26th Apr 2006 07:37
Zhejiang Expressway CO., LTD. (a joint stock limited company incorporated in the People's Republic of China with limited liability) (Stock Code: 0576) 2005 Annual Results Announcement -- Revenue grew 10.4% to Rmb3,456.4 million -- Net profit attributable to equity holders of the Company increased by 16.8% to Rmb1,431.2 million -- Earnings per share was Rmb32.95 cents -- Final dividend of Rmb15.0 cents per share recommended The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the"Company") are pleased to announce the audited consolidated operating resultsof the Company and its subsidiaries (the "Group") for the year ended December31, 2005 (the "Period"), prepared in conformity with the new and revised HongKong Accounting Standards ("HKAS") and Hong Kong Financial Reporting Standards("HKFRS") (thereafter collectively referred to as the "New HKFRS").RESULTS AND DIVIDENDSDuring the Period, revenue for the Group was Rmb3,456.4 million, representingan increase of 10.4% over 2004. Net profit from ordinary activitiesattributable to equity holders of the Company was Rmb1,431.2 million,representing an increase of 16.8% over 2004. Earnings per share for the Periodwas Rmb32.95 cents (2004: Rmb28.22 cents per share).The Directors have recommended to pay a final dividend of Rmb15.0 cents pershare (2004: Rmb15.0 cents per share), subject to shareholders' approval at the2005 annual general meeting of the Company to be held on June 14, 2006.Together with an interim dividend of Rmb7.0 cents per share paid on November25, 2005, total dividend for the Period amounted to Rmb22.0cents per share(2004: Rmb19.0 cents per share).The audit committee of the Company has reviewed the annual results. Set outbelow are the audited consolidated income statement and consolidated balancesheet for the Period, together with comparative figures for 2004:CONSOLIDATED INCOME STATEMENT Year ended December 31, 2005 2004 Notes Rmb'000 Rmb'000 (Re-stated) Revenue 5 3,456,385 3,131,993Operating costs (1,195,428) (881,355) Gross profit 2,260,957 2,250,638 Other income 5 185,947 41,646 Administrative (62,766) (74,506)expenses Other expenses (41,635) (243,823) Profit from operating 6 2,342,503 1,973,955activities Finance costs (101,343) (103,457) Share of profits of 7,217 9,086associates Share of profit of a 16,285 19,622jointly controlled entity Profit before tax 2,264,662 1,899,206 Income tax expense 7 (692,366) (542,749) Profit for the Year 1,572,296 1,356,457 ============= ============= Attributable to: Equity holders of the 1,431,192 1,225,699Company Minority interests 141,104 130,758 1,572,296 1,356,457 ============= ============= Dividends 955,485 825,191 Earnings per share 8 32.95cents 28.22cents ============= ============= CONSOLIDATED BALANCE SHEET As at December 31, Notes 2005 2004 Rmb'000 Rmb'000 Non-current assets Property, plant and 13,422,605 12,564,935equipment Prepaid lease payments 387,448 405,586 Goodwill 85,472 85,472 Interests in associates 226,871 176,744 Interest in a jointly 79,907 79,812controlled entity Available for sale 1,000 1,000investments Expressway operating 188,545 197,245rights Deferred tax assets - 42,529 14,391,848 13,553,323 Current assets Inventories 6,446 6,416 Loan to an associate 116,000 - Trade receivables 9 21,744 26,569 Other receivables 316,238 381,017 Prepaid lease payments 18,138 18,138 Investments held for 612,097 676,447trading Cash and cash 829,145 803,739equivalents 1,919,808 1,912,326 Current liabilities Trade payables 10 402,221 297,213 Tax liabilities 334,048 185,482 Other taxes payable 31,779 24,343 Other payables and 327,471 294,786accruals Interest-bearing bank 886,539 787,892and other loans Dividend payable 33,379 19,070 2,015,437 1,608,786 Net current (95,629) 303,540(liabilities)/assets Total assets less 14,296,219 13,856,863current liabilities Non-current liabilities Interest-bearing bank 548,198 655,570and other loans Long term bonds 1,000,000 1,000,000 Deferred tax 384,153 388,787liabilities 1,932,351 2,044,357 12,363,868 11,812,506 ============= ============= Net Assets Capital and reserves Issued capital 4,343,115 4,343,115 Reserves 6,201,336 5,725,629 Proposed final dividend 651,467 651,467 Equity attributable to 11,195,918 10,720,211equity holders of the Company Minority interests 1,167,950 1,092,295 Total equity 12,363,868 11,812,506 ============= ============= Notes:1 Basis of PreparationThe consolidated financial statements have been prepared inaccordance with HKFRSs issued by the Hong Kong Institute of Certified PublicAccountant ("HKICPA"). In addition, the consolidated financial statementsinclude applicable disclosures required by the Rules Governing the Listing ofSecurities on The Stock Exchange of Hong Kong Limited and by the Hong KongCompanies Ordinance.2 Principal Accounting PoliciesThe condensed financial statements have been prepared on thehistorical cost basis except for certain financial instruments, which aremeasured at fair values.The accounting policies used in the condensed financial statementsare consistent with those followed in the preparation of the Group's annualfinancial statements for the year ended December 31, 2004 except as describedbelow.In the current year, the Group has adopted all of the new andrevised Hong Kong Accounting Standards ("HKAS") and Hong Kong FinancialReporting Standards ("HKFRS") (thereafter collectively referred to as the "NewHKFRS") issued by the HKICPA that are relevant to its operations and effectivefor accounting periods on or after January 1, 2005. The application of the newHKFRSs has resulted in a change in the presentation of the consolidated incomestatement, consolidated balance sheet and the consolidated statement of changesin equity. In particular, the presentation of minority interests and share oftax of associates/jointly controlled entities has been changed. The adoption ofthe new HKFRS has resulted in the following changes to the Group's accountingpolicies that has an effect on how the results for the current and the amountsreported for the prior years are prepared and presented.Business CombinationsIn the current year, the Group has applied HKFRS 3 "BusinessCombinations" which is effective for business combinations for which theagreement date is on or after January 1, 2005. The principal effects of theapplication of HKFRS 3 to the Group are summarized below.GoodwillIn previous years, goodwill arising on or after acquisitions priorto January 1, 2001 was held in reserves, and goodwill arising on acquisitionson or after January 1, 2001 was capitalised and amortised over its estimateduseful life. The Group has applied the relevant transitional provisions inHKFRS 3. Goodwill previously recognised in reserves of Rmb 352,860,000, afteroffsetting negative goodwill of Rmb12,655,000, has been transferred to theGroup's retained earning on January 1, 2005. With respect to goodwillpreviously capitalised on the balance sheet, the Group has applied the relevanttransitional provisions in HKFRS 3 and eliminated the carrying amount of therelated accumulated amortisation of Rmb 41,121,000 on January 1, 2005 with acorresponding decrease in the cost of goodwill. The Group has discontinuedamortising such goodwill from January 1, 2005 onwards and such goodwill will betested for impairment at least annually. Goodwill arising on acquisitions afterJanuary 1, 2005 is measured at cost less accumulated impairment losses (if any)after initial recognition. As a result of this change in accounting policy, noamortisation of goodwill has been charged in the current year. Comparativefigures for 2004 have not been restated.Excess of the Group's interest in the net fair value of acquiree'sidentifiable assets, liabilities and contingent liabilities over cost(previously known as "negative goodwill")In accordance with HKFRS 3, any excess of the Group's interest inthe net fair value of acquiree's identifiable assets, liabilities andcontingent liabilities over the cost of acquisition ("discount on acquisition")is recognised immediately in profit or loss in the period in which theacquisition takes place. In previous periods, negative goodwill arising onacquisitions prior to January 1, 2001 was held in reserves. In accordance withthe relevant transitional provisions in HKFRS 3, the Group derecognised allnegative goodwill on January 1, 2005 of RMB12,655,000 previously recorded ingoodwill reserve. The amount has been transferred to retained earnings asdisclosed above.Owner-occupied Leasehold Interest in LandIn previous years, land use rights were included in property, plantand equipment and measured using the cost model. In the current year, the Grouphas applied HKAS 17 Leases. Under HKAS 17, the land and building elements of alease of land and buildings are considered separately for the purposes of leaseclassification, unless the lease payments cannot be allocated reliably betweenthe land and buildings elements, in which case, the entire lease is generallytreated as a finance lease. To the extent that the allocation of the leasepayments between the land and buildings elements can be made reliably, theleasehold interests in land are reclassified to prepaid lease payments underoperating leases, which are carried at cost and amortised over the lease termon a straight-line basis. This change in accounting policy has been appliedretrospectively. Alternatively, where the allocation between the land andbuildings elements cannot be made reliably, the leasehold interests in landcontinue to be accounted for as property, plant and equipment.Financial InstrumentsIn the current year, the Group has applied HKAS 32 FinancialInstruments: Disclosure and Presentation and HKAS 39 Financial Instruments:Recognition and Measurement. HKAS 32 requires retrospective application. HKAS39, which is effective for annual periods beginning on or after January 1,2005, generally does not permit the recognition, derecognition or measurementof financial assets and liabilities on a retrospective basis. The applicationof HKAS 32 has had no material impact on how financial instruments of the Groupare presented for current and prior accounting periods. The Group has appliedthe relevant transitional provisions in HKAS 39 with respect to classificationand measurement of financial assets and financial liabilities that are withinthe scope of HKAS 39.Classification and measurement of financial assets and financialliabilitiesBy December 31, 2004, the Group classified and measured its debt andequity securities in accordance with the alternative treatment of Statement ofStandard Accounting Practice 24 (SSAP 24). Under SSAP 24, investments in debtor equity securities are classified as "trading securities", "non-tradingsecurities" or "held-to-maturity investments" as appropriate. Both "tradingsecurities" and "non-trading securities" are measured at fair value. Unrealisedgains or losses of "trading securities" are reported in profit or loss for theperiod in which gains or losses arise. Unrealised gains or losses of"non-trading securities" are reported in equity until the securities are soldor determined to be impaired, at which time the cumulative gain or losspreviously recognised in equity is included in the net profit or loss for thatperiod. From January 1, 2005 onwards, the Group has classified and measured itsdebt and equity securities in accordance with HKAS 39. Under HKAS 39, financialassets are classified as "financial assets at fair value through profit orloss" and "available-for-sale financial assets", "loans and receivables", or"held-to-maturity financial assets". "Financial assets at fair value throughprofit or loss" and "available-for-sale financial assets" are carried at fairvalue, with changes in fair values recognised in profit or loss and equityrespectively. Available-for-sale equity investments that do not have quotedmarket prices in an active market which are carried at cost less impairment astheir fair value cannot be reliably measured. As a result of this change inaccounting policy, the long term investments and short term investmentsamounted to Rmb1,000,000 and Rmb 612,097,000 have been reclassified toavailable for sale investment and investment held for trading, respectively.The comparative figures have been reclassified to conform with the currentyear's presentation.The HKICPA has issued the following Standards and Interpretations("INT") that are not yet effective. The Group has already commenced anassessment of the impact of these new HKFRSs but is not yet in a position tostate whether these new HKFRSs would have a significant impact on its resultsof operations and financial statements.HKAS 1 (Amendment) Capital disclosures(1) HKAS 19 (Amendment) Actuarial gains and losses, group plans and disclosures(2) HKAS 21 (Amendment) New investment in a foreign operation(2) HKAS 39 (Amendment) Cash flow hedge accounting of forecast intragroup transactions(2) HKAS 39 (Amendment) The fair value option(2) HKAS 39 and HKFRS 4 Financial guarantee contracts(2) (Amendments) HKFRS 6 Exploration for and evaluation of mineral resources(1) HKFRS 7 Financial instruments: Disclosures(1) HK(IFRIC)-INT 4 Determining whether an arrangement contains a lease(2) HK(IFRIC)-INT 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds(2) HK(IFRIC)-INT 6 Liabilities arising from participating in a specific market-waste electrical and electronic equipment(3) HK(IFRIC)-INT 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economies(4) (1) Effective for annual periods beginning on or after January 1, 2007.(2) Effective for annual periods beginning on or after January 1, 2006.(3) Effective for annual periods beginning on or after December 1, 2005.(4) Effective for annual periods beginning on or after March 1, 2006.3 Summary of the Effects of the Changes in Accounting PoliciesThe effects of the changes in the accounting policies describedabove on the results for the Period and the same period in 2004 are as follows: Year ended December 31, 2005 2004 Rmb'000 Rmb'000 Non-amortization of goodwill 12,245 -of subsidiaries and increase in profit ============= ============= The cumulative effects of the application of the new HKFRSs as at December 31,2004 and January 1, 2005 are summarized below: As at Adjustments As at Adjustments As at December December January 1, 31, 2004 31, 2004 2005 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 (Originally (Re-stated) (Re-stated) stated) Balance sheet items Impact of HKFRS 3: Property, plant 12,988,659 (423,724) 12,564,935 - 12,564,935equipment Impact of HKAS 39: Available-for-sale - 1,000 1,000 - 1,000investments Investment held - 676,447 676,447 - 676,447for trading Long term 1,000 (1,000) - - -investments Short term 676,447 (676,447) - - -investments Total effects on - 1,092,295 1,092,295 - 1,092,295equity as a result of change in the presentation of minority net =========== =========== =========== =========== =========== The financial effects of the application of the new HKFRSs to the Group'sequity as at January 1, 2004 are summarized below: As originally stated Adjustment As re-stated Rmb'000 Rmb'000 Rmb'000 Retained 981,537 (352,860) 628,677profits ============= ============= ============= 4 Changes of Accounting EstimatesIn the previous years, depreciation on expressway and bridges is calculated towrite off the cost over their estimated useful lives using a method whereby theaggregate annual depreciation amounts,compared at average rates ranger from6.11% to 8.77% per annum, and the total accumulated depreciation will be equalto the total cost of expressways and bridges after 30 years when the authorisedoperating period terminates. With effect from January 1, 2005, expressways andbridges are depreciated by straight-line method in the residual years, which isa change in accounting estimate, and considered by the directors to be suitablein the future. Due to this change of accounting estimate, the net book value ofproperty,plant and equipment and the net profit before tax have been decreased,while the depreciation expense has been increased for the year ended December31, 2005. The profit before tax has been decreased by Rmb269,319,000.Accordingly, the net profit attributable to equity holder of the Companyhasbeen decreased by Rmb164,407,000 up to December 31, 2005.5 Revenue and Other Income Year ended December 31, 2005 2004 Rmb'000 Rmb'000 (Re-stated) Toll operation income 3,350,670 3,066,954 Service areas business 230,183 183,637income Advertising business income 48,045 41,159 Road maintenance income 2,568 7,244 3,631,466 3,298,994 Less: Revenue taxes (175,081) (167,001) Revenue 3,456,385 3,131,993 Realised gain (loss) on 13,795 (23,400)disposal of investments held for trading Unrealised gain (loss) on 20,187 (12,758)investments held for trading Interest income 40,151 12,514 Rental income 45,341 22,941 Trailer income 20,318 18,352 Exchange gains, net 18,461 220 Other 27,694 23,777 Other income 185,947 41,646 3,642,332 3,173,639 ============= ============= The Company and its subsidiaries are subject to the business tax, levied at 3%and 5% on toll income and 3% to 5% on other services income. In addition, thesubsidiaries are subject to the following types of revenue taxes and surcharge:-- City development tax, levied at 1% to 7% of business tax;-- Education supplementary tax, levied at 3.5% to 4% of business tax; and-- Culture and education fees, levied at 3% on advertising income.6 Profit from Operating ActivitiesThe Group's profit from operating activities is arrived at after charging/(crediting) the following: Year ended December 31, 2005 2004 Rmb'000 Rmb'000 (Re-stated) Depreciation 535,015 305,882 Amortization of 8,700 8,700expressway operating rights Amortization of - 12,245goodwill Amortization of 18,138 17,779prepaid lease payment Staff costs 149,097 129,207 7 Income Tax ExpenseAs the Group had no taxable profits in Hong Kong during the Period, no HongKong profits tax had been provided.The Group was subject to Enterprise Income Tax ("EIT") levied at a rate of 33%of taxable income based on income for financial reporting purposes prepared inaccordance with the laws and regulations in the PRC. Year ended December 31, 2005 2004 Rmb'000 Rmb'000 (Re-stated) Group Tax charged 654,471 556,566 Tax refunded - (34,372) Deferred 37,895 20,555 Tax charge for 692,366 542,749the Period ============= ============= During the year, according to the approvals from the Zhejiang Provincial LocalTax Bureau, Zhejiang Shangsan Expressway Co., Ltd. ("Shangsan Co"), one of theCompany's subsidiaries, was entitled to a 30% EIT exemption for the year endedDecember 31, 2005 under the category of "Enterprise providing employmentopportunities to redundant workers with a minimum of three-years employmentterm" as defined in the relevant national tax rules. As a result, the taxexemption for the year ended December 31, 2005 amounted to Rmb51,408,000 (2004:the tax refund received by Shangsan Co in 2004 for the year ended December 31,2003 amounted to Rmb27,004,000 and a tax exemption for the year ended December31, 2004 amounted to Rmb36,914,000, respectively).In 2004, according to the approvals from the Zhejiang Provincial National TaxBureau, Zhejiang Expressway Investment Development Co., Ltd. ("Development Co")and Zhejiang Expressway Vehicle Towing and Rescue Service Co., Ltd ("ServiceCo"), two of the Company's subsidiaries, were entitled to a 100% EIT exemptionfor the year ended December 31, 2003 and accordingly received tax refundamounting to Rmb6,554,000 and Rmb814,000, respectively, under the category of"New enterprises providing employment opportunities to redundant urban workers"as defined in the relevant national tax rules.A reconciliation of the tax expense applicable to profit before tax using thestatutory rates for the PRC to the tax expense at the effective tax rates is asfollows: Year ended December 31, 2005 2004 Rmb'000 Rmb'000 (Re-stated) Group Profit before tax 2,264,662 1,899,206 ============= ============= Tax at the statutory tax rate of 747,338 626,73833% Tax effect of share of profits of (2,382) (2,998)associates Tax effect of share of profit of a (5,374) (6,475)jointly controlled entity Tax refunded - (34,372) Tax exemption of a subsidiary (51,408) (36,914) Tax effect of net (income)/expense 4,192 (3,230)that is not (taxable)/deductible in determining taxable profit Tax charge at the Group's effective 692,366 542,749tax rate ============= ============= 8 Earnings per shareThe calculation of basic earnings per share is based on the net profit fromordinary activities attributable to shareholders of the Company for the year ofRmb1,431,192,000 (2004: Rmb1,225,699,000) and the 4,343,114,500 ordinary shares(2004: 4,343,114,500 ordinary shares) in issue during the year.Diluted earnings per share amounts for the years ended December 31, 2005 and2004 have not been calculated, as no diluting event existed during these years.9 Trade ReceivablesThe aging analysis of trade receivables as at December 31, 2005 and thecomparative figures of December 31, 2004 are as follows: As at December 31, 2005 2004 Rmb'000 Rmb'000 Within 1 20,470 25,636year 1 to 2 1,274 933years Total 21,744 26,569 ============= ============= 10 Trade PayablesThe aging analysis of trade payables as at December 31, 2005 and thecomparative figures of December 31, 2004 are as follows: As at December 31, 2005 2004 Rmb'000 Rmb'000 Within 1 368,672 262,085year 1 to 2 26,786 10,037years 2 to 3 3,211 20,930years Over 3 3,552 4,161years Total 402,221 297,213 ============= ============= 11 Transfer to reservesIn accordance with the Company Law of the People's Republic of China ("PRC")and the companies' articles of association, the Company, its subsidiaries, itsassociates and its jointly controlled entity (collectively, the "Entities") arerequired to allocate 10% of their profit after tax, as determined in accordancewith the PRC accounting standards and regulations applicable to the Entities,to the statutory surplus reserve (the "SSR") until such reserve reaches 50% ofthe registered capital of the Entities. Subject to certain restrictions set outin the Company Law of the PRC and the respective articles of association of theEntities, part of the SSR may be converted to increase the Entities' sharecapital.In prior years, in accordance with the Company Law of the PRC, the Entities arerequired to transfer 5% to 10% of the profit after tax, as determined inaccordance with the PRC accounting standards and regulations applicable to theEntities, to the statutory public welfare fund, which is a non-distributablereserve other than in the event of the liquidation of the Entities. Thestatutory public welfare fund must be used for capital expenditure on staffwelfare facilities and these facilities remain as the properties of theEntities.Under the amended Company Law of the PRC, the Group does not require to makeappropriation to statutory public welfare fund with effect from 2005.BUSINESS REVIEW2005 has been a year in which macro-economic control measures, designed toplace stronger emphasis on sustainability and equitability in the process ofrapid economic development, were further strengthened and fine-tuned. Economicgrowth at the national level and the provincial level remained unabated, thoughZhejiang Province's GDP growth rate, at 12.4%, was slightly lower than thegrowth rate of 14.3% achieved in 2004.In contrast to the agricultural and industrial sectors in Zhejiang Province,the service sector underwent the highest rate of GDP growth in 2005, withmodern logistics and tourism emerging as two of a handful new areas of growthin the provincial economy.Traffic volume on the two expressways operated by the Group continued to growin 2005, bringing growth on both toll income and income from otherexpressway-related business activities for the ninth consecutive year since theCompany was established in 1997.Revenue for the Group was Rmb3,456.4 million during the Period, representing anincrease of 10.4% over 2004, with toll income continuing to partake as thedominate share of the overall income, constituting approximately 92.3% of theGroup's total income. Income from other expressway-related business activities,however, grew at a higher rate than toll income. A detailed breakdown of theGroup's revenue for the Period is set out below: 2005 2004 Rmb'000 Rmb'000 % Change Toll income Shanghai-Hangzhou-Ningbo 2,519,676 2,327,733 8.3%Expressway Shangsan Expressway 830,994 739,221 12.4% Other income Service areas businesses 230,183 183,637 25.4%income Advertising businesses 48,045 41,159 16.7%income Road maintenance income 2,568 7,244 -64.6% Subtotal 3,631,466 3,298,994 10.1% Less: Revenue taxes (175,081) (167,001) 4.8% Revenue 3,456,385 3,131,993 10.4% ============= ============= ============= Expressway OperationsTraffic volume on the two expressways operated by the Group continued to growduring the Period, with average daily traffic in full-trip equivalents at35,143 for the Shanghai-Hangzhou-Ningbo Expressway and 19,824 for the ShangsanExpressway, respectively. However, traffic volume growth rates weresignificantly lower compared to previous years, at 5.5% year-on-year for theShanghai-Hangzhou-Ningbo Expressway and 4.9% year-on-year for the ShangsanExpressway.Apart from the growing maturity of these expressway assets, a number of otherfactors have affected the traffic volume performance of the two expressways in2005. Slower economic growth in Zhejiang Province as well as in the YangtzeRiver Delta Region in 2005 compared to 2004, coupled with a correspondingslowdown in new vehicle sales, has contributed to a slower growth in demand forroad transport. Ongoing expressway-widening projects along theShanghai-Hangzhou-Ningbo Expressway and on neighboring expressways during thePeriod have also contributed to a certain degree of traffic diversions from theShanghai-Hangzhou-Ningbo Expressway.While the toll rates for expressways are generally higher than those forneighboring roads, the differences in toll rates for trucks were furthernarrowed at the start of 2005. As part of the integral policies of thegovernment to tackle the practice of overloading trucks, the toll rates fortrucks that are above 10 tons were lowered throughout Zhejiang Province at thebeginning of 2005, with the toll rates for trucks on neighboring national andprovincial roads reduced by an even greater amount than those for expressways,thereby further enhancing the relative competitiveness of national andprovincial roads.However, the toll rate reduction for trucks that are above 10 tons did havepositive implications for expressway operators in addition to reducingoverloading practices and resulting in a safer road traveling environment. Thechange has led to a continued increase in the proportion of trucks of over 10tons amongst the traffic mix, resulting in a higher growth rate in toll incomethan in traffic volume. Toll income growth rates for theShanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway during thePeriod were 8.3%and 12.4% year-on-year, respectively.Expressway-Related Business OperationsApart from the expressway operations, the Group has also carried out otherbusiness operations such as gas stations, restaurants and shops in serviceareas as well as billboard advertising along the expressways operated by theGroup.Expanded shopping facilities and more flexible cooperative arrangements at theservice areas helped the expressway-related business operations grew at a ratehigher than the expressway operations in 2005 in terms of income. Revenue fromthe expressway-related business operations grew 21.0% during the Period toreach Rmb280.8 million, contributing to approximately 7.7% of the Group's totalrevenue.Long-Term InvestmentsDriven by continued traffic volume growth on the 9.45km Shida Road, Shida Co.saw its revenue grew 9.3% to Rmb84.5 million in 2005. However, a highermaintenance cost during the Period has led to a reduction in profit aftertaxation by 17.0% to Rmb32.6 million.Gas station operations carried out by Petroleum Co. throughout ZhejiangProvince were boosted by strong growth in demand for gasoline products in 2005.While revenue for the associate company grew 33.1% during the Period, risingglobal oil prices and a rigid price control regime imposed on domestic retailoutlets nevertheless resulted in a reduction in the net profit by 12.8% toRmb14.0 million.Amid growing competition in its field of computer networking and digitalprinting businesses, JoinHands Technology realized a net profit of Rmb3.3million during the Period, representing a decrease of 14.1% over 2004, whileits revenue fell by 36.1%.Expressway Widening ProjectPhase II of the project to widen the Shanghai-Hangzhou-Ningbo Expressway fromfour lanes to eight lanes (the "Widening Project"), spanning approximately 95kmbetween Dajing and Fengjing, was completed and opened to traffic in accordancewith plan in November 2005, thereby significantly improving the travelingcondition as well as increasing the expressway's capacity which in turn allowsfor further traffic volume growth in the future.Phase III of the Widening Project, totaling approximately 84km between Guzhuand Duantang, progressed as planned during the Period, and is targeted forcompletion by the end of 2007.Extensive onsite management measures were put in place to maintain a normaltraffic flow on the Shanghai-Hangzhou-Ningbo Expressway as the widening workswere being carried out. However, temporary disturbances to the traffic wereinevitable, and the resulted inconvenience to the travelers did have ameasurable negative impact on the traffic volume growth of the affected sectionof the expressway.FINANCIAL ANALYSISThe Group adopts a prudent but proactive financial policy with an aim toprovide shareholders with sound returns over the long-term.During the Period, net profit attributable to equity holders of the Companyamounted to Rmb1,431.2 million, representing an increase of 16.8% over 2004,while earnings per share was Rmb32.95 cents (2004: Rmb28.22 cents per share).Return on equity for the Period increased from 11.4% to 12.8%.ProfitabilityOur consistently profitable business performance in the last five yearsresulted in a compound annual growth rate of 17.1% and 11.7% in earnings pershare and return on equity, respectively.The dividend payout ratio reached 66.8% during the Period, represent a stabledividend payout policy that the management maintained in past years.LiquidityThe Group enjoyed strong cash inflow from its steady growth in toll income,with net cash inflow from operating activities amounting to Rmb1,983.3 millionas at December 31, 2005, representing a year-on-year increase of 31.4%.As at December 31, 2005, current assets of the Group amounted to Rmb1,919.8million in aggregate (2004: Rmb1,912.3 million), of which account receivables,other receivables and inventories accounted for 24.0% (2004: 21.6%).Financial ResourcesAs at December 31, 2005, the Group held Rmb1,441.2 million in cash and cashequivalents, time deposits and short-term investments (2004: Rmb1,480.2million), with cash and cash equivalents accounting for 50.2%, time deposits7.3% and short-term investments 42.5% of the total amount, respectively.Among the Rmb612.1 million held in short-term investments as at December 31,2005, 96.1% was held in government bonds, with the remaining 3.9% held inclose-ended security investment funds.The Directors do not expect the Company to experience any problem withfinancial resources in the foreseeable future.Borrowings and SolvencyThe Group adjusts its debt levels based on, among others, its cash flow,interest coverage ratio and the ratio of debt over capital.As at December 31, 2005, interest-bearing borrowings for the Group totaledRmb2,434.7 million (2004: Rmb2,443.5 million), amongst which Rmb886.5 millioncomprised short-term interest bearing borrowings (an increase of 12.5%year-on-year) and Rmb1,548.2 million comprised long-term borrowings (a decreaseof 6.5% year-on-year).During the Period, the interest rates of the Group's semi-annual and annualdomestic commercial bank borrowings, totaling Rmb630.0 million, were fixedbetween 4.698% and 5.580%; the interest rate for Rmb72.6 million governmentloans remained fixed at 3.000%; the annual coupon rate for the Rmb1 billioncorporate bonds issued by the Company in 2003 for a term of 10 years was fixedat 4.290%, with interests payable annually. The floating rates of the Group'sRmb732.1 million World Bank loans, denominated in US dollars, varied from4.110% to 4.590% during the Period.Total interest expense for the Period amounted to Rmb107.2 million, whileprofit before interest and tax amounted to Rmb2,371.9 million, resulting in aninterest cover ratio (profit before interest and tax over interest expenses) of22.1 (2004: 19.4).Moreover, the asset-liability ratio, which represents the total liabilitiesover total assets, remained low at 24.2% (2004: 23.6%) as at December 31, 2005.The solvency of the Group remained strong during the Period.Capital StructureAs at December 31, 2005, the Group had Rmb12,363.9 million total equity(including minority interests), Rmb1,702.6 million fixed-rate liabilities,Rmb732.1 million floating-rate liabilities and Rmb1,513.1 million interest-freeliabilities, representing 75.8%, 10.4%, 4.5% and 9.3% of the Group's capital,respectively.Capital Expenditure Commitments and UtilizationAs at December 31, 2005, total capital expenditure commitments of the Group andthe Company stood at Rmb4,086.8 million and Rmb3,130.3 million, respectively.Of the total capital expenditure commitments of the Group, approximately 57.8%will be applied toward the Widening Project, while 27.2% will be applied towardthe construction of Jiashao Expressway.Total capital expenditure incurred by the Group and by the Company during thePeriod amounted to Rmb1,449.3 million and Rmb764.4 million, respectively, withthe Widening Project alone having utilized Rmb1,266.6 million.The Group will rely upon its internal resources to fund its capital expenditurecommitments, with a preference for debt financing to meet any shortfall.Contingent Liabilities and Pledge of AssetsAt December 31 2005, the PRC Government Bonds (being the treasury bonds issuedby the PRC Government) of an approximate aggregate amount of RMB587 millionwere held in the Company's investment account with Kinghing Securities Co.,Ltd. ("Kinghing Securities"). Prior to the date of the Acquisition Agreements,Kinghing Securities had pledged the PRC Government Bonds as security forcertain third party repo trading transactions entered into by it through theShanghai branch of the PRC Securities Registration and Clearing Co., Ltd.Subsequent to the pledging of the PRC Government Bonds, Kinghing TrustInvestment Co., Ltd., the largest equity owner of Kinghing Securities at therelevant time, had misappropriated funds of Kinghing Securities such thatKinghing Securities currently does not have sufficient funds to settle therelevant repo trading transactions, and as a result, the security over the PRCGovernment Bonds may be enforced. In light of the above circumstances, theCompany has decided to participate in the restructuring of Kinghing Securities,through which additional RMB600 million capital contribution will be injectedby Shangsan into Kinghing Securities, with a view to enabling KinghingSecurities to settle the repo trading transactions and obtaining the release ofthe security over the PRC Government Bonds beneficially owned by the Company.As of the date of this announcement such pledge on the PRC Government Bonds hasbeen released.Other than aforementioned, the Group did not have any contingentliabilities nor any pledge of assets as at December 31, 2005.Foreign Exchange ExposureAs at December 31, 2005, the Group held a US dollar-denominated World Bank loanof approximately Rmb732.1 million. Except for the repayment of the World Bankloan in US dollars as well as dividend payments to overseas shareholders inHong Kong dollars, the principal operations of the Group were settled inRenminbi.The appreciation of Renminbi against the US dollar during the Period resultedin an exchange gain of Rmb19.2 million for the Group.Although the Directors do not foresee any material foreign exchange risks forthe Group, there is no assurance that any further changes in the foreignexchange environment will not adversely affect the operating results of theGroup in the future.HUMAN RESOURCESDuring the Period, the Group employed an addition 284 employees to support itsexpanded operations of maintenance facilities and service areas. As at December31, 2005, there were a total of 3,028 employees within the Group, amongst whom215 were administrative staff, 430 were engineering technicians, and 2,383 werestaff working in the fields of toll collection, maintenance and service areas.Total remuneration for the Group's employees for the Period amounted toRmb138.7 million, representing an increase of 17.5% over 2004.OUTLOOK FOR 2006The completion of Phase II of the Widening Project on theShanghai-Hangzhou-Ningbo Expressway has already given a boost to traffic volumegrowth along the section between Dajing and Fengjing. However, the ongoingconstruction works under Phase III of the Widening Project may adversely affectthe normal traffic volume growth along the section between Guzhu and Duantangbefore its completion by the end of 2007.Expressway-related business operations are expected to continue to expand,though at a slower rate compared to the past few years following the opening totraffic of new service areas along neighboring expressways. Nevertheless, theoverall demand for such services is growing and the Company intends to tap intothe growth potential by expanding its existing service areas while adding newservice areas.On the macro side, 2006 is the first year in the Eleventh Five-year NationalEconomic Development Plan where steady economic growth has been set as one ofthe key objectives. For Zhejiang Province, the plan translates into a target ofan average annual GDP growth rate of 9% for the next five years as theprovincial economy heads toward a period of rapid industrialization andurbanization.The forecasted strong economic growth in Zhejiang Province is expected togenerate a steady growth in demand for road transport that will be met with acontinuous addition of new roads to the existing network as well as renovatednational and provincial roads. Although the new roads coming into operationwill enhance the overall network of the existing expressways in the long run,it is expected that the overall supply of new road capacities will increase ata rate higher than that of demand growth, which means the traffic volume growthon these expressways, including the ones operated by the Group, will only bemoderate in the short run.To compensate for its additional investment for widening theShanghai-Hangzhou-Ningbo Expressway from four lanes to eight lanes, the Companywill be applying for an extension to its concession period for expresswayoperation and toll collection, though there is no assurance that the relevantgovernment authorities will approve any or part of the request.PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARESNeither the Company nor any of its subsidiaries had purchased, sold, redeemedor cancelled any of the Company's shares during the Period.COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICESThe Company was in compliance with the code provisions in the Code on CorporateGovernance Practices set out in Appendix 14 to the Rules Governing the Listingof Securities on The Stock Exchange of Hong Kong Limited during the Period. By Order of the Board Geng Xiaoping Chairman Hangzhou, PRC, April 25, 2006As at the date of this announcement, the executive directors of the Companyare: Messrs. Geng Xiaoping, Fang Yunti, Zhang Jingzhong and Jiang Wenyao; thenon-executive directors are: Messrs. Zhang Luyun and Zhang Yang; and theindependent non-executive directors are: Messrs. Tung Chee Chen, Zhang Junshengand Zhang Liping.ENDZHEJIANG EXPRESSWAY CO LDRelated Shares:
ZHEH.L