1st Sep 2010 10:49
ZHEJIANG EXPRESSWAY CO., LTD. 2010 Interim Report Leveraging Opportunities, Pursuing Growth2010 will be a complicated year for China's economy. Given a slowdown oneconomic growth in the second half, we expect that the Group will be affectedin respect of its expressway traffic volume, service areas operation andcapital market performance. Faced with the not-so-optimistic situation, themanagement of the Company will continue to build up its core expresswaybusiness while actively seeking and cultivating new business opportunities andnew sources of profit growth. It will strive unremittingly to contribute to theCompany's sustainable development and bring forth satisfactory results for
shareholders.Contents2010 Interim Results 2Business Review 3Financial Analysis 7Outlook 10
Disclosure of Interests and Other Matters
11
Condensed Consolidated Statement of Comprehensive Income (Unaudited) 14 Condensed Consolidated Statement of Financial Position
15
Condensed Consolidated Statement of Changes in Equity (Unaudited) 17 Condensed Consolidated Cash Flow Statement (Unaudited)
18
Notes to Condensed Consolidated Financial Statements
19AppendicesCorporate Information 28
Corporate Structure of the Group
30
Financial Highlights
31
Location Map of Expressways in Zhejiang Province
322010 Interim Results
The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the "Company") announced the unaudited consolidated operating results of the Company and its subsidiaries (collectively the "Group") for the six months ended June 30, 2010 (the "Period"), with the basis of preparation as stated in note 1 to the condensed consolidated financial statements set out below.
During the Period, revenue for the Group was Rmb3,130.90 million, representingan increase of 13.1% over the same period in 2009. Profit for the Periodattributable to owners of the Company was Rmb855.61 million, representing anincrease of 10.8% year-on-year. Earnings per share for the Period was Rmb19.70cents, representing an increase of 10.8% over the same period in 2009.
The Directors have recommended to pay an interim dividend of Rmb6 cents per share, subject to shareholders' approval at the extraordinary general meeting of the Company expected to be held on October 18, 2010.
The interim report has not been audited or reviewed by the auditors but has been reviewed by the audit committee of the Company.
Business Review
Affected by the relatively high comparison basis for the same period in 2009and the State's macro-economic control measures, the growth pace of China'seconomy has slowed during the second quarter of the year. However, the economyas a whole kept a sound developing trend in the first half of 2010, with thenational GDP increasing by 11.1% as compared to the same period last year.Although the growth pace of the economy of Zhejiang Province also slowed in thesecond quarter during the Period, the province did keep a positive recoverytrend with continuous optimization of its whole economic structure. GDP ofZhejiang Province recorded a year-on-year growth of 13% in the first half of2010.Benefiting from a sound development momentum of the domestic economy and anincrease in automobile sales, traffic volume and toll income on the Group'sexpressways maintained a satisfactory growth during the first half of the year.Therefore, during the Period, income for the Group recorded a rise of 13.0%compared to the same period last year to Rmb3,227.49 million, of whichRmb1,739.65 million, or 53.9% of total income, was generated from the two majorexpressways owned and operated by the Group. Rmb799.39 million was generatedfrom toll road-related businesses, which accounted for 24.8% of the totalincome. Affected by a sharp decline of China's stock market during the Period,income from the securities business dropped slightly compared to the sameperiod last year to Rmb688.45 million, accounting for 21.3% of the totalincome.During the Period, toll income from toll road operations increased by 11.6%over the same period in 2009, while income from toll road-related businessesincreased by 36.1%. A breakdown of the Group's income for the Period is set
outbelow: For the six months ended June 30, 2010 2009 Rmb'000 Rmb'000 % ChangeToll income Shanghai-Hangzhou-Ningbo Expressway 1,361,787 1,178,291 15.6% Shangsan Expressway 377,864 380,650 -0.7%Other income Service areas 758,195 545,883 38.9% Advertising 41,166 40,094 2.7% Securities business 688,445 710,811 -3.1% Others 33 1,389 -97.6%Subtotal 3,227,490 2,857,118 13.0%Less: Revenue taxes (96,588) (88,263) 9.4%Revenue 3,130,902 2,768,855 13.1%Business ReviewTOLL ROAD OPERATIONSDuring the Period, benefiting from the effective macro-economic control measures, China's economy developed positively toward the expected goal. Domestic demand stimulated domestic automobile sales to increase substantially. At the same time, the widening project of the Shanghai Section of the Shanghai-Hangzhou Expressway was completed in early 2010, and together with the implementation of the toll-by-weight policy, the natural growth of traffic volume on the Group's expressways during the Period was quite significant, with the growth rate of toll income being much steeper than that of traffic volume.On January 1, 2010, construction on the Shanghai Section of the Shanghai-Hangzhou Expressway was completed. Through a series of promotion by the Company, traffic volume on the Group's Shanghai-Hangzhou Expressway resumed in no time to the same level as that before the construction. At the same time, the toll-by-weight policy implemented in mid-April 2010 brought about a notable
increase in toll income for the road section. From the first half's operation figures, we are happy to witness that both traffic volume and toll income recorded double-digit increases for the ShanghaiHangzhou-Ningbo Expressway.
Despite the advantages brought to the Group's Shangsan Expressway by both soundmacro-economic growth and the implementation of the toll-by-weight policy in thefirst half of the year, the launch of the dual path identification system in mid-October 2009 has offset the traffic volume increase on the ShangsanExpressway, resulting in a slight drop in traffic volume and toll income for the road section during the Period.The average daily traffic volume in full-trip equivalents along the Group'sShanghai-Hangzhou-Ningbo Expressway was 37,933 during the Period, representing an increase of 12.4% year-on-year. The average daily traffic volume in full-tripequivalents along the Shanghai-Hangzhou Section of the Shanghai-Hangzhou-NingboExpressway increased by 17.2% year-on-year, and that along the Hangzhou-Ningbo Section increased by 9.2% year-on-year. The average daily traffic volume in
full-trip equivalents along the Shangsan Expressway was 18,844 during the Period, representing a decrease of 1.4% year-on-year.
Toll income from the Shanghai-Hangzhou-Ningbo Expressway amounted to Rmb1,361.79 million during the Period, representing an increase of 15.6% year-on-year; while toll income from the Shangsan Expressway amounted to Rmb377.86 million during the Period, representing a decrease of 0.7% year-on-year.
TOLL ROAD-RELATED BUSINESSES
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, with a steady recovery of the domestic economy, trafficvolume along the Group's expressways increased significantly. The opening of Shanghai Expo also lifted traffic volume and thus enhanced income for the service areas. Meanwhile, both sales and prices of petroleum products increased substantially, which has in turn boosted the income of the gas station operation. Consequently, income of toll road-related businesses of the Group amounted to Rmb806.48 million during the Period, an increase of 35.6% year-on-year.SECURITIES BUSINESSDuring the Period, the macro-economy was under structural adjustments, leadingto a sharp drop of Shanghai and Shenzhen stock market indices and a decrease in market trading volume. Competition in the brokerage market became intensified, resulting in a reduction on average commission rates. Despite the severe external environment, Zheshang Securities Co., Ltd. ("Zheshang Securities") continued to maintain a smooth operation through active business developments. The market share of its brokerage business continued to be enhanced, as well as its number of clients. In the meantime, Zheshang Securities achieved growth on investment banking, asset management and futures businesses, which to some extent offset the impact on Zheshang Securities caused by intense market competition and share index drop.During the Period, the offering scale of Zheshang Securities' first accumulatedasset management plan, "Zheshang Huijin No.1", reached Rmb2.3 billion, boosting the total scale of the asset management business to exceed Rmb3.0 billion. Zheshang Securities set up five new branches in coastal provinces and citieslike Fujian and Guangdong, and the number of operating offices was expanded to 46, thereby further enhancing its network deployment.During the Period, the securities business realized an operating income ofRmb688.45 million, representing a decrease of 3.2% year-on-year. Of such income, brokerage commission income amounted to Rmb590.94 million, representing a year-on-year decrease of 9.3%; and bank interest income amounted to Rmb97.51million, representing a year-on-year increase of 64.1%. Apart from these, the proprietary securities trading business recorded a profit of Rmb51.61 million asaccounted for in the income statement (2009 Interim: Rmb27.20 million).
LONG-TERM INVESTMENTS
Zhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associate ofthe Company) ("Petroleum Co") benefited from a recovery of the macro-economy and an increase in petroleum products prices during the Period. It recorded a substantial increase in sales of petroleum products and a revenue of Rmb1,599.90 million, a 37.4% increase year-on-year. In the Period, Petroleum Co achieved a net profit of Rmb11.52 million.Zhejiang Jinhua Yongjin Expressway Co., Ltd. (a 23.45% owned associate of theCompany) ("Jinhua Co") operates the 69.7km Jinhua Section of Ningbo-Jinhua Expressway. During the Period, benefiting from a recovery of the domestic economy and the toll income increase brought about by the implementation of thetoll-by-weight policy, the average daily traffic volume in full-trip equivalents along the road section was 9,066 vehicles, a 26.1% increase as compared to thesame period last year. Toll income was Rmb88.37 million, an increase of 34.9%year-on-year. A loss of Rmb39.93 million was recorded due to Jinhua Co's heavy financial burden, though the loss was gradually decreasing year after year.JoinHands Technology Co., Ltd. (a 27.582% owned associate of the Company)generated its income mainly from its printing operation and property leasing during the Period. Due to a lack of improvement in its operations, the associatecompany incurred a loss of Rmb1.79 million during the Period.
OTHERS
On May 20, 2010, the Company entered into an agreement with ZhejiangCommunications Investment Group Co., Ltd. ("Communications Investment Group") and Yiwu Communications Development Co., Ltd., pursuant to which the Companyagreed to inject a further capital in the amount of Rmb23.45 million, in proportion to its share of capital contributions, into Jinhua Co by cash to alleviate a shortage in project and working capital at Jinhua Co. After the
further capital injection by the Company and Communications Investment Group, the registered capital of Jinhua Co increased from Rmb800 million to Rmb900
million and the Company continued to own as to 23.45% in the equity of Jinhua Co.
HUMAN RESOURCESThere were no significant changes to the Company's overall number of employees,remuneration policies, bonus schemes and training schemes from what have been disclosed in the Company's latest annual report.
Financial Analysis
The Group adopts a prudent financial policy with an aim to provide shareholders with sound returns over the long-term.
During the Period, return on equity was 6.1%, representing an increase of 12.7% over the same period last year.
LIQUIDITY AND FINANCIAL RESOURCES
As at June 30, 2010, current assets held by the Group amounted to Rmb16,862.03million in aggregate (December 31, 2009: Rmb17,903.78 million), of which bank balances and cash accounted for 29.5% (December 31, 2009: 29.5%), bank balances held on behalf of customers accounted for 62.5% (December 31, 2009: 64.4%) and held-for-trading investments accounted for 3.7% (December 31, 2009: 2.9%). Current ratio (current assets over current liabilities) as at June 30, 2010 was 1.3 (December 31, 2009: 1.3). Excluding the effect of customer deposits arising from the securities business, the resultant current ratio of the Group (current assets less bank balances held on behalf of customers over current liabilities less accounts payable to customers arising from securities dealing business) of the Group was 2.6 (December 31, 2009: 2.6). As at June 30, As at December 31, 2010 2009 Rmb'000 Rmb'000Cash and cash equivalent Rmb 4,643,393 5,018,914 US$ in Rmb equivalent 1,486 25,423 HK$ in Rmb equivalent 4,743 4,666Time deposit Rmb 302,026 228,452 US$ in Rmb equivalent 24,875 --Held-for-trading investments-Rmb 618,700
517,895
Available-for-sale investments-Rmb 79,286
54,704
Financial assets held under resale
agreement-Rmb 100,000 --Total 5,774,509 5,850,054 Rmb 5,743,405 5,819,965 US$ in Rmb equivalent 26,361 25,423 HK$ in Rmb equivalent 4,743 4,666The amount for held-for-trading investments of the Group as at June 30, 2010amounted to Rmb618.70 million (December 31, 2009: Rmb517.90 million), of which 93.0% was invested in corporate bonds, 5.5% was invested in the stock market, while the rest was invested in open-end equity funds.
During the Period, net cash inflow generated from the Group's operating activities amounted to Rmb962.12 million.
The Directors do not expect the Company to experience any problem with liquidity and financial resources in the foreseeable future.
BORROWINGS AND SOLVENCY
As at June 30, 2010, total liabilities of the Group amounted to Rmb14,269.46million (December 31, 2009: Rmb15,337.93 million), of which 11.2% was borrowings and 73.6% was accounts payable to customers arising from securities dealing
business.
Total interest-bearing borrowings of the Group as at June 30, 2010 amounted toRmb1,591.51 million, representing a decrease of 1.9% over December 31, 2009. The borrowings comprised outstanding balances of the World Bank loans, denominated in US dollar, of approximately Rmb391.51 million in Renminbi equivalent, loans from domestic commercial banks totaling Rmb200 million; and corporate bonds amounting to Rmb1 billion that was issued by the Company in 2003 for a term of 10 years. Of the interest-bearing borrowings, 69.2% were not repayable within one year. The details of relevant outstanding amounts are as follows: Maturity Profiles Gross Within >1 year-5years Beyond amount 1 year inclusive 5 years Rmb'000 Rmb'000 Rmb'000 Rmb'000Floating rates World Bank loan 391,510 290,487 101,023 --Fixed rates Domestic commercial bank loans 200,000 200,000 -- -- Corporate bonds 1,000,000 -- 1,000,000 --Total as at June 30, 2010 1,591,510 490,487 1,101,023 --Total as at December 31, 2009 1,622,384 478,055 1,144,329 --As at June 30, 2010, the Group's loans from domestic commercial banks comprised1-year short-term loans, with interest rates fixed at 5.31% and 5.25% per annum; the annual coupon rate for corporate bonds was fixed at 4.29%, with interest payable annually. The annual interest rate for accounts payable to customers arising from securities dealing business was fixed at 0.36%, the annual floating rate of the Group's World Bank loans, denominated in US dollar, was 7.54%.
Total interest expense for the Period amounted to Rmb47.01 million, while profit before interest and tax amounted to Rmb1,459.25 million. The interest cover
ratio (profit before interest and tax over interest expenses) stood at 31.0
(June 30, 2009: 37.4).
The asset-liability ratio (total liabilities over total assets) was 45.9% as atJune 30, 2010 (December 31, 2009: 47.3%). Excluding the effect of customer deposits arising from the securities business, the resultant asset-liability ratio (total liabilities less accounts payable to customers arising from securities dealing business over total assets less bank balances held on behalf of customers) of the Group was 18.3% (December 31, 2009: 18.4%).
CAPITAL STRUCTURE
As at June 30, 2010, the Group had Rmb16,790.55 million total equity, Rmb11,703.84 million fixed-rate liabilities, Rmb391.51 million floating-rate liabilities and Rmb2,174.12 million interest-free liabilities, representing
54.1%, 37.7%, 1.2% and 7.0% of the Group's total capital, respectively. The
gearing ratio, which was computed by dividing the total liabilities less accounts payable to customers arising from securities dealing business by total equity, was 22.4% as at June 30, 2010 (December 31, 2009: 22.5%).
CAPITAL EXPENDITURE COMMITMENTS AND UTILIZATION
Capital expenditures of the Group and of the Company for the Period totaled Rmb134.49 million and Rmb32.09 million, respectively, with Rmb51.58 million
incurred by the acquisition and construction of properties, Rmb32.97 million incurred by purchase of equipment, Rmb23.45 million for capital injection into Jinhua Co and Rmb24.30 million for a widening project between the Shaoxing-Zhuji hub and the Shaoxing-Jiaxing hub of the Shangsan Expressway.Capital expenditures committed by the Group and by the Company as at June 30,2010 totaled Rmb314.75 million and Rmb104.15 million, respectively. Amongst the total capital expenditures committed by the Group, Rmb164.42 million will be used on the acquisition and construction of properties, while Rmb95.03 million will be used for the acquisition of equipment, Rmb25.70 million will be used for the widening project between the Shaoxing-Zhuji hub and the Shaoxing-Jiaxing hub of the Shangsan Expressway and Rmb29.60 million will be used by the 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 June 30, 2010, the Group did not have any contingent liabilities nor any pledge of assets or guarantees.
FOREIGN EXCHANGE EXPOSURE
Save for the repayment of a World Bank loan of Rmb391.51 million equivalent inUS dollars, as well as dividend payments to the holders of H shares 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 during the
Period.
Although the Directors do not foresee any material foreign exchange risks forthe Group, there is no assurance that foreign exchange risks will not affect the operating results of the Group in the future.
Outlook
In the first half of this year, China's economy continued to develop steadilyaccording to the direction led by the macroeconomic control measures. Under an improving external environment, fast growth on foreign export and a low comparison basis last year, Zhejiang Province's economy continued to develop positively in the first half of 2010. However, we expect a slowdown on the growth rate of the economy in the second half under vigorous structural adjustment policies carried out by the government. As a result of the slowdown of economic growth, the rapid growth on domestic car ownership will also slow, which in turn will affect the natural traffic growth along the Group's expressways.Although the opening of the Shanghai-Jiaxing-Huzhou-Hangzhou Expressway inearly February this year caused little impact on the Group's expressways, the opening of Zhuyong Expressway on July 22, 2010 will bring about negative effect on the traffic volume along the Group's expressways, especially causing significant traffic diversions on the Shangsan Expressway.Introduction of the toll-by-weight policy created a decrease in truck trafficvolume for a short period of time, but from existing figures, it already brought a notable increase in toll income. In the second half of this year, through
strengthened promotion and measures to attract more empty vans, we expect truck traffic volume to resume to the level before the policy was implemented.
During the Period, benefiting from a better economic environment in ZhejiangProvince, the Group's toll road-related businesses achieved significant growth. In the second half of the year, the Company will apply various measures, including introducing and refining quality operational projects and intensifying our promotion, to enhance management standards and service quality at the service areas.As China's economy is in the course of transformation, despite the rapid GDPgrowth in the first half of the year, the stock market will remain sluggish. Although the Group's securities business may be affected by the turbulent A share market in the short run, Zheshang Securities will carry out various measures including further expanding its investment banking business and grouping financing product marketing with the futures agency business, with a view to continuously gaining industry influence and market share. We expect good profit contribution from Zheshang Securities to the Group in the future.2010 will be a complicated year for China's economy. Given a slowdown oneconomic growth in the second half, we expect that the Group will be affected in respect of its expressway traffic volume, service areas operation and capitalmarket performance. Faced with the not-so-optimistic situation, the managementof the Company will continue to build up its core expressway business while
actively seeking and cultivating new business opportunities and new sources of profit growth. It will strive unremittingly to contribute to the Company's sustainable development and bring forth satisfactory results for shareholders.
Disclosure of Interests and Other Matters
PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARES
Neither the Company nor any of its subsidiaries had purchased, sold, redeemed or cancelled any of the Company's shares during the Period.
DISCLOSURE OF DIRECTORS', SUPERVISORS' AND CHIEF EXECUTIVE'S INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES
As at June 30, 2010, the interests of the Directors, Supervisors and chiefexecutives in the share capital of the Company's associated corporations (within the meaning of Part XV of the Hong Kong Securities and Futures Ordinance (the "SFO")), as recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the "Stock Exchange") pursuant to the ModelCode for Securities Transactions by Directors of Listed Issuers were as follows:Long positions in shares of Zhejiang Expressway Investment Development Co., Ltd. ("Development Co") Percentage of the associated Contribution corporation's of registered Nature registeredName Position capital (Rmb) of interest capital Directly BeneficiallyMr. Jiang Wenyao Director 1,980,000 Owned 1.65%Mr. Zhang Jingzhong Director 1,650,000 Same as above 1.38%Mr. Fang Zhexing Supervisor 1,050,000 Same as above 0.88%
On August 13, 2010, Mr Jiang Wenyao, Mr Zhang Jingzhong and Mr Fang Zhexingentered into an agreement with the Company for the transfer of their 3.9% equity interest in the Development Co to the Company. Upon the completion of the transaction, they will not hold any further interest in the Development Co or any other affiliated companies.Save as disclosed above, as at June 30, 2010, none of the Directors, Supervisors and chief executives had registered an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations that was required to be recorded pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.
OTHER INTERESTS DISCLOSEABLE UNDER THE SFO
As at June 30, 2010, the following shareholders held 5% or more of the issuedshare capital of the Company according to the register of interests in shares required to be kept by the Company pursuant to Section 336 of the SFO: Percentage Total interests of the issued in number of share capital ordinary shares of the CompanySubstantial shareholders Capacity of the Company (domestic shares)Communications Investment
Group Beneficial owner 2,432,500,000 83.61%Huajian Beneficial owner 476,760,000 16.39% Percentage Total interests of the issued in number of share capital ordinary shares of the CompanySubstantial shareholders Capacity of the Company (H shares)JP Morgan Chase & Co. Beneficial owner 189,223,297 (L) 13.20% Investment manager and custodian corporation/ 142,090,750 (P) 9.91% approved lending agentInvesco Investment Manager 130,062,860 (L) 9.07%Blackrock, Inc. Interest of controlled 127,730,170 (L) 8.91% corporations 3,430,009 (S) 0.24%
The letter "L" denotes a long position. The Letter "S" denotes a short position. The Letter "P" denotes interest in a lending pool.
On December 31, 2009, to further leverage the investment and financing platformof the Company as a listed company in the future, one of the Company's major shareholders, Huajian Transportation Economic Development Centre ("Huajian"), transferred its 476,760,000 shares to the Company's majority shareholder, Communications Investment Group. After the transfer, the total domestic shares of the Company held by Communications Investment Group amounted to 2,909,260,000shares.
Save as disclosed above, as at June 30, 2010, no person had registered an interest or short position in the shares or underlying shares of the Company that was required to be recorded pursuant to Section 336 of the SFO.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES AND THE MODEL CODE
The Company was in compliance with the code provisions in the Code on CorporateGovernance Practices set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") during the Period.The Company has adopted a code of conduct regarding directors' securitiestransactions on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") in Appendix 10 to the Listing Rules. The Directors have confirmed their full compliance with the required standard set out in the Model Code and its code of conduct regarding directors' securities transactions during the
Period.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM REPORT AND ACCOUNTS
The Directors of the Company duly confirm that, to the best of their knowledge:
- the condensed consolidated financial statements prepared in accordance with
Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of
Certified Public Accountants give a true and fair view of the assets,
liabilities, financial position and profit of the Group and the undertakings
included in the consolidation taken as a whole; and
- the management discussion and analysis included in the interim report includes
a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the Group faces. By order of the Board Zhejiang Expressway Co., Ltd. Chen Jisong Chairman
Hangzhou, the PRC, August 29, 2010
Condensed Consolidated Statement of Comprehensive Income (Unaudited) For the six months ended June 30, 2010 2009 Notes Rmb'000 Rmb'000Revenue 3 3,130,902 2,768,855Operating costs (1,756,462) (1,392,646)Gross profit 1,374,440 1,376,209Securities investment gains 51,605 27,204Other income 4 77,453 62,392Administrative expenses (30,843) (30,230)Other expenses (7,010) (101,927)Share of losses of associates (6,394) (11,281)Share of profit of a jointly controlled entity -- 13,073Finance costs (47,007) (35,755)Profit before tax 5 1,412,244 1,299,685Income tax expenses 6 (362,597) (326,104)Profit for the Period 1,049,647 973,581Other comprehensive incomeAvailable-for-sale financial assets: - Fair values loss during the Period (841)
--
- Reclassification adjustments for
cumulative gain included in profit
or loss upon disposal (23,453)
--
Income tax relating to components of
other comprehensive income 6,074
--
Other comprehensive loss for the
Period (net of tax) (18,220)
--
Total comprehensive income for the
Period 1,031,427
973,581
Profit for the Period attributable to:Owners of the Company 855,609 772,452Non-controlling interests 194,038 201,129 1,049,647 973,581
Total comprehensive income for the
Period attributable to:Owners of the Company 846,157 772,452Non-controlling interests 185,270 201,129 1,031,427 973,581EARNINGS PER SHARE-BASIC 8 19.70 cents 17.79 cents Condensed Consolidated Statement of Financial Position As at As at June 30, December 31, 2010 2009 Rmb'000 Rmb'000 Notes Unaudited AuditedNON-CURRENT ASSETS Property, plant and equipment 9 1,037,325 1,035,628 Prepaid lease payments 72,534 30,342 Expressway operating rights 12,410,438 12,755,338 Goodwill 86,867 86,867 Other intangible assets 150,757 154,819 Interests in associates 439,063 435,007
Available-for-sale investments 1,000
1,000 14,197,984 14,499,001CURRENT ASSETS Inventories 21,206 17,342 Trade receivables 10 48,018 50,570 Other receivables 11 481,530 451,167 Prepaid lease payments 2,014 1,421
Available-for-sale investments 79,286
54,704
Held for trading investments 618,700
517,895
Financial assets held under
resale agreement 100,000
--
Bank balances held on behalf of
customers 10,534,757
11,532,284
Bank balances and cash
- Restricted bank balances --
942
- Time deposits with original
maturity over three months 326,901
228,452
- Cash and cash equivalents 4,649,622 5,049,003 16,862,034 17,903,780CURRENT LIABILITIES
Accounts payable to customers
arising from securities dealing
business 10,503,837 11,502,930 Trade payables 12 657,308 647,373 Tax liabilities 191,498 512,551 Other taxes payable 27,273 30,492 Other payables and accruals 13 598,325 637,665 Dividends payable 328,128 18
Interest-bearing bank and other
loans 490,487 478,055 Provisions 14 119,777 122,477 12,916,633 13,931,561NET CURRENT ASSETS 3,945,401 3,972,219TOTAL ASSETS LESS CURRENT LIABILITIES 18,143,385 18,471,220 Condensed Consolidated Statement of Financial Position As at As at June 30, December 31, 2010 2009 Rmb'000 Rmb'000 Unaudited AuditedNON-CURRENT LIABILITIES Interest-bearing bank and other loans 101,023
144,329
Long-term bonds 1,000,000
1,000,000
Deferred tax liabilities 251,808 262,037 1,352,831 1,406,366 16,790,554 17,064,854CAPITAL AND RESERVES Share capital 4,343,115 4,343,115 Reserves 9,600,883 9,840,505Equity attributable to owners of the Company 13,943,998 14,183,620Non-controlling interests 2,846,556 2,881,234 16,790,554 17,064,854 Condensed Consolidated Statement of Changes in Equity (Unaudited) Attributable to owners of the Company Non-controlling Total Investment interests Share Share Statutory revaluation Dividend Retained capital premium reserve reserve reserve profits Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000At January 1, 2009 4,343,115 3,645,726 2,116,529 -- 1,042,347 2,535,333 13,683,050 2,614,218 16,297,268Profit for the Period and total comprehensive income for the Period -- -- -- -- -- 772,452 772,452 201,129 973,581Dividend paid to non-controlling interests -- -- -- -- -- -- -- (189,002) (189,002)Final dividend -- -- -- --
(1,042,347) -- (1,042,347) -- (1,042,347) Proposed interim
dividend -- -- -- --
260,587 (260,587) -- -- --
At June 30, 2009 4,343,115 3,645,726 2,116,529 --
260,587 3,047,198 13,413,155 2,626,345 16,039,500
Attributable to owners of the Company Non-controlling Total Investment interests Share Share Statutory revaluation Dividend Retained capital premium reserve reserve reserve profits Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000At January 1, 2010 4,343,115 3,645,726 2,467,011 8,016 1,085,779 2,633,973 14,183,620 2,881,234 17,064,854Profit for the Period -- -- -- -- -- 855,609 855,609 194,038 1,049,647Other comprehensive loss for the Period -- -- -- (9,452) -- -- (9,452) (8,768) (18,220)Total comprehensive (loss) income for the Period -- -- -- (9,452) -- 855,609 846,157 185,270 1,031,427Dividend paid to non-controlling interests -- -- -- -- -- -- -- (219,948) (219,948)Final dividend -- -- -- -- (1,085,779) -- (1,085,779) -- (1,085,779)Proposed interim dividend -- -- -- --
260,587 (260,587) -- -- --
At June 30, 2010 4,343,115 3,645,726 2,467,011 (1,436) 260,587 3,228,995 13,943,998 2,846,556 16,790,554
Condensed Consolidated Cash Flow Statement (Unaudited) For the six months ended June 30, 2010 2009 Rmb'000 Rmb'000Net cash from operating activities 962,120
1,131,712
Net cash used in investing activities (355,175)
(870,586)
Net cash used in financing activities (1,006,326)
(1,252,995)
Net decrease in cash and cash equivalents (399,381)
(991,869)
Cash and cash equivalents at beginning of
the Period 5,049,003
3,736,945
Cash and cash equivalent at end of the
Period 4,649,622 2,745,076
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared in
accordance with the applicable disclosure requirements of Appendix 16 to the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the "Listing Rules") and with Hong Kong Accounting Standard 34 ("HKAS 34") "Interim Financial Reporting".
2. PRINCIPAL ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared on the
historical cost basis except for certain financial instruments, which are
measured at fair value, as appropriate. The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the
Group's annual financial statements for the year ended December 31, 2009
except as described below.
During the Period, the Group has applied, for the first time, the following
new and revised standards, amendments and interpretations ("new and revised
HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"). HKFRSs (Amendments) Amendments to HKFRS 5 as part of Improvements to HKFRSs 2008 HKFRSs (Amendments) Improvements to HKFRSs 2009 HKAS 27 (Revised) Consolidated and Separate Financial Statements HKAS 39 (Amendment) Eligible Hedged Items HKFRS 1 (Amendment) Additional Exemptions for First-time Adopters HKFRS 2 (Amendment) Group Cash-settled Share-based Payment Transactions HKFRS 3 (Revised) Business Combinations HK(IFRIC)-Int 17 Distribution of Non-cash Assets to Owners The Group applies HKFRS 3 (Revised) Business Combinations prospectively to
business combinations for which the acquisition date is on or after January
1, 2010. The requirements in HKAS 27 (Revised) Consolidated and Separate
Financial Statements in relation to accounting for changes in ownership
interests in a subsidiary after control is obtained and for loss of control
of a subsidiary are also applied prospectively by the Group on or after January 1, 2010.
As there was no transaction during the current interim period in which HKFRS
3 (Revised) and HKAS 27 (Revised) are applicable, the application of HKFRS 3
(Revised), HKAS 27 (Revised) and the consequential amendments to other HKFRSs
had no effect on the condensed consolidated financial statements of the Group
for the current or prior accounting periods.
Results of the Group in future periods may be affected by future transactions
for which HKFRS 3 (Revised), HKAS 27 (Revised) and the consequential
amendments to the other HKFRSs are applicable.
The application of the other new and revised HKFRSs had no material effect on
the condensed consolidated financial statements of the Group for the current
or prior accounting periods.
The Group has not early applied the following new and revised standards,
amendments or interpretations that have been issued but are not yet effective. HKFRSs (Amendments) Improvements to HKFRSs 2010(1) HKAS 32 (Amendment) Classification of Right Issues(2) HKFRS 1 (Amendment) Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters(3) HKFRS 9 Financial Instruments (relating to the classification and measurement of financial assets)(5) HK(IFRIC)-Int 14 (Amendment) Prepayments of a Minimum Funding Requirement(4) HK(IFRIC)-Int 19 Extinguishing Financial Liabilities with Equity Instruments 3 (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 February 1, 2010 (3) Effective for annual periods beginning on or after July 1, 2010 (4) Effective for annual periods beginning on or after January 1, 2011 (5) Effective for annual periods beginning on or after January 1, 2013 HKFRS 9 Financial Instruments introduces new requirements for the
classification and measurement of financial assets and will be effective from
January 1, 2013, with earlier application permitted. The Standard requires
all recognised financial assets that are within the scope of HKAS 39
Financial Instruments: Recognition and Measurement to be measured at either
amortised cost or fair value. Specifically, debt investments that (i) are
held within a business model whose objective is to collect the contractual
cash flows and (ii) have contractual cash flows that are solely payments of
principal and interest on the principal outstanding are generally measured at
amortised cost. All other debt investments and equity investments are measured at fair value. The application of HKFRS 9 might affect the classification and measurement of the Group's financial assets.
The directors of the Company anticipate that the application of the other new
and revised standards, amendments or interpretations will have no material
impact on the results and the financial position of the Group.3. SEGMENT INFORMATION Comparing to the same period last year, there were no changes in the reportable segments of the Group during the Period. Segment revenue and results The following is an analysis of the Group's revenue and results by reportable segment. For the Period ended June 30, 2010 Service area Toll and advertising Securities operation business operation Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Segment revenue from external customers 1,684,074 791,969 654,859 3,130,902 Segment profit 768,384 35,418 245,845 1,049,647 For the Period ended June 30, 2009 Service area Toll and advertising Securities operation business operation Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Segment revenue from external customers 1,509,470 580,168 679,217 2,768,855 Segment profit 678,711 31,258 263,612 973,581
Segment profit represents the profit after tax of each reportable segment.
This is the measure reported to the chief operating decision maker and the
Group's Chief Executive Officer, for the purposes of resource allocation and
performance assessment. Revenue from major services An analysis of the Group's revenue, net of discounts and taxes, for the Period is as follows: For the Period ended June 30, 2010 2009 Rmb'000 Rmb'000 Unaudited Unaudited Toll operation revenue 1,684,074 1,509,470
Service area business revenue 754,265
540,920
Advertising business revenue 37,671
37,859
Commission income from securities operation 557,350 619,792
Interest income from securities operation 97,509
59,425 Others 33 1,389 Total revenue 3,130,902 2,768,8554. OTHER INCOME For the six months ended June 30, 2010 2009 Rmb'000 Rmb'000 Unaudited Unaudited
Interest income on bank balances and an
entrusted loan receivable 21,734
11,028 Rental income 30,729 28,727 Net exchange gain 3,135 283 Towing income 7,090 7,409
Interest income from structured deposit --
3,114 Others 14,765 11,831 Total 77,453 62,3925. PROFIT BEFORE TAX The Group's profit before tax has been arrived at after charging: For the six months ended June 30, 2010 2009 Rmb'000 Rmb'000 Unaudited Unaudited
Depreciation of property, plant and
equipment 53,642
46,710
Amortisation of expressway operating
rights 345,188
331,613
Amortisation of prepaid lease payments 1,021
632
Amortisation of other intangible assets 5,069
5,561
Cost of inventories recognized as an
expense 705,097 475,2836. INCOME TAX EXPENSES For the six months ended June 30, 2010 2009 Rmb'000 Rmb'000 Unaudited Unaudited
PRC Enterprise Income Tax:
Current tax 372,826 347,697 Deferred tax: Current period (10,229) (21,593) 362,597 326,104
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 Profit Tax has been provided as the Group's income neither arises in, nor is derived from Hong Kong during the Period. The tax charge for the Period can be reconciled to the profit per the condensed consolidated statements of comprehensive income as follows: For the six months ended June 30, 2010 2009 Rmb'000 Rmb'000 Unaudited Unaudited Profit before tax 1,412,244 1,299,685
Tax at the PRC enterprise income tax
rate of 25% 353,061
324,921
Tax effect of share of losses of
associates 1,599
2,820
Tax effect of share of profit of a
jointly controlled entity --
(3,268)
Tax effect of (income)/expense that
is not (taxable) and deductible
for tax purposes 7,937 1,631 Tax charge for the Period 362,597 326,1047. DIVIDENDS
The Directors have recommended the payment of an interim dividend of Rmb6
cents per share (2009: Rmb6 cents per share), subject to shareholders'
approval at the extraordinary general meeting of the Company expected to be
held on October 18, 2010.8. EARNINGS PER SHARE
The calculation of the basic earnings per share is based on profit
attributable to owners of the Company for the Period of Rmb855,609,000
(2009: Rmb772,452,000) and the 4,343,114,500 shares (2009: 4,343,114,500
shares) in issue during the Period.
No diluted earnings per share have been calculated as there were no potential
dilutive ordinary shares in issue in both periods.
9. PROPERTY, PLANT AND EQUIPMENT
There were no significant changes to the Group's property, plant and
equipment during the Period.
10. TRADE RECEIVABLES
The Group has no credit period granted to its trade customers of toll
operation, service area businesses and securities operation. The following
is an aged analysis of trade receivables presented based on invoice date at
the end of the reporting period. As at As at June 30, December 31, 2010 2009 Rmb'000 Rmb'000 Unaudited Audited Within 3 months 47,187 49,739 3 months to 1 year -- -- 1 to 2 years 10 218 Over 2 years 821 613 Total 48,018 50,57011. OTHER RECEIVABLES As at As at June 30, December 31, 2010 2009 Rmb'000 Rmb'000 Unaudited Audited
Consideration receivable*(Note1) 115,000
115,000
Entrusted loan receivable from a related party
(Note 2) 120,000
120,000
Dividend receivable from a jointly controlled
entity* 53,000 53,000 Prepayments 41,038 54,783 Others* 152,492 108,384 Total 481,530 451,167
* The amounts were unsecured, interest-free and repayable on demand.
Note 1: The balance represented the receivable of the unsettled consideration of disposal of Hangzhou Shida Highway Co., Ltd. in 2009. Note 2: Pursuant to the resolutions of the shareholders' meeting on September 15, 2009 of Zhejiang Expressway Investment
Development
Co., Ltd. ("Development Co"), a subsidiary of the Company, and
the
entrusted loan contracts, Development Co. provided short-term entrusted loans during 2009 totalling Rmb120,000,000 to
Hangzhou
Concord Property Investment Co., Ltd.("Hangzhou Concord Co"), a subsidiary of an associate of Development Co., at a fixed
interest
rate of 12% per annum, via Industrial and Commercial Bank of China.12. TRADE PAYABLES
The following is an aged analysis of trade payables presented based on
payment due date at the end of the reporting period.
As at As at June 30, December 31, 2010 2009 Rmb'000 Rmb'000 Unaudited Audited Within 3 months 375,220 410,900 3 months to 1 year 126,476 77,793 1 to 2 years 62,481 136,065 2 to 3 years 78,312 22,011 Over 3 years 14,819 604 Total 657,308 647,373
13. OTHER PAYABLES AND ACCRUALS
As at As at June 30, December 31, 2010 2009 Rmb'000 Rmb'000 Unaudited Audited Other liabilities:
Accrued payroll and welfare 317,244
341,870
Advance from customers 68,020
62,589
Toll collected on behalf of other
toll roads 29,022 36,149 Others 158,646 154,475 572,932 595,083 Accruals 25,393 42,582 Total 598,325 637,66514. PROVISIONS
Subsequent to the relevant disclosure made in the Company's 2009 annual
report (pages 105 - 106) relating to "Provisions", as at the date of this
report, there was no material change for the Period save as disclosed below.
Prior to the restructuring of Zheshang Securities Co., Ltd.("Zheshang
Securities") by the Company, the original person-in-charge of one of the
Sales Department under Zheshang Securities illegally misappropriated
customers' deposits and funds, which caused a loss of approximately
Rmb90,000,000 to the relevant customers. Zheshang Securities had made in
2009 a provision amounting to Rmb94,860,000 for the principal and related
interests involved in the lawsuits, of which Rmb7,047,000 had been settled
in 2009 and Rmb2,700,000 has been settled in current period.
15. COMMITMENTS As at As at June 30, December 31, 2010 2009 Rmb'000 Rmb'000 Unaudited Audited
Authorised but not contracted for:
Investments in expressway upgrade services 26 50 Renovation of service areas 30 30 Purchase of equipment 95 128 Acquisition and construction of properties and its renovation work 164 216 Total 315 424
16. RELATED PARTY TRANSACTION
The following is a summary of the major related party transactions arising
from the Group's daily operating activities:
1) Pursuant to the operation management agreement entered into between
Development Co and Zhejiang Expressway Petroleum Development Co., Ltd.
("Petroleum Co") in respect of the petrol stations in the service areas
along the Shanghai-Hangzhou-Ningbo and Shangsan Expressways, Petroleum Co
will with their expertise assist Development Co in running their petrol
stations along the Shanghai-Hangzhou-Ningbo and Shangsan Expressways.
Purchases of petroleum products from petroleum Co during the Period
amounted to Rmb616,596,000.
2) On May 20, 2010, the Company entered into the agreement with Zhejiang
Communications Investment Group Co., Ltd. ("Communications Investment
Group") and Yiwu Communications Development Co., Ltd., pursuant to which the Company agree to inject a further capital to the amount of Rmb23,450,000, in proportion to its share of capital contributions, into Zhejiang Jinhua Yongjin Expressway Co., Ltd. ("Jinhua Co") by cash to alleviate a shortage in project and working capital at Jinhua Co. After the further capital injection by the Company and Communications Investment Group, the registered capital of Jinhua Co increased from Rmb800,000,000 to Rmb900,000,000 and the Company continued to own as to 23.45% in the capital of Jinhua Co.
Transactions and balances with other state-controlled entities in the PRC
The Group operates in an economic environment currently predominated by
entities directly or indirectly owned or controlled by the PRC government
("state-controlled entities"). In addition, the Group itself is part of a
larger group of companies under the Communications Investment Group which is
controlled by the PRC government. Apart from the transactions with the
Communications Investment Group and parties under the common control of the
Communications Investment Group, the Group also conducts business with other
state-controlled entities. The directors consider those state-controlled
entities are independent third parties 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 and financial institutions which are state-controlled entities in its
ordinary course of business. In view of the nature of those banking transactions, the directors are of the opinion that separate disclosure would not be meaningful.
In respect of the Group's tolled road business, the directors are of the
opinion that it is impracticable to ascertain the identity of counterparties
and accordingly whether the transactions are with other state-controlled
entities in the PRC.
17. CONTINGENT LIABILITIES AND PLEDGE OF ASSETS
The Group did not have any other contingent liabilities, pledge of assets or
guarantees as at June 30, 2010.
18. COMPARATIVE AMOUNTS
Certain comparative amounts have been reclassified to conform to the
Period's presentation.
19. EVENTS AFTER THE REPORTING PERIOD
As at the date of this report, the Company successively entered into equity
transfer agreements with the Vendor (with people including Ms Huang Qiuxia
as agents for various parties). Pursuant to the agreements, the Company
agrees to acquire, at a cash consideration of Rmb68,482,200 and on the terms
of the agreements, 34.6375% equity interests in Development Co. held by the
Vendor, of which 3.9% interests are owned by connected parties, namely
Directors Mr Jiang Wenyao, Mr Zhang Jingzhong and Supervisor Mr Fang Zhexing.
The transfer price is determined with reference to the net assets of
Development Co. as at the end of 2009 as audited by domestic auditors.
Please refer to the Company's announcement on connected transaction of
August 23 for details relating to the transfer of the connected parties'
equity interests in Development Co. The Company will further acquire the
remaining equity interests in Development Co.
20. APPROVAL OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements were approved and authorized
for issue by the board of directors on August 29, 2010.
Corporate InformationEXECUTIVE DIRECTORS REPRESENTATIVE OFFICE IN HONG KONGChen Jisong (Chairman) Suite 2910Zhan Xiaozhang (General Manager) 29/F, Bank of America TowerJiang Wenyao 12 Harcourt RoadZhang Jingzhong Hong Kong Tel: 852-2537 4295NON-EXECUTIVE DIRECTORS Fax: 852-2537 4293Zhang LuyunZhang Yang (resigned) LEGAL ADVISERS As to Hong Kong and US law:INDEPENDENT NON-EXECUTIVE DIRECTORS Herbert SmithTung Chee Chen 23rd Floor, Gloucester TowerZhang Junsheng 15 Queen's Road CentralZhang Liping Hong KongSUPERVISORS As to English law:Ma Kehua Herbert Smith LLPFang Zhexing Exchange HouseZheng Qihua (resigned) Primrose StreetJiang Shaozhong London EC2A 2HSWu Yongmin United KingdomCOMPANY SECRETARY As to PRC law:Zhang Jingzhong T & C Law Firm 11/F, Block A, Dragon Century PlazaAUTHORIZED REPRESENTATIVES 1 Hangda RoadChen Jisong Hangzhou City, Zhejiang ProvinceZhang Jingzhong PRC 310007STATUTORY ADDRESS AUDITORS
12/F, Block A, Dragon Century Plaza Deloitte Touche Tohmatsu 1 Hangda Road
35/F, One Pacific PlaceHangzhou City, Zhejiang Province 88 QueenswayPRC 310007 Hong KongTel: 86-571-8798 5588Fax: 86-571-8798 5599INVESTOR RELATIONS CONSULTANTRikes Hill & Knowlton LimitedRoom 1312, Wing On Centre111 Connaught Road CentralHong KongTel: 852-2520 2201Fax: 852-2520 2241PRINCIPAL BANKERS CORPORATE BOND LISTING INFORMATION
Industrial and Commercial Bank of China, The Shanghai Stock Exchange
Zhejiang Branch Symbol: 03
China Construction Bank, Zhejiang Branch Code: 120308 Shanghai Pudong Development Bank,
Hangzhou Branch WEBSITE www.zjec.com.cnH SHARE REGISTRAR AND TRANSFER OFFICEHong Kong Registrars LimitedRoom 1712-1716, 17/F, Hopewell Centre183 Queen's Road EastHong KongH SHARES LISTING INFORMATIONThe Stock Exchange of Hong Kong LimitedCode: 0576LONDON STOCK EXCHANGE PLCCode: ZHEHADRS INFORMATIONUS Exchange: OTCSymbol: ZHEXYCUSIP: 98951A100ADR: H Shares 1:10
For Corporate Structure of the Group, please visit: http://www.prnasia.com/sa/attachment/2010/09/20100901285915.pdf
For Financial Highlights, please visit:http://www.prnasia.com/sa/attachment/2010/09/20100901505544.pdf
For Location Map of Expressways in Zhejiang Province, please visit: http://www.prnasia.com/sa/attachment/2010/09/20100901218529.pdf
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NOTE: To view the full set of the company's 2010 Interim Report,
please visit www.zjec.com.cn -----------------------------------------------------------------
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