Annual 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)
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 results
of the Company and its subsidiaries (the "Group") for the year ended December
31, 2005 (the "Period"), prepared in conformity with the new and revised Hong
Kong Accounting Standards ("HKAS") and Hong Kong Financial Reporting Standards
("HKFRS") (thereafter collectively referred to as the "New HKFRS").
RESULTS AND DIVIDENDS
During the Period, revenue for the Group was Rmb3,456.4 million, representing
an increase of 10.4% over 2004. Net profit from ordinary activities
attributable to equity holders of the Company was Rmb1,431.2 million,
representing an increase of 16.8% over 2004. Earnings per share for the Period
was Rmb32.95 cents (2004: Rmb28.22 cents per share).
The Directors have recommended to pay a final dividend of Rmb15.0 cents per
share (2004: Rmb15.0 cents per share), subject to shareholders' approval at the
2005 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 November
25, 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 out
below are the audited consolidated income statement and consolidated balance
sheet 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 3,131,993
Operating 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 1,973,955
activities
Finance costs (101,343) (103,457)
Share of profits of 7,217 9,086
associates
Share of profit of a 16,285 19,622
jointly 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 1,225,699
Company
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 12,564,935
equipment
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 79,812
controlled entity
Available for sale 1,000 1,000
investments
Expressway operating 188,545 197,245
rights
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 612,097 676,447
trading
Cash and cash 829,145 803,739
equivalents
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 327,471 294,786
accruals
Interest-bearing bank 886,539 787,892
and 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 13,856,863
current liabilities
Non-current liabilities
Interest-bearing bank 548,198 655,570
and other loans
Long term bonds 1,000,000 1,000,000
Deferred tax 384,153 388,787
liabilities
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 10,720,211
equity holders of the
Company
Minority interests 1,167,950 1,092,295
Total equity 12,363,868 11,812,506
============= =============
Notes:
1 Basis of Preparation
The consolidated financial statements have been prepared in
accordance with HKFRSs issued by the Hong Kong Institute of Certified Public
Accountant ("HKICPA"). In addition, the consolidated financial statements
include applicable disclosures required by the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong
Companies Ordinance.
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, 2004 except as described
below.
In the current year, the Group has adopted all of the new and
revised Hong Kong Accounting Standards ("HKAS") and Hong Kong Financial
Reporting Standards ("HKFRS") (thereafter collectively referred to as the "New
HKFRS") issued by the HKICPA that are relevant to its operations and effective
for accounting periods on or after January 1, 2005. The application of the new
HKFRSs has resulted in a change in the presentation of the consolidated income
statement, consolidated balance sheet and the consolidated statement of changes
in equity. In particular, the presentation of minority interests and share of
tax of associates/jointly controlled entities has been changed. The adoption of
the new HKFRS has resulted in the following changes to the Group's accounting
policies that has an effect on how the results for the current and the amounts
reported for the prior years are prepared and presented.
Business Combinations
In the current year, the Group has applied HKFRS 3 "Business
Combinations" which is effective for business combinations for which the
agreement date is on or after January 1, 2005. The principal effects of the
application of HKFRS 3 to the Group are summarized below.
Goodwill
In previous years, goodwill arising on or after acquisitions prior
to January 1, 2001 was held in reserves, and goodwill arising on acquisitions
on or after January 1, 2001 was capitalised and amortised over its estimated
useful life. The Group has applied the relevant transitional provisions in
HKFRS 3. Goodwill previously recognised in reserves of Rmb 352,860,000, after
offsetting negative goodwill of Rmb12,655,000, has been transferred to the
Group's retained earning on January 1, 2005. With respect to goodwill
previously capitalised on the balance sheet, the Group has applied the relevant
transitional provisions in HKFRS 3 and eliminated the carrying amount of the
related accumulated amortisation of Rmb 41,121,000 on January 1, 2005 with a
corresponding decrease in the cost of goodwill. The Group has discontinued
amortising such goodwill from January 1, 2005 onwards and such goodwill will be
tested for impairment at least annually. Goodwill arising on acquisitions after
January 1, 2005 is measured at cost less accumulated impairment losses (if any)
after initial recognition. As a result of this change in accounting policy, no
amortisation of goodwill has been charged in the current year. Comparative
figures for 2004 have not been restated.
Excess of the Group's interest in the net fair value of acquiree's
identifiable assets, liabilities and contingent liabilities over cost
(previously known as "negative goodwill")
In accordance with HKFRS 3, any excess of the Group's interest in
the net fair value of acquiree's identifiable assets, liabilities and
contingent liabilities over the cost of acquisition ("discount on acquisition")
is recognised immediately in profit or loss in the period in which the
acquisition takes place. In previous periods, negative goodwill arising on
acquisitions prior to January 1, 2001 was held in reserves. In accordance with
the relevant transitional provisions in HKFRS 3, the Group derecognised all
negative goodwill on January 1, 2005 of RMB12,655,000 previously recorded in
goodwill reserve. The amount has been transferred to retained earnings as
disclosed above.
Owner-occupied Leasehold Interest in Land
In previous years, land use rights were included in property, plant
and equipment and measured using the cost model. In the current year, the Group
has applied HKAS 17 Leases. Under HKAS 17, the land and building elements of a
lease of land and buildings are considered separately for the purposes of lease
classification, unless the lease payments cannot be allocated reliably between
the land and buildings elements, in which case, the entire lease is generally
treated as a finance lease. To the extent that the allocation of the lease
payments between the land and buildings elements can be made reliably, the
leasehold interests in land are reclassified to prepaid lease payments under
operating leases, which are carried at cost and amortised over the lease term
on a straight-line basis. This change in accounting policy has been applied
retrospectively. Alternatively, where the allocation between the land and
buildings elements cannot be made reliably, the leasehold interests in land
continue to be accounted for as property, plant and equipment.
Financial Instruments
In the current year, the Group has applied HKAS 32 Financial
Instruments: Disclosure and Presentation and HKAS 39 Financial Instruments:
Recognition and Measurement. HKAS 32 requires retrospective application. HKAS
39, which is effective for annual periods beginning on or after January 1,
2005, generally does not permit the recognition, derecognition or measurement
of financial assets and liabilities on a retrospective basis. The application
of HKAS 32 has had no material impact on how financial instruments of the Group
are presented for current and prior accounting periods. The Group has applied
the relevant transitional provisions in HKAS 39 with respect to classification
and measurement of financial assets and financial liabilities that are within
the scope of HKAS 39.
Classification and measurement of financial assets and financial
liabilities
By December 31, 2004, the Group classified and measured its debt and
equity securities in accordance with the alternative treatment of Statement of
Standard Accounting Practice 24 (SSAP 24). Under SSAP 24, investments in debt
or equity securities are classified as "trading securities", "non-trading
securities" or "held-to-maturity investments" as appropriate. Both "trading
securities" and "non-trading securities" are measured at fair value. Unrealised
gains or losses of "trading securities" are reported in profit or loss for the
period in which gains or losses arise. Unrealised gains or losses of
"non-trading securities" are reported in equity until the securities are sold
or determined to be impaired, at which time the cumulative gain or loss
previously recognised in equity is included in the net profit or loss for that
period. From January 1, 2005 onwards, the Group has classified and measured its
debt and equity securities in accordance with HKAS 39. Under HKAS 39, financial
assets are classified as "financial assets at fair value through profit or
loss" and "available-for-sale financial assets", "loans and receivables", or
"held-to-maturity financial assets". "Financial assets at fair value through
profit or loss" and "available-for-sale financial assets" are carried at fair
value, with changes in fair values recognised in profit or loss and equity
respectively. Available-for-sale equity investments that do not have quoted
market prices in an active market which are carried at cost less impairment as
their fair value cannot be reliably measured. As a result of this change in
accounting policy, the long term investments and short term investments
amounted to Rmb1,000,000 and Rmb 612,097,000 have been reclassified to
available for sale investment and investment held for trading, respectively.
The comparative figures have been reclassified to conform with the current
year's presentation.
The HKICPA has issued the following Standards and Interpretations
("INT") that are not yet effective. The Group has already commenced an
assessment of the impact of these new HKFRSs but is not yet in a position to
state whether these new HKFRSs would have a significant impact on its results
of 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 Policies
The effects of the changes in the accounting policies described
above 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 - 12,564,935
equipment
Impact of HKAS 39:
Available-for-sale - 1,000 1,000 - 1,000
investments
Investment held - 676,447 676,447 - 676,447
for trading
Long term 1,000 (1,000) - - -
investments
Short term 676,447 (676,447) - - -
investments
Total effects on - 1,092,295 1,092,295 - 1,092,295
equity as a result
of change in the
presentation of
minority net
=========== =========== =========== =========== ===========
The financial effects of the application of the new HKFRSs to the Group's
equity 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) 628,677
profits
============= ============= =============
4 Changes of Accounting Estimates
In the previous years, depreciation on expressway and bridges is calculated to
write off the cost over their estimated useful lives using a method whereby the
aggregate annual depreciation amounts,compared at average rates ranger from
6.11% to 8.77% per annum, and the total accumulated depreciation will be equal
to the total cost of expressways and bridges after 30 years when the authorised
operating period terminates. With effect from January 1, 2005, expressways and
bridges are depreciated by straight-line method in the residual years, which is
a change in accounting estimate, and considered by the directors to be suitable
in the future. Due to this change of accounting estimate, the net book value of
property,plant and equipment and the net profit before tax have been decreased,
while the depreciation expense has been increased for the year ended December
31, 2005. The profit before tax has been decreased by Rmb269,319,000.
Accordingly, the net profit attributable to equity holder of the Companyhas
been 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 230,183 183,637
income
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, the
subsidiaries 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 Activities
The 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 8,700
expressway operating
rights
Amortization of - 12,245
goodwill
Amortization of 18,138 17,779
prepaid lease payment
Staff costs 149,097 129,207
7 Income Tax Expense
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 Enterprise Income Tax ("EIT") 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.
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 692,366 542,749
the Period
============= =============
During the year, according to the approvals from the Zhejiang Provincial Local
Tax Bureau, Zhejiang Shangsan Expressway Co., Ltd. ("Shangsan Co"), one of the
Company's subsidiaries, was entitled to a 30% EIT exemption for the year ended
December 31, 2005 under the category of "Enterprise providing employment
opportunities to redundant workers with a minimum of three-years employment
term" as defined in the relevant national tax rules. As a result, the tax
exemption 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 December
31, 2004 amounted to Rmb36,914,000, respectively).
In 2004, according to the approvals from the Zhejiang Provincial National Tax
Bureau, Zhejiang Expressway Investment Development Co., Ltd. ("Development Co")
and Zhejiang Expressway Vehicle Towing and Rescue Service Co., Ltd ("Service
Co"), two of the Company's subsidiaries, were entitled to a 100% EIT exemption
for the year ended December 31, 2003 and accordingly received tax refund
amounting 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 the
statutory rates for the PRC to the tax expense at the effective tax rates is as
follows:
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 747,338 626,738
33%
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 692,366 542,749
tax rate
============= =============
8 Earnings per share
The calculation of basic earnings per share is based on the net profit from
ordinary activities attributable to shareholders of the Company for the year of
Rmb1,431,192,000 (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 and
2004 have not been calculated, as no diluting event existed during these years.
9 Trade Receivables
The aging analysis of trade receivables as at December 31, 2005 and the
comparative figures of December 31, 2004 are as follows:
As at December 31,
2005 2004
Rmb'000 Rmb'000
Within 1 20,470 25,636
year
1 to 2 1,274 933
years
Total 21,744 26,569
============= =============
10 Trade Payables
The aging analysis of trade payables as at December 31, 2005 and the
comparative figures of December 31, 2004 are as follows:
As at December 31,
2005 2004
Rmb'000 Rmb'000
Within 1 368,672 262,085
year
1 to 2 26,786 10,037
years
2 to 3 3,211 20,930
years
Over 3 3,552 4,161
years
Total 402,221 297,213
============= =============
11 Transfer to reserves
In accordance with the Company Law of the People's Republic of China ("PRC")
and the companies' articles of association, the Company, its subsidiaries, its
associates and its jointly controlled entity (collectively, the "Entities") are
required to allocate 10% of their profit after tax, as determined in accordance
with the PRC accounting standards and regulations applicable to the Entities,
to the statutory surplus reserve (the "SSR") until such reserve reaches 50% of
the registered capital of the Entities. Subject to certain restrictions set out
in the Company Law of the PRC and the respective articles of association of the
Entities, part of the SSR may be converted to increase the Entities' share
capital.
In prior years, in accordance with the Company Law of the PRC, the Entities are
required to transfer 5% to 10% of the profit after tax, as determined in
accordance with the PRC accounting standards and regulations applicable to the
Entities, to the statutory public welfare fund, which is a non-distributable
reserve other than in the event of the liquidation of the Entities. The
statutory public welfare fund must be used for capital expenditure on staff
welfare facilities and these facilities remain as the properties of the
Entities.
Under the amended Company Law of the PRC, the Group does not require to make
appropriation to statutory public welfare fund with effect from 2005.
BUSINESS REVIEW
2005 has been a year in which macro-economic control measures, designed to
place stronger emphasis on sustainability and equitability in the process of
rapid economic development, were further strengthened and fine-tuned. Economic
growth at the national level and the provincial level remained unabated, though
Zhejiang Province's GDP growth rate, at 12.4%, was slightly lower than the
growth 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, with
modern logistics and tourism emerging as two of a handful new areas of growth
in the provincial economy.
Traffic volume on the two expressways operated by the Group continued to grow
in 2005, bringing growth on both toll income and income from other
expressway-related business activities for the ninth consecutive year since the
Company was established in 1997.
Revenue for the Group was Rmb3,456.4 million during the Period, representing an
increase of 10.4% over 2004, with toll income continuing to partake as the
dominate share of the overall income, constituting approximately 92.3% of the
Group's total income. Income from other expressway-related business activities,
however, grew at a higher rate than toll income. A detailed breakdown of the
Group'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 Operations
Traffic volume on the two expressways operated by the Group continued to grow
during the Period, with average daily traffic in full-trip equivalents at
35,143 for the Shanghai-Hangzhou-Ningbo Expressway and 19,824 for the Shangsan
Expressway, respectively. However, traffic volume growth rates were
significantly lower compared to previous years, at 5.5% year-on-year for the
Shanghai-Hangzhou-Ningbo Expressway and 4.9% year-on-year for the Shangsan
Expressway.
Apart from the growing maturity of these expressway assets, a number of other
factors have affected the traffic volume performance of the two expressways in
2005. Slower economic growth in Zhejiang Province as well as in the Yangtze
River Delta Region in 2005 compared to 2004, coupled with a corresponding
slowdown in new vehicle sales, has contributed to a slower growth in demand for
road transport. Ongoing expressway-widening projects along the
Shanghai-Hangzhou-Ningbo Expressway and on neighboring expressways during the
Period have also contributed to a certain degree of traffic diversions from the
Shanghai-Hangzhou-Ningbo Expressway.
While the toll rates for expressways are generally higher than those for
neighboring roads, the differences in toll rates for trucks were further
narrowed at the start of 2005. As part of the integral policies of the
government to tackle the practice of overloading trucks, the toll rates for
trucks that are above 10 tons were lowered throughout Zhejiang Province at the
beginning of 2005, with the toll rates for trucks on neighboring national and
provincial roads reduced by an even greater amount than those for expressways,
thereby further enhancing the relative competitiveness of national and
provincial roads.
However, the toll rate reduction for trucks that are above 10 tons did have
positive implications for expressway operators in addition to reducing
overloading practices and resulting in a safer road traveling environment. The
change has led to a continued increase in the proportion of trucks of over 10
tons amongst the traffic mix, resulting in a higher growth rate in toll income
than in traffic volume. Toll income growth rates for the
Shanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway during the
Period were 8.3%and 12.4% year-on-year, respectively.
Expressway-Related Business Operations
Apart from the expressway operations, the Group has also carried out other
business operations such as gas stations, restaurants and shops in service
areas as well as billboard advertising along the expressways operated by the
Group.
Expanded shopping facilities and more flexible cooperative arrangements at the
service areas helped the expressway-related business operations grew at a rate
higher than the expressway operations in 2005 in terms of income. Revenue from
the expressway-related business operations grew 21.0% during the Period to
reach Rmb280.8 million, contributing to approximately 7.7% of the Group's total
revenue.
Long-Term Investments
Driven 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 higher
maintenance cost during the Period has led to a reduction in profit after
taxation by 17.0% to Rmb32.6 million.
Gas station operations carried out by Petroleum Co. throughout Zhejiang
Province were boosted by strong growth in demand for gasoline products in 2005.
While revenue for the associate company grew 33.1% during the Period, rising
global oil prices and a rigid price control regime imposed on domestic retail
outlets nevertheless resulted in a reduction in the net profit by 12.8% to
Rmb14.0 million.
Amid growing competition in its field of computer networking and digital
printing businesses, JoinHands Technology realized a net profit of Rmb3.3
million during the Period, representing a decrease of 14.1% over 2004, while
its revenue fell by 36.1%.
Expressway Widening Project
Phase II of the project to widen the Shanghai-Hangzhou-Ningbo Expressway from
four lanes to eight lanes (the "Widening Project"), spanning approximately 95km
between Dajing and Fengjing, was completed and opened to traffic in accordance
with plan in November 2005, thereby significantly improving the traveling
condition as well as increasing the expressway's capacity which in turn allows
for further traffic volume growth in the future.
Phase III of the Widening Project, totaling approximately 84km between Guzhu
and Duantang, progressed as planned during the Period, and is targeted for
completion by the end of 2007.
Extensive onsite management measures were put in place to maintain a normal
traffic flow on the Shanghai-Hangzhou-Ningbo Expressway as the widening works
were being carried out. However, temporary disturbances to the traffic were
inevitable, and the resulted inconvenience to the travelers did have a
measurable negative impact on the traffic volume growth of the affected section
of the expressway.
FINANCIAL ANALYSIS
The Group adopts a prudent but proactive financial policy with an aim to
provide shareholders with sound returns over the long-term.
During the Period, net profit attributable to equity holders of the Company
amounted 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%.
Profitability
Our consistently profitable business performance in the last five years
resulted in a compound annual growth rate of 17.1% and 11.7% in earnings per
share and return on equity, respectively.
The dividend payout ratio reached 66.8% during the Period, represent a stable
dividend payout policy that the management maintained in past years.
Liquidity
The Group enjoyed strong cash inflow from its steady growth in toll income,
with net cash inflow from operating activities amounting to Rmb1,983.3 million
as 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 Rmb1,919.8
million in aggregate (2004: Rmb1,912.3 million), of which account receivables,
other receivables and inventories accounted for 24.0% (2004: 21.6%).
Financial Resources
As at December 31, 2005, the Group held Rmb1,441.2 million in cash and cash
equivalents, time deposits and short-term investments (2004: Rmb1,480.2
million), with cash and cash equivalents accounting for 50.2%, time deposits
7.3% 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 in
close-ended security investment funds.
The Directors do not expect the Company to experience any problem with
financial resources in the foreseeable future.
Borrowings and Solvency
The 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 totaled
Rmb2,434.7 million (2004: Rmb2,443.5 million), amongst which Rmb886.5 million
comprised short-term interest bearing borrowings (an increase of 12.5%
year-on-year) and Rmb1,548.2 million comprised long-term borrowings (a decrease
of 6.5% year-on-year).
During the Period, the interest rates of the Group's semi-annual and annual
domestic commercial bank borrowings, totaling Rmb630.0 million, were fixed
between 4.698% and 5.580%; the interest rate for Rmb72.6 million government
loans remained fixed at 3.000%; the annual coupon rate for the Rmb1 billion
corporate bonds issued by the Company in 2003 for a term of 10 years was fixed
at 4.290%, with interests payable annually. The floating rates of the Group's
Rmb732.1 million World Bank loans, denominated in US dollars, varied from
4.110% to 4.590% during the Period.
Total interest expense for the Period amounted to Rmb107.2 million, while
profit before interest and tax amounted to Rmb2,371.9 million, resulting in an
interest cover ratio (profit before interest and tax over interest expenses) of
22.1 (2004: 19.4).
Moreover, the asset-liability ratio, which represents the total liabilities
over 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 Structure
As 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-free
liabilities, representing 75.8%, 10.4%, 4.5% and 9.3% of the Group's capital,
respectively.
Capital Expenditure Commitments and Utilization
As at December 31, 2005, total capital expenditure commitments of the Group and
the 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 toward
the construction of Jiashao Expressway.
Total capital expenditure incurred by the Group and by the Company during the
Period amounted to Rmb1,449.3 million and Rmb764.4 million, respectively, with
the Widening Project alone having utilized Rmb1,266.6 million.
The Group will rely upon its internal resources to fund its capital expenditure
commitments, with a preference for debt financing to meet any shortfall.
Contingent Liabilities and Pledge of Assets
At December 31 2005, the PRC Government Bonds (being the treasury bonds issued
by the PRC Government) of an approximate aggregate amount of RMB587 million
were 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 for
certain third party repo trading transactions entered into by it through the
Shanghai branch of the PRC Securities Registration and Clearing Co., Ltd.
Subsequent to the pledging of the PRC Government Bonds, Kinghing Trust
Investment Co., Ltd., the largest equity owner of Kinghing Securities at the
relevant time, had misappropriated funds of Kinghing Securities such that
Kinghing Securities currently does not have sufficient funds to settle the
relevant repo trading transactions, and as a result, the security over the PRC
Government Bonds may be enforced. In light of the above circumstances, the
Company has decided to participate in the restructuring of Kinghing Securities,
through which additional RMB600 million capital contribution will be injected
by Shangsan into Kinghing Securities, with a view to enabling Kinghing
Securities to settle the repo trading transactions and obtaining the release of
the 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 has
been released.Other than aforementioned, the Group did not have any contingent
liabilities nor any pledge of assets as at December 31, 2005.
Foreign Exchange Exposure
As at December 31, 2005, the Group held a US dollar-denominated World Bank loan
of approximately Rmb732.1 million. Except for the repayment of the World Bank
loan in US dollars as well as dividend payments to overseas shareholders in
Hong Kong dollars, the principal operations of the Group were settled in
Renminbi.
The appreciation of Renminbi against the US dollar during the Period resulted
in an exchange gain of Rmb19.2 million for the Group.
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
During the Period, the Group employed an addition 284 employees to support its
expanded operations of maintenance facilities and service areas. As at December
31, 2005, there were a total of 3,028 employees within the Group, amongst whom
215 were administrative staff, 430 were engineering technicians, and 2,383 were
staff working in the fields of toll collection, maintenance and service areas.
Total remuneration for the Group's employees for the Period amounted to
Rmb138.7 million, representing an increase of 17.5% over 2004.
OUTLOOK FOR 2006
The completion of Phase II of the Widening Project on the
Shanghai-Hangzhou-Ningbo Expressway has already given a boost to traffic volume
growth along the section between Dajing and Fengjing. However, the ongoing
construction works under Phase III of the Widening Project may adversely affect
the normal traffic volume growth along the section between Guzhu and Duantang
before 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 to
traffic of new service areas along neighboring expressways. Nevertheless, the
overall demand for such services is growing and the Company intends to tap into
the growth potential by expanding its existing service areas while adding new
service areas.
On the macro side, 2006 is the first year in the Eleventh Five-year National
Economic Development Plan where steady economic growth has been set as one of
the key objectives. For Zhejiang Province, the plan translates into a target of
an average annual GDP growth rate of 9% for the next five years as the
provincial economy heads toward a period of rapid industrialization and
urbanization.
The forecasted strong economic growth in Zhejiang Province is expected to
generate a steady growth in demand for road transport that will be met with a
continuous addition of new roads to the existing network as well as renovated
national and provincial roads. Although the new roads coming into operation
will 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 at
a rate higher than that of demand growth, which means the traffic volume growth
on these expressways, including the ones operated by the Group, will only be
moderate in the short run.
To compensate for its additional investment for widening the
Shanghai-Hangzhou-Ningbo Expressway from four lanes to eight lanes, the Company
will be applying for an extension to its concession period for expressway
operation and toll collection, though there is no assurance that the relevant
government authorities will approve any or part of the request.
PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARES
Neither the Company nor any of its subsidiaries had purchased, sold, redeemed
or cancelled any of the Company's shares during the Period.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company was in compliance with the code provisions in the Code on Corporate
Governance Practices set out in Appendix 14 to the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited during the Period.
By Order of the Board
Geng Xiaoping
Chairman
Hangzhou, PRC, April 25, 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 are: Messrs. Zhang Luyun and Zhang Yang; and the
independent non-executive directors are: Messrs. Tung Chee Chen, Zhang Junsheng
and Zhang Liping.END
Monday, 13th May 2024
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