Extract of 2003 Annual Report

Zhejiang Expressway Co 01 April 2004 (A joint stock limited company incorporated in the People's Republic of China) EXTRACT OF 2003 ANNUAL REPORT CONTENTS Management's Discussion and Analysis..................................... 1 Report of the International Auditors..................................... 7 Consolidated Income Statement............................................ 8 Consolidated Balance Sheet............................................... 9 Consolidated Summary Statement of Changes in Equity...................... 11 Consolidated Cash Flow Statement......................................... 12 Balance Sheet............................................................ 13 Notes to Financial Statements............................................ 15 Purchase, Sale or Redemption of the Listed Securities of the Company..... 53 The directors (the 'Directors') of Zhejiang Expressway Co., Ltd. (the 'Company') are pleased to announce the audited annual results of the Company and its subsidiaries (collectively, the 'Group') for the year ended 31 December 2003 in this extract of annual report. A full version of the Company's annual report will be despatched to the Company's shareholders by 30 April 2004. MANAGEMENT'S DISCUSSION AND ANALYSIS BUSINESS REVIEW 2003 was a special year for the Company. Growth in traffic volume on the Shanghai-Hangzhou-Ningbo Expressway was approximately half the usual rate as a result of traffic diversion by the eastern section of Hangzhou City Ring Road subsequent to its opening to traffic since the beginning of the year. The outbreak of Severe Acute Respiratory Syndrome ('SARS') in the second quarter of the year prompted local governments to adopt stringent measures to contain the disease, further reducing traffic volumes on the roads, including expressways throughout Zhejiang and neighboring cities and provinces. But the phenomenal growth of China's economy remained unabated in 2003, as the economy quickly recovered in the third quarter, leading to annual GDP growth rates of 9.1% for the country as a whole and 14.0% for Zhejiang Province, the highest rates of growth since the Asian financial crisis, despite a dip in the second quarter as a result of SARS. The strong economic growth, accompanied by exceptional growth in vehicle sales and further expansion in expressway networks, among others, resulted in continued growth in traffic volumes on the expressways operated by the Group that more than compensated the fall in traffic volumes due to local traffic diversions and temporary disruptions due to the occurrence of SARS. Turnover for the Group grew by 14.0% during the Period to reach Rmb2,471.8 million, details of which are as follows: Year ended 31 December 2003 2002 Rmb'000 Rmb'000 % Change Toll income 2,458,726 2,184,197 +12.6 Shanghai-Hangzhou-Ningbo Expressway 1,908,764 1,745,931 +9.3 Shangsan Expressway 549,962 438,266 +25.5 Other income Service areas 117,205 73,043 +60.5 Advertising 26,138 27,742 -5.8 Road maintenance 2,669 1,704 +56.6 2,604,738 2,286,686 +13.9 Revenue taxes (132,933 ) (118,608 ) +12.1 Turnover 2,471,805 2,168,078 +14.0 Toll Road Operations Toll road operations remained the core business operation of the Group, as toll income contributed to 94.4% of the overall income for the Group, though a slight decrease from 95.5% in 2002 due to higher rates of growth in other business operations. Amongst the two major expressways operated by the Group, daily average full-trip traffic volume for the Shanghai-Hangzhou-Ningbo Expressway in 2003 was 27,938, representing an increase of 11.5% over 2002, while daily average full-trip traffic volume for Shangsan Expressway was 15,011, an increase of 29.0%. A slower traffic volume growth rate on the Shanghai-Hangzhou-Ningbo Expressway was attained in 2003 compared to previous years. Apart from being a more mature expressway, the expressway was also subject to direct traffic diversion by the Hangzhou City Ring Road, as well as greater impact by measures taken to contain the spread of SARS in the second quarter of the year. The road surface-overlaying project on the Shanghai-Hangzhou-Ningbo Expressway continued in 2003, with 126km renovated at a cost of Rmb159.7 million. Since having turned profitable for the first time in 2002, the 9.45km Shida Road, owned and operated by Hangzhou Shida Highway Co., Ltd., a 50% jointly-controlled entity of the Company, underwent 78.0% growth in traffic volume and 63.9% growth in toll income, realizing a net profit of Rmb17.8 million for the jointly-controlled entity during the Period (2002: Rmb1.4 million). Other Business Operations There are six pairs of service areas in operation along the expressways operated by the Group in 2003, as compared to five in 2002. Driven by strong growth in demand for restaurants, gas stations and vehicle services offered at these service areas, revenue from the service area operations grew by 60.5% to reach Rmb117.2 million in 2003. Income from advertising came mainly from the advertising business operated by Zhejiang Expressway Advertising Co., Ltd. ('Advertising Co'). Facing increasing competition as well as accommodating inconveniences brought by construction works relating to the Widening Project on the Shanghai-Hangzhou-Ningbo Expressway during the Period, Advertising Co realized a turnover of Rmb24.7 million during the Period, representing a slight decrease of 5.8% over the same period in 2002. Net profit realized was approximately Rmb5.0 million. A separate business operation involving gas stations spanning across Zhejiang Province is conducted through Zhejiang Expressway Petroleum Development Co., Ltd., a 50% owned associate of the Company. Strong growth in retail sales during the Period helped to bring a 42.1% growth in revenue as compared to 2002 for the associate company, and a 30.6% growth in net profit which amounted to Rmb21.3 million. Project Investments Phase 1 of the project to widen Shanghai-Hangzhou-Ningbo Expressway from four lanes to eight lanes (the 'Widening Project') was completed in December 2003. With a total investment of approximately Rmb550 million, Phase 1 covered a 44km section from Hongken to Guzhu, currently the section with the highest traffic flow. The opening to traffic of the eight-lane section substantially improved travel conditions. Construction works on Phase 2 of the Widening Project commenced in July 2003, and is targeted for completion by the end of 2005. To be widened to a standard six-lane expressway from Dajing to Shenshi (approximately 17km), and a standard eight-lane expressway from Shenshi to Fengjing (approximately 79km), leading into Shanghai, the 96km section's construction works will involve a cost of approximately Rmb2,500 million. Phase 3 of the Widening Project is expected to commence construction in June 2004 for completion by the end of 2007. The 80km section from Guzhu to Duantang, leading into Ningbo, is also designed as a standard eight-lane expressway, with an estimated widening cost of approximately Rmb2,300 million. Other than the above, on May 8, 2003 the Company further acquired an additional 2% ownership interest in Zhejiang Shangsan Expressway Co., Ltd. ('Shangsan Co'), a subsidiary of the Company, from Xinchang County Transport Development Company ('Xinchang Transport') for a cash consideration of Rmb57.6 million. As a result of the acquisition, the Company's ownership interest in Shangsan Co increased from 71.625% to 73.625%, while Xinchang Transport's ownership interest decreased from 2% to zero. Human Resources During the Period, the Group's total number of employees increased by 746 to 2,744, among whom 509 were administrative staff, 393 were engineering technicians, and 1,842 were involved in toll collection, maintenance and service areas. The increase in employees during the Period was mainly due to a change in employment policies that changed the status of many seasonal and temporary workers to long-term contract workers of the Group in response to the growing demand for personnel in servicing ever increasing traffic flows on the two expressways operated by the Group, especially in the substantially expanded service area operations. The Company encourages competitive performance and improvement in professional skills amongst its employees through evaluation and training programs. In addition to basic salaries, overall remuneration of the employees include a bonus based on business performance of the Company, and for management team, a bonus based on share price performance of the Company. Total remuneration for the Period was Rmb89.7 million, representing an increase of 3.4% over 2002. FINANCIAL ANALYSIS As at December 31, 2003, net profit attributable to shareholders was approximately Rmb1,008.8 million, representing an increase of 13.3% over 2002; earnings per share increased 13.3% to Rmb23.23 cents, while return on equity for the Period increased from 9.2% to 9.9%. Financial Resources and Liquidity As at December 31, 2003, the Group held Rmb567.2 million in cash and cash equivalents, Rmb251.6 million in time deposits and Rmb1,104.3 million in short-term investments, totaling Rmb1,923.1 million. Amongst the short-term investments, approximately 92.1% was held in treasury bonds, with the remaining invested mainly in close-ended security investment funds. The Group had adequate net cash inflows from operating activities, which amounted to Rmb1,670.3 million during the Period. The current assets held by the Group amounted to Rmb1,999.4 million as at December 31, 2003, amongst which account receivables, other receivables and inventories accounted for 3.8% (As at December 31, 2002: 7.4%). As a result, the Directors believe that the Group has sufficient financial resources to meet its operational needs in the foreseeable future. Borrowings and Debt Repayment Ability During the Period, total interest-bearing borrowings of the Group decreased from Rmb3,038.2 million at the beginning of the year to Rmb2,720.1 million by the end of the year, amongst which Rmb975.9 million were short-term interest-bearing liabilities, representing a decrease of 48.1% over 2002, and Rmb1,744.1 million were long-term interest-bearing liabilities, representing an increase of 50.8%. The Directors believe that the adjustment in the maturity profile of the Group's interest-bearing borrowings during the Period is better suited to the Group's present asset structure. The annual coupon rate on the Rmb1 billion corporate bonds for a term of 10 years issued by the Company at the beginning of the year was fixed at 4.29%, with interests payable annually. The floating rates of the Group's Rmb847.5 million World Bank loans, denominated in US dollars, ranged between 5.02% and 4.62% during the Period, averaging approximately 4.80%. The interest rates on other borrowings of the Group, all in Rmb, were not materially different from those in 2002. With interest expenses at approximately Rmb142.3 million and profit before interest and tax at approximately Rmb1,735.5 million, the Group's interest cover ratio was 12.2 during the Period, representing a 28.4% increase over the same period last year. Capital Structure As at December 31, 2003, the Group's capital structure comprised Rmb10,146.0 million in shareholders' equity, Rmb1,872.6 million in fixed rate liabilities, Rmb847.5 million in floating rate liabilities and Rmb2,202.6 million in interest-free liabilities and minority interest, representing approximately 67.3%, 12.4%, 5.6% and 14.6%, respectively, of the Group's total capital. As at December 31, 2003, the ratio of the sum of fixed rate liabilities, floating rate liabilities, interest-free liabilities and minority interest over shareholder's equity was 48.5%, while the ratio of long-term interest-bearing liabilities over shareholder's equity was 17.2%. The asset-liability ratio was 26.0%, allowing for adequate debt capacity for funding the Widening Project and other future developments. Capital Expenditure Commitments and Utilization During the Period, the capital expenditure incurred by the Group was Rmb859.9million, with corresponding capital expenditure for the Company amounting to Rmb271.3 million. Amongst the Rmb859.9 million capital expenditure incurred by the Group, Rmb605.4 million was utilized toward the Widening Project. As at December 31, 2003, the Group and the Company had capital expenditure commitments of Rmb5,052.7 million and Rmb2,961.4 million, respectively, for 2004 and beyond. In particular, approximately Rmb1,345.5 million capital expenditure will be spent by the Group in 2004, with approximately Rmb1,141.0 million spent on the Widening Project, Rmb50.5 million on equipment acquisition and Rmb154.0 million on expressway ancillary facilities. The Group will fund its capital expenditures with its internal financial resources, meeting any shortfall by utilizing other funding options, with a preference for debt financing. Contingent Liabilities and Pledge of Assets Other than a loan guarantee of Rmb30 million provided in favor of Hangzhou Shida Highway Co., Ltd.('Shida Co'), a jointly controlled entity, in respect of a commercial bank loan of the same amount extended to Shida Co from September 2001 to September 2009, the Group did not have any contingent liabilities as at December 31, 2003. In addition, the Group had no pledge of assets during the Period. Foreign Exchange Exposure The Group has a World Bank loan of approximately Rmb847.5 million, denominated in US Dollars and borrowed for the construction of the Shanghai-Hangzhou-Ningbo Expressway. In addition, dividends for H shares payable by the Company are settled in HK dollars. In view of the stable exchange rate between Renminbi and US dollars, the Directors do not foresee any material foreign exchange risk for the Group. However, there is no assurance that any foreign exchange exposure will not adversely affect the operating results of the Group in the future. OUTLOOK FOR 2004 With China being on the verge of a new round of accelerated economic growth, according to many economic observers, the Yangtze River Delta region, including the city of Shanghai and the two provinces of Jiangsu and Zhejiang, will be the engine to power this next phase of economic expansion. Already a highly urbanized region, the Yangtze River Delta region will undergo further integration amongst its cities to accommodate a greater level of cooperation. An important aspect to the integration drive is the announcement by regional governments of more ambitious transportation plans that will result in the operational mileage of expressways in Zhejiang Province to be further extended by approximately 1000km within the next four years. The newly planned expressways are intended to serve the anticipated growth in transportation demand in the region by alleviating the excess traffic burdens forecasted in the near future on existing expressway networks, including the corridor along the Hangzhou Bay, connecting the three major cities of Shanghai, Hangzhou and Ningbo. As such, the new expressways will present far more opportunities for the Group than challenges. Continued heavy investments in infrastructure in the region will help to sustain accelerated economic growth, which will in turn spur substantial growth in production and sales of vehicles, especially passenger cars for private consumption. Faced with a rapidly expanding expressway network that is making the transport system more easily accessible and efficient to more vehicles than ever, the outlook on continued strong traffic volume growth on expressways operated by the Group is favorable. As more expressways are being completed and opened to traffic, and still more are being planned for Zhejiang Province, prospects for new project investment and acquisition are also improving. With anticipated growth in traffic on existing expressways, the Company has taken steps to increase service capacities at its service areas, in addition to continuing with its Phase 2 and Phase 3 of the Widening Project which is targeted for full completion by the end of 2007. The road surface-overlaying project on the Shanghai-Hangzhou-Ningbo Expressway will be concluded in 2004, covering approximately 47km of roadways, ramps, toll plazas and interchanges at an estimated cost of Rmb95.5 million. Due to the growing traffic volume that has made it increasingly difficult to perform road surface-overlaying works on a large scale during a relative short period of time without adversely affecting normal traffic flow, starting from 2005, the Group will be conducting these works on a smaller scale but with higher frequency, so that while the overall impact on normal traffic flow will be minimized, the annual cost will be more evenly distributed, and the average cost expected to be slightly lower than usual as a result of reduced routine maintenance cost relating to road surface. The Company intends to build upon its renewed emphasis on providing quality service to its customers, while in the process taking advantage of all the positive developments in the industry, creating value for its customers, employees, business partners, shareholders and the community at large. REPORT OF THE INTERNATIONAL AUDITORS To the members Zhejiang Expressway Co., Ltd. (Established in the People's Republic of China with limited liability) We have audited the financial statements on pages 8 to 52 which have been prepared in accordance with accounting principles generally accepted in Hong Kong. These financial statements are the responsibility of the Company's Directors. Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company's Directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2003 and of the profit and cash flows of the Group for the year then ended in accordance with the accounting principles generally accepted in Hong Kong and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Ernst & Young Certified Public Accountants Hong Kong 15 March 2004 CONSOLIDATED INCOME STATEMENT Year ended 31 December 2003 2003 2002 Notes Rmb'000 Rmb'000 TURNOVER 5 2,471,805 2,168,078 Operating costs (731,451 ) (561,918 ) Gross profit 1,740,354 1,606,160 Other revenue 5 127,285 66,457 Administrative expenses (114,629 ) (95,209 ) Other operating expenses (54,243 ) (33,109 ) PROFIT FROM OPERATING ACTIVITIES 6 1,698,767 1,544,299 Finance costs 7 (132,801 ) (163,224 ) Share of profits of associates 17,394 11,719 Share of profit of a jointly-controlled entity 9,829 1,677 PROFIT BEFORE TAX 1,593,189 1,394,471 Tax 8 (497,166 ) (400,952 ) PROFIT BEFORE MINORITY INTERESTS 1,096,023 993,519 Minority interests (87,231 ) (103,067 ) NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 9 1,008,792 890,452 DIVIDENDS 12 Interim (173,724 ) (173,724 ) Proposed final (477,743 ) (390,880 ) (651,467 ) (564,604 ) EARNINGS PER SHARE 13 23.23 cents 20.50 cents CONSOLIDATED BALANCE SHEET 31 December 2003 2003 2002 Notes Rmb'000 Rmb'000 NON-CURRENT ASSETS Fixed assets 14 12,537,616 12,014,986 Interest in a jointly-controlled entity 16 62,554 54,464 Interests in associates 17 164,498 159,829 Expressway operating rights 18 205,945 214,645 Long term investments 19 1,000 2,867 Goodwill 20 97,717 106,798 13,069,330 12,553,589 CURRENT ASSETS Short term investments 19 1,104,266 858,114 Inventories 3,056 2,022 Accounts receivables 21 21,771 14,367 Other receivables 22 51,469 128,672 Cash and cash equivalents 23 818,795 949,070 1,999,357 1,952,245 CURRENT LIABILITIES Accounts payables 24 367,521 207,166 Profits tax payable 189,848 109,289 Other taxes payable 27,946 15,724 Other payables and accruals 25 260,077 214,955 Interest-bearing bank and other loans 26 975,950 1,681,553 Long-term bonds repayable within one year 27 - 200,000 Dividend payable 19,070 - 1,840,412 2,428,687 NET CURRENT ASSETS/(LIABILITIES) 158,945 (476,442 ) TOTAL ASSETS LESS CURRENT LIABILITIES 13,228,275 12,077,147 2003 2002 Notes Rmb'000 Rmb'000 NON-CURRENT LIABILITIES Interest-bearing bank and other loans 28 744,176 1,156,647 Long term bonds 29 1,000,000 - Deferred tax liabilities 32 325,703 240,920 2,069,879 1,397,567 MINORITY INTERESTS 1,012,417 977,789 10,145,979 9,701,791 CAPITAL AND RESERVES Issued capital 33 4,343,115 4,343,115 Reserves 34 5,325,121 4,967,796 Proposed final dividend 12 477,743 390,880 10,145,979 9,701,791 Geng Xiaoping Fang Yunti Director Director CONSOLIDATED SUMMARY STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2003 TOTAL EQUITY 2003 2002 Rmb'000 Rmb'000 Balance at beginning of year 9,701,791 9,289,081 Net profit from ordinary activities attributable to shareholders 1,008,792 890,452 Dividends paid on ordinary shares (564,604 ) (477,742 ) Balance at end of year 10,145,979 9,701,791 CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2003 2003 2002 Notes Rmb'000 Rmb'000 NET CASH INFLOW FROM OPERATING ACTIVITIES 35(a) 1,670,344 1,536,309 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 12,593 14,483 Additions to fixed assets (37,537 ) (29,574 ) Additions to construction in progress (622,532 ) (286,935 ) Acquisition of additional interests in existing subsidiaries (58,042 ) (689,813 ) Winding-up of a subsidiary 35(b) - (145 ) Dividends from an associate 7,851 8,339 Proceeds from disposal of fixed assets 686 2,641 Proceeds from disposal of long term investment 2,800 - (Increase)/decrease in time deposits 31,179 (203,679 ) (Increase)/decrease in investments (247,411 ) 82,812 Net cash outflow from investing activities (910,413 ) (1,101,871 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on ordinary shares (545,534 ) (477,742 ) Dividends paid to minority interests (38,101 ) (40,643 ) New bank and other loans 2,490,000 4,070,361 Issue of bonds 1,000,000 - Repayment of bank and other loans (3,605,792 ) (4,060,049 ) Repayment of bonds (200,000 ) - Capital contribution by minority shareholders 40,400 - Net cash outflow from financing activities (859,027 ) (508,073 ) NET DECREASE IN CASH AND CASH EQUIVALENTS (99,096 ) (73,635 ) Cash and cash equivalents at beginning of year 666,291 739,926 CASH AND CASH EQUIVALENTS AT END OF YEAR 567,195 666,291 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 23 527,814 562,463 Time deposits with original maturity of less than three months when acquired 23 39,381 103,828 567,195 666,291 BALANCE SHEET 31 December 2003 2003 2002 Notes Rmb'000 Rmb'000 NON-CURRENT ASSETS Fixed assets 14 5,263,165 5,208,083 Interests in subsidiaries 15 4,177,381 4,127,294 Interest in a jointly-controlled entity 16 63,251 64,055 Interests in associates 17 127,375 126,500 Expressway operating rights 18 161,776 168,710 9,792,948 9,694,642 CURRENT ASSETS Short term investments 19 1,049,372 569,787 Inventories 1,140 844 Accounts receivables 21 9,579 7,891 Other receivables 22 22,493 43,024 Cash and cash equivalents 23 276,575 357,959 1,359,159 979,505 CURRENT LIABILITIES Accounts payables 24 213,448 162,641 Profits tax payable 49,832 32,849 Other taxes payable 9,149 6,752 Other payables and accruals 25 157,291 121,862 Interest-bearing bank and other loans 26 250,000 895,000 Dividend payable 19,070 - 698,790 1,219,104 NET CURRENT ASSETS/(LIABILITIES) 660,369 (239,599 ) TOTAL ASSETS LESS CURRENT LIABILITIES 10,453,317 9,455,043 NON-CURRENT LIABILITIES Interest-bearing bank and other loans 28 - 330,000 Long term bonds 29 1,000,000 - Deferred tax liabilities 32 154,203 117,320 1,154,203 447,320 9,299,114 9,007,723 2003 2002 Notes Rmb'000 Rmb'000 CAPITAL AND RESERVES Issued capital 33 4,343,115 4,343,115 Reserves 34 4,478,256 4,273,728 Proposed final dividend 12 477,743 390,880 9,299,114 9,007,723 Geng Xiaoping Fang Yunti Director Director NOTES TO FINANCIAL STATEMENTS 31 December 2003 1. CORPORATE INFORMATION Zhejiang Expressway Co., Ltd. (the 'Company') was established on 1 March 1997. The H shares of the Company ('H Shares') were subsequently listed on The Stock Exchange of Hong Kong Limited (the 'Stock Exchange') on 15 May 1997. All of the H Shares of the Company were admitted to the Official List of the United Kingdom Listing Authority (the 'Official List'). Dealings in the H Shares on the London Stock Exchange commenced on 5 May 2000. On 18 July 2000, with the approval of the Ministry of Foreign Trade and Economic Co-operation of the People's Republic of China (the 'PRC'), the Company changed its business registration into a Sino-foreign joint stock limited company. On 27 February 2001, the trading of the H Shares of the Company on the Berlin Stock Exchange commenced following a secondary listing on the Unofficial Regulated Market of the exchange. On 14 February 2002, the United States Securities and Exchange Commission, following the approval by the Board of Directors and the China Securities Regulatory Commission, declared the registration statement in respect of the ADSs evidenced by the ADRs representing the deposited H Shares of the Company effective. The registered office of the Company is located at 19/F, Zhejiang World Trade Centre, 15 Shuguang Road, Hangzhou, Zhejiang Province, the PRC. During the year, the Group was involved in the following principal activities: (a) the design, construction, operation, maintenance and management of high grade roads; and (b) the development and provision of certain ancillary services such as technical consultation, advertising, automobile servicing and fuel facilities. In the opinion of the Directors, the ultimate holding company of the Company is Zhejiang Communications Investment Group Co., Ltd. (the ' Communications Investment Group'), a State-owned enterprise established in the PRC. 2. IMPACT OF REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE ('SSAPs') The following recently revised SSAPs are effective for the first time for the current year's financial statements: SSAP 12 (Revised): 'Income taxes' This SSAP prescribes new accounting measurement and disclosure practices. The major effects of adopting this SSAP on the Group's accounting policies and on the disclosures in the financial statements are summarised as follows: SSAP 12 prescribes the accounting treatment for current income taxes payable or recoverable, arising from the taxable profit or loss for the current period; and deferred income taxes payable or recoverable in future periods, principally arising from taxable and deductible temporary differences and the carryforward of unused tax losses. The principal impact of the revision of this SSAP on these financial statements is described below: Measurement and recognition: - deferred tax assets and liabilities relating to the differences between capital allowances for tax purposes and depreciation for financial reporting purposes and other taxable and deductible temporary differences are generally fully provided for, whereas previously the deferred tax was recognised for timing differences only to the extent that it was probable that the deferred tax asset or liability would crystallise in the foreseeable future; - deferred tax assets and liabilities have been recognised upon the restatement of short term investments at fair value on the basis of their quoted market prices at the balance sheet date; and Disclosures: - the related note disclosures are now more extensive than previously required. These disclosures are presented in notes 8 and 32 to the financial statements and include a reconciliation between the accounting profit and the tax expense for the year. Details of these changes are included in the accounting policy for income tax in note 3 and in note 32 to the financial statements. SSAP 35: 'Accounting for government grants and disclosure of government assistance' SSAP 35 prescribes the accounting for government grants and other forms of government assistance. The adoption of this SSAP has had no significant impact for these financial statements on the amounts recorded for government grants and disclosure of government assistance. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, modified with respect to the measurement of investments in securities, as further explained below. Basis of consolidation The consolidated financial statements include the audited financial statements of the Company and its subsidiaries for the year ended 31 December 2003. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances are eliminated on consolidation. Minority interests represent the interests of outside shareholders in the results and net assets of the Company's subsidiaries. Subsidiaries A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities. Investments in subsidiaries are stated at cost less any impairment losses. Jointly-controlled entities A jointly-controlled entity is a joint venture company which is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity. The Group's share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated income statement and consolidated reserves, respectively. The Group's interests in jointly-controlled entities are stated in the consolidated balance sheet at the Group's share of net assets under the equity method of accounting less any impairment losses. The results of jointly-controlled entities are included in the Company's income statement to the extent of dividends received and receivable. The Company's interests in jointly-controlled entities are treated as long term assets and are stated at cost less any impairment losses. Associates An associate is a company, not being a subsidiary or a joint-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. The Group's share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. The Group's interests in associates are stated in the consolidated balance sheet at the Group's share of net assets under the equity method of accounting, less any impairment losses. The results of associates are included in the Company's income statement to the extent of dividends received and receivable. The Company's interests in associates are treated as long term assets and are stated at cost less any impairment losses. Goodwill Goodwill arising on the acquisition of subsidiaries, associates and jointly-controlled entities represents the excess of the cost of the acquisition over the Group's share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition. Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of 10 years. In the case of associates and jointly-controlled entities, any unamortised goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet. Prior to the adoption of SSAP 30 'Business Combinations' in 2001, goodwill arising on acquisitions was eliminated against consolidated reserves in the year of acquisition. On the adoption of SSAP 30, the Group applied the transitional provision of the SSAP that permitted such goodwill to remain eliminated against consolidated reserves. On disposal of subsidiaries, associates or jointly-controlled entities, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate. Any attributable goodwill previously eliminated against consolidated reserves at the time of acquisition is written back and included in the calculation of the gain or loss on disposal. The carrying amount of goodwill, including goodwill remaining eliminated against consolidated reserves, is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event. Fixed assets and depreciation Fixed assets, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price, costs transferred from construction in progress and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that fixed asset. Depreciation of expressway and bridge construction costs is calculated to write off the cost thereof over their estimated useful lives using a method whereby the aggregate annual depreciation amounts, compounded at average rates ranging from 6.11% to 8.77% per annum, up to the expiry of the underlying 30-year expressway concession period, will be equal to the total construction costs of the expressways and bridges. The aforementioned average rates are based on the traffic volumes and forecast annual growth rates of the traffic volume over the 30-year expressway concession period. This method is more commonly referred to as the 'unit-of-usage' method. Amortisation of land is provided on a straight-line basis to write off the cost of the land use rights over the underlying 30-year expressway concession period. Depreciation of fixed assets, other than expressways, bridges and land, is provided on a straight-line basis to write off the cost of the assets, less their estimated residual values, being 3% of the cost, over their estimated useful lives. The principal annual rates used for this purpose are as follows: Annual Estimated depreciation useful life rate Toll stations and ancillary facilities 30 years 3.2% Communications and signalling equipment 10 years 9.7% Motor vehicles 8 years 12.1% Machinery and equipment 5-8 years 12.1-19.4% The gain or loss on disposal or retirement of a fixed asset recognised in the income statement is the difference between the net sales proceeds and the carrying amount of the relevant asset. Construction in progress Construction in progress represents costs incurred in the construction of expressways and bridges, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds, during the period of construction, installation and testing. Construction in progress is reclassified as fixed assets when completed and ready for use. Impairment of assets An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset's recoverable amount is estimated. An asset's recoverable amount is calculated as the higher of the asset's value in use or its net selling price. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment losses is accounted for in accordance with the relevant accounting policy for that revalued asset. Expressway operating rights Expressway operating rights represent the rights to operate the expressways and are stated at cost less accumulated amortisation and any impairment losses. Amortisation is provided on a straight-line basis over the periods of the expressway operating rights granted to the Company and its subsidiaries. Long term investments Long term investments are non-trading investments in listed and unlisted securities intended to be held on a long term basis. Unlisted equity securities are stated at cost, less any provisions for impairment losses on an individual investment basis. The provision is recognised as an expense immediately. The profit or loss on disposal of an unlisted security is accounted for in the period in which the disposal occurs and is the difference between the net sales proceeds and the carrying amount of the security. Short term investments Short term investments are investments in securities held for trading purposes and are stated at their fair values on the basis of their quoted market prices at the balance sheet date, on an individual investment basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the income statement for the period in which they arise. Held-to-maturity securities Held-to-maturity securities are stated at cost plus or minus the cumulative amortisation of the difference between the purchase price and the maturity amount, less any provision for impairment losses on an individual investment basis. The provision is recognised as an expense immediately. The profit or loss on disposal of a held-to-maturity security is accounted for in the period in which the disposal occurs and is the difference between the net sales proceeds and the carrying amount of the security. Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases: (a) toll revenue, net of any applicable revenue taxes, when received; (b) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyers, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; (c) from the rendering of services, based on the percentage of completion basis, provided that the revenue and the costs incurred as well as the estimated costs to completion can be measured reliably. The stage of completion of a transaction associated with the rendering of services is established by reference to the costs incurred to date as compared to the total costs to be incurred under the transaction; (d) rental income, on a time proportion basis over the lease terms; (e) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable; (f) dividend income, when the shareholders' right to receive payment has been established; and (g) subsidy income, when there is reasonable assurance that the income will be received. Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a different period, directly in equity. Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences: - except where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and - in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax assets and unused tax losses can be utilised: - except where the deferred tax asset relating to the deductible temporary difference arises from negative goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and - in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in jointly-controlled entities, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Foreign currency transactions The financial records of the Company and its subsidiaries are maintained and the financial statements are stated in Renminbi ('Rmb'). Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at that date. Exchange differences are dealt with in the income statement. Capitalisation of borrowing costs Borrowing costs directly attributable to the construction of expressways, tunnels and bridges are capitalized as part of the cost of those assets. The capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use. Operating leases Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are charged to the income statement on a straight-line basis over the lease terms. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis. Net realisable value is based on estimated selling prices less any estimated costs expected to be incurred to completion and disposal. Dividends Interim and final dividends proposed by the Directors are classified as a separate allocation of retained profits within the capital and reserves section in the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends are approved by the shareholders and declared, they are recognised as a liability. Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Cash and cash equivalents For the purpose of the consolidated cash flow statement, cash equivalents represent short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired. For the purpose of balance sheet classification, cash and cash equivalents represent assets similar in nature to cash, which are not restricted as to use. 4. SEGMENT INFORMATION In accordance with the Group's internal financial reporting, the Group has determined to use business segments as its primary segment reporting format. During the year, the entire turnover and contribution to profit from operating activities of the Group were derived from the Zhejiang Province in the PRC. Accordingly, no further by geographical segment information is presented. Business segments The Group's operating businesses are organised and managed separately, according to the nature of services provided, with each segment representing a strategic business unit that serves different markets: - Toll operation represents the design, construction, operation and management of high grade roads and the collection of the expressway tolls. - Service area businesses mainly represent the sale of food, restaurant servicing, automobile servicing, as well as the operation of oil stations. - Advertising business represents the design and rental of advertising billboards along the expressways. - Road maintenance represents the maintenance of expressways and roads, including the cleaning of the road surface, minor repairs to the lanes, the cleaning of the gutters and sewers, grass mowing, afforestation and the maintenance of buildings, equipment and facilities provided to third parties. Group Toll operation Service area Advertising Road maintenance Consolidated businesses 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Segment revenue: Turnover, 2,330,122 2,069,060 114,343 71,131 24,687 26,217 2,653 1,670 2,471,805 2,168,078 net of revenue taxes Other 110,931 57,623 14,207 3,505 1,611 2,955 536 2,374 127,285 66,457 revenue Total 2,441,053 2,126,683 128,550 74,636 26,298 29,172 3,189 4,044 2,599,090 2,234,535 revenue Segment 1,663,748 1,518,584 29,463 14,457 7,833 11,941 (2,277 ) (683 ) 1,698,767 1,544,299 results Finance costs (132,801 ) (163,224 ) Share of - - 17,394 11,719 - - - - 17,394 11,719 profits of associates Share of 9,829 1,677 - - - - - - 9,829 1,677 profit of a jointly- controlled entity Profit before 1,593,189 1,394,471 tax Tax (497,166 ) (400,952 ) Profit before 1,096,023 993,519 minority interests Minority (87,231 ) (103,067 ) interests Net profit 1,008,792 890,452 from ordinary activities attributable to shareholders Segment 14,532,875 14,039,204 115,681 73,862 45,287 25,717 50,075 45,960 14,743,918 14,184,743 assets Interests in - - 164,498 159,829 - - - - 164,498 159,829 associates Interest in 62,554 54,464 - - - - - - 62,554 54,464 a jointly- controlled entity Goodwill 97,717 106,798 - - - - - - 97,717 106,798 Total 14,693,146 14,200,466 280,179 233,691 45,287 25,717 50,075 45,960 15,068,687 14,505,834 assets Segment 3,509,014 3,537,924 42,667 32,205 19,188 4,590 13,719 10,615 3,584,588 3,585,334 liabilities Deferre 325,703 240,920 - - - - - - 325,703 240,920 tax Total 3,834,717 3,778,844 42,667 32,205 19,188 4,590 13,719 10,615 3,910,291 3,826,254 liabilities Other segment information: Capital 786,016 200,014 5,461 1,455 7,007 7,884 3,417 2,336 801,901 211,689 expenditure Depreciation 268,219 239,282 2,351 2,706 2,961 2,240 5,207 3,832 278,738 248,060 and amortisation Write-off 537 794 - - - - - - 537 794 of bad debts Loss on 13,935 1,040 6,833 - - - - - 20,768 1,040 disposal of fixed assets 5. TURNOVER AND REVENUE Turnover mainly represents toll income from the operation of expressways, the value of advertising services rendered, and the value of road maintenance services rendered, net of relevant revenue taxes. An analysis of turnover and revenue is as follows: 2003 2002 Rmb'000 Rmb'000 Toll income 2,458,726 2,184,197 Services area income 117,205 73,043 Advertising income 26,138 27,742 Road maintenance income 2,669 1,704 2,604,738 2,286,686 Less: Revenue taxes (132,933 ) (118,608 ) Turnover 2,471,805 2,168,078 Income on investments 53,838 18,448 Interest income 12,593 17,063 Rental income 21,343 14,457 Trailer income 11,162 10,192 Exchange gains, net 2,282 1,121 Subsidy income 17,394 - Others 8,673 5,176 Other revenue 127,285 66,457 2,599,090 2,234,535 The Company and its subsidiaries are subject to the business tax, levied at 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): 2003 2002 Rmb'000 Rmb'000 Depreciation 257,817 223,748 Operating lease rentals on land and buildings 643 902 Auditors' remuneration 3,115 1,975 Staff costs: Wages and salaries 89,681 86,733 Pension scheme contributions 13,880 6,534 Amortisation of expressway operating rights* 8,700 8,700 Amortisation of goodwill** 12,221 15,612 Write-off of bad debts 537 794 Impairment of a long term unlisted investment - 574 Loss on winding-up of a subsidiary - 205 Loss on disposal of fixed assets 20,768 1,040 Unrealised loss on revaluation of short term listed investments 1,259 9,571 Net rental income (21,343 ) (14,457 ) Exchange gains, net (2,282 ) (1,121 ) Interest income (12,593 ) (17,063 ) Income from investments (55,097 ) (28,019 ) * The amortisation of expressway operating rights for the year is included as administrative expenses in the consolidated income statement. ** The amortisation of goodwill for the year is included as other operating expenses in the consolidated income statement. 7. FINANCE COSTS 2003 2002 Rmb'000 Rmb'000 Interest on bank loans and other loans wholly repayable within five years 68,977 129,860 Interest on other loans 17,700 26,279 Interest on bonds 46,626 7,560 Other borrowing costs 9,000 - Total interest 142,303 163,699 Less: Interest capitalised (9,502 ) (475 ) 132,801 163,224 8. TAX No Hong Kong profits tax has been provided as the Group had no taxable profits in Hong Kong during the year. The Group was subject to corporate income tax ('CIT') 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. 2003 2002 Rmb'000 Rmb'000 Group: Tax charged 439,812 367,997 Tax refunded (33,249 ) (79,133 ) 406,563 288,864 Deferred - note 32 84,783 109,387 491,346 398,251 Share of tax attributable to associates 5,791 5,004 Share of deferred tax attributable to an associate (906 ) (3,294 ) Share of deferred tax attributable to a jointly-controlled entity 935 991 Tax charge for the year 497,166 400,952 During the year, according to an approval from the Zhejiang Provincial Local Tax Bureau, Zhejiang Shangsan Expressway Co., Ltd. ('Shangsan Co'), one of the Company's subsidiaries, was entitled to a 50% CIT exemption for the year ended 31 December 2002 amounting to Rmb33,249,000 (2002: 50% CIT exemption for the year ended 31 December 2001 amounting to Rmb16,749,000) under the category of 'Enterprise providing employment opportunities to redundant city and country 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 in which the Company and its subsidiaries, jointly-controlled entity and associates are domiciled to the tax expense at the effective tax rates is as follows: 2003 2002 Rmb'000 Rmb'000 Group Profit before tax 1,593,189 1,394,471 Tax at the statutory tax rate 525,752 460,175 Tax refunded (33,249 ) (79,133 ) Income not subject to tax (10,451 ) (12,047 ) Expenses not deductible for tax 15,114 18,118 Write-off of non-refundable tax - 13,839 Tax charge at the Group's effective rate 497,166 400,952 9. NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS The net profit from ordinary activities attributable to shareholders for the year ended 31 December 2003 dealt with in the financial statements of the Company was Rmb855,995,000 (2002: Rmb484,128,000) (note 34). 10. DIRECTORS' AND SUPERVISORS' REMUNERATION Directors' and Supervisors' remuneration for the year disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance is as follows: 2003 2002 Rmb'000 Rmb'000 Fees - - Other emoluments: Salaries, allowances and benefits in kind 1,725 1,784 Bonuses paid and payable 588 608 Pension scheme contributions 39 9 2,352 2,401 Salaries, allowances and benefits in kind include HK$150,000 (2002: HK$152,000), HK$150,000 (2002: HK$150,000) and Rmb30,000 (2002: Rmb36,000) payable to the three (2002: three) independent non-executive Directors respectively. There were no other emoluments payable to the independent non-executive Directors during the year (2002: Nil). The number of Directors and Supervisors whose remuneration fell within the following band is as follows: Number of Directors and Supervisors 2003 2002 Nil to HK$1,000,000 11 10 There was no arrangement under which a Director or a Supervisor waived or agreed to waive any remuneration during the year. 11. FIVE HIGHEST PAID EMPLOYEES 2003 2002 Rmb'000 Rmb'000 Salaries, allowances and benefits in kind 1,712 1,614 Bonuses paid and payable 734 662 Pension scheme contributions 49 11 2,495 2,287 The five highest paid employees during the year included four (2002: four) directors, details of whose remuneration are set out in note 10 above, as well as a non-director employee, whose remuneration for the year was less than HK$1,000,000. 12. DIVIDENDS Company 2003 2002 2003 2002 Per ordinary share Rmb Rmb Rmb'000 Rmb'000 Interim 0.04 0.04 173,724 173,724 Proposed final 0.11 0.09 477,743 390,880 0.15 0.13 651,467 564,604 The proposed final dividend for the year is subject to the approval of the Company's shareholders at the forthcoming annual general meeting. 13. EARNINGS PER SHARE The calculation of basic earnings per share is based on the net profit from ordinary activities attributable to shareholders for the year of Rmb1,008,792,000 (2002: Rmb890,452,000) and the 4,343,114,500 ordinary shares (2002: 4,343,114,500 ordinary shares) in issue during the year. Diluted earnings per share amounts for the years ended 31 December 2003 and 2002 have not been calculated as no diluting event existed during these years. 14. FIXED ASSETS Toll Communi- stations cations Expressways and and Machinery and ancillary signalling Motor and Construction Land bridges facilities equipment vehicles equipment in progress Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Group Cost: At beginning of 531,810 11,160,953 409,544 202,676 95,752 104,387 347,424 12,852,546 year Additions - 26,332 1,725 12,019 11,850 34,290 715,685 801,901 Transfers - 482,859 1,912 - - 21,136 (505,907 ) - Reclassifications - 16,405 (47,192 ) (429 ) 1,015 30,201 - - Disposals - - (8,561 ) (755 ) (784 ) (154 ) (13,935 ) (24,189 ) At 31 December 531,810 11,686,549 357,428 213,511 107,833 189,860 543,267 13,630,258 2003 Accumulated depreciation: At beginning of 88,533 561,044 39,321 62,281 44,539 41,842 - 837,560 year Depreciation provided during the year 16,931 156,601 20,038 25,560 14,724 23,963 - 257,817 Reclassifications - 2,078 (3,966 ) (336 ) 100 2,124 - - Disposals - - (1,598 ) (363 ) (685 ) (89 ) - (2,735 ) At 31 December 105,464 719,723 53,795 87,142 58,678 67,840 - 1,092,642 2003 Net book value: At 31 December 426,346 10,966,826 303,633 126,369 49,155 122,020 543,267 12,537,616 2003 At 31 December 443,277 10,599,909 370,223 140,395 51,213 62,545 347,424 12,014,986 2002 Company Cost: At beginning of 350,384 4,712,616 146,994 120,765 54,189 55,410 297,751 5,738,109 year Additions - - - 5,563 9,026 5,225 187,668 207,482 Transfers - 450,340 729 - - 2,453 (453,522 ) - Transfers to (1,954 ) - (9,491 ) - (5,836 ) (607 ) - (17,888 ) subsidiaries Disposals - - (8,065 ) - (784 ) (59 ) (13,935 ) (22,843 ) At 31 December 348,430 5,162,956 130,167 126,328 56,595 62,422 17,962 5,904,860 2003 Accumulated depreciation: At beginning of 64,665 338,748 17,353 49,464 33,187 26,609 - 530,026 year Provided during 11,636 72,856 4,955 15,678 7,032 6,807 - 118,964 the year Transfers to (388 ) - (1,670 ) - (2,686 ) (244 ) - (4,988 ) subsidiaries Disposals - - (1,573 ) - (685 ) (49 ) - (2,307 ) At 31 December 75,913 411,604 19,065 65,142 36,848 33,123 - 641,695 2003 Net book value: At 31 December 272,517 4,751,352 111,102 61,186 19,747 29,299 17,962 5,263,165 2003 At 31 December 285,719 4,373,868 129,641 71,301 21,002 28,801 297,751 5,208,083 2002 The fixed assets are mainly located in the PRC. The Group's land included above is held under a long term lease. 15. INTERESTS IN SUBSIDIARIES Company 2003 2002 Rmb'000 Rmb'000 Unlisted shares, at cost 4,436,627 4,338,486 Due from subsidiaries 105,226 4,587 Due to subsidiaries (364,472 ) (215,779 ) 4,177,381 4,127,294 The amounts due from/to subsidiaries are unsecured, interest-free and have no fixed terms of repayment. Particulars of the Company's subsidiaries, all of which are directly held, are as follows: Percentage of equity Date and Registered attributable place of capital to the Names of subsidiaries registration Rmb Company Principal activities Direct Indirect Zhejiang Yuhang Note 1 75,223,000 51 - Construction and Expressway Co., Ltd. management of the ('Yuhang Co') Yuhang Section of the Shanghai-Hangzhou Expressway Zhejiang Jiaxing Note 2 1,859,200,000 99.999454 - Construction and Expressway Co., Ltd. management of the ('Jiaxing Co') Jiaxing Section of the Shanghai-Hangzhou Expressway Zhejiang Shangsan Note 3 2,400,000,000 73.625 - Construction and Expressway Co., Ltd. management of the ('Shangsan Co') Shangsan Expressway Zhejiang Expressway Note 4 80,000,000 51 - Operation of service Investment Development areas as well as Co., Ltd. roadside advertising ('Development Co') along the expressways operated by the Group Zhejiang Expressway Note 5 5,000,000 - *35.7 Provision of advertising Advertising Co., Ltd. services ('Advertising Co') Zhejiang Expressway Note 6 8,000,000 - *43.35 Provision of vehicle Vehicle Towing and towing, repair and Rescue Service Co., Ltd. emergency rescue ('Service Co') service. * These two companies are subsidiaries of Development Co, a non wholly-owned subsidiary of the Company and, accordingly, are accounted for as subsidiaries by virtue of the Company's control over them. Note 1: Yuhang Co was established on 7 June 1994 in the PRC as a joint stock limited company and was subsequently restructured into a limited liability company under its current name on 28 November 1996. Note 2: Jiaxing Co was established on 30 June 1994 in the PRC as a joint stock limited company and was subsequently restructured into a limited liability company under its current name on 29 November 1996. Note 3: Shangsan Co was established on 1 January 1998 in the PRC as a limited liability company. Note 4: Development Co was established on 28 May 2003 in the PRC as a limited liability company. Note 5: Advertising Co was established on 1 June 1998 in the PRC as a limited liability company. Note 6: Service Co was established on 31 July 2003 in the PRC as a limited liability company. All of the Company's subsidiaries are operating in the PRC. 16. INTEREST IN A JOINTLY-CONTROLLED ENTITY Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Unlisted shares, at cost - - 65,000 65,000 Share of net assets other than goodwill 64,303 55,409 - - Amount due to a jointly-controlled entity (1,749 ) (945 ) (1,749 ) (945 ) 62,554 54,464 63,251 64,055 The amount due to a jointly-controlled entity is unsecured, interest-free and has no fixed terms of repayment. Particulars of the jointly-controlled entity, which is directly held by the Company, are as follows: Place of registration Percentage of Business and Ownership Voting Profit Principal Name structure operations interest power sharing activities Hangzhou Shida Corporate The PRC 50 50 50 Construction and Expressway operation of Co., Ltd. Shiqiao-Dajing Road 17. INTERESTS IN ASSOCIATES Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Unlisted shares, at cost - - 126,500 126,500 Share of net assets other than goodwill 164,487 159,829 - - Amount due from an associate 11 - 875 - 164,498 159,829 127,375 126,500 The amount due to an associate is unsecured, interest-free and has no fixed terms of repayment. The Group's share of the post-acquisition accumulated reserves of the associates as at 31 December 2003 was Rmb37,987,000 (2002: Rmb33,329,000). Particulars of the associates, which are directly held by the Company, are as follows: Place of Percentage of registration equity Business and attributable to Name structure operations the Group Principal activities 2003 2002 Zhejiang Corporate The PRC 50 50 Construction and operation Expressway of gas stations and the Petroleum sale of petroleum products Development Co., Ltd. JoinHands Corporate The PRC 27.58 27.58 Providing logistic Technology management and Co., Ltd. anti-counterfeiting systems in the PRC The financial statements of the above associates are coterminous with those of the Group. The consolidated financial statements have been adjusted for material transactions between the associates and Group companies. 18. EXPRESSWAY OPERATING RIGHTS Group Company Rmb'000 Rmb'000 Cost: At 1 January 2003 and 31 December 2003 261,000 208,000 Accumulated amortisation: At 1 January 2003 46,355 39,290 Provided during the year 8,700 6,934 At 31 December 2003 55,055 46,224 Net book value: At 31 December 2003 205,945 161,776 At 31 December 2002 214,645 168,710 The above expressway operating rights were granted by the Zhejiang Provincial Government to the Group for a period of 30 years. During the 30-year expressway concession period, the Group has the rights of construction and management of Shanghai-Hangzhou-Ningbo Expressway and Shangsan Expressway and the toll-collection rights thereof. The Group is required to construct, maintain and operate the expressways in accordance with the regulations promulgated by the Ministry of Communication and relevant government authorities. 19. INVESTMENTS Long term investments Group 2003 2002 Rmb'000 Rmb'000 Unlisted equity investments, at cost 1,000 3,644 Provision for impairment of unlisted equity investments - (777 ) 1,000 2,867 Short term investments Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Listed in the PRC, at amortised cost - Held-to-maturity securities - 30,000 - 30,000 Listed in the PRC, at market value - Government bonds 1,016,510 726,764 1,011,510 504,104 - Close-end equity funds 62,229 51,754 16,973 18,169 - Enterprise bonds - 10,000 - - - Equity interests 25,527 39,596 20,889 17,514 1,104,266 828,114 1,049,372 539,787 1,104,266 858,114 1,049,372 569,787 The market values of the Group's and the Company's short term investments at the date of approval of these financial statements were approximately Rmb1,093,216,000 and Rmb1,036,303,000, respectively. 20. GOODWILL The amounts of the goodwill capitalised as an asset or recognised in the consolidated balance sheet, arising from the acquisition of subsidiaries, are as follows: Group Rmb'000 Cost: At 1 January 2003 123,453 Acquisition of additional interests in subsidiaries during the year 3,140 At 31 December 2003 126,593 Accumulated amortisation: At 1 January 2003 16,655 Provided during the year 12,221 At 31 December 2003 28,876 Net book value: At 31 December 2003 97,717 At 31 December 2002 106,798 The Group has adopted the transitional provision of SSAP 30 which permits goodwill and negative goodwill in respect of acquisitions which occurred prior to the adoption of SSAP 30 to remain eliminated against consolidated reserves or credited to the capital reserve, respectively. The amount of goodwill remaining in consolidated reserves, arising from the acquisition of subsidiaries, was Rmb352,860,000 as at 31 December 2003 (2002: Rmb352,860,000). Such goodwill, which arose prior to the adoption of SSAP 30, is stated at cost. 21. ACCOUNTS RECEIVABLES An aged analysis of the accounts receivables as at the balance sheet date, based on invoice date, is as follows: Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Within 1 year 19,116 11,720 6,978 5,244 1 to 2 years 54 2,647 - 2,647 Over 2 years 2,601 - 2,601 - 21,771 14,367 9,579 7,891 22. OTHER RECEIVABLES Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Prepayments 26,810 1,830 287 294 Deposits and other debtors 24,659 126,842 22,206 42,730 51,469 128,672 22,493 43,024 23. CASH AND CASH EQUIVALENTS Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Cash and bank balances 527,814 562,463 208,192 182,830 Time deposits with original maturity of less than three months when 39,381 103,828 381 43,742 acquired Time deposits with original maturity over three months when acquired 251,600 282,779 68,002 131,387 818,795 949,070 276,575 357,959 24. ACCOUNTS PAYABLES An aged analysis of the accounts payables as at the balance sheet date, based on invoice date, is as follows: Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Within 1 year 318,116 200,181 202,554 158,859 1 to 2 years 44,844 4,863 10,498 2,778 2 to 3 years 2,218 1,901 365 1,004 Over 3 years 2,343 221 31 - 367,521 207,166 213,448 162,641 25. OTHER PAYABLES AND ACCRUALS Group Company Note 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 restated restated Accruals 82,640 58,510 54,144 12,735 Other liabilities 162,687 141,695 90,996 96,976 Amounts due to related parties 30 12,151 12,151 12,151 12,151 Amount due to the holding company 31 2,599 2,599 - - 260,077 214,955 157,291 121,862 26. INTEREST-BEARING BANK AND OTHER LOANS Group Company Note 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 restated restated Current portion of bank and other loans 28 975,950 1,681,553 250,000 895,000 27. LONG TERM BONDS PAYABLE WITHIN ONE YEAR Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Long term bonds - 200,000 - - 28. INTEREST-BEARING BANK AND OTHER LOANS Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Bank loans, unsecured 800,000 1,875,000 250,000 1,075,000 Bank loans, secured - - - 150,000 Other loans, unsecured 920,126 963,200 - - 1,720,126 2,838,200 250,000 1,225,000 Bank loans repayable: Within one year 800,000 1,545,000 250,000 895,000 In the third to fifth years, - 330,000 - 330,000 inclusive 800,000 1,875,000 250,000 1,225,000 Other loans repayable: Within one year 175,950 136,553 - - In the second year 88,567 82,441 - - In the third to fifth years, 276,644 268,623 - - inclusive Beyond five years 378,965 475,583 - - 920,126 963,200 - - 1,720,126 2,838,200 250,000 1,225,000 Portion classified as current liabilities - note 26 (975,950 ) (1,681,553 ) (250,000 ) (895,000 ) Long term portion 744,176 1,156,647 - 330,000 The bank loans are unsecured and bear interest at rates ranging from 4.536% to 4.779% per annum. The other loans are unsecured and bear interest at rates ranging from 3.00% to 4.56% per annum. 29. LONG TERM BONDS Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Long term bonds 1,000,000 200,000 1,000,000 - Classified as current liabilities - note - (200,000 ) - - 27 1,000,000 - 1,000,000 - The bonds are unsecured, bear interest at a rate of 4.29% per annum and are repayable in 2012 upon maturity. 30. AMOUNTS DUE TO RELATED PARTIES The amounts due to related parties are unsecured, interest-free and have no fixed terms of repayment. 31. AMOUNT DUE TO THE HOLDING COMPANY The amount due to the holding company (i.e. the Communications Investment Group) is unsecured, interest-free and has no fixed terms of repayment. 32. DEFERRED TAX The movement in deferred tax liabilities during the year is as follows: Deferred tax liabilities: Restatement Straight-line of short term method tax investments depreciation Total Rmb'000 Rmb'000 Rmb'000 Group At 1 January 2002 4,144 127,389 131,533 Deferred tax charged/(credited) to the income statement during the year - note 8 (986 ) 110,373 109,387 At 31 December 2002 3,158 237,762 240,920 Deferred tax charged to the income statement during the year - note 8 5,241 79,542 84,783 At 31 December 2003 8,399 317,304 325,703 Restatement Straight-line of short term method tax investments depreciation Total Rmb'000 Rmb'000 Rmb'000 Company At 1 January 2002 3,789 58,472 62,261 Deferred tax charged to the income statement during the year 460 54,599 55,059 At 31 December 2002 4,249 113,071 117,320 Deferred tax charged to the income statement during the year 3,005 33,878 36,883 At 31 December 2003 7,254 146,949 154,203 The Group and the Company have no significant potential deferred tax liabilities for which provision has not been made. As at 31 December 2003, there was no significant unrecognised deferred tax liability (2002: Nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries, associates and a jointly-controlled entity as the Group had no liability to additional tax should such amounts be remitted. There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders. 33. SHARE CAPITAL 2003 2002 Number Number 2003 2002 of shares of shares Rmb'000 Rmb'000 Registered, issued and fully paid: Domestic shares of Rmb1.00 each 2,909,260,000 2,909,260,000 2,909,260 2,909,260 H Shares of Rmb1.00 each 1,433,854,500 1,433,854,500 1,433,855 1,433,855 4,343,114,500 4,343,114,500 4,343,115 4,343,115 The domestic shares are not currently listed on any stock exchange. The H Shares have been listed on the Stock Exchange since 15 May 1997, and were admitted to the Official List on 5 May 2000. Dealings in the H Shares on the London Stock Exchange commenced on the same day. On 27 February 2001, the trading of the H Shares of the Company commenced on the Berlin Stock Exchange following a secondary listing on the Unofficial Regulated Market of the exchange. On 14 February 2002, the United States Securities and Exchange Commission, following the approval by the Board of Directors and the China Securities Regulatory Commission, declared the registration statement in respect of the ADSs evidenced by ADRs representing the deposited H Shares of the Company effective. All the domestic shares and H Shares rank pari passu with each other as to dividends and voting rights. 34. RESERVES Share Statutory Public premium Goodwill surplus welfare Retained account reserve reserve fund profits Total Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Group At 1 January 2002 3,645,726 (352,860 ) 415,298 190,764 743,020 4,641,948 Interim dividend - note 12 - - - - (173,724 ) (173,724 ) Net profit for the year - - - - 890,452 890,452 Transfer from/(to) reserves - - 118,517 61,116 (179,633 ) - Proposed final dividend - note 12 - - - - (390,880 ) (390,880 ) At 31 December 2002 and beginning of year 3,645,726 (352,860 ) 533,815 251,880 889,235 4,967,796 Interim dividend - note 12 - - - - (173,724 ) (173,724 ) Net profit for the year - - - - 1,008,792 1,008,792 Transfer from/(to) reserves - - 176,682 88,341 (265,023 ) - Proposed final dividend - note 12 - - - - (477,743 ) (477,743 ) At 31 December 2003 3,645,726 (352,860 ) 710,497 340,221 981,537 5,325,121 Reserves retained by: Company and subsidiaries 3,645,082 (350,331 ) 699,425 334,685 958,970 5,287,831 Jointly-controlled entity - - - - (697 ) (697 ) Associates 644 (2,529 ) 11,072 5,536 23,264 37,987 At 31 December 2003 3,645,726 (352,860 ) 710,497 340,221 981,537 5,325,121 Company and subsidiaries 3,645,082 (350,331 ) 524,041 246,993 878,273 4,944,058 Jointly-controlled entity - - - - (9,591 ) (9,591 ) Associates 644 (2,529 ) 9,774 4,887 20,553 33,329 At 31 December 2002 3,645,726 (352,860 ) 533,815 251,880 889,235 4,967,796 Company At 1 January 2002 3,645,082 - 252,408 126,204 330,510 4,354,204 Interim dividend - note 12 - - - - (173,724 ) (173,724 ) Net profit for the year - - - - 484,128 484,128 Transfer from/(to) reserves - - 93,498 46,749 (140,247 ) - Proposed final dividend - note 12 - - - - (390,880 ) (390,880 ) At 31 December 2002 and beginning of year 3,645,082 - 345,906 172,953 109,787 4,273,728 Interim dividend - note 12 - - - - (173,724 ) (173,724 ) Net profit for the year - - - - 855,995 855,995 Transfer from/(to) reserves - - 100,634 50,317 (150,951 ) - Proposed final dividend - note 12 - - - - (477,743 ) (477,743 ) At 31 December 2003 3,645,082 - 446,540 223,270 163,364 4,478,256 In accordance with the Company Law of the 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 accordance with the Company Law of the PRC, the Entities are required to transfer 5% to 10% of their profit after tax, as determined in accordance with the PRC accounting standards and regulations applicable to the Entities, to the statutory public welfare fund (the 'PWF'), which is a non-distributable reserve other than in the event of the liquidation of the Entities. The PWF must be used for capital expenditure on staff welfare facilities and these facilities remain as the properties of the Entities. The Directors of the Company have proposed to transfer Rmb100,634,000 (2002: Rmb93,498,000) and Rmb50,317,000 (2002: Rmb46,749,000) to the SSR and the PWF, respectively. These represent 10% (2002: 10%) and 5% (2002: 5%), respectively, of the Company's profit after tax of Rmb1,006,342,000 (2002: Rmb934,980,000) determined in accordance with the PRC accounting standards. According to the relevant regulations in the PRC, the amount of profit available for distribution is the lower of the amount determined under the PRC accounting standards and the amount determined under the generally accepted accounting principles in Hong Kong. As at 31 December 2003, before the proposed final dividend, the Company had reserves of approximately Rmb641,107,000 (2002: Rmb500,667,000) available for distribution by way of cash or in kind. As at 31 December 2003, in accordance with the Company Law of the PRC, the amount of approximately Rmb3,640,000,000 (2002: Rmb3,638,229,000) standing to the credit of the Company's share premium account was available for distribution by way of capitalisation issues. 35. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of profit before tax to net cash inflow from operating activities: Notes 2003 2002 Rmb'000 Rmb'000 Profit before tax 1,593,189 1,394,471 Share of profits of a jointly-controlled entity (9,829 ) (1,677 ) Share of profits of associates (17,394 ) (11,719 ) Depreciation 6 257,817 223,748 Amortisation of expressway operating rights 6 8,700 8,700 Amortisation of goodwill 6 12,221 15,612 Write-off of bad debts 6 537 794 Interest income 5 (12,593 ) (17,063 ) Interest expense 7 132,801 163,224 Unrealised loss on revaluation of short term listed investments 6 1,259 9,571 Exchange gains, net 5 (2,282 ) (1,121 ) Loss on disposal of fixed assets 6 20,768 1,040 Gain on disposal of long term investment (933 ) - Loss on winding-up of a subsidiary 6 - 205 Increase in inventories (1,034 ) (966 ) (Increase)/decrease in accounts receivables (7,941 ) 39,058 (Increase)/decrease in other receivables 69,927 (15,526 ) Increase in an amount due from an associate (11 ) (1,250 ) Increase in accounts payables 25,763 101,643 Increase/(decrease) in other taxes payable 12,222 (7,495 ) Increase in other liabilities 23,141 43,264 Increase in accruals 3,155 9,998 Increase in an amount due to a jointly-controlled entity 804 304 Interest paid (113,939 ) (166,447 ) Profits tax paid (326,004 ) (252,059 ) Net cash inflow from operating activities 1,670,344 1,536,309 (b) Winding-up of a subsidiary 2003 2002 Rmb'000 Rmb'000 Net assets disposed of: Fixed assets - 286 Cash and bank balances - 145 Inventories - 218 Other receivables - 1,186 Other payables - (1,579 ) Minority interests - (51 ) Loss on winding-up of a subsidiary - 205 36. COMMITMENTS (a) On 15 March 2004, the Board of Directors approved an expense for the road surface-overlaying project in the amount of Rmb95,500,000 (2002: Rmb141,400,000) for the year ending 31 December 2004. (b) Capital commitments Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Contracted, but not provided for: - Construction of expressways 1,098,777 177,730 2,371 63,775 - Purchase of machinery 5,697 37,423 5,697 10,719 - Proposed investments in Shangsan Co 485,000 485,000 485,000 485,000 - Renovation of a service area 5,893 14,000 4,950 14,000 1,595,367 714,153 498,018 573,494 Authorised, but not contracted for: - Purchase of machinery 70,500 - 60,000 - - Construction of expressways 3,386,840 4,739,237 2,403,369 4,419,367 5,052,707 5,453,390 2,961,387 4,992,861 37. CONTINGENT LIABILITIES At the balance sheet date, contingent liabilities not provided for in the financial statements were as follows: Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Guarantees provided in favor of the holders of the corporate bonds issued by a subsidiary - - - 216,254 Guarantees provided to banks in connection with facilities granted to: - A subsidiary - - 550,000 650,000 - A jointly-controlled entity 30,000 30,000 30,000 30,000 30,000 30,000 580,000 896,254 38. OPERATING LEASE ARRANGEMETS The Group and the Company lease their oil stations and cables under operating lease arrangements, with leases negotiated for terms ranging from five to twenty five years. As at 31 December 2003, the Group and the Company had total future minimum lease rental receivables under non-cancelable operating leases falling due as follows: Group Company 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Within one year 8,833 8,159 1,233 5,660 In the second to fifth years, inclusive 18,419 25,674 5,769 19,424 Beyond five years 31,819 33,397 31,819 33,397 59,071 67,230 38,821 58,481 39. DIFFERENCES IN FINANCIAL STATEMENTS PREPARED UNDER PRC AND HONG KONG ACCOUNTING STANDARDS Net profit before Net assets minority interests as at 31 December 2003 2002 2003 2002 Rmb'000 Rmb'000 Rmb'000 Rmb'000 As reported in statutory accounts (restated) 1,103,632 1,070,902 10,436,426 9,992,136 HK SSAP adjustments: (a) Goodwill 33,722 30,995 (145,568 ) (179,290 ) (b) Depreciation provided, net of deferred tax (43,907 ) (70,811 ) (175,143 ) (137,004 ) (c) Difference in share premium account during establishment - - 11,923 11,923 (d) Profits tax refundable - (22,745 ) (3,686 ) (3,686 ) (e) Restatement of short term investments in securities at market value, net of deferred tax 458 (1,971 ) 18,772 16,440 (f) General provision on trade receivables and other debts 561 (1,439 ) 310 922 (g) Impairment loss, (556 ) (12,076 ) - 284 net of deferred tax (h) Provision for impairment of an unlisted equity investment 1,351 (574 ) 689 (689 ) (j) Others 762 1,238 2,256 755 As restated in the financial 1,096,023 993,519 10,145,979 9,701,791 statements 40. RELATED PARTY TRANSACTIONS The following is a summary of the significant related party transactions carried out in the ordinary course of business between the Company, its subsidiaries and certain government bodies in the year: a) Under the reorganisation agreement, Zhejiang Provincial High Class Highway Investment Company Limited (the name has been changed as 'Zhejiang Communications Investment Group Co., Ltd') gave a number of undertakings to the Company, including a non-competition undertaking, a tax indemnity and an indemnity against losses incurred, which were not expressly transferred to the Company pursuant to the reorganisation and general indemnity provisions against any breach of representation warranty and undertakings contained in the agreement. b) On 20 May 2003, the Company entered into the Development Co Investment Agreement with 11 individuals as nominees of 155 key employees of the Group (including 22 connected persons and 133 independent third parties) for the establishment of Development Co in the PRC, whereby the Company invests in 51% of and the 11 individuals invest in an aggregate of 49% of Development Co's registered capital of Rmb80,000,000. c) On 30 May 2003, Development Co entered into several acquisition agreements with the Company, Jiaxing Co and Shangsan Co, respectively, to acquire the assets and liabilities in respect of the service area businesses and the equity interest in Advertising Co (the 'Acquired Assets'). The total consideration of the transactions was Rmb84,404,000, being the valuation amount of the Acquired Assets of Rmb87,794,000 as at 31 December 2002, plus the operating results of the Acquired Assets of Rmb13,935,000 for the five-month period ended 31 May 2003, and minus the net cash drawings from the Acquired Assets of Rmb17,325,000 during the said period. d) On 24 July 2003, Development Co entered into the Service Co Investment Agreement with one individual as nominee of 27 key employees of Services Co (including 4 connected persons and 23 independent third parties) for the establishment of Service Co, whereby Development Co invests in 85% of and the individual invests in 15% of Service Co's registered capital of Rmb8,000,000. e) On 26 August 2003, Service Co entered into acquisition agreements with the Company and Shangsan Co, respectively, to acquire the assets and liabilities in respect of the vehicle services business at a total consideration of Rmb3,321,000. f) In 2003, the Group entered into several rental agreements with Zhejiang Expressway Petroleum Development Co., Ltd ('Petroleum Co'), an associate of the Company. Pursuant to the aforementioned agreements, the Group leased six oil stations to Petroleum Co. In 2003, the Group recorded a total rental income of Rmb7,496,000 from Petroleum Co (2002: Rmb6,550,000). The rental income was based on negotiations between the Group and Petroleum Co with reference to the market prices. Since the total consideration of the respective transactions (b) to (f) as above-mentioned represent less than 3% of the book value of the net tangible assets of the Company as disclosed in its latest published audited accounts, no shareholders' approval is required under the Listing Rules. 41. COMPARATIVE AMOUNTS Certain comparative amounts have been reclassified to conform with the current year's presentation. 42. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved and authorized for issue by the Board of Directors on 15 March 2004. PURCHASE, SALE OR REDEMPTION OF THE LISTED SECURITIES OF THE COMPANY Neither the Company, nor any of its subsidiaries purchased, redeemed or sold any of the Company's listed securities during the year. This information is provided by RNS The company news service from the London Stock Exchange

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