ZHEH.L Regulatory News (ZHEH)

Hong Kong Stock Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take noresponsibility for the contents of this announcement, make no representation as to its accuracy orcompleteness and expressly disclaim any liability whatsoever for any loss howsoever arising from orin reliance upon the whole or any part of the contents of this announcement. ZHEJIANG EXPRESSWAY CO., LTD. (A joint stock limited company incorporated in the People's Republic of China with limited liability) (Stock code: 0576) 2014 THIRD QUARTERLY RESULTS ANNOUNCEMENT AND PROPOSED CHANGES IN DIRECTORS The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the "Company") are pleased toannounce the third quarterly results of the Company and its subsidiaries (the "Group") for the ninemonths ended September 30, 2014 (the "Period"). The audit committee of the Company has reviewed the quarterly results of the Group for the Period.Set out below are the Group's unaudited condensed consolidated statement of profit or loss and othercomprehensive income, condensed consolidated statement of financial position and condensedconsolidated statement of cash flows for the Period together with the comparative figures for thecorresponding period of 2013: CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the nine months ended September 30, 2014 2013 Notes Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- ------------- Revenue 1 6,470,934 5,707,357Operating costs (4,023,225) (3,595,286) ------------- ------------- Gross profit 2,447,709 2,112,071Securities investment gains 164,533 86,886Other income 2 190,605 158,570Administrative expenses (52,192) (55,096)Other expenses (54,180) (33,685)Share of profit of associates 48,524 8,059Share of loss of a joint venture (23,801) (21,481)Finance costs (57,303) (68,311) ------------- ------------- Profit before tax 2,663,895 2,187,013Income tax expense (678,719) (550,428) ------------- -------------Profit for the Period 1,985,176 1,636,585 ------------- -------------Other comprehensive income Items that may be reclassified subsequently reclassified to profit or loss: Available-for-sale financial assets - Fair values gain during the Period 31,716 10,992 - Reclassification adjustments for cumulative gain included in profit or loss upon disposal - (1,381) Income tax relating to components of other comprehensive income (7,929) (2,403) ------------- -------------Other comprehensive income for the Period (net of tax) 23,787 7,208 ------------- -------------Total comprehensive income for the Period 2,008,963 1,643,793 ============= ============= Profit for the Period attributable to: Owners of the Company 1,661,211 1,421,238 Non-controlling interests 323,965 215,347 ------------- ------------- 1,985,176 1,636,585 ============= ============= Total comprehensive income for the Period attributable to: Owners of the Company 1,673,433 1,425,340 Non-controlling interests 335,530 218,453 ------------- ------------- 2,008,963 1,643,793 ============= =============Earnings per share - Basic and diluted 3 38.25 cents 32.72 cents ============= ============= CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at As at September 30, December 31, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Audited) ------------- -------------Non-current assets 14,759,281 15,436,353Current assets 27,381,657 16,652,841Current liabilities 20,544,734 11,914,597 ------------- -------------Net current assets 6,836,923 4,738,244 ------------- -------------Total assets less current liabilities 21,596,204 20,174,597 ------------- -------------Non-current liabilities 1,097,079 505,638 ------------- ------------- 20,499,125 19,668,959 ============= =============Capital and reserves Share capital 4,343,115 4,343,115 Reserves 12,217,077 11,629,423 ------------- -------------Equity attributable to owners of the Company 16,560,192 15,972,538Non-controlling interests 3,938,933 3,696,421 ------------- ------------- 20,499,125 19,668,959 ============= ============= CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended September 30, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- -------------Net cash from operating activities 2,591,735 1,676,442Net cash used in investing activities (954,118) (1,321,780)Net cash used in financing activities (1,017,637) (1,781,969) ------------- -------------Net increase (decrease) in cash and cash equivalents 619,980 (1,427,307)Cash and cash equivalents at beginning of the Period 1,806,981 3,392,053 ------------- -------------Cash and cash equivalents at end of the Period 2,426,961 1,964,746 ============= ============= Notes: 1. REVENUE An analysis of the Group's revenue, net of discounts and taxes, for the Period is as followed: For the nine months ended September 30, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- -------------Toll operation revenue 3,174,879 2,978,465Service area businesses revenue (mainly sales of goods) 1,703,467 1,482,842Advertising business revenue 66,350 76,844Commission income from securities operation 1,026,556 871,047Interest income from securities operation 463,383 297,685Others 36,299 474 ------------- -------------Total 6,470,934 5,707,357 ============= ============= 2. OTHER INCOME For the nine months ended September 30, 2014 2013 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- ------------- Interest income on bank balances, entrusted loan receivables and financial products investment 47,197 68,911Rental income 82,496 55,584Gain on disposal of an associate 24,490 -Handling fee income 1,821 2,492Towing income 7,215 7,573Exchange gain (loss), net 854 (202)Others 26,532 24,212 ------------- -------------Total 190,605 158,570 ============= ============= 3. EARNINGS PER SHARE The calculation of the basic earnings per share is based on profit for the Period attributable toowners of the Company of Rmb1,661,211,000 (corresponding period of 2013: Rmb1,421,238,000) and the4,343,114,500 (2013: 4,343,114,500) ordinary shares in issue during the Period. Diluted earnings per share presented is the same as basic earnings per share since there were nopotential ordinary shares outstanding during both periods. BUSINESS REVIEW Although the Chinese economic growth has slowed down in the third quarter of 2014, the overall trendremained steady and to the upside as the GDP for the past three quarters grew 7.3% year-on-year. InZhejiang Province, the economic growth continued to rise on a quarter-on-quarter basis during theyear. Given a few economic indicators including exports and fixed asset investment recorded a decentgrowth rate, the GDP for the first three quarters this year rose 7.4% year-on-year, up 0.4 percentagepoints and 0.2 percentage points compared with the first quarter and the first half of this yearrespectively. Due to steady economic growth in Zhejiang Province in the past three quarters as well as a gradualrecovery in the organic growth of traffic volume and in the domestic financial markets, total incomeof the Group increased 13.3% year-on-year to Rmb6,669.26 million. Income from the three majorexpressways increased 6.6% year-on-year to Rmb3,284.62 million and accounted for 49.3% of totalincome. Income from toll road- related businesses increased 15.7% year-on-year to Rmb1,815.79 millionand accounted for 27.2% of total income. Income from the securities business increased 27.0% year-on-year to Rmb1,568.85 million and accounted for 23.5% of total income. Toll Road Operations During the Period, exports from Zhejiang Province grew at a strong pace and the Group saw arelatively significant recovery in organic traffic volume on its three expressways. As a result, theoverall organic traffic volume growth for the first three quarters was better than anticipated. During the Period, the traffic volume on the Group's three expressways experienced varying levels oforganic growth corresponding to the regions in which they are located. Organic traffic volume growthrates for the Shanghai-Hangzhou-Ningbo Expressway, Shangsan Expressway and the Jinhua Section ofNingbo-Jinhua Expressway were 7.0%, 7.5% and 12.2%, respectively. The growth rates were all higherthan the corresponding Period of last year. The opening of the Jiaxing-Shaoxing Bridge (not operated by the Group) in July, 2013, caused acertain amount of traffic to divert from the Group's Shanghai-Hangzhou- Ningbo Expressway, whichresulted in a decrease of Rmb98.47 million in the Group's toll income during the Period. However, theJiaxing-Shaoxing Bridge had a more positive effect on the Shangsan Expressway. As a result ofeffective promotions to attract more traffic, most of the vehicles passing through JiangsuProvince, Taizhou and Wenzhou took the Shangsan Expressway directly. Furthermore, a number ofvehicles traveling between Shanghai, Taizhou and Wenzhou via the Shangsan Expressway, and otherstraveling between Jiangsu and Ningbo via the Hangzhou Bay Bridge, also shortened their routes viathe Shangsan Expressway and Hangzhou-Ningbo Section of the Shanghai-Hangzhou-Ningbo Expressway.During the Period, the opening of the Jiaxing-Shaoxing Bridge led to an increase of Rmb129.16million in terms of toll income on the Shangsan Expressway. Meanwhile, the Jinhua Section of the Ningbo-Jinhua Expressway saw a relatively high organic growth intraffic volume as a result of the continued high pace of economic development in Yiwu and nearbyregions, as well as a speedy increase in small truck ownership in Yiwu. Construction work on roadssurrounding the Ningbo-Jinhua Expressway and the Company's ongoing promotions to attract more trafficalso had a positive impact on toll income. Container trucks traveling along the Jinhua Section of theNingbo-Jinhua Expressway also posted a notable increase in miles driven. During the Period, theJinhua Section of the Ningbo-Jinhua Expressway recorded an increase of approximately Rmb9.21 millionin toll income as a result of factors such as construction work on surrounding roads. In addition, toll income from the Shanghai-Hangzhou-Ningbo Expressway decreased by approximatelyRmb38.03 million as a result of construction on the Hangzhou Airport road that began on April 15,2014. Moreover, the opening of the Qianjiang Road (not operated by the Group) on April 16, 2014, alsoled to a decline of approximately Rmb6.26 million in toll income from the Shanghai-Hangzhou-NingboExpressway. As a result of the factors mentioned above, the average daily traffic volume in full- tripequivalents along the Group's Shanghai-Hangzhou-Ningbo Expressway was 45,346 during the Period,representing an increase of 2.3% year-on-year. In particular, the average daily traffic volume infull-trip equivalents along the Shanghai-Hangzhou Section of the Shanghai-Hangzhou-Ningbo Expresswaywas 43,669, representing a decrease of 1.7% year-on-year. The average daily traffic volume in full-trip equivalents along the Hangzhou-Ningbo Section was 46,545, representing an increase of 5.6% year-on-year. The average daily traffic volume in full-trip equivalents along the Shangsan Expressway was22,983 during the Period, representing an increase of 27.7% year-on- year. The average daily trafficvolume in full-trip equivalents along the Jinhua Section of the Ningbo-Jinhua Expressway was 15,878during the Period, representing an increase of 17.9% year-on-year. Total toll income from the 248 km Shanghai-Hangzhou-Ningbo Expressway, the 142 km Shangsan Expresswayand the 70 km Jinhua Section of the Ningbo-Jinhua Expressway was Rmb3,284.62 million during thePeriod, representing an increase of 6.6% year-on- year. Toll income from the Shanghai-Hangzhou-NingboExpressway was Rmb2,324.70 million, representing a decrease of 0.1% year-on-year; toll income fromthe Shangsan Expressway was Rmb731.27 million, representing an increase of 31.2% year-on-year. Tollincome from the Jinhua Section of the Ningbo-Jinhua Expressway was Rmb228.65 million, representing anincrease of 16.4% year-on-year. Toll Road-Related Business Operations The Company also operates certain toll road-related businesses along its expressways through itssubsidiaries and associated companies, including gas stations, restaurants and shops in serviceareas, advertising at expressway interchanges, as well as road maintenance. During the Period, as the opening of the Jiaxing-Shaoxing Bridge helped to increase the trafficvolume along the Shangsan Expressway, the service areas along the Shangsan Expressway also saw asignificant growth in income. However, the decrease in traffic volume on the Shanghai-Hangzhou-NingboExpressway adversely affected income from service areas along the expressway. Given that theseservice areas make a relatively large contribution to income from service areas, overall income fromservice areas slightly declined. The Zhejiang Provincial Government launched a specific rectification action on billboard advertisingalong expressways in the province which restricted the advertising business carried out by ZhejiangExpressway Investment Development Co., Ltd. to expressway interchanges, toll plazas and serviceareas. Therefore the revenue from the advertising business has been greatly reduced. Due to a solid increase in sales of refined oil products and additional income from external roadmaintenance projects, the Group's toll road-related businesses achieved a solid increase in overallincome. Income from toll road-related businesses was Rmb1,815.79 million for the Period, representingan increase of 15.7% year-on-year. Securities Business During the Period, the average commission rate of Zheshang Securities Co., Ltd. ("ZheshangSecurities", a 70.83% owned subsidiary of Zhejiang Shangsan Expressway Co., Ltd. which is asubsidiary of the Company) declined from 0.08% to 0.07% due to intensified competition in thesecurities industry and the gradual relaxation of controls on commissions. The cumulative tradingvolume of the Shanghai and Shenzhen exchanges continued to gradually recover, increasing 21.7% year-on-year. As a result, Zheshang Securities saw an increase in trading volume and market share, leadingto a year-on-year rise in income from Zheshang Securities' brokerage business. Additionally, while accelerating the comprehensive development of each business segment, ZheshangSecurities has been actively working to streamline its income and profit structure to graduallyreduce the dominant role that its brokerage business played in the past. During the Period, incomefrom investment banking, margin financing and securities lending, and asset management businesses ofZheshang Securities all grew steadily year-on-year. Meanwhile, the IPO application submitted by Zheshang Securities was accepted by the China SecuritiesRegulatory Commission in May 2013. Zheshang Securities remains on the waiting list for an IPO. During the Period, Zheshang Securities' total operating income was Rmb1,568.85 million, an increaseof 27.0% year-on-year. Brokerage commission income was Rmb1,105.47 million, a year-on-year increaseof 17.9%. Interest income from the securities business was Rmb463.38 million, a year-on-year increaseof 55.7%. Moreover, securities investment gains from Zheshang Securities included in the condensedconsolidated statement of profit or loss and other comprehensive income of the Group was Rmb151.97million during the Period. Long-Term Investments Zhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associate company of the Company)recorded income of Rmb4,920.05 million, a year-on-year increase of 2.8%. The increase was primarilyattributable to an increase in sales volume of refined oil products. During the Period, net profitrealized was Rmb20.36 million (corresponding period of 2013: net profit of Rmb17.48 million). Shengxin Expressway Co., Ltd. (a 50% owned joint venture of the Company) operates the 73.4km ShaoxingSection of the Ningbo-Jinhua Expressway. During the Period, the traffic volume of the ShaoxingSection of the Ningbo-Jinhua Expressway increased as the economy of Zhejiang Province continued toexpand. The average daily traffic volume in full-trip equivalents was 14,210, an increase of 11.5%year-on-year. Toll income during the Period was Rmb239.23 million. However, due to an increase inroad maintenance costs and its relatively heavy financial burden, the joint venture reported a lossof Rmb47.60 million (corresponding period of 2013: loss of Rmb42.96 million). Zhejiang Communications Investment Group Finance Co., Ltd. (a 35% owned associate company of theCompany) derives income mainly from fees and commissions for providing financial services, includingarranging loans to, and receiving deposits from subsidiaries of Zhejiang Communications InvestmentGroup Finance Co., Ltd. Profit from Zhejiang Communications Investment Group Finance Co., Ltd. wasaccounted for as gain of associates of the Company starting from May 1, 2013 and realized a netprofit of Rmb113.42 million during the Period. FINANCIAL ANALYSIS Liquidity and financial resources As at September 30, 2014, current assets of the Group amounted to Rmb27,381.66 million in aggregate(December 31, 2013: Rmb16,652.84 million), of which bank balances and cash accounted for 12.1%(December 31, 2013: 15.1%), bank balances held on behalf of customers accounted for 45.0% (December31, 2013: 49.4%) and held for trading investments accounted for 8.0% (December 31, 2013: 7.1%). Thecurrent ratio (current assets over current liabilities) of the Group as at September 30, 2014 was 1.3(December 31, 2013: 1.4). Excluding the effect of the customer deposits arising from the securitiesbusiness, the resultant current ratio of the Group (current assets less bank balances held on behalfof customers over current liabilities less balance of accounts payable to customers arising fromsecurities business) was 1.8 (December 31, 2013: 2.2). The amount of held for trading investments of the Group as at September 30, 2014 was Rmb2,199.94million (December 31, 2013: Rmb1,181.03 million), of which 91.6% was invested in bonds, 8.1% wasinvested in stocks, and the rest was invested in open-end equity funds. During the Period, net cash inflow generated from the Group's operating activities amounted toRmb2,591.74 million. The Directors do not expect the Company to experience any problems with liquidity and financialresources in the foreseeable future. Borrowings and solvency As at September 30, 2014, total liabilities of the Group amounted to Rmb21,641.81 million (December31, 2013: Rmb12,420.24 million), of which 1.4% was bank and other borrowings, 3.2% wassubordinated debenture, 4.4% was short-term loan note and 57.0% was accounts payable to customersarising from securities business. As at September 30, 2014, total interest-bearing borrowings of the Group amounted to Rmb1,950.00million, representing an increase of 6.0% compared to that as at December 31, 2013. The borrowingscomprised outstanding balances of domestic commercial bank loans of Rmb300.00 million, and asubordinated debenture of Rmb700.00 million, which was issued by Zheshang Securities in September2014, with a four-year term and an issuer redemption right at the second year end, and short-termloan note with three- month maturity of Rmb950.00 million. Of the interest-bearing borrowings, 46.2%was not payable within one year. Total interest expenses for the Period amounted to Rmb62.43 million, of which capitalized interestamounted to Rmb5.13 million, while profit before interest and tax amounted to Rmb2,721.20 million.The interest cover ratio (profit before interest and tax over interest expenses) stood at 43.6(corresponding period of 2013: 33.0) times. As at September 30, 2014, the asset-liability ratio (total liabilities over total assets) of theGroup was 51.4% (December 31, 2013: 38.7%). Excluding the effect of customer deposits arising fromthe securities business, the resultant asset-liability ratio (total liabilities less balance ofaccounts payable to customers arising from securities business over total assets less bank balancesheld on behalf of customers) of the Group was 31.2% (December 31, 2013: 17.8%). Capital structure As at September 30, 2014, the Group had Rmb20,499.13 million in total equity, Rmb18,778.25 million infixed-rate liabilities, Rmb300.00 million in floating-rate liabilities, and Rmb2,563.56 million ininterest-free liabilities, representing 48.6%, 44.6%, 0.7% and 6.1% of the Group's total capital,respectively. The gearing ratio, which is computed by dividing the total liabilities less accountspayable to customers arising from the securities business by total equity, was 45.4% as at September30, 2014 (December 31, 2013: 21.6%). OUTLOOK During the first three quarters in 2014, the scale of exports from Zhejiang Province continued toreach new highs as the region's economy has been making steady progress. Benefitting from this, theGroup experienced an improvement in traffic volume on its expressways. Since the GDP growth rate forZhejiang Province in the fourth quarter is expected to keep rising on a quarterly basis, the trafficvolume on the Group's expressways is also expected to grow healthily. Additionally, Qianjiang Road, which opened for traffic in the first half of this year, andconstruction on the airport road near the Second Qianjiang Bridge, are still expected to have anadverse impact on the Group's Shanghai-Hangzhou-Ningbo Expressway in the fourth quarter. Therefore,the Group will closely monitor traffic volumes alongside the construction on the airport road,analyze the impact of the newly opened network of roads around Qianjiang Road and the Jiaxing-Shaoxing Bridge, and undertake effective promotional efforts to attract more vehicles to theexpressways operated by the Group so as to reduce the negative impact of traffic diversions. The anticipated recovery of the Chinese stock market and a series of policies carried out by theChinese government to reform China's stock markets, which include the establishment of the Shanghai-Hong Kong Stock Connect, are expected to present new opportunities for Zheshang Securities.Zheshang Securities will accelerate the development of innovative businesses and further push forwardits A-share listing process while strengthening cost and risk controls to facilitate the sustainabledevelopment of its businesses. The Company's management will continue to strengthen its main expressway business by furtherincreasing income from its main businesses and enhancing service quality of its operations whilepaying close attention to changes in the external environment and adjusting managerial strategiesaccordingly. In addition to continuing to strengthen its securities businesses, the Group will lookfor suitable investment projects while nurturing management capabilities in diversified operations toimprove profitability and achieve sustainable development over the long term. PROPOSED CHANGES IN DIRECTORS Mr. Zhang Junseng, an independent non-executive Director, in accordance with the "Opinions on FurtherRegulation on Party and Political Leaders and Cadres Working Part-Time (Holding Office) inEnterprises" (Zhong Zu Fa No. 18 of 2013) issued by the Organization Department of the CPC CentralCommittee, has submitted his resignation application as an independent non-executive Director; Mr. LiZongsheng and Mr. Wang Weili, both non-executive Directors, have also submitted their resignationapplications as non-executive Directors due to job reassignments. According to the Company's"Articles of Association", new Directors need to be elected at a shareholders' meeting. Before newDirectors are considered and approved by the shareholders of the Company, Mr. Zhang Junseng, Mr. LiZongsheng and Mr. Wang Weili will continue to be Directors and perform their duties. Mr. ZhangJunseng, Mr. Li Zongsheng and Mr. Wang Weili have confirmed that they have no disagreement with theboard of the Company (the "Board") and there is no other matter in relation to their resignationapplications that needs to be brought to the attention of The Stock Exchange of Hong Kong Limited(the "Stock Exchange") and the shareholders of the Company. The Company has selected suitable candidates to fill the vacancies according to relevantrequirements. The Board has resolved to propose Mr. Dai Benmeng and Mr. Zhou Jianping to be appointedas non-executive Directors and Ms. Lee Wai Tsang, Rosa to be appointed as an independent non-executive Director. The proposed appointments will be submitted to the Company's extraordinarygeneral meeting ("EGM") for the election of the proposed new Directors. Such proposed appointmentsshall become effective subject to shareholders' approval at the EGM and the term of the office of theproposed new Directors will end on the date of expiry of the term of the Sixth session of the Board,being June 30, 2015. The biographical information of the above Director candidates, other matters relating to theirproposed appointments that need to be brought to the attention of the shareholders of the Company andinformation to be disclosed pursuant the requirements of Rule 13.51(2) of the Rules Governing theListing of Securities on the Stock Exchange shall be further set out in a circular to be despatchedto the shareholders of the Company and the announcement regarding their respective effectiveappointment as and when appropriate. A circular containing details of proposed appointments (including the above Director candidates'biographical information), together with a notice of the EGM, will be despatched to the shareholdersof the Company as soon as practicable. By order of the Board Zhan Xiaozhang Chairman Hangzhou, PRC, November 11, 2014 As at the date of this announcement, the executive directors of the Company are:Mr. ZHAN Xiaozhang, Ms. LUO Jianhu and Mr. DING Huikang; the non-executive directors of theCompany are: Messrs. LI Zongsheng, WANG Weili and WANG Dongjie; and the independentnon-executive directors of the Company are: Messrs. ZHANG Junsheng, ZHOU Jun and PEI Ker-Wei.