms. ZHANG Luyun, born in 1961, is a senior economist and Director and DeputyGeneral Manager of Communications Investment Group (the controlling shareholderof the Company) Ms. Zhang graduated from the Department of Chinese Language atZhejiang University, majoring in Chinese Language, and obtained an EMBA degreefrom China Europe International Business School in 2008. From 1983 to 1997, sheserved as Secretary, Deputy Chief and Chief of the Office of Hangzhou CityCommunist Party Committee. In 1997, she was Deputy President of HangzhouBroadcasting and TV College. She joined Communications Investment Group inDecember 2001 and has been Director and Deputy General Manager since then. Ms.Zhang has been Non-executive Director of the Company since March 2003.Ms. ZHANG Yang, born in 1964, is Deputy General Manager of HuajianTransportation Economic Development Center. In 1987, she graduated from LanzhouUniversity with a bachelor's degree in economics. In 2001, she completed thepostgraduate studies in economics management at the Central Party School. From1987 to 1994, she worked for the Ministry of Aviation. Ms. Zhang is currentlyNon-executive Director of Shenzhen Expressway Company Limited, SichuanExpressway Company Limited, Jiangsu Expressway Company Limited and Xiamen PortDevelopment Company Limited. Ms. Zhang has been Non-executive Director of theCompany since March 2003.
Independent non-executive directors
Mr. TUNG Chee Chen, born in 1942, is Chairman (Chief Executive Officer) ofOrient Overseas (International) Limited. He is an Independent Non-executiveDirector, a member of the Nomination and Remuneration Committee and Chairman ofthe Audit Committee of the Company. Mr. Tung was educated at the University ofLiverpool, England, where he received his bachelor's degree in science. Helater obtained a master's degree in mechanical engineering at the MassachusettsInstitute of Technology in the United States. Mr. Tung has been IndependentNon-executive Director of the Company since March 1997. In addition, Mr. Tungalso holds directorships in the following listed public companies: IndependentNon-executive Director of BOC Hong Kong (Holdings) Limited, Cathay PacificAirways Limited, PetroChina Company Limited, Sing Tao News Corporate Limited,Wing Hang Bank Limited and U-Ming Marine Transport Corp.Mr. ZHANG Junsheng, born in 1936, is a professor, Independent Non-executiveDirector and a member of the Audit Committee and the Nomination andRemuneration Committee of the Company. Mr. Zhang graduated from ZhejiangUniversity in 1958, and was Lecturer, Associate Professor, and AdvisingProfessor at Zhejiang University. He was also Professor concurrently at,amongst other universities, Zhongshan University. In 1980, he became DeputyGeneral Secretary of Zhejiang University. In 1983, Mr. Zhang served as DeputyGeneral Secretary in the Hangzhou City Communist Party Committee. In 1985, hebegan to work for the Xinhua News Agency, Hong Kong Branch, and had become itsDeputy Director since July, 1987 and was Consultant to the Sichuan ProvincialGovernment and Senior Consultant to the Shenzhen Municipal Government. SinceSeptember 1998, Mr. Zhang has taken up the position of General Secretary ofZhejiang University. From 2003 to 2008, Mr. Zhang served as Director of theZhejiang Province Economic Development Consultation Committee and he iscurrently Special Advisor to the Zhejiang Provincial Government, Chairman ofZhejiang University Development Committee, Honorary Doctor of Science of CityUniversity of Hong Kong, Honorary Academician of Asian Knowledge ManagementAssociation and Honorary Professor of Canadian Chartered Institute of BusinessAdministration. Mr. Zhang has been Independent Non-executive Director of theCompany since March 2000.Mr. ZHANG Liping, born in 1958, is Chief Executive Officer of Credit Suisse inChina. He is Independent Non-executive Director, a member of the AuditCommittee and Chairman of the Nomination and Remuneration Committee of theCompany. Mr. Zhang graduated from the University of International Business &Economics of Beijing and received a master's degree in international affairsand international laws from St. John's University in New York, the UnitedStates. He also attended New York University's MBA program. Mr. Zhang held anumber of senior positions at other organizations, including Chief ExecutiveOfficer of Imagi International Holdings Limited, Managing Director of PacificConcord Holdings Limited, Managing Director and Geographic Head - Greater ChinaRegion of Dresdner Banking Group, and Director of the Investment BankingDivision and China Chief Representative of Merrill Lynch Co. & Inc. Mr. Zhanghas been Independent Non-executive Director of the Company since March 2003.
SUPERVISOR
Supervisor representing shareholders
Mr. MA Kehua, born in 1952, is a senior economist and Chairman of theSupervisory Committee. Mr. Ma graduated from the Mechanics Department ofShanghai Railway Institute in 1977, after which he worked as an Engineer atShanghai Railway Bureau No.1 Construction Company and the Plumbing andElectricity Section of Shanghai Railway Bureau, Hangzhou Branch. Mr. Ma was incharge of the Planning and Finance Division at Zhejiang Local Railway Company,and in 1993 became Deputy Division Chief and Division Chief of Zhejiang JinwenRailway Executive Commission responsible for materials supply. Mr. Ma took upthe post of Deputy General Manager of Zhejiang Provincial High Class HighwayInvestment Company Limited in June 1999, and is currently Deputy GeneralManager of Communications Investment Group (the controlling shareholder of theCompany).
SUPERVISOR REPRESENTING EMPLOYEES
Mr. FANG Zhexing, born in 1965, is a Senior Engineer, the Manager of the HumanResources Department of the Company. He is also the Chairman of Hangzhou ShidaExpressway Co., Ltd., a jointly controlled entity of the Company. Mr. Fanggraduated from Zhejiang University where he received a master's degree inengineering. From 1986 to 1988 he was the Assistant Engineer in the ProjectManagement Office of the Electric Power and Water Conservancy Bureau inTaizhou. From 1991 until 1997, he was the Engineer in the Project ManagementOffice of Zhejiang Provincial Expressway Executive Commission, where heparticipated in the project management of Shanghai-Hangzhou-Ningbo Expressway.Since March 1997, he has served as the Deputy Manager and the Manager of thePlanning and Development Department, the Manager of the Project DevelopmentDepartment, the Director of Quality Management Office and the Director ofInternal Audit Department of the Company.
Independent supervisors
Mr. ZHENG Qihua, born in 1963, is a senior accountant and independentnon-executive member of the Supervisory Committee. Mr. Zheng was among thefirst batch of Chinese registered accountants who obtained qualificationsrequired for practicing accountancy involving securities in 1992. He hasworking and training experience in Hong Kong and Singapore, and he worked withthe Listing Division of the China Securities Regulatory Commission during 1997and 1998. In 2004, he was a member of the Sixth Session of the Public OfferingReview Committee of the China Securities and Regulatory Commission. He iscurrently Deputy General Manager of Zhejiang Pan-China Certified PublicAccountants and Guest Professor at Zhejiang Gongshang University and ZhejiangFinance & Economics Institute.Mr. JIANG Shaozhong, born in 1946, is a professor. Mr. Jiang graduated from theManagement Department of Zhejiang University with a master's degree. In 1982,he worked in the Management Department of Zhejiang University as Lecturer,Assistant Professor, Professor, Dean of Research Office and Deputy Dean of theDepartment. From 1984 to 1985, he was Visiting Scholar at Stanford Universityin the United States. From 1991 to 1998 he was Deputy General Economist, Chiefof the Financial Division, Chief of the Teaching Division and Standing DeputyDean of the Management School of Zhejiang University. He is currently DeputyGeneral Accountant of Zhejiang University.Mr. WU Yongmin, born in 1963, is an assistant professor. Mr. Wu graduated fromChina University of Political Science and Law with a master's degree in law in1990. He was Deputy Dean of the Department of Law at Hangzhou University,Deputy Dean and Standing Deputy Dean of the Department of Law at ZhejiangUniversity's Law School, and Director of Zhejiang Zheda Law Firm. Mr. Wustudied at Christian-Albrechts-Universit ¤t zu Kiel in 1996 as VisitingScholar. He is currently Acting Dean of the Department of Law at the Law Schoolof Zhejiang University, Supervisor for master's degree candidates in BusinessLaw, member of China Business Law Research Council, Deputy Director of ZhejiangTax Law Research Council, Arbitrator of Hangzhou Arbitration Committee, andLawyer at Zhejiang Zeda Law Firm.
OTHER SENIOR MANAGEMENT MEMBERS
Mrs. HUANG Qiuxia, born in 1956, senior economist, and is the Deputy GeneralManager of the Company. Mrs. Huang graduated from Hangzhou Non-professionalTechnology University in 1988 majoring in Human Resource Management. From 1976to 1991, she was the Deputy Chief of Labor Division of Hangzhou Clock and WatchFactory. She joined the Zhejiang Provincial Expressway Executive Commission inAugust 1991, and was involved in matters related to labor wages, personnel,external affairs etc. During the period from March 1997 to February 2003, shewas the Deputy Manager and Manager of General Department of the Company. Mrs.Huang also serves as Director and Deputy General Manager at Jiaxing Co.Mr. PAN Jiaxiang, born in 1951, senior engineer, and is the Deputy GeneralManager of the Company. Mr. Pan graduated from Hangzhou University, majoring ineconomic management. From 1987 to 1992, he was the Deputy Director of theOffice of Shangyu City People's Government, and at the same time served as theDirector of the Executive Commission of the Shanghai-Hangzhou-Ningbo Expressway(Shangyu Section). From January 1993 to April 1996, he was the Director and theSecretary of Party Committee of Shangyu City Communications Bureau. He hasworked in the Company since April 1997, and served as Deputy Manager ofMaintenance Department, Assistant of the General Manager and Director and ChiefSupervisory Engineer of Widening Project Office, Director and General Managerof Shangsan Co. Mr. Pan is also serving as a Director at Zheshang Securities.Mr. WU Junyi, born in 1969, a holder of master degree in accounting, and is theChief Financial Officer of the Company. Mr. Wu graduated from Xi'anCommunications University in 1996. From 1996 to 1997, he was with the ChinaInvestment Bank, Hangzhou Branch. He joined the Company in May 1997, and hasserved as Manager of Securities Investment Department and Manager of Planningand Finance Department.Report of the Directors
The Directors of the company hereby present their report and the audited financial statements of the Company and the Group for the year ended December 31, 2008.
PRINCIPAL ACTIVITIESThe principal activities of the Group comprise the operation, maintenance andmanagement of high grade roads, as well as development and operation of certainancillary services, such as advertising, automobile servicing and fuelfacilities, as well as provision of security broking service and proprietarysecurities trading.SEGMENT INFORMATIONDuring the year, the entire revenue and contribution to profit from operatingactivities of the Group were derived from the People's Republic of China("PRC"). Accordingly, a further analysis of the revenue and contribution toprofit from operating activities by geographical area is not presented.However, an analysis of the Group's revenue and contribution to profit fromoperating activities by principal activity for the year ended December 31, 2008is set out in note 7 to the financial statements.
RESULTS AND DIVIDENDS
The Group's profit for the year ended December 31, 2008 and the state of affairs of the Group and the Company at that date are set out in the financial statements on pages 46 to 111.
An interim dividend of Rmb0.07 per share (approximately HK$0.08) was paid onOctober 21, 2008. The Directors recommend the payment of a final dividend ofRmb0.24 (approximately HK$0.27) in respect of the year, to shareholders whosenames appeared on the register of members of the Company on April 9, 2009. Thisrecommendation has been incorporated in the financial statements as anallocation of retained earnings within the capital and reserves section in thebalance sheet. The dividend payout ratio reached 71.1% during the Period.Further details of the dividends are set out in note 15 to the financialstatements.
FIVE YEAR SUMMARY FINANCIAL INFORMATION
The following is a summary of the published consolidated results, and of theassets, liabilities and minority interests of the Group prepared on the basisset out in the notes below. Year ended December 31, 2008 2007 2006 2005 2004Results Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 (Restated) (Restated) (Restated) (Restated)REVENUE 6,323,470 7,030,380 4,763,780 3,456,385 3,131,993Operating costs (3,133,244) 3,089,133) 2,076,670) (1,195,428) (881,355)Gross profit 3,190,226 3,941,247 2,687,110 2,260,957 2,250,638Security investment (loss) income (316,213) 475,828 80,421 33,982 (36,158)Other income 211,420 134,607 123,531 151,965 77,804Administrative expenses (70,003) (81,089) (71,022) (62,766) (74,506)Other expenses (38,947) (93,259) (32,901) (41,635) (243,823)Finance costs (76,809) (60,552) (71,991) (101,343) (103,457)Share of profit (loss) of associates 10,659 (4,655) 4,435 7,217 9,086Share of profit of a jointly controlled entity 23,746 20,406 23,344 16,285 19,622PROFIT BEFORE TAX 2,934,079 4,332,533 2,742,927 2,264,662 1,899,206INCOME TAX EXPENSE (668,928) 1,191,638) (884,036) (692,366) (542,749)PROFIT FOR THE YEAR 2,265,151 3,140,895 1,858,891 1,572,296 1,356,457Attributable to:Equity holders of the Company 1,892,787 2,415,965 1,652,871 1,431,192 1,225,699Minority interests 372,364 724,930 206,020 141,104 130,758EARNINGS PER
SHARE 43.58 cents 55.63 cents 38.06 cents 32.95 cents 28.22
cents As at December 31, 2008 2007 2006 2005 2004Assets and liabilities Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 (Restated) (Restated) (Restated) (Restated)Total assets 25,287,521 27,512,804 19,570,419 16,311,656 15,465,649Total liabilities (8,990,253)(11,748,490) (6,217,967) (3,947,788) (3,653,143)Net assets 16,297,268 15,764,314 13,352,452 12,363,868 11,812,506Notes:
1. The consolidated results of the Group for the four years ended December
31, 2007 have been extracted from the Company's 2007 annual report dated March
10, 2008, while those of the year ended December 31, 2008 were prepared based
on the consolidated income statement as set out on page 46 of the financial
statements.
2. The 2008 earnings per share is based on the profit attributable to
equity holders of the Company for the year ended December 31, 2008 of
Rmb1,892,787,000 (2007: Rmb2,415,965,000) and the 4,343,114,500 ordinary shares
(2007: 4,343,114,500 ordinary shares) in issue during the year.
3. Differences in Financial Statements prepared under PRC GAAP and HKFRSs
Profit for the year Net assets as at December 31, 2008 2007 2008 2007 Rmb'000 Rmb'000 Rmb'000 Rmb'000 (Restated) (Restated)As reported in the statutory financial statements of the Group prepared in accordance with PRC GAAP 2,276,136 3,140,837 16,508,461 15,965,225HK GAAP adjustments:(a) Goodwill - (4,385) (199,769) (199,769)(b) Amortization provided, net of deferred tax (4,610) 6,443 (156,062) (152,155)(c) Difference in the share premium account during establishment - - 11,923 11,923(d) General provision on accounts receivable and other debts - (9,962) - -(e) Assessment on impact of appreciation, net of deferred tax (2,851) 5,487 77,988 80,839(f) Others (81) 804 3,510 3,591(g) Minority interests (3,443) 1,671 51,217 54,660As restated in the financial
statements 2,265,151 3,140,895 16,297,268 15,764,314
MAJOR CUSTOMERS AND SUPPLIERS
In the year under review, the five largest customers and suppliers of the Group accounted for less than 30% of the total turnover and purchases, respectively.
None of the directors of the Company or any of their associates or any shareholders (which, to the best knowledge of the directors, own more than 5% of the Company's issued share capital) had any beneficial interest in the Group's five largest customers.
CONNECTED TRANSACTIONS
During the year, the Company has entered into a continuing connected transaction with its subsidiary and a fellow subsidiary, details of which are set out in note 43 to the financial statements.
PROPERTY, PLANT AND EQUIPMENT
Details of movements in property, plant and equipment of the Company and the Group during the year are set out in note 17 to the financial statements.
CAPITAL COMMITMENTS
Details of the capital commitments of the Company and the Group as at December 31, 2008 are set out in note 41 to the financial statements.
RESERVES
Details of movements in the reserves of the Company and the Group during theyear are set out in the consolidated statement of changes in equity on page
49to the financial statements.DISTRIBUTABLE RESERVES
As at December 31, 2008, before the proposed final dividend, the Company'sreserves available for distribution by way of cash or in kind, as determinedbased on the lower of the amount determined under PRC accounting standards andthe amount determined under HK GAAP, amounted to Rmb1,692,892,000. In addition,in accordance with the Company Law of the PRC, the amount of approximatelyRmb3,645,726,000 standing to the credit of the Company's share premium accountas prepared in accordance with the PRC accounting standards was available fordistribution by way of capitalisation issues.
TRUST DEPOSITS
As at December 31, 2008, other than the deposits of Rmb9,931,977 placed innon-bank financial institutions in the PRC, the Group did not have any trustdeposits with any non-bank financial institution in the PRC. Nearly all of theGroup's deposits have been placed with commercial banks in the PRC and theGroup has not encountered any difficulty in the withdrawal of funds.
PURCHASE, REDEMPTION OR SALE OF THE LISTED SECURITIES OF THE COMPANY
Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company's listed securities during the year.
DIRECTORS
The Directors of the Company during the year and up to the date of this report are:
EXECUTIVE DIRECTORSMr. Geng Xiaoping (term expired on February 28, 2009)Mr. Fang Yunti (term expired on February 28, 2009)Mr. Chen Jisong (newly appointed on March 1, 2009)Mr. Zhan Xiaozhang (newly appointed on March 1, 2009)Mr. Zhang JingzhongMr. Jiang WenyaoNON-EXECUTIVE DIRECTORSMs. Zhang LuyunMs. Zhang YangINDEPENDENT NON-EXECUTIVE DIRECTORSMr. Tung Chee ChenMr. Zhang JunshengMr. Zhang Liping
CHANGE IN DIRECTORS AND SENIOR MANAGEMENT
At the extraordinary general meeting held by the Company on February 27, 2009,Mr. CHEN Jisong and Mr. ZHAN Xiaozhang were newly elected as members of thefifth session of the Board of Directors, Mr. ZHANG Jingzhong, Mr. JIANG Wenyao,Ms. ZHANG Luyun, Ms. ZHANG Yang, Mr. TUNG Chee Chen, Mr. ZHANG Junsheng, andMr. ZHANG Liping were re-elected as members of the fifth session of the Boardof Directors. Mr. GENG Xiaoping and Mr. FANG Yunti retired from their positionsof the fourth session of the Board of Directors upon expiry of their term ofoffice on February 28, 2009 as they have approached their retirement age.At the same extraordinary general meeting, Mr. MA Kehua, Mr. ZHENG Qihua, Mr.JIANG Shaozhong and Mr. WU Yongmin were re-elected as members of the fifthsession of the Supervisory Committee. Mr. FANG Zhexing was re-elected as memberof the fifth session of the Supervisory Committee representing employees on theemployees' representative meeting held on February 19, 2009.
The term of the fifth session of the Board of Directors and the Supervisory Committee is three years, commencing on March 1, 2009 and expiring on February 29, 2012.
Following the election, the fifth session of the Board of Directors held itsfirst meeting on February 27, 2009, and elected Mr. CHEN Jisong as Chairman ofthe Company, appointed Mr. CHEN Jisong as Chairman of the Strategic Committee,Mr. TUNG Chee Chen as Chairman of the Audit Committee, and Ms. ZHANG Luyun asChairwoman of the Nomination and Remuneration Committee.In the same meeting of the Board of Directors, Mr. ZHAN Xiaozhang was appointedas General Manager of the Company; Mr. JIANG Wenyao, Mr. ZHANG Jingzhong, Ms.HUANG Qiuxia and Mr. PANG Jiaxiang were appointed as Deputy General Managers ofthe Company; Mr. ZHANG Jingzhong was also appointed as Company Secretary of theCompany; and Mr. WU Junyi was appointed as Chief Financial Officer of theCompany.
The appointments above are for a term of three years, commencing on March 1, 2009 and expiring on February 29, 2012.
DIRECTORS' AND SENIOR MANAGEMENT'S BIOGRAPHIES
Biographical details of the Directors of the Company and the senior management of the Group are set out on page 33 in the Company's annual report.
DIRECTORS' SERVICE CONTRACTS
Each of the Directors of the Company has entered into a service agreement with the Company, with effect from March 1, 2009, for a term of three years.
Save as disclosed above, none of the Directors and Supervisors has entered intoany service contract with the Company which is not terminable by the Companywithin one year without payment of compensation, other than statutorycompensation.
DIRECTORS' AND SUPERVISORS' INTERESTS IN CONTRACTS
As at December 31, 2008 or during the year, none of the Directors or Supervisors had a material interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company, its holding company, or any of its subsidiaries or fellow subsidiaries was a party.
DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE'S RIGHTS TO SUBSCRIBE FOR SHARES OR DEBENTURES
At no time during the year were there rights to acquire benefits by means ofthe acquisition of shares in or debentures of the Company granted to anyDirector, Supervisor and chief executive or their respective spouse or minorchildren, or were any such rights exercised by them; or was the Company, itsholding company, or any of its subsidiaries or fellow subsidiaries a party toany arrangement to enable any such persons to acquire such rights in any otherbody corporate.SHARE CAPITAL
There were no movements in the Company's issued share capital during the year.
PRE-EMPTIVE RIGHTS
There is no provision for pre-emptive rights in the Company's Articles of Association or the laws of the PRC which would require the Company to offer new shares on a pro rata basis to existing shareholders.
AUDITORS
Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong will retire anda resolution for their reappointment as international auditors of the Companywill be proposed at the forthcoming annual general meeting.ON BEHALF OF THE BOARDCHEN JisongChairmanHangzhou, Zhejiang Province, the PRCMarch 17, 2009
Report of the Supervisory Committee
During the financial year 2008 (the "Period"), the Supervisory Committee dulyperformed its supervisory duties, and safeguarded the legitimate interests ofthe shareholders and the Company in accordance with relevant rules andregulations under the Company Law of the PRC, the Company's Articles ofAssociation and the Rules of the Supervisory Committee. Main tasks undertakenby the Supervisory Committee during the Period were to assess and superviselawfulness, legality and appropriateness of the activities of the Directors,General Manager and other senior management of the Company in their businessdecision-making and daily management processes, through a combination ofactivities including holding meetings of the Supervisory Committee andattending meetings of shareholders and meetings of the Board. The SupervisoryCommittee has carefully examined the operating results and the financialstanding of the Company, and discussed and reviewed the financial statements tobe submitted by the Board to the general meeting.The Supervisory Committee concluded that during the Period, the Directors,General Manager and other senior management of the Company had taken everyfeasible steps to counter the challenges brought by, among others, a slowdownin the rate of macro economic growth and traffic volume diversions with respectto the core expressway business; attracting more traffic flow throughimprovement in services; exerted strict cost control measures in trying tominimize the impact of declining revenue to the profits. As to the expresswayancillary business, aside from expanding the existing service areas andintroducing locally-available special food, beverage and products in theseservice areas, the Company had also further expanded its scope of concession inservice area operations, achieving new development. With regards to thesecurities business, the Company had actively expanded its market share ineconomically developed cities, thereby increasing the business' competivenessand value, realizing a decent profit amid a domestic market that had fallendramatically during the Period.The Supervisory Committee has reviewed the financial statements of the Companyfor 2008 prepared by the Board for submission to the general meeting ofshareholders, and concluded that the financial statements accurately reflectedthe financial position of the Company in 2008, and complied with the relevantlaws, regulations and the Company's Articles of Association. In 2008, theCompany maintained a high dividend payment despite the fall in its profits,providing satisfactory return in cash to the shareholders.During the Period, the members of the Board, General Manager and other seniormanagement of the Company have complied with their fiduciary duties and workedin good faith and diligence while carrying out their responsibilities. Therewas no incident of abuse of power or infringement of the interests ofshareholders or employees.
The Supervisory Committee is satisfied with the various results obtained by the Board and the management of the Company.
By the order of the Supervisory CommitteeMA KehuaChairman of the Supervisory CommitteeHangzhou, Zhejiang Province, the PRCMarch 16, 2009Independent Auditor's Report
Deloitte (Logo: http://www.prnasia.com/sa/2009/04/01/200904011905.gif )
TO THE MEMBERS OF ZHEJIANG EXPRESSWAY CO., LTD.(Established in the People's Republic of China with limited liability)We have audited the consolidated financial statements of Zhejiang ExpresswayCo., Ltd. (the "Company") and its subsidiaries (collectively referred to as the"Group") set out on pages 46 to 111, which comprise the consolidated balancesheet as at December 31, 2008, and the consolidated income statement, theconsolidated statement of changes in equity and the consolidated cash flowstatement for the year then ended, and a summary of significant accountingpolicies and other explanatory notes.
Directors' responsibility for the consolidated financial statements
The directors of the Company are responsible for the preparation and the trueand fair presentation of these consolidated financial statements in accordancewith Hong Kong Financial Reporting Standards issued by the Hong Kong Instituteof Certified Public Accountants and the disclosure requirements of the HongKong Companies Ordinance. This responsibility includes designing, implementingand maintaining internal control relevant to the preparation and the true andfair presentation of the consolidated financial statements that are free frommaterial misstatement, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that arereasonable in the circumstances.
Auditor's responsibility
Our responsibility is to express an opinion on these consolidated financialstatements based on our audit and to report our opinion solely to you, as abody, and for no other purpose. We do not assume responsibility towards oraccept liability to any other person for the contents of this report. Weconducted our audit in accordance with Hong Kong Standards on Auditing issuedby the Hong Kong Institute of Certified Public Accountants. Those standardsrequire that we comply with ethical requirements and plan and perform the auditto obtain reasonable assurance as to whether the consolidated financialstatements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the consolidated financial statements. Theprocedures selected depend on the auditor's judgment, including the assessmentof the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and true andfair presentation of the consolidated financial statements in order to designaudit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity's internalcontrol. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by thedirectors, as well as evaluating the overall presentation of the consolidatedfinancial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair viewof the state of affairs of the Group as at December 31, 2008 and of the Group'sprofit and cash flows for the year then ended in accordance with Hong KongFinancial Reporting Standards and have been properly prepared in accordancewith the disclosure requirements of the Hong Kong Companies Ordinance.Deloitte Touche TohmatsuCertified Public AccountantsHong KongMarch 17, 2009Consolidated Income StatementFor the year ended December 31, 2008 NOTES 2008 2007 Rmb'000 Rmb'000 (Restated)Revenue 8 6,323,470 7,030,380Operating costs (3,133,244) (3,089,133)Gross profit 3,190,226 3,941,247Securities investment (losses) gains 9 (316,213) 475,828Other income 8 211,420 134,607Administrative expenses (70,003) (81,089)Other expenses (38,947) (93,259)Finance costs 10 (76,809) (60,552)Share of profit (loss) of associates 10,659 (4,655)
Share of profit of a jointly
controlled entity 23,746 20,406Profit before tax 11 2,934,079 4,332,533Income tax expense 12 (668,928) (1,191,638)Profit for the year 2,265,151 3,140,895Attributable to:Equity holders of the Company 1,892,787 2,415,965Minority interests 372,364 724,930 2,265,151 3,140,895Dividends recognised as
distribution during the year:
Interim dividend of Rmb7 cents (2007: Rmb7 cents) per share 304,018 304,018 Final dividend of Rmb24 cents (2007: Rmb20 cents) per share 1,042,347 868,623 1,346,365 1,172,641
Proposed final dividend of Rmb24
cents (2007: Rmb24 cents) per share 15 1,042,347 1,042,347EARNINGS PER SHARE - Basic 16 Rmb43.58 cents Rmb55.63 centsConsolidated Balance SheetAt December 31, 2008 NOTES 2008 2007 Rmb'000 Rmb'000 (Restated)NON-CURRENT ASSETSProperty, plant and equipment 17 1,031,248 906,877Prepaid lease payments 18 47,654 59,227Expressway operating rights 19 12,923,977 13,522,752Goodwill 20 86,867 86,867Other intangible assets 21 158,065 162,226Interests in associates 23 464,262 495,103
Interest in a jointly controlled
entity 24 124,251 100,505Available-for-sale investments 25 1,000 1,000 837,324 15,334,557CURRENT ASSETSInventories 16,303 14,558Trade receivables 26 75,999 82,677Other receivables 27 177,170 587,362Prepaid lease payments 18 1,265 1,500Available-for-sale investments 25 28,001 595,758Held-for-trading investments 28 247,587 621,220Structured deposit 29 204,667 -
Bank balances held on behalf
of customers 30 5,643,192 7,239,389Bank balances and cash- Restricted bank balances 31 35,000 35,000
- Time deposits with original
maturity over three months 31 284,068 226,972
- Cash and cash equivalents 31 3,736,945 2,773,811
10,450,197 12,178,247CURRENT LIABILITIESAccounts payable to customers arising from securities dealing business 32 5,607,473 7,211,261Trade payables 33 415,096 736,890Tax liabilities 447,884 994,727Other taxes payable 32,760 37,888Other payables and accruals 34 537,762 556,320Dividends payable 33,388 33,385Interest-bearing bank and other loans 35 380,897 288,045Provisions 36 33,864 164,024 7,489,124 10,022,540NET CURRENT ASSETS 2,961,073 2,155,707TOTAL ASSETS LESS CURRENT LIABILITIES 17,798,397 17,490,264NON-CURRENT LIABILITIESInterest-bearing bank and other loans 35 228,867 333,945Long-term bonds 37 1,000,000 1,000,000Deferred tax liabilities 38 272,262 392,005 1,501,129 1,725,950 16,297,268 15,764,314CAPITAL AND RESERVESShare capital 39 4,343,115 4,343,115Reserves 9,339,935 8,883,238
Equity attributable to equity
holders of the Company 13,683,050 13,226,353Minority interests 2,614,218 2,537,961 16,297,268 15,764,314The consolidated financial statements on pages 46 to 111 were approved andauthorised for issue by the Board of Directors on March 17, 2009 and are signedon its behalf by: ChenJisong ZhanXiaozhang DIRECTOR DIRECTOR Consolidated Statement of Changes in EquityFor the year ended December 31, 2008To view the financial table, please visit:http://www.prnasia.com/xprn/sa/attachment/2009/04/20090401-296992.pdf Consolidated Cash Flow StatementFor the year ended December 31, 2008 2008 2007 Rmb'000 Rmb'000 (Restated)Profit before tax 2,934,079 4,332,533Adjustments for: Finance costs 76,809 60,552 Interest income (59,782) (20,997) Net exchange gain (40,143) (40,302) Share of (profit) loss of associates (10,659)
4,655
Share of profit of a jointly controlled entity (23,746)
(20,406)
Depreciation of property, plant and equipment 112,140
104,671
Amortisation of expressway operating rights 659,027
577,059
Amortisation of prepaid lease payments 1,503
1,787
Amortisation of other intangible assets 9,424
7,289
Impairments loss on available-for-sale investments 24,792 -
Loss on disposal of available-for-sale investments 89,680 -
Loss (gain) on fair value changes on held-for-trading
investments 201,741
(475,828)
Loss on disposal of property, plant and equipment 6,076 3,937
Gain on disposal of an associate (8,375) - Net provision for the year (130,160)
129,224
Profit on disposal of a disposal group classified
as held for sale - (1,491) Write-down of goodwill - 5,956
Operating cash flows before movements in working capital 3,842,406 4,668,639 Increase in inventories
(1,745)
(2,303)
Decrease (Increase) in trade receivables 6,678
(27,431)
Increase in other receivables (38,529)
(36,848)
Decrease (Increase) in available-for-sale investments 222,676 (365,149) Decrease in held-for-trading investments
171,892
90,040
Decrease (Increase) in bank balances held on behalf
of customers 1,596,197
(4,051,377)
(Decrease) Increase in accounts payable to customers
arising from securities dealing business (1,603,788)
4,063,508
(Decrease) Increase in trade payables (126,413)
97,011
(Decrease) Increase in other taxes payable (5,128)
17,133
(Decrease) Increase in other payables and accruals (6,095) 143,984 Decrease in amount due to a jointly-controlled entity
-
(5,841)
Cash generated from operations 4,058,151 4,591,366Income taxes paid (1,277,862) (861,349)Interest paid (81,110) (104,338)NET CASH FROM OPERATING ACTIVITIES 2,699,179 3,625,679 NOTES 2008 2007 Rmb'000 Rmb'000 (Restated)INVESTING ACTIVITIESInterest received 55,115 20,997Dividends received from an associate 6,500
6,500
Proceeds on disposal of property, plant and equipment 2,167 7,329 Proceeds on disposal of an associate
43,375 -Repayment from (loan to) a related party 370,000 (370,000)Repayment from an associate 100,000 -Loan to an associate (100,000) -Purchases of property, plant and equipment (217,118)
(83,118)
Prepaid lease payments for land use rights -
(22,541)
Addition in expressway operating rights (275,459)
(402,986)
Purchases of intangible assets (5,263)
(4,180)
Investment in structured deposit (200,000) -Increase in time deposits (57,096)
95,660)
Proceeds on disposal of a disposal group classified as
held for resale - 1,150Acquisition of a subsidiary - (52,213)Investment in an associate - (281,400)Dividends received from a jointly controlled entity -
13,724
NET CASH USED IN INVESTING ACTIVITIES (277,779)(1,262,398)FINANCING ACTIVITIESDividends paid (1,343,223)(1,170,803)Dividends paid to minority interests (139,818)
(52,773)
New bank and other loans raised 700,893
820,000
Repayment of bank and other loans
(674,208)(1,003,207)
Capital contribution from minority interests -
314,987
NET CASH USED IN FINANCING ACTIVITIES
(1,456,356)(1,091,796)
NET INCREASE IN CASH AND CASH EQUIVALENTS 965,044
1,271,485
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,773,811 1,504,073 EFFECT OF FOREIGN EXCHANGE RATE CHANGES
(1,910)
(1,747)
CASH AND CASH EQUIVALENTS AT END OF YEAR 31 3,736,945
2,773,811
Notes to the Consolidated Financial Statements
For the year ended December 31, 2008
1. CORPORATE INFORMATION
Zhejiang Expressway Co. Ltd. (the "Company") was established in the People'sRepublic of China (the "PRC") with limited liability on March 1, 1997. The Hshares of the Company ("H Shares") were subsequently listed on The StockExchange of Hong Kong Limited (the "Stock Exchange") on May 15, 1997.
All of the H Shares of the Company were admitted to the Official List of the United Kingdom Listing Authority (the "Official List"). Dealings in the H Shares on the London Stock Exchange commenced on May 5, 2000.
On July 18, 2000, with the approval of the Ministry of Foreign Trade and Economic Co-operation of the PRC, the Company changed its business registration into a Sino-foreign joint stock limited company.
On February 14, 2002, the United States Securities and Exchange Commission, following the approval by the Board of Directors and the China Securities Regulatory Commission, declared the registration statement in respect of the American Depositary Shares ("ADSs") evidenced by the American Depositary Receipts ("ADRs") representing the deposited H Shares of the Company effective.
In the opinion of the directors, the immediate and ultimate holding company ofthe Company is Zhejiang Communications Investment Group Co., Ltd. (the"Communications Investment Group"), a state-owned enterprise established in thePRC.The addresses of the registered office and principal place of business of theCompany are disclosed in the corporate information section of the annualreport.The consolidated financial statements are presented in Renminbi ("Rmb"), whichis also the functional currency of the Company.
The Company is an investment holding company. The Group is involved in the following principal activities:
(a) the operation, maintenance and management of high grade roads;
(b) the development and provision of certain ancillary services such as
advertising, automobile servicing and fuel facilities; and
(c) the provision of securities broking services and proprietary trading.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs")
In the current year, the Group has applied the following amendments and interpretations ("new HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") which are or have become effective.
HKAS 39 & HKFRS 7 (Amendments) Reclassification of Financial AssetsHK(IFRIC)-Int 11 HKFRS 2: Group and Treasury Share TransactionsHK(IFRIC)-Int 12 Service Concession ArrangementsHK(IFRIC)-Int 14 HKAS 19 - The Limit on a Defined Benefit Assets, Minimum Funding Requirements and their InteractionExcept for the adoption of the HK(IFRIC) Int 12 Service ConcessionArrangements, which has resulted in changes to the Group's accounting policiesas detailed below, the adoption of the other new HKFRSs had no material effecton how the results and financial position for the current or prior accountingperiods have been prepared and presented.
In the current year, the Group has applied the HK(IFRC)- Int 12 Service Concession Arrangements.
The Group had entered into contractual service arrangements with localgovernment authorities (the "grantors") of the PRC to acquire toll expresswayinfrastructures and expressway operating rights and to participate in theredevelopment, expansion, investment, operation, management and maintenance oftoll expressways and their toll station facilities on behalf of the grantors inaccordance with the terms specified in the service concession arrangementcontracts. The Group received in exchange a right to propose and collect thetoll fees from vehicles using the toll expressways and other fees relating tothe expressways and their toll station facilities. After the acquisition of theunderlying toll expressway infrastructures and the related expressway operatingrights, under the arrangements, the Group incurred additional costs on the tollexpressways, for expressway widening projects and upgrade services carried outby independent qualified contractors in the PRC based on approval from thegrantors under open market bid prices.
HK(IFRIC) - Int 12 Service Concession Arrangements provides guidance on the accounting by the operator of a service concession arrangement which involves the provision of public sector services.
In prior years, the toll expressway infrastructures and expressway operatingrights were measured at cost based on the fair value at the respective dates ofacquisitions upon the initial recognition.The acquisition of toll expressway infrastructures, expressway operating rightsand subsequent additional costs incurred on the toll expressways relating towidening projects and upgrade services, which the Group is entitled to theoperating rights of the toll expressways for the specified concession period,were recorded as property, plant and equipment and expressway operating rights,respectively, and were stated at cost less accumulated depreciation and anyaccumulated impairment losses, while the land use rights relating to theexpressways was recorded in prepaid lease payments. Depreciation of the tollexpressways and amortisation of land use rights were calculated to write offtheir costs, over their expected useful lives in the remaining concessionperiod on a straight-line basis.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") (continued)
In accordance with HK(IFRIC)- Int 12, infrastructure and land use rightsrelating to the expressways within the scope of this interpretation are notrecognized as property, plant and equipment and prepaid lease payments of theoperator as the service concession arrangement does not convey the right tocontrol the use of the public service infrastructure and the land use rightsrelating to the expressways to the operator. If the operator providesconstruction and upgrade services of the infrastructure, this interpretationrequires the operator to account for its revenue and costs in accordance withHKAS 11 Construction Contracts for the construction and upgrade services of theinfrastructure and to account for the fair value of the consideration receivedand receivable for the construction and upgrade services as an intangible assetin accordance with HKAS 38 Intangible Assets to the extent that the operatorreceives a right (a licence) to charge users of the public service, whichamounts are contingent on the extent that the public uses the service. Inaddition, the operator accounts for the services in relation to the operationof the infrastructure in accordance with HKAS 18 Revenue.
In the current year, the Group applied this interpretation retrospectively and the financial impact on the adoption of this interpretation is summarised below.
No construction revenue or profit on construction services has been recognisedas the Group's toll expressway infrastructures were acquired from the grantors.Furthermore, the Group has not provided any construction services in relationto subsequent widening projects and upgrade services as the widening projectsand upgrade services of toll expressways are carried out by independentqualified contractors in the PRC based on the approval from the grantors. Thepayment made by the Group for the expressways widening projects and upgradeservices is considered as additional costs of the expressway operating rightsand, accordingly, such additional costs are also reclassified as the intangibleassets under the service concession arrangements retrospectively.Prepaid lease payments and toll expressway infrastructures in conjunction withthe service concession arrangements which the Group has no discretion orlatitude to deploy for other services other than arising in the serviceconcession arrangements are also reclassified as intangible assets acquiredunder the service concession arrangements retrospectively. They were previouslyseparately presented and amortised on a straight-line basis over the respectiveservice concession period.
SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES
The effect of changes in accounting policies resulted from the adoption of HK (IFRIC)-Int 12 for the current and prior year by line items are as follows:
2008 2007 Rmb'000 Rmb'000 Decrease in depreciation of property, plant and equipment 632,608 550,843Decrease in amortisation of prepaid lease payments 17,719 17,516Increase in amortisation of expressway operating rights (650,327) (568,359)Profit for the year - -
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") (continued)
The effect of the application of the new interpretation as at December 31, 2007 is summarised below:
As at As at 31/12/2007 31/12/2007 (Originally stated) Adjustments (Restated) Rmb'000 Rmb'000 Rmb'000Balance sheet itemsNon-current assetsProperty, plant and equipment 13,906,689 (12,999,812) 906,877Prepaid lease payments 393,424 (334,197) 59,227Expressway operating rights 171,145 13,351,607 13,522,752 14,471,258 17,598 14,488,856Current assetsPrepaid lease payment 19,098 (17,598) 1,500Total effects on assets 14,490,356 - 14,490,356Retained profits 2,312,616 - 2,312,616 As at As at 1/1/2007 1/1/2007 (Originally stated) Adjustments (Restated) Rmb'000 Rmb'000 Rmb'000Balance sheet itemsNon-current assetsProperty, plant and equipment 13,775,621 (12,878,824) 896,797Prepaid lease payments 390,658 (351,795) 38,863Expressway operating rights 179,845 13,248,135 13,427,980 14,346,124 17,516 14,363,640Current assetsPrepaid lease payment 18,626 (17,516) 1,110 Total effects on assets 14,364,750 - 14,364,750Retained profits 1,379,398 - 1,379,398
The service concession arrangements operated by the Group's associates and ajointly controlled entity are of similar arrangements of those operated by theGroup. Accordingly, the adoption of HK(IFRIC) Int 12 Service ConcessionArrangements has no material effect on its associates and a jointly controlledentity and accordingly, no adjustment on the Group's share of result ofassociates and a jointly controlled entity and Group's share of net assets ofthe associates and jointly controlled entity has been required.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") (continued)
The reclassification of the toll expressways and land use rights of the Group,its associates and a jointly controlled entity has no impact on the profit forthe current and prior year and the retained profits at January 1, 2007,accordingly, no adjustment on the Group basic earnings per share has beenrequired.The Group has not early applied the following new and revised standards,amendments or interpretations that have been issued but are not yet effective.HKFRSs (Amendments) Improvements to HKFRSs (1)HKAS 1 (Revised) Presentation of Financial Statements (2)HKAS 23 (Revised) Borrowing Costs (2)HKAS 27 (Revised) Consolidated and Separate Financial Statements (3)HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation (2)HKAS 39 (Amendment) Eligible Hedged Items (3)
HKFRS 1 & HKAS 27 (Amendments) Cost of an Investment in a subsidiary,
Jointly Controlled Entity or Associate (2)HKFRS 2 (Amendment) Vesting Conditions and Cancellations (2)HKFRS 3 (Revised) Business Combinations(3)HKFRS 7 (Amendments) Improving Disclosures about Financial Instruments (2)HKFRS 8 Operating Segments(2)HK(IFRIC)-Int 13 Customer Loyalty Programmes(4)HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate (2)HK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation (5)HK(IFRIC)-Int 17 Distribution of Non-cash Assets to Owners (3)HK(IFRIC)-Int 18 Transfer of Assets from Customers(6)
(1) Effective for annual periods beginning on or after January 1, 2009
except for the amendments to HKFRS 5, effective for annual periods beginning on
or after 1 July 2009
(2) Effective for annual periods beginning on or after January 1, 2009
(3) Effective for annual periods beginning on or after July 1, 2009
(4) Effective for annual periods beginning on or after July 1, 2008
(5) Effective for annual periods beginning on or after October 1, 2008
(6) Effective for transfers on or after July 1, 2009
The application of HKFRS 3 (Revised) may affect the Group's accounting forbusiness combination for which the acquisition date is on or after January 1,2010. HKAS 27 (Revised) will affect the accounting treatment for changes in theGroup's ownership interest in a subsidiary. The Directors anticipate that theapplication of the other new and revised standards, amendments orinterpretations will have no material impact on the results and the financialposition of the Group.
3. SIGNIFICANT 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, as explained in the accounting policies set out below.
The consolidated financial statements have been prepared in accordance withHong Kong Financial Reporting Standards issued by the HKICPA. In addition, theconsolidated financial statements include applicable disclosures required bythe Rules Governing the Listing of Securities on the Stock Exchange and by theHong Kong Companies Ordinance.
Basis of consolidation
The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries). Controlis achieved where the Company has the power to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Minority interests in the net assets of consolidated subsidiaries are presentedseparately from the Group's equity therein. Minority interests in the netassets consist of the amount of those interests at the date of the originalbusiness combination and the minority's share of changes in equity since thedate of the combination. Losses applicable to the minority in excess of theminority's interest in the subsidiary's equity are allocated against theinterests of the Group except to the extent that the minority has a bindingobligation and is able to make an additional investment to cover the losses.
Business combinations
The acquisition of businesses is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, and liabilities incurred or assumed, andequity instruments issued by the Group in exchange for control of the acquiree,plus any costs directly attributable to the business combination. Theacquiree's identifiable assets, liabilities and contingent liabilities thatmeet the conditions for recognition under HKFRS 3 Business Combinations arerecognised at their fair values at the acquisition date.Goodwill arising on acquisition is recognised as an asset and initiallymeasured at cost, being the excess of the cost of the business combination overthe Group's interest in the net fair value of the identifiable assets,liabilities and contingent liabilities recognised. If, after reassessment, theGroup's interest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in profit or loss.The interest of minority shareholders in the acquiree is initially measured atthe minority's proportion of the net fair value of the assets, liabilities andcontingent liabilities recognised.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Acquisition of additional interest in a subsidiary
Goodwill is calculated as the difference between the consideration paid for the additional interest and the book value of the net assets of the subsidiary attributable to the additional interest acquired.
Goodwill
Goodwill arising on acquisitions prior to January 1, 2005
Goodwill arising on an acquisition of net assets and operations of anotherentity for which the agreement date is before January 1, 2005 represents theexcess of the cost of acquisition over the Group's interest in the fair valueof the identifiable assets and liabilities of the relevant subsidiary at thedate of acquisition. For previously capitalised goodwill arising onacquisitions of net assets and operations of another entity or a jointlycontrolled entity after 1 January 2001, the Group has discontinued amortisationfrom 1 January 2005 onwards, and such goodwill is tested for impairmentannually, and whenever there is an indication that the cash-generating unit towhich the goodwill relates may be impaired (see the accounting policy below).
Goodwill arising on acquisitions on or after January 1, 2005
Goodwill arising on an acquisition of a business for which the agreement dateis on or after January 1, 2005 represents the excess of the cost of acquisitionover the Group's interest in the fair value of the identifiable assets,liabilities and contingent liabilities of the relevant business at the date ofacquisition. Such goodwill is carried at cost less any accumulated impairmentlosses.
Capitalised goodwill arising on an acquisition of a business is presented separately in the consolidated balance sheet.
If the potential benefit of the acquiree's income tax loss carry-forwards orother deferred tax assets did not satisfy the criteria for separate recognitionwhen a business combination is initially accounted for but is subsequentlyrealised, the Group recognises the benefit as income and (a) reduces thecarrying amount of goodwill to the amount that would have been recognised ifthe deferred tax assets had been recognised as an identifiable asset from theacquisition date; and (b) recognises the reduction in the carrying amount ofthe goodwill as an expense. However, this procedure shall not result in thecreation of an excess of the Group's interest in the net fair value of theacquired identifiable assets, liabilities and contingent liabilities over thecost of the business combination, nor shall it increase the amount of any gainpreviously recognised in this manner.For the purposes of impairment testing, goodwill arising from an acquisition isallocated to each of the relevant cash-generating units, or groups ofcash-generating units, that are expected to benefit from the synergies of theacquisition. A cash-generating unit to which goodwill has been allocated istested for impairment annually, and whenever there is an indication that theunit may be impaired. For goodwill arising on an acquisition in a financialyear, the cash-generating unit to which goodwill has been allocated is testedfor impairment before the end of that financial year. When the recoverableamount of the cash-generating unit is less than the carrying amount of theunit, the impairment loss is allocated to reduce the carrying amount of anygoodwill allocated to the unit first, and then to the other assets of the unitpro rata on the basis of the carrying amount of each asset in the unit. Anyimpairment loss for goodwill is recognised directly in the consolidated incomestatement. An impairment loss for goodwill is not reversed in subsequentperiods.On subsequent disposal of the relevant cash generating unit, the attributableamount of goodwill capitalised is included in the determination of the amountof profit or loss on disposal.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture.
The results and assets and liabilities of associates are incorporated in theseconsolidated financial statements using the equity method of accounting, exceptwhen the investment is classified as held for sale in which case it isaccounted for under HKFRS 5 Non-current Assets, Held for Sale and DiscontinuedOperation. Under the equity method, investments in associates are carried inthe consolidated balance sheet at cost as adjusted for post-acquisition changesin the Group's share of the net assets of the associate, less any identifiedimpairment loss. When the Group's share of losses of an associate equals orexceeds its interest in that associate, the Group discontinues recognising itsshare of further losses. An additional share of losses is provided for and aliability is recognised only to the extent that the Group has incurred legal orconstructive obligations or made payments on behalf of that associate.
Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate.
When an investment in an associate previously classified as held for sale nolonger meets the criteria to be so classified, such investment is accounted forusing equity method as from the date of its classification as held-for-sale.The financial statements for the periods since classification as held for saleis amended accordingly.
Investments in jointly controlled entities
Joint venture arrangements that involve the establishment of a separate entityin which venturers have joint control over the economic activity of the entityare referred to as jointly controlled entities.The results and assets and liabilities of jointly controlled entities areincorporated in the consolidated financial statements using the equity methodof accounting. Under the equity method, investments in jointly controlledentities are carried in the consolidated balance sheet at cost as adjusted forpost-acquisition changes in the Group's share of the net assets of the jointlycontrolled entities, less any identified impairment loss. When the Group'sshare of losses of a jointly controlled entity equals or exceeds its interestin that jointly controlled entity (which includes any long-term interests that,in substance, form part of the Group's net investment in the jointly controlledentity), the Group discontinues recognising its share of further losses. Anadditional share of losses is provided for and a liability is recognised onlyto the extent that the Group has incurred legal or constructive obligations ormade payments on behalf of that jointly controlled entity.When a group entity transacts with a jointly controlled entity of the Group,profits or losses are eliminated to the extent of the Group's interest in thejointly controlled entity.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if theircarrying amount will be recovered principally through a sale transaction ratherthan through continuing use. This condition is regarded as met only when thesale is highly probable and the asset (or disposal group) is available forimmediate sale in its present condition.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets'(disposal groups') previous carrying amount and fair value less costs to sell.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and revenue taxes.
Toll income from the operation of tolled roads is recognised when the tolls are received or become receivable.
Sales of goods are recognised when goods are delivered and title has passed.
Service income is recognised when services are provided.
Commission income from securities broking business is recognised on a trade date basis.
Advisory and handling fee income are recognised when the relevant transactions have been provided or the relevant services have been rendered.
Interest income from a financial asset is accrued on a time basis, by referenceto the principal outstanding and at the effective interest rate applicable,which is the rate that exactly discounts the estimated future cash receiptsthrough the expected life of the financial asset to that asset's net carryingamount.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment
Property, plant and equipment (other than construction in progress) are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.
Depreciation is provided to write off the cost of items of property, plant andequipment other than construction in progress over their estimated useful livesand after taking into account their estimated residual values, using thestraight-line method, at the following rates per annum: Estimated Annual useful life depreciation
rate
Leasehold land and buildings 30-50 years 1.9%-3.2%Ancillary facilities 30 years 3.2%Communications and signalling equipment 5 years 19.4%Motor vehicles 5-8 years 12.1%-19.4%Machinery and equipment 5-8 years 12.1%-19.4%Construction in progress includes property, plant and equipment in the courseof construction and is stated at cost less any impairment losses. Costcomprises the direct costs of construction and capitalised borrowing costs onborrowed funds during the period of construction, installation and testing.Construction in progress is classified to the appropriate category of property,plant and equipment when completed and ready for intended use. Depreciation ofthese assets, on the same basis as other property assets, commences when theassets are ready for their intended use.An item of property, plant and equipment is derecognised upon disposal or whenno future economic benefits are expected to arise from the continued use of theasset. Any gain or loss arising on derecognition of the asset (calculated asthe difference between the net disposal proceeds and the carrying amount of theitem) is included in the consolidated income statement in the year in which
theitem is derecognised.Prepaid lease payments
Payment for obtaining land use rights is accounted for as prepaid lease payments and is charged to the consolidated income statement on a straight-line basis over the lease terms.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets
Intangible assets acquired separately
Intangible assets acquired separately and with finite useful lives are carriedat costs less accumulated amortisation and any accumulated impairment losses.Amortisation for intangible assets with finite useful lives is provided on astraight-line basis over their estimated useful lives. Alternatively,intangible assets with indefinite useful lives are carried at cost less anysubsequent accumulated impairment losses (see the accounting policy in respectof impairment losses on tangible and intangible assets below).Gains or losses arising from derecognition of an intangible asset are measuredat the difference between the net disposal proceeds and the carrying amount ofthe asset and are recognised in the consolidated income statement when theasset is derecognised.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.
Subsequent to initial recognition, intangible assets with finite useful livesare carried at costs less accumulated amortisation and any accumulatedimpairment losses. Amortisation for intangible assets with finite useful livesis provided on a straight-line basis over their estimated useful lives.Alternatively, intangible assets with indefinite useful lives are carried atcost less any subsequent accumulated impairment losses (see the accountingpolicy in respect of impairment losses on tangible and intangible assetsbelow).
Expressway operating rights under service concession arrangements
When the Group has a right to charge for usage of concession infrastructure, itrecognises concession intangible assets based on fair value of theconsideration paid upon initial recognition. Subsequent costs incurred onexpressway widening projects and upgrading services are recognized asadditional costs of the expressway operating rights. The concession intangibleassets representing expressway operating rights are carried at cost lessaccumulated amortisation and any accumulated impairment losses.The concession intangible assets are amortised to write-off their cost, overtheir expected useful lives in the remaining concession period using anamortisation period which reflects the pattern in which their future economicbenefits are expected to be consumed on a straight-line basis.Costs in relation to the day-to-day servicing, repair and maintenance of theexpressway infrastructures are recognised as expenses in the periods in whichthey are incurred.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment losses on tangible and intangible assets other than goodwill (see the accounting policy in respect of goodwill above)
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that these assets have suffered an impairment loss. In addition, intangible assets with indefinite useful lives are tested for impairment annually, and whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
When an impairment loss subsequently reverses, the carrying amount of the assetis increased to the revised estimate of its recoverable amount, but so that theincreased carrying amount does not exceed the carrying amount that would havebeen determined had no impairment loss been recognised for the asset in prioryears. A reversal of an impairment loss is recognised as income immediately.
Inventories
Inventories, representing merchandise held for resale, are stated at the lowerof cost and net realisable value. Cost is calculated using the weighted averagemethod.Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
The Group as lessor
Rental income from operating leases is recognised in the consolidated incomestatement on a straight-line basis over the term of the relevant lease. Initialdirect costs incurred in negotiating and arranging an operating lease are addedto the carrying amount of the leased asset and recognised as an expense on astraight-line basis over the lease term.
The Group as lessee
Rentals payable under operating leases are charged to profit or loss on astraight-line basis over the term of the relevant lease. Benefits received andreceivable as an incentive to enter into an operating lease are recognised as areduction of rental expense over the lease term on a straight-line basis.Contingent rents are charged as expenses in the periods in which they areincurred.
Leasehold land and buildings
The land and building elements of a lease of land and buildings are consideredseparately for the purpose of lease classification, unless the lease paymentscannot be allocated reliably between the land and building elements, in whichcase, the entire lease is generally treated as a finance lease and accountedfor as property, plant and equipment. To the extent the allocation of the leasepayments can be made reliably, leasehold interests in land are accounted for asoperating leases.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies
In preparing the financial statements of each individual group entity,transactions in currencies other than the functional currency of that entity(foreign currencies) are recorded in the respective functional currency (i.e.the currency of the primary economic environment in which the entity operates)at the rates of exchanges prevailing on the dates of the transactions. At eachbalance sheet date, monetary items denominated in foreign currencies areretranslated at the rates prevailing on the balance sheet date. Non-monetaryitems that are measured in terms of historical cost in a foreign currency arenot retranslated.Exchange differences arising on the settlement of monetary items, and on thetranslation of monetary items, are recognised in profit or loss in the periodin which they arise.Borrowing costsBorrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, are capitalised as part of the cost of thoseassets. Capitalisation of such borrowing costs ceases when the assets aresubstantially ready for their intended use or sale. Investment income earned onthe temporary investment of specific borrowings pending their expenditure onqualifying assets is deducted from the borrowing costs eligible forcapitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Retirement benefit costs
Payments to state-managed retirement benefit schemes and corporate annuity scheme are charged as an expense when employees have rendered service entitling them to the contributions.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxableprofit differs from profit as reported in the consolidated income statementbecause it excludes items of income or expense that are taxable or deductiblein other years and it further excludes items that are never taxable ordeductible. The Group's liability for current tax is calculated using tax ratesthat have been enacted or substantively enacted by the balance sheet date.Deferred tax is recognised on differences between the carrying amounts ofassets and liabilities in the consolidated financial statements and thecorresponding tax base used in the computation of taxable profit, and isaccounted for using the balance sheet liability method. Deferred taxliabilities are generally recognised for all taxable temporary differences anddeferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporarydifferences can be utilised. Such assets and liabilities are not recognised ifthe temporary difference arises from goodwill or from the initial recognition(other than in a business combination) of other assets and liabilities in atransaction that affects neither the taxable profit nor the accounting profit.The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered.Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited to profit or loss, except when it relates to items chargedor credited directly to equity, in which case the deferred tax is also dealtwith in equity.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments
Financial assets and financial liabilities are recognised on the consolidatedbalance sheet when a group entity becomes a party to the contractual provisionsof the instrument. Financial assets and financial liabilities are initiallymeasured at fair value. Transaction costs that are directly attributable to theacquisition or issue of financial assets and financial liabilities (other thanfinancial assets or financial liabilities at fair value through profit or loss)are added to or deducted from the fair value of the financial assets orfinancial liabilities, as appropriate, on initial recognition. Transactioncosts directly attributable to the acquisition of financial assets or financialliabilities at fair value through profit or loss are recognised immediately
inprofit or loss.Financial assetsThe Group's financial assets are classified into loans and receivables,financial assets at fair value through profit or loss ("FVTPL") andavailable-for-sale financial assets. All regular way purchases or sales offinancial assets are recognised and derecognised on a trade date basis. Regularway purchases or sales are purchases or sales of financial assets that requiredelivery of assets within the time frame established by regulation orconvention in the marketplace. The accounting policies adopted in respect ofeach category of financial assets are set out below.
Effective interest method
The effective interest method is a method of calculating the amortised cost ofa financial asset and of allocating interest income over the relevant period.The effective interest rate is the rate that exactly discounts estimated futurecash receipts (including all fees paid or received that form an integral partof the effective interest rate, transaction costs and other premiums ordiscounts) through the expected life of the financial asset, or, whereappropriate, a shorter period.
Interest Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL, of which interest income is included in net gains or losses.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. At each balancesheet date subsequent to initial recognition, loans and receivables (includingtrade receivables, other receivables and bank balances) are carried atamortised cost using the effective interest method, less any identifiedimpairment losses (see accounting policy on impairment losses on financialassets below).
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments
Financial assets at fair value through profit or loss
A financial asset is classified as held-for-trading if:
- it has been acquired principally for the purpose of selling in the near
future; or
- it is a part of an identified portfolio of financial instruments that
the Group manages together and has a recent actual pattern of short-term profit
taking; or
- it is a derivative that is not designated and effective as a hedging
instrument.
At each balance sheet date subsequent to initial recognition, financial assetsat FVTPL are measured at fair value, with changes in fair value recogniseddirectly in profit or loss in the period in which they arise. The net gain orloss in profit or loss includes any dividend or interest earned on thefinancial assets.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the categories of financial assets set out above.
At each balance sheet date subsequent to initial recognition,available-for-sale financial assets are measured at fair value. Changes in fairvalue are recognised in equity, until the financial asset is disposed of or isdetermined to be impaired, at which time, the cumulative gain or losspreviously recognised in equity is removed from equity and recognised in profitor loss (see accounting policy on impairment loss on financial assets below).Available-for-sale equity investments that do not have a quoted market price inan active market and whose fair value cannot be reliably measured are measuredat cost less any identified impairment losses at each balance sheet datesubsequent to initial recognition (see accounting policy on impairment loss onfinancial assets below).
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted.
For an available-for sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
- significant financial difficulty of the issuer or counterparty; or
- default or delinquency in interest or principal payments; or
- it becoming probable that the borrower will enter bankruptcy or
financial re-organisation.
For financial assets carried at amortised cost, an impairment loss isrecognised in profit or loss when there is objective evidence that the asset isimpaired, and is measured as the difference between the asset's carrying amountand the present value of the estimated future cash flows discounted at theoriginal effective interest rate.For financial assets carried at cost, the amount of the impairment loss ismeasured as the difference between the asset's carrying amount and the presentvalue of the estimated future cash flows discounted at the current market rateof return for a similar financial asset. Such impairment loss will not bereversed in subsequent periods.The carrying amount of the financial asset is reduced by the impairment lossdirectly for all financial assets with the exception of trade receivables andother receivables, where the carrying amount is reduced through the use of anallowance account. Changes in the carrying amount of the allowance account arerecognised in profit or loss. When a trade receivable or other receivable isconsidered uncollectible, it is written off against the allowance account.Subsequent recoveries of amounts previously written off are credited to profitor loss.For financial assets measured at amortised cost, if, in a subsequent period,the amount of impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment losses was recognised,the previously recognised impairment loss is reversed through profit or loss tothe extent that the carrying amount of the asset at the date the impairment isreversed does not exceed what the amortised cost would have been had theimpairment not been recognised.Impairment losses on available-for-sale equity investments will not be reversedin profit or loss in subsequent periods. Any increase in fair value subsequentto impairment loss is recognised directly in equity. For available-for-saledebt investments, impairment losses are subsequently reversed if an increase inthe fair value of the investment can be objectively related to an eventoccurring after the recognition of the impairment loss.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Financial liabilities and equity
Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in theassets of the Group after deducting all of its liabilities. The accountingpolicies adopted in respect of financial liabilities and equity instruments
areset out below.Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
Interest expense is recognised on an effective interest basis.
Financial liabilities
Financial liabilities including trade payables, accounts payable to customers,other payables, ultimate holding company, dividend payable, interest-bearingbank and other loans, and long-term bonds are subsequently measured atamortised cost, using the effective interest method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to makespecified payments to reimburse the holder for a loss it incurs because aspecified debtor fails to make payment when due in accordance with the originalor modified terms of a debt instrument. A financial guarantee contract issuedby the Group and not designated as at fair value through profit or loss isrecognised initially at its fair value less transaction costs that are directlyattributable to the issue of the financial guarantee contract. Subsequent toinitial recognition, the Group measures the financial guarantee contact at thehigher of: (i) the amount determined in accordance with HKAS 37 Provisions,Contingent Liabilities and Contingent Assets; and (ii) the amount initiallyrecognised less, when appropriate, cumulative amortisation recognised inaccordance with HKAS 18 Revenue.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Derecognition
Financial assets are derecognised when the rights to receive cash flows fromthe assets expire or, the financial assets are transferred and the Group hastransferred substantially all the risks and rewards of ownership of thefinancial assets. On derecognition of a financial asset, the difference betweenthe asset's carrying amount and the sum of the consideration received andreceivable and the cumulative gain or loss that have been recognized directlyin equity is recognised in profit or loss.
Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
Provisions
Provisions are recognised when the Group has a present obligation as a resultof a past event, and it is probable that the Group will be required to settlethat obligation. Provisions are measured at the directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, andare discounted to present value where the effect is material.
4. KEY SOURCES OF ESTIMATION UNCERTAINTY
The followings are the key assumptions concerning the future, and key sourcesof estimation uncertainty at the balance sheet date, that have a significantrisk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year.
Estimated impairment of intangible assets with indefinite useful lives
Determining whether intangible assets with indefinite useful lives are impairedrequires an estimation of the value in use of themselves or the cash-generatingunit to which they belong. The value in use calculation requires the Group toestimate the future cash flows expected to arise from themselves or thecash-generating unit to which they belong and a suitable discount rate in orderto calculate the present value. Where the actual future cash flows are lessthan expected, a material impairment loss may arise. As at December 31, 2008,the carrying amounts of intangible assets with indefinite useful lives wereRmb66,563,000 (2007: Rmb66,563,000). Details of the recoverable amountcalculation are disclosed in Note 22.
4. KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)
Provision against litigation and guarantees
Measuring the provision against litigation and guarantees requires anestimation of the expenditure required to settle the obligation arising fromthe litigation and guarantees. The settlement amount depends on such factors asthe totality of facts, interpretation and application of laws and regulation,and court rulings. Where the court rules differently than the Group hasexpected, the ultimate settlement amount may be materially different from theprovision that has been made and affect the Group's profit and loss in futureperiods. During the year, the Group has made provision against litigation andguarantee of Rmb33,864,000 (2007: Rmb129,224,000) and written back of provisionof Rmb164,024,000 (2007: Nil). Details of the provision are disclosed in Note36.5. FINANCIAL INSTRUMENTS
(a)Categories of financial instruments
2008 2007 Rmb'000 Rmb'000Financial assets
Available-for-sale investments 29,001 596,758
Fair value through profit or loss
Held-for-trading 247,587 621,220
Loans and receivables (including cash
and cash equivalents) 10,094,912 10,895,690Financial liabilitiesAmortised cost 8,050,884 10,062,673
Financial guarantee contracts - 52,610
(b) Financial risk management objectives and policies
The Group's major financial instruments include available-for-sale investments,held-for-trading investments, trade and other receivables, bank balances, bankbalances held on behalf of customers, trade and other payables, amount due toultimate holding company, dividend payable, interest-bearing bank and otherloans, and long-term bonds. Details of these financial instruments aredisclosed in respective notes. The risks associated with these financialinstruments and the policies on how to mitigate these risks are set out below.The management manages and monitors these exposures to ensure appropriatemeasures are implemented on a timely and effective manner.
5. FINANCIAL INSTRUMENTS (continued)
(b) Financial risk management objectives and policies (continued)
Market risk
(i) Interest rate risk
The Group is exposed to fair value interest rate risk in relation to fixed-ratestructured deposit and time deposits and long-term bonds (see Notes 29, 31 and37 for details).
The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances and other loans (see Notes 31 and 35 for details).
The Group currently does not have an interest rate risk hedging policy as themanagement consider the Group is not exposed to significant interest rate risk.The management will continue to monitor interest rate risk exposure andconsider hedging against it should the need arises.
The Group's exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note.
Sensitivity analysis
The sensitivity analyses below have been determined based on the exposure tointerest rates for non-derivative instruments, comprising variable-rate bankbalances and other loans, at the balance sheet date. In the opinion of thedirectors, the variable-rate bank balances are not interest sensitive to themarket risk and the exposure to interest rates of other loans are insignificantfor the year ended 31 December 2008. Accordingly, no such sensitivity analysisis presented.For variable-rate bank balances and other loans for the year ended 31 December2007, the analysis was prepared assuming the balances outstanding at thebalance sheet date were outstanding for the whole year. A 50 basis pointincrease or decrease was used when reporting interest rate risk internally tokey management personnel.If interest rates had been 50 basis points higher/lower and all other variableswere held constant, the Group's profit for the year ended December 31, 2007would increase/decrease by Rmb31,528,000. This was mainly attributable to theGroup's exposure to interest rates on its variable-rate bank balances.
5. FINANCIAL INSTRUMENTS (continued)
(b)Financial risk management objectives and policies (continued)
Market risk (continued)
(ii) Currency risk
The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities at the reporting date are as follows:
Liabilities Assets 2008 2007 2008 2007 Rmb'000 Rmb'000 Rmb'000 Rmb'000HKD 8,734 10,331 12,518 13,655USD 519,409 635,475 64,713 92,392
The Group currently does not have a currency risk hedging policy as the management considers that the risk is not significant. The management will continue to monitor foreign currency risk exposure and consider hedging against it should the need arises.
Sensitivity analysisThis sensitivity analysis details the Group's sensitivity to a 5% increase anddecrease in Rmb against HKD and USD. 5% is the sensitivity rate used whenreporting foreign currency risk internally to key management personnel. Thesensitivity analysis includes only outstanding foreign currency denominatedmonetary items and adjusts their translation at the year end for a 5% change inforeign currency rates. If Rmb had strengthened/weakened 5% against HKD, theGroup's profit for the year ended December 31, 2008 would have increased/decreased by Rmb142,000 (2007: Rmb111,000). If Rmb had strengthened/weakened 5%against USD, the Group's profit for the year ended December 31, 2008 would haveincreased/decreased by Rmb17,051,000 (2007: Rmb18,193,000).
5. FINANCIAL INSTRUMENTS (continued)
(b) Financial risk management objectives and policies (continued)
Market risk (continued)
(iii) Price risk
The Group is exposed to security price risk in relation its held-for-trading and available-for-sale listed investments.
The Group currently does not have a price risk hedging policy as the managementconsider the Group is not exposed to significant price risk. The managementwill continue to monitor price risk exposure and consider hedging against itshould the need arises.Sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to equity and debt security price risks at the reporting date.
If the prices of the respective equity and debt instruments had been 5% higher/ lower,
- profit for the year ended December 31, 2008 increase/decrease by
Rmb9,285,000 (2007: increase/decrease by Rmb20,811,000) as a result of the
changes in fair value of held-for-trading investments; and
- investment valuation reserve would increase by Rmb1,050,000 and profit
for the year ended December 31, 2008 would decrease by Rmb1,050,000 (2007:
investment valuation reserve would increase/decrease by Rmb19,958,000) for the
Group as a result of the changes in fair value of available-for-sale listed
investments.Credit riskAs at December 31, 2008, the Group's maximum exposure to credit risk which willcause a financial loss to the Group due to failure to discharge an obligationby the counterparties arising from the carrying amount of the respectiverecognised financial assets as stated in the consolidated balance sheet,including a structured deposit as disclosed in Note 29.In order to minimise the credit risk, the management of the Group has delegateda team responsible for determination of credit limits, credit approvals andother monitoring procedures to ensure that follow-up action is taken to recoveroverdue debts. In addition, the Group reviews the recoverable amount of eachindividual trade debt at each balance sheet date to ensure that adequateimpairment losses are made for irrecoverable amounts. In this regard, thedirectors of the Company consider that the Group's credit risk is significantlyreduced.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
Other than the concentration of credit risk on certain trade receivable,deposits and other debtors, corporate bonds and structured deposit amounting toRmb71,640,000 (2007: Rmb69,453,000), Rmb58,046,000 (2007: Rmb131,100,000),Rmb238,977,000 (2007: Rmb79,969,000) and Rmb204,667,000 (2007: nil) asdisclosed in notes 26, 27, 28 and 29 respectively, the Group does not have anyother significant concentration of credit risk. The Group's concentration ofcredit risk by geographical locations is mainly in the PRC.
5. FINANCIAL INSTRUMENTS (continued)
(b)Financial risk management objectives and policies (continued)
Liquidity risk
Most of the bank balances and cash at December 31, 2008 were denominated in RMBwhich is not a freely convertible currency in the international market. Theexchange rate of RMB is determined by the PRC government and the remittance ofthese RMB funds out of the PRC is subject to foreign exchange controls imposedby the PRC government.
The Group closely monitors its cash position resulting from its operations and maintains a level of cash and cash equivalents deemed adequate by the management to enable the Group to meet in full its financial obligations as they fall due for the foreseeable future.
The following table details the Group's remaining contractual maturity for itsfinancial liabilities. For non-derivative financial liabilities, the table hasbeen drawn up based on the undiscounted cash flows of financial liabilitiesbased on the earliest date on which the Group can be required to pay. The tableincludes both interest and principal cash flows.
5. FINANCIAL INSTRUMENTS (continued)
(b) Financial risk management objectives and policies (continued)
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5. FINANCIAL INSTRUMENTS (continued)
(c) Fair value
The fair value of financial assets and financial liabilities are determined as follows:
- the fair value of financial assets with standard terms and conditions
and traded on active liquid markets are determined with reference to quoted
market bid prices; and
- the fair value of other financial assets and financial liabilities are
determined in accordance with generally accepted pricing models based on
discounted cash flow analysis using prices from observable current market
transactions.
The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values.
6. CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that entities in the Group will be ableto continue as a going concern while maximising the return to stakeholdersthrough the optimisation of the debt and equity balance. The Group's overallstrategy remains unchanged from prior year.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in Notes 35 and 37, equity attributable to equity holders of the Company, comprising issued share capital, reserves and retained profits.
The directors of the Company review the capital structure on a regular basis.As part of this review, the directors consider the cost of capital and therisks associated with each class of capital. Based on recommendations of thedirectors, the Group will balance its overall capital structure through thepayment of dividends, new share issues and share buy-backs as well as the issueof new debt or the redemption of existing debt.
7. SEGMENT INFORMATION
In accordance with the Group's internal financial reporting practice, the Groupuses business segments as its primary segment reporting format. During theyear, the entire turnover and profit contribution from operating activities andtotal assets of the Group are derived from and located in the PRC. Accordingly,no geographical segment information is presented.
Business segments
The Group's operating businesses are structured and managed separately according to the nature of services provided and sales of goods, with each segment representing a strategic business unit that serves different markets:
- Toll operation represents the operation and management of high grade
roads and the collection of the expressway tolls.
- Service area businesses mainly represent the sale of food, restaurant
operation, automobile servicing as well as the operation of petrol stations.
- Advertising business represents the design and rental of advertising
billboards along the expressways.
- Securities operation represents securities broking and proprietary
trading.
- Others represents the maintenance of expressways and roads, including
the cleaning of the road surface, minor repairs to the lanes, the cleaning of
the gutters and sewers, grass mowing, afforestation, maintenance service provided to third parties. Segment information about these businesses is presented below.
7. SEGMENT INFORMATION (continued)
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8. REVENUE AND OTHER INCOME
An analysis of the Group's revenue, net of discounts and taxes, and other income for the year is as follows:
2008 2007 Rmb'000 Rmb'000Toll operation revenue 3,455,627 3,897,819Service area businesses revenue 1,670,435 1,261,526Advertising business revenue 78,032 64,891Commission income from securities operation 947,861 1,684,284Interest income from securities operation 167,728 120,643Others 3,787 1,217Total revenue 6,323,470 7,030,380
Interest income on bank balances and
entrusted loan 55,115 20,997Rental income 40,858 32,079Net exchange gain 40,143 40,302Handling fee income 22,863 14,338Towing income 15,095 19,446Gain on disposal of an associate (Note 23(ii)) 8,375 -Interest income from structured deposit 4,667 -Others 24,304 7,445Total other income 211,420 134,607 6,534,890 7,164,987
9. SECURITIES INVESTMENT (LOSSES) GAINS
2008 2007 Rmb'000 Rmb'000
(Loss) gain on fair value changes on
held-for-trading investments (201,741) 475,828
Loss on disposal of available-for-sale
investments (89,680) -
Impairment loss on available-for-sale
investments (24,792) - (316,213) 475,82810. FINANCE COSTS 2008 2007 Rmb'000 Rmb'000
Interest on bank loans wholly repayable
within five years 18,332 22,141Interest on other loans 15,577 34,059Interest on long-term bonds 42,900 42,900Total borrowing costs 76,809 99,100
Less: amount capitalised in respect
of specific borrowings - (38,548) 76,809 60,552
11. PROFIT BEFORE TAX
The Group's profit before tax has been arrived at after charging (crediting): 2008 2007 Rmb'000 Rmb'000 (Restated)Depreciation of property, plant and equipment 112,140
104,671
Amortisation of prepaid lease payments 1,503
1,787
Amortisation of expressway operating rights 659,027
577,059
Amortisation of other intangible assets 9,424
7,289
Total depreciation and amortisation 782,094
690,806
Auditors' remuneration 7,576
6,531
Loss on disposal of property, plant and equipment 6,076
3,937
Write-down of goodwill -
5,956
Staff costs (including directors and supervisors): - Wages and salaries
292,193
374,507
- Pension scheme contributions 32,316 27,230 324,509 401,737
Cost of inventories recognised as an expense 1,518,520 1,115,597
12. INCOME TAX EXPENSE
The Group is subject to the PRC enterprise income tax ("EIT") levied at a rateof 25% (2007: 33%) of taxable income determined in accordance with the PRC lawsand financial reporting system.
No Hong Kong profits tax has been provided as the Group had no taxable profits derived in Hong Kong during the year.
2008 2007 Rmb'000 Rmb'000PRC income tax: 731,019 1,314,241Deferred tax (Note 38): Current year (62,091) (16,996) Attributable to a change in tax rate - (105,607) (62,091) (122,603) 668,928 1,191,638
The tax charge for the year can be reconciled to the profit per the consolidated income statement as follows:
2008 2007 Rmb'000 Rmb'000Profit before tax 2,934,079 4,332,533
Tax at the PRC statutory income tax rate
of 25% (2007: 33%) 733,520 1,429,736
Tax effect of share of (profits) losses
of associates (2,665) 1,536
Tax effect of share of profit of a jointly
controlled entity (5,937) (6,734)
Tax effect of income not taxable for
tax purposes (23,505) (4,920)
Tax effect of expenses not deductible
for tax purposes 5,606 64,350
PRC income tax over provision in
prior year (i) (38,091) -
Utilisation of tax losses previously not
recognized as deferred tax assets (ii) - (186,723)
Decrease in opening deferred tax
liabilities resulting from the decrease
in income tax rate (iii) - (105,607)Tax charge for the year 68,928 1,191,638
12. INCOME TAX EXPENSE (continued)
Notes:
(i) Certain staff costs incurred by a subsidiary, Zheshang Securities Co.,
Ltd. ("Zheshang Securities") in 2007 in excess of maximum amount deductible was
considered as a non-deductible expense and accordingly, income tax provision
was made in prior year. During the year, Zheshang Securities has obtained an
approval from the government authority for the deduction of these staff costs,
so the relevant income tax provision is released to the consolidated income
statement.
(ii)The tax loss utilised in 2007, arose mainly from a bad debt provision
made by Zheshang Securities prior to its acquisition by the Group in relation
to misappropriation of assets perpetrated by Kinghing Trust Investment Co.,
Ltd. ("Kinghing Investment"), former majority equity owner of Zheshang Securities. The bad debt provision was treated as a non-deductible expense at the
date of acquisition of Zheshang Securities by the Group in 2006. In 2007, the
relevant tax authorities granted Zheshang Securities a dispensation to claim
tax deduction on the bad debt provision and accordingly, the resulting tax loss
was utilised in 2007.
(ii)On March 16, 2007, the PRC promulgated Law of the People's Republic
of China on Enterprise Income Tax (the "New Law") by Order No.63 of the
President of the PRC. On December 6, 2007, the State Council of the PRC issued
Implementation Regulations of the New Law. The New Law and Implementation
Regulation has changed the tax rate from 33% to 25% for the Group from January
1, 2008.
13. DIRECTORS' AND SUPERVISORS' EMOLUMENTS
The emoluments paid or payable to each of the 9 (2007: 9) directors and 5 (2007: 5) supervisors are as follows:
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The emoluments of each of the directors and supervisors, other than Mr. GengXiaoping, for both years were below HK$1,000,000 (equivalent to Rmb881,900).Bonuses paid to directors and supervisors are determined by the RemunerationCommittee of the Company, which comprises three independent non-executivedirectors.No directors or supervisors waived any emoluments and no incentive was paid toany directors or supervisors as an inducement to join the Company and nocompensation for loss of office was paid to any directors, supervisors, pastdirectors or past supervisors during both years. Bonuses are determined byreference to the individual performance of the directors.
14. EMPLOYEES' EMOLUMENTS
The emoluments of the five highest paid individuals in the Group are asfollows: 2008 2007 Rmb'000 Rmb'000Salaries, allowances and benefits in kind 7,769 1,000Bonuses paid and payable 5,018 4,127Pension scheme contributions 85 63Incentive paid 7,400 63Compensation for loss of office - - 20,272 5,253
The five individuals with the highest emoluments in the Group during the year included no (2007: one) director, whose emoluments are set out in note 13 above, as well as five (2007: four) non-director employees.
Their emoluments are within the following bands:
2008 2007 No. of No. of individuals individualsHK$ nil to HK$1,000,000 - 1HK$1,000,001 to HK$1,500,000 - 4HK$3,000,001 to HK$3,500,000 1 -HK$4,000,001 to HK$4,500,000 2 -HK$4,500,001 to HK$5,000,000 1 -HK$6,000,001 to HK$6,500,000 1 -15. DIVIDENDS
The final dividend of Rmb24 cents (2007: Rmb24 cents) per share has been proposed by the directors and is subject to approval by the shareholders in the annual general meeting.
16. EARNINGS PER SHAREThe calculation of the basic earnings per share is based on profit for the yearattributable to equity holders of the Company of Rmb1,892,787,000 (2007:Rmb2,415,965,000) and the 4,343,114,500 (2007: 4,343,114,500) ordinary sharesin issue during the year.
No diluted earnings per share has been presented as there were no potential dilutive ordinary shares in issue in both years.
17. PROPERTY, PLANT AND EQUIPMENT
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17. PROPERTY, PLANT AND EQUIPMENT (continued)
The carrying value of leasehold land and buildings shown above comprises:
2008 2007 Rmb'000 Rmb'000
Leasehold land and buildings in the PRC:
Long lease 26,514 11,664 Medium-term lease 343,891 299,257 370,405 310,92118. PREPAID LEASE PAYMENTSThe Group's prepaid lease payments comprise leasehold land in the PRC undermedium-term lease. Rmb'000 (Restated)COSTAt January 1, 2007As originally stated 571,693
Effect of change in accounting policy (Note 2) (527,171)
As restated 44,522Addition (restated) 22,541At December 31, 2007, as restated 67,063Addition 1,528Disposal (12,414)At December 31, 2008 56,177AMORTISATIONAt January 1, 2007As originally stated 162,409
Effect of change in accounting policy (Note 2) (157,860)
As restated 4,549Charge for the year (restated) 1,787At December 31, 2007, as restated 6,336Charge for the year 1,503Disposal (581)At December 31, 2008 7,258CARRYING VALUESAt December 31, 2008 48,919At December 31, 2007 60,727 2008 2007 Rmb'000 Rmb'000
Analysed for reporting purposes as:
Current assets 1,265 1,500 Non-current assets 47,654 59,227 48,919 60,727
The amount represents prepayment of rentals under operating leases for "land use rights" situated in the PRC.
19. EXPRESSWAY OPERATING RIGHTS
Rmb'000 (Restated)COSTAt January 1, 2007As originally stated 261,000
Effect of change in accounting policy (Note 2) 15,264,665
As restated 15,525,665Addition (restated) 671,831At December 31, 2007, as restated 16,197,496Addition 60,252At December 31, 2008 16,257,748AMORTISATIONAt January 1, 2007As originally stated 81,155
Effect of change in accounting policy (Note 2) 2,016,530
As restated 2,097,685Charge for the year (restated) 577,059At December 31, 2007, as restated 2,674,744Charge for the year 659,027At December 31, 2008 3,333,771CARRYING VALUESAt December 31, 2008 12,923,977At December 31, 2007 13,522,752The above expressway operating rights were granted by the Zhejiang ProvincialGovernment to the Group for 30 years. During the expressway concessionaryperiod, the Group has the rights of operation and management ofShanghai-Hangzhou-Ningbo Expressway and Shangsan Expressway and thetoll-collection rights thereof. The Group is required to manage and operate theexpressways in accordance with the regulations promulgated by the Ministry ofCommunication and relevant government authorities. Upon the end of therespective concession service periods, the toll expressways and their tollstation facilities will be returned to the grantors at zero consideration.
20. GOODWILL Rmb'000COST AND CARRYING AMOUNTAt January 1, 2007 91,428Arising on acquisition of a subsidiary 1,395Write-down (5,956)
At December 31, 2007 and at December 31, 2008 86,867
Particulars regarding impairment testing on goodwill are disclosed in note 22.
21. OTHER INTANGIBLE ASSETS
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The above intangible assets, other than part of software licenses, were purchased as part of business combinations during both 2006 and 2007. Other software licenses were acquired from third parties.
The customer bases of the securities operation have a definite useful life. Thecustomer bases of Zheshang Securities Co., Ltd. ("Zheshang Securities") andZhejiang Tianma Futures Broker Co., Ltd ("Tianma Futures") are amortised on astraight-line basis over 15 years and 3 years respectively.
21. OTHER INTANGIBLE ASSETS (continued)
The securities/futures firm licenses of the securities operation are consideredby the management of the Group to have an indefinite useful life because theycan be renewed at minimal cost even though the current licenses are effectivefor three years.The trading seats of the securities operation is considered by the managementof the Group to have an indefinite useful life because there is no economic orregulatory limit to their useful life.
Software licenses are amortised on a straight-line basis over five years.
Particulars of the impairment testing on intangible assets with indefinite useful lives are disclosed in note 22.
22. IMPAIRMENT TESTING ON GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE
USEFUL LIVES
As explained in note 7, the Group uses business segments as its primary segmentfor reporting segment information. For the purposes of impairment testing,goodwill and other intangible assets with indefinite useful lives set out innotes 20 and 21 have been allocated to four individual cash generating units(CGUs), including two subsidiaries in toll operation segment and twosubsidiaries in securities operation segment. The carrying amounts of goodwilland other intangible assets as at December 31, 2008 allocated to these unitsare as follows: Securities/futures Trading Goodwill firm licenses seats 2008 2007 2008 2007 2008 2007 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000Toll operation- Zhejiang Jiaxing Expressway Co., Ltd. ("Jiaxing Co") 75,137 75,137 - - - -- Zhejiang Shangsan Expressway Co., Ltd. ("Shangsan Co") 10,335 10,335 - - - -Securities operation- Zheshang Securities - - 51,783 51,783 2,080 2,080- Zhejiang Tianma Futures Broker Co., Ltd. ("Tianma Futures") 1,395 1,395 11,300 11,300 1,400 1,400 86,867 86,867 63,083 63,083 3,480 3,480During the year ended December 31, 2008, the management of the Group determinesthat the recoverable amounts exceed the carrying amounts of the respective CGUscontaining goodwill and other intangible assets with indefinite useful livesand therefore no impairment has been recognised.
22. IMPAIRMENT TESTING ON GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE
USEFUL LIVES (continued)
The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are summarised below:
Jiaxing Co and Shangsan Co
The recoverable amounts of Jiaxing Co and Shangsan Co are determined based onvalue in use calculations. The key assumptions for the value in usecalculations relate to discount rates, growth rates, and expected changes intoll revenue and direct costs during the forecast period. Those calculationsuse cash flow projections based on financial budgets approved by managementcovering a five-year period and a discount rate of 15% (2007: 15%). No growthrate has been assumed beyond the five-year period up to the remaining toll roadoperating rights which are twenty-year and twenty-two-year for Jiaxing Co.
andShangsan Co. respectively.Zheshang Securities
The recoverable amount of Zheshang Securities is determined based on value inuse calculations. The key assumptions for the value in use calculations relateto the discount rate, growth rates and profit margin during the forecastperiod. Those calculations use cash flow projections based on financial budgetsapproved by management covering a four-year period and a discount rate of 23.5%(2007: 23.5%).Tianma FuturesThe recoverable amount of Tianma Futures is determined based on value in usecalculations. The key assumptions for the value in use calculations relate tothe discount rate, growth rates and profit margin during the forecast period.Those calculations use cash flow projections based on financial budgetsapproved by management covering a five-year period and a discount rate of 19.3%(2007: 19.3%).23. INTERESTS IN ASSOCIATES 2008 2007 Rmb'000 Rmb'000 (Restated)
Unlisted investments in associates, at cost 431,290 466,290
Share of post-acquisition profits, net of
dividends received 32,972 28,813 464,262 495,103
At December 31, 2008, the Group had interests in the following associates:Please visit below link for details:http://www.prnasia.com/xprn/sa/attachment/2009/04/20090401-812920.pdf
23. INTERESTS IN ASSOCIATES (continued)
Notes:
(i) On April 19, 2007, the Company entered into an equity transfer
agreement with Guangzhou Zhongda Kaisi Group Co., Ltd. ("Zhongda Kaisi")
whereby Zhongda Kaisi undertook to bid for such equity interest of JoinHands
Co. at the property exchange centre at a price no less than its valuation to be
determined by an accredited valuer. The carrying value of investment in
JoinHands Co was classified as an asset held for sale in prior year. Due to the
economic downturn, Zhongda Kaisi failed to complete the transaction and the
Group does not have any active plan to dispose such investment at the balance
sheet date. As a result, the directors determine to reclassify the carrying
value of the investment from assets held for sale to interest in associate
using equity method of accounting as from the date of its classification as
held-for-sale. The financial statements for the periods since classification as
held-for-sale is amended to interests in associates accordingly.
(ii) Investment in Jiashao Co has been disposed during the year at a cash
consideration of Rmb43,375,000, resulted at a gain on disposal of Rmb8,375,000.
(iii) The Group is able to exercise significant influence over Time Plaza
Co because it has the power to appoint one out of five directors of that
company.
(iv) The Group is able to exercise significant influence over Ningbo
Advertising Co because it has the power to appoint two out of five directors of
that company.
The summarised financial information in respect of the Group's associates at balance sheet date is set out below:
2008 2007 Rmb'000 Rmb'000Total assets 4,089,893 4,382,281Total liabilities (2,537,904) (2,673,300) Net assets 1,551,989 1,708,981Group's share of net assets of associates 464,262 495,103Revenue 3,874,147 2,966,548Loss for the year (59,378) (14,580)
Group's share of results of associates
for the year 10,659 (4,655)
24. INTEREST IN A JOINTLY CONTROLLED ENTITY
2008 2007 Rmb'000 Rmb'000
Unlisted investment in a jointly controlled
entity, at cost 65,000 65,000
Share of post-acquisition profits, net of
dividends received 59,251 35,505 124,251 100,505 At December 31, 2008, the Group had interests in the following jointlycontrolled entity: Percentage of equity Form of Place of interest business registration held by Profit PrincipalName of entity structure and operation the Group sharing activitiesHangzhou Shida Corporate The PRC 50% 50% Operation of Expressway Co., Ltd. the Shiqiao- Dajing expressway
The Group's entitlement to voting rights and share in the profit of the jointly controlled entity is in proportion to its ownership interests.
The summarised financial information in respect of the Group's interest in thejointly controlled entity which are accounted for using the equity method isset out below: 2008 2007 Rmb'000 Rmb'000Current assets 36,136 25,400Non-current assets 141,033 148,295Current liabilities (38,509) (58,433)Non-current liabilities (14,409) (14,757)Income 46,703 44,989Expenses (22,957) (24,583)
25. AVAILABLE-FOR-SALE INVESTMENTS
Available-for-sale investments comprise:
2008 2007 Rmb'000 Rmb'000
Non-current assets:
Unlisted equity investments, at cost (i) 1,000 1,000
Current assets:
Listed equity investments in the PRC, at fair value (ii) 28,001 595,758 29,001 596,758 Notes:
(i) Unlisted equity investments represent investments in unlisted equity
securities issued by private entities established in the PRC. They are measured
at cost less impairment at each balance sheet date because the range of
reasonable fair value estimated is so significant that the directors of the
Company are of the opinion that their fair values cannot be measured reliably.
(ii) Listed equity investments represent equity securities subscribed
through placement by listed issuers. They are measured at fair value. During
the year, the loss on change in fair value of the investments of Rmb345,081,000
(2007: gain on change in fair value of Rmb230,609,000) has been debited to
equity. Subsequently, the Group disposed certain investments and recognized a
loss on disposal of Rmb89,680,000 (2007: Nil) to consolidated income statement.
Management determines that the decrease in quoted market price of the remaining
investments is significant or prolonged, accordingly, the impairment loss on
such investments of Rmb24,792,000 (2007: Nil) has been transferred directly to
the consolidated income statement.
26. TRADE RECEIVABLES
The Group has no credit period granted to its trade customers of tolloperation, service area operation and securities operation. An aging analysisof trade receivables at the balance sheet date, based on invoice date, is asfollows: 2008 2007 Rmb'000 Rmb'000Within 3 months 71,640 69,4533 months to 1 year 3,408 7,4771 to 2 years 288 4,181Over 2 years 663 1,566 75,999 82,677
Included in the balance aged within 3 months were tolls receivable from theExpressway Fee Settlement Centre of the Highway Administration Bureau ofZhejiang Province and Hangzhou Urban and Rural Construction Committee amountingto Rmb71,640,000 (2007: Rmb69,453,000) which has been settled subsequent to thebalance sheet date. The directors consider the credit risk of the balance to beminimal. The Group has not provided for impairment loss on the balances pastdue as set out above and does not hold any collateral over these balances.
27. OTHER RECEIVABLES 2008 2007 Rmb'000 Rmb'000Other debtors (Note) 115,041 168,992Prepayments 62,129 48,370Entrusted loan to a related party (Note 43(a)) - 370,000 177,170 587,362
The amounts are unsecured, interest-free and repayable on demand.
Note: Included in other debtors is loan receivables from minority
shareholders for the capital contribution into Zheshang Securities of Rmb58,046,000 (2007: Rmb131,100,000).28. HELD-FOR-TRADING INVESTMENTS 2008 2007 Rmb'000 Rmb'000
Listed securities in the PRC, at fair value:
Equity securities 4,596 533,574 Open-end equity funds 4,014 7,677 Corporate bonds ranging from 4.28% to 8.35% per annum and maturity date from June 2, 2009 to July 23, 2018 238,977 79,969 247,587 621,220
29. STRUCTURED DEPOSIT
The structured deposit represents a yield enhanced deposit in StandardChartered Bank (the "Issuer") for a principal of Rmb200,000,000 with aguaranteed interest rate at 4% per annum and a variable interest ranging from0% - 2% per annum, depending on the settlement price of certain commodities,payable annually on the maturity date June 1, 2009. The directors consider thatthe fair value of embedded derivative in relation to the variable rate interestdepending on the commodity price is minimal.
30. BANK BALANCES HELD ON BEHALF OF CUSTOMERS
From its securities operation, the Group receives and holds money deposited bycustomers and other institutions. These customers' money is maintained in oneor more segregated bank accounts. The Group has recognised the correspondingaccounts payable to respective customers and other institutions.
Bank balances held on behalf of customers carry interest at market rates which range from 0.99% to1.64% (2007: 0.99% to 2.62%) per annum.
Bank balances held on behalf of customers that are denominated in currenciesother than the functional currency of the respective group entities are set
outbelow: HKD USD Rmb'000 Rmb'000As at December 31, 2008 8,734 42,045As at December 31, 2007 10,331 70,88531. BANK BALANCES AND CASH 2008 2007 Rmb'000 Rmb'000Restricted bank balances (Note) 35,000 35,000
Time deposits with original maturity
over three months 284,068 226,972
Unrestricted bank balances and cash 3,478,945 2,738,811 Time deposits with original maturity of
less than three months 258,000 35,000Cash and cash equivalents 3,736,945 2,773,811 4,056,013 3,035,783
Note: The restricted bank balances is frozen by China Securities
Depository and Clearing Corporation Limited Shanghai Branch in connection with
the guarantees issued by Zheshang Securities, in which Rmb33,000,000 has been
released in January 2009. For details, please refer to Note 36(iii).
Bank balances carry interest at market rates which range from 0.36% to 0.72%(2007: 0.72% to 2.62%) per annum. Time deposits carry interest at fixed ratesranging from 1.35% to 4.14% (2007: 1.62% to 4.41%) per annum.
Bank balances and cash that are denominated in currencies other than the functional currency of the respective group entities are set out below:
HKD USD Rmb'000 Rmb'000 As at December 31, 2008 3,784 22,668As at December 31, 2007 3,324 21,507
32. ACCOUNTS PAYABLE TO CUSTOMERS ARISING FROM SECURITIES DEALING BUSINESSThe settlement terms of accounts payables arising from the securities dealingbusiness are one day after the trade date. No aging analysis is disclosed as inthe opinion of the directors an aged analysis does not give any additionalvalue in view of the nature of the business.Accounts payable to customers arising from securities dealing business that aredenominated in currencies other than the functional currency of the respectivegroup entities are set out below: HKD USD Rmb'000 Rmb'000As at December 31, 2008 8,734 42,045As at December 31, 2007 10,331 70,88533. TRADE PAYABLES
Trade payables mainly represent the construction payables for the improvement projects of toll expressways. An aging analysis of trade payables at the balance sheet date, based on invoice date, is as follows:
2008 2007 Rmb'000 Rmb'000Within 3 months 216,913 500,3713 months to 1 year 169,772 200,7351 to 2 years 24,778 25,2442 to 3 years 2,336 9,867Over 3 years 1,297 673 415,096 736,89034. OTHER PAYABLES AND ACCRUALS 2008 2007 Rmb'000 Rmb'000Other liabilities: Accrued payroll and welfare 295,359
315,693
Advance from customers 67,997
57,774
Toll collected on behalf of other toll roads 34,462 35,339 Others 91,946 92,559 489,764 501,365Accruals 47,998 52,356Amount due to ultimate holding company - 2,599 537,762 556,320
The amount due to ultimate holding company, the Communications Investment Group, is unsecured, interest-free and repayable on demand.
35. INTEREST-BEARING BANK AND OTHER LOANS 2008 2007 Rmb'000 Rmb'000 Bank loans, unsecured 95,000 20,000Other loans, unsecured 514,764 601,990 609,764 621,990Bank loans repayable: Within one year 95,000 20,000Other loans repayable: Within one year 285,897 268,045 In the second year 84,402 89,339 In the third to fifth years, inclusive 144,465 244,606 514,764 601,990 609,764 621,990
Less: Amount due within one year
shown under current liabilities (380,897) (288,045)
228,867 333,945The bank loans included a loan of Rmb30,000,000 (2007: Rmb20,000,000) carryingfixed rate at 6.21% (2007: 6.57%) and a loan of Rmb65,000,000 (2007: nil)carrying floating rates based on the China Central Bank benchmark interest rateranging from 6.21% to 7.20% (2007: nil).The other loans represent mainly loans from the World Bank via municipalgovernments and carry floating interest at London Inter-Bank Offered Rate -0.05% ranging from 2.84% to 5.36% (2007: 5.10%) per annum (both the effectiveinterest rate and contracted interest rate), the rate prescribed by the WorldBank, and are repayable by semi-annual instalments.
The bank and other loans of the Group that are denominated in currencies other than Rmb amounted to Rmb477,364,000 (USD69,845,000) as at December 31, 2008 (2007: Rmb564,590,000 (USD77,292,000)).
36. PROVISIONS Financial Litigation guarantees Litigation on disputes to third on interest Other over state bond parties claim litigation Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 (note i) (note ii) (note iii) (note iv)At January 1, 2007 - 34,800 - - 34,800Provision for the year 111,414 17,810 - - 129,224At December 31, 2007 111,414 52,610 - - 164,024Provision for the year - - 21,683 12,181 33,864Reversal for the year (111,414) (52,610) - - (164,024)At December 31, 2008 - - 21,683 12,181 33,864Notes:
(i) Fourteen customers of Zheshang Securities previously entered into
state bond investment agency agreements with Kinghing Investment, whereby
Zheshang Securities kept in custody state bonds with principal and interest at
a rate of 2.7% in aggregate of Rmb111.4 million. These state bonds were pledged
as security for certain third party repo trading transactions and the funds
obtained were misappropriated by Kinghing Investment. Kinghing Investment was
unable to return the misappropriated funds in time and as a result, the
security over the state bonds was enforced to settle the relevant repo trading
transactions.
In the opinion of directors, Kinghing Investment should take full
responsibility for breach of the state bond investment agency agreements.
Kinghing Investment had ceased its operations and its restructuring was
underway. In 2007, these customers filed legal proceedings against Zheshang
Securities for the disputes over the state bond investment agency agreements.
The Court of First Instance ruled against Zheshang Securities which appealed to
the Court of Second Instance over the rulings given by the Court of First
Instance. The Court of Second Instance overturned the rulings given to two of
these customers by the Court of First Instance and sent the two cases back for
retrial.
In January 2008, the Intermediate People's Court of Jinhua City opened a
case for the bankruptcy settlement of Kinghing Investment and appointed the
settlement team of Kinghing Investment as the administrator.
Considering the developments in the legal proceedings and the risk
management applied in the PRC financial industry, the directors resolved to
make a full provision of Rmb111.4 million in 2007. In December 2008, Kinghing Investment has fully repaid the principal and
interest to all 14 customers and the obligation of Zheshang Securities has been
discharged. The provision for the litigation has been reversed and credited to
the consolidated income statement during the year.
(ii) Zheshang Securities granted guarantees to corporate customers and
individual customers in respect of the state bond investment agency agreements
and fund trust agreements entered into between Kinghing Investment and these
corporate customers and individual customers. As Kinghing Investment ceased its
operations and in the process of liquidation, the directors considered that it
was probable that such guarantees would be exercised. As a result, full
provision of Rmb34.8 million and Rmb17.8 million for corporate customers and
individual customers, respectively, were made in prior years.
In December 2008, Kinghing Investment has fully repaid the claims and
interest at a rate of 2.7% to these customers and the obligation of Zheshang
Securities has been discharged. Accordingly, the provisions for guarantees have
been credited to the consolidated income statement during the year.36. PROVISIONS (continued) Notes: (continued)
(iii) The Group has received a claim from the customers under the state
bond investment agency agreements and fund trust agreements for the additional
interest compensation upon the settlement of the principal and interest at a
rate of 2.7%. The litigation will be processed in 2009. Based on the legal
opinion, management considered that it is probable that the claim is ruled
against the Group and accordingly, a provision for the interest compensation
amounting to Rmb21,683,000 has been recognised in the consolidated income
statement for the year.
(iv) Sinobase International Ltd. initiated a lawsuit against Zheshang
Securities in November 2008 in respect of a dispute for asset management
entrustment contract entered into with Zheshang Securities in September 2005
with a principal and default compensation in aggregate of Rmb12,181,000. Taking
into account of the current progress of the legal proceedings and the risk
management principle applied in the PRC financial industry, the directors
considered that claim is probable and a full provision of such claim has been
recognised in the consolidated income statement for the year.37. LONG-TERM BONDS 2008 2007 Rmb'000 Rmb'000
Long-term bonds - listed in the PRC 1,000,000 1,000,000
The long-term bonds are unsecured, carry interest payable annually at a fixed rate of 4.29% per annum and are repayable in 2013 upon maturity.
38. DEFERRED TAXATION
The following are the major deferred tax liabilities and assets recognised and movements thereon during the current and prior years:
http://www.prnasia.com/xprn/sa/attachment/2009/04/20090401-449786.pdf
39. SHARE CAPITAL Number of shares Share capital 2008 2007 2008 2007 Rmb'000 Rmb'000Registered, issued and fully paid: Domestic shares of Rmb1.00 each 2,909,260,000 2,909,260,000 2,909,260 2,909,260 H Shares of Rmb1.00 each 1,433,854,500 1,433,854,500 1,433,855 1,433,855 4,343,114,500 4,343,114,500 4,343,115 4,343,115
There were no movements in share capital during both years.
The domestic shares are not currently listed on any stock exchange.
The H Shares have been listed on the Stock Exchange since May 15, 1997. The HShares were admitted to the Official List on May 5, 2000 and their dealings onthe London Stock Exchange commenced on the same day.
On February 14, 2002, the United States Securities and Exchange Commission, following the approval by the Board of Directors and the China Securities Regulatory Commission, declared the registration statement in respect of the ADSs evidenced by ADRs representing the deposited H Shares of the Company effective.
All the domestic shares and H Shares rank pari passu with each other as to dividends and voting rights.
40. RETIREMENT BENEFITS SCHEMES
The employees of the Group are members of the state-managed retirement benefitsscheme operated by the PRC government. To supplement this existing retirementbenefits scheme, the Group adopted a corporate annuity scheme during the yearin accordance with relevant rules and regulations. The Group is required tocontribute a certain percentage of payroll costs to these retirement benefitsschemes to fund the benefits. The only obligation of the Group with respect tothese retirement benefits schemes is to make the specified contributions.No forfeited contributions are available to reduce the contribution payable infuture years.41. COMMITMENTS 2008 2007 Rmb'000 Rmb'000
Contracted for but not provided for in
the consolidated financial statements: - Investments in expressways upgrade services 272,518 - - Capital injection into Jiashao Co - 1,110,375 - Acquisition of additional interest in Shangsan Co 485,000 485,000 757,518 1,595,375
Authorised but not contracted for:
- Investments in expressways upgrade services 730,739 1,123,066 - Purchase of machinery 130,000 80,000 - Renovation of service areas 10,000 54,310 - Purchase of office buildings and its renovation work 84,300 - 955,039 1,257,37642. OPERATING LEASESThe Group as lessee 2008 2007 Rmb'000 Rmb'000Minimum lease payments 7,811 -Contingent rental expenses 1,189 - 9,000 -
At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:
2008 2007 Rmb'000 Rmb'000Within one year 7,540 2,300In the second to fifth years inclusive 49,330 29,350Over five years 56,700 40,900 113,570 72,550Operating lease payments represent rentals payable by the Group for certainservice areas along expressways located in Zhejiang and Tianjin. The leaseswere entered into during 2008 and 2007. They are negotiated for an average termof 10 years and rentals contain both a fixed element and a contingent elementlinked to sales.
42. OPERATING LEASES (continued)
The Group as lessor
The Group leased their service areas and communication ducts under operatinglease arrangements. Leases are negotiated for terms ranging from 1 to 25 yearsand rentals are fixed annually.
At December 31, 2008, the Group had contracted with tenants for the following future minimum lease payments:
2008 2007 Rmb'000 Rmb'000Within one year 46,227 18,936In the second to fifth years inclusive 39,005 13,074After five years 35,048 20,576 120,280 52,586
43. RELATED PARTY TRANSACTIONS AND BALANCES
The following is a summary of the related party transactions arising from the Group's daily operating activities:
(a) Pursuant to the board resolutions of the Company on December 17, 2007,
the Group signed an entrusted loan contract on December 26, 2007 with Zhejiang
Jinji Property Co., Ltd ("Jinji Co."), a subsidiary of the Communications
Investment Group, via China Citic Bank. Pursuant to the contract, the Company
agreed to provide a one-year loan of Rmb370,000,000 to Jinji Co via the bank at
a fixed interest rate of 8.97% per annum. The entrusted loan was guaranteed by
the Communications Investment Group and fully repaid in 2008. See also Note 27.
Pursuant to the resolutions of the annual general meeting on June 27,
2008 of Zhejiang Expressway Investment Development Co., Ltd. ("Development
Co"), a subsidiary of the Company, and the entrusted loan contracts,
Development Co. provided short-term entrusted loans during 2008 amounting to
Rmb100,000,000 to Zhejiang Concord Property Investment Co., Ltd. ("Concord Co")
the associate of Development Co., at a fixed interest rate of 12% per annum,
via China Everbright Bank Hangzhou Zhaohui Branch. The entrusted loans were
fully repaid within 2008.
Net interest income recognised in 2008 on the above transactions with
Jinji Co. and Concord Co. are respectively Rmb32,010,000 (2007: nil) and
Rmb4,542,000 (2007: nil).
(b) Pursuant to the operation management agreement entered into between
Development Co and Petroleum Co in respect of the petrol stations in the
service areas along the Shanghai-Hangzhou-Ningbo and Shangsan Expressways,
Petroleum Co will with their expertise assist Development Co in running their
petrol stations along the Shanghai-Hangzhou-Ningbo and Shangsan Expressways.
Purchases of petroleum products from Petroleum Co during 2008 amounted to
Rmb1,381,404,000 (2007: Rmb970,761,000).
(c) See notes 27 and 34 for details of amounts due from minority
shareholders of a subsidiary and amount due to ultimate holding company.
43. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
Transactions and balances with other state-controlled entities in the PRC
The Group operates in an economic environment currently predominated byentities directly or indirectly owned or controlled by the PRC government("state-controlled entities"). In addition, the Group itself is part of alarger group of companies under the Communications Investment Group which iscontrolled by the PRC government. Apart from the transactions with theCommunications Investment Group and parties under the common control of theCommunications Investment Group, the Group also conducts business with otherstate-controlled entities. The directors consider those state-controlledentities are independent third parties so far as the Group's businesstransactions with them are concerned.In addition, the Group has entered into various transactions, including depositplacements, borrowings and other general banking facilities, with certain banksand financial institutions which are state-controlled entities in its ordinarycourse of business. In view of the nature of those banking transactions, thedirectors are of the opinion that separate disclosure would not be meaningful.In respect of the Group's toll road business, the directors are of the opinionthat it is impracticable to ascertain the identity of counterparties andaccordingly whether the transactions are with other state-controlled entitiesin the PRC.
Compensation of directors, supervisors, and key management personnel
Other than the directors, supervisors and key management personnel disclosed innotes 13 and 14, the remuneration of other key management personnel during theyear was approximately Rmb1,384,000 including retirement benefit schemecontribution of Rmb42,000 (2007: Rmb1,374,000 including retirement benefitscheme contribution of Rmb36,000) which is determined by the performance of theindividuals and the market trends.
44. PARTICULARS OF SUBSIDIARIES OF THE COMPANY
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45. COMPARATIVE FIGURES
Certain comparative figures including Note 9, have been reclassified to conform with the current year's presentation.
Corporate Information
EXECUTIVE DIRECTORSChen Jisong (Chairman)Zhan Xiaozhang (General Manager)Zhang JingzhongJiang WenyaoNON-EXECUTIVE DIRECTORSZhang LuyunZhang YangINDEPENDENT NON-EXECUTIVE DIRECTORSTung Chee ChenZhang JunshengZhang LipingSUPERVISORSMa KehuaFang ZhexingZheng QihuaJiang ShaozhongWu YongminCOMPANY SECRETARYZhang JingzhongAUTHORIZED REPRESENTATIVESChen JisongZhang JingzhongSTATUTORY ADDRESS12/F, Block A, Dragon Century Plaza1 Hangda RoadHangzhou City, Zhejiang ProvincePRC 310007Tel: 86-571-8798 5588Fax: 86-571-8798 5599REPRESENTATIVE OFFICE IN HONG KONGSuite 291029/F, Bank of America Tower12 Harcourt RoadHong KongTel: 852-2537 4295Fax: 852-2537 4293LEGAL ADVISERSAs to Hong Kong and US law:Herbert Smith23rd Floor, Gloucester Tower15 Queen's Road CentralHong KongAs to English law:Herbert Smith LLPExchange HousePrimrose StreetLondon EC2A 2HSUnited KingdomAs to PRC law:T & C Law Firm11/F, Block A, Dragon Century Plaza1 Hangda RoadHangzhou City, Zhejiang ProvincePRC 310007AUDITORSDeloitte Touche Tohmatsu35/F, One Pacific Place88 QueenswayHong KongINVESTOR RELATIONS CONSULTANTRikes Hill & Knowlton LimitedRoom 1312, Wing On Centre111 Connaught Road CentralHong KongTel: 852-2520 2201Fax: 852-2520 2241PRINCIPAL BANKERSIndustrial and Commercial Bank of China, Zhejiang BranchChina Construction Bank, Zhejiang BranchShanghai Pudong Development Bank,
Hangzhou Branch
H SHARE REGISTRAR AND TRANSFER OFFICEHong Kong Registrars LimitedRoom 1712-1716, 17/F, Hopewell Centre183 Queen's Road EastHong KongH SHARES LISTING INFORMATIONThe Stock Exchange of Hong Kong LimitedCode: 0576LONDON STOCK EXCHANGE PLCCode: ZHEHADRS INFORMATIONUS Exchange: OTCSymbol: ZHEXYCUSIP: 98951A100ADR: H Shares 1:30CORPORATE BOND LISTING INFORMATIONThe Shanghai Stock ExchangeCode: 120308Websitewww.zjec.com.cnLocation Map of Expressways in Zhejiang Provincehttp://www.prnasia.com/sa/2009/04/01/200904012013.jpg
Statement :
1. An electronic version of the Company's 2008 annual report is available at http://www.zjec.com.cn/extra/col11/2008_nb_en.pdf
2. A copy of this document has been submitted to the UK Listing Authority and will
shortly be available for inspection at the UK Listing Authority Document
Viewing Facility which is situated at the Financial Services Authority, 25 the
North Colonnade Canary Wharf, London E14 5HS. April 2 ,2009
vendorRelated Shares:
ZHEH.L