ZHEH.L Regulatory News (ZHEH)

ZHEJIANG EXPRESSWAY CO LD - 2016 Interim Report

PR Newswire

London, August 31

Zhejiang Expressway Co., Ltd

Achieve Growth

Through Innovation and Prudence

In the first half of 2016, as Zhejiang Province's economy steadily improved, traffic volume on the Group's expressways continued to register healthy organic growth, the Group's toll revenue registered an increase of 6.6% year-on-year. However, due to weak domestic market sentiment and lackluster trading on domestic stock markets, though income from Zheshang Securities' investment banking business experienced significant growth, other business segments of Zheshang Securities recorded varied levels of income decrease year-on-year. Despite that, Zheshang Securities still outperformed the market in general. In conclusion, although the Company saw a year-on-year decrease in profit due to various macro factors, all business segments within the Group remained competitive.

In the second half of the year, in response to the dynamic change of internal and external environment, the Company's management will closely monitor the latest financial policy developments as well as evolving market trends to better formulate future strategic development plans. The Group will look to expand its core expressway business by investing in and acquiring quality toll road assets to further enhance its core competencies while strengthening its securities business and seeking suitable investments and development projects in order to enlarge the asset scale of its core businesses and increase future profitability.

Contents

2016 Interim Results

Business Review

Financial Analysis

Outlook

Disclosure of Interests and Other Matters

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

Appendices

Corporate Information

Corporate Structure of the Group

Financial Highlights

Location Map of Expressways in Zhejiang Province

2016 Interim Results

The directors (the "Directors") of Zhejiang Expressway Co., Ltd. (the "Company") announced the unaudited consolidated operating results of the Company and its subsidiaries (collectively the "Group") for the six months ended June 30, 2016 (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 Rmb5,337.12 million, representing a decrease of 13.7% over the same period in 2015. Profit for the Period attributable to owners of the Company was Rmb1,368.21 million, representing a decrease of 8.5% year-on-year. Earnings per share for the Period was Rmb31.50 cents (corresponding period in 2015 (Restated): Rmb34.43 cents).

The Directors have recommended to pay an interim dividend of Rmb6 cents per share (corresponding period in 2015: 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

During the first half of 2016, in response to the complex domestic and overseas environment and continuing downward economic pressure, China initiated a number of measures to expand its overall demand while accelerating the supply-side reform. The economy was stable for the most part and recorded a steady 6.7% year-on-year GDP growth. Meanwhile, Zhejiang Province's economy demonstrated decent growth momentum as it benefited from the continuous rapid growth of the tertiary industry and notable upgrades in its economic structure. Zhejiang Province's first-half GDP recorded a year-on-year increase of 7.7%, one percentage point higher than the national rate.

As Zhejiang Province's economy steadily improved during the Period, traffic volume on the Group's expressways continued to register healthy organic growth. Revenue from the Group's overall operations decreased 13.7% year-on-year to Rmb5,337.12 million, of which Rmb2,537.81 million was generated by the four major expressways operated by the Group, representing an increase of 6.6% year-on-year and 47.6% of the total revenue. Revenue from the Group's toll road-related businesses was Rmb532.11 million, representing a decrease of 43.2% year-on-year and 10.0% of the total revenue. The Group's securities business contributed revenue of Rmb2,152.38 million, representing a decrease of 24.8% year- on-year and 40.3% of the total revenue.

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

Toll Road Operations

During the Period, driven by Zhejiang Province's notable economic developments in the tertiary services industry and decent growth in fixed asset investment, Zhejiang Province's economy maintained its growth momentum and traffic volume on the Group's expressways registered solid organic growth. The organic traffic volume growth for the Group's four expressways, namely the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway, the Jinhua Section of the Ningbo-Jinhua Expressway and the Hanghui Expressway, were 8.3%, 8.6%, 8.8% and 5.7%, respectively, with the varied rates of growth due to the different regions where the four expressways are located.

During the Period, as Hangzhou's GDP in the first half of 2016 surged by 10.8% year-on-year, the transportation volume of the city and its surrounding areas saw substantial increase, which resulted in a significant increase in traffic volume along the Shanghai-Hangzhou-Ningbo Expressway. However, the opening of the Hangzhou Xiaoshan Airport Expressway and surrounding elevated highways in early May 2016 caused certain traffic volume diversion for the Qiantang River Second Bridge of the Hangzhou- Ningbo Expressway operated by the Group.

Due to an increase in truck traffic volume, the overall traffic volume of the Shangsan Expressway was higher than expected during the Period.

The Hangzhou-Jinhua-Quzhou Expressway had been closed due to construction for four months starting from June 2015, resulting in a temporary increase of traffic volume on the neighboring Jinhua Section of the Ningbo-Jinhua Expressway. The completion of construction in September 2015 caused the traffic volume of the Jinhua Section of the Ningbo-Jinhua Expressway to fall back significantly. In addition, the Dongyang-Yongkang Expressway was opened to traffic in July 2015 and caused a continuous diversion impact on traffic volume from the Jinhua Section of the Ningbo-Jinhua Expressway. As a result of these factors, there was a decrease in the overall traffic volume on the Jinhua Section of the Ningbo-Jinhua Expressway during the Period.

The Hanghui Expressway registered lower organic growth in traffic volume during the Period, as a result of the sluggish regional economy in the surrounding areas. Concurrently, a section of the Hangzhou- Jinhua-Quzhou Expressway, which is not operated by the Group but runs parallel to the Hanghui Expressway, was reopened for traffic following construction, and certain sections of expressways running from Jiangxi to Hangzhou cancelled their truck height limits. As a result, a majority of long- distance trucks have returned to their original routes or chose alternative local roads, causing significant decreases in the truck traffic volume on the Hanghui Expressway, adversely impacting overall traffic volume on the section during the Period.

During the Period, the average daily traffic volume in full-trip equivalents along the Group's Shanghai- Hangzhou-Ningbo Expressway was 49,807, representing an increase of 6.8% 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 48,987, representing an increase of 10.7% year-on-year, and that along the Hangzhou-Ningbo Section was 50,392, representing an increase of 4.9% year-on- year. Average daily traffic volume in full-trip equivalents along the Shangsan Expressway was 27,131, representing an increase of 8.2% year-on-year. Average daily traffic volume in full-trip equivalents along the Jinhua Section of the Ningbo-Jinhua Expressway was 17,661, representing a decrease of 1.1% year- on-year. Average daily traffic volume in full-trip equivalents along the Hanghui Expressway was 16,134, representing an increase of 4.2% year-on-year.

During the Period, total toll revenue from the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142km Shangsan Expressway, the 70km Jinhua Section of the Ningbo-Jinhua Expressway and the 122km Hanghui Expressway was Rmb2,537.81 million, representing an increase of 6.6% year-on- year. Among which, toll revenue from the Shanghai-Hangzhou-Ningbo Expressway was Rmb1,620.28 million, representing an increase of 8.0% year-on-year; toll revenue from the Shangsan Expressway was Rmb537.80 million, representing an increase of 8.4% year-on-year; toll revenue from the Jinhua Section of the Ningbo-Jinhua Expressway was Rmb160.20 million, representing an increase of 0.2% year-on- year; and toll revenue from the Hanghui Expressway was Rmb219.53 million, representing a decrease of 0.2% year-on-year (on the same basis as last year).

Toll Road-Related Business Operations

The Company also operates certain toll road-related businesses along its expressways through its subsidiaries, including gas stations, restaurants and shops in service areas, as well as advertisements. Since May 2016, the Company has agreed to contract out the operation of several gas stations in its service areas to Zhejiang Expressway Petroleum Development Co., Ltd. For details, please refer to the Company's announcement "Continuing Connected Transactions in Relation to Contracting out Operation of Service Stations" dated May 27, 2016.

Zhejiang Province took action in 2014 to remove billboards from along sides of its expressways, which gradually narrowed most of the advertising business of the Group's subsidiary to expressway service areas. As a result, advertising income was substantially reduced within the Period. Additionally, during the Period, the overall income of the toll road-related business operations was adversely affected due to several reductions in the retail prices of domestics refined oil products. During the Period, revenue from toll road-related operations was Rmb532.11 million, representing a decrease of 43.2% year-on-year.

Securities Business

During the Period, due to weak domestic market sentiment, trading on domestic stock markets was lackluster. Trading volume on the Shanghai and Shenzhen stock markets decreased 52.9% year-on- year in total. Concurrently, there was a continued decline in average brokerage commission rate. As a result of these factors, during the Period, though income from Zheshang Securities' investment banking business experienced significant growth, other business segments of Zheshang Securities recorded varied levels of income decrease year-on-year.

During the Period, Zheshang Securities recorded total operating revenue of Rmb2,152.38 million, a decrease of 24.8% year-on-year. Of which, commission and fee revenue declined 30.5% year-on-year to Rmb1,407.45 million, and interest revenue from the securities business was Rmb744.93 million, representing a decrease of 10.9% year-on-year. 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 Rmb107.99 million (corresponding period of 2015: gains of Rmb324.65 million).

Despite income from most of Zheshang Securities' businesses declining during the Period with the exception of its investment banking business, Zheshang Securities still outperformed the market in general. Zheshang Securities continued to develop all its businesses steadily, as its asset management business further expanded in scale while its investment banking business reported a new high in income amidst weak market sentiment. In addition, 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.

Other Business Operations

Other business income was mainly derived from hotel operations and sales of ancillary apartments, namely the Qiyu Apartments.

Grand New Century Hotel, owned by Zhejiang Yuhang Expressway Co., Ltd. (a 51% owned subsidiary of the Company), realized revenue of Rmb43.43 million for the Period.

Qiyu Apartments opened for sale on November 29, 2015. 151 flats were sold out during the Period and realized a sales revenue of Rmb71.40 million.

Long-Term Investments

Zhejiang Shaoxing Shengxin Expressway Co., Ltd. ("Shengxin Co", a 50% owned joint venture of the Company) operates the 73.4km Shaoxing Section of the Ningbo-Jinhua Expressway. During the Period, the average daily traffic volume in full-trip equivalents was 16,320, an increase of 13.7% year-on-year. Toll revenue during the Period was Rmb169.38 million. During the Period, the joint venture turned profitable for the first time and reported a net profit of Rmb0.20 million (corresponding period of 2015: net loss of Rmb30.47 million).

During the Period, Zhejiang Communications Investment Group Finance Co., Ltd. (a 35% owned associate company of the Company), derived income mainly from interest, fees and commissions for providing financial services, including arranging loans and receiving deposits, for the subsidiaries of Zhejiang Communications Investment Group Co., Ltd., the controlling shareholder of the Company. During the Period, this associate company realized a net profit of Rmb49.92 million (corresponding period of 2015: net profit of Rmb78.49 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 Rmb1,368.21 million, representing a decrease of 8.5% over the corresponding period of 2015, return on owners' equity was 8.1%, representing a decrease of 4.7% over the corresponding period of 2015, while earnings per share for the Company was Rmb31.5 cents.

Liquidity and Financial Resources

As at June 30, 2016, current assets of the Group amounted to Rmb52,249.47 million in aggregate (December 31, 2015: Rmb54,359.48 million), of which bank balances and cash accounted for 7.3% (December 31, 2015: 9.7%), bank balances held on behalf of customers accounted for 42.9% (December 31, 2015: 49.8%), held for trading investments accounted for 13.5% (December 31, 2015: 6.9%) and loans to customers arising from margin financing business accounted for 14.7% (December 31, 2015: 19.4%). Current ratio (current assets over current liabilities) of the Group as at June 30, 2016 was 1.2 (December 31, 2015: 1.3). 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 1.4 (December 31, 2015: 1.8).

The amount of held for trading investments of the Group as at June 30, 2016 was Rmb7,040.99 million (December 31, 2015: Rmb3,761.22 million), of which 96.9% was invested in bonds, 3.0% was invested in stocks, and the rest was invested in open-end equity funds.

During the Period, net cash flow generated from the Group's operating activities amounted to Rmb1,804.42 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, 2016, total liabilities of the Group amounted to Rmb49,042.35 million (December 31, 2015: Rmb51,893.11 million), of which 6.0% was bank and other borrowings, 2.0% was short- term financing note, 18.4% was bonds payable, 19.4% was financial assets sold under repurchase agreements, and 45.7% was accounts payable to customers arising from securities business.

As at June 30, 2016, total interest-bearing borrowings of the Group amounted to Rmb12,924.69 million, representing a decrease of 11.4% compared to that as at December 31, 2015. The borrowings comprised outstanding balances of domestic commercial bank loans of Rmb1,904.69 million, borrowings from other domestic financial institution of Rmb450.00 million, entrusted loans from Communications Group of Rmb570.00 million, short-term financing note of Rmb1.00 billion, beneficial certificates of Rmb1.30 billion, subordinated bonds of Rmb6.20 billion and corporate bonds of Rmb1.50 billion. Of the interest-bearing borrowings, 33.8% was not payable within one year.

As at June 30, 2016, 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 4.1325% to 4.9875% per annum. The floating interest rates for borrowings from other domestic financial institutions ranged from 4.275% to 4.5125% per annum. The annual interest rates for entrusted loans from Communications Group were fixed at 4.55%. The annual coupon rate for short-term loan note was fixed at 2.97%. The fixed annual interest rates of beneficial certificates ranged from 3.45% to 3.5% 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 Rmb344.48 million, while profit before interest and tax amounted to Rmb2,617.72 million. The interest cover ratio (profit before interest and tax over interest expenses) stood at 7.6 (corresponding period of 2015 (Restated): 11.5) times.

As at June 30, 2016, the asset-liability ratio (total liabilities over total assets) of the Group was 68.8% (December 31, 2015: 70.2%). Excluding the effect of customer deposits arising from the securities business, the resultant asset-liability ratio (total liabilities less balance of accounts payable to customers arising from securities business over total assets less bank balances held on behalf of customers) of the Group was 54.5% (December 31, 2015: 53.2%).

Capital Structure

As at June 30, 2016, the Group had Rmb22,284.22 million in total equity, Rmb43,893.27 million in fixed-rate liabilities, Rmb946.74 million in floating-rate liabilities, and Rmb4,202.34 million in interest- free liabilities, representing 31.2%, 61.5%, 1.3% and 6.0% 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 119.5% as at June 30, 2016 (December 31, 2015: 113.1%).

Capital Expenditure Commitments and Utilization

During the Period, capital expenditure of the Group totaled Rmb90.73 million. Amongst the total capital expenditure of the Group, Rmb15.27 million was incurred for acquisition and construction of properties, Rmb72.96 million was incurred for purchase and construction of equipments and facilities, and Rmb2.50 million was incurred for service area renovation and expansion.

As at June 30, 2016, the remaining capital expenditure committed by the Group totaled Rmb570.46 million. Amongst the remaining balance of total capital expenditures committed by the Group, Rmb302.36 million will be used for acquisition and construction of properties, Rmb239.26 million for acquisition and construction of equipment and facilities, Rmb28.84 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 comprehensively consider using debt financing and equity financing to meet any shortfalls.

Contingent Liabilities and Pledge of Assets

Pursuant to the board resolution of the Company dated November 16, 2012, the Company and Shaoxing Communications Investment Group Co., Ltd. (the other joint venture partner that holds 50% equity interest in Shengxin Co) provided Shengxin Co with a joint guarantee for its bank loans of Rmb2,200.00 million, in accordance with their proportionate equity interest in Shengxin Co. During the Period, Rmb60.00 million of the bank loans had been repaid and the remaining outstanding balance of the loans as at June 30, 2016 was Rmb1,980.00 million.

Except for the above, as at June 30, 2016, the Group did not have any other contingent liabilities, pledge of assets or guarantees.

Foreign Exchange Exposure

Save for (i) dividend payments to the holders of H shares in Hong Kong dollars, (ii) borrowing of HK$432,527,000 on June 8, 2016, and (iii) Zheshang International Financial Holding Co., Limited (a wholly owned subsidiary of Zheshang Securities) operating in Hong Kong, the Group's principal operations were transacted and denominated in Renminbi. During the Period, the Group purchased one-year Hong Kong dollar forwards of equivalent amount to hedge the foreign exchange risk derived from the Hong Kong dollar borrowing. Except for the above, during the Period the Group has not used any other financial instruments for hedging purpose. Therefore, the Group's exposure to exchange fluctuation is limited.

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

As economic uncertainty has increased globally, downward pressure on China's economy is expected to continue. Under the "new normal", Zhejiang Province, a region with an above average growth outlook across China, will also face relatively more intense economic pressure. The Group expects that the Group's toll road business will maintain steady growth in 2016 given the macro and regional economic outlook, albeit with a slightly slower growth rate in organic traffic volume compared with 2015.

Currently, the business environment for the toll road industry is becoming increasingly complex. As more and more expressways within Zhejiang Province are launched for traffic, there will be a positive network effect but will also cause diversion impact. The Dongyang-Yongkang Expressway, which opened for traffic in July 2015, is expected to continue to have a slight diversion impact on traffic on the Jinhua Section of the Ningbo-Jinhua Expressway but the impact has been stabilized. The Group will endeavor to strengthen the monitoring and analysis of the transportation network as well as researching the traffic trends of the Group's expressways and the factors involved. The Group will adopt specific promotional and marketing measures to direct and attract more vehicles to use the expressways operated by the Group to minimize the diversion impact.

China's securities market is still in the process of deleveraging, but the Chinese government has released a series of measures to promote the healthy development of its capital market, a signal to show the government's confidence in the securities sector's sustainable development in the long term, which may bring new opportunities to the Group's securities business. At the same time, the Group will explore all potential avenues to accelerate Zheshang Securities' A-Share listing application on the Shanghai Stock Exchange. Moreover, Zheshang Securities will expand into innovative businesses and seek new profit drivers while strengthening its cost control and risk management.

Looking ahead into the second half of 2016, although China might still see continued downward economic pressure, the Company's management believes that the supply-side reform and various economic transformation measures initiated by Zhejiang Province will create a favorable development environment for all of the Group's businesses.

In July 2016, the Zhejiang Province government made a decision to merge Zhejiang Communications Investment Group Co., Ltd. ("Communications Group", the controlling shareholder of the Company) with Zhejiang Railway Investment Group Limited Co., Ltd. into a provincial communications investment and financing platform. This new business entity, which will continue to use the name of Communications Group, will be responsible for more construction assignments of transportation and infrastructure projects, thereby providing more opportunities in a wider scope for the Company to invest in and acquire quality transportation and infrastructure projects within the province.

In response to the dynamic change of internal and external environment, the Company's management will closely monitor the latest financial policy developments as well as evolving market trends to better formulate future strategic development plans. The Group will look to expand its core expressway business by investing in and acquiring quality toll road assets to further enhance its core competencies while strengthening its securities business and seeking suitable investments and development projects in order to enlarge the asset scale of its core businesses and increase future profitability.

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, 2016, 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, 2016, 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:

The letter "L" denotes a long position. The letter "S" denotes a short position. The letter "P" denotes interest in a lending pool.

Save as disclosed above, as at June 30, 2016, 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 performance 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 2015.

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

Hangzhou, the PRC, August 18, 2016

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 (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. MERGER ACCOUNTING RESTATEMENT

On August 5, 2015, the Company entered into a share transfer agreement with Zhejiang Communications Investment Group Co., Ltd. ("Communications Group") to acquire 80.614% equity interest in Zhejiang Hanghui Expressway Co., Ltd. ("Hanghui Co") from Communications Group for a cash consideration of Rmb1,699,348,000. Hanghui Co is principally engaged in the operation and management of the Hanghui Expressway, which is the Zhejiang section of Hangzhou-Ruili Expressway (G56) within the national expressway network. Before the above acquisition, Hanghui Co was 80.614% owned by Communications Group and 19.386% owned by non-controlling shareholders. The acquisition has been approved by independent shareholders on October 15, 2015 and subsequently completed on November 10, 2015. After the completion of the acquisition, Hanghui Co then became an 80.614% owned subsidiary of the Group and in December 2015, the equity interest held by the Group was increased to 88.674% after the Company made a capital contribution to Hanghui Co. Since Communications Group is the parent company of the Company, the Group's acquisition of the 80.614% equity interest from Communications Group was regarded as a business combination involving entities under common control and was accounted for using merger accounting method, in accordance with the guidance set out in Accounting Guideline 5 "Merger Accounting for Common Control Combinations" ("AG5") issued by the HKICPA.

As a result, the comparative condensed consolidated statement of profit or loss and other comprehensive income and condensed consolidated statement of cash flows for the six months ended June 30, 2015 have therefore been restated, in order to include the profit, assets and liabilities of the combining entities since the date on which they first come under common control.

The adoption of merger accounting method in respect of the Group's acquisition of 80.614% equity interest in Hanghui Co has resulted in a decrease in total comprehensive income attributable to owners of the Company, a decrease in profit attributable to owners of the Company and a decrease in earnings per share (basic and diluted) for the six months ended June 30, 2015 by Rmb19,255,000, Rmb19,255,000 and Rmb0.44 cents, respectively.

3. 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, certain amendments to Hong Kong Financial Reporting Standards (the "HKFRSs") issued by HKICPA that are mandatorily effective for the Period. The application of the amendments to HKFRSs in the Period has had no material effect on the amounts reported in these condensed consolidated financial statements and/or relevant disclosures set out in these condensed consolidated financial statements.

Except for the above, the accounting policies and methods of computation applied in the condensed consolidated financial statements for the Period are consistent with those followed in the preparation of the Group's annual financial statements for the year ended December 31, 2015.

4. 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:

5. OTHER INCOME

6. FINANCE COSTS

7. PROFIT BEFORE TAX

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

8. 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%.

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit. No Hong Kong Profits Tax has been provided as the Group has no estimated assessable profit during the Period.

9. DIVIDENDS

The Directors have recommended the payment of an interim dividend of Rmb6 cents per share (corresponding period of 2015: Rmb6 cents per share), subject to shareholders' approval at the extraordinary general meeting of the Company.

10. 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 Rmb1,368,206,000 (corresponding period of 2015 (Restated): Rmb1,495,193,000) and the 4,343,114,500 (corresponding period of 2015: 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.

11. 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 ("Zheshang Securities", a 70.83% owned subsidiary of Zhejiang Shangsan Expressway Co., Ltd., which is a subsidiary of the Company), trading limits are set for customers. The Group seeks to maintain tight control over its outstanding accounts receivable in order to minimise credit risk. Overdue balances are regularly monitored by management.

The following is an aged analysis of trade receivables, net of allowance for doubtful debts presented based on the invoice date at the end of the reporting period, which approximated the respective revenue recognition dates:

12. LOANS TO CUSTOMERS 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 pledged 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, 2016, 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 Rmb26,330,291,000 (December 31, 2015: Rmb31,224,317,000). Cash collateral of Rmb1,731,319,000 (December 31, 2015: Rmb1,061,658,000) received from clients was 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.

13. OTHER RECEIVABLES AND PREPAYMENTS

Note: Since several asset management products managed by Zhejiang Zheshang Securities Asset Management CO., Ltd (Zheshang Asset Management, a subsidiary of Zhejaing Securities) had undertaken liquidity risk of default, Zheshang Asset Management provided liquidity support of Rmb228,700,000. The collateral for the above issue is still under compulsory execution. As the value of the collateral could cover the obligatory right, no provision was provided.

14. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENT

The collaterals include both equity and debt securities listed in the PRC. As at June 30, 2016, the fair value of equity and debt securities as collaterals was Rmb11,813,309,000 (December 31, 2015: Rmb6,394,246,000) and Rmb4,235,110,000 (December 31, 2015: Rmb1,947,197,000), respectively.

15. 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:

16. OTHER PAYABLES AND ACCRUALS

17. 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 is still exposed to substantially all the credit risks and market risks and rewards of those securities sold. These securities are not derecognised from the financial statements but regarded as "collateral" for the liabilities 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, 2016, the Group entered into repurchase agreements with certain counterparties. The proceeds from selling such securities are presented as financial assets sold under repurchase agreements. 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.

18. 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 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) Communications Group

(1) Entrusted loans

Pursuant to the entrusted loan contracts entered into between Hanghui Co and Communications Group on March 12, 2013, Communications Group agreed to provide Hanghui Co with entrusted loans amounting to Rmb570,000,000 at a fixed interest rate of 5.24% per annum, which have been renewed for another three years on August 10, 2015, at a fixed interest rate of 4.55% per annum, with maturity date of August 10, 2018. Such amount was early repaid before the publication of this report.

(2) Management and Administrative services

On July 1, 2015, the Company entered into agreements with the Communications Group, pursuant to which, the Company would provide management and administrative services to two toll roads of the Communications Group, including Shenjiahuhang Expressway and Shensuzhewan Expressway. According to the agreements, the Company would charge the Communications Group management fee based on actual cost basis. During the Period, a total management fee of Rmb235,000 has been recognized.

18. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

(i) Transactions and balances with government related parties (Continued)

(a) Communications Group (Continued)

(3) Maintenance services

On June 13, 2016, the Company entered into road maintenance agreements with Zhejiang Expressway Maitenance Co., Ltd ("Maintenance Co", a 100% owned subsidiary of Communications Group) pursuant to which, Maintenance Co would provide maintenance services for the four expressways of the Group. Such service began from May 1, 2016, and will be expired by November 30, 2016, with a term of seven months.

(4) Other transactions

Note i: Pursuant to the leasing and operation agreement entered into between Zhejiang Jinhua Yongjin Expressway Co., Ltd. ("Jinhua Co", a 100% owned subsidiary of the Company) and Zhejiang Communications Investment Group Industrial Development Co., Ltd. (Zhejiang Communications Investment, a fellow subsidiary of Communications Group), Jinhua Co leased the toll road service area to Zhejiang Communications Investment and Zhejiang Communications Investment managed the operation of the service area and the advertising business in respect of the toll road service area. Such business began from January 1, 2011, and will be expired at the same time with the operating right in 2030.

Pursuant to the leasing and operation agreements entered into between Hanghui Co and Zhejiang Communications Investment, Hanghui Co leased the toll road service area to Zhejiang Communications Investment and Zhejiang Communications Investment managed the operation of the service. Such business began from January 1, 2015 and will be expired at the same time with the operating right for respective expressway sections in 2029 to 2031.

Note ii: Road maintenance service provided by other subsidiaries (except for Maintenance Co) of Communications Group

18. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

(i) Transactions and balances with government related parties (Continued)

(b) Transactions with other government related parties

(1) Zhejiang Expressway Petroleum Development Co., Ltd ("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 Petroleum Co 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. The agreement was renewed from May in 2016.

Pursuant to the lease agreements entered into between Development Company and Petroleum Company, Development Company contracted out the operating rights of petrol stations and the related buildings and equipment facilities at the service areas along Shanghai-Hangzhou-Ningbo and Shangsan Expressways to Petroleum Company, which run the petrol stations. The leasing term began upon the completion of change of business license of each petrol stations, and will be expired on December 31, 2018. Both parties could negotiate to continue the agreements after expiry of the lease. During the Period, Rmb10,212,000 from rental income of petrol stations was recognized.

Petroleum Company is a government related party 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.

18. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

(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")

Zhejiang Communications Finance has advanced several loans to Hanghui Co. Amongst the loans, Rmb50,000,000 was a one-year term loan carried interest at a fixed annual interest rate of 5.1% and was repaid in June 2016 upon expiry. Rmb450,000,000 were long term loans with floating interest rate from 4.275% to 4.5125% respectively, among which Rmb330,000,000 was early repaid before the publication of this report.

18. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

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

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

During the Period, the Group advanced additional entrusted loans totaling Rmb120,000,000 (corresponding period of 2015: Rmb500,000,000) and received settlement of loan principal and interests amounting to Rmb150,000,000 (corresponding period of 2015: Rmb400,000,000) and Rmb12,300,000 (corresponding period of 2015: Rmb11,304,000), 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 3.915% (2015: 8%) per annum. Such entrusted loans were guaranteed by world Trade Center Zhejiang Real Estate Development Co., Ltd., in full.

18. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

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

(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.

19. 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).

19. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (Continued)

As at June 30,2016 (Unaudited)

As at December 31, 2015 (Audited)

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

19. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (Continued)

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

20. SUMMARY OF FINANCIAL INFORMATION OF THE COMPANY

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 18, 2016.

Corporate Information

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