2006 Interim Results Announcement
ZHEJIANG EXPRESSWAY CO., LTD.
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 0576)
2006 Interim Results Announcement
-- Revenue increased by 30.6% to Rmb2,186.4 million
-- Profit attributable to equity holders of the Company increased by 8.9% to
Rmb688.7 million
-- Earnings per share increased by 8.9% to Rmb15.86 cents
-- Interim dividend of Rmb7.0 cents per share is recommended
The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the
"Company") are pleased to announce the unaudited consolidated operating results
of the Company and its subsidiaries (collectively the "Group") for the six
months ended June 30, 2006 (the "Period"), prepared in conformity with
accounting principles generally accepted in Hong Kong, with the basis of
preparation as stated in Note 1 to the consolidated financial statements set
out below.
RESULTS AND DIVIDENDS
During the Period, revenue for the Group grew 30.6% over the same period in
2005 to reach Rmb2,186.4 million, while profit attributable to equity holders
of the Company for the Period grew 8.9% to reach Rmb688.7 million. Earnings per
share for the Period amounted to Rmb15.86 cents, representing an increase of
8.9% over the same period in 2005.
The Directors have recommended to pay an interim dividend of Rmb7.0 cents per
share, subject to the approval of the shareholders at the Company's proposed
extraordinary general meeting to be held on November 16, 2006.
The audit committee of the Company has reviewed the interim results. Set out
below are the unaudited consolidated income statement and balance sheet for the
Period, together with comparative figures for 2005 and relevant notes:
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the six months ended
June 30,
2006 2005
Notes Rmb'000 Rmb'000
(Re-stated)
Revenue 3 2,186,404 1,673,912
Operating costs (1,031,346) (647,269)
Gross profit 1,155,058 1,026,643
Other income 4 55,956 62,221
Administrative expenses (29,011) (26,026)
Other operating expenses (13,878) (10,015)
Profit from operating activities 5 1,168,125 1,052,823
Finance costs (47,358) (46,480)
Share of profits of associates 2,084 3,497
Share of profit of a jointly-controlled 10,149 10,677
entity
Profit before tax 1,133,000 1,020,517
Income tax expense 6 (372,501) (328,871)
Profit for the Period 760,499 691,646
========== ==========
Attributable to:
Equity holders of the Company 688,729 632,693
Minority interest 71,770 58,953
760,499 691,646
========== ==========
Dividends
Proposed interim 7 (304,018) (304,018)
========== ==========
Earnings per share 8 15.86 cents 14.57 cents
========== ==========
CONSOLIDATED BALANCE SHEET
As at As at
June 30, December 31,
2006 2005
Rmb'000 Rmb'000
Notes Unaudited Audited
Non-current assets
Property, plant and equipment 13,386,230 13,422,605
Prepaid lease payments 378,380 387,448
Goodwill 85,472 85,472
Interest in a jointly-controlled entity 82,698 79,907
Interests in associates 232,632 226,871
Available-for-sale investments 1,000 1,000
Expressway operating rights 184,194 188,545
14,350,606 14,391,848
Current assets
Inventories 13,164 6,446
Loan to an associate - 116,000
Trade receivables 9 49,495 21,744
Other receivables 651,571 316,238
Prepaid lease payments 18,137 18,138
Investments held for trading 10,000 612,097
Cash and bank balances 996,573 829,145
1,738,940 1,919,808
Current liabilities
Trade payables 10 433,344 402,221
Tax liabilities 304,830 334,048
Other taxes payable 15,148 31,779
Other payables and accruals 346,632 327,471
Dividend payable 7,355 33,379
Interest-bearing bank and other borrowings 744,705 886,539
1,852,014 2,015,437
Net current liabilities (113,074) (95,629)
Total assets less current liabilities 14,237,532 14,296,219
Non-current liabilities
Interest-bearing bank and other borrowings 502,804 548,198
Long-term bonds 1,000,000 1,000,000
Deferred tax liabilities 372,806 384,153
1,875,610 1,932,351
12,361,922 12,363,868
========== ==========
Capital and reserves
Share capital 4,343,115 4,343,115
Reserves 6,586,047 6,201,336
Proposed dividend 304,018 651,467
Equity attributable to equity holders of the 11,233,180 11,195,918
Company
Minority interests 1,128,742 1,167,950
Total equity 12,361,922 12,363,868
========== ==========
Notes:
1. Basis of Preparation
The condensed 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 financial statements have been prepared on the historical cost
basis except for certain financial instruments, which are measured at fair
values.
The accounting policies used in the condensed financial statements are
consistent with those followed in the preparation of the Group's annual
financial statements for the year ended December 31, 2005 except as described
below.
During the Period, the Group has applied, for the first time, a number of new
standards, amendments and interpretations ("new HKFRSs") issued by the Hong
Kong Institute of Certified Public Accountants ("HKICPA"), which are either
effective for accounting periods beginning on or after December 1, 2005 or
January 1, 2006. The adoption of the new HKFRSs had no material effect on how
the results for the current or prior accounting periods have been prepared and
presented. Accordingly, no prior period adjustment has been required.
The Group has not early applied the following new standards, amendments or
interpretations that have been issued but are not yet effective. The Directors
of the Company anticipate that the application of these standards, amendments
or interpretations will have no material impact on the results and the
financial position of the Group:
HKAS 1 Capital Disclosures(1)
(Amendment)
HKFRS 7 Financial Instruments: Disclosures(1)
HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial
Reporting in Hyperinflationary Economies(2)
HK(IFRIC)-Int 8 Scope of HKFRS 2(3)
HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives(4)
(1) Effective for annual periods beginning on or after January 1, 2007
(2) Effective for annual periods beginning on or after March 1, 2006
(3) Effective for annual periods beginning on or after May 1, 2006
(4) Effective for annual periods beginning on or after June 1, 2006
3. Segment Information
During the Period, there was no change in the principal activities of the
Group. The operating results by principal activities are summarized as follows:
For the six months ended June 30,
2006 2005
Profit Profit
Revenue Contribution Revenue Contribution
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Unaudited Unaudited Unaudited Unaudited
(Re-stated)
Segment by business activities
- Toll 1,732,700 1,114,125 1,537,003 1,002,598
- Service areas 429,150 26,862 114,449 10,419
- Advertising 24,554 14,071 22,460 13,626
2,186,404 1,155,058 1,673,912 1,026,643
========= =========
Other revenue 55,956 62,221
Administrative expenses (29,011) (26,026)
Other operating expenses (13,878) (10,015)
Profit from operating activities 1,168,125 1,052,823
========= =========
No further analysis of the revenue and profit from operating activities by
geographical segment was prepared as the revenue and profit from operating
activities of the Group were all generated from Zhejiang Province, the People's
Republic of China (the "PRC"), during the Period.
4. Other Income
For the six months
ended June 30,
2006 2005
Rmb'000 Rmb'000
Unaudited Unaudited
Profit from short term securities investment 4,775 20,275
Interest income 16,670 12,901
Rental income 7,162 13,348
Trailer income 11,478 9,578
Exchange gain/(loss) 6,556 (778)
Other miscellaneous income 9,315 6,897
Total 55,956 62,221
========== ==========
5. Profit from Operating Activities
The Group's profit from operating activities is arrived at after charging the
following:
For the six months
ended June 30,
2006 2005
Rmb'000 Rmb'000
Unaudited Unaudited
(Re-stated)
Depreciation 306,918 259,946
Amortization of expressway operating rights 4,350 4,350
Amortization of prepaid lease payments 9,068 9,069
Staff costs 56,318 55,262
6. Income Tax Expenses
As the Group had no taxable profits in Hong Kong during the Period, no Hong
Kong profits tax had been provided.
The Group was subject to Corporate Income Tax ("CIT") in the PRC levied at a
rate of 33% of taxable income based on income for financial reporting purposes
prepared in accordance with the laws and regulations in the PRC.
For the six months
ended June 30,
2006 2005
Rmb'000 Rmb'000
Unaudited Unaudited
(Re-stated)
Group
Tax charged 383,848 328,805
Deferred (11,347) 66
Tax charge for the Period 372,501 328,871
========== ==========
A reconciliation of the tax expense applicable to profit before tax using the
statutory rates for the PRC to the tax expense at the effective tax rates is as
follows:
For the six months
ended June 30,
2006 2005
Rmb'000 Rmb'000
Unaudited Unaudited
(Re-stated)
Group
Profit before tax 1,133,000 1,020,517
========== ===========
Tax at the statutory tax rate of 33% 373,890 336,771
Tax effect of share of profits of associates (688) (1,154)
Tax effect of share of profit of a jointly-controlled (3,349) (3,523)
entity
Tax effect of net (income)/expense that is not (taxable) 2,648 (3,223)
/deductible in determining taxable profit
Tax charge at the Group's effective tax rate 372,501 328,871
========== ===========
7. Dividends
The Directors have recommended the payment of an interim dividend of Rmb7.0
cents per share (2005: Rmb7.0 cents), subject to the approval of the
shareholders at the Company's proposed extraordinary general meeting to be held
on November 16, 2006. The recommendation has been set out in the financial
statements.
8. Earnings per Share
The calculation of basic earnings per share is based on the net profit
attributable to equity holders of the Company for the Period of Rmb688,729,000
(2005: Rmb632,693,000) and the 4,343,114,500 shares (2005: 4,343,114,500
shares) in issue during the Period.
Diluted earnings per share for the Period have not been calculated, as no
diluting event occurred during these years.
9. Trade Receivables
The aging analyses of trade receivables at the balance sheet dates are as
follows:
As at As at
June 30, December 31,
2006 2005
Rmb'000 Rmb'000
Unaudited Audited
Within 1 year 47,235 20,470
1 to 2 years 1,011 1,274
Over 2 years 1,249 -
Total 49,495 21,744
========== ============
The Group allows an average credit period of approximately 180 days to its
trade customers.
10. Trade Payables
The aging analyses of trade payables at the balance sheet dates are as follows:
As at As at
June 30, December 31,
2006 2005
Rmb'000 Rmb'000
Unaudited Audited
Within 1 year 344,003 368,672
1 to 2 years 68,199 26,786
2 to 3 years 21,057 3,211
Over 3 years 85 3,552
Total 433,344 402,221
========== ============
11. Comparative Figures
Starting with the financial year 2005, expressways and bridges are depreciated
by straight-line method in the residual years, which is a change in accounting
estimate, and is considered by the Directors to be suitable in the future. Due
to this change of accounting estimate for the six months ended June 30, 2005,
the carrying value of property, plant and equipment and the profit before tax
were decreased, while the depreciation expense was increased by an amount of
Rmb130,614,000. Accordingly, profit attributable to equity holders of the
Company was decreased by Rmb78,764,000 for the six months ended June 30, 2005.
Therefore, certain comparative figures have been restated to conform to the
Period's presentation.
BUSINESS REVIEW
Amid a drive to adjust economic structures for a more sustainable growth, the
economy of Zhejiang Province grew 14.1% during the Period, compared to the
national average GDP growth rate of 10.9%, and continued its double-digit
growth trend. This has resulted in an even higher growth in demand for
transportation needs in the province as well as in the larger Yangtze River
Delta region.
Strong growth in transportation needs did not, however, translate into
expressway traffic in a commensurate manner, as the growing number of new
expressways completed and opened to traffic had not only contributed to
economic growth, but had also served to mitigate traffic growth on existing
expressways.
Among the total income of Rmb2,212.0 million realized by the Group during the
Period, Rmb1,754.0 million, or approximately 79.3%, was attributable to toll
income generated by the two major expressways owned and operated by the Group,
with the remaining Rmb458.0 million, or approximately 20.7%, attributable to
the Group's toll road-related business operations.
During the Period, income from toll road operations grew 8.4% compared to the
same period in 2005, while income from toll road-related business operations
grew 226.0%. A breakdown of the Group's income during the Period is set out
below:
Six months ended June 30,
2006 2005
Rmb'000 Rmb'000 % Change
Toll income
Shanghai-Hangzhou-Ningbo Expressway 1,344,554 1,215,355 10.6
Shangsan Expressway 409,504 402,549 1.7
Other income
Service areas 432,007 116,696 270.2
Advertising 25,965 23,786 9.2
Subtotal 2,212,030 1,758,386 25.8
Less: Revenue taxes (25,626) (84,474) -69.7
Revenue 2,186,404 1,673,912 30.6
=========== =========== ===========
Toll Road Operations
Daily average traffic volume on the Shanghai-Hangzhou-Ningbo Expressway during
the Period was 37,759 in full-trip equivalent, representing a growth of 7.8%
year-on-year. The traffic on the expressway's two sections underwent varying
degrees of growth: the growth rate for the Shanghai-Hangzhou section was 13.4%
year-on-year, while that for the Hangzhou-Ningbo section was 3.5% year-on-year.
Meanwhile, daily average traffic volume on the Shangsan Expressway during the
Period was 19,922 in full-trip equivalent, representing a reduction in traffic
by 1.5% year-on-year.
Slower traffic growth on the Hangzhou-Ningbo section was partly due to traffic
diversions to other newly built expressways, and partly due to safety measures
introduced along certain areas on the section affected by the ongoing widening
works. The slight decline in traffic on the Shangsan Expressway was the result
of traffic diversions to both newly built expressways and a parallel national
road reopened to traffic after renovation.
The rate of growth in toll income was slightly higher than that in traffic
volume on the two expressways, thanks to a continued improvement in traffic
mix, where the higher fee-paying heavy trucks have taken up a greater
proportion of the overall traffic.
Toll income from the Shanghai-Hangzhou-Ningbo Expressway during the Period
amounted to Rmb1,344.6 million, representing an increase of 10.6% year-on-year,
while toll income from the Shangsan Expressway during the Period amounted to
Rmb409.5 million, representing an increase of 1.7% year-on-year.
Toll Road-Related Business Operations
Through its subsidiaries, the Group also carried out toll road-related business
operations along expressways, including gas stations, restaurants and shops in
service areas, roadside billboard advertising and vehicle services.
During the Period, the toll road-related business operations continued to
expand. With a change in the operating mode of its gas stations from consigning
to self-operating, income from toll road-related business operations reached
Rmb458.0 million, representing an increase of 226.0% year-on-year. Discounting
the effect of change in the operating mode of gas stations, the growth in
income would be 16.1%.
Long-term Investments
Traffic volume on Shida Road, a 9.45km toll road owned and operated by Hangzhou
Shida Highway Co., Ltd. ("Shida Co.", a 50% owned jointly controlled entity of
the Company), grew 16.5% year-on-year during the Period, leading to a 15.8%
growth in toll income for the jointly controlled entity. Net profit realized by
Shida Co. during the Period was Rmb20.3 million.
During the Period, Zhejiang Expressway Petroleum Development Co., Ltd.
("Petroleum Co.", a 50% owned associate of the Company) saw its revenue grow
43.6% year-on-year, while net profit realized was Rmb7.8 million, representing
a decrease of 3.6%. The decrease in net profit was mainly attributable to its
inability to adjust its retail gas prices in line with rises in purchase prices
under the current regulatory control regime.
JoinHands Technology Co., Ltd. ("JoinHands Technology", a 27.58% owned
associate of the Company) continued to experience weak demand for its computer
products. Revenue for the associate company was Rmb8.1 million during the
Period, representing a decrease of 11.5% year-on-year, while a net profit of
Rmb17.0 thousand was realized.
Updates on the Acquired Securities Business
Following the acquisition of 70.46% equity interest in Kinghing Securities Co.,
Ltd. ("Kinghing Securities") by Zhejiang Shangsan Expressway Co., Ltd. (a
73.625% owned subsidiary of the Company) on April 20, 2006, the acquisition was
approved by the China Securities Regulatory Commission on June 14, 2006, with
the Company assuming control over the securities company starting from July 1,
2006. On August 4, 2006, the securities company was renamed as "Zheshang
Securities Co., Ltd." ("Zheshang Securities"), thereby signifying a new chapter
of the company.
The results of Zheshang Securities have not yet been consolidated into the
financial statements of the Group. Based on accounting principles generally
accepted in the PRC, the company realized Rmb192.8 million in revenue and
Rmb100.1 million in profit before taxation during the Period amid favorable
sentiment in the domestic capital market.
As at June 30, 2006, and based on accounting principles generally accepted in
the PRC, the net asset value of Zheshang Securities stood at Rmb548.5 million.
Expressway Widening Project
Phase III of the project to widen the Shanghai-Hangzhou-Ningbo Expressway from
four lanes to eight lanes (the "Widening Project") progressed as planned during
the Period along the Hangzhou-Ningbo section. With ground preparation being the
current focus of ongoing works, the laying of foundation was completed by the
end of June 2006 and overall completion is expected by the end of 2007.
While every effort was made to minimize the impact of construction works on the
normal traffic flow along the Hangzhou-Ningbo section, some of the safety
measures introduced in areas affected by the Widening Project did slow down
travel speed and subsequently reduce the carrying capacity of existing lanes at
certain times.
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 under review, profit attributable to equity holders of the
Company recorded a growth of 8.9% to Rmb688.7 million (2005 restated: Rmb632.7
million), while earnings per share was Rmb15.86 cents (2005 restated: Rmb14.57
cents), resulting in an increase in return on equity from 5.7% for the same
period last year to 6.1% for the Period.
Liquidity and Financial Resources
As at June 30, 2006, current assets of the Group amounted to Rmb1,738.9
million, amongst which Rmb600.0 million held as other receivables was capital
contribution to Kinghing Securities (subsequently renamed as Zheshang
Securities Co., Ltd.). This has increased the percentage of account
receivables, other receivables and inventories amongst total current assets
from 24.0% as at the start of the Period to 41.1% as at the end of the Period.
As at June 30, 2006, the Group had adequate net cash inflow generated from
operating activities amounting to Rmb1,106.9 million, representing an increase
of 4.2% over the same period last year.
The Group's financial position remained healthy. As at June 30, 2006, the
Group's cash and cash equivalents amounted to Rmb846.9 million as compared with
Rmb723.5 million as at December 31, 2005. In addition, the Group held Rmb149.6
million in time deposits and Rmb10.0 million in money market funds as at June
30, 2006.
The Directors do not expect the Company to experience any problem with
liquidity and financial resources in the near future.
Borrowings and Solvency
As at June 30, 2006, the Group's total interest-bearing borrowings stood at
approximately Rmb2,247.5 million (December 31, 2005: Rmb2,434.7 million), of
which Rmb1,502.8 million were not repayable within one year (December 31, 2005:
Rmb1,548.2 million). The borrowings mainly comprised outstanding balances of
the World Bank loans of Rmb699.9 million in Renminbi equivalent, loans from
several domestic commercial banks totaling Rmb475.0 million and corporate bonds
amounting to Rmb1 billion that was issued by the Company in 2003 for a term of
10 years.
During the Period, the interest rates of the Group's semi-annual and annual
domestic commercial bank borrowings, totaling Rmb475.0 million, were fixed
between 5.022% and 5.58% per annum; the interest rate for Rmb72.6 million
government loans remained fixed at 3.00% per annum; and the annual coupon rate
for the Rmb1 billion corporate bonds was fixed at 4.29%, with interest payable
annually. During the Period, the floating rate of the Group's Rmb699.9 million
World Bank loans, denominated in US dollar was 4.51% per annum.
During the Period, interest expenses amounted to Rmb54.8 million and profit
before interest and tax amounted to Rmb1,180.4 million. The interest cover
ratio (profit before interest and tax over interest expenses) stood at 21.6
(2005 restated: 22.3).
The asset-liability ratio (total liabilities over total assets) was 23.2% as at
June 30, 2006 (December 31, 2005: 24.2%).
Capital Structure
The total equity of the Group as at June 30, 2006 amounted to Rmb12,361.9
million (December 31, 2005: Rmb12,363.9 million), while fixed-rate liabilities
of the Group amounted to Rmb1,547.6 million, floating-rate liabilities of the
Group amounted to Rmb699.9 million and interest-free liabilities of the Group
amounted to Rmb1,480.1 million, representing 76.8%, 9.6%, 4.4% and 9.2% of the
Group's capital, respectively.
The gearing ratio, which represents the sum of fixed-rate liabilities,
floating-rate liabilities and interest-free liabilities over total equity, was
30.2% as at June 30, 2006 (December 31, 2005: 31.9%).
Capital Expenditure Commitments and Utilization
Total capital expenditures of the Group and the Company for the Period amounted
to Rmb741.3 million and Rmb215.1 million, respectively, with Rmb468.9 million
incurred by the investment in Kinghing Securities and Rmb226.0 million incurred
by the Widening Project.
As at June 30, 2006, capital expenditures committed by the Group and the
Company were Rmb3,836.7 million and Rmb2,934.3 million, respectively. Of the
total capital expenditure commitments of the Group, 55.6% will be used on the
Widening Project and 28.9% will be used on the construction of Jiashao
Expressway.
The above capital expenditure needs will mainly be financed by the Group's
internal financial resources, with a preference for debt financing to meet any
shortfalls thereof.
Contingent Liabilities and Pledge of Assets
As at June 30, 2006, the Group did not have any contingent liabilities nor any
pledge of assets.
Foreign Exchange Exposure
As at June 30, 2006, except for the World Bank loans of approximately Rmb699.9
million, denominated in US dollar, and dividends for H shares payable by the
Company that are settled in HK dollar, the Group's principal operations are
transacted and booked in Renminbi. Therefore, the Group's exposure to foreign
exchange fluctuations is limited and the Group has not entered into any
financial instrument for hedging purposes.
Although the Directors do not foresee any material foreign exchange risks for
the Group, there is no assurance that any further changes in the foreign
exchange environment will not adversely affect the operating results of the
Group in the future.
HUMAN RESOURCES
There were no significant changes to the Company's overall number of employees,
remuneration policies, bonus schemes and training schemes from what have been
disclosed in the Company's latest annual report.
OUTLOOK
Being the first year in the Eleventh Five-Year National Economic Development
Plan, 2006 started off well for Zhejiang Province, and there is good reason to
believe that strong economic growth will continue with the relevant authorities
having placed growing emphasis on stability and balance in managing economic
affairs. The provincial economy is expected to further benefit from a
double-digit growth in the national economy and the ongoing globalization that
continues to generate robust growth in world trade.
While traffic on the two expressways operated by the Group is expected to
continue to grow into the second half of 2006, the proportion of higher
fee-paying heavy trucks among the overall traffic is expected to stabilize
after having more than doubled over the past two years. Therefore, the rate of
growth in toll income should more closely mirror that of traffic volume as we
approach the end of the year.
As a trial case to further develop toll road-related businesses, Zhejiang
Expressway Investment Development Co., Ltd. (a 51% owned subsidiary of the
Company) is planning to join local investors to develop a shopping complex near
the Wangdian exit along the Shanghai-Hangzhou Expressway. The complex, expected
to be completed by the end of 2008, will house a multitude of shops,
restaurants, as well as leisure and entertainment facilities.
PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARES
Neither the Company nor its subsidiaries has purchased, sold, redeemed or
cancelled any of the Company's shares during the Period.
COMPLIANCE WITH APPENDIX 14 TO THE LISTING RULES
The Company was in compliance with the code provisions in the Code on Corporate
Governance Practices set out in Appendix 14 to the Listing Rules during the
Period.
By order of the
Board
GENG Xiaoping
Chairman
Hangzhou, the PRC, August 29, 2006
As at the date of this announcement, the executive directors of the Company
are: Messrs. Geng Xiaoping, Fang Yunti, Zhang Jingzhong and Jiang Wenyao; the
non-executive directors of the Company are: Messrs. Zhang Luyun and Zhang Yang;
and the independent non-executive directors of the Company are: Messrs. Tung
Chee Chen, Zhang Junsheng and Zhang Liping.
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