4th Apr 2011 15:44
Leveraging Opportunities, Pursuing Growth
As the economies of China and Zhejiang Province underwent solid recoverygrowth, Zhejiang Expressway's operation also witnessed a healthy return togrowth in year 2010. The toll road business has demonstrated its integralstrengths and registered double-digit growth in revenue, while the securitiesbusiness has been fast expanding and is now contributing a significant share ofthe Group's profits.In 2011, we expect some uncertainties to remain, but we also see opportunitiesabound as China's domestic economy is expected to continue its healthy growth.We believe that the two "pillar" businesses of the Group will grow fromstrength to strength, and more importantly, they will provide reliable supportto our other business ventures in the future. Zhejiang Expressway will beactively leveraging opportunities amidst a dynamic market, seeking to buildother suitable new businesses to pursue growth whilst strengthening our corebusiness, with a view to bringing greater returns to our shareholders.ContentsDefinition of TermsCompany Profile
Review of Major Corporate Events
Particulars of Major Road Projects
Financial and Operating Highlights
Chairman's Statement
Management Discussion and Analysis
Principal Risks and Uncertainties
Corporate Governance Report
Directors, Supervisors and Senior Management Profiles
Report of the Directors
Report of the Supervisory Committee
Independent Auditor's Report
Consolidated Financial Statements & Notes
Corporate Information
Location Map of Expressways in Zhejiang Province
Definition of TermsADR(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 CompanyBoard the board of directors of the CompanyCompany or Zhejiang Expressway Co., Ltd., a joint stock limited company Zhejiang Expressway incorporated in the PRC with limited
liability on March 1, 1997
Communications Group Zhejiang Communications Investment Group Co., Ltd., a 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 Exchange The Stock Exchange of Hong Kong LimitedHuajian 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 Technology JoinHands Technology Co., Ltd., a 27.582% owned associate of the CompanyListing Rules the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong LimitedPeriod the period from January 1, 2010 to December 31, 2010Petroleum 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 CompanySupervisory Committee the supervisory committee of the CompanyYuhang Co Zhejiang Yuhang Expressway Co., Ltd. a 51% owned subsidiary of the CompanyZheshang Securities Zheshang Securities Co., Ltd., a 70.46% owned subsidiary of 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 the securities business.
Major assets under management of the Group include the 248kmShanghai-Hangzhou-Ningbo Expressway, the 142 km Shangsan Expressway, ancillaryfacilities along the two expressways, and Zheshang Securities. Both expresswaysare situated within Zhejiang Province in the PRC. As at December 31, 2010,total assets of the Company and its subsidiaries amounted to Rmb33,652.06million.
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 Group, the controllingshareholder of the Company, is a provincial-level communications company whichis wholly-owned by the State and established by the Zhejiang ProvincialGovernment. It mainly operates a diversity of businesses, such as investment,operations, maintenance, toll collection and ancillary services of expressways;construction and building of transportation project, ocean and coastaltransport; as well as real estates. As at December 31, 2010, consolidatedassets of Communications Group totaled Rmb133,325.18 million.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 the 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.
With good performance on the Group's existing expressway operations, theCompany will capitalize on all opportunities of investment and acquisition ofnew projects, aiming to develop itself into a first-class expressway operatorin China. In addition, the Company will also endeavor to enhance its corecompetitiveness in the securities business, expanding its operation network andincreasing its profit contribution to the Group.
Set out below is the corporate and business structure of the Group as at December 31, 2010:
(http://www.prnasia.com/sa/attachment/2011/03/20110331435815.pdf )
Review of Major Corporate Events
1. On March 14, 2010, the Company announced the 2009 annual results in Hong Kong, and thereafter conducted its annual results roadshow in Hong Kong, Singapore, the U.K. and the U.S.A.
2. At 00:00 on April 16, 2010, the toll-by-weight policy came into full effectfor the Shanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway. Thetraditional toll standards for trucks whereby toll was collected according totruck classes would be changed to toll collected by truck weights.3. On May 10, 2010, the Company held its 2009 annual general meeting. Themeeting approved the distribution of a final dividend of RMB0.25 per share, there-appointment of Deloitte Touche Tohmatsu Certified Public Accountants HongKong as the international auditors of the Company, and the re-appointment ofPan-China Certified Public Accountants Ltd. as the PRC auditors of the Company.
On the same day, the Company announced its 2010 first quarterly results.
4. On May 20, 2010, the Company, Communications Group and Yiwu CommunicationsDevelopment Co., Ltd. entered into an agreement to further inject Rmb23.45million into Jinhua Co. After the capital injection, the Company continued tohold 23.45% equity interests in Jinhua Co.
5. On July 2, 2010, Huajian, one of the major shareholders of the Company, transferred its 11% equity interests in the Company to the Company's controlling shareholder, Communications Group, at no consideration. After the share transfer, the equity interests held by Communications Group in the Company has increased to approximately 67%.
6. During the period between August 13 and October 20, 2010, the Company acquired a total of 49% equity interests in Zhejiang Expressway Investment Development Co, Ltd ("Development Co") which was held by the Company's middle-to-senior level management and staff. After the acquisition, Development Co became a wholly-owned subsidiary of the Company.
7. On August 29, 2010, the Company announced its 2010 interim results in HongKong, and thereafter conducted its interim results roadshow in Hong Kong andSingapore.8. On October 18, 2010, the Company held an extraordinary general meeting. Themeeting elected Mr. Ding Huikang as executive director of the Company andapproved his remuneration and Mr. Liu Haisheng as supervisor of the Company.Prior to the meeting, the Company had approved on August 28, 2010 theresignation of Ms Zhang Yang from the office of non-executive director and theresignation of Mr. Zheng Qihua from the office of supervisor. The meeting alsoapproved the distribution of an interim dividend of RMB0.06 per share.
9. On October 20, 2010, Shangsan Co further injected Rmb861.65 million into Zheshang Securities. Upon completion of the capital injection, Shangsan Co will hold 70.83% equity interests in Zheshang Securities.
10. On November 19, 2010, the Company announced its 2010 third quarterly results.
Particulars of Major Road Projects
Remaining Length in Number Number Number Start of Years of Percentage Kilometers of of of Operation Operation of Lanes Toll Service Ownership Stations Areas Expressway Shanghai-Hangzhou Expressway -- Jiaxing Section 99.9995% 88.1 8 7 2 1998 18 -- Yuhang Section 51% 11.1 6 1 0 1995-1998 18 -- Hangzhou Section 100% 3.4 4 2 0 1995 18 Hangzhou-Ningbo Expressway -- Hangzhou to Hongken section 100% 16.0 4 1 0 1992 17 -- Hongken to Duantang section 100% 124.0 8 9 2 1995 17 -- Duantang to Dazhujia section 100% 5.0 4 1 0 1996 17 Shangsan Expressway 73.625% 142.0 4 11 3 2000 20
Current Toll rates on the Shanghai-Hangzhou-Ningbo Expressway
1. Passenger vehicle classification and toll rates
Vehicle Entrance Fee Class Mileage Fee Classification Standard (Rmb/vehicle)
(Rmb/vehicle/km)
1 Passenger vehicle with up to 20 seats 5 0.45 Truck with tonnage of 2 tons or below 2 Passenger vehicle with seats above 20 and up to 10 0.80 40 Truck with tonnage of above 2 tons and up to 5 tons 3 Passenger vehicle with seats above 40 15 1.20 Truck with tonnage of above 5 tons and up to 10 tons 4 Truck with tonnage above 10 tons and up to 15 15 1.40 tons 5 Truck with tonnage above 15 tons 20 1.60
2. Toll rates on goods vehicles
Load Toll standards Legally loaded Up to 5 tons Rmb0.09/ton per km
Above 5 tons and Rmb0.09/ton per km x 1.5 is reduced in a linear manner to Rmb0.09/ton up to 15 tons per km Above 15 tons and Rmb0.09/ton per km is reduced in a linear manner to up to 30 tons Rmb0.06/ton per km Over 30 tons Based on 30 tons Overloaded Overloaded below 10% Calculation based on the basic fee standard for legally loaded vehicle Overloaded up to 30% The overloaded portion over 10% is calculated based on Rmb0.09/ton per km x 1.2; the remaining portion is calculated based on the fee standard of "Overloaded below 10%" Overloaded above 30% The legally loaded portion and the overloaded portion up to 30% is and up to 50% calculated based on the fee standard of "Overloaded up to 30%"; the remaining portion is calculated based on Rmb0.09/ton per km x 2 Overloaded above The legally loaded portion and the overloaded portion up to 30% is 50% and up to 100% calculated based on the fee standard of "Overloaded up to 30%"; the remaining portion is calculated based on Rmb0.09/ton per km x 3 Overloaded over 100% The legally loaded portion and the overloaded portion up to 30% is calculated based on the fee standard of "Overloaded up to 30%"; the remaining portion is calculated based on Rmb0.09/ton per km x 4
* The mileage fee for Class 1 vehicle on the Shangsan Expressway is Rmb0.40/vehicle/km.
The toll rates for other passenger vehicles and trucks are the same as those for the
Shanghai-Hangzhou-Ningbo Expressway.
Financial and Operating Highlights
RESULTS Year ended December 31, 2006 2007 2008 2009 2010 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Revenue 4,763,780 7,030,380 6,323,470 6,036,294 6,769,064 Profit Before 2,742,927 4,332,533 2,934,079 3,084,128 3,111,274 Tax Income Tax (884,036) (1,191,638) (668,928) (840,055) (798,785) Expense Profit for the 1,858,891 3,140,895 2,265,151 2,244,073 2,312,489 year Attributable to: Owners of the 1,652,871 2,415,965 1,892,787 1,795,488 1,871,499 Company Non- 206,020 724,930 372,364 448,585 440,990 controlling interests Earnings Per 38.06 55.63 43.58 41.34 43.09 Share (EPS) cents cents cents cents cents RETURN ON EQUITY (ROE) 2006 2007 2008 2009 2010 ROE 13.90 % 18.27 % 13.83 % 12.66 % 12.71 % MONTHLY AVERAGE DAILY FULL TRIP TRAFFIC VOLUME Shanghai-Hangzhou-Ningbo Expressway 2006 2007 2008 2009 2010 January 35,342 38,233 42,024 32,126 36,438 February 33,785 40,239 36,261 31,494 35,833 March 38,810 42,536 42,791 33,748 38,175 April 40,789 45,657 44,917 36,725 40,564 May 39,255 44,462 38,583 34,507 38,361 June 38,307 42,938 36,595 33,692 38,073 July 37,067 41,989 36,143 33,574 39,418 August 38,716 43,112 35,856 34,181 38,916 September 40,870 44,646 38,146 36,275 40,666 October 40,342 45,037 35,864 36,191 42,200 November 39,486 44,238 32,792 33,623 38,772 December 39,375 42,840 32,251 34,596 37,761 Average 38,536 43,001 37,688 34,241 38,765 Shangsan Expressway 2006 2007 2008 2009 2010 January 20,079 19,057 21,505 19,682 17,887 February 20,174 23,618 22,453 19,659 21,894 March 19,897 22,132 22,301 18,049 18,212 April 20,554 22,402 22,995 19,783 19,561 May 20,215 22,287 20,219 19,106 18,304 June 18,619 20,699 19,028 18,394 17,482 July 18,691 20,957 18,779 18,552 17,682 August 19,379 21,485 18,919 18,720 15,895 September 20,542 22,312 19,853 19,905 16,586 October 20,717 22,738 18,732 19,238 17,189 November 19,428 21,503 17,043 16,724 15,725 December 19,136 20,833 16,493 17,277 14,974 Average 19,783 21,652 19,895 18,751 17,616
(http://www.prnasia.com/sa/attachment/2011/04/20110404835041.pdf )
Chairman's statement In 2010, the Company's operation saw a healthy return to growth. In 2011, Underthe leadership of the board of directors, we will be meticulous in our planningand innovative in our development endeavors, fully leveraging the strategicopportunities presented to the Company. Whilst steadily growing our toll roadbusiness and pro-actively expanding the securities business, ZhejiangExpressway will also actively search for opportunities to develop other newbusinesses so as to broaden the Group's income base.
Dear Shareholders,
Gathering Strengths to Build Up Our Business Platform
It is my pleasure to present to you the 2010 annual report of ZhejiangExpressway on behalf of the board of directors of the Company. Having overcomethe negative impact brought by consecutive traffic diversions and the aftermathof the financial crisis that had plagued us during the past two years, theCompany's operation saw a healthy return to growth in year 2010. I am pleasedto report that for the year ended 31 December 2010, the Group recorded a totalrevenue of Rmb 6,769.06 million, an increase of 12.1% over the same period of2009, while net profit rose 4.2% year-on-year to Rmb1,871.5 million andearnings per share was Rmb43.09 cents (2009: Rmb41.34 cents).The fine operating results indicate that we are on a healthy track to re-climbfrom the declines that we have suffered since 2008. The improved performancedemonstrates the resilient operational strengths of the Company and theearnings quality of its assets. More importantly, the confidence and support ofour shareholders and the hard work of the entire management and staff havecontributed to enhancing the profitability of the Company. The good work thatwe have done during the past year has indeed laid a solid foundation forbuilding up a stronger business platform for the future.The current development focus of Zhejiang Expressway is still its toll roadassets - assets that have generated satisfactory returns to our shareholdersyear after year, and will continue to serve as our pillars for supporting ourfuture growth. Both the Shanghai-Hangzhou-Ningbo Expressway and the ShangsanExpressway have been affected by traffic diversions from newly opened roadsnearby since 2008. However, as the economy continues to grow healthily andpartly owing to the strategic locations of the two expressways within theYangzi River Delta region, organic traffic growth on the expressways hasgradually outweighed the negative impact of traffic diversions caused bycompeting roads over the past two years. And as the expansion works alongShanghai Section of the Shanghai-Hangzhou-Ningbo Expressway was completed inearly 2010, together with the implementation of the toll-by-weight policy, wewitnessed the return of double-digit growth for the Shanghai-Hangzhou-NingboExpressway after two years of decline. Meanwhile, the decline of toll revenuegenerated on the Shangsan Expressway has narrowed to 2.3% in 2010, with theimpact of traffic diversions due to Zhuyong Expressway having alreadystabilized. Overall speaking, our toll road business looks set to re-gathertheir strengths and will serve as a pivotal support to the Group's futurebusiness growth.Our securities business has become another pillar of Zhejiang Expressway, apillar that we will also rely on for fueling future growth. Now contributingapproximately 17% of the Group's net profit, Zheshang Securities has grown fromstrength to strength all these years. Despite a turbulent stock market in year2010, the securities company has achieved satisfactory operating results andhas rolled out successful developments. With a total of 54 branches spreadingacross 48 primary cities in 13 provinces, Zheshang Securities has furtherexpanded its market share of the nation's brokerage business. It has also madesignificant inroads in building new operations in asset management, investmentbanking and futures, shoring up its competitive edges in offering diversefinancial services to a growing market.With our toll road operations and securities business burnishing theirperformance in recent years, Zhejiang Expressway looks toward the future withgreat confidence. With the rollout of the State's 12th Five-year Plan, theCompany is faced with an excellent opportunity for building up its businessplatform. Under the leadership of the board of directors, we will be meticulousin our planning and innovative in our development endeavors in 2011, fullyleveraging the strategic opportunities presented to the Company. Whilststeadily growing our toll road business and pro-actively expanding thesecurities business, Zhejiang Expressway will also actively search foropportunities to develop other new businesses so as to broaden the Group'sincome base. Relying on our parent company's support, we will investigatepossibilities in other infrastructure businesses. In order to meet any emergingfunding needs once suitable projects are identified, we are also strengtheningour internal capital operation so as to prepare ourselves well for variousfunding scenarios in the future.Harboring our strong toll road operations and securities business as our twopillars, we believe that the Group is now well poised for building up astronger business platform - a platform that will, together with the concertedefforts of all our staff, take the Group much farther with greater success.
Chen Jisong Chairman March 13, 2011
Continuing to Strengthen the Toll Road Business
While the toll road operations have re-climbed to strength in 2010, ZhejiangExpressway is by no means complacent about its core business. Faced with anever-improving road network and growing competition within the industry, theCompany will continue to develop new technologies on road maintenance and tollcollection and to enhance service quality, with a view to maintaining itsmarket leadership position and strengthening its core competitiveness. It willalso strive to seek acquisitions of suitable assets or operate expresswayprojects entrusted by external parties, so as to further strengthen ZhejiangExpressway's toll road business and pursue long-term development of theCompany.
Management Discussion and Analysis
BUSINESS REVIEW
In 2010, as the Government applied a number of initiatives to strengthen andimprove macro-economic controls and accelerated economic restructuring, Chinahas managed to consolidate and expand the achievements in countering the impactof the global financial crisis, thereby enabling the Chinese economy to operatewell in general. In 2010, China's national GDP grew by 10.3% year-on-year. As aresult of the overall economic recovery, Zhejiang Province also experiencedstable and relatively fast development in 2010 and saw various sectorsgradually returning to balanced developments. GDP in Zhejiang Province rose11.8% during the Period as compared to the same period of the previous year.GDP Growth Rate:(http://www.prnasia.com/sa/attachment/2011/03/20110331753010.pdf )As China's domestic macro economy stabilized and improved, revenue from theGroup's overall operations grew during the Period compared to the same periodof the previous year. However, performance varied across the differentoperations. During the Period, the Group realized a total income of Rmb6,979.57million, representing an increase of 11.9% year-on-year; of which Rmb3,590.46million was attributable to the two major expressways operated by the Group,representing 51.4% of the total income; Rmb1,731.07 million was attributable tothe Group's toll road-related businesses such as service area operations, gasstations, advertising business and so forth, representing 24.8% of the total income;and Rmb1,658.05 million was attributable to the securities business,representing 23.8% of the total income. A breakdown of the Group's income for the Period is set out below: 2010 2009 Rmb'000 Rmb'000 % Change --------------------------------------------------------------------------
Toll income Shanghai-Hangzhou-Ningbo Expressway 2,848,805 2,451,957 16.2 % Shangsan Expressway 741,652 759,434 -2.3 % Other income Service areas 1,641,748 1,185,813 38.4 % Advertising 85,881 85,076 0.9 % Road maintenance 3,439 3,784 -9.1 % Securities business income Commission 1,431,416 1,582,623 -9.6 % Bank interest 226,630 170,074 33.3 %
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Subtotal 6,979,571 6,238,761 11.9 % Less: Revenue taxes (210,507) (202,467) 4.0 %
-------------------------------------------------------------------------- Revenue 6,769,064 6,036,294 12.1 % --------------------------------------------------------------------------
TOLL ROAD OPERATIONSThe Group saw a relatively high rate of organic growth in traffic volume alongits two expressways during the Period, as a result of a number of favorablefactors in 2010 such as the growth in cargo throughput on the highways,increasing automobile sales volume and resumed growth in exports in ZhejiangProvince.
Meanwhile, upon completion of the works on the Shanghai section of the Shanghai-Hangzhou Expressway on January 1, 2010 and after the Company had stepped up various promotional activities, traffic volume along the Shanghai-Hangzhou section quickly returned to the level prior to traffic diversions. In addition, the World Expo held in Shanghai contributed to an increase in traffic volume of passenger vehicles traveling on the two expressways of the Group.
The implementation of the toll-by-weight policy for trucks in April 2010 haseffectively reduced excessive overloading of trucks and boosted toll incomefrom trucks. It has also changed the past few years' trend whereby the increasein toll income from the Group's expressways had been lower than the increase intraffic volume, with the increase in toll income being approximately threepercentage points higher than the increase in traffic volume in 2010.The dual-path identification system for expressways in Zhejiang Provincelaunched in mid-October 2009 led to a growth in traffic volume along theShanghai-Hangzhou-Ningbo Expressway while having a negative impact on thetraffic volume along the Group's Shangsan Expressway. This was the major reasonfor a decline in toll income and traffic volume along the Shangsan Expresswaycompared to the same period of the previous year. However, the implementationof the system during the Period had a slightly positive impact on toll incomefrom the two expressways as a whole.In order to improve tolling efficiency and to facilitate the access by driversand passengers to toll stations on expressways in a more efficient andconvenient way, the Company has commenced full operation of eight electronictoll stations at the first stage in April 2010. Since its official operation,the electronic tolling system has accounted for 30% of the use of electronictoll collection on all expressways throughout the province, and the system waswell-received by users.
The official operation in February 2010 of the Shenjia Huhang Expressway adjacent to the Shanghai-Hangzhou Expressway had a minor impact on the traffic volume along the Group's expressways. However, the opening of the Zhuyong Expressway on July 22, 2010 had a more significant negative impact on the Shangsan Expressway, apart from creating slight traffic diversions upon the Group's Shanghai-Hangzhou-Ningbo Expressway.
Consequently, the average daily traffic volume in full-trip equivalents alongthe Shanghai-Hangzhou-Ningbo Expressway was 38,784 during the Period,representing an increase of 13.3% year-on-year. In particular, the averagedaily traffic volume in full-trip equivalents along the Shanghai-Hangzhousection of the Shanghai- Hangzhou-Ningbo Expressway was 39,548, an increase of19.7% year-on-year, and that along the Hangzhou-Ningbo section was 38,238, anincrease of 8.9% year-on-year. The average daily traffic volume in full-tripequivalents along the Shangsan Expressway was 17,584 during the Period,representing a decrease of 6.2% year-on-year.Total toll income from the 248km Shanghai-Hangzhou-Ningbo Expressway and the142km Shangsan Expressway amounted to Rmb3,590.46 million during the Period,representing an increase of 11.8% year-on-year. In respect of such income, tollincome from the Shanghai-Hangzhou-Ningbo Expressway amounted to Rmb2,848.81million, an increase of 16.2% year-on-year, while toll income from the ShangsanExpressway amounted to Rmb741.65 million, a decrease of 2.3% year-on-year.TOLL ROAD-RELATEDBUSINESS OPERATIONS
The Company also operates certain toll road-related businesses along its expressways through its subsidiaries and associated companies, including gas stations, restaurants and shops in service areas, as well as roadside advertising and vehicle service businesses.
During the Period, the stabilization and recovery of the macro economy,continued growth in vehicle ownership in the province, and the hosting of theShanghai World Expo not only brought an increase in traffic volume along theGroup's two expressways, but also stimulated a rise in the spending will amongtravelers in the service areas. A rebound in traffic volume, a substantialgrowth in sales of petroleum products and a rise in the prices of petroleumproducts also brought income growth to gas stations, resulting in a substantialincrease in income from the service areas as well. Income from tollroad-related businesses amounted to Rmb1,742.12 million during the Period,representing a year-on-year increase of 35.5%.
SECURITIES BUSINESS
The domestic stock market in China remained volatile and showed a falling trendin 2010, with a decrease in trading volume compared to the past. Meanwhile, theestablishment of additional operation networks by various major domesticsecurities firms had further intensified competition among securities firms,causing commission rates to continue to decline.Zheshang Securities has been taking a positive approach to cope with theintensely competitive environment and endeavoring to expand various businesses,and consequently the market share of its securities brokerage business and thetotal number of customers continued to rise, and its operation networkincreased to 54 branches. The asset management business grew substantially,having been approved to launch five integrated asset management plans in 2010and ranked among the top domestic securities firms in terms of net operatingincome. Meanwhile, Zheshang Securities' investment banking and futuresbusinesses achieved satisfactory growth as well.During the Period, Zheshang Securities realized an operating income ofRmb1,658.05 million, a decrease of 5.4% year-on-year. Of such income, brokeragecommission income amounted to Rmb1,431.42 million, a year-on-year decrease of9.6%; and bank interest income amounted to Rmb226.63 million, a year-on-yearincrease of 33.3%. In order to control risks, Zheshang Securities invested morethan 70% of its proprietary securities business in bonds with relatively lowerrisks and as such, the securities investment income as accounted for in theconsolidated statement of comprehensive income amounted to Rmb119.91 million.LONG-TERM INVESTMENTSZhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associatecompany of the Company) was blessed by a rise in the retail prices of petroleumand a growth in petroleum sales during the Period, and consequently realized anincome of Rmb3,551.90 million in 2010, representing an increase of 32.3%year-on-year. However, the opening of five new gas stations in 2010 resulted inincreases in corresponding rental expenses, labor costs and repair expenses.During the Period, net profit of the associate company amounted to Rmb17.52million, which remained at basically the same level as the previous year.The 69.7km Jinhua Section of the Ningbo-Jinhua Expressway, operated by ZhejiangJinhua Yongjin Expressway Co., Ltd. (a 23.45% owned associate company of theCompany), benefited from an increase in toll income in 2010 compared to a loweroperating income base in 2009, as a result of the introduction of thetoll-by-weight system and the introduction of the more accurately analyzeddual-path identification system. It recorded an average daily traffic volume of9,277 in full-trip equivalents during the Period, while toll income amounted toRmb189.95 million, an increase of 37.3% year-on-year. Due to its heavyfinancial burden, the associate company still incurred a loss of Rmb68.45million during the Period but the loss is gradually decreasing.JoinHands Technology Co., Ltd. (a 27.582% owned associate company of theCompany) generated its income primarily from its printing operations andproperty leasing. During the Period, it did not show any improvement to itsoperations but had reduced the percentage of its shareholding in a subsidiary,and consequently it managed to realize a net profit of Rmb4.27 million duringthe Period.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 owners of the Company for the year was approximately Rmb1,871.50 million, representing an increase of 4.2% year-on-year, while earnings per share for the Company was Rmb43.09 cents.
LIQUIDITY AND FINANCIAL RESOURCES
As at December 31, 2010, current assets of the Group amounted to Rmb19,673.10million in aggregate (2009: Rmb17,903.78 million), of which bank balances andcash accounted for 30.5% (2009: 29.5%), bank balances held on behalf ofcustomers accounted for 59.4% (2009: 64.4%), and held-for-trading investmentsaccounted for 4.1% (2009: 2.9%). Current ratio (current assets over currentliabilities) as at December 31, 2010 was 1.3 (2009: 1.3). Excluding the effectof customer deposits arising from the securities business, the resultantcurrent ratio of the Group (current assets less bank balances held on behalf ofcustomers over current liabilities less balance of accounts payable tocustomers arising from the securities dealing business) was 2.6 (2009: 2.6).The amount for held-for-trading investments of the Group as at December 31,2010 amounted to Rmb803.77 million (2009: Rmb517.90 million), of which 74.7%was invested in corporate bonds, 24.6% was invested in the stock market, andthe rest was invested in open-end equity funds.
During the Period, net cash inflow generated from the Group's operating activities amounted to Rmb2,550.50 million, representing a decrease of 14.8%.
The Directors do not expect the Company to experience any problem with liquidity and financial resources in the foreseeable future.
As at December 31, 2010 2009 Rmb'000 Rmb'000
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Cash and cash equivalent Rmb 5,674,173 5,018,914 US$ in Rmb equivalent 2,616 25,423 HK$ in Rmb equivalent 5,264 4,666 Time deposits Rmb 301,286 228,452 US$ in Rmb equivalent 24,259 -- Held-for-trading investments-Rmb 803,772 517,895 Available-for-sale investments- Rmb 71,928 54,704 Financial assets held under resale agreement- Rmb 80,163 -- Total 6,963,461 5,850,054 Rmb 6,931,322 5,819,965 US$ in Rmb equivalent 26,875 25,423 HK$ in Rmb equivalent 5,264 4,666
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BORROWINGS AND SOLVENCY
As at December 31, 2010, total liabilities of the Group amounted to Rmb15,956.94 million, of which 11.4% was borrowings and 72.9% was accounts payable to customers arising from the securities dealing business.
Total interest-bearing borrowings of the Group as at December 31, 2010 amountedto Rmb1,822.00 million, representing an increase of 12.3% over the beginning ofthe year. The borrowings comprised outstanding balances of loans from domesticcommercial banks totaling Rmb822.00 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, 54.9% 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
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Floating rates Commercial bank loans 350,000 350,000 -- -- Fixed rates Commercial bank loans 472,000 472,000 -- -- Corporate bonds 1,000,000 -- 1,000,000 -- Total as at December 31, 2010 1,822,000 822,000 1,000,000 -- Total as at December 31, 1,622,384 478,055 1,144,329 -- 2009 As at December 31, 2010, the Group's loans from domestic commercial bankscomprised half-year and 1-year short-term loans, of which Rmb472.00 million wasfixed-rate loans with interest rates ranging from 5.10% to 5.81% per annum,Rmb350.00 million was floating-rate loans with interest rates ranging from5.00% to 5.52% per annum. The annual coupon rate for corporate bonds was fixedat 4.29%, with interest payable annually. The annual interest rate for accountspayable to customer arising from the securities dealing business was fixed at0.36%. The Group's World Bank loans, denominated in US dollar, of approximatelyRmb422.38 million equivalent, have been fully repaid during the Period.Total interest expense for the Period amounted to Rmb120.98 million, whileprofit before interest and tax amounted to Rmb3,232.25 million. The interestcover ratio (profit before interest and tax over interest expenses) stood at26.7 (2009: 50.2). 2010 2009 Rmb'000 Rmb'000 Profit before tax and interest 3,232,253 3,146,852 Interest expenses 120,979 62,724 Interest cover ratio 26.7 50.2 The asset-liability ratio (total liabilities over total assets) was 47.4% as atDecember 31, 2010 (December 31, 2009: 47.3%). Excluding the effect of customerdeposits arising from the securities business, the resultant asset-liabilityratio (total liabilities less balance of accounts payable to customers arisingfrom the securities dealing business over total assets less bank balances heldon behalf of customers) of the Group was 19.7% (December 31, 2009: 18.4%).
Pursuing a Steady Development of the Securities Business
The securities business of Zhejiang Expressway has gradually grown to maturityand has become a significant player in the securities sector. Now counting 54branches with operations spreading across 48 major cities in 13 provinces,Zheshang Securities endeavors to continue to expand its market share andenhance its competitiveness. Whilst continuing to strengthen the new businessesthat it has recently expanded into such as investment banking, assetmanagement, futures and fixed income, Zheshang Securities will also focus ondeveloping its human capital, with a view to becoming a market leader in thecountry's securities and finance industry.
CAPITAL STRUCTURE
As at December 31, 2010, the Group had Rmb17,695.12 million total equity,Rmb13,103.03 million fixed-rate liabilities, Rmb350.00 million floating-rateliabilities and Rmb2,503.91 million interest-free liabilities, representing52.6%, 38.9%, 1.0% and 7.5% of the Group's total capital, respectively. Thegearing ratio, which was computed by dividing the total liabilities lessaccounts payable to customers arising from the securities dealing business bytotal equity, was 24.4% as at December 31, 2010 (December 31, 2009: 22.5%).
As at As at December 31, 2010 December 31, 2009 Rmb'000 % Rmb'000 %
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Total equity 17,695,115 52.6 % 17,064,853 52.7 % Fixed rate liabilities 13,103,030 38.9 % 12,702,930 39.2 % Floating rate liabilities 350,000 1.0 % 422,384 1.3 % Interest-free liabilities 2,503,910 7.5 % 2,212,614 6.8 %
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Total 33,652,055 100.0 % 32,402,781 100.0 %
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Long-term interest-bearing liabilities 1,000,000 3.5 % 1,144,329 3.5 % Gearing ratio 1 (Note) 24.4 % 22.5 % Gearing ratio 2 (Note) 5.7 % 6.7 % Asset-liability ratio 1 (Note) 47.4 % 47.3 % Asset-liability ratio 2 (Note) 19.7 % 18.4 %
Note: Gearing ratio 1 represents the total liabilities less accounts payable to
customers arising from the securities dealing business 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 accounts payable to customers arising from the securities
dealing business to the total assets less bank balances held on behalf of
customers.
CAPITAL EXPENDITURE COMMITMENTS AND UTILIZATION
During the Period, capital expenditures of the Group totaled Rmb461.82 million,while capital expenditures of the Company totaled Rmb169.16 million. Amongstthe total capital expenditures of the Group, Rmb149.48 million was incurred foracquisition and construction of properties, Rmb133.48 million for purchase ofequipment, Rmb97.09 million for the acquisition of 49% equity interests inZhejiang Expressway Investment Development Co., Ltd., Rmb23.45 million due tothe further capital contribution into Zhejiang Jinhua Yongjin Expressway Co.,Ltd., Rmb24.30 million for the road widening project between the Shaoxing-Zhujihub and the Shaoxing-Jiaxing hub of the Shangsan Expressway and Rmb25.00million for the establishment of Zheshang Fund Management Co.,Ltd.(a 25% ownedassociate of Zheshang Securities Co., Ltd.).As at December 31, 2010, capital expenditures committed by the Group and theCompany totaled Rmb765.66 million and Rmb226.72 million, respectively. Amongstthe total capital expenditures committed by the Group, Rmb360.18 million willbe used for acquisition and construction of properties, Rmb342.76 million foracquisition of equipment, Rmb46.62 million for the widening project between theShaoxing-Zhuji hub and the Shaoxing-Jiaxing hub of the Shangsan Expressway, andRmb16.10 million for service area renovation and expansion.
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, 2010, the Group did not have any contingent liabilities nor any pledge of assets or guarantees.
FOREIGN EXCHANGE EXPOSURE
Save for the dividend payments to overseas shareholders in Hong Kong dollars,the Group's principal operations are transacted and booked in Renminbi.Therefore, the Group's exposure to foreign exchange fluctuations is limited andthe Group has not used financial instrument for hedging purposes.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, 2010, there were 5,827 employees within the Group, amongstwhom 1,195 worked in the managerial, administrative and technical positions,while 4,632 worked in fields such as toll collection, maintenance, serviceareas, securities and futures business outlets.The Company adopts a remuneration policy that aims to be competitive forattracting and retaining talents. The overall remuneration package foremployees comprised mainly basic salaries, bonuses and benefits. Bonuses aredesigned to reflect individual job performances, as well as business and shareprice performances of the Group. Such bonuses are designed as short-termincentives, while a long-term incentive mechanism has yet to be established.Benefits for employees come in the form of contributions made by the Group tovarious local social security agencies covering pension, medical andaccommodation concerns that are calculated as a percentage of employees' incomeand in accordance with relevant rules and regulations. The Company continued toimplement the corporate annuity scheme during the Period, and total pensioncost charged to the income statement during the Period amounted to Rmb44.86million.The remuneration level fixed by the Company is sufficient to attract and retainthe directors required for its successful operation. All the directors did notparticipate in determining their emoluments to avoid payment of excessiveremuneration.OUTLOOKThe Chinese economy has improved in general despite encountering a highlycomplex domestic and international economic environments as well as multipleand frequent natural disasters. In Zhejiang Province, under the currentenvironment underpinned by a significant improvement in infrastructuredevelopments and an increasing stimulation of the economy by consumption,foreign trade exports resumed high growth and automotive retail salesregistered a continuous rapid increase. With the above favorable factors, theGroup's two expressways are expected to continue to undergo significant organicgrowth in traffic volume in 2011.However, the opening of the Zhuyong Expressway in July 2010 will continue todivert traffic flows from the Group's Hangzhou-Ningbo Expressway and ShangsanExpressway. While the operation of the Shanghai-Hangzhou High-speed Railway onOctober 26, 2010 has a certain negative impact on passenger buses runningbetween Hangzhou and Shanghai, it is not expected to have a major impact on theGroup's total toll income in 2011.The implementation of the toll-by-weight policy for trucks on April 16, 2010has generated more satisfactory growth in the Group's toll income. This policyis anticipated to continue to have a more positive impact on the Group's tollincome in 2011. Coupled with this is the initial launch of an electronictolling system for expressways in Zhejiang Province. After achieving asatisfactory result at the Stage-One launch of the system, Stage Two will beimplemented at the end of 2011, which will cover all of the Group's tollstations by 2015.As China is anticipated to further tighten liquidity in order to curbinflation, there will be increasing uncertainties about the stock market in2011. Coupled with the fact that fierce competition among securities firms hasnot shown any sign of subsiding, Zheshang Securities will continue to faceintense competition. By making aggressive efforts to develop its corebusinesses such as investment banking, asset management and fixed income,Zheshang Securities will steadily expand its operation network and strive todeliver satisfactory operating results.2011 will be the first year of the 12th Five-year Plan where the Company aimsto upgrade its capabilities for business evolution. While endeavoring to becomea market leader in its principal business of expressway operations, the Companywill devote aggressive efforts to cultivating management capabilities fordiversified operations. We will make use of our good cash flow, continuing toseek suitable investments and acquisitions or operate other external expresswayprojects entrusted to the Group. Through various means such as debt and/orequity financing, we will fully leverage our existing financing capabilities toexpand the room for business development. Ultimately, the Company's managementand staff will continue to strive for good operating results for the Companyand create greater value for our shareholders.
Actively Seeking New Business Opportunities
With its core expressway business and the securities business serving as the Company's pillars, the Company is well poised for capturing any emerging business opportunities. We will look into possibilities in infrastructure related businesses such as ports and logistics, transportation and related property developments, both in Zhejiang Province and beyond. Leveraging our human and financial resources, Zhejiang Expressway will capitalize on its existing strong business foundation and aim to build an even stronger one.
Principal Risks and Uncertainties
TOLL ROAD BUSINESS RISKS
Economic environment
Since complexities regarding the recovery of both the international anddomestic economies still exist, coupled with the uncertainties regarding therecovery growth of Zhejiang Province's internal and external trades, as well aspossible new difficulties encountered by the macro-economy amid the currentinflationary pressure, it is anticipated that traffic growth along the Group'sexpressways remains uncertain in the future. The operations, financial positionand operating results of the Group remain uncertain.
Competition
Although the Shenjia Huhang Expressway and the Zhuyong Expressway weresuccessively opened in 2010, the future openings of nearby expressways such asthe Jiaxing-Shaoxing Cross River Passage are expected to result in new trafficdiversions for the Shangsan Expressway and certain sections of theShanghai-Hangzhou-Ningbo Expressway. Therefore, we cannot be assured as towhether traffic volumes to be generated on the expressways under the Group willbe at the same levels as before or will increase in the future, or whether theoperating results of the Group will be affected.
Concession period extension
Since the expansion works of the Shanghai-Hangzhou-Ningbo Expressway has beencompleted, we plan to apply for the extension of the concession period for theconstruction, management and toll collection of the Shanghai-Hangzhou-NingboExpressway. We cannot be assured as to whether the Zhejiang ProvincialGovernment will timely approve the application for extending the concession orwhether material delays or serious difficulties will arise in the course of theapplication for extending the concession period, which may have an adverse
impact on the operations, financial position and operating results of the Group.
Toll policy
Although Zhejiang Province has implemented the toll-by-weight policy for trucksin April 2010, local toll road policies in Hangzhou City are expected to changedue to further inflation in prices of goods and an increase in petroleumproduct prices. It is also expected that toll standards for vehicle classes andtoll calculation methods adopted by expressways in the province may be adjustedfurther. Changes in toll standards for expressways may arise and we cannot beassured as to whether this will adversely affect the toll income of the Group.SECURITIES BUSINESS RISKSMarket FluctuationsOur securities business is susceptible to market fluctuations and mayexperience periods of high volatility accompanied by reduced liquidity. It maybe materially affected by economic and other factors such as the global marketconditions; the availability and cost of capital; the liquidity of the globalmarkets; the level and volatility of stock prices, commodity prices andinterest rates; currency values and other market indices; inflation; naturaldisasters; acts of war or terrorism; and investor sentiment and confidence inthe financial markets. There is no assurance as to whether our securitiesbusiness will be adversely affected by fluctuations in the market, or whetherour securities business will continue to contribute to our overall profitmargin.
Regulation of Securities Business
We are subject to extensive regulations in the PRC in which we conduct oursecurities business and we are regulated by the PRC regulatory authorities. Wecould be fined, prohibited from engaging in some of our business activities orsubject to limitations or conditions on our business activities, among otherthings. Significant regulatory actions against us could have material adversefinancial effects, cause us significant reputational harm, or harm our businessprospects. New laws or regulations or changes in the enforcement of existinglaws or regulations applicable to our clients may also adversely 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 confirm 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 covers the enterprises that
have been consolidated into the Company; and
- the "Management Discussion and Analysis" section included in this annual
report includes a fair review of the development and performance of the
business and the position of the Group, covers the enterprises that have been
consolidated into the Company, and describes the principal risks and
uncertainties that the Group faces.
From the beginning of Year 2010 up to now, there have been no significant events that would have material impact on the normal operation of the Group.
For and on behalf of the Board
ZHANG JingzhongExecutive Director/Deputy General Manager
Hangzhou, Zhejiang Province, the PRC
March 13, 2011Corporate Governance ReportCORPORATE GOVERNANCEPRACTICESThe Company has adopted its own Guidelines on Corporate Governance that closelyfollowed the principles of good governance in Appendix 14 ("Appendix 14") ofthe Rules Governing the Listing of Securities (the "Listing Rules") on theStock Exchange of Hong Kong Limited ("Stock Exchange").
During the financial year 2010 (the "Period"), the Company had met all provisions in the Code on Corporate Governance Practices (the "Code") in Appendix 14, and adopted the recommended best practices contained in the Code whenever applicable.
DIRECTORS' SECURITIES TRANSACTIONS
The Company has adopted the Rules on Securities Dealings ("Rules on SecuritiesDealings") for the directors, supervisors, senior management personnel andother employees of the Company on terms no less exacting than the requiredstandard set out in the Model Code for Securities Transactions by Directors ofListed Issuers (the "Model Code") in Appendix 10 of the Listing Rules.Upon specific inquiries to all the directors of the Company (the "Directors"),the Directors have confirmed their respective compliance with the requiredstandards for securities transactions by directors as set out in the Model Codeand the Rules on Securities Dealings during the Period.
BOARD OF DIRECTORS OF
THE COMPANY (THE "BOARD")
The executive directors of the Company during the Period were:
Mr. CHEN Jisong(Chairman)
Mr. ZHAN Xiaozhang (General Manager)
Mr. JIANG Wenyao
Mr. ZHANG Jingzhong
Mr. DING Huikang (Effective since October 18, 2010)
The non-executive directors of the Company during the Period were:
Ms. ZHANG Luyun
Ms. ZHANG Yang (Resigned on August 28, 2010)
The independent non-executive directors of the Company during the Period were:
Mr. TUNG Chee ChenMr. ZHANG JunshengMr. ZHANG Liping
During the Period, the Board held a total of four meetings. Individual attendances by the directors (as indicated by the numbers of meetings attended/ numbers of relevant meetings held) are as follows:
Mr. CHEN Jisong (Chairman) 4/4Mr. ZHAN Xiaozhang(General Manager) 4/4Mr. JIANG Wenyao 4/4Mr. ZHANG Jingzhong 4/4Mr. DING Huikang 1/1Ms. ZHANG Luyun 4/4Ms. ZHANG Yang 3/3Mr. TUNG Chee Chen 4/4Mr. ZHANG Junsheng 4/4Mr. ZHANG Liping 4/4
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 to effectively discharge its duties, the Board has set upthree special committees: the Audit Committee, the Nomination and RemunerationCommittee, and the Strategic 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 regarding the appointment of independent non-executivedirectors, with three independent non-executive directors appointed, at leastone of whom possessing the appropriate professional qualification or accountingor related financial management expertise.Pursuant to Rule 3.13 of the Listing Rules, the Company had specificallyinquired all three independent non-executive directors and received theirrespective confirmation of independence during the Period. The threeindependent non-executive directors have all confirmed their compliance withrequirements regarding independence under Rule 3.13 of the Listing Rules. TheCompany still considers the independent non-executive directors to beindependent.
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, Mr. CHEN Jisong and Mr. ZHAN Xiaozhang were the Chairman andthe General Manager of the Company, respectively. The roles of Chairman andGeneral Manager are fully segregated as expressly set out in the articles ofassociation of the Company.NON-EXECUTIVE DIRECTORS
The non-executive directors of the Company are appointed for a period of three years, from March 1, 2009 to February 29, 2012.
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 non-executive directors,namely, Ms. ZHANG Luyun, Ms. ZHANG Yang (resigned on August 28, 2010), Mr. TUNGChee Chen, Mr. ZHANG Junsheng, and Mr. ZHANG Liping, with Ms. ZHANG Luyun asthe Chairwoman of the committee since March 1, 2009.During the Period, the Nomination and Remuneration Committee held two meetingsthrough written communications to review and recommend candidates for the newlyappointed director/deputy general manager and supervisor, including therecommended remunerations thereof.
AUDITORS' REMUNERATION
During the Period, the Company had paid HK$3,800,000 (approximately Rmb3,400,000 equivalent) and Rmb850,000 to Deloitte Touche Tohmatsu Certified Public Accountants (the Hong Kong auditors) and Pan-China Certified Public Accountants Ltd. (the PRC auditors) for audit services conducted in 2009, respectively. The auditors did not provide 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 the non-executive directors, of whom Mr. TUNGChee Chen, Mr. ZHANG Junsheng and Mr. ZHANG Liping are independentnon-executive directors, Ms. ZHANG Luyun and Ms. ZHANG Yang (resigned on August28, 2010) are non-executive directors, with Mr. TUNG Chee Chen as the Chairmanof 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 4/4
Ms. ZHANG Yang (Resigned on August 28, 2010) 3/3
In 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 Rule 3.21 of the Listing Rules regarding the composition of the audit committee.
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, 2010, none of the Directors, Supervisors and ChiefExecutives had any interests or short positions in the shares, underlyingshares or debentures of the Company or any of its associated corporations(within the meaning of Part XV of the SFO) as recorded in the register requiredto be kept pursuant to Section 352 of the SFO, or as otherwise notified to theCompany and the Stock Exchange pursuant to the Model Code.
INTERESTS AND SHORT POSITIONS OF OTHER PERSONS IN SHARES
AND UNDERLYING SHARES
As at December 31, 2010, 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:
Percentage the issued of Total interests share in number of capital ordinary shares of the Company Substantial Capacity of the Company (domestic shares) shareholders
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Communications Beneficial 2,909,260,000 100 % Group owner
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Percentage of the issued Total interests share capital in number of of the ordinary shares Company Substantial Capacity of the Company (H Shares) shareholders
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JP Morgan Chase Beneficial 184,584,607(L) 12.87 % & Co. owner, investment 140,452,750(P) 9.80 % manager and custodian corporation/ approved lending agent BlackRock, Inc. Interest of 143,654,140(L) 10.02 % controlled corporations 2,895,979(S) 0.20 % Invesco Hong Investment 127,952.860(L) 8.92 % Kong Limited manager
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The letter "L" denotes a long position. The Letter "S" denotes a Short Position. The letter "P" denotes interest in a lending pool.
Save as disclosed above, as at December 31, 2010, no other persons had any interests or short positions in the shares or underlying shares of the Company that was required to be recorded pursuant to Section 336 of the SFO, or as otherwise notified to the Company and the Stock Exchange.
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 may be sent 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 China
Attention: Company Secretary
INVESTOR RELATIONS
The Company made the following changes to the articles of association during the extraordinary general meeting of the shareholders held on October 18, 2010:
(1) Amended Article 19 of the Articles as follows:
"After the establishment of the Company, 4,343,114,500 ordinary shares wereissued of which 1,433,854,500 were issued as overseas listed foreign investedshares representing approximately 33% of the total number of ordinary shareswhich were issued by the Company. The shareholding structure of the Companycomprises 4,343,114,500 ordinary shares of which 2,909,260,000 domesticinvested shares are held by the promoter, Zhejiang Communications InvestmentGroup Co., Ltd. and 1,433,854,500 overseas listed foreigninvested shares are held by holders of overseas listed foreign investedshares."
(2) Amended Article 90 of the Articles as follows:
"The Company shall have a board of directors. The board of directors shallcomprise nine directors, of whom five shall be executive directors and fourshall be non-executive directors. Of the four non-executive directors, threeshall be independent non-executive directors. The board of directors shall haveone chairman and one vice-chairman."During the Period, the last shareholders' meeting of the Company took place at3:00 p.m. on Monday, October 18, 2010 at 12/F, Block A, Dragon Century Plaza, 1Hangda Road, Hangzhou, Zhejiang Province, the People's Republic of China.Details of this extraordinary general meeting of the shareholders were set outin the announcement dated October 18, 2010 on resolutions passed at theextraordinary general meeting of the shareholders.The next annual general meeting of the Company is expected to be held on May 9,2011 to consider the resolutions in respect of, among others, the reports ofthe directors and of the supervisory committee for 2010, the audited financialstatements for 2010, a final dividend for 2010, the final report for 2010 andthe financial budget for 2011, as well as the re-appointment of externalauditors.The Company's shares comprised of domestic shares and H shares. The domesticshares are held by Zhejiang Communications Investment Group Co., Ltd as to2,909,260,000 shares, representing approximately 67% of the total issuedcapital of the Company. The remaining 1,433,854,500 shares are H shares,representing approximately 33% of the total issued capital of the Company. Asat the date of this report, and to the best of the Directors' knowledge, 100%of the H shares of the Company are held by the public.
INTERNAL CONTROLS
The Company has set up an internal monitoring system that aims to protectassets, preserve accounting and financial information, as well as to ensure theaccuracy of financial statements, including the establishment of departmentsand units, setting out responsibilities, execution of management systems andquality control mechanisms. The system is capable of taking necessary steps toreact to possible changes in our businesses as well as external operatingenvironments. Throughout the operating process, the Company's various internalcontrol measures are being continuously enhanced, fulfilled and are deemedeffective.The Company's Audit Committee is charged with the duties of reviewing internalcontrols, directing monitoring activities. Aside from reviewing the annualreporting by external auditors, the committee also reviews the effectiveness ofinternal control system and risk management mechanism through reviewing theinternal special audit report on the Company's various core businesses preparedby internal audit department on a quarterly basis. During the year, the AuditCommittee focused on the compliance of regulatory guidelines by the Company'ssecurities business, as well as compliance with the Company's importantmanagement systems. The internal audit department carried out specific auditinto these compliance issues and monitored relevant rectifications, ensuringthe effectiveness of the Company's management systems.During the Period, the directors of the Company had carried out a review on theeffectiveness of the Company's internal control system, covering all materialaspects of internal control, including financial control, operational control,compliance control and risk management functions. There were no major breachesin the internal control system that may have had an impact to shareholders'interests, and the internal control system was deemed to be effective andsufficient.
MANAGEMENT FUNCTIONS
The management functions of the Board and the management are expresslystipulated 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
DIRECTORSEXECUTIVE DIRECTORSMr. CHEN Jisong,born in 1952, is a senior engineer with professional certification. Mr. Chenhas been appointed as the chairman of the Company since March 1, 2009. In 1978,Mr. Chen graduated from Nanjing Institute of Technology. From 1978 to 1982, Mr.Chen served as Deputy Chief then Chief of Division No. 1 under the MunicipalConstruction Department in Hangzhou, Zhejiang Province. From 1982 to 1990, hewas Deputy Manager then Manager of the Municipal Construction Company inHangzhou, 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 Group (the controlling shareholder ofthe Company) since 2005.Mr. ZHAN Xiaozhang, born in 1964, is a senior economist with a bachelor'sdegree in law. In 2005, Mr. Zhan obtained a master's degree in publicadministration from the Business Institute of Zhejiang University. Mr. Zhan hasbeen appointed as an Executive Director and the General Manager of the Companysince March 1, 2009. 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 Communications Group (the controlling shareholder of the Company)from 2006 to 2009.Mr. JIANG Wenyao, born in 1966, is an Executive Director and Deputy GeneralManager of the Company. Mr. Jiang graduated from Zhejiang University, majoringin industrial automation and manufacturing mechanics, and obtained a master'sdegree in engineering. From March 1991 to February 1997, he worked in theEngineering Division, the Planning and Finance Division and the EquipmentDivision of the Zhejiang Provincial Expressway Executive Commission. He joinedthe Company since March 1997, and has served as Deputy Manager of the GeneralDepartment, Manager of the Equipment Department, Manager of the OperationDepartment, Assistant to General Manager and Company Secretary. He has beenserving as Deputy General Manager since March 2003 and Executive Director andDeputy General Manager since March 2006. Mr. Jiang also serves as Director andGeneral Manager at Development Co., and Director at Yuhang Co., bothsubsidiaries of the Company.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. DING Huikang, born in 1955, is an Executive Director and Deputy GeneralManager of the Company. Mr. Ding graduated from Zhejiang Institute ofCommunications majoring in Road and Bridge Engineering and Changsha Instituteof Communications majoring in Economic Law. From 1980 to 1997, Mr. Dingsuccessively held the positions of technician, assistant engineer, engineer,assistant team leader and team leader at No.1 Road Engineering Team of ZhejiangProvince. From 1997 to 2000, he served as General Manager and senior engineerof No. 1 Transportation Engineering Co., Ltd. of Zhejiang TransportationEngineering Construction Group. From 2000 to 2004, he was head of themanagement committee of Zhejiang Ningbo Yongtaiwen Expressway Second PhaseProject. He has been Chairman of Zhejiang Ningbo Yongtaiwen Expressway Co.,Ltd. and Zhejiang Zhoushan Cross-Sea Bridge Co., Ltd. since 2004 and 2006respectively.
NON-EXECUTIVE DIRECTORS
Ms. ZHANG Luyun, born in 1961, is a senior economist and Director and DeputyGeneral Manager of Communications Group (the controlling shareholder of theCompany) 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 Group in December 2001and has been Director and Deputy General Manager since then. Ms. Zhang has beenNon-executive Director of the Company 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.
SUPERVISORS
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 Group (the controlling shareholder of the Company).
SUPERVISOR REPRESENTING EMPLOYEES
Mr. FANG Zhexing, born in 1965, is a Senior Engineer, the SupervisorRepresenting Employees of the Company. Mr. Fang graduated from ZhejiangUniversity where he received a master's degree in engineering in 1991. From1986 to 1988 he was the Assistant Engineer in the Project Management Office ofthe Electric Power and Water Conservancy Bureau in Taizhou. From 1991 until1997, he was the Engineer in the Project Management Office of ZhejiangProvincial Expressway Executive Commission, where he participated in theproject management of Shanghai-Hangzhou-Ningbo Expressway. Since March 1997, hehas served as the Deputy Manager and the Manager of the Planning andDevelopment Department, the Manager of the Project Development Department, theDirector of Quality Management Office, the Director of Internal AuditDepartment of the Company and the Manager of the Human Resources Department.Mr. Fang is currently the Director of Disciplinary Committee and is also theChairman of Jiaxing Co., and director of Jinhua Co..
INDEPENDENT SUPERVISORS
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.Mr. LIU Haisheng, born in 1969, is a professor. He obtained a doctorate degreein Economics from Fudan University, a postdoctoral fellow in Accounting atXiamen University. He is currently Professor in Accounting, a master studentsupervisor, a Certified Public Accountant (non-practicing) in the PRC, a memberof the Expert Consultancy Committee of Accounting Standards in ZhejiangProvince, an Assessment Expert on Financial Expenditures Performance ofZhejiang Province, an executive member of the Zhejiang Association of CertifiedFinancial Officers and Independent Supervisor of the Company. He is currently aVice Dean of the School of Finance and Accounting at Zhejiang GongshangUniversity. His main research fields include accounting for intangible assets,strategic cost management and economic theories. Mr. LIU is also independentdirector of Ningbo Thermal Power Co., Ltd, Zhejiang Qianjiang Motorcycle Co.,Ltd and Zhejiang Enjoyor Electronics Co., Ltd.
OTHER SENIOR MANAGEMENT MEMBER
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, 2010.
PRINCIPAL ACTIVITIESThe principal activities of the Group comprise the operation, maintenance andmanagement of high grade roads, development and operation of certain ancillaryservices, such as advertising, automobile servicing and fuel facilities, aswell as provision of security broking service and proprietary securitiestrading.
SEGMENT INFORMATION
During the year, the entire revenue and segment profit of the Group were derived from the People's Republic of China ("PRC"). Accordingly, a further analysis of the revenue and segment profit by geographical area is not presented. An analysis of the Group's revenue and segment profit by principal activity for the year ended December 31, 2010 is set out in note 7 to the financial statements.
RESULTS AND DIVIDENDS
The Group's profit for the year ended December 31, 2010 and the state of financial position at that date are set out in the financial statements on pages 49 to 123.
An interim dividend of Rmb0.06 per share (approximately HK$0.07) was paid onNovember 18, 2010. The Directors recommend the payment of a final dividend ofRmb0.25 (approximately HK$0.29) in respect of the year, to shareholders whosenames appeared on the register of members of the Company on April 14, 2011.This recommendation has been incorporated in the financial statements as anallocation of retained earnings within the capital and reserves section in theconsolidated statement of financial position. The dividend payout ratio reached71.9% during the Period. Further details of the dividends are set out in note16 to the financial statements.
FIVE YEAR SUMMARY FINANCIAL INFORMATION
The following is a summary of the published consolidated results, and of the assets, liabilities and non-controlling interests of the Group prepared on the basis set out in the notes below.
Year ended December 31, 2010 2009 2008 2007 2006 Results Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 (Restated) (Restated) REVENUE 6,769,064 6,036,294 6,323,470 7,030,380 4,763,780
Operating costs (3,760,494) (3,145,294) (3,133,244) (3,089,133) (2,076,670)
Gross profit 3,008,570 2,891,000 3,190,226 3,941,247 2,687,110 Security 126,532 35,967 (316,213) 475,828 80,421investment income (loss) Other income 199,791 426,280 211,420 134,607 123,531 Administrative (83,189) (69,845) (70,003) (81,089) (71,022)expenses Other expenses (21,904) (133,640) (38,947) (93,259) (32,901) Finance costs (120,979) (62,724) (76,809) (60,552) (71,991) Share of profit 2,453 (24,164) 10,659 (4,655) 4,435(loss) of associates Share of profit of a jointly -- 21,254 23,746 20,406 23,344controlled entity PROFIT BEFORE 3,111,274 3,084,128 2,934,079 4,332,533 2,742,927TAX INCOME TAX (798,785) (804,055) (668,928) (1,191,638) (884,036)EXPENSE PROFIT FOR THE 2,312,489 2,244,073 2,265,151 3,140,895 1,858,891YEAR Attributable to: Owners of the 1,871,499 1,795,488 1,892,787 2,415,965 1,652,871Company Non-controlling 440,990 448,585 372,364 724,930 206,020interests
EARNINGS PER 43.09 cents 41.34 cents 43.58 cents 55.63 cents 38.06 centsSHARE-BASIC As at December 31, 2010 2009 2008 2007 2006 Assets and Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000liabilities (Restated) (Restated) Total assets 33,652,055 32,402,781 25,287,521 27,512,804 19,570,419 Total (15,956,940) (15,337,927) (8,990,253) (11,748,490) (6,217,967)liabilities Net assets 17,695,115 17,064,854 16,297,268 15,764,314 13,352,452Notes:
1.The consolidated results of the Group for the four years ended December 31, 2009
have been extracted from the Company’s 2009 annual report dated March 30, 2010,
while those of the year ended December 31, 2010 were prepared based on the
consolidated statement of comprehensive income as set out on page 49 of the
financial statements.
2.The 2010 earnings per share is based on the profit attributable to owners of the
Company for the year ended December 31, 2010 of Rmb1,871,499,000
(2009: Rmb1,795,488,000) and the 4,343,114,500 ordinary shares (2009: 4,343,114,500
ordinary shares) in issue during the year.
3. Differences in Financial Statements prepared under PRC GAAP and HKFRSs
Profit for Net assets the year as at December 31, 2010 2009 2010 2009 Rmb'000 Rmb'000 Rmb'000 Rmb'000 As reported in the statutory financial statements of the Group prepared in accordance with PRC 2,321,359 2,257,855 17,926,462 17,287,330GAAP HK GAAP adjustments: (a) Goodwill -- -- (199,769) (199,769) (b) Amortization provided, net of deferred tax (1,952) (13,709) (157,300) (155,348) (c) Assessment on impact of appreciation, net of (3,677) (3,884) 70,427 74,104deferred tax (d) Others -- 3,719 7,228 7,228 (e) Non-controlling (3,241) 92 48,067 51,309interests As restated in the 2,312,489 2,244,073 17,695,115 17,064,854financial statements
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.
RELATED PARTY TRANSACTIONS
During the year, details of the related party transactions that the Company hasentered into with its subsidiary and fellow subsidiary are set out in note 43to the financial statements.PROPERTY, PLANT AND EQUIPMENT
Details of movements in property, plant and equipment of the Group during the year are set out in note 18 to the financial statements.
CAPITAL COMMITMENTS
Details of the capital commitments of the Group as at December 31, 2010 are set out in note 41 to the financial statements.
RESERVES
Details of movements in the reserves of the Group during the year are set outin the consolidated statement of changes in equity on page 52 to the financialstatements.DISTRIBUTABLE RESERVESAs at December 31, 2010, 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 Rmb1,868,794,000. 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, 2010, the Group did not have any trust deposits with any non-bank financial institution in the PRC. All of the Group's deposits have been placed with commercial banks in the PRC and the Group 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 as at the date of this report are:
EXECUTIVE DIRECTORSMr. CHEN Jisong (Chairman)
Mr. ZHAN Xiaozhang (General Manager)
Mr. JIANG Wenyao
Mr. ZHANG Jingzhong
Mr. DING Huikang (Effective since October 18, 2010)
NON-EXECUTIVE DIRECTORS
Ms. ZHANG Luyun
Ms. ZHANG Yang (Resigned on August 28, 2010)
INDEPENDENT NON-EXECUTIVE DIRECTORS
Mr. TUNG Chee ChenMr. ZHANG JunshengMr. ZHANG Liping
CHANGE IN DIRECTORS AND SENIOR MANAGEMENT
At the board meeting held by the Company on August 28, 2010, Ms. ZHANG Yangresigned from her position as Director of the Company due to changes in her jobresponsibilities. Mr. DING Huikang was nominated to be Director and DeputyGeneral Manager of the Company. The appointment of Mr. DING Huikang's ExecutiveDirectorship was subsequently approved by resolutions passed at theextraordinary general meeting of shareholders held on October 18, 2010.
The term of Mr. DING Huikang's Executive Directorship commenced on October 18, 2010 and expires 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 36 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 or the date of appointment, to February 29 , 2012.
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, 2010 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
During the Period, one of the Company's major shareholders, Huajian transferred its all shares to the Company's majority shareholder, Communications Group.
Before the transfer, Huajian and Communications Group held respectively 11%(476,760,000 shares) and 56% (2,432,500,000 shares) shareholding of theCompany. After the transfer, shareholding held by the Communications Groupincreased to 67% (2,909,260,000 shares). The remaining 1,433,854,500 Shares areH Shares, representing approximately 33% of the total issued share capital ofthe Company.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.
TAXATION AND TAX RELIEF
In accordance with the Notice on Taxation of Dividends and Stock (Options)Transfer Income Obtained by Foreign-invested Companies, Foreign Companies andForeign Citizens (Guoshuifa [1993] No.045) published by the StateAdministration of Taxation, foreign individuals holding H Shares are exemptedfrom paying personal income tax for dividends obtained from companiesincorporated in PRC that issue H Shares.As stipulated by the Notice on Issues Relating to Enterprise Income TaxWithholding over Dividends Distributable to Their H-Share Holders Who areOverseas Non-resident Enterprises by Chinese Resident Enterprises published bythe State Administration of Taxation PRC (Guoshuihan [2008] No.897), whenChinese resident enterprises distribute annual dividends for the year 2008 andyears thereafter to their H-Share holders who are overseas non-residententerprises, the enterprise income tax shall be withheld at a uniform rate of10%.
Under current practice of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in respect of dividends paid by the Company.
Shareholders are taxed or enjoy tax relief in accordance with the aforementioned regulations.
AUDITORS
Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong, who had servedas the Company's Hong Kong auditors since 2005, will retire and a resolutionfor their reappointment as Hong Kong auditors of the Company will be proposedat the forthcoming annual general meeting.ON BEHALF OF THE BOARDCHEN JisongChairmanHangzhou, Zhejiang Province, the PRCMarch 13, 2011
Report of the Supervisory Committee
During the financial year 2010 (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 undertaken by the Supervisory Committee during the Period were toassess and supervise lawfulness, legality and appropriateness of the activitiesof the Directors, General Manager and other senior management of the Company intheir business decision-making and daily management processes, through acombination of activities including holding meetings of the SupervisoryCommittee and attending meetings of shareholders and meetings of the Board. TheSupervisory Committee has carefully examined the operating results and thefinancial standing of the Company, and discussed and reviewed the financialstatements to be submitted by the Board to the general meeting.
During the Period, the Supervisory Committee held two meetings of its own, and attended four meetings of the Board and two shareholders' meeting.
The Supervisory Committee observes that during the Period, the Directors,General Manager and other senior management of the Company worked strenuouslyin leading the staff to successfully implement major projects such astoll-by-weight for trucks and security measures for Shanghai World Expo;grasping opportunities and accelerated the development of securities andfutures business while the core expressway business regained growth for thefirst time in three years, with timely initiated major policy reforms in roadmaintenance and employee remunerations.The Supervisory Committee has reviewed the financial statements of the Companyfor 2010 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 2010, and complied with the relevantlaws, regulations and the Company's Articles of Association. The Company keptabsolute dividend payment for the recent years unchanged while its annualresults recorded small single digit growth, thereby keeping the long termdividend payout policy stable.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 11, 2011Independent Auditor's Report
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 49 to 123, which comprise the consolidated statementof financial position as at December 31, 2010, and the consolidated statementof comprehensive income, consolidated statement of changes in equity andconsolidated statement of cash flows for the year then ended, and a summary ofsignificant accounting policies and other explanatory information.
Directors' Responsibility for the Consolidated Financial Statements
The directors of the Company are responsible for the preparation ofconsolidated financial statements that give a true and fair view 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, and for such internal control as the directorsdetermine is necessary to enable the preparation of consolidated financialstatements that are free from material misstatement, whether due to fraud orerror.Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements 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 of theconsolidated financial statements that give a true and fair view in order todesign audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the entity'sinternal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made bythe directors, as well as evaluating the overall presentation of theconsolidated financial 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, 2010, and of theGroup's profit and cash flows for the year then ended in accordance with HongKong Financial Reporting Standards and have been properly prepared inaccordance with the disclosure requirements of the Hong Kong CompaniesOrdinance.Deloitte Touche TohmatsuCertified Public AccountantsHong KongMarch 13, 2011 Consolidated Statement of Comprehensive Income For the Year ended December 31, 2010 NOTES 2010 2009 Rmb'000 Rmb'000 Revenue 7 6,769,064 6,036,294 Operating costs (3,760,494) (3,145,294) Gross profit 3,008,570 2,891,000 Securities investment gains 8 126,532 35,967 Other income 9 199,791 426,280 Administrative expenses (83,189) (69,845) Other expenses (21,904) (133,640) Share of profit (loss) of 2,453 (24,164) associates Share of profit of a -- 21,254 jointly controlled entity Finance costs 10 (120,979) (62,724) Profit before tax 11 3,111,274 3,084,128 Income tax expense 12 (798,785) (840,055) Profit for the year 2,312,489 2,244,073 Other comprehensive (loss) 13 income Available-for-sale financial assets: - Fair value gain during 14,342 34,234 the year - Reclassification adjustments for cumulative gain included in profit (25,052) (13,632) or loss upon disposal Income tax relating to 2,678 (5,150) components of other comprehensive income Other comprehensive (loss) (8,032) 15,452 income for the year (net of tax) Total comprehensive income 2,304,457 2,259,525 for the year Profit for the year attributable to: Owners of the Company 1,871,499 1,795,488 Non-controlling interests 440,990 448,585 2,312,489 2,244,073 Total comprehensive income for the year attributable to: Owners of the Company 1,867,332 1,803,504 Non-controlling interests 437,125 456,021 2,304,457 2,259,525 EARNINGS PER SHARE - Basic 17 Rmb 43.09 cents Rmb 41.34 cents Consolidated Statement of Financial Position At December 31, 2010 NOTES 2010 2009 Rmb'000 Rmb'000 NON-CURRENT ASSETS Property, plant 18 1,120,626 1,035,628 and equipment Prepaid lease 19 71,035 30,342 payments Expressway 20 12,071,497 12,755,338 operating rights Goodwill 21 86,867 86,867 Other intangible 22 155,020 154,819 assets Interests in 24 472,910 435,007 associates Available-for- 25 1,000 1,000 sale investments 13,978,955 14,499,001 CURRENT ASSETS Inventories 17,715 17,342 Trade 26 50,768 50,570 receivables Other 27 953,153 451,167 receivables Prepaid lease 19 2,052 1,421 payments Available-for- 25 71,928 54,704 sale investments Held for trading 28 803,772 517,895 investments Financial assets 29 80,163 -- held under resale agreement Bank balances 30 11,685,951 11,532,284 held on behalf of customers Bank balances and cash - Restricted 31 -- 942 bank balances - Time deposits 31 325,545 228,452 with original maturity over three months - Cash and cash 31 5,682,053 5,049,003 equivalents 19,673,100 17,903,780 CURRENT LIABILITIES Accounts payable 32 11,631,030 11,502,930 to customers arising from securities dealing business Trade payables 33 548,695 647,373 Tax liabilities 450,708 512,551 Other taxes 51,002 30,492 payable Other payables 34 1,049,301 637,665 and accruals Dividends 120,319 18 payable Interest-bearing 35 822,000 478,055 bank and other loans Provisions 36 21,238 122,477 14,694,293 13,931,561 NET CURRENT 4,978,807 3,972,219 ASSETS TOTAL ASSETS 18,957,762 18,471,220 LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest- 35 -- 144,329 bearing bank and other loans Long-term 37 1,000,000 1,000,000 bonds Deferred tax 38 262,647 262,037 liabilities 1,262,647 1,406,366 17,695,115 17,064,854 CAPITAL AND RESERVES Share capital 39 4,343,115 4,343,115 Reserves 10,380,137 9,840,505 Equity 14,723,252 14,183,620 attributable to owners of the Company Non- 2,971,863 2,881,234 controlling interests 17,695,115 17,064,854
The consolidated financial statements on pages 49 to 123 were approved and authorised
for issue by the Board of Directors on March 13, 2011 and are signed on its behalf by: CHEN Jisong ZHAN Xiaozhang DIRECTOR DIRECTORConsolidated Statement of Changes in EquityFor the Year ended December 31, 2010 Attributable to owners of the Company Statutory Investment Share Share reserves revaluation Dividend capital premium (Note) reserve reserve Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
At January 1, 2009 4,343,115 3,645,726 2,116,529 -- 1,042,347
Profit for the year -- -- -- -- -- Other comprehensive income for the -- -- -- 8,016 --year Total comprehensive income for the -- -- -- 8,016 --year Dividend paid to non-controlling -- -- -- -- --interests Interim dividend -- -- -- -- -- Final dividend -- -- -- -- (1,042,347) Proposed final -- -- -- -- 1,085,779dividend Transfer to -- -- 350,482 -- --reserves At December 31, 2009 and January 1, 4,343,115 3,645,726 2,467,011 8,016 1,085,7792010 Profit for the year -- -- -- -- -- Other comprehensive income for the -- -- -- (4,167) --year Total comprehensive income for the -- -- -- (4,167) --year Dividend paid to non-controlling -- -- -- -- -- interests Acquisition of additional interests in -- -- -- -- -- subsidiaries Interim dividend -- -- -- -- -- Final dividend -- -- -- -- (1,085,779) Proposed final -- -- -- -- 1,085,779dividend Transfer to -- -- 260,889 -- --reserves At December 31, 4,343,115 3,645,726 2,727,900 3,849 1,085,7792010 Attributable Non-controlling Total to owners of the Company interests Special Retained reserve profits Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 At January 1, 2009 -- 2,535,333 13,683,050 2,614,218 16,297,268 Profit for the year -- 1,795,488 1,795,488 448,585 2,244,073 Other comprehensive income for the -- -- 8,016 7,436 15,452year Total comprehensive income for the -- 1,795,488 1,803,504 456,021 2,259,525year Dividend paid to non-controlling -- -- -- (189,005) (189,005)interests Interim dividend -- (260,587) (260,587) -- (260,587) Final dividend -- -- (1,042,347) -- (1,042,347) Proposed final -- (1,085,779) -- -- --dividend Transfer to reserves -- (350,482) -- -- -- At December 31, 2009 and January 1, -- 2,633,973 14,183,620 2,881,234 17,064,8542010 Profit for the year -- 1,871,499 1,871,499 440,990 2,312,489 Other comprehensive income for the -- -- (4,167) (3,865) (8,032)year Total comprehensive income for the -- 1,871,499 1,867,332 437,125 2,304,457year Dividend paid to non-controlling -- -- -- (228,950) (228,950)interests Acquisition of additional interests in 18,666 -- 18,666 (117,546) (98,880)subsidiaries Interim dividend -- (260,587) (260,587) -- (260,587) Final dividend -- -- (1,085,779) -- (1,085,779) Proposed final -- (1,085,779) -- -- --dividend Transfer to reserves -- (260,889) -- -- --
At December 31, 2010 18,666 2,898,217 14,723,252 2,971,863 17,695,115
Note: Statutory reserves comprise:
(a) Statutory surplus reserve
In accordance with the Company Law of the People’s Republic of China (the “PRCâ€)and the respective articles of association of the Company and its subsidiaries(collectively the “Entitiesâ€), the Entities are required to allocate 10% of theprofit after tax, as determined in accordance with the PRC accounting standardsand regulations applicable to the Entities, to the statutory surplus reserve untilsuch reserve reaches 50% of the registered capital of the respective Entities.Subject to certain restrictions set out in the Company Law of the PRC and therespective articles of association of the Entities, part of the statutory surplusreserve may be converted to increase the respective Entities’ capital.
(b) General risk reserve
In accordance with the Finance Regulation for Financial Enterprises, securitiescompanies are required to allocate 10% of the profit after tax, as determined inaccordance with the PRC accounting standards and regulations, to the general riskreserve. This general risk reserve may be used to cover potential losses on
riskexposures.(c) Transaction risk reserveIn accordance with the Securities Law of the PRC, securities companies are required to allocate not less than 10% of the profit after tax, as determined in accordancewith the PRC accounting standards and regulations, to the transaction risk reserve.This transaction risk reserve may be used to cover potential losses on securitiestransactions. Consolidated Statement of Cash Flows For the Year ended December 31, 2010 NOTE 2010 2009 Rmb'000 Rmb'000 OPERATING ACTIVITIES Profit before tax 3,111,274 3,084,128 Adjustments for: Finance costs 120,979 62,724 Interest income (56,414) (30,727)
Share of (profit) loss of associates (2,453)
24,164
Share of profit of a jointly controlled entity -- (21,254)
Depreciation of property, plant and equipment 134,794 122,774
Amortisation of expressway operating rights 691,332 676,220
Amortisation of prepaid lease payments 2,039
1,265
Amortisation of other intangible assets 12,706
13,438
Impairments loss on interest in an associate --
9,298
Gain on disposal of available-for-sale (25,052)
(13,632)
investments
Gain on fair value changes on held for trading (101,480) (22,335)
investments Loss on disposal of property, plant and equipment 3,753
33,072
Loss on written off of expressway operating 142
--
rights
Gain on disposal of a jointly controlled entity -- (274,494)
Operating cash flows before movements in working 3,891,620 3,664,641
capital Increase in inventories (373)
(1,039)
(Increase) decrease in trade receivables (198)
25,429
Increase in other receivables (43,466)
(23,129)
Increase in held for trading investments (184,397)
(247,973)
Increase in bank balances held on behalf of (153,667) (5,889,092)
customers Increase in accounts payable to customers arising from securities dealing business 128,100
5,895,457
(Decrease) increase in trade payables (98,678)
232,277
Increase (decrease) in other taxes payable 20,510
(2,268)
Increase in other payables and accruals 73,282
99,903
(Decrease) increase in provisions (101,239)
88,613
Cash generated from operations 3,531,494 3,842,819 Income taxes paid (860,018) (785,613) Interest paid (120,979) (62,724) NET CASH FROM OPERATING ACTIVITIES 2,550,497 2,994,482 INVESTING ACTIVITIES Interest received 37,894 31,694
Dividends received from associates 13,000
42
Proceeds on disposal of property, plant and 27,043 3,834
equipment Proceeds on disposal of a jointly controlled -- 252,000 entity
Repayment of entrusted loan from a related party 120,000 --
Entrusted loans to a related party (500,000)
(120,000)
Entrusted loan to a third party (60,000)
--
Purchases of property, plant and equipment (250,588) (164,060)
Prepaid lease payments for land use rights (43,363) (1,324)
Addition in expressway operating rights (7,633)
(507,581)
Purchases of intangible assets (12,907)
(10,192)
(Increase) decrease in available-for-sale (204)
2,381
investments Increase in financial assets held under resale (80,163) -- agreement Decrease in structured deposit --
200,000
(Increase) decrease in time deposits (97,093)
55,616
Decrease in restricted bank balances 942
34,058
Investments in associates (48,450)
(4,249
NET CASH USED IN INVESTING ACTIVITIES (901,522)
(227,781
FINANCING ACTIVITIES Acquisition of additional interest in subsidiaries (98,880) -- Prepayment from non-controlling shareholders 338,354 -- Dividends paid (1,226,065)
(1,336,304)
Dividends paid to non-controlling shareholders (228,950) (130,959)
New bank loans raised 822,000)
200,000)
Repayment of bank and other loans (622,384)
(187,380)
NET CASH USED IN FINANCING ACTIVITIES (1,015,925)
(1,454,643)
NET INCREASE IN CASH AND CASH EQUIVALENTS 633,050
1,312,058
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,049,003 3,736,945
CASH AND CASH EQUIVALENTS AT END OF YEAR 31 5,682,053 5,049,003
Notes to the Consolidated Financial Statements
For the year ended December 31, 2010
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 of the Company is Zhejiang Communications Investment Group Co., Ltd. (the "Communications Group"), a state-owned enterprise established in the PRC.
The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information section of the annual report.
The consolidated financial statements are presented in Renminbi ("Rmb"), which is also the functional currency of the Company.
The Company is an investment holding company. The Company and its subsidiaries(collectively referred as the "Group") is involved in the following principalactivities:
(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")
New and revised Standards and Interpretations applied in the current year
In the current year, the Group has applied the following new and revised standards and interpretations issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA").
HKFRS 2 (Amendments) Group Cash-settled Share-based Payment TransactionsHKFRS 3 (as revised in 2008) Business CombinationsHKAS 27 (as revised in 2008) Consolidated and Separate Financial StatementsHKAS 39 (Amendments) Eligible Hedged ItemsHKFRSs (Amendments) Improvements to HKFRSs issued in 2009HKFRSs (Amendments) Amendments to HKFRS 5 as part of Improvements to HKFRSs issued in 2008 HK(IFRIC) - Int 17 Distributions of Non-cash Assets to OwnersHK - Int 5 Presentation of Financial Statements - Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause
Except as described below, the application of the new and revised standards and interpretations in the current year has had no material effect on the consolidated financial statements of the Group.
Amendments to HKAS 17 Leases
As part of Improvements to HKFRSs issued in 2009, HKAS 17 Leases has beenamended in relation to the classification of leasehold land. Before theamendments to HKAS 17, the Group was required to classify leasehold land asoperating leases and to present leasehold land as prepaid lease payments in theconsolidated statement of financial position. The amendments to HKAS 17 haveremoved such a requirement. The amendments require that the classification ofleasehold land should be based on the general principles set out in HKAS 17,that is, whether or not substantially all the risks and rewards incidental toownership of a leased asset have been transferred to the lessee.In accordance with the transitional provisions set out in the amendments toHKAS 17, the Group reassessed the classification of unexpired leasehold land asat January 1, 2010 based on information that existed at the inception of theleases. The application of the amendments to HKAS 17 has had no impact on theconsolidated financial statements of the Group and therefore no adjustment isrequired.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ("HKFRSs") (Continued)
HKAS 27 (as revised in 2008) Consolidated and Separate Financial Statements
The Group has applied HKAS 27 (as revised in 2008) for changes in ownership interests in existing subsidiaries of the Group in the current year.
Specifically, the revised Standard has affected the Group's accounting policiesregarding changes in the Group's ownership interests in its subsidiaries thatdo not result in loss of control. Under HKAS 27 (as revised in 2008), all suchincreases or decreases are dealt with in equity, with no impact on goodwill orprofit or loss. These changes have been applied prospectively from January 1,2010 in accordance with the relevant transitional provisions.The application of the revised Standard has affected the accounting for theGroup's acquisition of additional equity interest in subsidiaries, ZhejiangExpressway Investment Development Co., Ltd. ("Development Co") and ZhejiangExpressway Vehicle Towing and Rescue Service Co., Ltd. ("Service Co"), in thecurrent year. The change in policy has resulted in the difference ofRmb18,666,000 between the consideration paid of Rmb98,880,000 and thenon-controlling interests recognised of Rmb117,546,000 being recogniseddirectly in equity, instead of in profit or loss. Therefore, the change inaccounting policy has resulted in a decrease in the profit for the year ofRmb18,666,000 and a decrease in the basic earnings per share for the year ofRmb0.4 cents. In addition, the cash consideration paid in the current year ofRmb98,880,000 has been included in cash flows used in financing activities.
New and revised Standards and Interpretations issued but not yet effective
The Group has not early applied the following new and revised standards and interpretations that have been issued but are not yet effective:
HKFRSs (Amendments) Improvements to HKFRSs issued in 2010 (1)HKFRS 7 (Amendments) Disclosures - Transfers of Financial Assets (3)HKFRS 9 Financial Instruments (4)HKAS 12 (Amendments) Deferred Tax: Recovery of Underlying Assets (5)HKAS 32 (Amendments) Classification of Rights Issues (7)HK (IFRIC) - Int 14 (Amendments) Prepayments of a Minimum Funding Requirement (6)HK (IFRIC) - Int 19 Extinguishing Financial Liabilities with Equity Instruments (2)
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ("HKFRSs") (Continued)
New and revised Standards and Interpretations issued but not yet effective (Continued)
1 Effective for annual periods beginning on or after July 1, 2010 or January 1,
2011, as appropriate.
2 Effective for annual periods beginning on or after July 1, 2010.
3 Effective for annual periods beginning on or after January 1, 2011.
4 Effective for annual periods beginning on or after January 1, 2013.
5 Effective for annual periods beginning on or after January 1, 2012.
6 Effective for annual periods beginning on or after January 1, 2011.
7 Effective for annual periods beginning on or after February 1, 2010.
HKFRS 9 Financial Instruments (as issued in November 2009) introduces new requirements for the classification and measurement of financial assets. HKFRS 9 Financial Instruments (as revised in November 2010) adds requirements for financial liabilities and for derecognition.
* Under HKFRS 9, all recognised financial assets that are within the scope of
HKAS 39 Financial Instruments: Recognition and Measurement are subsequently
measured at either amortised cost or fair value. Specifically, debt investments
that are held within a business model whose objective is to collect the
contractual cash flows, and that have contractual cash flows that are solely
payments of principal and interest on the principal outstanding are generally
measured at amortised cost at the end of subsequent accounting periods. All
other debt investments and equity investments are measured at their fair values
at the end of subsequent accounting periods.
* In relation to financial liabilities, the significant change relates to
financial liabilities that are designated as at fair value through profit or
loss. Specifically, under HKFRS 9, for financial liabilities that are
designated as at fair value through profit or loss, the amount of change in the
fair value of the financial liability that is attributable to changes in the
credit risk of that liability is presented in other comprehensive income,
unless the presentation of the effects of changes in the liability's credit
risk in other comprehensive income would create or enlarge an accounting
mismatch in profit or loss. Changes in fair value attributable to a financial
liability's credit risk are not subsequently reclassified to profit or loss.
Previously, under HKAS 39, the entire amount of the change in the fair value of
the financial liability designated as at fair value through profit or loss was
presented in profit or loss.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ("HKFRSs") (Continued)
New and revised Standards and Interpretations issued but not yet effective (Continued)
HKFRS 9 is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted.
The directors anticipate that HKFRS 9 will be adopted in the Group'sconsolidated financial statements for financial year ending December 31, 2013and that the application of the new Standard will affect the classification andmeasurement of the Group's available-for-sale investments and may affect theclassification and measurement of the Group's other financial assets but not onthe Group's financial liabilities.
3. SIGNIFICANT ACCOUNTING POLICIES
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 of HongKong Limited and by the Hong Kong Companies Ordinance.The consolidated financial statements have been prepared on the historical costbasis except for certain financial instruments that are measured at fairvalues, as explained in the accounting policies set out below. Historical costis generally based on the fair value of the consideration given in exchange forgoods.
The principal accounting policies are set out below.
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 statement of comprehensive income from the effective date of acquisition and 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.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of consolidation (Continued)
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Non-controlling interests in subsidiaries are presented separately from the Group's equity therein.
Allocation of total comprehensive income to non-controlling interests
Total comprehensive income and expense of a subsidiary is attributed to theowners of the Company and to the non-controlling interests even if this resultsin the non-controlling interests having a deficit balance. Prior to January 1,2010, losses applicable to the non-controlling interests in excess of thenon-controlling interests in the subsidiary's equity were allocated against theinterests of the Group except to the extent that the non-controlling interestshad a binding obligation and were able to make an additional investment tocover the losses.
Changes in the Group's ownership interests in existing subsidiaries
Changes in the Group's ownership interests in subsidiaries that do not resultin the Group losing control over the subsidiaries are accounted for as equitytransactions. The carrying amounts of the Group's interests and thenon-controlling interests are adjusted to reflect the changes in their relativeinterests in the subsidiaries. Any difference between the amount by which thenon-controlling interests are adjusted and the fair value of the considerationpaid or received is recognised directly in equity and attributed to owners ofthe Company.Goodwill
Goodwill arising on acquisitions prior to January 1, 2001
Goodwill arising on acquisitions of net assets and operations of another entityprior to January 1, 2001 continues to be held in reserves, and will be chargedto the retained profits at the time when the business to which the goodwillrelates is disposed of or when a cash-generating unit to which the goodwillrelates becomes impaired.
Goodwill arising on acquisitions on or after January 1, 2001
Goodwill arising on an acquisition of a business is carried at cost less any accumulated impairment losses, if any, and is presented separately in the consolidated statement of financial position.
For the purposes of impairment testing, goodwill is allocated to each of thecash-generating units (or groups of cash-generating units) that is expected tobenefit from the synergies of the combination.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill (Continued)
A cash-generating unit to which goodwill has been allocated is tested forimpairment annually, or more frequently whenever there is indication that theunit may be impaired. For goodwill arising on an acquisition in a reportingperiod, the cash-generating unit to which goodwill has been allocated is testedfor impairment before the end of that reporting period. If the recoverableamount of the cash-generating unit is less than the carrying amount of theunit, the impairment loss is allocated first to reduce the carrying amount ofany goodwill allocated to the unit and then to the other assets of the unit prorata on the basis of the carrying amount of each asset in the unit. Anyimpairment loss for goodwill is recognised directly in profit or loss in theconsolidated statement of comprehensive income. An impairment loss recognisedfor goodwill is not reversed in subsequent periods.On disposal of the relevant cash-generating unit, the attributable amount ofgoodwill is included in the determination of the amount of profit or loss ondisposal.Investments in associates
An associate is an entity over which the investor has significant influence andthat is neither a subsidiary nor an interest in a joint venture. Significantinfluence is the power to participate in the financial and operating policydecisions of the investee but is not control or joint control over thosepolicies.The results and assets and liabilities of associates are incorporated in theseconsolidated financial statements using the equity method of accounting. Underthe equity method, investments in associates are initially recognised in theconsolidated statement of financial position at cost and adjusted thereafter torecognise the Group's share of the profit or loss and other comprehensiveincome of the associates. When the Group's share of losses of an associateequals or exceeds its interest in that associate (which includes any long-terminterests that, in substance, form part of the Group's net investment in theassociate), the Group discontinues recognising its share of further losses.Additional losses are recognised only to the extent that the Group has incurredlegal or constructive obligations or made payments on behalf of that associate.Any excess of the cost of acquisition over the Group's share of the net fairvalue of the identifiable assets, liabilities and contingent liabilities of anassociate recognised at the date of acquisition is recognised as goodwill,which is included within the carrying amount of the investment.
Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in associates (Continued)
The requirements of HKAS 39 are applied to determine whether it is necessary torecognise any impairment loss with respect to the Group's investment in anassociate. When necessary, the entire carrying amount of the investment(including goodwill) is tested for impairment in accordance with HKAS 36Impairment of Assets as a single asset by comparing its recoverable amount(higher of value in use and fair value less costs to sell) with its carryingamount, Any impairment loss recognised forms part of the carrying amount of theinvestment. Any reversal of that impairment loss is recognised in accordancewith HKAS 36 to the extent that the recoverable amount of the investmentsubsequently increases.
When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group' consolidated financial statements only to the extent of interests in the associate that are not related to the Group.
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 initially recognised in the consolidated statement of financialposition at cost and adjusted thereafter to recognise the Group's share of theprofit or loss and other comprehensive income of the jointly controlledentities. When the Group's share of losses of a jointly controlled entityequals or exceeds its interest in that jointly controlled entity (whichincludes any long-term interests that, in substance, form part of the Group'snet investment in the jointly controlled entity), the Group discontinuesrecognising its share of further losses. Additional losses are recognised onlyto the extent that the Group has incurred legal or constructive obligations ormade payments on behalf of that jointly controlled entity.Any excess of the cost of acquisition over the Group's share of the net fairvalue of the identifiable assets, liabilities and contingent liabilities of ajointly controlled entity recognised at the date of acquisition is recognisedas goodwill, which is included within the carrying amount of the investment.
Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in jointly controlled entities (Continued)
The requirements of HKAS 39 are applied to determine whether it is necessary torecognise any impairment loss with respect to the Group's investment in ajointly controlled entity. When necessary, the entire carrying amount of theinvestment (including goodwill) is tested for impairment in accordance withHKAS 36 Impairment of Assets as a single asset by comparing its recoverableamount (higher of value in use and fair value less costs to sell) with itscarrying amount. Any impairment loss recognised forms part of the carryingamount of the investment. Any reversal of that impairment loss is recognised inaccordance with HKAS 36 to the extent that the recoverable amount of theinvestment subsequently increases.When a group entity transacts with its jointly controlled entity, profits andlosses resulting from the transactions with the jointly controlled entity arerecognised in the Group' consolidated financial statements only to the extentof interests in the jointly controlled entity that are not related to theGroup.
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 sales related taxes.
Toll income from the operation of tolled roads is recognised when the tolls are received or become receivable.
Revenue from sale of goods is recognised when goods are delivered and title has passed.
Service income, including advertising 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 on initial recognition.
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 including leasehold land and building held foruse in supply of goods and services, or for administrative purposes (propertiesunder construction as described below) are stated at cost less subsequentaccumulated depreciation and accumulated impairment losses, if any.Depreciation is recognised so as to write off the cost of items of property,plant and equipment other than properties under construction less theirresidual values over their estimated useful lives, using the straight-linemethod, at the following rates per annum. The estimated useful lives, residualvalues and depreciation method are reviewed at the end of each reportingperiod, with the effect of any changes in estimate accounted for on aprospective basis. Annual Estimated depreciation useful life rate Leasehold land and buildings 30-50 years
1.9%-3.2%
Ancillary facilities 10-30 years
3.2%-9%
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% Properties in the course of construction for production, supply oradministrative purposes are carried at cost, less any recognised impairmentloss. Costs include professional fees and, for qualifying assets, borrowingcosts capitalised in accordance with the Group's accounting policy. Suchproperties are classified to the appropriate categories of property, plant andequipment when completed and ready for intended use. Depreciation of theseassets, on the same basis as other property assets, commences when the assetsare 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 the disposal or retirement of an item ofproperty, plant and equipment is determined as the difference between the salesproceeds and the carrying amount of the asset and is recognised in profit orloss.
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 profit or loss in the period when the asset isderecognised.
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 recognised 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 over their expected useful lives in the remaining concession period 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 the end of the reporting period, the Group reviews the carrying amounts ofits tangible and intangible assets to determine whether there is any indicationthat these assets have suffered an impairment loss. If any such indicationexists, the recoverable amount of the asset is estimated in order to determinethe extent of the impairment loss, if any. In addition, intangible assets withindefinite useful lives are tested for impairment annually, and whenever thereis an indication that they may be impaired. If the recoverable amount of anasset is estimated to be less than its carrying amount, the carrying amount ofthe asset is reduced to its recoverable amount. An impairment loss isrecognised 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 profit or loss on a straight-line basis over the term of the relevant lease.
The Group as lessee
Operating lease payments are recognised as expense on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leasing(Continued)
Leasehold land and building
When a lease includes both land and building elements, the Group assesses theclassification of each element as a finance or an operating lease separatelybased on the assessment as to whether substantially all the risks and rewardsincidental to ownership of each element have been transferred to the Group.Specifically, the minimum lease payments (including any lump-sum upfrontpayments) are allocated between the land and the building elements inproportion to the relative fair values of the leasehold interests in the landelement and building element of the lease at the inception of the lease.For a leasehold land which are classified as operating lease, whilst thebuilding element is classified as finance lease, interest in the leasehold landis presented as "prepaid lease payments" in the consolidated statement offinancial position and is amortised over the lease term on a straight-linebasis to the extent the allocation of the lease payments can be made reliably.When the lease payments cannot be allocated reliably between the land andbuilding elements, the entire lease is generally classified as a finance leaseand accounted for as property, plant and equipment, unless it is clear thatboth elements are operating leases, in which case the entire lease isclassified as an operating lease.
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 theend of the reporting period, monetary items denominated in foreign currenciesare retranslated at the rates prevailing at that date. Non-monetary items thatare measured in terms of historical cost in a foreign currency are notretranslated.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.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take asubstantial period of time to get ready for their intended use or sale, areadded to the cost of those assets until such time as 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.
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 statement ofcomprehensive income because it excludes items of income or expense that aretaxable or deductible in other years and it further excludes items that arenever taxable or deductible. The Group's liability for current tax iscalculated using tax rates that have been enacted or substantively enacted bythe end of the reporting period.Deferred tax is recognised on temporary differences between the carryingamounts of assets and liabilities in the consolidated financial statements andthe corresponding tax base used in the computation of taxable profit. Deferredtax liabilities are generally recognised for all taxable temporary differences.Deferred tax assets are generally recognised for all deductible temporarydifference to the extent that it is probable that taxable profits will beavailable against which those deductible temporary differences can be utilised.Such assets and liabilities are not recognised if the temporary differencearises from goodwill or from the initial recognition (other than in a businesscombination) of other assets and liabilities in a transaction that affectsneither the taxable profit nor the accounting profit.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Taxation (Continued)
Deferred tax liabilities are recognised for taxable temporary differencesassociated with investments in subsidiaries and associates, and interests injoint ventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. Deferred tax assets arising from deductibletemporary differences associated with such investments and interests are onlyrecognised to the extent that it is probable that there will be sufficienttaxable profits against which to utilise the benefits of the temporarydifferences and they are expected to reverse in the foreseeable future.The carrying amount of deferred tax assets is reviewed at the end of thereporting period and reduced to the extent that it is no longer probable thatsufficient taxable profits will be available to allow all or part of the assetto be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the taxconsequences that would follow from the manner in which the Group expects, atthe end of the reporting period, to recover or settle the carrying amount ofits assets and liabilities. Deferred tax is recognised in profit or loss,except when it relates to items that are recognised in other comprehensiveincome or directly in equity, in which case the deferred tax is also recognisedin other comprehensive income or directly in equity respectively.
Financial instruments
Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fairvalue. Transaction costs that are directly attributable to the acquisition orissue of financial assets and financial liabilities (other than financialassets or financial liabilities at fair value through profit or loss) are addedto or deducted from the fair value of the financial assets or financialliabilities, as appropriate, on initial recognition. Transaction costs directlyattributable to the acquisition of financial assets or financial liabilities atfair value through profit or loss are recognised immediately in profit or loss.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial instruments (Continued)
Financial assets
The 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 to the net carrying amount on initialrecognition.
Interest Income is recognised on an effective interest basis for debt instruments other than those financial assets classified 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. Subsequent toinitial recognition, loans and receivables (including trade receivables, otherreceivables, bank balances, financial assets held under resale agreement andbalances held on behalf of customers) are carried at amortised cost using theeffective interest method, less any identified impairment losses (seeaccounting policy on impairment losses on financial assets below).Financial assets held under resale agreements are transactions where the Groupacquires financial assets which will be resold at a predetermined price at afuture date under resale agreements. The cash advanced is recognised as amountsheld under agreements in the consolidated statement of financial position.Assets held under resale agreements are not recognised. The difference betweenthe purchase and resale consideration is amortised over the period of therespective agreements using the effective interest method and is included ininterest income.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial instruments (Continued)
Financial assets (Continued)
Effective interest method (Continued)
Financial assets at fair value through profit or loss
Financial asset at FVTPL include financial assets held for trading and structured deposits with embedded derivatives.
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.
Financial assets at FVTPL are measured at fair value, with changes in fairvalue arising from remeasurement recognised directly in profit or loss in theperiod in which they arise. The net gain or loss in profit or loss includes anydividend or interest earned on the financial 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.
Available-for-sale financial assets are measured at fair value at the end ofeach reporting period. Changes in fair value are recognised in othercomprehensive income and accumulated in investment revaluation reserve, untilthe financial asset is disposed of or is determined to be impaired, at whichtime, the cumulative gain or loss previously accumulated in the investmentrevaluation reserve is reclassified to profit or loss (see accounting policy onimpairment loss on financial assets below).
For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at the end of the reporting period (see accounting policy on impairment loss on financial assets below).
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial instruments (Continued)
Financial assets (Continued)
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators ofimpairment at the end of the reporting period. Financial assets are impairedwhere there is objective evidence that, as a result of one or more events thatoccurred after the initial recognition of the financial asset, the estimatedfuture cash flows of the financial assets have been affected.
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,where the carrying amount is reduced through the use of an allowance account.Changes in the carrying amount of the allowance account are recognised inprofit or loss. When a trade receivable is considered uncollectible, it iswritten off against the allowance account. Subsequent recoveries of amountspreviously written off are credited to profit or loss.
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial instruments (Continued)
Financial assets (Continued)
Impairment of financial assets (Continued)
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 other comprehensive income andaccumulated in investment revaluation reserve.
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 the assets of the Group after deducting all of its liabilities.
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 customersarising from securities dealing business, other payables, dividends payable,interest-bearing bank and other loans, and long-term bonds are subsequentlymeasured at amortised 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.
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 in its entirety, the difference betweenthe asset's carrying amount and the sum of the consideration received andreceivable and the cumulative gain or loss that had been recognised in othercomprehensive income and accumulated in 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 best estimate of theconsideration required to settle the present obligation at the end of thereporting period, taking into account the risks and uncertainties surroundingthe obligation. Where a provision is measured using the cash flows estimated tosettle the present obligation, its carrying amount is the present value ofthose cash flows (where the effect is material).
4. KEY SOURCES OF ESTIMATION UNCERTAINTY
The following is the key assumptions concerning the future, and key sources ofestimation uncertainty at the end of the reporting period, that have asignificant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year.
Estimated impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value inuse of the cash-generating units to which goodwill has been allocated. Thevalue in use calculation requires the Group to estimate the future cash flowsexpected to arise from the cash-generating units and a suitable discount ratein order to calculate the present value. Where the actual future cash flows areless than expected, a material impairment loss may arise. As at December 31,2010, the carrying amount of goodwill is Rmb86,867,000 (2009: Rmb86,867,000).Details of the recoverable amount calculation are disclosed in Note 23.
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, 2010,the carrying amounts of intangible assets with indefinite useful lives wereRmb66,563,000 (2009: Rmb66,563,000). Details of the recoverable amountcalculation are disclosed in Note 23.
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. At December 31, 2010, the Group has made provision against litigationand guarantee of Rmb21,238,000 (2009: Rmb122,477,000). During the year endedDecember 31, 2010, the Group has reversed the overprovision in prior yearsamounted to Rmb13,426,000 (2009: nil). Details of the provision are disclosedin Note 36.5. FINANCIAL INSTRUMENTS
(a) Categories of financial instruments
2010 2009 Rmb'000 Rmb'000 Financial assets
Available-for-sale investments - at cost 1,000
1,000
- at fair value 71,928
54,704
Fair value through profit of loss Held for trading investments 803,772
517,895
Loans and receivables (including cash and cash equivalents) 18,724,410 17,257,635 Financial liabilities Amortised cost 14,505,097 14,223,057
(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, financial assetsheld under resale agreement, bank balances, bank balances held on behalf ofcustomers, trade and other payables, accounts payable to customers arising fromsecurities dealing business, interest-bearing bank and other loans andlong-term bonds. Details of these financial instruments are disclosed inrespective notes. The risks associated with these financial instruments includemarket risk (interest rate risk, currency risk and other price risk), creditrisk and liquidity risk. The policies on how to mitigate these risks are setout below. The management manages and monitors these exposures to ensureappropriate measures 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 financial assets held under resale agreement, fixed-rate time deposits, and long-term bonds (see Notes 29, 31 and 37 for details).
The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances held on behalf of customers, bank balances and interest-bearing bank and other loans (see Notes 30, 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 bank and other loans, at the end of the reporting period.The analysis was prepared assuming the balances outstanding at the end of thereporting period were outstanding for the whole year. A 30 basis point increaseor decrease was used based on management's assessment.If interest rates had been 30 basis points (2009: 30 basis points) higher/lowerand all other variables were held constant, the Group's post-tax profit for theyear ended December 31, 2010 would increase/decrease by Rmb38,291,000 (2009:Rmb36,357,000). This was mainly attributable to the Group's exposure tointerest 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
Several subsidiaries of the Company have foreign currency denominated monetary assets and liabilities, which expose the Group to foreign currency risk.
The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities at the end of the reporting period are as follows:
Assets Liabilities 2010 2009 2010 2009 Rmb'000 Rmb'000 Rmb'000 Rmb'000
Hong Kong dollar ("HKD") 20,180 18,954 14,947 14,288
United Sates dollar ("USD") 85,383 81,650 58,718 478,611
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 analysis
The Group is mainly exposed to HKD and USD relative to Rmb.
This sensitivity analysis details the Group's sensitivity to a 5% (2009: 5%)increase and decrease in Rmb against HKD and USD. 5% (2009: 5%) is thesensitivity rate used when reporting foreign currency risk internally to keymanagement personnel. The sensitivity analysis includes only outstandingforeign currency denominated monetary items and adjusts their translation atthe year end for a 5% (2009: 5%) change in foreign currency rates. If Rmb hadstrengthened/weakened 5% against HKD, the Group's post-tax profit for the yearended December 31, 2010 would have decreased/increased by Rmb196,000 (2009:Rmb175,000). If Rmb had strengthened/weakened 5% against USD, the Group'spost-tax profit for the year ended December 31, 2010 would have decreased/increased by Rmb1,000,000 (2009: increased/decreased by Rmb14,886,000).
5. FINANCIAL INSTRUMENTS (Continued)
(b) Financial risk management objectives and policies (Continued)
Market risk (Continued)
(iii) Other price risk
The Group is exposed to equity and debt security price risk in relation to 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 end of the reporting period.
If the prices of the respective equity and debt instruments had been 5% (2009: 5%) higher/lower,
* post-tax profit for the year ended December 31, 2010 would increase/decrease
by Rmb30,141,000 (2009: Rmb19,421,000) as a result of the changes in fair value
of held for trading investments; and
* investment valuation reserve would increase/decrease by Rmb2,697,000 (2009:
Rmb2,051,000) as a result of the changes in fair value of available-for-sale
listed investments.Credit riskAs at December 31, 2010, 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 provided by the Group is arising from the carrying amountof the respective recognised financial assets as stated in the consolidatedstatement of financial position.The Group reviews the recoverable amount of each individual trade debt andentrusted loan receivables at the end of the reporting period to ensure thatadequate impairment losses are made for irrecoverable amounts. In this regard,the directors of the Company consider that the Group's credit risk issignificantly reduced.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
5. FINANCIAL INSTRUMENTS (Continued)
(b) Financial risk management objectives and policies (Continued)
Credit risk (Continued)
Other than the concentration of credit risk on certain trade receivables,entrusted loan receivables, corporate bonds and financial assets held underresale agreement amounting to Rmb48,232,000 (2009: Rmb45,140,000),Rmb560,000,000 (2009: Rmb120,000,000), Rmb600,735,000 (2009: Rmb511,344,000)and Rmb80,163,000 (2009: nil) as disclosed in Notes 26, 27, 28 and 29,respectively, the Group does not have any other significant concentration ofcredit risk. The Group's concentration of credit risk by geographical locationis mainly in the PRC.Liquidity risk
Most of the bank balances and cash at December 31, 2010 were denominated in Rmbwhich is not a freely convertible currency in the international market. Theexchange rate of Rmb is regulated 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 itsnon-derivative financial liabilities based on the agreed repayment terms. Thetable has been drawn up based on the undiscounted cash flows of financialliabilities based on the earliest date on which the Group can be required topay. The table includes both interest and principal cash flows. To the extentthat interest flows are floating rate, the undiscounted amount is derived frominterest rate as at the end of the reporting period.5. FINANCIAL INSTRUMENTS (Continued)(b) Financial risk management objectives and policies (Continued)Liquidity tables Weighted average Less than 3 months 1 - 3 - interest 3 months 1 year years rate % Rmb'000 Rmb'000 Rmb'000 2010 Non-derivative financial liabilities Trade payables -- 166,438 382,257 -- Accounts payable to customers arising from securities dealing 0.36 11,641,498 -- --business Other payables -- 503,372 -- -- Bank and other loans - fixed rate 5.38 35,951 448,259 -- - variable 5.45 4,765 363,849 --rate Long-term 4.29 42,900 -- 85,800bonds 12,394,924 1,194,365 85,800 Total Carrying undiscounted amount at 3 - 5 +5 cash flows 31/12/2010 years years Rmb'000 Rmb'000 Rmb'000 Rmb'000 2010 Non-derivative financial liabilities Trade payables -- -- 548,695 548,695 Accounts payable to customers arising from securities dealing -- -- 11,641,498 11,631,030business Other payables -- -- 503,372 503,372 Bank and other loans - fixed rate -- -- 484,210 472,000 - variable -- -- 368,614 350,000rate Long-term 1,042,900 -- 1,171,600 1,000,000bonds 1,042,900 -- 14,717,989 14,505,097 5. FINANCIAL INSTRUMENTS (Continued)(b) Financial risk management objectives and policies (Continued)Liquidity risk (Continued)Liquidity tables (Continued) Weighted average Less than 3 1 - 3 months - interest 3 months 1 year years rate % Rmb'000 Rmb'000 Rmb'000 2009 Non-derivative financial liabilities Trade payables -- 410,900 236,473 -- Accounts payable to customers arising from securities 0.36 11,513,283 -- --dealing business Other payables -- 450,370 -- -- Bank and other loans - fixed rate 5.31 30,133 176,770 -- - variable 2.58 195,734 87,475 146,962rate Long-term bonds 4.29 42,900 -- 85,800 12,643,320 500,718 232,762 Total Carrying undiscounted amount at 3 - 5 +5 cash flows 31/12/2009 years years Rmb'000 Rmb'000 Rmb'000 Rmb'000 2009 Non-derivative financial liabilities Trade payables -- -- 647,373 647,373 Accounts payable to customers arising from securities -- -- 11,513,283 11,502,930dealing business Other payables -- -- 450,370 450,370 Bank and other loans - fixed rate -- -- 206,903 200,000 - variable -- -- 430,171 422,384rate Long-term bonds 1,085,800 -- 1,214,500 1,000,000 1,085,800 -- 14,462,600 14,223,057 The amounts included above for variable interest rate instruments for non-derivativefinancial liabilities is subject to change if changes in variable interest ratesdiffer to those estimates of the interest rates determined at the end of thereporting period.
(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.
5. FINANCIAL INSTRUMENTS (Continued)
(c) Fair value (Continued)
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.
Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
* Level 1 fair value measurements are those derived from quoted prices
(unadjusted) in active market for identical assets or liabilities.
* Level 2 fair value measurements are those derived from inputs other than
quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices).
* Level 3 fair value measurements are those derived from valuation techniques
that include inputs for the asset or liability that are not based on observable
market data (unobservable inputs). 31/12/2010 Level 1 Level 2 Level 3 Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Financial assets at FVTPL
Non-derivative financial assets held for trading 803,772 -- --
803,772
Available-for-sale financial assets
Listed equity securities 71,928 -- -- 71,928 Total 875,700 -- -- 875,700 (c) Fair value (Continued) 31/12/2009 Level 1 Level 2 Level 3 Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Financial assets at FVTPL
Non-derivative financial assets held for trading 517,895 -- --
517,895
Available-for-sale financial assets
Listed equity securities 54,704 -- -- 54,704 Total 572,599 -- -- 572,599
There were no transfers between Level 1 and 2 in the current and prior years.
6. CAPITAL RISK MANAGEMENTThe 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 owners 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
Information reported to the Chief Executive Officer of the Company, being the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses on types of goods or services delivered or provided.
Specifically, the Group's operating and reportable segments under HKFRS 8 are as follows:
(i) Toll operation - the operation and management of high grade roads and the collection of the expressway tolls.
(ii) Service area and advertising businesses - the sale of food, restaurant operation, automobile servicing, operation of petrol stations and design and rental of advertising billboards along the expressways.
(iii) Securities operation - the securities broking and proprietary trading.
Segment revenue and results
The following is an analysis of the Group's revenue and results by operating segment.
For the year ended December 31, 2010
Service area and Toll advertising Securities Total operation businesses operation Segment Elimination Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Revenue External sales 3,475,319 1,715,064 1,578,681 6,769,064 -- 6,769,064 Inter-segment -- 5,798 -- 5,798 (5,798) -- sales Total 3,475,319 1,720,862 1,578,681 6,774,862
(5,798) 6,769,064
Segment 1,594,389 102,920 615,180 2,312,489 2,312,489 profit
7. SEGMENT INFORMATION (Continued)
Segment revenue and results (Continued)
For the year ended December 31, 2009
Service area and Toll advertising Securities Total operation businesses operation Segment Elimination Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Revenue External 3,107,505 1,259,888 1,668,901 6,036,294 -- 6,036,294 sales Inter- -- 1,785 -- 1,785 (1,785) -- segment sales Total 3,107,505 1,261,673 1,668,901 6,038,079 (1,785) 6,036,294 Segment 1,557,013 69,902 617,158 2,244,073 2,244,073 profit The accounting policies of the operating segments are the same as the Group'saccounting policies described in Note 3. Segment profit represents the profitafter tax of each operating segment. This is the measure reported to the chiefoperating decision maker, the Group's Chief Executive Officer, for the purposesof resource allocation and performance assessment.
Inter-segment sales are charged at prevailing market rates.
7. SEGMENT INFORMATION (Continued)
Segment assets and liabilities
The following is an analysis of the Group's assets and liabilities by operating segment at the end of the reporting period:
Segment assets Segment liabilities 2010 2009 2010 2009 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Toll operation 15,411,964 16,130,461 (3,098,340) (2,911,913) Service area 890,656 752,089 (421,751) (353,202) and advertising businesses Securities 17,262,568 15,433,364 (12,436,849) (12,072,812) operation Total segment 33,565,188 32,315,914 (15,956,940) (15,337,927) assets (liabilities) Goodwill 86,867 86,867 -- -- Consolidated 33,652,055 32,402,781 (15,956,940) (15,337,927) assets (liabilities)
Segment assets and segment liabilities represent the assets and liabilities of the subsidiaries operating in the respective operating segment.
7. SEGMENT INFORMATION (Continued)
Other segment information
Amounts included in the measure of segment profit or loss or segment assets: Service area Toll and advertising Securities operation businesses operation Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 For the year ended December 31, 2010 Income tax expense 553,871 25,865 219,049 798,785 Interest income 32,218 24,196 -- 56,414 Interest expense 107,210 13,769 -- 120,979 Interests in associates 214,253 235,298 23,359 472,910 Share of result of (16,079) 24,415 (5,883) 2,453 associates Fair value changes on held for trading investments 6,620 -- 94,860 101,480 Addition to non-current 208,067 11,930 142,944 362,941 assets (Note) Depreciation and 739,955 29,137 71,779 840,871 amortisation Loss (gain) on disposal of property, plant and equipment 7,480 (3,130) (597) 3,753 For the year ended December 31, 2009 Income tax expense 543,669 21,323 275,063 840,055 Interest income 26,413 4,314 -- 30,727 Interest expense 56,613 6,111 -- 62,724 Interests in associates 206,881 223,384 4,742 435,007 Share of result of (27,164) 2,258 742 (24,164) associates Share of result of 21,254 -- -- 21,254 jointly controlled entity Fair value changes on held for trading investments 673 -- 21,662 22,335 Addition to non-current 555,957 37,743 93,706 687,406 assets (Note) Depreciation and 734,564 29,750 49,383 813,697 amortisation Loss on disposal of property, plant and equipment 21,119 689 11,264 33,072
Note: Non-current assets excluded financial instruments.
7. SEGMENT INFORMATION (Continued)
Revenue from major services
An analysis of the Group's revenue, net of discounts and taxes, for the year isas follows: 2010 2009 Rmb'000 Rmb'000 Toll operation revenue 3,475,319 3,107,505 Service area businesses 1,633,628 1,178,318 revenue Advertising business 77,997 77,786 revenue Commission income from 1,352,051 1,498,827 securities operation Interest income from 226,630 170,074 securities operation Others 3,439 3,784 6,769,064 6,036,294 Geographical information
The Group's operations are located in the PRC (country of domicile). All non-current assets of the Group are located in the PRC.
All of the Group's revenue from external customers is attributed to the group entities' country of domicile (i.e. the PRC).
Information about major customers
During the years ended December 31, 2009 and 2010, there are no individual customers with sales of 10% or more of the Group's total sales.
8. SECURITIES INVESTMENT GAINS
2010 2009 Rmb'000 Rmb'000
Gain on fair value changes on held for trading investments 101,480
22,335
Cumulative gain reclassified from equity on disposal of available-for-sale investments 25,052
13,632 126,532 35,967 The above securities investment gains wholly contributed from listedinvestments in both years.9. OTHER INCOME 2010 2009 Rmb'000 Rmb'000 Interest income on bank balances and entrusted 56,278 27,613 loan receivables Rental income 66,369 58,697 Net exchange gain 15,303 547 Handling fee income 23,689 28,644 Towing income 11,056 11,243 Gain on disposal of a jointly controlled entity --
274,494
(Note) Interest income from structured deposit 136 3,114 Others 26,960 21,928 199,791 426,280
Note: On September 10, 2009, the Group entered into an agreement with Hangzhou
Communications Group Co., Ltd ("Hangzhou Communications Group"), a state-owned
enterprise, pursuant to which the Group agreed to sell, and Hangzhou
Communications Group agreed to purchase, the entire 50% interest of the Group
in Hangzhou Shida Expressway Co., Ltd. ("Shida JV"), which was to undertake the
operation of Shiqiao-Dajing expressway, for a consideration of Rmb367,000,000.
The disposal was completed in November 2009 and the gain on disposal of the
jointly controlled entity of Rmb274,494,000 was recognised in the profit or
loss for the year ended December 31, 2009.
10. FINANCE COSTS 2010 2009 Rmb'000 Rmb'000
Interest expenses wholly repayable within 5 years:
Bank loans 14,462 6,111 Other loans 63,617 13,713 Long-term bonds 42,900 42,900 120,979 62,724 11. PROFIT BEFORE TAXThe Group's profit before tax has been arrived at after charging (crediting): 2010 2009 Rmb'000 Rmb'000
Depreciation of property, plant and equipment 134,794 122,774
Amortisation of prepaid lease payments 2,039
1,265
Amortisation of expressway operating rights 691,332
676,220
(included in operating costs)
Amortisation of other intangible assets (included in 12,706 13,438
operating costs) Total depreciation and amortisation 840,871
813,697
Staff costs (including directors and supervisors): - Wages and salaries 483,114
399,663
- Pension scheme contributions 44,857
33,244 527,971 432,907 Auditors' remuneration 7,415 5,408
Loss on disposal of property, plant and equipment 3,753 33,072
Cost of inventories recognised as an expense 1,480,688 1,041,496
Impairment loss on interest in an associate (included in other expenses) --
9,298
(Reversal of) provision for litigation (included in (13,426) 95,660 other expenses) 12. INCOME TAX EXPENSE 2010 2009 Rmb'000 Rmb'000 Current tax: PRC Enterprise Income Tax 794,590 841,722 Deferred tax (Note 38) 4,195 (1,667) 798,785 840,055
Under the Law of the PRC on Enterprise Income Tax (the "EIT Law") and Implementation Regulation of the EIT Law, the tax rate of the Group is 25% from January 1, 2008 onwards.
No Hong Kong Profits Tax has been provided as the Group's income neither arises in, nor is derived from Hong Kong during the year.
The tax charge for the year can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
2010 2009 Rmb'000 Rmb'000 Profit before tax 3,111,274 3,084,128
Tax at the PRC enterprise income tax rate of 25% 777,819 771,032
Tax effect of share of (profit) loss of associates (613) 6,041
Tax effect of share of profit of a jointly --
(5,314)
controlled entity
Tax effect of income not taxable for tax purposes (12) (22)
Tax effect of expenses not deductible for tax
purposes 21,591 68,318 Tax charge for the year 798,785 840,055
13. OTHER COMPREHENSIVE (LOSS) INCOME
Year ended Year ended December December 31, 31, 2010 2009 Tax Tax Before- (expense)Net-of- Before- (expense)Net-of- tax tax tax tax amount benefit amount amount benefit amount Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
Fair value gain on available- for-sale financial assets arising during the 14,342 (3,585) 10,757 34,234
(8,558) 25,676
year Reclassification adjustments for the cumulative gain included in profit or loss upon disposal of available- for-sale financial (25,052) 6,263 (18,789) (13,632)
3,408 (10,224) assets Total (10,710) 2,678 (8,032) 20,602 (5,150) 15,452
14. DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS The emoluments paid or payable to each of the 10 (2009: 11) directors and 6 (2009: 5) supervisors are as follows:
Chen Zhan Zhang Jiang Geng Fang Jisong Xiaozhang Jingzhong Wenyao Xiaoping Yunti @ @ @ @ @ @ RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 (Note i) (Notei) 2010 Salaries, allowances and benefits in 4 458 391 390 -- --kind Bonuses paid -- 220 193 193 -- --and payable Pension scheme -- 15 15 15 -- --contributions Total 4 693 599 598 -- --emoluments 2009 Salaries, allowances and benefits in 3 404 376 361 90 76kind Bonuses paid -- 276 209 224 61 37and payable Pension scheme -- 13 15 15 -- 3contributions Total 3 693 600 600 151 116emoluments Ding Zhang Zhang Tung Zhang Zhang Ma HuiKang Luyun^ Yang^ Chee Junsheng Liping* Kehua# @ Chen* * RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 (Note (Note ii) iii) 2010 Salaries, allowances and benefits in 162 3 2 214 53 214 3kind Bonuses paid 80 -- -- -- -- -- --and payable Pension scheme 6 -- -- -- -- -- --contributions Total 248 3 2 214 53 214 3emoluments 2009 Salaries, allowances and benefits in -- 4 4 222 54 222 3kind Bonuses paid -- -- -- -- -- -- --and payable Pension scheme -- -- -- -- -- -- --contributions Total -- 4 4 222 54 222 3emoluments Fang Zheng Jiang Wu Liu Zhexing Qihua# Shaozhong Yongmin Haisheng Total # # # # RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 (Note (Note iv) v) 2010 Salaries, allowances and benefits in 4 1 2 2 1 1,904kind Bonuses paid -- -- -- -- -- 686and payable Pension scheme -- -- -- -- -- 51contributions Total 4 1 2 2 1 2,641emoluments 2009 Salaries, allowances and benefits in 4 3 3 2 -- 1,831kind Bonuses paid -- -- -- -- -- 807and payable Pension scheme -- -- -- -- -- 46contributions Total 4 3 3 2 -- 2,684emoluments @ Executive directors^ Non-executive directors* Independent non-executive directors# Supervisors
14. DIRECTORS' AND SUPERVISORS' EMOLUMENTS (Continued)
Notes:
(i) Resigned on February 28, 2009.
(ii) Appointed on August 28, 2010.
(iii) Resigned on August 28, 2010.
(iv) Resigned on August 26, 2010.
(v) Appointed on August 26, 2010.
The emoluments of each of the directors and supervisors were below HK$1,000,000(equivalent to Rmb850,900) in both years. Bonuses paid to directors andsupervisors are determined by the Remuneration Committee of the Company, whichcomprises three independent non-executive directors.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.
15. EMPLOYEES' EMOLUMENTS
The emoluments of the five highest paid individuals in the Group are asfollows: 2010 2009 Rmb'000 Rmb'000 Salaries, allowances and benefits in kind 7,640
10,426
Bonuses paid and payable (Note) 14,797
658
Pension scheme contributions 107
57
Incentive paid --
2,500
Compensation for loss of office --
-- 22,544 13,641
Note: The bonuses paid and payable is determined by reference to the
performance of the relevant business of the Group for the two years ended
December 31, 2010 and 2009.
15. EMPLOYEES' EMOLUMENTS (Continued)
The five individuals with the highest emoluments in the Group during the yearincluded no (2009: no) director, whose emoluments are set out in Note 14 above,and five (2009: five) non-director employees.
Their emoluments are within the following bands:
No. of individuals 2010 2009
HK$2,000,001 to HK$2,500,000 (equivalent to Rmb1,702,001 to --
2
Rmb2,127,000) HK$2,500,001 to HK$3,000,000 (equivalent to Rmb2,127,001 to --
2
Rmb2,553,000) HK$3,500,001 to HK$4,000,000 (equivalent to Rmb2,978,001 to 1
--
Rmb3,404,000) HK$4,000,001 to HK$4,500,000 (equivalent to Rmb3,404,001 to 1
--
Rmb3,829,000) HK$4,500,001 to HK$5,000,000 (equivalent to Rmb3,829,001 to 1
1
Rmb4,255,000) HK$5,000,001 to HK$5,500,000 (equivalent to Rmb4,255,001 to 1
--
Rmb4,680,000) HK$8,000,001 to HK$8,500,000 (equivalent to Rmb6,807,001 to 1 -- Rmb7,233,000) 16. DIVIDENDS 2010 2009 Rmb'000 Rmb'000 Dividends recognised as distribution during the year: 2010 Interim - Rmb6 cents (2009: 2009 interim Rmb6 cents) per share 260,587
260,587
2009 Final - Rmb25 cents (2009: 2008 Final Rmb24 cents) per share 1,085,779 1,042,347 1,346,366 1,302,934
The final dividend of Rmb25 cents per share in respect of the year ended December 31, 2010 (2009: final dividend of Rmb25 cents per share in respect of the year ended December 31, 2009) has been proposed by the directors and is subject to approval by the shareholders in the annual general meeting.
17. EARNINGS PER SHARE
The calculation of the basic earnings per share is based on profit for the yearattributable to owners of the Company of Rmb1,871,499,000 (2009:Rmb1,795,488,000) and the 4,343,114,500 (2009: 4,343,114,500) ordinary sharesin issue during the year.
No diluted earnings per share has been presented as there were no potential ordinary shares outstanding for the years ended December 31, 2009 and 2010.
18. PROPERTY, PLANT AND EQUIPMENT
Leasehold Communication land and Ancillary and signalling buildings facilities equipment Rmb'000 Rmb'000 Rmb'000 COST At January 1, 412,966 485,858 266,2362009 Additions 36,559 22,112 39,936 Transfer -- 14,955 -- Disposals (12,491) (21,131) -- At December 31, 2009 and January 437,034 501,794 306,1721, 2010 Additions 51,551 1,052 28,669 Transfer -- 473 -- Disposals -- (36,242) (7,047) At December 488,585 467,077 327,79431, 2010 DEPRECIATION At January 1, 42,561 118,512 187,3722009 Provided for 17,500 24,163 36,635the year Disposals (12,486) (15,727) -- At December 31, 2009 and January 47,575 126,948 224,0071, 2010 Provided for 29,962 22,156 20,718the year Disposals -- (11,364) (5,442) At December 77,537 137,740 239,28331, 2010 CARRYING VALUES At December 411,048 329,337 88,51131, 2010 At December 389,459 374,846 82,16531, 2009 Machinery Motor and Construction vehicles equipment in progress Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 COST At January 1, 173,247 306,273 8,502 1,653,0822009 Additions 11,007 45,580 8,866 164,060 Transfer -- -- (14,955) -- Disposals (6,979) (35,233) -- (75,834) At December 31, 2009 and January 177,275 316,620 2,413 1,741,3081, 2010 Additions 21,653 64,672 82,991 250,588 Transfer -- 330 (803) -- Disposals (3,585) (12,231) -- (59,105)
At December 195,343 369,391 84,601 1,932,791 31, 2010
DEPRECIATION At January 1, 110,924 162,465 -- 621,8342009 Provided for 14,396 30,080 -- 122,774the year Disposals (6,691) (4,024) -- (38,928) At December 31, 2009 and January 118,629 188,521 -- 705,6801, 2010 Provided for 15,972 45,986 -- 134,794the year Disposals (3,422) (8,081 -- (28,309) At December 131,179 226,426 -- 812,16531, 2010 CARRYING VALUES
At December 64,164 142,965 84,601 1,120,626 31, 2010
At December 58,646 128,099 2,413 1,035,628 31, 2009
The property, plant and equipment are mainly located in the PRC.
18. PROPERTY, PLANT AND EQUIPMENT (Continued)
The carrying value of properties shown above comprises:
2010 2009 Rmb'000 Rmb'000
Leasehold land and buildings in the PRC:
Long lease 25,314 25,976 Medium-term lease 385,734 363,483 411,048 389,459 19. PREPAID LEASE PAYMENTS 2010 2009 Rmb'000 Rmb'000
Analysed for reporting purposes as:
Current assets 2,052 1,421 Non-current assets 71,035 30,342 73,087 31,763
The Group's prepaid lease payments comprise leasehold land in the PRC under medium-term leases. The amount represents prepayment of rentals under operating leases for "land use rights" situated in the PRC.
20. EXPRESSWAY OPERATING RIGHTS
Rmb'000 COST At January 1, 2009 16,257,748 Addition 507,581 At December 31, 2009 and January 1, 2010 16,765,329 Addition 7,633 Written off (260) At December 31, 2010 16,772,702 AMORTISATION At January 1, 2009 3,333,771 Charge for the year 676,220 At December 31, 2009 and January 1, 2010 4,009,991 Charge for the year 691,332 Written off (118) At December 31, 2010 4,701,205 CARRYING VALUES At December 31, 2010 12,071,497 At December 31, 2009 12,755,338 The 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.21. GOODWILL Rmb'000 COST AND CARRYING VALUES
At January 1, 2009, December 31, 2009, January 1, 2010 and 86,867
December 31, 2010 Particulars regarding impairment testing on goodwill are disclosed in Note 23.22. OTHER INTANGIBLE ASSETS Securities/ Customer futures Trading Software bases firm licenses seats licenses Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 COST At January 1, 2009 101,147 63,083 3,480 10,069 177,779 Additions -- -- -- 10,192 10,192
At December 31, 2009
and January 1, 2010 101,147 63,083 3,480 20,261 187,971
Additions -- -- -- 12,907
12,907
At December 31, 2010 101,147 63,083 3,480 33,168 200,878
AMORTISATION At January 1, 2009 18,446 -- -- 1,268
19,714
Charge for the year 8,650 -- -- 4,788
13,438
At December 31, 2009 and January 1, 2010 27,096 -- -- 6,056
33,152
Charge for the year 8,253 -- -- 4,453
12,706
At December 31, 2010 35,349 -- -- 10,509
45,858
CARRYING VALUES
At December 31, 2010 65,798 63,083 3,480 22,659 155,020
At December 31, 2009 74,051 63,083 3,480 14,205 154,819
The customer bases of Zheshang Securities Co., Ltd ("Zheshang Securities") andZheshang Futures Broker Co., Ltd (formerly known as Zhejiang Tianma FuturesBroker Co., Ltd) ("Zheshang Futures") are amortised on a straight-line basisover 15 years and 3 years, respectively.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 three to five years.
Particulars of the impairment testing on intangible assets with indefinite useful lives are disclosed in Note 23.
23. IMPAIRMENT TESTING ON GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES
For the purposes of impairment testing, goodwill and other intangible assetswith indefinite useful lives set out in Notes 21 and 22 have been allocated tofour individual cash generating units ("CGUs"), including two subsidiaries intoll operation segment and two subsidiaries in securities operation segment.The carrying amounts of goodwill and other intangible assets (net ofaccumulated impairment losses) as at December 31, 2010 and 2009 allocated tothese units are as follows: Securities /futures Trading Goodwill firm licenses seats 2010 2009 2010 2009 2010 2009 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Toll operation - Zhejiang Jiaxing Expressway 75,137 75,137 -- -- -- -- Co., Ltd. ("Jiaxing Co") - Zhejiang Shangsan Expressway Co., Ltd. ("Shangsan 10,335 10,335 -- -- -- -- Co") Securities operation - Zheshang -- -- 51,783 51,783 2,080 2,080 Securities - Zheshang 1,395 1,395 11,300 11,300 1,400 1,400 Futures 86,867 86,867 63,083 63,083 3,480 3,480
23. IMPAIRMENT TESTING ON GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES(Continued)
During the year ended December 31, 2010, the management of the Group determinesthat there are no impairment of any of its CGUs containing goodwill and otherintangible assets with indefinite useful lives.
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% (2009: 15%). No growthrate has been assumed beyond the five-year period up to the remaining toll roadoperating rights which are 18 years (2009: 19 years) and 20 years (2009: 21years) for Jiaxing Co. and Shangsan 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 five-year period and a discount rate of18.01% (2009: 17.5%). Growth rate beyond the five-year period is assumed to
benil.Zheshang FuturesThe recoverable amount of Zheshang 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 of18.01% (2009: 17.5%). Growth rate beyond the five-year period is assumed to
benil.24. INTERESTS IN ASSOCIATES 2010 2009 Rmb'000 Rmb'000 Unlisted investments in associates, at cost 474,691
426,241
Share of post-acquisition (loss) profits, net of (1,781) 8,766 dividends received 472,910 435,007 At December 31, 2010 and 2009, the Group had interests in the followingassociates: Form of Place of Percentage of equity business registration interest attributable to Name of entity structure and operation the Group Principal activities 2010 2009 % % Zhejiang Corporate The PRC 50 50 Operation Expressway of petrol Petroleum stations Development Co., and sale Ltd. of petroleum ("Petroleum Co") products JoinHands Corporate The PRC 27.58 27.58 Provision Technology of Co., Ltd. printing services and property leasing Zhejiang Concord Corporate The PRC 45 22.95 Investment Property and Investment Co., Ltd. real estate development Hangzhou Tianjun Corporate The PRC 29.45 29.45 Investment Industrial Co., and Ltd portfolio management Hangzhou Yuhang Corporate The PRC 16.57 16.57 Investment Communication Time and Plaza Co., Ltd. real ("Time Plaza Co") estate (Note i) development Ningbo Expressway Corporate The PRC 24.5 12.5 Management Advertising Co., of Ltd. ("Ningbo advertising Advertising Co") (Note ii) billboards along expressways Zhejiang Jinhua Corporate The PRC 23.45 23.45 Management Yongjin Expressway of the Jinhua Co., Ltd. section of ("Yongjin") the Ningbo- Jinhua Expressway Zheshang Fund Corporate The PRC 12.97 -- Asset fund Management management Co., Ltd. ("Zheshang Fund") (Note iii)
24. INTERESTS IN ASSOCIATES(Continued)
Notes:
(i) 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 under the provisions stated in the Articles of Association of that company.
(ii) The Group is able to exercise significant influence over NingboAdvertising Co because it has the power to appoint two out of five directors ofthat company under the provisions stated in the Articles of Association of thatcompany.(iii) The Group is able to exercise significant influence over Zheshang Fundbecause it has the power to appoint one out of four directors of that companyunder the provisions stated in the Articles of Association of that company.
During the year ended December 31, 2009, an impairment loss of Rmb9,298,000 in relation to interest in an associate, Yongjin, was recognised.
The recoverable amounts of Yongjin are determined based on value in usecalculations. The key assumptions for the value in use calculations relate todiscount rates, growth rates, and expected changes in toll revenue and directcosts during the forecast period. Those calculations use cash flow projectionsbased on financial budgets approved by management covering a twenty-year periodand a discount rate of 8% (2009: 8%).
The summarised financial information in respect of the Group's associates at the end of the reporting period is set out below:
2010 2009 Rmb'000 Rmb'000 Total assets 6,304,394 4,754,409 Total liabilities (4,590,133) (3,265,061) Net assets 1,714,261 1,489,348
Group's share of net assets of associates, after impairment loss of Rmb9,298,000 (2009: Rmb9,298,000) 472,910 435,007 Revenue 4,600,647 2,907,878 Loss for the year (7,822) (104,542) Other comprehensive income -- -- Group's share of results of associates for the 2,453 (24,164) year
25. AVAILABLE-FOR-SALE INVESTMENTS
Available-for-sale investments comprise:
2010 2009 Rmb'000 Rmb'000 Non-current assets: Unlisted equity securities investments, at cost (Note i) 1,000
1,000
Current assets: Listed equity securities investments in the PRC, at 71,928 54,704 fair value (Note ii) 72,928 55,704 Notes:(i) Unlisted equity securities investments represent investments in unlistedequity securities issued by private entities established in the PRC. They aremeasured at cost less impairment at the end of the reporting period because therange of reasonable fair value estimated is so significant that the directorsof the Company are of the opinion that their fair values cannot be measuredreliably.(ii) Listed equity investments represent equity securities subscribed throughplacement by listed issuers. They are measured at fair value. During the yearended December 31, 2010, the gain on change in fair value of the investments ofRmb14,342,000 (2009: Rmb34,234,000) has been recognised as other comprehensiveincome.
During the year ended December 31, 2010, the Group disposed certain listed equity investments and recognised a gain on disposal of Rmb25,052,000 (2009: Rmb13,632,000).
26. TRADE RECEIVABLESThe Group has no credit period granted to its trade customers of tolloperation, service area businesses and securities operation. The following isan aged analysis of trade receivables presented based on the invoice date atthe end of the reporting period. 2010 2009 Rmb'000 Rmb'000 Within 3 months 49,666 49,739 3 months to 1 year -- -- 1 to 2 years 271 218 Over 2 years 831 613 50,768 50,570 Included in the Group's trade receivable balance aged within 3 months weretolls receivable from the Expressway Fee Settlement Centre of the HighwayAdministration Bureau of Zhejiang Province and Hangzhou Urban and RuralConstruction Committee amounting to Rmb48,232,000 (2009: Rmb45,140,000) whichhas been settled subsequent to the end of the reporting period. The directorsconsider the credit risk of the balance to be minimal. The Group has notprovided for impairment loss on the balances past due as set out above and doesnot hold any collateral over these balances.27. OTHER RECEIVABLES 2010 2009 Rmb'000 Rmb'000 Consideration receivable* (Note a) 115,000
115,000
Entrusted loans receivables from a 500,000
120,000
related party (Note 43(a)) Entrusted loan receivable from a third 60,000 -- party (Note b) Dividend receivable from a former 53,000
53,000
jointly controlled entity*
Prepayments 53,223 54,783 Others* 171,930 108,384 953,153 451,167
* The amounts were unsecured, interest-free and repayable on demand.
27. OTHER RECEIVABLES(Continued)
Notes:
(a) The balance represented the receivable of the unsettled consideration of disposal of Shida JV during the year ended December 31, 2009 (Note 9).
(b) Pursuant to the board resolutions of the Company on August 28, 2010,Shangsan Co, a subsidiary of the Company, and the entrusted loan contracts,Shangsan Co provided short-term entrusted loans during 2010 totallingRmb60,000,000 with maturity date of December 22, 2011 to Taizhou State-OwnedAsset Operations Co., Ltd. ("Taizhou Co"), a non-controlling shareholder of asubsidiary of Shangsan Co at a fixed interest rate of 5.56% per annum, viaIndustrial and Commercial Bank of China. Taizhou Co has pledged 30,000,000shares in Zheshang Securities representing 1.42% equity interest in ZheshangSecurities as collateral.
28. HELD FOR TRADING INVESTMENTS
2010 2009 Rmb'000 Rmb'000
Held for trading investments include: Listed securities in the PRC, at fair value: Equity securities 197,592
293
Open-end equity funds 5,445
6,258
Corporate bonds with fixed interest ranging from 3.5% to 8.5% per annum and maturity date from November 24, 2012 to December 17,
2020 600,735 511,344 803,772 517,895
29. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENT
The amounts represent debt securities acquired by the Group which will beresold at a predetermined price on January 6, 2011 under resale agreements witha financial institution in the PRC during the year. The amounts carry interestat fixed rates ranging from 2.89% to 2.98% and have been subsequently settledin January 2011.
The Group conducts resale agreement under usual and customary terms of placements and holds collateral for these transactions.
The directors consider that the fair value of the collateral which are corporate bonds approximate the carrying amount of the financial assets held under resale agreement.
As at December 31, 2010, the Group did not hold for resale agreement any collateral which it was permitted to sell or repledge in the absence of default for the transactions.
30. BANK BALANCES HELD ON BEHALF OF CUSTOMERS
From the Group's securities operation, the Group receives and holds money deposited by customers and other institutions. These customers' money is maintained in one or more segregated bank accounts. The Group has recognised the corresponding accounts payable to respective customers and other institutions.
Bank balances held on behalf of customers carry interest at market rates which range from 1.26% to 1.89% (2009: 1.26% to 1.80%) 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'000 As at December 31, 2010 14,916 58,508 As at December 31, 2009 14,288 56,227 31. BANK BALANCES AND CASH 2010 2009 Rmb'000 Rmb'000
Restricted bank balance (Note) --
942
Time deposits with original maturity 325,545
228,452
over three months Unrestricted bank balances and cash 2,650,053
4,819,503
Time deposits with original maturity of 3,032,000 229,500 less than three months Cash and cash equivalents 5,682,053 5,049,003 6,007,598 5,278,397
Note: The restricted bank balance was frozen by China Securities Depository andClearing Corporation Limited Shanghai Branch in connection with the guaranteesissued by Zheshang Securities, in which the full amount of Rmb942,000 wasreleased in January 2010.
Bank balances carry interest at the market rate of 0.36% (2009: 0.36%) per annum. Time deposits carry interest at fixed rates ranging from 1.35% to 2.50% (2009: 1.35% to 2.25%) 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, 2010 5,264 26,875 As at December 31, 2009 4,666 25,423
32. ACCOUNTS PAYABLE TO CUSTOMERS ARISING FROM SECURITIES DEALING BUSINESS
The settlement terms of accounts payables arising from the securities dealingbusiness are one day after the trade date. No aged 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'000 As at December 31, 2010 14,947 58,718 As at December 31, 2009 14,288 56,227 33. TRADE PAYABLESTrade payables mainly represent the construction payables for the improvementprojects of toll expressways. The following is an aged analysis of tradepayables presented based on the payment due date at the end of the reportingperiod. 2010 2009 Rmb'000 Rmb'000 Within 3 months 166,438 410,900 3 months to 1 year 232,122 77,793 1 to 2 years 60,701 136,065 2 to 3 years 83,256 22,011 Over 3 years 6,178 604 548,695 647,373
34. OTHER PAYABLES AND ACCRUALS
2010 2009 Rmb'000 Rmb'000 Other liabilities: Accrued payroll and welfare 386,033
341,870
Advance from customers 67,102
62,589
Toll collected on behalf of other toll roads 33,630
36,149
Prepayment from non-controlling shareholder of 338,354 --
Zheshang Securities (Note)
Others 182,365 154,475 1,007,484 595,083 Accruals 41,817 42,582 1,049,301 637,665 Note: Amount represents prepayment for additional capital injection to ZheshangSecurities from a non-controlling shareholder of Zheshang Securities. Suchamount will be credited to non-controlling interest upon the approval of therelevant government authorities.
35. INTEREST-BEARING BANK AND OTHER LOANS
2010 2009 Rmb'000 Rmb'000 Bank loans, unsecured 822,000
200,000
Other loans, unsecured --
422,384
822,000
622,384
Carrying amount of bank loans repayable: Within one year 822,000
200,000
Carrying amount of other loans repayable: Within one year --
278,055
More than one year, but not exceeding two --
87,016
years More than two year, but not exceeding five --
57,313 years -- 422,384 822,000 622,384 Less: Amount due within one year shown under (822,000) (478,055) current liabilities -- 144,329 At December 31, 2010, the bank loans included a loan of Rmb472,000,000 (2009:Rmb200,000,000) carrying fixed rates ranging from 5.10% to 5.81% (2009: 5.31%).At December 31, 2010, the bank loans also included a loan of Rmb350,000,000(2009: nil) carrying floating rates based on the China Central Bank benchmarkinterest rate ranging from 5.00% to 5.52%.
The other loans mainly represent loans from the World Bank via municipal governments and carry a floating interest rate ranges from 7.54% to 7.80% (2009: 1.82% to 4.55%) per annum (both the effective interest rate and contracted interest rate). There is no (2009: Rmb422,384,000 (USD61,859,000)) bank and other loans for the Group that are denominated in currencies other than Rmb as at December 31, 2010.
36. PROVISIONS Litigation Litigation on on public Other deposits interest and funds litigation Total claim Rmb'000 Rmb'000 Rmb'000 Rmb'000 (note i) (note ii) (note iii) At January 1, 2009 21,683 -- 12,181 33,864 Provision for the year -- 94,860 800 95,660 Utilisation of provision -- (7,047) -- (7,047) At December 31, 2009 and 21,683 87,813 12,981 122,477 January 1, 2010 Overprovision in prior (445) -- (12,981) (13,426) years Utilisation of provision -- (87,813) -- (87,813) At December 31, 2010 21,238 -- -- 21,238 Notes:(i) The Group has received a claim from the customers under the state bondinvestment agency agreements and fund trust agreements for the additionalinterest compensation upon the settlement of the principal and interest at arate of 2.7%. Based on the legal opinion, management considered that it isprobable that the claim is ruled against the Group and accordingly, a provisionfor the interest compensation amounting to Rmb21,683,000 has been recognised inthe profit and loss as at December 31, 2008. Based on the litigation process,overprovision in prior years of Rmb445,000 is recognised during the year endedDecember 31, 2010. The litigation is currently in process.(ii) Prior to the restructuring of Zheshang Securities by the Company, theoriginal person-in-charge of one of the Sales Departments under ZheshangSecurities illegally misappropriated customers' deposits and funds, whichcaused a loss of approximately Rmb90,000,000 to the relevant customers. Duringthe year ended December 31, 2009, clients who incurred losses due to the casehave filed civil lawsuit against Zheshang Securities. Zheshang Securities madeduring the year ended December 31, 2009 a provision amounting to Rmb94,860,000for the principal and related interest involved in the lawsuit, of whichRmb7,047,000 has been settled. During the year ended December 31, 2010,Zheshang Securities has fully settled the principal and interest to allcustomers. The obligation of Zheshang Securities was fully discharged as atDecember 31, 2010.(iii) Sinobase International Ltd. initiated a lawsuit against ZheshangSecurities in November 2008 in respect of a dispute for asset managemententrustment contract entered into with Zheshang Securities in September 2005with a principal and default compensation in aggregate of Rmb12,181,000. Fullprovision of such claim was recognised in profit and loss during the year endedDecember 31, 2008. Taking into account of the current progress of the legalproceedings, an additional provision of Rmb800,000 had been made for such claimin 2009. Sinobase International Ltd. has withdrawn the legal proceeding againstZheshang Securities during the year ended December 31, 2010. The obligation ofZheshang Securities was fully discharged and the provision of Rmb12,981,000 isreversed accordingly as at December 31, 2010.37. LONG-TERM BONDS 2010 2009 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. The quoted price of the listed long-term bonds as at December 31, 2010 is RMB1,000,000,000.
38. DEFERRED TAXATION
The following are the major deferred tax liabilities and assets recognised and movements thereon during the current and prior years:
Changes in fair value Accelerated of tax Impairment held for depreciation trading of and of property available- available- for-sale for-sale plant and investments Provisions investments equipment Rmb'000 Rmb'000 Rmb'000 Rmb'000 At January 1, (6,198) (8,466) 2,473 252,7882009 Charge (credit) 6,198 (200) 19,292 (14,223)to profit or loss Credit to other -- -- (8,558) --comprehensive income At December 31, 2009 and January 1, 2010 -- (8,666) 13,207 238,565 Charge (credit) -- 3,356 26,277 (10,004)to profit or loss Credit to other -- -- (3,585) --comprehensive income At December 31, -- (5,310) 35,899 228,5612010 Fair value adjustment of intangible assets Others Total Rmb'000 Rmb'000 Rmb'000 At January 1, 2009 38,916 (7,251) 272,262 Charge (credit) to (2,339) (10,395) (1,667)profit or loss Credit to other -- -- (8,558)comprehensive income At December 31, 2009 and January 1, 2010 36,577 (17,646) 262,037 Charge (credit) to (2,339) (13,095) 4,195profit or loss Credit to other -- -- (3,585)comprehensive income At December 31, 34,238 (30,741) 262,6472010 39.SHARE CAPITAL Number of Share shares capital 2010 2009 2010 2009 Rmb'000 Rmb'000 Registered, issued and fully paid:
Domestic shares 2,909,260,000 2,909,260,000 2,909,260 2,909,260
of Rmb1.00 each
H Shares of 1,433,854,500 1,433,854,500 1,433,855 1,433,855
Rmb1.00 each 4,343,114,500 4,343,114,500 4,343,115 4,343,115
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 H Shares were admitted to the Official List on May 5, 2000 and their dealings on the London Stock Exchange commenced on the same day.
39. SHARE CAPITAL(Continued)
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 2010 2009 Rmb'000 Rmb'000 Contracted but not provided for in the consolidated financial statements: - Investments in expressways upgrade services -- -- Authorised but not contracted for:
- Investments in expressways upgrade services 46,620 50,000
- Purchase of machinery 342,757
128,000
- Renovation of service areas 16,100
30,000
- Purchase of office buildings and its renovation 360,180 216,000 work 765,657 424,000 42. OPERATING LEASESThe Group as lessee 2010 2009 Rmb'000 Rmb'000 Minimum lease payments 11,765 11,565 Contingent rental expenses 4,501 5,046 16,266 16,611 At the end of the reporting period, the Group had commitments for futureminimum lease payments under non-cancellable operating leases which fall due asfollows: 2010 2009 Rmb'000 Rmb'000 Within one year 13,637 11,765 In the second to fifth years inclusive 58,651 52,061 Over five years 29,117 49,400 101,405 113,226
Operating lease payments represent rentals payable by the Group for certain service areas along expressways located in Zhejiang and Tianjin. They are negotiated for an average term of ten years and rentals contain both a fixed element and a contingent element linked 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 the end of the reporting period, the Group had contracted with tenants for the following future minimum lease payments:
2010 2009 Rmb'000 Rmb'000 Within one year 28,010 34,421 In the second to fifth years inclusive 40,113 35,139 After five years 19,183 23,481 87,306 93,041
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 resolutions of the shareholders' meeting on September 15,2009 of Development Co, a subsidiary of the Company, and the entrusted loancontracts, Development Co provided short-term entrusted loans during 2009totalling Rmb120,000,000 with maturity date of September 24, 2010 to HangzhouConcord Property Investment Co., Ltd.("Hangzhou Concord Co"), a subsidiary ofan associate of Development Co at a fixed interest rate of 12% per annum, viaIndustrial and Commercial Bank of China. The entrusted loan was fully repaidduring 2010.Pursuant to the resolutions of the shareholders' meeting on June 21, 2010 ofDevelopment Co, and the entrusted loan contracts, Development Co providedshort-term entrusted loans during 2010 totalling Rmb270,000,000 with maturitydate from July 11, 2011 to September 20, 2011 to Hangzhou Concord Co at a fixedinterest rate of 12% per annum, via Industrial and Commercial Bank of China.Such entrusted loan is guaranteed by World Trade Center Zhejiang Real EstateDevelopment Co., Ltd. ("World Trade Ltd"), a related party of Hangzhou ConcordCo, in full.
43. RELATED PARTY TRANSACTIONS AND BALANCES(Continued)
Pursuant to the resolutions of the shareholders' meeting on July 8, 2010 ofZhejiang Expressway Advertising Co., Ltd. ("Advertising Co"), a subsidiary ofDevelopment Co, and the entrusted loan contracts, Advertising Co providedshort-term entrusted loans during 2010 totalling Rmb30,000,000 with maturitydate of July 11, 2011 to Hangzhou Concord Co at a fixed interest rate of 12%per annum, via Industrial and Commercial Bank of China. Such entrusted loan isguaranteed by World Trade Ltd, a related party of Hangzhou Concord Co, in full.Pursuant to the board resolutions of the Company on August 28, 2010, and theentrusted loan contracts, the Company provided short-term entrusted loansduring 2010 totalling Rmb200,000,000 with maturity date of September 30, 2011to Hangzhou Concord Co at a fixed interest rate of 12% per annum, viaIndustrial and Commercial Bank of China. Such entrusted loan is guaranteed byWorld Trade Ltd, a related party of Hangzhou Concord Co, in full.
Interest income recognised in 2010 on the above transactions with Hangzhou Concord Co were Rmb26,432,000 (2009: Rmb3,700,000).
(b) Pursuant to the operation management agreement entered into betweenDevelopment Co and Petroleum Co in respect of the petrol stations in theservice areas along the Shanghai-Hangzhou-Ningbo and Shangsan Expressways,Petroleum Co will with their expertise assist Development Co in running theirpetrol stations along the Shanghai-Hangzhou-Ningbo and Shangsan Expressways.Purchases of petroleum products from Petroleum Co during year ended December31, 2010 amounted to Rmb1,358,463,000 (2009: Rmb922,280,000).
(c) Pursuant to the capital injection agreement entered into between Yongjin and the Company on May 20, 2010, the Company agreed to further inject Rmb23,450,000 working capital in proportion to its equity interest in Yongjin.
(d) Pursuant to the acquisition agreements entered into between the vendors ofDevelopment Co and the Company, the Company acquired 49% equity interest inDevelopment Co (of which 3.9% are held by Mr. Jiang Wenyao and Mr. ZhangJingzhong, who are the directors of the Company, and Mr. Fang Zhexing, who isthe supervisor of the Company). Upon completion of the acquisition, DevelopmentCo. became a wholly-owned subsidiary of the 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 Group which is controlled bythe PRC government. Apart from the transactions with the Communications Groupand parties under the common control of the Communications Group disclosed inNote 9, the Group also conducts business with other state-controlled entities.The directors consider those state-controlled entities are independent thirdparties so far as the Group's business transactions with them are concerned.The Group has entered into various transactions, including deposit placements,borrowings and other general banking facilities, with certain banks andfinancial 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 addition, on September 10, 2009, the Group entered into an agreement withHangzhou Communications Group, a state-owned enterprise, pursuant to which theGroup agreed to sell, and Hangzhou Communications Group agreed to purchase, theentire 50% interest of the Group in Shida JV for a consideration ofRmb367,000,000. The disposal was completed in November 2009 and the gain ondisposal of the jointly controlled entity of Rmb274,494,000 was recognised inthe profit or loss for the year ended December 31, 2009.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 14 and 15, the remuneration of other key management personnel during theyear was approximately Rmb1,506,000 including retirement benefit schemecontribution of Rmb47,000 (2009: Rmb1,374,000 including retirement benefitscheme contribution of Rmb47,000) which is determined by the performance of theindividuals and the market trends.
44. PARTICULARS OF SUBSIDIARIES OF THE COMPANY
Date and Registered place and Name of of paid-insubsidiary registration capital Rmb Zhejiang Note 1 75,223,000Yuhang Expressway Co., Ltd ("Yuhang Co") Jiaxing Co Note 2 1,859,200,000 Shangsan Co Note 3 2,400,000,000 Development Co Note 4 120,000,000 Advertising Co Note 5 3,500,000 Service Co Note 6 8,000,000 Hangzhou Note 7 3,000,000Roadtone Advertising Co., Ltd. ("Roadtone Co") Zheshang Note 8 2,120,000,000Securities Zheshang Note 9 150,000,000Futures Percentage of equity interest Name of attributable to the Principalsubsidiary Company activities Direct Indirect 2010 2009 2010 2009 % % % % Zhejiang 51 51 -- -- Management of theYuhang Yuhang Expressway Section of theCo., Ltd Shanghai ("Yuhang -HangzhouCo") Expressway
Jiaxing Co 99.999454 99.999454 -- -- Management of the
Jiaxing Section of the Shanghai -Hangzhou Expressway Shangsan Co 73.625 73.625 -- -- Management of the Shangsan Expressway Development 100 51 -- -- Operation ofCo service areas as well as roadside advertising along he the expressways operated by the Group Advertising -- -- *70 *35.7 Provision ofCo advertising services Service Co -- -- *100 *43.35 Provision of vehicle towing, repair and emergency rescue services Hangzhou -- -- *51 *26.01 Provision ofRoadtone advertising services Advertising Co., Ltd. ("Roadtone Co") Zheshang -- -- **51.88 ** Operation ofSecurities 51.88 securities business Zheshang -- -- ***51.88 *** Operation ofFutures 51.88 securities business
44. PARTICULARS OF SUBSIDIARIES OF THE COMPANY(Continued)
* These three companies are subsidiaries of Development Co, a wholly-owned
subsidiary of the Company, and, accordingly, are accounted for as subsidiaries
by virtue of the Group's control over them.
** The company is a subsidiary of Shangsan Co, a non-wholly-owned subsidiary of
the Company, and, accordingly, is accounted for as a subsidiary by virtue of
the Group's control over it.
*** The company is a subsidiary of Zheshang Securities, a non-wholly-owned
subsidiary of Shangsan Co, and, accordingly, is accounted for as a subsidiary
by virtue of the Group's control over it.
Note 1: Yuhang Co was established on June 7, 1994 in the PRC as a joint stock
limited company and was subsequently restructured into a limited liability
company under its current name on November 28, 1996. The Company is able to
control over Yuhang Co because it has the power to appoint five out of nine
directors of that company and under the provisions stated in the Articles of
Association of that company, the passing of ordinary resolutions at the board
meetings required one-half of the directors attending the meetings.
Note 2: Jiaxing Co was established on June 30, 1994 in the PRC as a joint stock
limited company and was subsequently restructured into a limited liability
company under its current name on November 29, 1996.
Note 3: Shangsan Co was established on January 1, 1998 in the PRC as a limited
liability company.
Note 4: Development Co was established on May 28, 2003 in the PRC as a limited
liability company.
Note 5: Advertising Co was established on June 1, 1998 in the PRC as a limited
liability company.
Note 6: Service Co was established on July 31, 2003 in the PRC as a limited
liability company.
Note 7: Roadtone Co was established on July 27, 2004 in the PRC as a limited
liability company.
Note 8: Zheshang Securities was established on May 9, 2002 in the PRC as a
limited liability company. It was previously known as "Kinghing Securities Co.,
Ltd." before being acquired by Shangsan Co.
Note 9: Zheshang Futures was established on September 7, 1995 in the PRC as a
limited liability Company.
All of the Company's subsidiaries are operating in the PRC. None of them had in issue any debt securities at the end of the year.
Corporate InformationEXECUTIVE DIRECTORSChen Jisong (Chairman)Zhan Xiaozhang (General Manager)Jiang WenyaoZhang JingzhongDing HuikangNON-EXECUTIVE DIRECTORSZhang LuyunINDEPENDENT NON-EXECUTIVEDIRECTORSTung Chee ChenZhang JunshengZhang LipingSUPERVISORSMa KehuaFang ZhexingJiang ShaozhongWu YongminLiu HaisengCOMPANY 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 INHONG 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 RELATIONSCONSULTANTRikes Hill & Knowlton LimitedRoom 1312, Wing On Centre111 Connaught Road CentralHong KongTel: 852-2520 2201Fax: 852-2520 2241PRINCIPAL BANKERS
Industrial and Commercial Bank of China,
Zhejiang Branch
China Construction Bank, Zhejiang BranchShanghai Pudong Development Bank, Hangzhou BranchH SHARE REGISTRAR ANDTRANSFER 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 1:10CORPORATE BOND LISTINGINFORMATIONThe Shanghai Stock ExchangeSymbol: 03 Code: 120308Websitewww.zjec.com.cn
Location Map of Expressways in Zhejiang Province
(http://www.prnasia.com/sa/attachment/2011/04/2011040193886.pdf )
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NOTE: To view the full set of the company's 2010 Annual Report, please vist www.zjec.com.cn ---------
vendorRelated Shares:
ZHEH.L