2014 Interim Results Announcement

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limitedtake no responsibility for the contents of this announcement, make no representationas to its accuracy or completeness and expressly disclaim any liability whatsoeverfor any loss howsoever arising from or in reliance upon the whole or any part ofthe contents of this announcement. ZHEJIANG EXPRESSWAY CO., LTD. (A joint stock limited company incorporated in the People's Republic of China with limited liability) (Stock code: 0576) 2014 INTERIM RESULTS ANNOUNCEMENT The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the "Company")announce the unaudited consolidated operating results of the Company and itssubsidiaries (collectively the "Group") for the six months ended June 30, 2014(the "Period"), with the basis of preparation as stated in note 1 to thecondensed consolidated financial statements set out below. During the Period, revenue for the Group was Rmb4,121.82 million, representingan increase of 13.0% over the same period in 2013. Profit for the Periodattributable to owners of the Company was Rmb1,063.43 million, representingan increase of 14.3% year-on-year. Earnings per share for the Period wasRmb24.49 cents (same period in 2013: Rmb21.42 cents). The Directors have recommended to pay an interim dividend of Rmb6 centsper share, subject to shareholders' approval at the extraordinary generalmeeting of the Company, which is expected to be held on October 16, 2014. The audit committee of the Company has reviewed the interim results. Set outbelow are the unaudited condensed consolidated statement of profit or lossand other comprehensive income for the Period and condensed consolidatedstatement of financial position as at June 30, 2014, with comparativefigures for the same period in 2013 and relevant notes to the condensedconsolidated financial statements: CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHERCOMPREHENSIVE INCOME For the six months ended June 30, 2014 2013 Notes Rmb'000 Rmb'000 (Unaudited) (Unaudited) ----------- -----------Revenue 3 4,121,822 3,647,268Operating costs (2,580,471) (2,283,848) ---------- ----------- Gross profit 1,541,351 1,363,420Securities investment gains 87,240 79,786Other income 4 140,164 103,890Administrative expenses (33,552) (36,126)Other expenses (26,556) (21,401)Share of profit of associates 24,868 4,791Share of loss of a joint venture (15,602) (13,938)Finance costs (39,869) (43,079) ----------- ---------- Profit before tax 1,678,044 1,437,343Income tax expense 5 (430,799) (374,175) ----------- ----------Profit for the Period 1,247,245 1,063,168 ----------- ---------- Other comprehensive loss Items that may be subsequently reclassified to profit or loss: Available-for-sale financial assets - Fair values loss during the Period (2,719) (3,681) - Reclassification adjustments for cumulative gain included in profit or loss upon disposal - (1,381) Income tax relating to components of other comprehensive loss 680 1,266 ------------ ------------ Other comprehensive loss for the Period (net of tax) (2,039) (3,796) ------------ ------------ Total comprehensive income for the Period 1,245,206 1,059,372 ============ ============ For the six months ended June 30, 2014 2013 Note Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- ------------Profit for the Period attributable to: Owners of the Company 1,063,433 930,385 Non-controlling interests 183,812 132,783 ------------ ----------- 1,247,245 1,063,168 ============ =========== Total comprehensive income for the Period attributable to: Owners of the Company 1,062,183 928,429 Non-controlling interests 183,023 130,943 ------------ ----------- 1,245,206 1,059,372 ============ ============ Earnings per share - Basic and diluted 7 24.49 cents 21.42 cents ============ ============ CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at As at June 30, December 31, 2014 2013 Note Rmb'000 Rmb'000 (Unaudited) (Audited) ----------- ----------Non-current assets Property, plant and equipment 1,801,968 1,762,042 Prepaid lease payments 67,079 68,156 Expressway operating rights 11,511,820 11,911,133 Goodwill 86,867 86,867 Other intangible assets 145,997 154,564 Interests in associates 597,414 574,733 Interest in a joint venture 318,342 333,944 Available-for-sale investments 160,500 143,514 Other receivables - 401,400 ----------- --------- 14,689,987 15,436,353 ------------ ---------- Current assets Inventories 71,277 73,576 Trade receivables 8 116,871 101,428 Loans to customers arising from margin financing business 3,256,393 2,946,911 Other receivables and prepayments 773,945 451,968 Prepaid lease payments 2,155 2,155 Available-for-sale investments 512,789 281,924 Held for trading investments 1,785,239 1,181,025 Financial assets held under resale agreements 1,130,604 874,254 Bank balances held on behalf of customers 9,726,025 8,228,160 Bank balances and cash - Time deposits with original maturity over three months 726,245 704,459 - Cash and cash equivalents 1,773,320 1,806,981 ----------- ---------- 19,874,863 16,652,841 ------------ ---------- As at As at June 30, December 31, 2014 2013 Note Rmb'000 Rmb'000 (Unaudited) (Audited) ------------- ----------- Current liabilities Accounts payable to customers arising from securities business 9,686,410 8,167,103 Trade payables 9 511,459 421,994 Tax liabilities 255,147 331,611 Other taxes payable 36,418 53,417 Other payables and accruals 1,071,569 995,496 Dividends payable 171,240 94,976 Bank and other borrowings 500,000 540,000 Financial assets sold under repurchase agreements 630,531 - Placements from other financial institution 560,000 310,000 Short-term loan note 1,000,000 1,000,000 ----------- ----------- 14,422,774 11,914,597 ----------- ----------- Net current assets 5,452,089 4,738,244 ----------- ----------- Total assets less current liabilities 20,142,076 20,174,597 ---------- -----------Non-current liabilities Bank loans 200,000 300,000 Deferred tax liabilities 200,708 205,638 ----------- ----------- 400,708 505,638 ---------- ---------- 19,741,368 19,668,959 =========== ========== Capital and reserves Share capital 4,343,115 4,343,115 Reserves 11,605,827 11,629,423 ----------- ---------- Equity attributable to owners of the Company 15,948,942 15,972,538Non-controlling interests 3,792,426 3,696,421 ----------- ---------- 19,741,368 19,668,959 ============ =========== Notes: 1. BASIS OF PREPARATION The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA") as well as 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"). 2. PRINCIPAL ACCOUNTING POLICIES The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value, as appropriate. Except as disclosed below, the accounting policies and methods of computation applied in the condensed consolidated financial statements for the Period are consistent with those in the preparation of the Group's annual financial statements for the year ended December 31, 2013. Financial assets sold under repurchase agreements Financial assets sold subject to agreements with a commitment to repurchase at a specific future date are not derecognised in the condensed consolidated statement of financial position. The proceeds from selling such assets are presented under "financial assets sold under repurchase agreements" in the condensed consolidated statement of financial position. The difference between the selling price and repurchasing price is recognised as interest expense during the term of the agreement using the effective interest method. In the Period, the Group has applied, for the first time, new Interpretation and amendments to Hong Kong Financial Reporting Standards (the "HKFRSs") issued by HKICPA, which are effective for the Period. The application of the new Interpretation and amendments to HKFRSs during the Period has had no material effect on the condensed consolidated financial statements and/or relevant disclosures set out in these condensed consolidated financial statements. 3. REVENUE AND SEGMENT INFORMATION Compared to the same period last year, there were no major changes in the reportable and operating 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 and operating segments: For the six months ended June 30, 2014 Toll related operation Service Other area and toll road Toll advertising related Securities Total operation businesses service operation segment Elimination Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 (unaudited) (unaudited)(unaudited) (unaudited)(unaudited) (unaudited) (unaudited) ------------ ---------- ----------- ---------- ---------- ----------- -----------Revenue External sales 2,041,188 1,183,241 19,050 878,343 4,121,822 - 4,121,822 Inter-segment sales - 2,377 4,459 - 6,836 (6,836) - ------------ ---------- ---------- --------- ---------- ----------- ---------- Total 2,041,188 1,185,618 23,509 878,343 4,128,658 (6,836) 4,121,822 ============ ========= ========= ========= ========= ========== ========= Segment profit 942,673 63,071 18,789 222,712 1,247,245 1,247,245 ============ ========= ========= ========= ========= ========= For the six months ended June 30, 2013 Toll related operation Service Other area and toll road Toll advertising related Securities Total operation businesses service operation segment Elimination Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 (unaudited) (unaudited)(unaudited) (unaudited)(unaudited) (unaudited) (unaudited) ------------ ---------- ----------- ---------- ---------- ----------- -----------Revenue External sales 1,921,545 1,010,644 - 715,079 3,647,268 - 3,647,268 Inter-segment sales - 2,377 - - 2,377 (2,377) - ---------- ---------- ----------- ---------- -------- --------- ---------- Total 1,921,545 1,013,021 - 715,079 3,649,645 (2,377) 3,647,268 ========== ========== =========== ========== ========= ========== =========== Segment profit 868,464 20,250 7,589 166,865 1,063,168 1,063,168 ========== ========== =========== ========== ========= =========== Segment profit represents the profit after tax of each operating segment. This is the measure reported to the chief operating decision maker - the Company's General Manager, for the purpose 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 followed: For the six months ended June 30, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ----------- ----------- Toll operation revenue 2,041,188 1,921,545 Service area businesses revenue (mainly sales of 1,134,635 958,740 goods) Advertising business revenue 48,606 51,904 Commission income from securities operation 595,994 538,279 Interest income from securities operation 282,349 176,800 Others 19,050 - ----------- ----------- Total 4,121,822 3,647,268 ----------- ----------- 4. OTHER INCOME For the six months ended June 30, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ----------- ----------- Interest income on bank balances, entrusted loan receivables and financial products investment 34,494 45,746 Rental income 55,155 32,652 Gain on disposal of an associate 24,490 - Handling fee income 1,487 2,193 Towing income 4,695 4,883 Exchange gain, net 861 14 Others 18,982 18,402 ----------- ----------- Total 140,164 103,890 =========== =========== 5. INCOME TAX EXPENSE For the six months ended June 30, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ----------- ----------- Current tax: PRC Enterprise Income Tax 435,049 388,811 Deferred tax (4,250) (14,636) ----------- ----------- 430,799 374,175 =========== =========== Under the law of the PRC on Enterprise Income Tax (the "EIT Law") and Implementation Regulation of the EIT Law, the applicable tax rate of the Group is 25% No Hong Kong Profits Tax has been provided as the Group's income neither arises in, nor is derived from Hong Kong during the Period. 6. DIVIDENDS The Directors have recommended the payment of an interim dividend of Rmb6 cents per share (corresponding period of 2013: Rmb6 cents per share), subject to shareholders' approval at the extraordinary general meeting of the Company. 7. EARNINGS PER SHARE The calculation of the basic earnings per share is based on profit for the Period attributable to owners of the Company of Rmb1,063,433,000 (corresponding period of 2013: Rmb930,385,000) and the 4,343,114,500 (2013: 4,343,114,500) ordinary shares in issue during the Period. Diluted earnings per share presented is the same as basic earnings per share since there were no potential ordinary shares outstanding during both periods. 8. TRADE RECEIVABLES As at As at June 30, December 31, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Audited) ---------- ---------- Trade receivables comprise: A fellow subsidiary 1,500 3,077 Third parties 116,043 99,023 ---------- ---------- Total trade receivables 117,543 102,100 Less: Allowance for doubtful debts (672) (672) ---------- ---------- 116,871 101,428 ========== ========== The Group has no credit period granted to its trade customers of toll operation and service area businesses. The Group's trade receivable balance for toll operation is toll receivables from the Expressway Fee Settlement Centre of the Highway Administration Bureau of Zhejiang Province, which are normally settled within 3 months. All of these trade receivables were neither past due nor impaired in both periods. In respect of the Group's asset management service operated by Zheshang Securities Co., Ltd. ("Zhejiang Securities", a 70.83% owned subsidiary of Zhejiang Shangsan Expressway Co., Ltd. which is a subsidiary of the Company), trading limits are set for customers. The Group seeks to maintain tight control over its outstanding accounts receivable in order to minimise credit risk. Overdue balances are regularly monitored by management. The following is an aged analysis of trade receivables, net of allowance for doubtful debts presented based on the invoice date at the end of the reporting period, which approximated the respective revenue recognition dates: As at As at June 30, December 31, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Audited) ---------- ---------- Within 3 months 97,317 90,812 3 months to 1 year 19,391 10,453 Over 2 years 163 163 ---------- ---------- Total 116,871 101,428 ========== ========== 9. TRADE PAYABLES Trade payables mainly represent the construction payables for the maintenance projects of toll expressways. The following is an aged analysis of trade payables presented based on the invoice date at the end of the reporting period: As at As at June 30, December 31, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Audited) ----------- ---------- Within 3 months 214,332 214,669 3 months to 1 year 193,375 82,048 1 to 2 years 39,635 29,518 2 to 3 years 6,652 8,496 Over 3 years 57,465 87,263 ----------- ---------- Total 511,459 421,994 =========== ========== BUSINESS REVIEW As the government's macro economic control policies that are aimed atsustaining stable growth and the implementation of deep level structuralreforms gradually took effect, the growth of the nation's economy has beenstabilizing. China recorded 7.4% GDP growth in the first half of 2014 comparedwith the corresponding period of last year. During the first half of 2014,though Zhejiang Province saw varied levels of growth in investment, consumptionand exports, the growth rate of Zhejiang Province's economy was slower than thecorresponding period of last year. During the Period, the GDP of ZhejiangProvince increased 7.2% compared with the corresponding period of last year. Benefiting from the gradual recovery of Zhejiang Province's economy and animproved environment for foreign trade, the Group's total income increased by12.9% compared with the corresponding period of last year to Rmb4,244.23million. Income generated from the three major expressways operated by theGroup was Rmb2,111.52 million, representing an increase of 6.3% over thecorresponding period of 2013 and 49.8% of total income. Income from the Group'stoll road-related businesses was Rmb1,208.56 million, representing an increaseof 18.9% over the corresponding period of 2013 and 28.5% of total income. TheGroup's securities business contributed income of Rmb924.15 million,representing an increase of 22.3% over the corresponding period of 2013 and21.7% of total income. A breakdown of the Group's income for the Period is set out below: For the six months ended June 30, 2014 2013 Rmb'000 Rmb'000 % Change ---------- --------- --------Toll income Shanghai-Hangzhou-Ningbo Expressway 1,495,972 1,502,446 -0.4% Shangshan Expressway 470,822 359,199 31.1% Jinhua section, Ningbo-Jinhua 144,724 125,490 15.3% Expressway Other income Service areas 1,138,682 962,830 18.3% Advertising 50,027 53,815 -7.0% Road maintenance 19,852 - N/A Securities business income Commission 641,797 579,077 10.8% Interest income 282,349 176,800 59.7% ---------- --------- --------Subtotal 4,244,225 3,759,657 12.9% Less: Revenue taxes (122,403) (112,389) 8.9% ---------- --------- --------Revenue 4,121,822 3,647,268 13.0% ========== ========= ========Toll Road Operations The organic growth in toll road traffic volume is closely associated with theregional economy along the toll roads. During the Period, the traffic volume onthe Group's three expressways experienced varying levels of organic growthcorresponding to the regions in which they are located. Organic traffic volumegrowth rates for the Shanghai-Hangzhou-Ningbo Expressway, Shangsan Expresswayand Jinhua Section of Ningbo-Jinhua Expressway were 7.0%, 6.7% and 11.7%,respectively, of which the growth rate was slightly lower than thecorresponding period of last year for the Shanghai-Hangzhou-Ningbo Expressway,at about equal level for the Shangsan Expressway, and at a slightly higherlevel for the Jinhua Section of Ningbo-Jinhua Expressway. Since the opening of Jiaxing-Shaoxing Bridge (not operated by the Group) inJuly, 2013, a certain level of traffic diversion has taken place for theGroup's Shanghai-Hangzhou-Ningbo Expressway and resulted in a decrease ofRmb75.00 million in terms of the Group's toll income during the Period.However, the Jiaxing-Shaoxing Bridge has a more positive effect on the ShangsanExpressway. Most of the vehicles passing through Jiangsu Province, Taizhou andWenzhou took the Shangsan Expressway, while a number of vehicles travelingbetween Shanghai, Taizhou and Wenzhou and between Jiangsu and Ningbo also choseto take the Shangsan Expressway or Hangzhou-Ningbo Section of theShanghai-Hangzhou-Ningbo Expressway as a result of the Company's effectivepromotions to attract more traffic. During the Period, the opening of theJiaxing-Shaoxing Bridge led to an increase of Rmb86.00 million in terms of tollincome on the Shangsan Expressway. The Jinhua Section of the Ningbo-Jinhua Expressway maintained a relatively highorganic growth in traffic volume as a result of continuing high speed economicdevelopment in Yiwu and nearby regions, as well as a speedy increase in smalltruck ownership in Yiwu. Construction work on roads surrounding theNingbo-Jinhua Expressway and the Company's effective promotions efforts alsohad a positive impact on toll income. Container trucks traveling along theNingbo-Jinhua Expressway also posted a notable increase in miles driven. Duringthe Period, the Jinhua Section of the Ningbo-Jinhua Expressway recorded anincrease of approximately Rmb5.00 million in toll income as a result of factorssuch as construction work on surrounding roads. Meanwhile, toll income from the Shanghai-Hangzhou-Ningbo Expressway decreasedby approximately Rmb18.00 million as a result of construction on the HangzhouAirport road that began on April 15, 2014. Moreover, the opening of theQianjiang Road (not operated by the Group) on April 16, 2014, also led to adecline in toll income of the Shanghai-Hangzhou-Ningbo Expressway byapproximately Rmb2.70 million. The average daily traffic volume in full-trip equivalents along the Group'sShanghai-Hangzhou-Ningbo Expressway was 43,764 during the Period, representingan increase of 1.2% year-on-year. In particular, average daily traffic volumein full-trip equivalents along the Shanghai-Hangzhou Section of theShanghai-Hangzhou-Ningbo Expressway was 42,211, representing a decrease of 3.3%year-on-year. The average daily traffic volume in full-trip equivalents alongthe Hangzhou-Ningbo Section was 44,873, representing an increase of 4.3%year-on-year. The average daily traffic volume in full-trip equivalents alongthe Shangsan Expressway was 22,435 during the Period, representing an increaseof 29.0% year-on-year. The average daily traffic volume in full-tripequivalents along the Jinhua Section of the Ningbo-Jinhua Expressway was 15,162during the Period, representing an increase of 17.3% year-on-year. Total toll income from the 248 km Shanghai-Hangzhou-Ningbo Expressway, the 142km Shangsan Expressway and the 70 km Jinhua Section of the Ningbo-JinhuaExpressway amounted to Rmb2,111.52 million during the Period, representing anincrease of 6.3% year-on-year. Toll income from the Shanghai-Hangzhou-NingboExpressway was Rmb1,495.97 million, representing a decrease of 0.4%year-on-year; toll income from the Shangsan Expressway was Rmb470.82 million,representing an increase of 31.1% year-on-year; while toll income from theJinhua Section of the Ningbo-Jinhua Expressway was Rmb144.73 million,representing an increase of 15.3% year-on-year. Toll Road-Related Business Operations The Company also operates certain toll road-related businesses along itsexpressways through its subsidiaries and associated companies, including gasstations, restaurants, shops in service areas, advertising at service areas,toll plazas and expressway interchanges, as well as road maintenance. During the Period, with the opening of the Jiaxing-Shaoxing Bridge, the serviceareas along Shangsan Expressway saw significant growth in income due to theincrease in traffic volume. However, the decrease in traffic volume on theShanghai-Hangzhou-Ningbo Expressway adversely affected income from serviceareas along the expressway, and these service areas make a relatively largecontribution to income from service areas. Therefore, the overall income fromservice areas declined. However, due to a solid increase in sales of refinedoil products and additional income from the external road maintenance projects,the Group's toll road-related businesses achieved a solid increase in overallincome. Income from toll road-related businesses was Rmb1,208.56 million forthe Period, representing an increase of 18.9% year-on-year. Securities Business During the Period, although the Shanghai and Shenzhen stock indices declinedslightly, the aggregate trading volume increased by 4.7% compared with thecorresponding period of last year. Despite the slight growth in market shareand trading volume of Zheshang Securities, its average commission rate declinedfrom 0.08% to 0.072% due to intensified competition in the securities industryand the gradual relaxation of controls on commissions. As a result, income fromZheshang Securities' brokerage business was generally flattish compared withthe same period last year. Additionally, while accelerating the comprehensive development of each businesssegment, Zheshang Securities has been actively working to improve its incomeand profit structure to gradually reduce the dominant role that its brokeragebusiness played in the past. During the Period, income from investment banking,margin financing and securities lending, as well as asset management businessesof Zheshang Securities all grew steadily year-on-year. The IPO application submitted by Zheshang Securities was accepted by the ChinaSecurities Regulatory Commission in May 2013. Zheshang Securities remains onthe waiting list for an IPO. During the Period, Zheshang Securities' total operating income was Rmb924.15million, an increase of 22.3% year-on-year. Brokerage commission income wasRmb641.80 million, a year-on-year increase of 10.8%. Interest income from thesecurities business was Rmb282.35 million, a year-on-year increase of 59.7%.Moreover, securities investment gains from Zheshang Securities included in thecondensed consolidated statement of profit or loss and other comprehensiveincome of the Group was Rmb79.15 million during the Period. Long-Term Investments Zhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associatecompany of the Company) recorded income of Rmb3,265.30 million, a year-on-yearincrease of 5.8%. The increase was primarily attributable to an increase insales volume of refined oil products. During the Period, net profit realizedRmb11.36 million (corresponding period of 2013: net profit of Rmb11.34million). Shengxin Expressway Co., Ltd. ("Shengxin Company", a 50% owned joint venture ofthe Company) operates the 73.4km Shaoxing Section of the Ningbo-JinhuaExpressway. During the Period, the traffic volume of the Shaoxing Section ofthe Ningbo-Jinhua Expressway increased as the economy of Zhejiang Province grewsteadily. The average daily traffic volume in full-trip equivalents was 13,661,an increase of 10.9% year-on-year. Toll income during the Period was Rmb152.92million. However, due to an increase in road maintenance costs and itsrelatively heavy financial burden, the joint venture reported a loss ofRmb31.20 million (corresponding period of 2013: loss of Rmb27.88 million). JoinHands Technology Co., Ltd. is a 27.582% owned associate company of theCompany. The Company instituted legal proceedings with regards to the transferof the equity interest in this associate company and then lodged an appealagainst the subsequent judgment. The appeal was ruled in favor of the Companyby the Hangzhou Intermediate People's Court on April 28, 2013 regarding theCompany's priority of compensation for the mortgaged properties. Thesemortgaged properties were auctioned off by the court and the Company hasreceived proceeds of Rmb23.83 million as consideration for its equity interesttransfer on May 16, 2014. From then on, JoinHands Technology Co., Ltd. is nolonger an associate of the Company. Zhejiang Communications Investment Group Finance Co., Ltd. (a 35% ownedassociate company of the Company) derives income mainly from fees andcommissions for providing financial services, including arranging loans to, andreceiving deposits from subsidiaries of Zhejiang Communications InvestmentGroup Co., Ltd. (the controlling shareholder of the Company). Profit fromZhejiang Communications Investment Group Finance Co., Ltd. was accounted for asgain of associates of the Company starting from May 1, 2013 and realized a netprofit of Rmb66.89 million during the Period. FINANCIAL ANALYSIS The Group adopts a prudent financial policy with an aim to provide shareholdersof the Company with sound returns over the long term. During the Period, profit attributable to owners of the Company wasapproximately Rmb1,063.43 million, representing an increase of 14.3%year-on-year, return on owners' equity was 6.7%, representing an increase of9.8% year-on-year, while earnings per share for the Company was Rmb24.49 cents. Liquidity and financial resources As at June 30, 2014, current assets of the Group amounted to Rmb19,874.86million in aggregate (December 31, 2013: Rmb16,652.84 million), of which bankbalances and cash accounted for 12.6% (December 31, 2013: 15.1%), bank balancesheld on behalf of customers accounted for 48.9% (December 31, 2013: 49.4%) andheld for trading investments accounted for 9.0% (December 31, 2013: 7.1%).Current ratio (current assets over current liabilities) of the Group as at June30, 2014 was 1.4 (December 31, 2013: 1.4). Excluding the effect of the customerdeposits arising from the securities business, the resultant current ratio ofthe Group (current assets less bank balances held on behalf of customers overcurrent liabilities less balance of accounts payable to customers arising fromsecurities business) was 2.1 (December 31, 2013: 2.2). The amount of held for trading investments of the Group as at June 30, 2014 wasRmb1,785.24 million (December 31, 2013: Rmb1,181.03 million), of which 93.4%was invested in bonds, 6.2% was invested in stocks, and the rest was investedin open-end equity funds. During the Period, net cash inflow generated from the Group's operatingactivities amounted to Rmb1,401.75 million. The Directors do not expect the Company to experience any problems withliquidity and financial resources in the foreseeable future. Borrowings and solvency As at June 30, 2014, total liabilities of the Group amounted to Rmb14,823.48million (December 31, 2013: Rmb12,420.24 million), of which 4.7% was bank andother borrowings, 6.7% was short-term loan note and 65.3% was accounts payableto customers arising from securities business. As at June 30, 2014, total interest-bearing borrowings of the Group amounted toRmb1,700.00 million, representing a decrease of 7.6% compared to that as atDecember 31, 2013. The borrowings comprised outstanding balances of domesticcommercial bank loans of Rmb300.00 million, loans from a domestic non-bankfinancial institution of Rmb400.00 million and short-term loan note withthree-month maturity of Rmb1 billion. Of the interest-bearing borrowings, 11.8%was not payable within one year. As at June 30, 2014, all of the Group's loans from domestic commercial bankswere long-term loans, of which long-term loans due in one year amounted toRmb100.00 million, with floating interest rate ranging from 5.895% to 6.765%per annum. Loans from a domestic non-bank financial institution were short-termloans, with the interest rate fixed at 5.04% per annum. The annual coupon ratefor the latest short-term loan note was fixed at 4.87%, while the annualinterest rate for accounts payable to customers arising from the securitiesbusiness was fixed at 0.35%. Total interest expenses for the Period amounted to Rmb43.27 million, whileprofit before interest and tax amounted to Rmb1,717.91 million. The interestcover ratio (profit before interest and tax over interest expenses) stood at39.7 (corresponding period of 2013: 34.4) times. As at June 30, 2014, the asset-liability ratio (total liabilities over totalassets) of the Group was 42.9% (December 31, 2013: 38.7%). Excluding the effectof customer deposits arising from the securities business, the resultantasset-liability ratio (total liabilities less balance of accounts payable tocustomers arising from securities business over total assets less bank balancesheld on behalf of customers) of the Group was 20.7% (December 31, 2013: 17.8%). Capital structure As at June 30, 2014, the Group had Rmb19,741.37 million in total equity,Rmb12,276.94 million in fixed-rate liabilities, Rmb300.00 million infloating-rate liabilities, and Rmb2,246.54 million in interest-freeliabilities, representing 57.1%, 35.5%, 0.9% and 6.5% of the Group's totalcapital, respectively. The gearing ratio, which is computed by dividing thetotal liabilities less accounts payable to customers arising from thesecurities business by total equity, was 26.0% as at June 30, 2014 (December31, 2013: 21.6%). Capital expenditure commitments and utilization During the Period, capital expenditure of the Group totaled Rmb193.55 million,while capital expenditure of the Company totaled Rmb41.87 million. Amongst thetotal capital expenditure of the Group, Rmb57.50 million was incurred forsetting up a wholly-owned subsidiary of the Company and external equityacquisition by Zheshang Securities, Rmb114.29 million was incurred foracquisition and construction of properties, Rmb20.15 million was incurred forpurchase and construction of equipments and facilities, and Rmb1.61 million wasincurred for service area renovation and expansion. As at June 30, 2014, the remaining capital expenditure committed by the Groupand the Company totaled Rmb1,550.97 million and Rmb270.00 million,respectively. Amongst the remaining balance of total capital expenditurescommitted by the Group, Rmb1,209.80 million will be used for acquisition andconstruction of properties, Rmb324.78 million for acquisition and constructionof equipments and facilities, Rmb16.39 million for service area renovation andexpansion. The Group will finance the above-mentioned capital expenditure commitments withinternally generated cash flow first and then will consider using debtfinancing to meet any shortfalls in priority to using other methods. Contingent liabilities and pledge of assets Pursuant to the board resolution of the Company dated November 16, 2012, theCompany and Shaoxing Communications Investment Group Co., Ltd. (the other jointventure partner that holds 50% equity interest in Shengxin Co) providedShengxin Co with joint guarantee for its bank loans of Rmb2,200.00 million, inaccordance with their proportionate equity interest in Shengxin Co. During thePeriod, Rmb25.00 million of the bank loans had been repaid. Pursuant to the resolution of shareholders' meeting dated June 26, 2012 ofZhejiang Yuhang Expressway Co., Ltd. ("Yuhang Co", a 51% owned subsidiary ofthe Company), Yuhang Co provided a property under construction as a mortgagedasset for its domestic commercial bank loan of Rmb100.00 million. As at June30, 2014, the carrying amount of the mortgaged asset was Rmb525.40 million. Pursuant to the board resolution dated June 24, 2008 of Zhejiang Jinhua YongjinExpressway Co., Ltd. ("Jinhua Co", a 100% owned subsidiary of the Company),Jinhua Co provided the operating right of the expressway operated by it aspledged asset for its domestic commercial bank loans, the remaining outstandingbalance of which was Rmb200.00 million. As at June 30, 2014, the carryingamount of the pledged asset was Rmb1,829.78 million. Except for the above, as at June 30, 2014, the Group did not have any othercontingent liabilities, pledge of assets or guarantees. Foreign exchange exposure Save for dividend payments to the holders of H shares in Hong Kong dollars, theGroup's principal operations were transacted and booked in Renminbi. Therefore,the Group's exposure to exchange fluctuation is limited. During the Period, theGroup has not used any financial instruments for hedging purpose. Although the Directors do not foresee any material foreign exchange risks forthe Group, there is no assurance that foreign exchange risks will not affectthe operating results of the Group in the future. OUTLOOK Though the economy is still facing downward pressure, a series of "stabilizinggrowth" policies implemented by the state are gradually yielding results. Whileexternal demands are expected to improve somewhat, internal growth of economicdevelopment is expected to strengthen. Therefore, we expect that the organicgrowth in traffic volume of the Group's expressways will maintain a steady ratein the second half of this year. Qianjiang Road, which opened for traffic in the first half of this year, andthe construction works on the airport road near the Second Qianjiang Bridge,are still expected to have an adverse impact on the Group'sShanghai-Hangzhou-Ningbo Expressway. Therefore, the Group will closely monitorthe construction work on the airport road, analyze impact from the newly openedroad network of the Qianjiang Road and the Jiaxing-Shaoxing Bridge, andundertake effective promotional efforts to attract more vehicles to theexpressways operated by the Group so as to reduce the negative impact oftraffic diversion. Meanwhile, Zhejiang Provincial Government recently launched a specificrectification action on billboard advertising along expressways in theprovince. The billboards on the two sides of the main lines of the expresswaysmust be removed by the end of October this year, which will restrict theadvertising business carried out by Zhejiang Expressway Investment DevelopmentCo., Ltd. (a 100% owned subsidiary of the Company) to service areas, tollplazas and expressway interchanges. Additionally, Zheshang Securities transferred its entire 25% equity interest inZheshang Fund Management Co., Ltd. to Tonglian Capital Management Co., Ltd.through electronic online bidding on the Zhejiang Property and Stock Exchangeon August 14, 2014. The total consideration received for such transfer wasRmb207.00 million, and is expected to have a positive effect on the Group'sresults for the second half of 2014. A series of policies carried out by the Chinese government to reform China'sstock markets, which include the establishment of the Shanghai-Hong Kong StockConnect, the anticipated recovery of the Chinese stock market and increasedliquidity in China are expected to present new challenges and opportunities forZheshang Securities. Zheshang Securities will accelerate the development ofinnovative businesses and further push forward the A-share listing processwhile strengthening cost and risk control to facilitate the sustainabledevelopment of its businesses. The Group's management is making efforts to further strengthen its corebusinesses through various measures, including reducing costs, increasingoperational efficiency, improving operating management facilities, and furtherenhance service quality. In addition to continuing to strengthen its securitiesbusinesses, the Group will look for suitable investment projects whilenurturing management capabilities in diversified operations. By leveraging itsfinancial resources, the Group will develop strategic synergies with its parentcompany in order to broaden its scope of future development, improveprofitability, and achieve sustainable development over the long term. PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARES Neither the Company nor any of its subsidiaries had purchased, sold, redeemedor cancelled any of the Company's shares during the Period. COMPLIANCE WITH LISTING RULES APPENDIX 14 During the Period, the Company complied with all code provisions in theCorporate Governance Code and Corporate Governance Report (the "Code") set outin Appendix 14 to the Listing Rules, and adopted the recommended best practicesin the Code as and when applicable. The electronic version of this announcement is published on the HKExnewswebsite of the Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) andon the Company's website (www.zjec.com.cn). The interim report of the Companyfor the six months ended June 30, 2014 will be dispatched to shareholders ofthe Company and published on the HKExnews website of the Hong Kong Exchangesand Clearing Limited and the Company's website in due course. By order of the Board Zhejiang Expressway Co., Ltd. ZHAN Xiaozhang Chairman Hangzhou, PRC, August 27, 2014 As at the date of this announcement, the executive directors of the Companyare: Mr. ZHAN Xiaozhang, Ms. LUO Jianhu and Mr. DING Huikang; the non-executivedirectors of the Company are: Mr. LI Zongsheng, Mr. WANG Weili andMr. WANG Dongjie; and the independent non-executive directors of the Company are:Mr. ZHANG Junsheng, Mr. ZHOU Jun and Mr. PEI Ker-Wei.