Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong
Limited take no responsibility for the contents of this announcement, make no
representation as to its accuracy or completeness and expressly disclaim any
liability whatsoever for any loss howsoever arising from or in reliance upon
the whole or any part of the contents of this announcement.
ZHEJIANG EXPRESSWAY CO., LTD.
(A joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock code: 0576)
2017 INTERIM RESULTS ANNOUNCEMENT
The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the
"Company") announced the unaudited consolidated results of the Company and its
subsidiaries (collectively the "Group") for the six months ended June 30, 2017
(the "Period"), with the basis of preparation as stated in note 1 set out
below.
During the Period, revenue for the Group was Rmb4,668.76 million, representing
a decrease of 2.8% over the corresponding period of 2016. Profit attributable
to owners of the Company was Rmb1,510.74 million, representing an increase of
10.4% year-on-year. Earnings per share for the Period was Rmb34.78 cents
(corresponding period of 2016: Rmb31.50 cents).
The Directors have recommended to pay an interim dividend of Rmb6 cents per
share (corresponding period in 2016: Rmb6 cents), subject to shareholders'
approval at the extraordinary general meeting of the Company to be held in due
course. The interim dividend is expected to be paid by no later than December
31, 2017.
The audit committee of the Company has reviewed the interim results. Set out
below are the unaudited condensed consolidated statement of profit or loss and
other comprehensive income for the Period and condensed consolidated statement
of financial position as at June 30, 2017, with comparative figures for the
same period in 2016 and relevant notes to the condensed consolidated financial
statements:
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
For the six months ended June 30,
2017 2016
Notes Rmb'000 Rmb'000
(Unaudited) (Unaudited and restated)
-------------------- ----------------------
Continuing operations
Revenue 3 4,668,758 4,805,014
Operating costs (2,240,430) (2,388,753)
------------------- ---------------------
Gross profit 2,428,328 2,416,261
Securities investment 366,387 112,238
gains
Other income and gains 4 (78,572) 116,425
and losses
Administrative expenses (34,316) (32,616)
Other expenses (11,137) (20,228)
Share of profit (loss) 96,064 (992)
of associates
Share of profit of a 5,131 98
joint venture
Finance costs (330,307) (344,479)
------------ ------------
Profit before tax 2,441,578 2,246,707
Income tax expense 5 (559,763) (568,432)
----------------- -----------------
Profit for the Period 1,881,815 1,678,275
from continuing
operations
---------------- ---------------
Discontinued operations
Profit for the Period - 19,851
from discontinued
operations
--------------- ---------------
Profit for the Period 1,881,815 1,698,126
======== ========
For the six months ended June 30,
2017 2016
Notes Rmb'000 Rmb'000
(Unaudited) (Unaudited and restated)
------------------- --------------------
Profit for the Period
attributable to Owners
of the Company:
-- Continuing 1,510,743 1,348,819
operations
-- Discontinued - 19,387
operations
------------------ -------------------
1,510,743 1,368,206
========= ==========
Profit for the Period
attributable to
non-controlling
interest:
-- Continuing 371,072 329,456
operations
-- Discontinued - 464
operations
--------------- ---------------
371,072 329,920
--------------- ---------------
1,881,815 1,698,126
======== ========
Other comprehensive loss
Items that may be
reclassified
subsequently to profit
or loss:
Available-for-sale
financial assets:
-- Fair value gain 75,929 2,666
during the Period
-- Reclassification (75,641) (21,254)
adjustments for
cumulative gain included
in profit or loss upon
disposal
Share of differences (242) 90
arising on translation
Income tax relating to (72) 4,647
items that may be
reclassified
subsequently
------------------ ------------------
Other comprehensive loss (26) (13,851)
for the Period, net of
income tax
----------------- ------------------
Total comprehensive 1,881,789 1,684,275
income for the Period
========= =========
For the six months ended June 30,
2017 2016
Notes Rmb'000 Rmb'000
(Unaudited) (Unaudited
and restated)
-------------------- -------------------------
Total comprehensive
income attributable to:
Owners of the Company 1,510,730 1,360,985
Non-controlling interest 371,059 323,290
------------------- ----------------------
1,881,789 1,684,275
========== ============
Earnings per share 7
From continuing and Rmb34.78 cents Rmb31.50 cents
discontinued
operations -- basic and
diluted
============= ==============
From continuing Rmb34.78 cents Rmb31.06 cents
operations -- basic and
diluted
============= ==============
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
June 30, December 31,
2017 2016
Notes Rmb'000 Rmb'000
(Unaudited) (Audited)
-------------------- --------------------
Non-current assets
Property, plant and 2,981,909 3,066,571
equipment
Prepaid lease payments 51,702 52,522
Expressway operating 13,939,237 14,498,800
rights
Goodwill 86,867 86,867
Other intangible assets 147,093 148,906
Interests in associates 1,625,561 1,310,486
Interest in a joint 290,528 285,397
venture
Available-for-sale 479,393 1,790,978
investments
Deferred tax assets 384,788 362,681
-------------------- -------------------
19,987,078 21,603,208
=========== ==========
Current assets
Inventories 206,855 206,814
Trade receivables 8 194,436 275,318
Loans to customers 7,109,318 7,910,032
arising from margin
financing business
Other receivables and 1,251,056 2,855,099
prepayments
Prepaid lease payments 1,639 1,639
Derivative financial 125 10,931
assets
Available-for-sale 1,528,586 1,342,920
investments
Held for trading 12,095,578 8,144,132
investments
Financial assets held 6,931,651 3,965,329
under resale agreements
Bank balances held on 18,138,634 20,082,265
behalf of customers
Bank balances and cash
-- Time deposits with - 165,000
original maturity over
three months
-- Cash and cash 8,378,418 7,198,745
equivalents
------------------ ------------------
55,836,296 52,158,224
========== ==========
Notes As at June 30, As at December 31,
2017 2016
Rmb'000 Rmb'000
(Unaudited) (Audited)
--------------------- --------------------
Current liabilities
Placements from other 400,000 700,000
financial institutions
Accounts payable to 18,032,111 20,073,435
customers arising from
securities business
Trade payables 9 665,759 784,300
Tax liabilities 310,394 455,249
Other taxes payable 12,277 76,631
Other payables and 2,393,355 2,431,148
accruals
Dividends payable 98,574 261,046
Derivative financial 118 413
liabilities
Bank and other 1,870,000 2,116,395
borrowings
Short-term financing 2,050,000 4,828,340
note payable
Bonds payable 1,800,000 3,000,000
Financial assets sold 10,036,834 7,486,743
under repurchase
agreements
Financial liabilities at 2,089,771 293,658
fair value through
profit or loss
----------------- -----------------
39,759,193 42,507,358
---------------- ----------------
Net current assets 16,077,103 9,650,866
---------------- ----------------
Total assets less 36,064,181 31,254,074
current liabilities
--------------- ---------------
Non-current liabilities
Bonds payable 5,400,000 6,700,000
Convertible bonds 10 2,841,449 -
Deferred tax liabilities 387,548 378,147
---------------- ----------------
8,628,997 7,078,147
---------------- ----------------
27,435,184 24,175,927
--------------- ---------------
Capital and reserves
Share capital 4,343,115 4,343,115
Reserves 14,965,906 13,974,042
--------------- ----------------
Equity attributable to 19,309,021 18,317,157
owners of the Company
Non-controlling 8,126,163 5,858,770
interests
---------------- ----------------
27,435,184 24,175,927
========= =========
Notes:
1. BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared in
accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting
issued by the Hong Kong Institute of Certified Public Accountants (the
"HKICPA") as well as with the applicable disclosure requirements of Appendix 16
to the Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited (the "Listing Rules").
2. PRINICIPAL ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared on the
historical cost basis except for certain financial instruments that are
measured at fair value, at the end of each reporting period.
In the Period, the Group has applied, for the first time, certain amendments to
Hong Kong Financial Reporting Standards (the "HKFRSs") issued by HKICPA that
are mandatorily effective for the Period. The application of the amendments to
HKFRSs in the Period has had no material effect on the amounts reported in
these condensed consolidated financial statements and/or relevant disclosures
set out in these condensed consolidated financial statements.
Except for the below, the accounting policies and methods of computation
applied in the condensed consolidated financial statements for the Period are
consistent with those followed in the preparation of the Group's annual
financial statements for the year ended December 31, 2016.
Convertible bonds
Convertible bonds issued by the Group that contain both debt and multiple
embedded derivatives (including conversion right that will be settled other
than by the exchange of fixed amount of cash or another financial instrument
for a fixed number of the Company's own equity instruments and redemption
options) are classified separately into respective items on initial
recognition. Multiple embedded derivatives are generally treated as a single
compound embedded derivative unless those derivatives relate to different risk
exposures and are readily separable and independent of each other. At the date
of issue, both the debt and the derivative components are recognised at fair
value.
In subsequent periods, the debt component of the convertible bonds is carried
at amortised cost using the effective interest method. The derivative component
is measured at fair value with changes in fair value recognised in profit or
loss.
Transaction costs that relate to the issue of the convertible bonds are
allocated to the debt and derivative components in proportion to their
respective fair values. Transaction costs relating to the derivative component
is charged to profit or loss immediately. Transaction costs relating to the
debt component are included in the carrying amount of the debt portion and
amortised over the period of the convertible bonds using the effective interest
method.
3. REVENUE AND SEGMENT INFORMATION
Compared to the same period last year, the operating segment regarding toll
related operation was discontinued along with the Group's disposal of Zhejiang
Expressway Investment Development Co., Ltd. ("Development Co") on December 29,
2016, which contributed substantially all the revenue and profit of the
operating segment regarding toll related operation. The comparative figures in
the condensed consolidated statement of profit or loss and other comprehensive
income for the corresponding period of 2016 have been restated to re-present
the toll related operation as a discontinued operation. The segment information
reported below does not include any amounts for the discontinued operation.
Segment revenue and results
The following is an analysis of the Group's revenue and results by reportable
and operating segments:
For the six months ended June 30, 2017 (Unaudited)
Continuing operations
Toll operation Securities Others Total
operation
Rmb'000 Rmb'000 Rmb'000 Rmb'000
------------------- --------------- ------------- --------------
Revenue -- 2,868,617 1,705,453 94,688 4,668,758
external
sales
========== ======== ======= ========
Segment 1,265,357 521,175 95,283 1,881,815
profit
========== ======== ======= ========
For the six months ended June 30, 2016 (Unaudited and restated)
Continuing operations
Toll operation Securities Others Total
operation
Rmb'000 Rmb'000 Rmb'000 Rmb'000
----------------- --------------- ------------ ---------------
Revenue -- 2,537,806 2,152,380 114,828 4,805,014
external
sales
---------------- -------------- ----------- --------------
Segment 1,183,392 526,063 (31,180) 1,678,275
profit (loss)
======== ======= ====== ========
Segment profit (loss) represents the profit after tax earned or loss after tax
inurred of each operating segment. This is the measure reported to the chief
operating decision maker for the purposes of resource allocation and
performance assessment.
Revenue from major services
An analysis of the Group's revenue from continuing operations, net of taxes,
for the Period is as follows:
For the six months ended June 30,
2017 2016
Rmb'000 Rmb'000
(Unaudited) (Unaudited
and restated)
----------------- ------------------
Toll operation revenue 2,868,617 2,537,806
Commission income from securities 1,044,160 1,407,455
operation
Interest income from securities operation 661,293 744,925
Revenue from sales of properties 47,413 71,397
Hotel and catering revenue 47,275 43,431
--------------- ---------------
Total 4,668,758 4,805,014
========= =========
4. OTHER INCOME AND GAINS AND LOSSES
For the six months ended June 30,
2017 2016
Rmb'000 Rmb'000
(Unaudited) (Unaudited
and restated)
------------------ ------------------
Continuing operations
Interest income on bank balances and 10,937 14,943
entrusted loan receivables
Rental income 17,837 16,805
Handling fee income 1,762 1,298
Towing income 3,595 3,958
Gain on commodity trading, net 9,917 22,747
Exchange loss, net (130,465) (4,519)
Loss on fair value change of convertible (45,242) -
bonds-derivative component
Others 53,087 61,193
-------------- -------------
Total (78,572) 116,425
======== ========
5. INCOME TAX EXPENSE
For the six months ended June 30,
2017 2016
Rmb'000 Rmb'000
(Unaudited) (Unaudited
and restated)
----------------- ------------------
Continuing operations
Current tax:
PRC Enterprise Income Tax 572,541 579,697
Deferred tax credit (12,778) (11,265)
---------------- -----------------
559,763 568,432
======== =========
Under the law of the PRC on Enterprise Income Tax (the "EIT Law") and
Implementation Regulation of the EIT Law, the applicable tax rate of the PRC
subsidiaries is 25%.
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable
profit. No Hong Kong Profits Tax has been provided as the Group has no
estimated assessable profit during the Period.
6. DIVIDENDS
The Directors have recommended the payment of an interim dividend of Rmb6 cents
per share (corresponding period of 2016: Rmb6 cents per share), subject to
shareholders' approval at the extraordinary general meeting ("EGM") of the
Company.
7. EARNINGS PER SHARE
The calculation of the basic earnings per share from continuing operations is
based on profit for the Period attributable to owners of the Company from
continuing operation of Rmb1,510,743,000 (corresponding period of 2016
(Restated): Rmb1,348,819,000) and the 4,343,114,500 (corresponding period of
2016: 4,343,114,500) ordinary shares in issue during the Period.
The calculation of the basic earnings per share from continuing and
discontinued operations is based on profit for the Period attributable to
owners of the Company from continuing and discontinued operation of
Rmb1,510,743,000 (corresponding period of 2016: Rmb1,368,206,000) and the
4,343,114,500 (corresponding period of 2016: 4,343,114,500) ordinary shares in
issue during the Period.
For the six months ended June 30, 2016, basic earnings per share for the
discontinued operations was Rmb0.44 cents per share, based on the profit for
the corresponding period of 2016 attributable to owners of the Company from the
discontinued operations of Rmb19,387,000 (Restated) and the denominators
detailed above.
For the six months ended June 30, 2017, the computation of diluted earnings per
share does not assume the conversion of the Company's outstanding convertible
bonds since their exercise would result in an increase in earnings per share.
For the six months ended June 30, 2016, diluted earnings per share presented
was the same as basic earnings per share since there were no potential ordinary
shares outstanding.
8. TRADE RECEIVABLES
As at As at
June 30, December 31,
2017 2016
Rmb'000 Rmb'000
(Unaudited) (Audited)
----------------- ------------------
Trade receivables comprise:
Fellow subsidiaries 4,026 8,068
Third parties 191,816 268,656
--------------- ----------------
Total trade receivables 195,842 276,724
Less: Allowance for doubtful debts (1,406) (1,406)
--------------- ----------------
194,436 275,318
======== =========
The Group has no credit period granted to its trade customers of toll operation
businesses. The Group's trade receivable balance for toll operation is toll
receivables from the respective expressway fee settlement centres of Zhejiang
Province and Anhui Province, which are normally settled within 3 months. All of
these trade receivables were neither past due nor impaired in both periods.
In respect of the Group's asset management service, security commission and
financial advisory service operated by Zheshang Securities Co., Ltd. ("Zheshang
Securities"), trading limits are set for customers. The Group seeks to maintain
tight control over its outstanding accounts receivable in order to minimise
credit risk. Overdue balances are regularly monitored by management.
The following is an aged analysis of trade receivables, net of allowance for
doubtful debts presented based on the invoice date at the end of the Period,
which approximated the respective revenue recognition dates:
As at As at
June 30, December 31,
2017 2016
Rmb'000 Rmb'000
(Unaudited) (Audited)
----------------- ----------------
Within 3 months 182,069 263,822
3 months to 1 year 11,344 9,409
1 to 2 years 995 1,484
Over 2 years 28 603
---------------- ---------------
Total 194,436 275,318
========= ========
9. TRADE PAYABLES
Trade payables mainly represent the construction payables for the improvement
projects of toll expressways. The following is an aged analysis of trade
payables presented based on the invoice date:
As at As at
June 30, December 31,
2017 2016
Rmb'000 Rmb'000
(Unaudited) (Audited)
----------------- ------------------
Within 205,898 339,391
3
months
3 207,115 117,706
months
to 1
year
1 to 2 74,851 190,561
years
2 to 3 79,231 38,879
years
Over 3 98,664 97,763
years
--------------- ----------------
Total 665,759 784,300
======== ========
10. CONVERTIBLE BONDS
On April 21, 2017, the Company issued a zero coupon convertible bond due 2022
in an aggregate principal amount of Euro365,000,000 (the "Convertible Bonds"),
the Convertible Bonds are listed on The Stock Exchange of Hong Kong Limited
("Hong Kong Stock Exchange").
The principal terms of the Convertible Bonds are set out below:
(1) Conversion right
The Convertible Bonds will, at the option of the holder ("Bondholders"), be
convertible (unless previously redeemed, converted or purchased and cancelled)
on or after June 1, 2017 up to April 11, 2022 into fully paid ordinary shares
with a par value of Rmb1.00 each at an initial conversion price (the
"Conversion Price") of HK$13.10 per H share and a fixed exchange rate of
HK$8.2964 to Euro1.00 (the "Fixed Exchange Rate"). The Conversion Price is
subject to adjustments in the manner set out in the agreement of the
Convertible Bonds.
A final dividend of Rmb29.5 cents per share for the year ended December 31,
2016 was approved in the annual general meeting in May 2017. Pursuant to the
anti-dilutive adjustments on Conversion Price in accordance with the agreement
of the Convertible Bonds, the Conversion Price was adjusted from HK$13.10 per H
share to HK$12.63 per H share effective from May 24, 2017.
(2) Redemption
(i) Redemption at maturity
Unless previously redeemed, converted or purchased and cancelled as provided
herein, the Company will redeem each Convertible Bond at 100 percent of its
outstanding principal amount on April 21, 2022 (the "Maturity Date").
(ii) Redemption at the option of the Company
The Company may, having given not less than 30 nor more than 60 days' notice,
redeem the Convertible Bonds in whole and not some only at 100 percent of their
outstanding principal amount as at the relevant redemption date:
(a) at any time after April 21, 2020 but prior to the Maturity Date, provided
that no such redemption may be made unless the closing price of an H share
translated into Euro at the prevailing rate applicable to each Hong Kong Stock
Exchange business day, for any 20 Hong Kong Stock Exchange business days within
a period of 30 consecutive Hong Kong Stock Exchange business days, the last of
such Hong Kong Stock Exchange business day shall occur not more than 10 days
prior to the date upon which notice of such redemption is given, was, for each
such 20 Hong Kong Stock Exchange business days, at least 130 percent of the
Conversion Price (translated into Euro at the Fixed Exchange Rate); or
(b) if at any time the aggregate principal amount of the Convertible Bonds
outstanding is less than 10 percent of the aggregate principal amount
originally issued.
(iii) Redemption at the option of the Bondholders
The Company will, at the option of the Bondholders, redeem whole or some of
that holder's bonds on April 21, 2020 (the "Put Option Date") at 100 percent of
their outstanding principal amount on the Put Option Date.
The Convertible Bonds comprise two components:
(1) Debt component was initially measured at fair value amounted to
approximately Rmb2,190,578,000. It is subsequently measured at amortised cost
by applying effective interest rate method after considering the effect of the
transaction costs.
(2) Derivative component comprises conversion right of the Bondholders,
redemption option of the Company, and redemption option of the Bondholders.
Transaction costs that relate to the issue of the Convertible Bonds are
allocated to the (including conversion right and redemption options) components
in proportion to their respective fair values. Transaction costs amounting to
approximately Rmb3,079,000 relating to the derivative component were charged to
profit or loss immediately. Transaction costs amounting to approximately
Rmb13,646,000 relating to the debt component are included in the carrying
amount of the debt portion and amortised over the period of the Convertible
Bonds using the effective interest method.
The derivative component was measured at fair value with reference to valuation
carried out by an independent valuation institution. The fair value of
derivative component is calculated using the binominal option pricing model.
The changes of the debt and derivative component of the Convertible Bonds for
the Period are set out below:
Debt component Derivative Total
component
Rmb'000 Rmb'000 Rmb'000
----------------- ----------------- --------------
Convertible Bonds issued 2,190,578 494,302 2,684,880
on April 21,2017
Transaction costs (13,646) - (13,646)
Interest charged during 16,313 - 16,313
the period from April 21,
2017 to June 30, 2017
Exchange loss during the 108,660 - 108,660
period from April 21, 2017
to June 30, 2017
Loss on fair value during - 45,242 45,242
the period from April 21,
2017 to June 30, 2017
---------------- --------------- -------------
As at June 30, 2017 2,301,905 539,544 2,841,449
(Unaudited)
========= ========= ========
No conversion or redemption of the Convertible Bonds has occurred up to June
30, 2017.
BUSINESS REVIEW
In the first half of 2017, China's economic development maintained stable
growth while showing positive signs of development. The pace of economic growth
was at a reasonable level, with GDP growing 6.9% year-on-year, while
investment, consumption and exports of Zhejiang Province all grew at a faster
rate. The rapid development of the tertiary industry, in particular the
information technology sector, was the main contributor to Zhejiang Province's
GDP growth, driving its overall economy to grow at a medium-to-high pace. The
year-on-year GDP growth in Zhejiang Province was 1.1 percentage points higher
than the country, standing at 8.0% for the first half of 2017.
As Zhejiang Province's economy steadily improved during the Period, traffic
volume on the Group's expressways continued to maintain solid organic growth.
However, as Zheshang Securities was affected by bearish market sentiment,
revenue from the Group's overall operations decreased 2.8% year-on-year. Total
revenue reached Rmb4,668.76 million, of which Rmb2,868.62 million was generated
from the five major expressways operated by the Group, representing an increase
of 13.0% year-on-year and 61.4% of the total revenue, and Rmb1,705.45 million
was from the securities business, representing a decrease of 20.8% year-on-year
and 36.6% of the total revenue.
A breakdown of the Group's revenue for the Period is set out below:
For the six months ended June 30,
2017 2016
Rmb'000 Rmb'000 % Change
(Restated)
------------- ---------------- -----------
Toll revenue
Shanghai-Hangzhou-Ningbo 1,781,361 1,620,279 9.9%
Expressway
Shangsan Expressway 609,249 537,800 13.3%
Jinhua section, Ningbo-Jinhua 177,522 160,198 10.8%
Expressway
Hanghui Expressway 232,051 219,529 5.7%
Huihang Expressway 68,434 - N/A
Securities business revenue
Commission 1,044,160 1,407,455 -25.8%
Interest 661,293 744,925 -11.2%
Other operation revenue
Property sales 47,413 71,397 -33.6%
Hotel operation 47,275 43,431 8.9%
------------- ------------ -----------
Total revenue 4,668,758 4,805,014 -2.8%
======== ======== ========
Toll Road Operations
During the Period, driven by growth in key GDP contributors including
investments, consumption and exports, the economy of Zhejiang Province
maintained healthy growth momentum. As a result, the organic traffic volume on
the Group's expressways registered strong rate of growth. During the Period,
the organic traffic volume growth rates for the Group's five expressways,
namely the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway, the
Jinhua Section of the Ningbo-Jinhua Expressway, the Hanghui Expressway, and
Huihang Expressway, were 9.3%, 11.1%, 10.4%, 9.5% and 8.3%, respectively, with
the varied rates of growth due to the different regions where the five
expressways are located.
Previously, the opening of the Hangzhou Xiaoshan Airport Expressway and
surrounding elevated highways in May 2016 caused certain traffic volume
diversion for the Second Qiantang River Bridge of the Shanghai-Hangzhou-Ningbo
Expressway (operated by the Group). However, starting from November 25, 2016,
the "no-trucks" policy was lifted on the Second Qiantang River Bridge,
resulting in traffic volume recovery that was able to largely offset the
previous diversion impact. Based on the latest data, this section started to
see strong recovery in traffic volume from May 2017.
In addition, after Ministry of Transport of the PRC released "Regulation on
overloaded trucks on roadways" on September 21, 2016, the Zhejiang Government
tightened controls on overloaded trucks and adjusted the maximum limits on
local roads. As a result, some trucks switched to expressways, which benefited
the Shangsan Expressway and the Jinhua Section of the Ningbo-Jinhua Expressway
operated by the Group, both of which are heavy in truck traffic. Consequently,
the two expressways recorded rapid growth in both truck traffic and toll
revenue, with the rate of growth in truck traffic higher than that of passenger
vehicles.
The Hangzhou-Xinanjiang-Jingdezhen Expressway opened for traffic on December 1,
2016 and caused certain diversion impact on both the Hanghui Expressway and the
Huihang Expressway, more so for the latter. Overall, traffic growth along both
expressways was lower than the Group's other sections during the Period.
During the Period, the average daily traffic volume in full-trip equivalents
along the Group's Shanghai-Hangzhou-Ningbo Expressway was 54,284, representing
an increase of 9.0% year-on-year. In particular, the average daily traffic
volume in full trip equivalents along the Shanghai-Hangzhou section of the
Shanghai-Hangzhou-Ningbo Expressway was 55,764, representing an increase of
13.8% year-on-year, and that along the Hangzhou-Ningbo Section was 53,226,
representing an increase of 5.6% year-on-year. Average daily traffic volume in
full-trip equivalents along the Shangsan Expressway was 30,100, representing an
increase of 10.9% year-on-year. Average daily traffic volume in full-trip
equivalents along the Jinhua Section of the Ningbo-Jinhua Expressway was
19,673, representing an increase of 11.4% year-on-year. Average daily traffic
volume in full-trip equivalents along the Hanghui Expressway was 17,527,
representing an increase of 8.6% year-on-year. Average daily traffic volume in
full-trip equivalents along the Huihang Expressway was 7,991, representing an
increase of 2.3% year-on-year.
During the Period, total toll revenue from the 248km Shanghai-Hangzhou-Ningbo
Expressway, the 142km Shangsan Expressway, the 70km Jinhua Section of the
Ningbo-Jinhua Expressway, the 122km Hanghui Expressway and the 82km Huihang
Expressway was Rmb2,868.62 million, representing an increase of 13.0%
year-on-year. Among which, toll revenue from the Shanghai-Hangzhou-Ningbo
Expressway was Rmb1,781.36 million, representing an increase of 9.9%
year-on-year; toll revenue from the Shangsan Expressway was Rmb609.25 million,
representing an increase of 13.3% year-on-year; toll revenue from the Jinhua
Section of the Ningbo-Jinhua Expressway was Rmb177.52 million, representing an
increase of 10.8% year-on-year; and toll revenue from the Hanghui Expressway
was Rmb232.05 million, representing an increase of 5.7% year-on-year. The
Huihang Expressway, which was acquired by the Group in September 2016,
contributed Rmb68.43 million to the consolidated toll revenue of the Group
during the Period.
Securities Businesses
During the Period, due to the volatility in domestic stock markets, trading
volume on the Shanghai and Shenzhen stock markets decreased 18.5% year-on-year
in total. Moreover, overall brokerage commission rate of Zheshang Securities
has been declining as affected by the downturn of trading volume and the
decline in its market share. During the Period, though the revenue from
Zheshang Securities' investment banking business experienced slight growth, its
other business segments recorded varied levels of revenue decreases
year-on-year.
During the Period, Zheshang Securities recorded total revenue of Rmb1,705.45
million, a decrease of 20.8% year-on-year. Of which, commission income declined
25.8% year-on-year to Rmb1,044.16 million, and interest income from the
securities business was Rmb661.29 million, representing a decrease of 11.2%
year-on-year. In addition, during the Period, securities investment gains of
Zheshang Securities included in the condensed consolidated statement of profit
or loss and other comprehensive income of the Group was Rmb370.30 million
(corresponding period in 2016: gains of Rmb107.99 million).
Although revenue from most of Zheshang Securities' business segments (with the
exception of the investment banking business) decreased during the Period, the
development of each segment continued to progress steadily and the asset
management scale grew continuously. Concurrently, after all the efforts made by
various parties, Zheshang Securities has finally obtained the approval from the
China Securities Regulatory Commission (CSRC) and was listed on the Shanghai
Stock Exchange on June 26, 2017. Zheshang Securities has issued 333,333,400 new
shares in total with an offering price of Rmb8.45. The net proceeds (after
deducting the issue costs) were approximately Rmb2,757 million. Following the
listing, Zhejiang Shangsan Expressway Co., Ltd. (Shangsan Co.) owns a 63.74%
equity stake in Zheshang Securities.
Other Business Operations
Zhejiang Yuhang Expressway Co., Ltd. (a 51% owned subsidiary of the Company)
derived revenue mainly from hotel operations and sales of ancillary apartments,
namely the Qiyu Apartments.
Its subsidiary Grand New Century Hotel realized revenue of Rmb47.28 million for
the Period. Qiyu Apartments opened for sale on November 29, 2015. 90 flats were
sold during the Period and realized sales revenue of Rmb47.41 million.
Long-Term Investments
Zhejiang Shaoxing Shengxin Expressway Co., Ltd. ("Shengxin Co", a 50% owned
joint venture of the Company) operates the 73.4km Shaoxing Section of the
Ningbo-Jinhua Expressway. During the Period, the average daily traffic volume
in full-trip equivalents was 18,852, representing an increase of 15.5%
year-on-year. Toll revenue during the Period was Rmb192.07 million. During the
Period, the joint venture reported a net profit of Rmb10.26 million
(corresponding period in 2016: net profit of Rmb0.2 million).
During the Period, Zhejiang Communications Investment Group Finance Co., Ltd.
(a 35% owned associate company of the Company), derived income mainly from
interest, fees and commissions for providing financial services, including
arranging loans and receiving deposits, for the subsidiaries of Zhejiang
Communications Investment Group Co., Ltd., ("Communication Group") the
controlling shareholder of the Company. During the Period, this associate
company realized a net profit of Rmb160.27 million (corresponding period in
2016: net profit of Rmb49.92 million).
During the Period, Yangtze United Financial Leasing Co., Ltd. (a 13% owned
associate company of the Company, the ownership increased from 9% on December
14, 2016), was involved in the finance leasing business, transferring and
receiving the transfer of financial leasing assets, fixed-income securities
investment businesses, and other businesses approved by the China Banking
Regulatory Commission. During the Period, this associate company realized a net
profit of Rmb117.00 million (corresponding period in 2016: net profit of
Rmb57.86 million).
FINANCIAL ANALYSIS
The Group adopts a prudent financial policy with an aim to provide shareholders
of the Company with sound returns in a long run.
During the Period, profit attributable to owners of the Company was
approximately Rmb1,510.74 million, representing an increase of 10.4% over the
corresponding period of 2016, earnings per share for the Company from
continuing and discontinued operation was Rmb34.78 cents, representing an
increase of 10.4%, and return on owners' equity was 7.8%, representing a
decline of 3.7% over the corresponding period of 2016.
Liquidity and financial resources
As at June 30, 2017, current assets of the Group amounted to Rmb55,836.30
million in aggregate (December 31, 2016: Rmb52,158.22 million), of which bank
balances and cash accounted for 15.0% (December 31, 2016: 14.1%), bank balances
held on behalf of customers accounted for 32.5% (December 31, 2016: 38.5%),
held for trading investments accounted for 21.7% (December 31, 2016: 15.6%) and
loans to customers arising from margin financing business accounted for 12.7%
(December 31, 2016: 15.2%). The current ratio (current assets over current
liabilities) of the Group as at June 30, 2017 was 1.4 (December 31, 2016: 1.2).
Excluding the effect of the customer deposits arising from the securities
business, the resultant current ratio of the Group (current assets less bank
balances held on behalf of customers over current liabilities less balance of
accounts payable to customers arising from securities business) was 1.7
(December 31, 2016: 1.4).
The amount of held for trading investments of the Group as at June 30, 2017 was
Rmb12,095.58 million (December 31, 2016: Rmb8,144.13 million), of which 89.2%
was invested in bonds, 3.8% was invested in stocks, and the rest was invested
in open-ended funds and open-ended trust products.
During the Period, net cash inflow generated from the Group's operating
activities amounted to Rmb1,487.33 million.
The Directors do not expect the Company to experience any problems with
liquidity and financial resources in the foreseeable future.
Borrowings and solvency
As at June 30, 2017, total liabilities of the Group amounted to Rmb48,388.19
million (December 31, 2016: Rmb49,585.51 million), of which 3.9% was bank and
other borrowings, 4.2% was short-term financing note payable, 14.9% was bonds
payable, 5.9% was convertible bonds, 20.7% was financial assets sold under
repurchase agreements, and 37.3% was accounts payable to customers arising from
securities business.
As at June 30, 2017, total interest-bearing borrowings of the Group amounted to
Rmb13,961.45 million, representing a decrease of 16.1% compared to that as at
December 31, 2016. The borrowings comprised outstanding balances of domestic
commercial bank loans of Rmb1,000.00 million, borrowings from a domestic
financial institution of Rmb870.00 million, subordinated bonds of Rmb3,000.00
million, corporate bonds of Rmb3,400.00 million, beneficial certificates of
Rmb2,850.00 million and convertible bonds of Rmb2,841.45 million. Of the
interest-bearing borrowings, 59.0% was not payable within one year.
As at June 30, 2017, the Group's loans from domestic commercial banks were
short-term loans with annual fixed interest rates at 3.915%. The annual
floating interest rate for borrowings from a domestic financial institution was
3.915%. The annual interest rates for beneficial certificates were fixed at
rates between 3.7% and 5.3%. The annual interest rates for subordinated bonds
were fixed at rates between 3.63% and 6.3%. The annual interest rates for
corporate bonds were fixed at 3.08% and 4.9%, while the annual interest rate
for accounts payable to customers arising from the securities business was
fixed at 0.35%.
Total interest expenses and profit before interest and tax for the Period
amounted to Rmb330.31 million and Rmb2,771.89 million, respectively. The
interest cover ratio (profit before interest and tax over interest expenses)
remained at 8.4 (corresponding period of 2016: 7.6) times.
As at June 30, 2017, the asset-liability ratio (total liabilities over total
assets) of the Group was 63.8% (December 31, 2016: 67.2%). Excluding the effect
of customer deposits arising from the securities business, the resultant
asset-liability ratio (total liabilities less balance of accounts payable to
customers arising from securities business over total assets less bank balances
held on behalf of customers) of the Group was 52.6% (December 31, 2016: 55.0%).
Capital structure
As at June 30, 2017, the Group had Rmb27,435.18 million in total equity,
Rmb41,560.39 million in fixed-rate liabilities, Rmb870.00 million in
floating-rate liabilities, and Rmb5,957.80 million in interest-free
liabilities, representing 36.2%, 54.8%, 1.1% and 7.9% of the Group's total
capital, respectively. The gearing ratio, which is computed by dividing the
total liabilities less accounts payable to customers arising from the
securities business by total equity, was 110.6% as at June 30, 2017 (December
31, 2016: 122.1%).
Capital expenditure commitments and utilization
During the Period, capital expenditure of the Group amounted to Rmb281.82
million in total. Amongst the total capital expenditure of the Group, Rmb216.00
million was incurred for acquiring equity investment, Rmb25.74 million was
incurred for acquisition and construction of properties, Rmb40.08 million was
incurred for purchase and construction of equipment and facilities.
As at June 30, 2017, the remaining capital expenditure committed by the Group
amounted to Rmb488.73 million in total. Amongst the remaining balance of total
capital expenditures committed by the Group, Rmb216.66 million will be used for
acquisition and construction of properties, Rmb272.07 million for acquisition
and construction of equipment and facilities.
The Group will consider financing the above-mentioned capital expenditure
commitments with internally generated cash flow first and then will
comprehensively consider using debt financing and equity financing to meet any
shortfalls.
Contingent liabilities and pledge of assets
Pursuant to the board resolution of the Company dated November 16, 2012, the
Company and Shaoxing Communications Investment Group Co., Ltd. (the other joint
venture partner that holds 50% equity interest in Shengxin Co) provided
Shengxin Co with a joint guarantee for its bank loans of Rmb2.2 billion, in
accordance with their proportionate equity interest in Shengxin Co. During the
Period, Rmb112.00 million of the bank loans had been repaid. As at June 30,
2017, the remaining bank loan balance is Rmb1,780.00 million.
Except for the above, as at June 30, 2017, the Group did not have any other
contingent liabilities, pledge of assets or guarantees.
Foreign exchange exposure
During the Period, save for (i) dividend payments to the holders of H shares in
Hong Kong dollars, (ii) borrowing in the amount of HK$432.53 million on June 8,
2016 and repayment on the borrowing on June 8, 2017, and (iii) Zheshang
International Financial Holding Co., Limited (a wholly owned subsidiary of
Zheshang Securities) operating in Hong Kong, (iv) issuance of the zero coupon
convertible bonds in an aggregate principal amount of Euro365.00 million in
Hong Kong capital market, the Group's principal operations were transacted and
booked in Renminbi.
During the Period, the Group completed one-year HK dollar forwards of
equivalent amount to hedge the foreign exchange risk derived from the Hong Kong
dollar borrowing, which was purchased in the corresponding period of 2016.
Besides, the Group has not used any other financial instruments for hedging
purpose during the Period.
OUTLOOK
In the first half of 2017, China's economic development maintained stable
growth while showing more positive changes, a trend continued from last year.
The economic development in Zhejiang Province, a key area in the Yangtze River
Delta area, performed well, hitting a new high before stabilizing, driven by an
improved economic structure and strong new momentum. Benefiting from a faster
development of both macro and local economic environment, the Group expects
that the organic traffic volume for its major expressway sections will enjoy
robust growth throughout 2017, while the overall traffic volume is likely to
register healthy growth as well.
Currently, the Group saw not just the positive network effect but also certain
diversion impact. It is expected that in the second half of 2017, the newly
launched Hangzhou-Xinanjiang-Jingdezhen Expressway will continue to cause a
diversion impact on the traffic volume of the nearby Hanghui Expressway and
Huihang Expressway. In response, the Group will continue to improve operating
management by optimizing the toll collection system and promoting smart payment
solutions. The Group also plans to strengthen analysis of expressway networks
and adopt effective promotional and marketing measures to direct and attract
more vehicles to use the expressways operated by the Group to minimize the
diversion impact.
The stock markets in China are likely to fluctuate, however Chinese regulators
continue to work towards healthy development of the capital markets and
improved regulatory frameworks. The Group believes such measures will bring new
opportunities to its securities business. For Zheshang Securities, its
successful listing on the Shanghai Stock Exchange on June 26, 2017, builds a
solid foundation for further expansions in asset scale, as well as its
sustainable and healthy development. At the same time, its listing is also set
to improve its management capabilities through standardizing procedures and
strengthen risk control.
Looking ahead over the second half of 2017, the macro economy is expected to
rebound with upside momentum while confronted by serious pressures. Under the
backdrop of "New Normal" in terms of economic development, the Group believes
that the positive momentum presented by the ever-improving policy environment
in Zhejiang Province is set to bring new opportunities to all business segments
of the Group. Leveraging its leading market position and its strengths in
operational management, the Company's management will look to expand its core
expressway business while strengthening its securities business and seeking
suitable investments and development projects in order to enlarge the asset
scale of its core businesses and increase future profitability.
IMPORTANT EVENTS OCCURRED SINCE THE END OF THE PERIOD
There has been no occurrence of important events affecting the Group since the
end of the Period.
PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S SHARES
Neither the Company nor any of its subsidiaries purchased, sold, redeemed or
cancelled any of the Company's shares during the Period.
COMPLIANCE WITH LISTING RULES APPENDIX 14
During the Period, the Company complied with all code provisions in the
Corporate Governance Code and Corporate Governance Report (the "Code") set out
in Appendix 14 to the Listing Rules, and adopted the recommended best practices
in the Code as and when applicable.
CONTINUING CONNECTED TRANSACTION UNDER ASSET MANAGEMENT AGREEMENT II
Reference is made to the announcement of the Company dated August 18, 2017 in
relation to the Asset Management Agreements. In particular, with reference to
the Asset Management Agreement II, Zhejiang Zheshang Securities Asset
Management Co., Ltd., as the manager of the Asset Management Schemes, is
entitled to the management fee which is calculated with reference to the net
value of the entrusted assets. Given the applicable percentage ratios in
respect of the transaction contemplated under the Asset Management Agreement II
are less than 0.1%, such continuing connected transaction will be exempt from
the annual review, reporting, announcement and independent shareholders'
approval requirements under Chapter 14A of the Listing Rules.
COMPENSATION PAYMENT
On 26 June, 2017, the spin-off of Zheshang Securities ("Listing"), an
indirectly owned subsidiary of the Company, had been completed, and the
dealings in the A shares of Zheshang Securities on the Shanghai Stock Exchange
had commenced. Pursuant to the Implementing Measures for the Transfer of
Certain State-owned Shares from the Domestic Securities Market to the National
Social Security Fund (No. 94 [2009] of the Ministry of Finance) dated 19 June
2009 (the "Measures") and according to the Reply on the Proposal of the
State-owned Share Transfer in the Initial Public Offerings of Zheshang
Securities Co., Ltd. in A Shares Market (No. 9 [2013] of the SASAC of Zhejiang
Province) dated 4 February 2013, the state-owned shareholders of Zheshang
Securities are required, upon the Listing, to transfer a number of shares in
Zheshang Securities they hold which, in aggregate, represents 10% of the total
number of shares issued under the Listing to the National Social Security Fund
("NSSF Transfer "). Shangsan Co. proposes that the NSSF Transfer be satisfied
by way of a payment of cash equivalent to the value of the shares required to
be transferred by Shangsan Co. to the National Social Security Fund ("NSSF
Payment"). The exact amount of such NSSF Payment will depend upon the size and
offer price of the A shares offering of Zheshang Securities as well as the then
respective shareholding percentages of the state-owned shareholders in Zheshang
Securities.
In addition, pursuant to the Measures, Communications Group, being a
state-owned shareholder of the Company, shall be required to compensate the
other shareholders of the Company ("H Shareholders"), being non-state-owned
shareholders, as a compensation of the NSSF Payment ("Compensation Payment").
The Company received the Reply on the Fulfillment of the State-owned Share
Transfer Obligation in the IPO of Zheshang Securities from the Communications
Group dated 24 July 2017 whereby the proposed NSSF Payment is approved. It is
confirmed that Shangsan Co. is required to pay Rmb193,617,317.25 in total into
the National Social Security Fund. At the same time, Compensation Payment in
the amount of Rmb47,061,704.55 should be paid to the H Shareholders (the "NSSF
Payment" and "Compensation Payment" together the "Payment"). Upon completion of
the Payment, the Company is required to notify and complete filing process with
the State-owned Assets Supervision and Administration Commission of Zhejiang
Province.
As such, the Directors have recommended the Compensation Payment in the amount
of Rmb47,061,704.55 to the H Shareholders along with the payment of an interim
dividend of Rmb6 cents per share to all shareholders. The proposed payment of
interim dividend is subject to approval at the EGM of the Company.
Date of the EGM, as well as relevant book closing period, last day of transfer
and record date will be announced separately in due course.
By Order of the Board
Zhejiang Expressway Co., Ltd
ZHAN Xiaozhang
Chairman
Hangzhou, the PRC, August 23, 2017
As at the date of this announcement, the executive directors of the Company
are: Mr. ZHAN Xiaozhang, Mr. CHENG Tao and Ms. LUO Jianhu; the non-executive
directors of the Company are: Mr. WANG Dongjie, Mr. DAI Benmeng, and Mr. ZHOU
Jianping; and the independent non-executive directors of the Company are: Mr.
ZHOU Jun, Mr. PEI Ker-Wei and Ms. LEE Wai Tsang, Rosa.