2014 First Quarterly Results Announcement
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong
Limited take no responsibility for the contents of this announcement, make no
representation as to its accuracy or completeness and expressly disclaim any
liability whatsoever for any loss howsoever arising from or in reliance upon
the whole or any part of the 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 FIRST QUARTERLY RESULTS ANNOUNCEMENT
This quarterly results announcement of Zhejiang Expressway Co., Ltd. (the
"Company") for the three months ended March 31, 2014 (the "Period") is made
pursuant to the Rules Governing the Listing of Securities on The Stock Exchange
of Hong Kong Limited and has been prepared in compliance with section 4.3 of
the Disclosure and Transparency Rules of the United Kingdom Listing Authority.
The audit committee of the Company has reviewed the quarterly results of the
Company and its subsidiaries (collectively the "Group") for the Period. Set out
below are the Group's unaudited condensed consolidated statement of profit or
loss and other comprehensive income, unaudited condensed consolidated statement
of financial position and unaudited condensed consolidated statement of cash
flows for the Period together with the comparative figures for the
corresponding period of 2013:
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
For the three months
ended March 31,
Notes 2014 2013
Rmb'000 Rmb'000
(Unaudited) (Unaudited
and restated)
------------- -------------
Revenue 2 2,018,110 1,741,148
Operating costs (1,246,087) (1,095,827)
------------- -------------
Gross profit 772,023 645,321
Securities investment gains 21,209 40,138
Other income 3 48,329 49,133
Administrative expenses (14,100) (17,949)
Other expenses (9,590) (8,456)
Share of profit (loss) of associates 16,321 (144)
Share of loss of a joint venture (7,489) (9,323)
Finance costs (21,141) (22,369)
------------- -------------
Profit before tax 805,562 676,351
Income tax expense (202,244) (174,366)
------------- -------------
Profit for the Period 603,318 501,985
------------- -------------
Other comprehensive (loss) income
Items that may be reclassified to
profit or loss:
Available-for-sale financial assets:
- Fair values (loss) gain during the
Period (1,785) 2,767
Income tax relating to components of
other comprehensive (loss) income 446 (692)
------------- -------------
Other comprehensive (loss) income for the
Period (net of tax) (1,339) 2,075
------------- -------------
Total comprehensive income for the 601,979 504,060
Period ============= =============
Profit for the Period attributable to:
Owners of the Company 512,529 431,716
Non-controlling interests 90,789 70,269
------------- -------------
603,318 501,985
============= =============
Total comprehensive income attributable to:
Owners of the Company 511,640 432,798
Non-controlling interests 90,339 71,262
------------- -------------
601,979 504,060
============= =============
Earnings per share - Basic and diluted 4 Rmb11.80 cents Rmb9.94 cents
============= =============
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
March 31, December 31,
2014 2013
Rmb'000 Rmb'000
(Unaudited) (Audited)
------------- -------------
Non-current assets 15,265,892 15,436,353
Current assets 18,261,834 16,652,841
Current liabilities 12,936,186 11,914,597
------------- -------------
Net current assets 5,325,648 4,738,244
------------- -------------
Total assets less current liabilities 20,591,540 20,174,597
------------- -------------
Non-current liabilities 396,562 505,638
------------- -------------
20,194,978 19,668,959
============= =============
Capital and Reserves
Share capital 4,343,115 4,343,115
Reserves 12,141,063 11,629,423
------------- -------------
Equity attributable to owners of the 16,484,178 15,972,538
Company
Non-controlling interests 3,710,800 3,696,421
------------- -------------
20,194,978 19,668,959
============= =============
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months
ended March 31,
2014 2013
Rmb'000 Rmb'000
(Unaudited) (Unaudited
and restated)
------------- -------------
Net cash from (used in) operating 772,942 (93,998)
activities
Net cash (used in) from investing (6,108) 521,179
activities
Net cash used in financing activities (483,191) (920,000)
------------- -------------
Net increase (decrease) in cash and 283,643 (492,819)
cash equivalents
Cash and cash equivalents at beginning 1,806,981 3,392,053
of the Period ------------- -------------
Cash and cash equivalents at end of the 2,090,624 2,899,23
Period ============= =============
Notes:
1. MERGER ACCOUNTING RESTATEMENT
On March 20, 2013, the Group entered into share transfer agreements with
Zhejiang Communications Group Co., Ltd. ("Communications Group") and Yiwu
Communications Development Co., Ltd. ("Yiwu Development"), an independent
third party, to acquire the 66.283% and 10.267% equity interests in Zhejiang
Jinhua Yongjin Expressway Co., Ltd. ("Jinhua Co"), from Communications Group
and Yiwu Development, respectively, for corresponding cash consideration of
Rmb655,356,000 and Rmb101,512,000, totaling Rmb756,868,000. Jinhua Co is
principally engaged in the operation and management of the Jinhua Section of
the Ningbo-Jinhua Expressway. Before the above acquisitions, Jinhua Co was a
23.45% owned associate of the Group. After the completion of the acquisition,
Jinhua Co then became a 100% owned subsidiary of the Group. Since
Communications Group is the parent company of the Company, the Group's
acquisition of 66.283% equity interest in Jinhua Co from Communications Group
was regarded as a business combination involving entities under common
control and was accounted for using merger accounting method, in accordance
with the guidance set out in Accounting Guideline 5 "Merger Accounting for
Common Control Combinations" ("AG5") issued by the Hong Kong Institute of
Certified Public Accountants ("the HKICPA") and the acquisition of 10.267%
equity interest in Jinhua Co from Yiwu Development was accounted for as
acquisition of additional interest in a subsidiary.
As a result, the comparative condensed consolidated statement of profit or
loss and other comprehensive income and condensed consolidated statement of
cash flows for the Period ended March 31, 2013 have therefore been restated,
in order to include the losses, assets and liabilities of the combining
entities since the date on which they first come under common control.
The adopting of merger accounting method in respect of the Group's
acquisition of 66.283% equity interest in Jinhua Co has resulted in a
decrease in total comprehensive income attributable to the owners of the
Company, a decrease in profit attributable to owners of the Company and a
decrease in earnings per share (basic and diluted) for the Period ended
March 31, 2013 by Rmb8,376,000, Rmb8,376,000 and Rmb0.19 cents, respectively.
2. REVENUE
An analysis of the Group's revenue, net of discounts and taxes, for the
Period is as followed:
For the three months
ended March 31,
2014 2013
Rmb'000 Rmb'000
(Unaudited) (Unaudited and
restated)
------------- -------------
Toll operation revenue 970,699 905,156
Service area businesses revenue (mainly 544,434 456,465
sales of goods)
Advertising business revenue 25,196 26,722
Commission income from securities 326,087 280,047
operation
Interest income from securities 140,234 72,758
operation
Others 11,460 -
------------- -------------
Total 2,018,110 1,741,148
============= =============
3. OTHER INCOME
For the three months
ended March 31,
2014 2013
Rmb'000 Rmb'000
(Unaudited) (Unaudited and
restated)
Interest income on bank balances,
entrusted loan receivables and
financial products investment 16,113 24,914
Rental income 26,755 17,480
Handling fee income 260 631
Towing income 2,349 2,430
Exchange gain, net 2 6
Others 2,850 3,672
------------- -------------
Total 48,329 49,133
============= =============
4. 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 Rmb512,529,000
(corresponding period of 2013 (restated): Rmb431,716,000) 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.
BUSINESS REVIEW
Amid the uncertainty of the global economic recovery and confronted with
downward pressures in the domestic economy, China posted 7.4% GDP growth in the
first quarter of 2014, which was slower than the growth rates in the past few
years. Despite the slowdown, Zhejiang Province enjoyed a decent rate of growth
in terms of both investment and consumption, though it recorded first quarter
GDP growth of 7% compared with the corresponding period of last year, which was
slightly lower than the national average, due to a slower growth in both
imports and exports.
Despite the economic slowdown in Zhejiang Province, the traffic volume on the
Group's expressways continued to grow and the Group's securities business
achieved an income increase due to a slight increase in trading volumes in
China's securities markets. As a result, the Group's total income increased by
15.9% compared with the corresponding period of last year, realizing a total
income of Rmb2,079.06 million generated from various income sources, of which
Rmb1,004.14 million was generated from the three major expressways that are
operated by the Group, representing an increase of 7.4% from the corresponding
period of 2013 and 48.3% of total income; and Rmb584.26 million was generated
from the Group's toll road-related businesses, representing an increase of
20.2% from the corresponding period of 2013 and 28.1% of total income. The
Group's securities business contributed income of Rmb490.66 million,
representing an increase of 31.9% from the corresponding period of 2013 and
23.6% of total income.
Toll Road Operations
During the first quarter, China experienced a slowdown in economic growth and
the total volume of exports from Zhejiang Province declined. As a result, the
organic growth of traffic volume of freight vehicles and container trucks on
the Group's expressways slowed down.
The Group's Shangsan Expressway recorded a substantial increase in traffic
volume since the opening of the Jiaxing-Shaoxing Bridge (not operated by the
Group) in July, 2013, and in particular its opening to trucks at the end of
November, 2013, which had a positive impact on the Shangsan Expressway.
Although the Jiaxing-Shaoxing Bridge diverted a small amount of traffic away
from the Group's Shanghai-Hangzhou-Ningbo Expressway, overall, the Group's toll
income benefited from the opening of the Jiaxing- Shaoxing Bridge during the
Period.
In June 2013, the Group completed its acquisition of the Jinhua Section of the
Ningbo- Jinhua Expressway. Although the construction work of the local roads
that run parallel to the Jinhua Section of the Ningbo-Jinhua Expressway was
completed, a number of vehicles on short-distance trips still took the
Ningbo-Jinhua Expressway as a result of the Company's effective promotions.
This led to a further increase in traffic volume during the Period.
The average daily traffic volume in full-trip equivalents along the Group's
Shanghai- Hangzhou-Ningbo Expressway was 42,611 during the Period, representing
an increase of 2.56% from the corresponding period of 2013. Average daily
traffic volume in full-trip equivalents along the Shangsan Expressway was
22,648 during the Period, representing an increase of 28.43% from the
corresponding period of 2013. Average daily traffic volume in full-trip
equivalents along the Jinhua Section of the Ningbo- Jinhua Expressway was
14,865 during the Period, representing an increase of 16.35% from the
corresponding period of 2013.
Total toll income from the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142km
Shangsan Expressway and the 70km Jinhua Section of the Ningbo-Jinhua Expressway
amounted to Rmb1,004.14 million during the Period, representing an increase of
7.4% from the corresponding period of 2013. Toll income from the
Shanghai-Hangzhou- Ningbo Expressway amounted to Rmb713.10 million,
representing an increase of 1.5% from the corresponding period of 2013; toll
income from the Shangsan Expressway amounted to Rmb222.95 million, representing
an increase of 29.0% from the corresponding period of 2013; while toll income
from the Jinhua Section of the Ningbo- Jinhua Expressway amounted to Rmb68.09
million, representing an increase of 13.2% from the corresponding period of
2013.
Toll Road-Related Business Operations
The Company also operates certain toll road-related businesses along its
expressways through its subsidiaries and associated companies, including gas
stations, restaurants and shops in service areas, roadside advertising, as well
as road maintenance.
During the Period, with the opening of the Jiaxing-Shaoxing Bridge, the service
areas along Shangsan Expressway benefited from the increase in traffic volume.
The total income from service areas along the Shangsan Expressway grew
significantly. However, there was a negative impact on income from service
areas along the Shanghai- Hangzhou-Ningbo Expressway, which contributes a
larger percent of income to the Group. Although the overall income from service
areas decreased slightly, there was a solid increase in sales of refined oil
products. Income from toll road-related businesses totaled Rmb584.26 million
for the Period, representing an increase of 20.2% from the corresponding period
of 2013.
Securities Business
During the Period, stock markets in China continued to see an increase in
trading activity, with trading volumes increasing by 9.83% compared with the
corresponding period of last year. Although the average commission rate
declined slightly, income of the Group's brokerage business rose moderately as
a result of higher trading volumes.
Additionally, Zheshang Securities Co., Ltd. ("Zheshang Securities") pushed
through further innovations in its businesses and improved its income and
profit structure to gradually reduce the dominant role that its brokerage
business played in the past and accelerate the comprehensive development of
each business segment. During the Period, Zheshang Securities' businesses, such
as investment banking and asset management, grew steadily compared with the
corresponding period of last year. In particular, its margin financing and
securities lending businesses developed rapidly and performed exceptionally
well.
The IPO application submitted by Zheshang Securities was accepted by the China
Securities Regulatory Commission in May, 2013. Zheshang Securities is now
officially on the wait list for an IPO.
During the Period, Zheshang Securities' total operating income was Rmb490.66
million, an increase of 31.9% from the corresponding period of 2013, of which
brokerage commission income amounted to Rmb350.43 million, up by 17.1%, and
interest income from the securities business amounted to Rmb140.23 million, up
by 92.7%. Moreover, securities investment gains of Zheshang Securities included
in the Condensed Consolidated Statement of Profit or Loss and Other
Comprehensive Income of the Group was Rmb17.41 million during the Period.
Long-Term Investments
Zhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associate
company of the Company) recorded income of Rmb1,582.07 million, an increase of
7.0% compared with the corresponding period of last year. The rise was
primarily attributable to an increase in sales volume of petroleum products.
During the Period, the net profit of Zhejiang Expressway Petroleum Development
Co., Ltd. was Rmb4.19 million (corresponding period of 2013: net profit of
Rmb4.46 million).
Shengxin Expressway Co., Ltd. (a 50% owned joint venture of the Company)
operates the 73.4km long Shaoxing Section of the Ningbo-Jinhua Expressway.
During the Period, the traffic volume of the Shaoxing Section of the
Ningbo-Jinhua Expressway increased as the economy of Zhejiang Province grew
steadily. The average daily traffic volume in full-trip equivalents was 13,161,
an increase of 11.06% compared with the corresponding period of last year. Toll
income during the Period was Rmb70.42 million. However, due to its relatively
heavy financial burden, the joint venture reported a loss of Rmb14.98 million.
JoinHands Technology Co., Ltd. is a 27.582%-owned associate company of the
Company. The Company instituted legal proceedings with regards to the transfer
of the equity interest in this associated company and then lodged an appeal
against the subsequent judgment of the Company's priority of compensation for
the mortgaged properties. The appeal was ruled in favor of the Company by the
Hangzhou Intermediate People's Court on April 28, 2013. These mortgaged
properties in the associated company were auctioned off on December 24, 2013.
In accordance with the judicial auction procedures, the court will transfer the
full payment received from the auction to the Company after the buyer finishes
all procedures for ownership transfer of the auctioned properties.
Zhejiang Communications Investment Group Finance Co., Ltd. (a 35% owned
associate company of the Company) derives income mainly from fees and
commissions for providing financial services, including arranging loans and
receiving deposits from subsidiaries of Communications Group. Zhejiang
Communications Investment Group Finance Co., Ltd. were accounted for as a share
of gain of associates of the Company starting from May 1, 2013, and realized a
net profit of Rmb54.44 million during the Period.
FINANCIAL ANALYSIS
Liquidity and financial resources
As at March 31, 2014, current assets of the Group amounted to Rmb18,261.83
million in aggregate (December 31, 2013: Rmb16,652.84 million), of which bank
balances and cash accounted for 15.8% (December 31, 2013: 15.1%), bank balances
held on behalf of customers accounted for 48.3% (December 31, 2013: 49.4%), and
held for trading investments accounted for 8.6% (December 31, 2013: 7.1%).
Current ratio (current assets over current liabilities) of the Group as at
March 31, 2014 was 1.4 (December 31, 2013: 1.4). Excluding the effect of the
customer deposits arising from the securities business, the resultant current
ratio of the Group (current assets less bank balances held on behalf of
customers over current liabilities less balance of accounts payable to
customers arising from securities business) was 2.3 (December 31, 2013: 2.2).
The amount of held for trading investments of the Group as at March 31, 2014
was Rmb1,571.99 million (December 31, 2013: Rmb1,181.03 million), of which
96.0% was invested in bonds, 3.7% was invested in stocks, and the rest was
invested in open-end equity funds.
During the Period, net cash inflow generated from the Group's operating
activities amounted to Rmb772.94 million.
The directors of the Company do not expect the Company to experience any
problems with liquidity and financial resources in the foreseeable future.
Borrowings and solvency
As at March 31, 2014, total liabilities of the Group amounted to Rmb13,332.75
million (December 31, 2013: Rmb12,420.24 million), of which 2.7% was bank and
other borrowings, and 65.8% was accounts payable to customers arising from
securities business.
As at March 31, 2014, the Group's interest-bearing borrowings totaled
Rmb1,358.50 million, representing 26.2% decrease compared to that as at
December 31, 2013. The borrowings include domestic commercial bank loans of
Rmb300.00 million, loans from domestic non-bank financial institution of
Rmb58.50 million, and short-term loan note amounting to Rmb1 billion that was
issued by Zheshang Securities in January, 2014, for a term of 3 months.
Besides, the short-term loan note issued by Zheshang Securities in October,
2013 has become due and fully repaid. 14.7% of the interest-bearing borrowings
is not payable within one year.
Total interest expenses for the Period amounted to Rmb21.14 million, while
profit before interest and tax amounted to Rmb826.70 million. The interest
cover ratio (profit before interest and tax over interest expenses) stood at
39.1 times (corresponding period of 2013 (restated): 31.2 times).
As at March 31, 2014, the asset-liability ratio (total liabilities over total
assets) was 39.8% (December 31, 2013: 38.7%). Excluding the effect of customer
deposits arising from the securities business, the resultant asset-liability
ratio (total liabilities less balance of accounts payable to customers arising
from securities business over total assets less bank balances held on behalf of
customers) of the Group was 18.5% (December 31, 2013: 17.8%).
Capital structure
As at March 31, 2014, the Group had Rmb20,194.98 million in total equity,
Rmb10,854.67 million in fixed-rate liabilities, Rmb300.00 million in
floating-rate liabilities, and Rmb2,178.08 million in interest-free
liabilities, representing 60.2%, 32.4%, 0.9% and 6.5% of the Group's total
capital, respectively. The gearing ratio, which was computed by dividing the
total liabilities less balance of accounts payable to customers arising from
securities business by total equity, was 22.6% as at March 31, 2014 (December
31, 2013: 21.6%).
OUTLOOK
The drop in growth rate of both imports and exports adversely affected Zhejiang
Province's economy in the first quarter. However, market data in March started
to show that the main economic indicators have stabilized and possibly
bottomed. It is expected Zhejiang Province's economy will maintain steady
growth in the second quarter of the current year. For the whole year, the
economy is expected to "open low and grow steadily". As such, the organic
growth in traffic volume on the Group's expressways is expected to increase
moderately.
In addition, as the road leading to the Hangzhou Airport was closed for
construction for the first time, the Zhejiang Provincial Government rolled out
a policy that starting from April 15, 2014, about 23.7km of the expressway
operated by the Group that included the Second Qianjiang Bridge and having
access to the airport, would only open to freight vehicles for four hours in
the early morning. As such, this policy is expected to reduce the traffic
volume of container trucks. It is expected that annual toll income will
decrease by 1.4% as a result of this policy. At the same time, since freight
vehicles will not be able to use this expressway most of the time, other
vehicles will be able to pass through the road more smoothly and faster, which
should help to increase the traffic volume of small passenger vehicles. The
Qianjiang Road, which opened to traffic on April 16 this year, had a smaller
than expected traffic diversion impact on the Group's expressways.
With regard to the negative impact of the traffic diversion, the Group will
monitor the road to the airport closely and carry out in-depth analysis on the
newly opened road network of Qianjiang Road and the Jiaxing-Shaoxing Bridge.
The Group will also carry out more marketing initiatives to promote its
expressway network through the broadcast media and highway information boards.
The Group will also improve road signage to attract more vehicles to the
expressway sections that are operated by the Group and offset the loss from
traffic diversions.
With the establishment of the Shanghai-Hong Kong Stock Connect, which is mutual
stock market access between Shanghai and Hong Kong, and the adjustment of the
monetary policy in China, it is believed that these developments will be
beneficial to the Group's securities businesses. At the same time, Zheshang
Securities is striving to explore innovative businesses and broaden income
sources in a bid to facilitate the comprehensive development of all businesses,
and to facilitate its listing process on the Shanghai Stock Exchange.
Currently, the Company is actively developing its strategic transformation
plan. The Company's management will pay close attention to updates in industry
policy to adjust its operational strategies in a timely manner based on the
Company's needs, continue to improve our core expressways business and optimize
our securities and finance business. The Group will look to find suitable
investment projects with manageable risks, while nurturing management
capabilities in our diversified operations in order to support the long-term
and sustainable development of the Company and create value for shareholders.
There have been no material events, transactions or change in the financial
position of the Company other than as outlined in this announcement. Further,
the board of directors (the "Board") of the Company is not aware of any
material events, transactions or change in the financial position of the
Company which have occurred since 31 March 2014 up to and including 15 May
2014, being the latest practicable date before the date of the publication of
this announcement.
By order of the Board
Zhan Xiaozhang
Chairman
Hangzhou, PRC, May 15, 2014
As at the date of this announcement, the executive directors of the Company
are: Mr. ZHAN Xiaozhang, Ms. LUO Jianhu and Mr. DING Huikang; the non-executive
directors of the Company are: Messrs. LI Zongsheng, WANG Weili and
WANG Dongjie; and the independent non-executive directors of the Company are:
Messrs. ZHANG Junsheng, ZHOU Jun and PEI Ker-Wei.
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