ZHEH.L Regulatory News (ZHEH)

ZHEJIANG EXPRESSWAY CO LD - 2015 Interim Report

PR Newswire

London, September 1

Zhejiang Expressway Co., Ltd

Deepen Reform and Innovation Achieve Steady Growth

In the first half of 2015, Zhejiang Province's economy steadily improved, and traffic volume on the Group's expressways continued to maintain decent organic growth. In addition, trading activities on the domestic stock markets were active. As a result, income from the Group's overall operations increased 46.2% year-on-year to Rmb6,203.63 million, of which Rmb2,230.83 million was generated by the three major expressways operated by the Group, representing an increase of 5.7% year-on-year and 36.0% of the total income. Income from the Group's toll road-related businesses was Rmb940.00 million, representing a decrease of 22.2% year-on-year and 15.2% of the total income. The Group's securities business contributed income of Rmb3,025.10 million, representing an increase of 227.3% year-on-year and 48.8% of the total income.

Looking ahead to the second half of the year, China's economy is under a full transition to the "new normal." The Group will analyze both internal and external environment and strengthen its strategic development research. It will focus on enhancing its core toll road business by prudently investing in and acquiring high-quality road assets. The Group will also optimize its securities business and seek suitable investment projects via a wide variety of channels so as to further expand the asset size of its core business and enhance profitability in the future.

Contents

2015 Interim Results

The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the "Company") announce the unaudited consolidated operating results of the Company and its subsidiaries (collectively the "Group") for the six months ended June 30, 2015 (the "Period"), with the basis of preparation as stated in note 1 to the condensed consolidated financial statements set out below.

During the Period, revenue for the Group was Rmb5,959.48 million, representing an increase of 44.6% over the same period in 2014. Profit for the Period attributable to owners of the Company was Rmb1,514.45 million, representing an increase of 42.4% year-on-year. Earnings per share for the Period was Rmb34.87 cents (same period in 2014: Rmb24.49 cents).

The Directors have recommended to pay an interim dividend of Rmb6 cents per share (same period in 2014: Rmb6 cents), subject to shareholders' approval at the extraordinary general meeting of the Company to be held in due course.

The interim report has not been audited or reviewed by the auditors but has been reviewed by the audit committee of the Company.

Business Review

Benefiting from a series of policies on ensuring steady growth in the first half of 2015, China's economy is currently in a steady phase. The national GDP exceeded expectations and grew by 7.0% year-on-year. Thanks to the initial success of Zhejiang's economic transformation and upgrade, which partially offset the slow growth suggested by conventional economic growth indicators (investment, consumption and exports), Zhejiang Province's GDP increased by 8.3% year-on-year.

As Zhejiang Province's economy steadily improved during the Period, traffic volume on the Group's expressways continued to maintain decent organic growth. In addition, trading activities on the domestic stock markets were active. As a result, income from the Group's overall operations increased 46.2% year-on-year to Rmb6,203.63 million, of which Rmb2,230.83 million was generated by the three major expressways operated by the Group, representing an increase of 5.7% year-on-year and 36.0% of the total income. Income from the Group's toll road- related businesses was Rmb940.00 million, representing a decrease of 22.2% year-on-year and 15.2% of the total income. The Group's securities business contributed income of Rmb3,025.10 million, representing an increase of 227.3% year-on-year and 48.8% of the total income.

A breakdown of the Group's income for the Period is set out below:

Toll Road operations

Driven by the macro and regional economic effects, the Group's expressways' traffic volume maintained solid growth. During the Period, the organic traffic volume growth rates for the Group's three expressways, the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway and the Jinhua Section of the Ningbo-Jinhua Expressway, were of 5.9%, 8.6% and 10.8%, respectively, with the varied rates of growth due to the different regions where these three expressways are located.

The construction on the neighbouring Hangzhou Airport Road started on April 15, 2014, resulting in a truck traffic restriction for 23.7 km section of the Group's Shanghai-Hangzhou-Ningbo Expressway. The opening of the Qianjiang Road on April 16, 2014 also diverted traffic and led to a loss in toll income from the Shanghai- Hangzhou-Ningbo Expressway in the same period of 2014. During the period, as the traffic diversion effect gradually stabilized, toll income of Shanghai-Hangzhou-Ningbo Expressway posted decent growth.

Since its opening in July, 2013, the Jiaxing-Shaoxing Bridge (not operated by the Group) has had positive effects to the Shangsan Expressway. During the Period, the high traffic volume growth stabilized and toll income of the section returned to stable growth.

Meanwhile, the Jinhua Section of the Ningbo-Jinhua Expressway continued to have a high organic growth in traffic volume resulting from strong growth in trade at the nearby Yiwu small commodities market and the booming development of e-commerce and foreign trade in the surrounding areas. The positive effects on toll income growth caused by construction of local roads that run parallel to the Jinhua Section of the Ningbo-Jinhua Expressway gradually diminished. Meanwhile, since the neighbouring Hangzhou-Jinhua-Quzhou Expressway has closed since June 6, 2015 due to construction, the diverted traffic has led to a substantial growth in traffic volume in the Jinhua Section of the Ningbo-Jinhua Expressway.

During the Period, the average daily traffic volume in full-trip equivalents along the Group's Shanghai-Hangzhou- Ningbo Expressway was 46,449, representing an increase of 6.1% 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 44,251, representing an increase of 4.8% year-on-year, and that along the Hangzhou- Ningbo Section was 48,021, representing an increase of 7.0% year-on-year. Average daily traffic volume in full- trip equivalents along the Shangsan Expressway was 25,081, representing an increase of 11.8% year-on-year. Average daily traffic volume in full-trip equivalents along the Jinhua Section of the Ningbo-Jinhua Expressway was 17,852, representing an increase of 17.7% year-on-year.

During the Period, total toll income from the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142km Shangsan Expressway and the 70km Jinhua Section of the Ningbo-Jinhua Expressway was Rmb2,230.83 million, representing an increase of 5.7% year-on-year. Toll income from the Shanghai-Hangzhou-Ningbo Expressway was Rmb1,552.03 million, representing an increase of 3.7% year-on-year; toll income from the Shangsan Expressway was Rmb513.39 million, representing an increase of 9.0% year-on-year. Toll income from the Jinhua Section of the Ningbo-Jinhua Expressway was Rmb165.41 million, representing an increase of 14.3% year-on-year.

Toll Road-Related Business Operations

The Company also operates certain toll road-related businesses along its expressways through its subsidiaries 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, affected by the temporary closure of the Bei'an Service Area to the north of the Hangzhou Bay Bridge for renovation and the competition from surrounding new service areas, the Group's income from service areas along the expressway (excluding gas stations) recorded only a slight increase year-on-year.

In addition, Zhejiang Province took action to remove billboards from along sides of the expressway, which gradually narrowed the advertising business of the Group's subsidiary to expressway exchange areas, toll stations and service areas. As a result, advertising income was substantially reduced within the period.

During the Period, external road maintenance projects brought satisfactory revenue. However, total income from toll road-related operations was adversely affected by several reductions to retail price of domestic refined oil. During the Period, income from toll road-related operations was Rmb940.00 million, representing a decrease of 22.2% year-on-year.

Securities Business

During the Period, Zheshang Securities' average brokerage commission rate continued to decline due to intensified competition in the securities industry and the gradual relaxation of controls on commissions. Benefiting from a revival of activity in the domestic securities market, the total trading volume of the Shanghai and Shenzhen stock markets increased 545.8% from last year. As a result, even though the Shanghai and Shenzhen stock markets were significantly volatile in June, 2015, the brokerage business of Zheshang Securities achieved a substantial increase in trading volume and posted a year-on-year increase of 308.6% in brokerage commission income.

In addition, while accelerating the comprehensive development of each of its business segment, Zheshang Securities has been actively developing innovative businesses, and constantly working to improve its income and profit structure. During the Period, even though income from its investment banking business slightly decreased, Zheshang Securities margin financing and securities lending, as well as asset management businesses recorded significant year-on-year increases of 353.3% and 267.5%, respectively.

Zheshang Securities' IPO application to the Shanghai Stock Exchange was accepted by the China Securities Regulatory Commission in May, 2013, and it remains on the wait list for an IPO.

During the Period, Zheshang Securities' total operating income was Rmb3,025.10 million, an increase of 227.3% year-on-year. Of this, brokerage commission income rose 232.3% year-on-year to Rmb2,132.77 million, and interest income from the securities business was Rmb892.33 million, an increase of 216.0%. Moreover, 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 Rmb324.65 million (the corresponding period of 2014: gains of Rmb79.15 million).

Other Business

Grand New Century Hotel Yuhang Hangzhou, owned and operated by Zhejiang Yuhang Expressway Co., Ltd. (a 51% owned subsidiary of the Company), began operating on April 28, 2015 and realized income (including sales tax and additional tax) of Rmb7.70 million as of June 30, 2015.

Long-Term Investments

Zhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associate company of the Company), adversely affected by the continuous reduction in prices of domestic refined oil product and declining sales volume, recorded income of Rmb2,554.88 million, a decrease of 21.8% from last year. During the Period, net profit of the associate company was Rmb7.42 million (corresponding period of 2014: net profit of Rmb11.36 million).

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 14,357, an increase of 5.1% year-on-year. Toll income during the Period was Rmb154.94 million. However, due to its relatively heavy financial burden, the joint venture reported a loss of Rmb30.47 million (corresponding period of 2014: loss of Rmb31.20 million).

During the Period, Zhejiang Communications Investment Group Finance Co., Ltd. (a 35% owned associate company of the Company), derives 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., the controlling shareholder of the Company. During the Period, this associate company realized a net profit of Rmb78.49 million (corresponding period of 2014: net profit of Rmb 66.89 million).

Human Resources

During the Period, the Company actively revamped its human resource management, improved its remuneration and performance policy, and promoted the pegging of overall remuneration increase with the productivity of employees, thereby paving the way for increasing employees' remuneration. There was no significant change in other staff matters and assignment compared with the details disclosed in the Company's most recent annual report.

Financial Analysis

The Group adopts a prudent financial policy with an aim to provide shareholders of the Company with sound returns over the long term.

During the Period, profit attributable to owners of the Company was approximately Rmb1,514.45 million, representing an increase of 42.4% year-on-year, return on owners' equity was 8.7%, representing an increase of 30.7% year-on-year, while earnings per share for the Company was Rmb34.87 cents.

Liquidity and financial resources

As at June 30, 2015, current assets of the Group amounted to Rmb74,885.63 million in aggregate (December 31, 2014: Rmb35,745.72 million), of which bank balances and cash accounted for 11.4% (December 31, 2014: 11.4%), bank balances held on behalf of customers accounted for 57.1% (December 31, 2014: 46.4%), held for trading investments accounted for 5.9% (December 31, 2014: 5.9%) and loans to customers arising from margin financing business accounted for 21.8% (December 31, 2014: 23.9%). Current ratio (current assets over current liabilities) of the Group as at June 30, 2015 was 1.2 (December 31, 2014: 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 1.8 (December 31, 2014: 1.6).

Cash and cash equivalents 

The amount of held for trading investments of the Group as at June 30, 2015 was Rmb4,437.44 million (December 31, 2014: Rmb2,124.74 million), of which 90.3% was invested in bonds, 4.8% was invested in stocks, 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 Rmb3,899.54 million. Excluding the effect of increase of loans to customers arising from margin financing business of Zheshang Securities, the resultant net cash inflow generated from operating activities amounted to Rmb3,886.39 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, 2015, total liabilities of the Group amounted to Rmb68,836.45 million (December 31, 2014: Rmb30,225.12 million), of which 0.4% was bank borrowings, 3.0% was short-term loan note, 12.6% was bonds payable, 12.6% was financial assets sold under repurchase agreements, 2.1% was placements from other financial institutions and 62.0% was accounts payable to customers arising from securities business.

As at June 30, 2015, total interest-bearing borrowings of the Group amounted to Rmb11,090.00 million, representing an increase of 355.7% compared to that as at December 31, 2014. The borrowings comprised outstanding balances of domestic commercial bank loans of Rmb300.00 million, short-term loan note with three- month maturity of Rmb500.00 million, beneficial certificates of Rmb1,590.00 million, subordinated bonds of Rmb7.20 billion and corporate bonds of Rmb1.50 billion. Of the interest-bearing borrowings, 70.8% was not payable within one year.

As at June 30, 2015, the Group's loans from domestic commercial banks were short and long-term loans, of which long-term loans due in one year amounted to Rmb150.00 million, with floating interest rate ranging from 5.085% to 6.33% per annum. The annual coupon rate for short-term loan note was fixed at 2.93%. The fixed annual interest rates of beneficial certificates ranged from 5.2% to 6.47% respectively. The fixed annual interest rates for subordinated bonds ranged from 5.7% to 6.3% respectively. The annual coupon rate for corporate bonds was fixed at 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 for the Period amounted to Rmb172.19 million, while profit before interest and tax amounted to Rmb2,939.40 million. The interest cover ratio (profit before interest and tax over interest expenses) stood at 17.1 times (corresponding period of 2014: 39.7 times).

As at June 30, 2015, the asset-liability ratio (total liabilities over total assets) of the Group was 75.8% (December 31, 2014: 58.9%). 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 54.4% (December 31, 2014: 39.3%).

Capital structure

As at June 30, 2015, the Group had Rmb21,948.38 million in total equity, Rmb63,576.95 million in fixed- rate liabilities, Rmb300.00 million in floating-rate liabilities, and Rmb4,959.49 million in interest-free liabilities, representing 24.2%, 70.0%, 0.3% and 5.5% 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 119.2% as at June 30, 2015 (December 31, 2014: 64.7%).

Capital expenditure commitments and utilization

During the Period, capital expenditure of the Group totalled Rmb282.60 million, while capital expenditure of the Company totalled Rmb118.61 million. Amongst the total capital expenditure of the Group, Rmb98.01 million was incurred for equity investment, Rmb105.07 million was incurred for acquisition and construction of properties, Rmb61.51 million was incurred for purchase and construction of equipments and facilities, and Rmb18.01 million was incurred for service area renovation and expansion.

As at June 30, 2015, the remaining capital expenditure committed by the Group and the Company totalled Rmb737.57 million and Rmb392.20 million, respectively. Amongst the remaining balance of total capital expenditures committed by the Group, Rmb115.00 million will be used for equity investment, Rmb202.98 million will be used for acquisition and construction of properties, Rmb369.90 million for acquisition and construction of equipment and facilities, Rmb49.69 million for service area renovation and expansion.

The Group will finance the above-mentioned capital expenditure commitments with internally generated cash flow first and then will consider using debt financing to meet any shortfalls in priority to using other methods.

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 Rmb2,200.00 million, in accordance with their proportionate equity interest in Shengxin Co. During the Period, Rmb55.00 million of the bank loans had been repaid.

Pursuant to the board resolution dated June 24, 2008 of Zhejiang Jinhua Yongjin Expressway Co., Ltd. ("Jinhua Co", a 100% owned subsidiary of the Company), Jinhua Co provided the operating right of the expressway operated by it as a pledged asset for its domestic commercial bank loans, the remaining outstanding balance of which was Rmb100.00 million. As at June 30, 2015, the carrying amount of the pledged asset was Rmb1,721.73 million.

Except for the above, as at June 30, 2015, the Group did not have any other contingent liabilities, pledge of assets or guarantees.

Foreign exchange exposure

Save for dividend payments to the holders of H shares in Hong Kong dollars and Zheshang Futures Co., Ltd. (a wholly owned subsidiary of Zheshang Securities) setting up Zheshang Futures (Hong Kong) Co., Limited with HK$10.00 million contributed capital on April 23, 2015, the Group's principal operations were transacted and booked in Renminbi. Therefore, the Group's exposure to exchange fluctuation is limited. During the Period, the Group has not used any financial instruments for hedging purpose.

Although the Directors do not foresee any material foreign exchange risks for the Group, there is no assurance that foreign exchange risks will not affect the operating results of the Group in the future.

Outlook

Since the global economy is recovering slowly and China's economy is facing downward pressure, the economy of Zhejiang province also continues to encounter headwinds in the "new normal" phase. Due to both macro and regional economic factors affecting the Group's toll road business, overall traffic volume growth in 2015 will remain steady, although slower than the growth seen in 2014.

The Dongyang-Yongkang Expressway that was opened to traffic in July, 2015 is expected to have a slight diversion impact on traffic for the Jinhua Section of the Ningbo-Jinhua Expressway. To address this negative effect caused by the surrounding new road networks, the Group will continue to attract more traffic to the Group's expressways by closely monitoring the roads and conducting timely research and analysis, thereby minimizing the loss caused by traffic diversions from new road networks.

In recent years, the Chinese government's policy of allowing small passenger cars to travel for free on toll roads during important holidays has brought challenges and pressure to the Group's toll road business. However, the Ministry of Transport of the PRC has newly published a draft amendment of the Regulation of the Administration of Toll Roads to solicit opinions from the public, which we expect might present new opportunities to the expressway toll sector.

The stock markets in Shanghai and Shenzhen were hit by major volatility in mid-June. While the Chinese government has already ushered in a series of stabilization measures, it is expected that proactive financial policies, an accommodative monetary policy, and other moves that promote the development of the capital markets will be enacted in the second half of the year. The Group anticipates that these will bring new opportunities for the Group's securities business. Zheshang Securities Co., Ltd. will further reinforce its risk and cost controls, closely monitor new market policies, as well as seek new profit drivers by continuously innovating its business. In terms of the ongoing public offering process, Zheshang Securities' IPO may be delayed due to the IPO suspension imposed by the China Securities Regulatory Commission.

Looking ahead to the second half of 2015, China's economy is under a full transition to the "new normal." The new session of the management of the Company believes that the economic transformation and optimization of the industry structure in Zhejiang Province will bring new opportunities for the Group to grow and evolve. Management will analyze both internal and external environment and strengthen its strategic development research. It will focus on enhancing its core toll road business by prudently investing in and acquiring high-quality road assets. The Group will also optimize its securities business and seek suitable investment projects via a wide variety of channels so as to further expand the asset size of its core business and enhance profitability in the future.

Disclosure of Interests and Other Matters

Purchase, Sale and Redemption of the Company's Shares

Neither the Company nor any of its subsidiaries has purchased, sold, redeemed or cancelled any of the Company's shares during the Period.

Disclosure of Directors', Supervisors' and Chief Executive's Interests and Short Positions in the Shares, Underlying Shares and Debentures

As at June 30, 2015, none of the Directors, supervisors and chief executives of the Company had any interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong) (the "SFO")) as recorded in the register required to be kept pursuant to Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the "Stock Exchange") pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") in Appendix 10 to the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules").

Other Interests Discloseable under the SFO

As at June 30, 2015, the following shareholders held 5% or more of the issued share capital of the Company according to the register of interests in shares required to be kept by the Company pursuant to Section 336 of the SFO:

Save as disclosed above, as at June 30, 2015, no person had registered an interest or short position in the shares or underlying shares of the Company that was required to be recorded pursuant to Section 336 of the SFO.

Compliance with the Corporate Governance Code and the Model Code

During the Period, the Company had 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 had adopted the recommended best practices in the Code as and when applicable.

The Company has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than the required standard set out in the Model Code. The Directors have confirmed their full compliance with the required standard set out in the Model Code and its code of conduct regarding directors' securities transactions during the Period.

Responsibility Statement of the Directors in Respect of the Interim Report and Accounts

Each of the Directors of the Company, whose name and function are listed in the section headed "Corporate Information" of this report, confirms that, to the best of his/her knowledge:

- the condensed consolidated financial statements prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole;

- the management discussion and analysis included in the interim report includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole during the Period, together with a description of the principal risks and uncertainties that the Group faces for the remaining six months of the financial year; and

- the interim report includes a fair review of the material related party transactions that have taken place during the Period and any material changes in the related party transactions described in the Company's annual report for the year ended 31 December 2014.

By order of the BoardZhejiang Expressway Co., Ltd.ZHAN XiaozhangChairman

Hangzhou, the PRC, August 21, 2015

The electronic version of this report is published on the HKExnews website of the Hong Kong Exchanges and Clearing Limited (http://www.hkexnews.com.hk) and on the Company's website (http://www.zjec.com.cn/).

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows

Notes to Condensed Consolidated Financial Statements

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. PRINCIPAL 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, as appropriate.

In the Period, the Group has applied, for the first time, new Interpretation and amendments to Hong Kong Financial Reporting Standards (the "HKFRSs") issued by HKICPA, which are effective for the Period. The application of the new Interpretation and amendments to HKFRSs during the Period has had no material effect on the condensed consolidated financial statements and/or relevant disclosures set out in these condensed consolidated financial statements.

Except for the above, the accounting policies and methods of computation applied in the condensed consolidated financial statements for the Period are consistent with those in the preparation of the Group's annual financial statements for the year ended December 31, 2014.

3. REVENUE AND SEGMENT INFORMATION

Compared to the same period last year, there were no major changes in the reportable and operating segments of the Group during the Period.

Segment revenue and results

The following is an analysis of the Group's revenue and results by reportable and operating segments:

Segment profit represents the profit after tax of each operating segment. This is the measure reported to the chief operating decision maker - the Company's General Manager, for the purpose of resource allocation and performance assessment.

Revenue from major services

An analysis of the Group's revenue, net of discounts and taxes, for the Period is as followed:

4. OTHER INCOME

5. FINANCE COSTS

6. PROFIT BEFORE TAX

The Group's profit before tax has been arrived at after charging:

7. INCOME TAX EXPENSE

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 Group is 25%.

No Hong Kong Profits Tax has been provided as the Group's income neither arises in, nor is derived from Hong Kong during the Period.

8. DIVIDENDS

The Directors have recommended the payment of an interim dividend of Rmb6 cents per share (corresponding period of 2014: Rmb6 cents per share), subject to shareholders' approval at the extraordinary general meeting of the Company.

9. EARNINGS PER SHARE

The calculation of the basic earnings per share is based on profit for the Period attributable to owners of the Company of Rmb1,514,448,000 (corresponding period of 2014: Rmb1,063,433,000) and the 4,343,114,500 (corresponding period of 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 no potential ordinary shares outstanding during both periods.

10. TRADE RECEIVABLES

The Group has no credit period granted to its trade customers of toll operation and service area businesses. The Group's trade receivable balance for toll operation is toll receivables from the Expressway Fee Settlement Centre of the Highway Administration Bureau of Zhejiang 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 operated by Zheshang Securities Co., Ltd., trading limits are set for customers. The Group seeks to maintain tight control over its outstanding accounts receivable in order to minimise credit risk and regularly monitor overdue balances.

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 reporting period, which approximated the respective revenue recognition dates:

11. LOANS T O CUST OMERS ARISING FROM MARGIN FINANCING BUSINESS

The Group has provided customers with margin financing and securities lending for securities transactions, the credit facility limits to margin clients are determined by the discounted market value of the collateral securities accepted by the Group.

All of the loans to margin clients which are secured by the underlying pledged securities are interest bearing. The Group maintains a list of approved stocks for margin lending at a specified loan to collateral ratio. Any excess in the lending ratio will trigger a margin call which the customers have to make good of the shortfall. The Group has the right to process forced liquidation if the customer fails to make good of the shortfall within a short period of time.

As at June 30, 2015, loans to customers under the margin financing and securities lending activities carried out in the PRC were secured by the customers' stock securities and cash collaterals. The undiscounted market value of the stock security collaterals was amounted to Rmb48,790,440,000 (December 31, 2014: Rmb24,411,134,000). Cash collateral of Rmb3,541,271,000 (December 31, 2014: Rmb975,337,000) received from clients has been included in accounts payable to customers arising from securities business.

No aged analysis is disclosed as in the opinion of the directors, the aged analysis does not give additional value in view of the nature of business of securities margining financing.

12. OTHER RECEIVABLES AND PREPAYMENTS

13. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENT

The collaterals include both equity and debt securities listed in the PRC. As at June 30, 2015, the fair value of equity and debt securities as collaterals was Rmb4,656,515,000 (December 31, 2014: Rmb4,762,681,000) and Rmb98,140,000 (December 31, 2014: Rmb1,320,746,000), respectively.

14. TRADE PAYABLES

Trade payables mainly represent the construction payables for the maintenance projects of toll expressways. The following is an aged analysis of the trade payables presented based on the invoice date:

15. OTHER PAYABLES AND ACCRUALS

16. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS

Sales and repurchase agreements are transactions in which the Group sells a security and simultaneously agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date. Since the repurchase prices are fixed, the Group are still exposed to substantially all the credit risks and market risks and rewards of those securities sold. These securities are not derecognised but regarded as "collateral" for the secured lending from these counterparties because the Group retains substantially all the risks and rewards of these securities. In addition, the cash received is recognised as financial liability.

As at 30 June, 2015, the Group entered into repurchase agreements with certain counterparties. The proceeds from selling such securities are presented as financial assets sold under repurchase agreements. The cash advanced to the Group were interest bearing. Because the Group sells the contractual rights to the cash flows of the securities, it does not have the ability to use the transferred securities during the term of the arrangement.

17. RELATED PARTY TRANSACTIONS AND BALANCES

The following is a summary of the related party during the Period:

(i) Transactions and balances with government related parties

The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government ("government-related entities"). In addition, the Group itself is part of a larger group of companies under Zhejiang Communications Investment Group Co., Ltd. (the "Communications Group") which is controlled by the PRC government. However, due to the business nature, in respect of the Group's toll road business and securities business, the directors are of the opinion that it is impracticable to ascertain the identity of counterparties and accordingly whether the transactions are with other government-related entities in the PRC. Details of other significant transactions with government related parties are summarised below:

(a) Transactions with Communications Group

(b) Transactions with other government related parties

(1) Petroleum Co

Pursuant to the operation management agreement entered into between Zhejiang Expressway Investment Development Co., Ltd. ("Development Company", a wholly owned subsidiary of the Company), and Zhejiang Expressway Petroleum Development Co., Ltd. ("Petroleum Company") in respect of the petrol stations in the service areas along Shanghai-Hangzhou-Ningbo and Shangsan Expressways. Petroleum Company assists Development Company in running their petrol stations along these roads.

Petroleum Company is a government related party and also an associate of the Group.

(2) Others

The Group has entered into various significant transactions, including deposit placements, borrowings and other general banking facilities, with certain banks and financial institutions which are government-related entities in its ordinary course of business. In view of the nature of those banking transactions, the directors are of the opinion that separate disclosure would not be meaningful.

(ii) Transactions and balances with associates and other non-government related parties

(1) Loan advanced from Zhejiang Communications Investment Group Finance Co., Ltd. ("Zhejiang Communications Finance")

During the Period, no loan advanced from Zhejiang Communications Finance was incurred. The Company has fully repaid loans advanced from Zhejiang Communications Finance as at December 31, 2014.

(2) Loans advanced to a subsidiary of Zhejiang Concord Property Investment Co., Ltd. ("Zhejiang Concord Property")

The Group advanced several entrusted loans to a subsidiary of Zhejiang Concord Property. During the Period, the Group advanced additional entrusted loans totaling Rmb500,000,000 (corresponding period of 2014: Rmb50,000,000) and received settlement of loan principal and interests amounting to Rmb400,000,000 (corresponding period of 2014: Rmb50,000,000) and Rmb11,304,000 (corresponding period of 2014: Rmb1,686,000), respectively.

The entrusted loans were unsecured and repayable in accordance with the terms of entrusted loan agreements, carrying interests at an effective interest rate of 8% (2014: 10%) per annum. Such entrusted loans were guaranteed by World Trade Center Zhejiang Real Estate Development Co., Ltd., in full.

(3) Financial service provided by Zhejiang Communications Finance

The Group has entered into a financial services agreement with Zhejiang Communications Finance. Pursuant to the agreement, Zhejiang Communications Finance agreed to provide the Group with Deposit Services, the Loan and Financial Leasing Services, the Clearing Services and Other Financial Services.

18. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

This note provides information about how the Group determines fair value of various financial assets and financial liabilities.

Fair value measurements recognised in the condensed consolidated statement of financial position that are measured at fair value on a recurring basis

Some of the Group's financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair value of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and input(s) used).

There were no transfers between instruments in Level 1 and Level 2 in the current and prior period.

The following table represents the changes in Level 3 available-for-sale investments.

19. SUMMARY OF FINANCIAL INFORMATION OF THE COMPANY

20. EVENTS AFTER THE REPORTING PERIOD

As at July 31, 2015, the Company held the board meeting and the Board of Directors approved the resolution of acquisition of 80.614% equity share of Zhejiang Hanghui Expressway Co., Ltd. from Communications Group, for a cash consideration of Rmb1,699,348,471.50 (equivalent to approximately HK$2,153,527,400). The resolution is still subject to shareholders' approval at the extraordinary general meeting of the Company and approval from State-owned Assets Supervision and Administration Commission of the People 's Government of Zhejiang Province.

21. APPROVAL OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated financial statements were approved and authorised for issue by the board of directors on August 21, 2015.

2015 Environment and Social Responsibility Report

Reporting Scope

The reporting scope of this Environment and Social Responsibility Report includes the Company and all affiliated companies involved in the highway business, exclusive of Zheshang Securities and its associated companies, joint ventures and joint-stock companies.

Reporting Period

The reporting period is from 1 July 2014 to 30 June 2015.

Environment and Social Responsibility Report

Elements of Work Environment

Work Environment

We believe that employees are the most valuable assets of the Company and we rely on them for development. The Company is committed to fostering the corporate values of integrity, harmony, open-mindedness and ambition, with the goal of encouraging a competitive yet relaxing working atmosphere in which employees can fully utilize their talents. The Company attracts and retains talented people who fit well into the strategic requirements of the Company by means of campus recruiting, social recruiting, references and recruitment through agencies. Remuneration is determined based on an employee's function and ability, and also their performance. The whole remuneration package offered by the company to its employees includes basic salary, incentive pay, paid leaves, supplementary health insurance, annuity, etc. Employees are given the opportunity to pursue their most suitable career path through contest, discretionary choice, references and rotations.

As at 30 June 2015, the Company had a headcount of 3,874 employees (2014: 3,770), of which 441 (2014: 488) were hired by third-party labor service agencies, and male and female employees took up 57.8% and 42.2%, respectively. During the reporting period, 182 employees resigned (2014: 169), representing 4.6 % of the headcount (2014: 4.5%).

Occupational Health and Safety

The Company insists on "human-oriented safe development", and focuses primarily on safety in all business and production activities. The Company has implemented production safety accountability and safety risk deposits, defined the duties and responsibilities of each position for the purpose of production safety, set forth standardized safe operation procedures in line with the nature of each job, regularly assessed hazards and risks in occupational health and safety and took appropriate action to ensure risks were kept under control. The Occupational Health and Safety (OHS) management system of the Company was certified by Hangzhou-based WIT Assessment. During the reporting period, the Company promoted standardization of production safety, commissioned the development of a production safety management information software, built a production safety information management platform, hosted special activities including "Year of Good Tunnel Safety Management Practices" and "Find Hidden Fire Hazards", and carried out diversified forms of safety education and training programmes to reduce the probability of accidents to a minimum. The Company has also purchased personal accident insurance and arranged physical check-ups for all employees, and bought relevant Personal Protective Equipment (PPE) to provide employees with protection during work.

During the reporting period, the Company paid Rmb564,000 (2014: Rmb544,000) on personal accident insurance, Rmb968,000 (2014: Rmb933,000) on physical check-ups, and Rmb7,684,000 (2014: Rmb7,598,000) on PPEs. During the reporting period, 3 employees (2014: 7) were injured at work, representing 0.07% of the headcount, and there was no death caused by work.

Development and Training

Development and training are essential to enhance the abilities of employees, in order to ensure the sustainable growth of the Company. The Company provides four types of training for staff, namely induction training, internal training, external training and online training. Employees are encouraged to receive continuing education and those who meet learning requirements and have achieved positive results will be rewarded. Management knowledge training, technical training, and work skills training of different classes and levels corresponding to relevant jobs are provided to sharpen the skills and management abilities of employees.

During the reporting period, the Company ran a wide range of educational and training programmes, totaling 75,000 class hours (2014: 72,000 class hours), and incurred total expenses of Rmb4,500,000 (2014: Rmb4,410,000). The senior management, middle management and grassroots employees of the Company received 48 class hours, 33 class hours, and 19 class hours of training on average respectively (2014: 40 class- hours, 31 class hours and 19 class hours).

Corporate Culture

During the reporting period, the Company focused on reform, innovation, transformation and development, and promoted corporate culture by compiling and circulating our Corporate Culture Handbook, unveiling a corporate culture development plan and defining vision, core values and philosophy of the Company. The philosophy of "create value for customers, create opportunities for employees, deliver performance for shareholders and create fortune for society" is deeply rooted in every staff member.

During the reporting period, Gu Weilin, a clerk working at the Company's Dayun tollhouse, was awarded as a National Model Worker; Xu Yongquan, chief of the Company's Shaoxing office, won Zhejiang's May 1st Labour Medal, and twenty workers won the honorary title of "One Hundred Moral Models". The Company appraised all high-performers and organized speaking tours of model workers in order to motivate all employees to do an excellent job, foster talent, and encourage dedication. Tollhouse brand, culture and signature projects were developed to highlight the theme "Beautiful Tollhouse, Beautiful Life". During the reporting period, Xinchang tollhouse, Tongxiang tollhouse, Fucun tollhouse and Dongyang tollhouse were among the first "Beautiful Tollhouses" named by the Communications Group.

During the reporting period, nearly 100 employees took part in a variety of special events organized under the theme "Year of Culture Promotion by Communications Group", such as an electrician skills contest, a culture wall design, and "Heart To Heart" cycling. Over 1,800 employees participated in 16 special training sessions on corporate culture. "Home of Workers" and the staff club helped boost morale across the Company, and helped fuel work enthusiasm, all of which had positive effects on employee's productivity.

Labor Standards

The Company obeys and follows all relevant labor laws, respects justice and fairness in its employment policies, never employed child labor or forced labor but signs employment contracts with all employees. The Company supports group negotiation of wages but any major changes in the rights and interests of employees must be made by a resolution in the worker's congress. A commission of conciliation is formed to defend the rights and interests of employees. Tollhouses of the Company are equipped with a counseling room and an emotion venting room with part-time qualified psychologists to provide services and to help employees stay in peace, enjoy work and have a happy life. A poverty relief foundation is established to give assistance, in forms of holiday gifts and subsistence allowances, to those employees who are having hard times because of serious illness or accidents. The Company has launched a series of policies named Administrative Measures for Early Retirement, to make acceptable arrangements for senior employees who are no longer suitable for their current positions. During the reporting period, the Company hired no child labor and had no labor disputes.

Environmental Protection

Effluents

Every member of the Company's society is obligated to protect the environment. The Company is principally engaged in investing, developing and operating high-end expressways. Its businesses, though different from those enterprises involved in the environment business directly, do have an impact on the environment. The Company follows all environment-related laws and regulations strictly, and conducts environment impact assessments as required for all new projects. All service areas have to meet national standards on sewage treatment and disposal. The Company's dust emission from asphalt mixing also meets national standards. The company promotes the use of low-carbon, environmentally-friendly and effective hot-in-place recycling on asphalt pavements to reduce the use of bituminous mixtures and recycle them. The environment management system of the Company is certified by WIT Assessment, a third-party institution.

Resource Consumption

The Company encourages all employees to save resources, protect the environment and lower costs. Without compromising service and product quality, the Company tries to minimize resource consumption and usage. Energy-efficient processes and products are used wherever possible. The Company's lighting equipment is also remodeled for energy savings. Employees are encouraged and supported to make rationalization proposals for energy saving, emission reduction and efficiency improvements.

Environment and Natural Resources

The Company follows an environmental management policy that is focused on energy saving, consumption reduction and environmental protection. Tollhouses are beautified by planting greens, fruit trees and crops strategically in order to improve both the air quality of the local environment as well as working environment for the grass root employees. During the reporting period, environmentally-friendly materials were maximized when decorating new offices. A lot of plants are placed in offices to purify the air and cleanse the working environment, and the air quality inside the Company's new offices is up to national standards. In order to save on paper and other office products, the Company uses video conferencing systems as well as electronic communications such as emails widely. The Deskmedia paperless digital conferencing system was introduced in the Company's offices in order to minimize the use of paper and other office consumables. The Company also encourages double-sided printing to minimize environmental impact and paper consumption. During the reporting period, the Company used 807 cartons of paper (corresponding period of 2014: 820 cartons) (5,000 pieces/carton).

Business Practices

Supplier Management

The Company chooses suppliers according to the Administrative Measures for Bids. Suppliers of compliant procurement projects must be determined by means of bidding, competitive negotiation, inquiry and comparison, subject to the rules of transparency, fairness, justice and good faith. The Company has formed a bid management committee and a bid evaluation committee. If any member of the bid evaluation committee has any kind of interest in a prospective supplier, he or she needs to sidestep. During the reporting period, the Company selected 69 suppliers by bidding (2014: 50) and purchased maintenance machinery, safety renovation devices and upgraded equipment at a combined value of Rmb320,781,000 (2014: Rmb280,427,000).

Assurance System

Safe, smooth, high-quality and efficient traffic defines the quality management philosophy of the Company. It is the core responsibility of the Company to keep expressways and the ancillary facilities intact, flat and smooth. In order to achieve this, the Company has deployed a medium- to long-term maintenance plan and annual maintenance plan, put in place a standardized toll service system, and put together a traffic accident response team and mechanism. A full range of services are provided, including catering, shopping, hygiene, fuel refills and vehicle repairs. An effective equipment maintenance, support and emergency response mechanism and an OHS system have been implemented. The Company has also set up a service hotline 12122, and has specified traffic video storage periods and inquiry procedures. The tollbooth staff is good-mannered with respects to rules. The quality management system of the Company is certified by WIT Assessment, a third party institution.

During the reporting period, the Company recorded road maintenance costs of Rmb384,800,000 (the corresponding period of 2014: Rmb391,878,000). This included the improvement of 375,000 square meters of distressed pavement (the corresponding period of 2014: 408,000 square meters), and pavement overlay mileage of 76 km (the corresponding period of 2014: 70.5 km) (single breadth), repaved 107 bridgeheads (the corresponding period of 2014: 196), and consolidated 21 high slope protections (the corresponding period of 2014: 33). The Zhejiang Expressway Administration Bureau tested the Shanghai-Hangzhou-Ningbo Expressway, Shangsan Expressway, and the Jinhua Section of the Ningbo-Jinhua Expressway and rated their Pavement Quality Index (PQI) as 92.7, 92.7 and 92.5 (the corresponding period of 2014: 94.3, 94.4 and 94.1), respectively, among the best in class as recognized by the communications authority. The Company was acclaimed as the most advanced unit for its excellent performance in Zhejiang expressway maintenance in 2014. The Company seeks to spot and clear litter on the road as early as possible by implementing regular road monitoring and patrols, and extraordinary patrols under unusual weather or events. Public liability insurance is acquired against potential losses arising from traffic accidents caused by litter on the road. During the Period, there were 568 events of road litter incidents on the Shanghai-Hangzhou-Ningbo Expressway, Shangsan Expressway, and the Jinhua Section of the Ningbo-Jinhua Expressway (the corresponding period of 2014: 487), of which 12 incidents were covered by public liability insurance (the corresponding period of 2014: 13). There were no traffic accidents for which the Company was legally obligated under a court ruling.

During the reporting period, the Shanghai-Hangzhou-Ningbo Expressway, Shangsan Expressway, and the Jinhua Section of the Ningbo-Jinhua Expressway were open for traffic for 340 days (the corresponding period of 2014: 331 days), and blocked or closed on the remaining 25 days (the corresponding period of 2014: 34 days) due to traffic accidents, weather, road construction or other problems (including full closure, lane closure, timed closure, tollbooth closure and split traffic). The Company has 112 ETC lanes (the corresponding period of 2014: 104), and 78 lanes with a self-service card issue machine at the entrance (the corresponding period of 2014: 22), of which 8 were newly added during the reporting period (the corresponding period of 2014: 22). A total of 174,930,000 vehicles passed through the Company's tollbooths in the first half (the corresponding period of 2014: 144,598,000).

During the reporting period, the Company received a total of 4,650 incoming calls (the corresponding period of 2014: 4,500) via its service hotline, including 77 complaints (the corresponding period of 2014: 106). The complaint rate was 4 ppm (the corresponding period of 2014: 7 ppm) and the complaint settlement and response rate was 100% (the corresponding period of 2014: 100%). The result of surveying 908 customers at random (the corresponding period of 2014: 1,109) showed that customer satisfaction rate was at 98.1 % (the corresponding period of 2014: 97.6%).

During the reporting period, the Company optimized the layout of some service areas under its management, and upgraded hardware and equipment to present a more attractive appearance. To better satisfy customers' needs, some service areas have brought in renowned Chinese or foreign branded restaurants and baggage stores to allow customers to enjoy better shopping experience, and this move has been widely applauded by customers. The Jiaxing, Shaoxing, Bei'an, Cicheng, Yuyao and Chang'an service areas received four-star ratings and the Shengzhou, Xinchang and Tiantai service areas received three-star ratings from the Zhejiang Provincial Communication Department.

During the reporting period, the Company responded to 31,455 roadside service requests (the corresponding period of 2014: 31,473) and the duration from receiving a request to dispatching a team averaged about five minutes (the corresponding period of 2014: five minutes).

During the reporting period, the Company was not involved in any charge of intellectual property, private client information leakage and no food safety accidents happened at service areas.

External Responsibilities

The Company's products and services have some impact on the environment and the life of residents along the roadside, such as noise from vehicles running on expressways and occasional accidents of leakage of hazardous products. The Company regularly exchanges views with the government and affected residents, and does its best to minimize the impact of noise on the life of residents via initiatives such as installing sound-proof glass and planting trees on the roadside. The possibility of leakage of hazardous products in transit is mitigated or eliminated by a combination of effective measures, for example, registration of vehicles loaded with hazardous products, warning signage, renovation of dangerous sections, development of an internal contingency plan, assistance to local governments along the roadside in drafting a contingency plan, and organization of drills to shorten response time and sharpen employee's crisis management skills.

During the reporting period, no accidents of leakage of hazardous products occurred on the Shanghai-Hangzhou- Ningbo expressway, Shangyu-Sanmen expressway, and the Jinhua part of Ningbo-Jinhua expressway. The Company took active measures as required by the production safety supervisor and environmental authorities and no leakage of hazardous products caused by the Company occurred.

Anti-Corruption

The Company has implemented strict internal discipline management and appointed a part-time discipline liaison for each tollhouse, to tighten the internal surveillance of corruption and bribery. The Company continues to strengthen the anti-corruption responsibility of all management members and employees by signing the "Anti- corruption Commitment". The Company also created the Code of Conduct of Part-time Discipline Liaisons to reinforce the training and management of the discipline liaison team while enhancing their capabilities and performance. "Corruption Risk Awareness" campaign was launched to effectively prevent and root up corruption risk in management. During the reporting period, no material events of corruption took place.

Community Involvement

Community Investment

The Company takes part in the construction of civilised units, places significant emphasis on community activities, and actively joins pair-up poverty alleviation program to extend generous financial, social and skill- related assistance to those in need and improve the quality of the villagers in pair-up villages. The Company also promotes good manner and public morals, improves the cultural lives, living environment and lifestyle of rural residents, and cares for left-behind children. During the reporting period, the Company paired up with 22 households to provide them with financial and social assistance, and assisted with the education of 24 children in need as well as made donations worth Rmb286,000 in total.

Volunteer Activities

The Company believes that volunteer activities are an important way to pay back society and strongly advocates the spirit of community service. The Company has formed several volunteer groups, all of which are involved in a variety of activities on non-working days, including first-aid, road guidance, public service, blood donation, and safe driving initiatives. During the reporting period, the Company organized 203 volunteer activities, with a total of 1,612 participants, and 62 participated in blood donation events.

Donations

The Company supports the development of culture and sports in Zhejiang. A sponsorship cooperation agreement was entered with the Sports Bureau of Zhejiang Province, whereby during the reporting period, the Company provided funding of Rmb1,000,000 for education, scientific studies and talent development to the Zhejiang College of Sports.

Corporate Information

NOTE : To view the full set of the Company's 2015 Interim Report. Please visit http://www.zjec.com.cn/

---------------------------------------------------------------------------------------------------------------------------