ZHEH.L Regulatory News (ZHEH)

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibilityfor the contents of this announcement, make no representation as to its accuracy or completeness andexpressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon thewhole 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:576) 2015 FIRST QUARTERLY RESULTS ANNOUNCEMENT The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the "Company") are pleased to announcethe first quarterly results of the Company and its subsidiaries (the "Group") for the three monthsended March 31, 2015 (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, unaudited condensed consolidated statement of financial position and unauditedcondensed consolidated statement of cash flows for the Period together with the comparative figuresfor the corresponding period of 2014: CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the three months ended March 31, 2015 2014 Notes Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- --------------Revenue 1 2,470,398 2,018,110Operating costs (1,413,107) (1,246,087) ------------- --------------Gross profit 1,057,291 772,023Securities investment gains 78,376 21,209Other income 2 48,867 48,329Administrative expenses (18,115) (14,100)Other expenses (24,302) (9,590)Share of profit of associates 11,183 16,321Share of loss of a joint venture (7,446) (7,489)Finance costs (56,849) (21,141) ------------- --------------Profit before tax 1,089,005 805,562Income tax expense (277,633) (202,244) ------------- --------------Profit for the Period 811,372 603,318 ------------- --------------Other comprehensive income (loss) Items that may be reclassified subsequently to profit or loss: Available-for-sale financial assets: --Fair values gain (loss) during the Period 9,444 (1,785) --Reclassification adjustments for cumulative gain included in profit or loss upon disposal (650) - Income tax relating to components of other comprehensive income (loss) (2,199) 446 ------------- --------------Other comprehensive income (loss) for the Period (net of tax) 6,595 (1,339) ------------- --------------Total comprehensive income for the Period 817,967 601,979 ============= ==============Profit for the Period attributable to: Owners of the Company 630,502 512,529 Non-controlling interests 180,870 90,789 ------------- -------------- 811,372 603,318 ============= ==============Total comprehensive income attributable to: Owners of the Company 633,698 511,640 Non-controlling interests 184,269 90,339 ------------- -------------- 817,967 601,979 ============= ==============Earnings per share - Basic and diluted 3 Rmb14.52 cents Rmb11.80 cents ============= ============== CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at As at March 31, December 31, 2015 2014 Rmb'000 Rmb'000 (Unaudited) (Audited) ------------- --------------Non-current assets 15,415,818 15,609,023Current assets 48,218,847 35,745,721Current liabilities 36,847,629 28,680,080 ------------- --------------Net current assets 11,371,218 7,065,641 ------------- --------------Total assets less current liabilities 26,787,036 22,674,664 ------------- --------------Non-current liabilities 4,839,447 1,545,042 ------------- -------------- 21,947,589 21,129,622 ============= ==============Capital and ReservesShare capital 4,343,115 4,343,115Reserves 13,292,409 12,658,711 ------------- --------------Equity attributable to owners of the Company 17,635,524 17,001,826Non-controlling interests 4,312,065 4,127,796 ------------- -------------- 21,947,589 21,129,622 ============= ============== CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended March 31, 2015 2014 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- --------------Net cash (used in) from operating activities (3,651,031) 772,942Net cash used in investing activities (148,839) (6,108)Net cash from (used in) financing activities 3,870,605 (483,191) ------------- --------------Net increase in cash and cash equivalents 70,735 283,643Cash and cash equivalents at beginning of the Period 3,301,722 1,806,981 ------------- --------------Cash and cash equivalents at end of the Period 3,372,457 2,090,624 ============= ============== Notes: 1. REVENUE An analysis of the Group's revenue, net of discounts and taxes, for the Period is as followed: For the three months ended March 31, 2015 2014 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- --------------Toll operation revenue 1,019,296 970,699Toll related operation revenue:Service area businesses revenue (mainly sales of goods) 411,219 544,434Advertising business revenue 10,389 25,196Others 15,454 11,460Securities operation revenue:Commission income from securities operation 656,345 326,087Interest income from securities operation 357,695 140,234 ------------- --------------Total 2,470,398 2,018,110 ============= ============== 2. OTHER INCOME For the three months ended March 31, 2015 2014 Rmb'000 Rmb'000 (Unaudited) (Unaudited) ------------- --------------Interest income on bank balances, entrusted loan receivables and financial products investment 13,123 16,113Rental income 25,860 26,755Handling fee income 287 260Towing income 2,120 2,349Exchange (loss) gain, net (9) 2Others 7,486 2,850 ------------- --------------Total 48,867 48,329 ============= ============== 3. EARNINGS PER SHARE The calculation of the basic earnings per share is based on profit for the Period attributable to ownersof the Company of Rmb630,502,000 (corresponding period of 2014: Rmb512,529,000 ) andthe 4,343,114,500 (2014: 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 In the first quarter of 2015, the growth rate of China's economy fell due to increased downward pressure.Macro regulatory policies continued to be supportive and the national economy remained steady with ayear-on-year increase of 7.0% in GDP in the first quarter. In Zhejiang Province, economic growth haspicked up on a quarter-on-quarter basis since last year, as a number of economic indicators includingexports and fixed asset investments recorded decent growth rates, and the province's GDP in the firstquarter of this year rose 8.2% year-on-year. During the Period, as Zhejiang Province's economy steadily improved, traffic volume on the Group'sexpressways continued to witness decent organic growth. In addition, there was active trading volumein the domestic stock market. As a result, income from the Group's overall operations increased 23.4%year-on-year. Total income reached Rmb2,564.89 million, of which Rmb1,054.50 million was generatedfrom the three major expressways operated by the Group, representing an increase of 5.0% year-on-yearand 41.1% of the total income; Rmb439.69 million was from the Group's toll road-related businesses,representing a decrease of 24.7% year-on-year and 17.2% of the total income; and Rmb1,070.70 millionwas from the securities business of the Group, representing an increase of 118.2% year-on-year and41.7% of the total income. Toll Road Operations The Group's three expressways maintained solid organic growth in traffic volume, with strong growthrates recorded in January and February though growth rate fell back somewhat in March. During thePeriod, the Group's three expressways, the Shanghai-Hangzhou-Ningbo Expressway, the ShangsanExpressway and the Jinhua Section of the Ningbo-Jinhua Expressway recorded organic growth of 5.7%,8.5% and 10.8%, respectively in traffic volume. The Group's three expressways recorded differentgrowth rates because they are located in different regions. Among these expressways, the JinhuaSection of the Ningbo-Jinhua Expressway continued to see robust organic growth in traffic volumeas a result of the rapid economic development in Yiwu and nearby regions, as well as a rapidincrease in small truck ownership in Yiwu. In addition, the construction on the Hangzhou Airport Road started on April 15, 2014, has resultedin a truck traffic restriction for 23.7km on the Group's Shanghai-Hangzhou-Ningbo Expressway. Asa result, toll income from the Shanghai-Hangzhou-Ningbo Expressway decreased by Rmb15.21 million,despite our efforts to open a four-hour window for trucks to pass through every day. Also, tollincome was negatively affected by the opening of Qianjiang Road (not operated by the Group) onApril 16, 2014, resulting in a decrease of Rmb5.4 million in toll income from theShanghai-Hangzhou-Ningbo Expressway. Taking all the factors stated above into account, the average daily traffic volume in full-tripequivalents along the Shanghai-Hangzhou-Ningbo Expressway was 45,080 during the Period, representingan increase of 5.8% year-on-year. In particular, the average daily traffic volume in full-tripequivalents along the Shanghai-Hangzhou section of the Shanghai-Hangzhou-Ningbo Expressway was42,586, representing an increase of 2.5% year-on-year, and that along the Hangzhou-Ningbo Sectionwas 47,023, representing an increase of 8.4% year-on-year. Average daily traffic volume in full-tripequivalents along the Shangsan Expressway was 25,442, representing an increase of 12.3% year-on-year.Average daily traffic volume in full-trip equivalents along the Jinhua Section of the Ningbo-JinhuaExpressway was 17,181, representing an increase of 15.6% year-on-year. During the Period, total toll income from the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142kmShangsan Expressway and the 70km Jinhua Section of the Ningbo-Jinhua Expressway wasRmb1,054.50 million, representing an increase of 5.0% year-on-year. Toll income from theShanghai-Hangzhou-Ningbo Expressway was Rmb732.10 million, representing an increase of2.7% year-on-year; toll income from the Shangsan Expressway was Rmb245.94 million, representing anincrease of 10.3% year-on-year. Toll income from the Jinhua Section of the Ningbo-Jinhua Expressway wasRmb76.46 million, representing an increase of 12.3% year-on year. Toll Road-Related Business Operations The Company operates certain toll road-related businesses along its expressways through itssubsidiaries and associated companies, including gas stations, restaurants and shops in service areas,as well as advertising at expressway interchanges and external road maintenance. During the Period, due to the impact from the temporary closure of the Bei'an Service Area to thenorth of the Hangzhou Bay Bridge for renovation as well as increased competition from new service areasnearby, the income from service areas excluding gas stations along the Group's expressways did nothave significant change compared to that of last year. In addition, due to a clean-up campaign of billboards along all expressways in Zhejiang Province,the advertising business of the Group's subsidiaries continued to shrink to expressway interchanges,toll stations and service areas, resulting in a substantial decline in advertising revenue. During the Period, the Group's external road maintenance projects brought additional income.However, continuous cuts on the price of domestic refined oil products negatively affected overall incomeof the Group's toll road-related businesses. During the Period, income from toll roadrelated operations was Rmb439.69 million, representing a decrease of 24.7% year-on-year. Securities Business During the Period, the average brokerage commission rate for Zheshang Securities Co., Ltd. ("ZheshangSecurities", a 70.83% owned subsidiary of Zhejiang Shangsan Expressway Co., Ltd. which in turn is asubsidiary of the Company) saw a continuous downward trend as a result of intensified competition inthe securities industry and relaxed controls on commissions. However, total trading volume on theShanghai and Shenzhen stock markets increased 244.7% year-on-year due to the revival of a bullishdomestic securities market. During the Period, the brokerage business of Zheshang Securities saw asubstantial increase in trading volume and posted a year-on-year increase of 147.3% in brokeragecommission income. In addition, while accelerating the development of each business segment, ZheshangSecurities has been focusing on major understakings, building up businesses with competitive strengths,exploring innovative businesses, adjusting and optimizing its diversified business structure, andconstantly working to streamline its income and profit structure. Though income from investmentbanking declined during the Period, income from margin financing and securities lending as wellas asset management recorded substantial year-on-year increases. Meanwhile, Zheshang Securities' IPO application on the Shanghai Stock Exchange was accepted by theChina Securities Regulatory Commission in May, 2013. Zheshang Securities remains on the wait list foran IPO. During the Period, Zheshang Securities' total operating income was Rmb1,070.70 million, representingan increase of 118.2% year-on-year, of which brokerage commission income rose 103.5% year-over-year toRmb713.01 million, and interest income from the securities business was Rmb357.69 million,representing an increase of 155.1%. Moreover, securities investment gains of Zheshang Securitiesincluded in the condensed consolidated statements of profit or loss and other comprehensive incomeof the Group was Rmb74.46 million during the Period (corresponding period of 2014: gains ofRmb17.41 million). Long-Term Investments Zhejiang Expressway Petroleum Development Co., Ltd., (a 50% owned associate company of the Company)recorded income of Rmb1,183.71 million, representing a decrease of 25.2% year-on-year, as a result ofcontinuous cuts on the price of domestic refined oil products. During the period, netprofit of the associate company was Rmb3.96 million (corresponding period of 2014: net profit ofRmb4.19 million). Zhejiang Shaoxing Shengxin Expressway Co (a 50% owned joint venture of the Company) operates the73.4km long Shaoxing Section of the Ningbo-Jinhua Expressway. During the Period, the average daily trafficvolume in full-trip equivalents was 14,099, representing an increase of 7.13% year-on-year.Toll income during the Period was Rmb72.33 million. However, due to increased road maintenance expensesand its relatively heavy financial burden, the joint venture reported a loss ofRmb14.89 million during the Period (corresponding period of 2014: loss of Rmb14.98 million). During the Period, the income of Zhejiang Communications Investment Group Finance Co., Ltd (a 35% ownedassociate company of the Company) was mainly derived from fees and commissions from providing financialservices, including arranging loans and receiving deposits, for the subsidiaries of ZhejiangCommunications Investment Group Co., Ltd. During the Period, this associate company realized a netprofit of Rmb48.15 million (corresponding period of 2014: net profit of Rmb54.44 million). FINANCIAL ANALYSIS Liquidity and financial resources As at March 31, 2015, current assets of the Group amounted to Rmb48,218.85 million in aggregate(December 31, 2014: Rmb35,745.72 million), of which bank balances and cash accounted for 8.6%(December 31, 2014: 11.4%), bank balances held on behalf of customers accounted for 46.1%(December 31, 2014: 46.4%), held for trading investments accounted for 10.1% (December 31, 2014: 5.9%)and loans to customers arising from margin financing business accounted for 28.1%(December 31, 2014: 23.9%). Current ratio (current assets over current liabilities) of the Groupas at March 31, 2015 was 1.3 (December 31, 2014: 1.2). Excluding the effect of the customer depositsarising from the securities business, the resultant current ratio of the Group (current assets lessbank balances held on behalf of customers over current liabilities less balance of accounts payableto customers arising from securities business) was 1.8 (December 31, 2014: 1.6). The amount of held for trading investments of the Group as at March 31, 2015 was Rmb4,880.20 million(December 31, 2014: Rmb2,124.74 million), of which 93.2% was invested in bonds, 4.4% was invested instocks, and the rest was invested in open-end equity funds. During the Period, net cash flow used in the Group's operating activities amounted to Rmb3,651.03 million.Excluding the effect of increase of loans to customers arising from margin financing business of ZheshangSecurities, the resultant net cash inflow generated from operatingactivities amounted to Rmb1,345.38 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 March 31, 2015, total liabilities of the Group amounted to Rmb41,687.08 million (December 31, 2014:Rmb30,225.12 million), of which 0.6% was bank borrowings, 11.3% was bonds payable, 21.4% was financialassets sold under repurchase agreements and 53.2% was accounts payable to customers arising fromsecurities business. As at March 31, 2015, the Group's interest-bearing borrowings totaled Rmb6,306.65 million, representing159.2% increase compared to that as at December 31, 2014. The borrowings comprised of domestic commercialbank loans of Rmb250.00 million, subordinated bonds of Rmb3,200.00 million, corporate bonds ofRmb1,500.00 million and beneficial certificates of Rmb1,356.65 million. 74.5% of the interest-bearingborrowings is not payable within one year. Total interest expenses for the Period amounted to Rmb59.31 million, of which capitalized interest amountedto Rmb2.46 million, while profit before interest and tax amounted to Rmb1,145.85 million. The interestcover ratio (profit before interest and tax over interest expenses) stood at 19.3 times (correspondingperiod of 2014: 39.1 times). As at March 31, 2015, the asset-liability ratio (total liabilities over total assets) was 65.5%(December 31, 2014: 58.9%). Excluding the effect of customer deposits arising from the securitiesbusiness, the resultant asset-liability ratio (total liabilities less balance of accounts payableto customers arising from securities business over total assets less bank balances held on behalfof customers) of the Group was 47.1% (December 31, 2014: 39.3%). Capital structure As at March 31, 2015, the Group had Rmb21,947.59 million in total equity, Rmb38,616.23 million infixed-rate liabilities, Rmb250.00 million in floating-rate liabilities, and Rmb2,820.85 million ininterest-free liabilities, representing 34.5%,60.7%,0.4% and 4.4% of the Group's total capital,respectively. The gearing ratio, which was computed by dividing the total liabilities less balanceof accounts payable to customers arising from securities business by total equity, was 88.9% asat March 31, 2015 (December 31, 2014: 64.7%). OUTLOOK Currently, China's economy is moving into a "new normal" as it downshifts from rapid growth to fastalbeit more moderate growth. It is anticipated that the Group's toll road business, which is closely tiedto the macro-economic development, will see steady growth in total traffic volume in the first half of2015, but the rate of organic growth is expected to slow down. Though the negative impact on the Shanghai-Hangzhou-Ningbo Expressway as a result of the opening ofthe Jiaxing-Shaoxing Bridge has gradually stabilized, the Dongyang-Yongkang Expressway nearby is scheduledto open to traffic in May 2015 and is expected to have a diversion impact on traffic for certain sectionsof the Group's expressways. The Company will closely monitor and conduct timely research and analysis onsurrounding new road networks as well as to improve road signage to attract more traffic to the Group'sexpressways, thereby minimizing the loss caused by trafficdiversions. Following the launch of the Shanghai-Hong Kong Stock Connect program, it is expected that a series offavorable policies will be launched to promote the development of the capital markets in China,including an expansion of the Shanghai-Hong Kong Stock Connect program and the launch of theShenzhen-Hong Kong Stock Connect program, which will present new opportunities for the Group'ssecurities business. Meanwhile, Zheshang Securities will pay close attention to new market policies,and seek new profit drivers through continuously innovating its business. In addition, while remainedfocused on reinforcing cost and risk controls, Zheshang Securities will look to push forward itslisting process on the Shanghai Stock Exchange and promote a sustainable and healthy development ofits various lines of businesses. At present, the Company is actively developing its strategic transformation plan. The Company'smanagement will pay close attention to change in the business environment and relevant policies toadjust its business strategies in a timely manner based on the Company's needs, and will continue toimprove the Company's core expressways business and optimize the securities and finance business. TheGroup will strive to find suitable investment projects with manageable risks and nurture managementcapabilities in our diversified operations in order to support the long-term and sustainabledevelopment of the Company, creating value for shareholders. By Order of the Board ZHAN Xiaozhang Chairman Hangzhou, the PRC, May 18, 2015 As at the date of this announcement, the executive directors of the Company are: Mr. ZHAN Xiaozhang,Ms. LUO Jianhu and Mr. DING Huikang; the non-executive directors of the Company are: Mr. WANG Dongjie,Mr. DAI Benmeng and Mr. ZHOU Jianping; and the independent non-executive directors ofthe Company are: Mr. ZHOU Jun, Mr. PEI Ker-Wei and Ms. LEE Wai Tsang, Rosa.