4th Aug 2008 14:26
Zhejiang Expressway Co., Ltd. (A joint stock limited company incorporated in the People¢â‚¬â„¢s Republic of China with limited liability) (Stock Code: 0576) 2008 Interim Results Announcement The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the"Company") hereby announce the unaudited consolidated operating results of theCompany and its subsidiaries (collectively the "Group") for the six monthsended June 30, 2008 (the "Period"), with the basis of preparation as stated innote 1 to the condensed consolidated financial statements set out below.
RESULTS AND DIVIDENDS
During the Period, revenue for the Group was Rmb3,410.1 million, representingan increase of 0.8% over the same period in 2007. Profit attributable to equityholders of the Company was Rmb1,049.4 million, representing a decrease of 12.3%year-on-year. Earnings per share for the Period was Rmb24.16 cents,representing a decrease of 12.3% over the same period in 2007.
The Directors have recommended to pay an interim dividend of Rmb7 cents per share, subject to shareholders' approval at the extraordinary general meeting of the Company expected to be held on September 22, 2008.
The audit committee of the Company has reviewed the interim results. Set outbelow are the unaudited condensed consolidated income statement and unauditedcondensed consolidated balance sheet for the Period, together with comparativefigures for 2007 and relevant notes to the financial statements:
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the six months ended June 30, 2008 2007 Notes Rmb'000 Rmb'000 Revenue 3 3,410,095 3,381,505 Operating costs (1,628,366) (1,504,904) Gross profit 1,781,729 1,876,601 Other (loss) income 4 (64,511) 236,941 Administrative expenses (35,720) (34,588) Other expenses (18,520) (54,459) Finance costs (42,521) (26,160) Share of profit of associates 15,459
1,316
Share of profit of a jointly-controlled 10,627 10,222entity Profit before tax 1,646,543 2,009,873 Income tax expense 5 (366,604) (392,786) Profit for the Period 1,279,939 1,617,087 =========== ========== Attributable to: Equity holders of the Company 1,049,372 1,197,119 Minority interest 230,567 419,968 1,279,939 1,617,087 =========== ========= Dividends Proposed interim 6 (304,018) (304,018) =========== ========= Basic earnings per share 7 24.16 cents 27.56 cents =========== =========
CONDENSED CONSOLIDATED BALANCE SHEET
Notes As at As at December June 30, 31, 2007 2008 Rmb'000 Rmb'000 Unaudited Audited (Restated) Non-current assets Property, plant and equipment 945,846 906,877 Prepaid lease payment 57,963 58,712 Goodwill 86,867 86,867 Other intangible assets 159,901 162,226 Interests in associates 494,697 479,238 Interest in a jointly-controlled entity 111,132
100,505
Available-for-sale investments 1,000 1,000 Expressway operating rights 13,193,025 13,523,269 15,050,431 15,318,694 Current assets Inventories 18,945 14,558 Trade receivables 8 78,450 82,677 Other receivables 597,565 587,362 Prepaid lease payments 1,498 1,498 Held-for-trading investments 227,894 621,220 Available-for-sale investments 436,532
595,758
Held-to-maturity investments 200,000
-
Bank balances held on behalf of customers 6,938,363 7,239,389 Bank balances and cash - Restricted bank balances 35,000 35,000 - Time deposits with original maturity over 188,817 226,972three months - Cash and cash equivalents 2,782,297 2,773,811 11,505,361 12,178,245 Assets classified as held for sale 15,865 15,865 11,521,226 12,194,110 Current liabilities Trade payables 9 522,423 736,890 Accounts payable to customers arising from 6,925,192 7,211,261securities dealing business Tax liabilities 388,078 994,727 Other taxes payable 20,950 37,888 Other payables and accruals 490,484 556,320 Dividends payable 65,144 33,385 Interest-bearing bank and other loans 796,741 288,045 Provisions 10 164,013 164,024 9,373,025 10,022,540 Net current assets 2,148,201 2,171,570 Total assets less current liabilities 17,198,632 17,490,264 Non-current liabilities Interest-bearing bank and other loans 272,365 333,945 Long-term bonds 1,000,000 1,000,000 Deferred tax liabilities 265,468 392,005 1,537,833 1,725,950 15,660,799 15,764,314 =========== =========== Capital and reserves Share capital 4,343,115 4,343,115 Reserves 8,804,061 8,883,238 Equity attributable to equity holders of the 13,147,176 13,226,353Company Minority interests 2,513,623 2,537,961 15,660,799 15,764,314 =========== ===========Notes:1 Basis of PreparationThe condensed consolidated financial statements have been prepared inaccordance with the applicable disclosure requirements of Appendix 16 to theRules Governing the Listing of Securities on The Stock Exchange of Hong KongLimited (the "Listing Rules") and with Hong Kong Accounting Standard 34 ("HKAS34") "Interim Financial Reporting".
2 Principal Accounting Policies
The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values.
The accounting policies used in the condensed consolidated financial statementsare consistent with those followed in the preparation of the Group's annualfinancial statements for the year ended December 31, 2007 except as describedbelow.
During the Period, the Group has applied, for the first time, a number of new standards, amendments and interpretations ("new HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA"), which are effective for accounting periods beginning on or after January 1, 2008.
HK(IFRIC) - Int 11 HKFRS 2 - Group and Treasury Share Transactions HK(IFRIC) - Int 12 Service Concession Arrangements HK(IFRIC) - Int 14 HKAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction HK(IFRIC)-Int 12 gives guidance on the accounting by operators forpublic-to-private service concession arrangements and sets out the generalprinciples on recognizing and measuring the obligations and related rights inservice concession arrangements. For arrangements falling within its scope,depending on the terms of the arrangement, the infrastructure assets will,instead of being recognized as property, plant and equipment, be recognized aseither (i) a financial asset; (ii) an intangible asset; or (iii) both afinancial asset and an intangible asset.The Group was granted by the Zhejiang Provincial Government the concessions foroperating its two expressways, Shanghai-Hangzhou-Ningbo Expressway and ShangsanExpressway, which included during the operating period the rights to design andconstruction, redevelopment and expansion, investment, operation, managementand maintenance on the expressways and their ancillary facilities; and therights to propose and collect toll incomes from vehicles using the expresswaysand other fees relating to the expressways and their ancillary facilities.Prior to January 1, 2008, the expressways and bridges within the scope ofoperation were included in property, plant and equipment, while the land userights relating to the expressways were included in prepaid lease payments. Asat January 1, 2008, due to the retrospective application of HK(IFRIC) - Int 12being impracticable, the Group reclassified the expressways and bridges as wellas the land use rights relating to the expressways as expressway operatingrights, and amortized them over the remaining operating periods in accordancewith the transitional provisions of HK(IFRIC) - Int 12. The restatement of theassets' book values for 2007 has no impact on the profit for 2007 and retainedprofits at the beginning of the year.
Other than as described above, the adoption of the new HKFRSs had no material effect on the results and financial position of the Group. Accordingly, no prior period adjustment is required.
The effects of changes in the accounting policies are as follows:
December Change December 31, 2007 31, 2007 Rmb'000 Rmb'000 Rmb'000 (originally (restated) stated) Items on Balance Sheet Non-current assets Property, plant and equipment 13,906,689 (12,999,812) 906,877 Prepaid lease payments 393,424 (334,712) 58,712 Expressway operating rights 171,145 13,352,124 13,523,269 Current assets Prepaid lease payments 19,098 (17,600) 1,498 Total effects on assets 14,490,356 - 14,490,356 =========== ============ ==========
The Group has not early adopted the following new standards, amendments or interpretations that have been issued but are not yet effective.
HKAS 1 (Revised) Presentation of Financial Statements1 HKAS 23 (Revised) Borrowing Costs1 HKAS 27 (Revised) Consolidated and Separate Financial Statements2 HKAS 32 and HKAS 1(Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation1 HKFRS 2 (Amendments) Vesting Conditions and Cancellations1 HKFRS 3 (Revised) Business Combinations2 HKFRS 8 Operating Segments1 HK(IFRIC) - Int 13 Customer Loyalty Programmes3
1 Effective for annual periods beginning on or after January 1, 2009
2 Effective for annual periods beginning on or after July 1, 2009
3 Effective for annual periods beginning on or after July 1, 2008
The Directors of the Company expect that the adoption of these standards,amendments and interpretations will have no material effect on the results andfinancial position of the Group. The adoption of HKFRS 8 is expected to affectthe presentation of segment information of the Group only.
3. Segment Information
Comparing to the same period last year, there were no material changes in theprincipal activities of the Group during the Period. The operating results byprincipal activities are summarized as follows: For the six months ended June 30, 2008 2007 Revenue Gross Profit Revenue Gross Profit Contribution Contribution Rmb'000 Rmb'000 Rmb'000 Rmb'000 Unaudited Unaudited Unaudited Unaudited
Segment by business activities
- Toll income 1,820,284 1,259,100 1,889,388 1,265,378 - Service areas 883,465 33,295 576,390 26,471 - Advertising 39,900 20,129 32,446 10,535 - Securities operation 666,446 469,205 883,281 574,217 3,410,095 1,781,729 3,381,505 1,876,601 ====== ====== Other (loss) income (64,511) 236,941 Administrative expenses (35,720) (34,588) Other expenses (18,520) (54,459) 1,662,978 2,024,495 =========== ========== No further analysis of the revenue and gross profit from operating activitiesby geographical segment was prepared as the revenue and gross profit fromoperating activities of the Group were all generated from within the People'sRepublic of China (the "PRC") during the Period.4. Other (Loss) Income For the six months ended June 30, 2008 2007 Rmb'000 Rmb'000 Unaudited Unaudited (Loss) Gain on fair value changes on held-for-trading (172,468) 163,465investments Interest income 24,704 10,618 Net exchange gain 41,398 16,563 Towing income 9,845 11,327 Rental income 15,238 13,478 Others 16,772 21,490 Total (64,511) 236,941 ============= ==========5. Income Tax Expenses
As the Group had no taxable profits derived in Hong Kong during the Period, no Hong Kong profits tax has been provided.
The Group was subject to the PRC enterprise income tax levied at a tax rate of25% (2007: 33%) of taxable income based on income for financial reportingpurposes prepared in accordance with the laws and accounting standards in thePRC. For the six months ended June 30, 2008 2007 Rmb'000 Rmb'000 Unaudited Unaudited Current PRC enterprise income tax 493,141 500,657 Deferred tax: Current period (126,537) (8,706) Attributable to a change in tax rate - (99,165) (126,537) (107,871) 366,604 392,786 ============ ==========
The tax expenses for the Period can be reconciled to the profit before tax per the condensed consolidated income statement as follows:
For the six months ended June 30, 2008 2007 Rmb'000 Rmb'000 Unaudited Unaudited Profit before tax 1,646,543 2,009,873 ============= ========== Tax at the PRC statutory income tax rate of 25% 411,636 663,258(2007: 33%) Tax effect of share of profits of associates (3,865)
(434)
Tax effect of share of profit of a jointly (2,657) (3,373)controlled entity
Tax effect of (income)/expense that is not taxable (38,510) 19,128 and deductible in determining taxable profit
Utilization of tax losses previously not recognized - (186,628)as deferred tax assets (i) Effect on deferred tax balances due to the change in -
(99,165)
income tax rate from 33% to 25% (ii)
Tax expenses for the Period 366,604 392,786 ============= ==========(i) The tax loss arose mainly from a bad debt provision made by ZheshangSecurities Co., Ltd. (a 70.46% owned subsidiary of Zhejiang Shangsan ExpresswayCo., Ltd.) ("Zheshang Securities") in 2005 prior to its acquisition by theGroup in relation to misappropriation of assets perpetrated by Kinghing TrustInvestment Co., Ltd. ("Kinghing Investment"), the former majority equity ownerof Zheshang Securities. The bad debt provision was treated as a non-deductibleexpense at the date of acquisition of Zheshang Securities by the Group in 2006.In 2007, the relevant tax authorities granted Zheshang Securities adispensation to claim tax deduction on the bad debt provision and accordingly,the resulting tax loss was utilized in 2007.(ii) On March 16, 2007, the PRC promulgated Law of the People's Republic ofChina on Enterprise Income Tax (the "New Law") by Order No.63 of the Presidentof the PRC. On December 6, 2007, the State Council of the PRC issuedImplementation Regulations of the New Law. The New Law and ImplementationRegulations will change the income tax rate from 33% to 25% for the Group fromJanuary 1, 2008. The deferred tax balance has been adjusted to reflect the taxrates that are expected to apply to the respective periods when the assets arerealized or the liability is settled.
6. Dividends
The Directors have recommended the payment of an interim dividend of Rmb7 centsper share (2007: Rmb7 cents per share), subject to shareholders' approval atthe extraordinary general meeting of the Company expected to be held onSeptember 22, 2008. The recommendation has been set out in the condensedconsolidated financial statements.
7. Basic Earnings per Share
The calculation of basic earnings per share is based on the profit attributableto equity holders of the Company for the Period of Rmb1,049,372,000 (2007:Rmb1,197,119,000) and the 4,343,114,500 shares (2007: 4,343,114,500 shares) inissue during the Period.
No diluted earnings per share has been calculated as there were no potential dilutive ordinary share in issue in both periods.
8. Trade Receivables
The aging analyses of trade receivables at the balance sheet dates are asfollows: As at As at December June 30, 31, 2007 2008 Rmb'000 Rmb'000 Unaudited Audited Within 1 year 73,406 76,930 1 to 2 years 4,181 4,181 Over 2 years 863 1,566 Total 78,450 82,677 ============= ==========
The Group allows an average credit period of approximately 180 days.
9. Trade Payables
The aging analyses of trade payables at the balance sheet dates are as follows: As at As at December June 30, 31, 2007 2008 Rmb'000 Rmb'000 Unaudited Audited Within 1 year 491,375 701,106 1 to 2 years 20,198 25,244 2 to 3 years 8,874 9,867 Over 3 years 1,976 673 Total 522,423 736,890 ============= ==========10. Provisions
Subsequent to the disclosure in the Company's 2007 annual report (pages 100 -101) relating to "Provisions", as at the date of this announcement, theIntermediate People's Court of Jinhua Municipal had accepted the applicationfor bankruptcy and liquidation of Kinghing Investment on January 15, 2008, andassigned the liquidation team of Kinghing Investment as the administrator.Fourteen customers of Zheshang Securities (involving an amount of Rmb111.41million) have all claimed their creditors' rights with the liquidation team ofKinghing Investment. Among nine of the fourteen customers who have initiatedlawsuits, one has been ruled by the court of second instance to have won theproceeding and the ruling has been executed (involving an amount of Rmb3.4million). Four customers have withdrawn while one customer has terminated theproceeding. The litigation of one customer has been referred to theIntermediate People's Court of Jinhua Municipal for judgement and those of theother two customers have been remanded by the court of second instance.Zheshang Securities has provided guarantees for the state bond investmentagency agreements entered into between Kinghing Investment and its corporatecustomers and individual customers involving a total amount of Rmb52.6 million.Such corporate customers and individual customers have claimed their creditors'rights with the liquidation team of Kinghing Investment.
The liquidation team of Kinghing Investment has confirmed the above claims of creditors' rights.
BUSINESS REVIEWThe impact from the implementation of the macro-economic control measures inrecent years on the economy of the PRC has gradually surfaced. The unusuallydamaging snowstorm and earthquake occurring in the first half of 2008 furtheraffected the economy in most of the regions in the PRC. As a result, thenational rate of economic growth in the first half of 2008 witnessed an obviousslowdown compared to last year and the GDP increased by 10.4% year-on-year,with the growth rate decreased by 1.1 percentage point. Affected by the overallatmosphere during the Period, the economy of Zhejiang Province - which hadundergone continued substantial growth during the past decade - came across anapparent slowdown. Zhejiang Province's GDP grew by 11.4 #% year-on-year in thefirst half of the year, with the growth rate decreased by 3.3 percentagepoints.Due to the decelerating growth in the macro-economy and diversion impactarising from successive opening-to-traffic of surrounding new expressway andbridge in the first half of 2008, the Group's income for the Period wasbasically at par with that of last year. The Group realized a total income ofRmb3,517.2 million, of which Rmb1,880.5 million was attributable to the twomajor expressways owned and operated by the Group, representing 53.5% of thetotal income; Rmb930.2 million was attributable to the Group's tollroad-related businesses, representing 26.4 #% of the total income; and Rmb706.5million was attributable to the securities business against the backdrop of abearish stock market in the PRC, representing 20.1% of the total income.During the Period, toll income from toll road operations decreased by 3.7% overthe same period in 2007, while income from toll road-related businesses grew51.4% over the same period in 2007. A breakdown of the Group's income for thePeriod is set out below: For the six months ended June 30, 2008 2007 Rmb'000 Rmb'000 % Change Toll income Shanghai-Hangzhou-Ningbo Expressway 1,453,567 1,521,028 -4.4% Shangsan Expressway 426,970 430,778 -0.9% Other incomes Service areas 888,000 579,844 53.1% Advertising 42,196 34,400 22.7% Securities business 706,454 943,018 -25.1% Subtotal 3,517,187 3,509,068 0.2% Less: Revenue taxes (107,092) (127,563) -16.0% Revenue 3,410,095 3,381,505 0.8% =========== =========== Toll Road OperationsToll income from the two expressways owned by the Group declined due to aslowdown in the rate of growth of the macro-economy as well as the successivecompletion and opening-to-traffic of the Hangpu Expressway and the Hangzhou BayBridge which had led to marked diversions in traffic on the two expressways. Inaddition, the major snowstorm at the beginning of the year impeded vehicletraffic, and the Zhejiang Provincial Government rolled out preferentialpolicies for certain truck traffic in view of the snowstorm, both of which ledto a decline in toll income from the two expressways.The main reasons for a marked slowdown of the daily average traffic volume infull-trip equivalents along the Shanghai-Hangzhou section of theShanghai-Hangzhou-Ningbo Expressway during the Period were: 1) traffic on theShanghai-Hangzhou section was initially diverted after the officialopening-to-traffic of the Hangpu Expressway on January 29, 2008; and 2) trafficon the Shanghai-Hangzhou section was further diverted upon the trialopening-to-traffic of the Hangzhou Bay Bridge on May 1, 2008.The Hangzhou-Ningbo section of the Shanghai-Hangzhou-Ningbo Expressway was alsoaffected by traffic diversions caused by the Hangzhou Bay Bridge. However, thecompletion of the phase III widening works at the end of 2007 had positiveimpacts upon this section, which resulted in a lower rate of decrease intraffic volume on this section than the Shanghai-Hangzhou section.
During the Period, the Shangsan Expressway lost some through-traffic because of the opening-to-traffic of the Hangzhou Bay Bridge in May, resulting in a relatively substantial decline in traffic volume since May.
In addition, given the impact brought by the snowstorm at the beginning of theyear, to ease the pressure of inflation, as well as to ensure the timely supplyof agriculture good and products to the market, the Zhejiang ProvincialGovernment implemented a measure on the opening of "Green Lanes" fortransporting fresh agricultural good and products on all toll roads in theentire province effective from February 7, 2008. This refers to the waiving oftoll fees for trucks travelling on toll roads originating from both within andoutside the province that delivered fresh agricultural products. Theimplementation of such measures had reduced the toll income of the twoexpressways operated by the Group.Accordingly, traffic volumes and toll incomes generated on all expresswaysections operated by the Group recorded year-on-year decreases during thePeriod. The average daily traffic volume in full-trip equivalents along theShanghai-Hangzhou-Ningbo Expressway was 40,193 during the Period, representinga decrease of 5.1% year-on-year. In particular, the average daily trafficvolume in full-trip equivalents along the Shanghai-Hangzhou section of theShanghai-Hangzhou-Ningbo Expressway experienced a decrease of 13.4%year-on-year, and that along the Shanghai-Ningbo section experienced a decreaseof 2.9% year-on-year. The average daily traffic volume in full-trip equivalentsalong the Shangsan Expressway was 21,265 during the Period, representing adecrease of 1.9% year-on-year.The toll income from the Shanghai-Hangzhou-Ningbo Expressway during the Periodwas Rmb1,453.5 million, representing a decrease of 4.4% year-on-year. The tollincome from the Shangsan Expressway during the Period was Rmb427.0 million,representing a decrease of 0.9% 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 roadside advertising and vehicle service businesses.
During the Period, the rate of increase in income from the service areas alongthe Shanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway slowed downdue to the decline in traffic volume along the two expressways. However, therewere other service areas opened for business in the first half of 2008,including the Pinghu Service Area on the Hangpu Expressway, and the WangqingTuo Service Area and the Sicun Dian Service Area on the Beijing-ShanghaiExpressway, all of which the Company won biddings in 2007. The addition ofthese service areas led to further growth to the income from the service areabusiness. Meanwhile, the increase in unit retail prices of petroleum productsalso brought about considerable growth in income from the gas stationoperation. As a result, during the Period, income from toll road-relatedbusiness operations amounted to Rmb930.2 million, representing a year-on-yearincrease of 51.4%. During the Period, leveraging its impressive operatingresults and extensive management experience in the service area business, theCompany further obtained 10-year operating rights of the North-shore ServiceArea on the Hangzhou Bay Bridge, 5-year operating rights of the Ningbo CichengService Area on the Shenhai Expressway, and 8-year operating rights of theZhangching Service Area on the Shandong Jihe Expressway.
Securities Business
During the Period, trading volume on the stock markets shrank substantially inMay and June in the PRC against the backdrop of a continued ailing stock marketin the first half of 2008, having substantial impact on the performance of thesecurities business of the Group. During the Period, the Group's securitiesbusiness realized an operating income of Rmb706.5 million during the Period,representing a year-on-year decrease of 25.1%. Of such income, Rmb626.8 millionwas brokerage commission income, representing a year-on-year decrease of 30.3%;bank interest income amounted to Rmb79.7million, representing a year-on-yearincrease of 82.7%; and the proprietary securities trading business recorded aloss of Rmb172.5 million as accounted for in the income statement.
Long-term Investments
During the Period, the ancillary works following the widening works on the9.45km Shida Road owned and operated by Hangzhou Shida Highway Co., Ltd.("Shida Co", a 50% owned jointly-controlled entity of the Company) hinderedtraffic capacity on certain sections of the road, resulting in an 8.0% decreasein traffic volume year-on-year. Toll income from Shida Road during the Perioddecreased by 7.1% year-on-year, amounting to Rmb43.4 million; while net profitrealized during the Period was Rmb21.3 million, representing a year-on-yearincrease of 4.0%.Zhejiang Expressway Petroleum Development Co., Ltd. ("Petroleum Co", a 50%owned associate of the Company) benefited from the surge in gasoline prices,leading to a 10.1% growth in income year-on-year for the associate company,while net profit realized during the Period was Rmb12.0 million, representing ayear-on-year increase of 43.2%.Zhejiang Jinhua Yongjin Expressway Co., Ltd. ("Jinhua Co", a 23.45% ownedassociate of the Company) owns 100% interest in the Jinhua section ofNingbo-Jinhua Expressway. During the Period, the average daily traffic volumein full-trip equivalents along the section was 7,614, representing an increaseof 6.6% year-on-year; while toll income amounted to Rmb73.7 million, anincrease of 6.5% year-on-year. However, due to heavy financial burdens, theassociate company incurred a loss of Rmb53.1 million during the Period.
Zhejiang Concord Property Investment Co., Ltd. ("Concord Property", an associate 45% owned by Zhejiang Expressway Investment Development Co., Ltd., a subsidiary of the Company) realized a properties sales income of Rmb583.0 million and recorded a net profit of Rmb48.7 million during the Period.
Human Resources
There were no significant changes to the Company's overall number of employees,remuneration policies, bonus schemes and training schemes from what have beendisclosed in the Company's latest annual report.
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, the Group's return on equity was 8.0%, representing a decrease of 18.5% over the same period in 2007.
Liquidity and Financial Resources
As at June 30, 2008, current assets of the Group amounted to Rmb11,521.2million in aggregate (December 31, 2007: Rmb12,194.1 million), of which bankbalance and cash accounted for 26.1% (December 31, 2007: 24.9%), bank balanceheld on behalf of customers accounted for 60.2% (December 31, 2007: 59.4%) andheld-for-trading investments accounted for 2.0% (December 31, 2007: 5.1%).Current ratio (current assets over current liabilities) as at June 30, 2008 was1.2 (December 31, 2007: 1.2).
Held-for-trading investments of the Group as at June 30, 2008 amounted to Rmb227.9 million (December 31, 2007: Rmb621.2 million), of which 77.8% was invested in the stock market, of which 13.4% was invested in corporate bonds while the rest was invested in open-end equity funds.
During the Period, net cash inflow generated from the Group's operating activities was sufficient, amounting to Rmb1,160.2 million.
The Directors do not expect the Company to experience any problem with liquidity and financial resources in foreseeable future.
Borrowings and Solvency
As at June 30, 2008, total liabilities of the Group amounted to Rmb10,910.9 million (December 31, 2007: Rmb11,748.5 million), of which 19.0% was borrowings and 63.5% was customer deposits arising from securities dealings.
Total interest-bearing borrowings of the Group as at June 30, 2008 amounted toRmb2,069.1 million, representing an increase of 27.6% over the beginning of theyear. The borrowings comprised outstanding balances of the World Bank loans,denominated in US dollar, of approximately Rmb505.1 million in Renminbiequivalent; loans from foreign-owned banks in the country, denominated in HKdollar, of Rmb336.6 million in Renminbi equivalent; government loans of Rmb37.4million; loans from domestic commercial banks totaling Rmb190.0 million; andcorporate bonds amounting to Rmb1 billion that was issued by the Company in2003 for a term of 10 years. Of the interest-bearing borrowings, 61.5% were notrepayable within one year.As at June 30, 2008, the Group's loans from domestic commercial banks comprisedhalf-year and one-year short-term loans, with interest rates fixed between5.913% and 7.47% p.a.; the interest rate for government loans was fixed at3.00% per annum; and the annual coupon rate for corporate bonds was fixed at4.29%, with interest payable annually. The annual interest rate for customerdeposits arising from securities dealing was fixed at 0.72%; the annualfloating rate of the Group's World Bank loans, denominated in US dollar, was5.36%; and the annual interest rate of the Group's loans, denominated in HKdollar, was fixed at 5.371%.
Total interest expense for the Period amounted to Rmb42.5 million, while profit before interest and tax amounted to Rmb1,689.1 million. The interest cover ratio (profit before interest and tax over interest expenses) stood at 39.7 (June 30, 2007: 45.2).
The asset-liability ratio (total liabilities over total assets) was 41.1% as at June 30, 2008 (December 31, 2007: 42.7%).
Capital Structure
As at June 30, 2008, the Group had Rmb15,660.8 million total equity, Rmb8,489.2million fixed-rate liabilities, Rmb505.1 million floating-rate liabilities andRmb1,916.6 million interest-free liabilities, representing 58.9%, 32.0%, 1.9%and 7.2% of the Group's total capital, respectively. The gearing ratio, whichwas computed by dividing the total liabilities less balance of customerdeposits arising from securities dealing by total equity, was 25.4% as at June30, 2008 (December 31, 2007: 28.8%).
Capital Expenditure Commitments and Utilization
Capital expenditures of the Group and of the Company for the Period totaled Rmb83.0 million and Rmb31.8 million, respectively, with Rmb38.2 million attributable to the acquisition of equipment and Rmb39.7 million attributable to the widening project.
Capital expenditures committed by the Group and by the Company as at June 30,2008 totaled Rmb1,659.4 million and Rmb836.0 million, respectively. Amongst thetotal capital expenditures committed by the Group, Rmb1,041.4 million will beused on the remaining construction work of the widening project, while Rmb49.2million will be used on service area renovation and/or expansion.The Group will finance its above mentioned capital expenditure commitments withinternally generated cash flow, with a preference for debt financing to meetany shortfalls thereof.
Contingent Liabilities and Pledge of Assets
The Company's commodity-linked 1-year structured deposits of Rmb200.0 millionwith minimum yield rate of 4% was a pledge provided to a domestic foreign-ownedbank for a Hong Kong dollar-denominated loan of Rmb336.6 in Renminbi equivalentwhich had the same term as a Hong Kong dollar loan.
Save as disclosed above, the Group did not have any other contingent liabilities, pledge of assets or guarantees as at June 30, 2008.
Foreign Exchange Exposure
Except for the repayment of a World Bank loan of Rmb505.1 million equivalent inUS dollars, as well as repayment of the loan from foreign-owned bank in thecountry of Rmb336.6 million equivalent in HK dollars and dividend payments toholders of H shares in Hong Kong dollars, the Group's principal operations aretransacted and booked in Renminbi. Therefore, the Group's exposure to foreignexchange fluctuations is limited and the Group has not used any financialinstrument for hedging purposes during the Period.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.
OUTLOOK
The detrimental natural disasters in the first half of 2008 had a negativeimpact on the PRC economy which had used to enjoy a fast-growing GDP.Zhejiang's provincial economy showed an obvious slowdown amid macro-economiccontrol measures, leading to a certain decline in the rate of growth on thevolume of transport in goods and passengers within the province in the firsthalf of 2008. As a result, the growth of traffic volume on various expresswayswithin the province, which was closely related to the above factors, had shownvarious degrees of decline.As the Hangzhou Bay Bridge will be open to trucks in the future, furtherdiversions of truck traffic along the Group's expressways is expected. Exceptfor the above-mentioned truck diversions, traffic diversions caused by theHangPu Expressway's opening to traffic have been gradually stablilizing. Thediversion impact has been largely in line with the expectations of the Company.Meanwhile, it is expected that upon a further stabilization of diversions inthe future, networking effects among different expressways will generate newgrowth for the two expressways operated by the Group.During the Period, the Group's toll road-related business operations continuedits robust growth. The service area operation, having extended beyond ZhejiangProvince, experienced new growth of income in the first half of the year.Meanwhile, for the securities business that had brought certain uncertaintiesto the Group, the introduction of new securities products in the future isexpected to create new income platforms for the securities business, therebygenerating higher profitability.The Company's self-developed non-stop electronic toll collection system fullyopened to the general public in early April upon the completion of varioustrials. Meanwhile, the Company actively pursued efforts to facilitate the workson the inter-connected non-stop toll system for expressways within the YangtzeRiver Delta Region. It is believed that such system would bring furtherconvenience to users who shuttle across expressways within the region in thefuture.Meanwhile, a toll-by-weight policy for trucks is scheduled to be implemented byend of the year or in early 2009. We believe that the implementation of suchpolicy will help reduce the amount of overloaded trucks along expressways,which will in turn reduce road maintenance costs of the Group in the long run.Even though Zhejiang Province's economic growth rate had slowed down, it hasmaintained a healthy and rapid momentum, with its growth rate continuing totake a lead above the national average. Through concerted efforts of all staffof the Group, we will study measures to draw greater traffic volumes, activelyseek suitable acquisitions, identify new sources of income, and achieve greaterprofitability so as to bring satisfactory operating results to our investors.
PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARES
Neither the Company nor any of its subsidiaries had purchased, sold, redeemed or cancelled any of the Company's shares during the Period.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company was in compliance with the code provisions in the Code on CorporateGovernance Practices set out in Appendix 14 to the Listing Rules during thePeriod. By Order of the Board Geng Xiaoping Chairman
Hangzhou, the PRC, August 4, 2008
As at the date of this announcement, the executive directors of the Companyare: Messrs. Geng Xiaoping, Fang Yunti, Zhang Jingzhong and Jiang Wenyao; thenon-executive directors of the Company are: Messrs. Zhang Luyun and Zhang Yang;and the independent non-executive directors of the Company are: Messrs. TungChee Chen, Zhang Junsheng and Zhang Liping.
vendorRelated Shares:
ZHEH.L