EVER DEVELOPING
EVER GROWING
Annual Report 1997
Contents
Company Profile
Financial Highlights
Chairman’s Statement
Management Discussion and Analysis
Corporate Structure
2
3-4
5-7
8-18
19
Directors, Supervisors and Senior Management
20-23
Report of the Directors
24-30
Report of the Supervisory Committee
Report of the International Auditors
Financial Statements
Consolidated Profit & Loss Account
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Balance Sheet
31
32
33
34
35
36
Notes to Financial Statements
37-57
Corporate Information
58
Company Profile
Company Profile
Zhejiang Expressway Co., Ltd. (the “Company”) is a joint stock limited company incorporated
in the Peoples’ Republic of China (the “PRC”) with limited liability in 1997. The H shares ("H
Shares") of the Company were listed on The Stock Exchange of Hong Kong Limited (“Hong
Kong Stock Exchange”) on 15 May 1997.
The Company and its subsidiaries (the “Group”) are principally engaged in investing in,
operating and developing high grade toll roads in Zhejiang Province, and the development
and operation of certain ancillary services, such as automobile servicing and fuel facilities.
The Company is regarded by the Zhejiang Provincial Government as an main enterprise
investing in, constructing and operating expressways and Class 1 roads in Zhejiang Province.
The Company has been granted an exclusive concession right to construct and operate the
Shanghai-Hangzhou-Ningbo Expressway and the Shangyu-Sanmen Road for a period of
30 years. A first right of refusal has also been granted to the Company under which the
Company was given priority over other third parties to accept any concession right in respect
of any specified road in Zhejiang Province offered by the Zhejiang Provincial Government
or its authorised departments.
The Company’s principal strategies are:
•
•
to extract maximum value from existing expressways through the building of ancillary
facilities and other improvements, and (if appropriate) by adding extra lanes; and
to build or acquire new toll roads, generate increased traffic flow and revenues, and
2
attract more traffic into the existing toll roads of the Company.
The Company will only select those projects which it considers to be the most economically
viable. In the immediate future, the Company will concentrate on building or acquiring new
roads which connect with the Shanghai-Hangzhou-Ningbo Expressway with a view to
increasing traffic flow into the Company’s existing network. In view of the prevailing policies
and conditions of the PRC and Zhejiang Provincial government, the Company intends to
review its strategies as it deems appropriate in order to expand its asset base, increase its
profitability and maximize the shareholders’ return.
Financial Highlights
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the 10 months
Pro forma
ended 31 December
For the year ended 31 December
1997
1997
1996
Growth
Rmb’000
Rmb’000
Rmb’000
Turnover
376,785
Operating profit before exceptional item 329,044
Exceptional item
Operating profit before taxation
Taxation
Net profit before minority interests
Minority interests
25,355
354,399
(53,085)
301,314
(15,986)
439,789
346,871
25,355
372,226
(58,639)
313,587
(17,255)
Net profit attributable to shareholders
285,328
296,332
273,843
159,964
—
159,964
(60,296 )
99,668
186
99,854
(%)
60.6
116.8
132.7
214.6
196.8
Transferred to reserves
Dividends
(45,253)
(69,490)
Retained profits at the end of the period
170,585
Earnings per share
7.15 cents
7.77 cents
3.43 cents
126.5
3
CONSOLIDATED BALANCE SHEET
Total assets
Total liabilities
Net book value
As at 31 December
Pro forma
1997
1996
Change
Rmb’000
Rmb'000
11,466,377
6,222,082
(3,266,309)
(3,448,751 )
8,200,068
2,773,331
(%)
84.3
-5.3
195.7
Financial Highlights
Pro forma
turnover
(Rmb million)
450
400
350
300
250
200
150
100
50
0
Pro forma
net profit attributable
to shareholders
(Rmb million)
300
250
200
150
100
50
0
95
96
97
95
96
97
Pro forma
earnings per share (cents)
8
7
6
5
4
3
2
1
0
Pro forma
total assets
(Rmb million)
12,000
10,000
8,000
6,000
4,000
2,000
0
4
95
96
97
95
96
97
Pro forma
total liabilities
(Rmb million)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Pro forma
net book value
(Rmb million)
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
95
96
97
95
96
97
Chairman’s Statement
Dear Shareholders,
The Company has achieved impressive results in a short period of time since the listing of
its H Shares on the Hong Kong Stock Exchange in May 1997. The year of 1997 was a year
of celebration when Hong Kong was returned to the PRC. However, the financial turmoil
which had swept through Asia (excluding the PRC) during the year caught the world by
surprise with a far reaching impact. Notwithstanding the adverse conditions, the H Shares
were successfully listed before the handover and the business of the Company has achieved
substantial development. Due to the increase in the mileage of roads in operation and
appropriate use of capital, pro forma turnover of the Company was increased from
Rmb273,843,000 in 1996 to Rmb439,789,000 in 1997 by 60.6 %, pro forma net profit
attributable to shareholders was increased from Rmb99,854,000 in 1996 to
Rmb296,332,000 in 1997 by 196.8% (exceeding the forecast set out in the prospectus for
the offer of H Shares issued by the Company on 6 May 1997 (“Prospectus”) by 48.2%) and
pro forma earnings per share increased from Rmb0.034 in 1996 to Rmb0.077 in 1997 by
126.5%.
The Company aims to maximize shareholders’ returns and to develop infrastructure in the
PRC and in particular, in the Zhejiang Province. I believe that these two goals complement
each other.
Three Objectives
The Company has striven to achieve the following three objectives since its listing:
–
to achieve the forecast of consolidated profit after taxation and minority interests but
before extraordinary items of the Group for the year ended 31 December 1997 in
the sum of Rmb200 million;
–
–
to proceed with various investment projects and to appropriately use the proceeds
raised from the issue of H Shares; and
to raise the standard of the Company to meet international standard, to improve the
transparency of the Company and to improve its corporate image.
The first objective has been outperformed with the dedication of all of the staff of the
Company.
The second objective is a mid-term target. The Company has applied 34.5% of the proceeds
from the issue of H Shares for, inter alias, contribution to the capital of Zhejiang Jiaxing
Expressway Company Limited ("Jiaxing Co") and the new Shangyu-Sanmen Road project.
To maximize the returns of the unused proceeds, some of them were placed in short-term
deposits and others were invested in government bonds and government bond repurchase
agreements.
5
Chairman’s Statement
Three Objectives (continued)
The last objective is a long-term goal. Raising the standard of the Company to meet
international standard means refining the corporate philosophy, operating mechanism,
management skill and mode of practice of the Company.
I stress that this is a gradual process and not an end. During this process, the Company and
its staff continue to seek to improve their abilities and improve management efficiency. As
such, the Company’s asset and profit will be strongly enhanced and as a result, the
shareholders will benefit from this.
Improving the transparency of the Company means strengthening the communication among
its staff, shareholders, investors and the government to enable them to have a better
understanding of the Company. Since the listing of H Shares, the Company has achieved
effective communications by a number of ways, including holding promotion activities,
arranging for research analysts and fund managers to visit the toll roads, and participating
in presentations held by various organizations. These activities helped improve its corporate
image and strengthen confidence of international investors in the Company’s management.
Looking Ahead
I believe the longer the term of the objective, the more difficult it is to achieve. Long term
objectives and the interests of the Company largely depend on its management,
contributions from its staff and support of its shareholders and the government.
The Company is committed to enhancing the value of its shares through effective corporate
6
management and strategic planing.
Corporate Management
Building on its own management experience and taking into consideration the management
experiences of those outstanding local and overseas companies, the Company is to set up
a management system that is both pragmatic and of international standards and
requirements.
This system includes laying down the rules governing duties of the board of directors (the
"Directors") with a view to developing a self-regulating mechanism. This helps ensure that
the Directors always act in the best interests of the Company. Measures will also be
introduced to improve the Company’s communication channels. Different departments of
the Company are required to follow certain objectives and behaviour codes. This helps the
departments coordinate their operations, carry out their respective duties and accomplish
the Company’s overall objectives.
The Company will also adopt a flexible system of staff recruitment, assessment, motivation
and training. The Company also aims to provide its staff with a pleasant working environment
to enable them to attain job satisfaction so as to contribute to the Company. The Company
will continue to recruit outstanding and experienced professionals and improve qualifications
of staff.
Chairman’s Statement
Strategic Planning : Development
To enable the Group to take any favourable opportunities, the Company reviews its
development strategies from time to time.
The Directors believe that economic reforms in the PRC will be further carried out and the
government also encourages large enterprises which are financially sound and competitive
to acquire and merge with other existing enterprises in order to improve their efficiency
and productivity. In addition, the Directors believe that the PRC government also encourages
investment in infrastructure projects.
Looking ahead, the Company also plans to invest in other road-related projects, with a
view to broadening the Company's scope of business. In light of the PRC government's
current policy which encourages the development and investment in infrastructure projects
whilst continuing to engage in operation of toll roads, the Group also wishes to invest in
other transportation-related infrastructure projects' gradually.
The memorable year of 1997 is over and the Company is facing a more challenging year
ahead. The Company believes, that with the dedication of its staff, the continuous support
of its shareholders as well as the government, the Company will be able to achieve a stable
growth in the forthcoming year.
Geng Xiaoping
Chairman and General Manager
Hangzhou, Zhejiang Province, the PRC
24 March 1998
7
Management Discussion and Analysis
General Situation of Zhejiang Province
Since the economic reform and implementation of the open door policy, Zhejiang Province
has experienced rapid social and economic growth and has become economically strong.
From 1992 to 1996, the average annual growth rate of the gross domestic production
(“GDP”) of Zhejiang Province was 32.5%. In 1997, Zhejiang Province maintained a stable
economic growth. Its GDP for the year reached Rmb460 billion, increasing by 11% when
compared with last year whilst it’s per capita GDP was Rmb10,374, increasing by 10% when
compared with last year.
Market prices of goods have been rising at low rates. The retail price of commodities and
the retail price of consumption goods for the whole year increased by 0.4% and 2.8%
respectively over last year, representing a 5.4% and 5.1% drop respectively in increase
rates when compared with last year.
General Situation of Road Traffic
In the last five years, Zhejiang Province has witnessed the largest scale of investment and
fastest development in its transportation infrastructure. The total investment for the past
five years amounted to Rmb27 billion and the total length of roads built was 36,532 km, the
total length of newly built roads in Zhejiang Province was 4,608 km, of which expressways
accounted for 161 km, and Class 1 roads, 414 km. In 1997, an additional 10 km of expressways
and 225 km of Class 1 roads were in operation.
In 1997, the freight traffic volume by various transport modes was 91.52 billion tonnes km
with an increase of 1.6% from last year, of which 17.22 billion tonnes km was by railways
(decreased by 3.7%), 26.3 billion tonnes km was by roads (decreased by 1.2%) and 48
billion tonnes km was by waterways (increased by 5.3%). The passenger traffic volume for
the whole year was 53.6 billion persons km, representing an increase of 7.0% over last year,
8
Management Discussion and Analysis
General Situation of Road Traffic (continued)
a total of 10.12 billion persons km, 42.43 billion persons km and 1.08 billion persons km
were attributed to railways, road and waterways respectively, representing an increase of
3.1% and 8.3% and a decrease of 3.7% respectively.
450
400
350
300
250
200
150
1992
1993
1994
1995
1996
1997
Highway passenger turnover volume -
100 million persons km
Highway freight turnover volume -
100 million tonnes km
The cargo handling capacity of the important ports along the coastal line was 0.13 billion
tonnes for the year, representing an increase of 23.5% when compared with last year.
However, transportation in Zhejiang Province still lags behind the economic and social
developments of the PRC. The main indices of the traffic infrastructure of Zhejiang Province,
such as class and length of roads, are only at the nation’s medium level.
Zhejiang Province is planning to increase the length of high grade roads to approximately
1,000 km in the next five years, the target is to build “a road network which requires four
hours of drive between the provincial capital and the towns” by the completion of the road
network consisting of Zhejiang Section of the Shanghai-Hangzhou-Ningbo Expressway,
Ningbo-Taizhou-Wenzhou Expressway, Hangzhou-Jinhua-Quzhou Expressway, Shangyu-
Shanmen Class 1 Road, Zhejiang section of Hangzhou-Nanjin Expressway and Jinhua-Lishui-
Wenzhou Class 1 Road.
Business Review
The revenue of the Company is mainly attributable to the toll income of the Shanghai-
Hangzhou-Ningbo Expressway and its connecting road. In 1997, it amounted to
Rmb465.27 million, representing an increase of 60.5% over 1996. The significant
improvement was due to the increase of traffic mileage of the Shanghai-Hangzhou-Ningbo
Expressway. Sections of the expressway which were opened to traffic in 1997 were 158.2
km. Prior to the Hangzhou-Ningbo Expressway becoming fully operational in December
1996, the total length of the sections opened to traffic was approximately 92.8 km. This is
an increase by 65.4 km when compared with that in 1996.
9
Management Discussion and Analysis
Business Review (continued)
Due to the increase of traffic mileage, both the average distance travelled and the toll rate
per motor vehicle have significant growth:
Annual average daily full trip traffic flows(1) (2)
(number of vehicles)
Average distance travelled(3) (km)
Average toll rate per motor vehicle(4) (Rmb)
Increase
1997
1996
(%)
9,500
46.19
36.51
9,489
28.98
27.89
0.1
59.4
30.9
Notes:
(1)
(2)
(3)
annual average daily traffic flows = annual total vehicle mileage (traffic mileage *365). The above 1997 figure
is smaller than the estimated figure stated in the Prospectus. It is mainly due to two interchanges constructed
by Hangzhou Municipal Government between the end of June and December in 1997. The traffic flows w ere
therefore temporarily affected. After completion of the construction, the traffic flows have been improved.
excluding the toll free vehicles allowed by law.
average distance travelled = annual total vehicle mileage/annual total number of vehicles which passed
through.
(4)
toll rate per motor vehicle = annual total toll revenue/annual total number of vehicles which passed through.
HANGZHOU-NINGBO EXPRESSWAY
The overall length of the Hangzhou-Ningbo Expressway is 145 km. The Hangzhou-Ningbo
Expressway starts at Pengbu in the eastern suburb of Hangzhou and passes in a south
easterly direction through Xiaoshan, Shaoxing, Shangyu, Yuyao and Yinxian, ending at
Dazhujia in the suburbs of Ningbo. The Hangzhou-Ningbo Expressway is wholly-owned by
the Company and there are 12 toll stations.
The first section of Hangzhou-Ningbo Expressway, with a length of 7 km, runs from Pengbu
of Hangzhou to Xiaoshan. It was opened to traffic in 1992. The section from Xiaoshan to
Shangyu was first opened to traffic at the end of 1995, and was fully opened in December
1996. Three interchanges in Keqiao, Guali and Dayin were opened respectively in February,
March and November of 1997. Sanjiang service station commenced operation in March in
the same year.
Toll revenue of the Hangzhou-Ningbo Expressway in 1997 amounted to Rmb373.52 million,
representing an increase of 31.6% from 1996.
10
Management Discussion and Analysis
SHANGHAI-HANGZHOU EXPRESSWAY
The overall length of the Shanghai-Hangzhou Expressway (in Zhejiang Province) is 102.6
km. The Shanghai-Hangzhou Expressway starts on the boundary between Zhejiang Province
and Shanghai Municipality and ends at Pengbu in the eastern suburbs of Hangzhou where
it connects with the Hangzhou-Ningbo Expressway. The Shanghai-Hangzhou Expressway
has 7 toll stations and comprises the Hangzhou Section, Yuhang Section and Jiaxing Section.
Hangzhou Section
The Hangzhou Section, with an overall length of 3.4 km, connects the Shanghai-Hangzhou
Expressway with the Hangzhou-Ningbo Expressway. The Hangzhou Section is wholly-owned
by the Company and was opened to traffic at the end of December in 1995. Toll revenue
for this section is calculated in proportion to the length of the section bears to the total
length of the Shanghai-Hangzhou Expressway. In 1997, toll revenue from this section
amounted to Rmb14.74 million, representing an increase of 42.1% over 1996.
Yuhang Section
Yuhang Section falls within the boundary of Yuhang County. The total length of Yuhang
Section is 11.1 km, of which 9.8 km was opened to traffic and started collecting tolls since
the end of December in 1995. The remaining 1.3 km of the section is expected to be
operational before the end of 1998, the same time the Jiaxing Section of the Shanghai-
Hangzhou Expressway is expected to be operational. Yuhang Section has one toll station.
The Yuhang Section is owned by Zhejiang Yuhang Expressway Company Limited (“Yuhang
Co”) in which the Company has a 51% interest. Yuhang Co is responsible for the construction,
maintenance and management of the Yuhang Section. It also has an interest in a road of
5.7 km connecting National Road 320 to the Yuhang Section (“East Connecting Road”). In
1997, toll revenues from the Yuhang Section and the East Connecting Road amounted to
Rmb 77.01 million, representing an increase of 40.3% over 1996.
Jiaxing Section
The Jiaxing Section of the Shanghai-Hangzhou Expressway, with an overall length of 88.1
km, connects Yuhang Section through Haining southwesterly. It extends northeasterly to
Shanghai, connecting expressways in Shanghai Municipality.
Jiaxing Section is owned by Jiaxing Co in which the Company originally had a 51% interest.
Subsequently, the Company acquired an additional 2.44% interest in Jiaxing Co according
to the restructuring arrangement after the Company’s listing. The Company’s interest in
Jiaxing Co increased to 53.44%.
11
Management Discussion and Analysis
Jiaxing Section (continued)
A subscription agreement was signed by the Company, Jiaxing Co and, a shareholder of
Jiaxing Co, Zhejiang Jiaxing Road and Bridge Construction and Development Company
(“Road and Bridge Co”) on 11 April 1997 in respect of the increase in the registered capital
of Jiaxing Co by Rmb1 billion. Pursuant to that agreement the parties thereto agreed that
the Company and Road and Bridge Co would subscribe for the additional capital of Jiaxing
Co in the sum of approximately Rmb 534 million and Rmb 466 million respectively after the
listing of the H Shares. On 28 October 1997, the said parties agreed to subscribe for the
additional capital of Jiaxing Co according to the following schedule:
October 1997
December 1997
January 1998
March 1998
May 1998
July 1998
September 1998
Total
Road and
The Company
Bridge Co
Rmb’000
Rmb’000
80,167.5
80,167.5
80,167.5
80,167.5
80,167.5
80,167.5
53,445.0
69,832.5
69,832.5
69,832.5
69,832.5
69,832.5
69,832.5
46,555.0
534,450.0
465,550.0
12
By December 1997, the Company made a contribution to the registered capital of Jiaxing
Co in the sum of approximately Rmb160 million as scheduled. The balance will be invested
in 1998 by instalments.
In 1997, the construction works representing 25.73% of the total contract sum of Jiaxing
Section were completed and the construction works representing an aggregate of 70.70%
of the total contract sum was completed. Paring works, drainage works, protection works,
construction of bridges and passageways, and road facilities of the foundation works
representing 18.60%, 76.99%, 79.5%, 89.09% and 7.61% of the contract sums respectively
were completed. Jiaxing Section is expected to be completed and opened to traffic by the
end of 1998.
Management Discussion and Analysis
Shangyu-Sanmen Road
On 8 December 1997, the Company convened an extraordianry general meeting to approve
the establishment of a limited liability joint venture company, Zhejiang Shangyu-Sanmen
Highway Company Limited (“Shangsan Co”), with Zhejiang Provincial High Class Highway
Investment Company Limited (“Provincial Investment Co.”), Shangyu Municipal Transport
Bureau (“Shangyu Transport”), Shengzhou Municipal Transport Bureau (“Shengzhou
Transport”), Xinchang County Transport Development Company (“Xinchang Transport”),
Tiantai County Transport Development Company (“Tiantai Transport”) and Huajian
Transportation Economic Development Centre (“Huajian”), a subsidiary of the Ministry of
Communications of the PRC. Shangsan Co will engage in the investment, construction,
development, operation and toll-collection of the Shangyu-Sanmen Road and the acquisition
of the operational section of Shangyu-Sanmen Road.
The Shangyu-Sanmen Road is a Class I Road which, upon completion, will run from Guzhu
Interchgange on the Hangzhou-Ningbo Expressway to Wuao Interchange on the Ningbo-
Taizhou-Wenzhou Expressway. The total investment of the Shangyu-Sanmen Road, with a
total length of 143km, was estimated to be Rmb4,290 million. The construction of the
project is divided into two phases. Phase 1, consisting of four short sections in Shangyu,
Shenzhou, Xinchang and Tiantai, has a total length of 37.5km and has been operational
since February 1997. The construction of the second phase commenced in February 1998
and is intended to be completed by the middle of 2001.
Shangsan Co has a registered capital of Rmb2,400 million, of which Rmb1,224 million was
contributed by the Company. Accordingly, the Company owns a 51% interest in the Shangsan
Co., while Huajian, Tiantai Transport, Provincial Investment Co., Shangyu Transport, Xinchang
Transport and Shengzhou Transport own 18.4%, 7.0%, 6.6%, 6.0%, 6.0% and 5.0% of the
interests in Shangsan Co, respectively.
13
Management Discussion and Analysis
Use of Proceeds
A total of Rm b3,524 million (approximately HK$3,293 million) was raised by the issue of H
Shares after deduction of listing expenses of Rmb155 million (approximately HK$145 million).
The application of proceeds was in line with proposed application as disclosed in the
Prospectus. The proceeds were mainly applied as follows:
Rmb million
1.
Repayment of loans and interest
Repayment of the principal and interest of banking facilities
(annual interest rate ranging from 10.98% to 13.14%)
253.5
Repayment of the principal and interest of loans
by the Ministry of Communications of the PRC
(annual interest rate of 6.6%)
Repayment of interest of loans by World Bank
(annual interest rate of approximately 6.5%)
Subtotal
2.
3.
4.
Investment in the Shangyu-Samen Road project
Investment in Jiaxing Section of the
Shanghai-Hangzhou Expressway
Purchase of approximately 2.44% of the registered
capital of Jiaxing Co
Total
The Future Plan for the Unused Proceeds
14
116.0
19.0
388.5
637.5
160.0
29.4
1,215.4
Rmb million
586.5
1.
2.
3.
Investment in the Shangyu-Sanmen Road project
Investment in the Jiaxing Section of the Shanghai-Hangzhou Expressway 374.0
Investment in the Huzhou Section of the Hangzhou-Nanjing Expressway
and related National Road 104 (depending on the
outcome of negotiations)
4.
Payment in respect of Contract No. 8
(to upgrade traffic operation systems)
Total
900.0
146.0
2,006.5
The balance will be used mainly for working capital and repayment of loans and interest.
Management Discussion and Analysis
Financial Review
The following discussion and analysis are designed to enhance understanding of the financial
performance and condition of the Group. The accounting period for the Company in 1997
was the ten month period from 1 March 1997 to 31 December 1997. The 1996 and 1997
pro forma results are used for comparative purposes. This section should be read in
conjunction with the Company’s and the Group’s audited accounts and notes to the Accounts
on pages 33 to 57 of this report.
Turnover
The Group’s pro forma turnover increased to Rmb439,789,000 from Rmb273,843,000 in
1996, representing a 60.6% growth. As the toll rate in 1997 remains the same as in 1996,
the increase in 1997 turnover was mainly due to the increase in the length of road in operation
from 92.8 km in 1996 to 158.2 km in 1997, representing a 70.5% increase.
In accordance with the Concession Agreement signed between the Company and the
Zhejiang Provincial Government, there will be a first toll rate increase of the Shanghai-
Hangzhou-Ningbo Expressway in July 1999.
Length of Road in
Operation (Km)
200
180
160
140
120
100
80
60
40
20
0
95
96
97
15
Management Discussion and Analysis
Turnover Contribution
Entrance Fee
(20%)
Hangzhou Section of
Shanghai-Hangzhou Expressway
(3.4 %)
Yuhang Section of
Shanghai-Hangzhou
Expressway
(9.5%)
Distance-based fee
(80%)
Hangzhou-Ningbo Expressway
(87.1%)
Toll structure of the Company combines both entrance fee and distance-based charge
while tolls for most of the other toll roads in the PRC comprise only the distance-based
charge. As the entrance fee contributed 20% to the turnover of the Company in 1997, it will
be very important to the Company due to the additional roads in operation in the future.
In 1997, Hangzhou-Ningbo Expressway contributed most to the Company’s turnover. In
January 1998, Shangyu-Sanmen Road Phase 1 (37.5km) began its revenue contribution.
Following the construction schedule, by the end of 1998, Shanghai Hangzhou Expressway
(Yuhang Section and Jiaxing Section), an expressway connecting Shanghai and Hangzhou,
will become fully operational.
16
The Company will continue to explore opportunities to expand its business to ancillary
services such as road-side advertising, communication conduit rental, towing and gas
servicing.
Net Profit Attributable to Shareholders
Pro forma net profit attributable to shareholders of the Company increased to
Rmb296,332,000, 196.8% growth from 1996. Profit margin (pro forma net profit attributable
to shareholders divided by pro forma turnover) reached 67.4% in 1997 from 36.5% in 1996
was mainly due to the increase in interest income (mainly the exceptional item as described
in note 5 to the financial statements in page 42 of this report), improved efficiency and
further cost control.
(cid:31)(cid:31)•~ˆB
“(cid:31)“F(cid:31)‡ƒß⁄§†b§Q
⁄H¥`„(cid:31)¥(cid:31)‚U⁄‚
450
400
350
300
250
200
150
100
50
0
Profit margin (%)
100
67.4%
43.3%
36.5%
90
80
70
60
50
40
30
20
10
0
95
96
97
95
96
97
Management Discussion and Analysis
Net Profit Attributable to Shareholders (continued)
The pro forma net profit attributable to shareholders of the Group for the year ended 31
December 1997 exceeded the forecast net profit attributable to shareholders of the Group
referred to in the Prospectus by 48.2% due to the following reasons:
1)
the funds raised from the issue of H Shares exceeded the estimated amount referred
to in the Prospectus and the earned interest has thus increased;
2)
the high interest rate (10.98%-13.14% per annum) commercial loans have been repaid
in advance of the due date and the interest expenditure for the year 1997 was thus
decreased;
3)
the investment to be made in the Huzhou Section of the Hangzhou-Nanjing
Expressway has been postponed and the interest income for the year was thus
increased; and
4)
the actual revenue from the non-principal business, including communication conduit
rental, roadside advertising, towing and gas servicing, exceeded the estimated
revenue by approximately Rmb11 million.
17
Management Discussion and Analysis
The Year 2000 Problem
The main computer systems of the Company include the financial management system
and the toll collection system.
The Company has adopted an advanced financial system. Accordingly, its computer
programmes do not have the Year 2000 Problem.
The Company will adopt a new toll collection system for Hangzhou-Ningbo Expressway
under Contract No.8 by the end of 1998 in place of the existing toll collection system. The
Company also requires the relevant suppliers to ensure the programmes of the new system
is free from the Year 2000 Problem.
In the event of adoption of any new computer systems in the future, the Company will take
into account of such a problem, in order to avoid any material adverse impact on its sound
operational management.
The Effect of Recent Economic Developments on the Company
Since 1997, the economy of Asia has changed greatly, particularly in the second half of
1997. Some regions in Asia, including Southeast Asia, Japan and Korea were in financial
crisis. However, the revenue and profit of the Company were not affected.
All businesses of the Company are operated in the PRC. The revenue and profit of the
Company would be affected mainly by two factors, namely traffic volume and toll rates with
their adjustments. Traffic volume would be affected mainly by economic developments of
18
the PRC and in particular, Zhejiang Province, which has not been materially affected by the
recent economic developments in Asia. Toll rates may be adjusted with reference to the
compound growth rate of the PRC Retail Price Index every three years.
The revenues of the Company are denominated in Reminbi. In case Reminbi devalues, the
profitability of the Company will be adversely affected. Though the Asian financial turmoil
puts devaluation pressure on Reminbi, officials of the PRC government have, in various
occassions, claimed that in the near future, Reminbi will not devalue, given the satisfying
macro economy, import/export trade and foreign reserve conditions in the PRC.
Corporate Structure
Other
Shareholders
Other
Shareholders
Other
Shareholders
Holders of
H Shares
Provincial
Investment Co
Other
Shareholders
20%
46.56%
49%
33%
67%
49%
80%
53.44%
the Company
51%
51%
Gaotong Co
Jiaxing Co
Yuhang Co
Shangsan Co
100%
100%
100%
100%
100%
Jiaxing
Section
88.1 km
Yuhang
Section
11.1 km
Hangzhou
Section
3.4 km
Shanghai - Hangzhou Expressway
102.6 km
Hangzhou - Ningbo
Expressway
145.0 km
Shangyu - Sanmen
Road
143.0 km
Hangzhou-Ningbo Expressway and the Hangzhou Section of the Shanghai-Hangzhou
Expressway with a total length of approximately 145 km and 3.4 km respectively are wholly
owned by the Company. It also has a 51% interest in the Yuhang Section of the Shanghai-
Hangzhou Expressway (which is approximately 11.1 km long) through Yuhang Co and a
53.44% interest in the Jiaxing Section of the Shanghai-Hangzhou Expressway (which is
approximately 88.1 km long) through Jiaxing Co. Hangzhou-Ningbo Expressway together
with Shanghai-Hangzhou Expressway are collectively referred to as the “Shanghai-Hangzhou-
Ningbo Expressway” and has a total length of 247.6 km. Moreover, the Company has a
51% interest in the Shangyu-Sanmen Road with a total length of 143 km through Shangsan
Co.
Zhejiang Gaotong Stone Developing Co., Ltd. (“Gaotong Co”) was established on 3
November 1997 in the PRC as a limited liability company, with a registered capital of Rmb5,
000,000. The Company owns 80% of its interests. The other shareholder is an independent
third party not connected with the Company. Gaotong Co, by developing a stone market
(which is situated beneath the flyover near the Hangzhou toll station of Shanghai-Hangzhou-
Ningbo Expressway), is engaged in processing and selling stones, selling stone craftwork,
pottery, construction decoration materials and stone processing machinery and moulds,
and designing stone decoration works and stone decorations, so as to fully utilize the
geographical advantages enjoyed by the expressway.
19
Directors, Supervisors and Senior Management
Executive Directors and Senior Management
Mr Geng Xiaoping, age 49, is the Chairman of the Board of Directors and General Manager
of the Company. He is responsible for the overall management of the Company's business.
Mr Geng graduated from the East China College of Political Science and Law in Shanghai
and obtained a bachelor's degree in law in 1984. From 1979 until 1991 he worked in various
positions at the People's Procuratorate of Zhejiang Province including Division Chief and
Deputy Procurator. In 1991, he was appointed the Deputy Director of Zhejiang Provincial
Expressway Executive Commission, and responsible for the business operation and
administration of the expressway system in Zhejiang. Mr. Geng has entered into a service
contract with the Company and works full time for the Company.
Mr Ying Shudeng, age 60, is a senior engineer. He is a Director, the Chief Financial Officer
and a Deputy General Manager of the Company and is responsible for administration and
finance. Mr Ying obtained a degree from Hangzhou Technical College (which is now Zhejiang
University) in 1960 in mechanical engineering specialising in road construction design.
Between 1960 and 1962, he completed a masters degree in advanced mathematics from
Zhejiang University. In December 1962, he began his career in the transport industry with
the Works Bureau of the Zhejiang Provincial Communications Office. His responsibilities
included road construction. From 1964 until 1971, he held a number of positions ranging
from engineer to Division Chief in the Provincial Communication Office. His responsibilities
included transport planning, financial administration, auditing and transport enterprise
management. Since 1996 and prior to joining the Company, he was a Deputy Head of the
preparatory unit which was responsible for establishing the Company and co-ordinating
the reorganization of the Group for the purposes of listing and listing of the Company on
the Hong Kong Stock Exchange. Mr Ying has entered into a service contract with the
Company and works full time for the Company.
Mr Fang Yunti, age 48, is a Director and Deputy General Manager of the Company. He is
responsible for overall operations of the Shanghai-Hangzhou-Ningbo Expressway which
includes responsibility for technical equipment used by the Company in its operations. Mr
Fang graduated from Qing Hua University with a degree in automotive engineering in
1976. From 1976 to 1988, he was the Deputy Engineer and General Manager of Zhejiang
Province Automobile Transport Company. From 1988 to 1990, he was the Chief Engineer
at the Provincial Road Transport Company. In 1990, he was appointed as the Head of the
Operating Administrative and Technical Equipment Divisions of the Executive Commission
where his responsibilities included supervision of the operations and construction of the
Shanghai-Hangzhou-Ningbo Expressway. He remained in that position until joining the
Company upon its formation. He has entered into a service contract with the Company and
works on a full time basis.
20
Directors, Supervisors and Senior Management
Executive Directors and Senior Management (continued)
Mr Xu Yikuang, age 62, is a senior engineer, a Director and the Chief Engineer of the
Company and is responsible for planning and development of the Company's operations.
Mr Xu graduated from Tong Ji University in 1958 and obtained a degree in engineering,
majoring in the construction and design of bridges and tunnels. Since 1958, Mr Xu has held
several positions including as the Chief Engineer of the Hunan Province Transport Planning
Design Institute, and Chief of the Engineering Administrative Division of the Executive
Commission. From 1988 to 1990 he was in charge of the design of the Hangzhou-Ningbo
Expressway. From 1990 until 1996, Mr Xu was actively involved in the preparation,
assessment, negotiation and implementation of the World Bank loans project in connection
with the construction of the Shanghai-Hangzhou-Ningbo Expressway. Mr Xu has more than
40 years of experience in the design, construction and administration of roads and bridges.
Since 1996 and prior to joining the Company, Mr Xu was a Deputy Head in the preparatory
unit which was responsible for establishing the Company, co-ordinating the reorganization
of the Group for the purposes of listing and listing the Company on the Hong Kong Stock
Exchange. Mr Xu has entered into a service contract with the Company and works full time
for the Company.
Mr Xuan Daoguang, age 53, is a senior engineer, a Director and Manager of the Company.
Mr Xuan graduated from the Tong Ji University in 1960 with a degree in engineering, majoring
in the construction and design of bridges and tunnels. Mr Xuan has 37 years of experience
in engineering maintenance with the Road Administration Division including being the
Section Head and, later, the Head of the Road Administrative Division of Jinhua City. Since
1996 and prior to joining the Company, he worked for the Executive Commission and was
responsible for the administration of engineering works within Zhejiang Province, including
repair and maintenance on the completed sections of the Shanghai-Hangzhou-Ningbo
Expressway. Mr Xuan has entered into a service contract with the Company and works full
time for the Company.
Mr Zhang Jingzhong, age 34, is a lawyer and is a Director and Company Secretary of the
Board of Directors and is responsible for all secretarial and legal matters. He graduated
from Hangzhou University in July 1984 obtaining a bachelor's degree in law. In 1984, he
joined the Zhejiang Provincial Political Science and Law Policy Research Unit. From 1988 to
1994, he was the Associate Director of Hangzhou Municipal Foreign Economic Law Firm
where he obtained considerable experience in company and commercial law. In January
1994, Mr Zhang became the Senior Partner at the T&C Law Firm in Hangzhou. He retired as
the Senior Partner to join the Company on 2 April 1997. Mr Zhang has entered into a
service contract with the Company and works on a full time basis for the Company.
21
Directors, Supervisors and Senior Management
Executive Directors and Senior Management (continued)
Ms Zhang Chunming, age 33, is a lawyer and is a Director and Manager of the Company
and is responsible for legal and securities related issues. She graduated from the East
China College of Political Science and Law in Shanghai obtaining a bachelor's degree in
law in 1986. From 1987 to 1994, she practised as a lawyer with the Zhejiang Provincial
Economics Law Firm in Hangzhou and her practice included financial, securities and property
matters. Ms Zhang has also obtained the qualifications required by the regulatory authorities
in China to practise law involving securities and, in 1994, she spent six months undergoing
training in Hong Kong. Since 1994 she has been a partner of the Shield Law Office in
Hangzhou. She has entered into a service contract with the Company under which she has
agreed to devote 60% of her time to the Company's business.
Independent non-executive Directors
Dr Hu Hung Lick, Henry O.B.E. PhD, JP., age 78, has been practising as a barrister for over
42 years and is currently the President of Shue Yan College, and a member of the Standing
Committee of the Chinese People's Political Consultative Congress and the China
International Economic and Trade Arbitration Commission. Dr Hu is also an adviser to the
China Research Committee of Juvenile Delinquency.
Mr Tung Chee Chen, age 55, is the Chairman of Orient Overseas (International) Limited. Mr
Tung was educated at the University of Liverpool, England, where he received his Bachelor
of Science degree. He later acquired a masters degree in Mechanical Engineering at the
Massachusetts Institute of Technology in the United States. He is a registered Professional
Engineer in the State of California.
Supervisors
Mr Xia Linzhang, age 54, is an engineer, having graduated from Jiao Zou Mining College.
Prior to commencing with the Company, he was the Head of Suichang Gold Mine, Deputy
Head and Head of Suichang County, Zhejiang Province and Deputy General Secretary of
Lishui District. In 1994, he was appointed the Chief of the Planning and Finance Division of
the Executive Commission. Mr Xia has extensive experience in project planning, finance
and administrative management.
Ms Ge Ailian, age 54, having graduated from Shanghai Maritime College with a major in
water transport economics. She has held positions as an accountant, Deputy Chief of the
Finance Section, Deputy Manager, and Deputy Chief of the Auditing Division of the Transport
Department of Zhejiang Provincial (Communications Office). In 1990, she was appointed
Chief of the Planning and Finance Division of the Executive Commission. At present, she
serves as Chief of the Supervisory Auditing Division of the Executive Commission. Ms Ge's
area of expertise is financial planning and auditing.
22
Directors, Supervisors and Senior Management
Supervisors (continued)
Mr Jiang Wenyao, age 33, obtained a masters degree in engineering from Zhejiang University
with a major in industrial automation and manufacturing mechanics. In 1991, he became
involved in the Executive Commission in the areas of engineering administration, financial
planning, and advising on technical equipment. In 1996, he was involved in the establishment
of the Company. At present, he is a Deputy Manager of the Company. Mr Jiang is
experienced in project management, equipment purchase and management, advertising
and public relations.
23
Report of the Directors
The Directors herein present their report and the results of the Group for the period from 1
March 1997 (date of the Company’s establishment) to 31 December 1997 (the “Period”).
Group Reorganization
The Company was established as a joint stock limited company in the PRC on 1 March
1997. On the same date, the Company issued 2,909,260,000 fully paid domestic shares of
Rmb1 each to Provincial Investment Co in consideration of the following:
(i)
acquisition of assets that comprised the exclusive operating rights relating to the
Hangzhou-Ningbo Expressway and the Hangzhou Section of the Shanghai-Hangzhou
Expressway at a valuation of Rmb208,000,000;
(ii)
51% equity interests in Yuhang Co and Jiaxing Co; and
(iii)
certain assets and liabilities of Provincial Investment Co, which include all the fixed
assets and other long-term assets, together with the current assets and liabilities
relating to the daily operations of the Hangzhou-Ningbo Expressway and the
Hangzhou Section of the Shanghai-Hangzhou Expressway together with all bank loans
and other loans as at 30 November 1996.
Further details of the Company's establishment and the reorganization of the Group in
anticipation of its issue of H Shares are set out in the Prospectus and notes 1, 25 and 27 to
24
the financial statements.
Principal Activities
The Group’s principal activities consist of investment in the construction, operation and
management, of high grade roads as well as the development and operation of certain
ancillary services such as automobile servicing and fuel facilities.
Segmented Information
During the Period, the entire turnover and contribution to the operating profit of the Group
was derived from toll income earned from expressway operations in Zhejiang Province, the
PRC. Accordingly, a further analysis of the turnover and contribution to operating profit by
principal activity and geographical area is not presented.
Results and Dividends
The operating results of the Group for the Period and the state of affairs of the Company
and the Group as at 31 December 1997 are set out in the financial statements on pages 33
to 57.
The Directors recommend the payment of a dividend of Rmb0.016 (approximately
HK$0.015) per share in respect of the Period to shareholders on the register of members at
the close of business on 24 April 1998. This recommendation has been incorporated in the
financial statements.
Report of the Directors
Summary of Financial Information
The only published Group consolidated profit and loss account and balance sheet are as
set out on pages 33 and 34 of the financial statements.
The following is a summary of the pro forma consolidated results of the Group prepared on
the basis set out in the notes below:
Results
Turnover
Year ended 31 December
1997
1996
1995
1994
1993
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
439,789
273,843
59,105
49,331
40,914
Operating profit before exceptional item
346,871
159,964
41,965
36,351
27,040
Exceptional item
25,355
—
—
—
—
Operating profit before taxation
372,226
159,964
41,965
36,351
27,040
Taxation
(58,639)
(60,296)
(16,378)
(13,915)
(11,025)
Profit before minority interests
313,587
99,668
25,587
22,436
16,015
Minority interests
(17,255)
186
—
—
—
Net profit attributable to shareholders
296,332
99,854
25,587
22,436
16,015
Earnings per share
7.77 cents
3.43 cents
—
—
—
Notes:
1.
The pro forma consolidated results of the Group for the four years ended 31 December 1996 have been
extracted from the Company’s annual report dated 26 July 1997, while those of the year ended 31 December
1997 were prepared based on the profit and loss account as set out on page 33 of the audited financial
statements for the 10 months ended 31 December 1997 and the profit and loss account for the two months
ended 28 February 1997, which were prepared based on the management accounts of the Relevant
Investments of the Old Group as defined in note 1 to the financial statements, after making appropriate
adjustments in all material respects to comply with the accounting principles generally accepted in Hong
Kong.The summary of the consolidated pro forma results of the Group includes the results of the Company
and its subsidiaries as if the current structure of the Group, as outlined in the Group reorganization above and
as set out in note 1 to the financial statements, had been in existence throughout the five years ended 31
December 1997.
2.
The pro forma earnings per share of 1997 is based on the pro forma net profit attributable to shareholders
for the year ended 31 December 1997 of Rmb296,332,000 and 3,812,785,000 shares, being the weighted
average of 2,909,260,000 domestic shares, as if they were issued on 1 January 1997, and the 1,433,854,500
H Shares issued on 15 May 1997. The pro forma earnings per share of 1996 is based on the pro forma net
profit attributable to shareholders for the year ended 31 December 1996 of Rmb99,854,000 and
2,909,260,000 domestic shares as if they were issued on 1 January 1996.
Major Customers and Suppliers
The five largest customers and suppliers contributed to less than 30% of total toll revenue
and purchases, respectively, of the Group during the Period. Accordingly, a corresponding
analysis of major customers and suppliers is not presented.
25
Report of the Directors
Connected Transactions
A summary of the significant connected transactions of the Group is set out in note 32 to
the financial statements. In the opinion of the executive Directors and the non-executive
Directors, these transactions were:
(i)
entered into in the usual and ordinary course of business of the Group;
(ii)
entered into in accordance with the terms of the respective agreements governing
such transactions; and
(iii)
entered into on normal commercial terms and were fair and reasonable so far as the
shareholders of the Company are concerned.
Fixed Assets
Details of the movements in fixed assets of the Company and the Group during the Period
are set out in note 10 to the financial statements.
Capital Commitments
Details of capital commitments of the Company and the Group as at 31 December 1997
are set out in note 28 to the financial statements.
26
Particulars of the Company’s subsidiaries, are set out in note 14 to the financial statements.
Subsidiaries
Capitalization of Interest
During the Period, interest capitalized to construction in progress amounted to approximately
Rmb55,614,000.
Share Capital
Details of movements in the share capital of the Company during the Period, together with
the reasons thereof, are set out in note 25 to the financial statements.
Reserves
Details of movements in the reserves of the Company and the Group during the Period are
set out in note 26 to the financial statements.
Report of the Directors
27
Substantial Shareholders
As at 31 December 1997, the following are interests of 10% or more in the share capital of
the Company which were recorded in the register of interests in shares required to be kept
by the Company pursuant to Section 16 (1) of the Securities (Disclosure of Interest) Ordinance
(“SDI Ordinance”):
Number of shares
Percentage
Provincial Investment Co
2,909,260,000
67%
HKSCC Nominees Limited
1,417,477,500
32.64%
(domestic shares)
(H Shares)
Save as disclosed above, no person had registered an interest in the share capital of the
Company that was required to be recorded under Section 16(1) of the SDI Ordinance.
Purchases, Sales or Redemption of the Company’s Listed Securities
Other than in connection with the Company's initial public offering, neither the Company
nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities
during the Period.
Bank Loans and Other Loans
Particulars of the bank loans and other loans of the Group and the Company are set out in
notes 20 and 21 to the financial statements.
Use of Proceeds of the Issue of H Shares
A total of Rmb3,524 million (approximately HK$3,293 million) was raised by the issue of H
Shares during the Period after the deduction of listing expenses of Rmb155 million
(approximately HK$145 million), which was used for the following purposes:
(1)
approximately Rmb388.5 million was used to repay the Company’s outstanding bank
loans and related interest expenses;
(2)
approximately Rmb637.5 million was injected into the Shangyu-Sanmen Road project.
Details of the Shangyu-Sanmen Road project are set out in note 29 to the financial
statements;
(3)
approximately Rmb160 million was invested in completing the Jiaxing Section of the
Shanghai-Hangzhou Expressway;
Report of the Directors
Use of Proceeds of the Issue of H Shares (continued)
(4)
approximately Rmb29.4 million was used to purchase approximately 2.44% of the
registered capital of Jiaxing Co. (Further details of the transaction are set out in note
32 to the financial statements); and
(5)
the remaining balance was placed as fixed or term deposits or otherwise invested in
short term investments.
Directors
The Directors during the Period were:
Executive Directors
Mr. Geng Xiaoping
Mr. Ying Shudeng
Mr. Fang Yunti
Mr. Xu Yikuang
Mr. Xuan Daoguang
Mr. Zhang Jingzhong
Ms. Zhang Chunming
Independent Non-executive Directors
Dr. Hu Hung Lick, Henry
Mr. Tung Chee Chen
28
All the Directors were appointed on 1 March 1997. In accordance with the Company’s
articles of association, all Directors continue to be in office.
Directors’ and Supervisors' Service Contracts
Each of the Directors and supervisors of the Company ("Supervisors") has entered into a
service agreement with the Company with effect from the date of the Company's
establishment for an initial term of three years.
Save as disclosed above, none of the Directors and Supervisors has entered into any service
contract with the Company which is not determinable by the Company within one year
without payment of compensation (other than statutory compensation).
Interests of Directors and Supervisors in contracts
None of the Directors and Supervisors and chief executive of the Company had a beneficial
interest in any material contract to which the Company or any of its subsidiaries, its fellow
subsidiaries or its holding company was a party, at the end of the Period or at any time
during the Period.
Report of the Directors
29
Directors’ and Supervisors' Interests in Shares
As at 31 December 1997, none of the Directors, Supervisors, chief executive of the Company
or their associates had any personal, family, corporate or other interests in any equity or
debt securities of the Company or any associated corporation, as defined in the SDI
Ordinance as recorded in the register required to be kept under section 29 of the SDI
Ordinance or as otherwise notified to the Company and the Hong Kong Stock Exchange
pursuant to the Model Code for Securities Transaction by Directors of Listed Companies.
Directors’ and Supervisors' Rights to Subscribe for Shares or Debentures
At no time during the Period was the Company or any of its subsidiaries, its fellow subsidiaries
or its holding company a party to any arrangement to enable any Directors, Supervisors or
chief executive of the Company to acquire benefits by means of the acquisition of shares
in, or debentures of the Company or any other body corporate. No rights to subscribe for
shares in, or debentures of, the Company have been granted by the Company to, nor have
any such rights been exercised by, any person during the Period and up to the date of this
report.
Directors’ and Supervisors' Remuneration
Fees
Basic salaries, housing, other allowance and benefits in kind
Pension scheme contributions
Bonuses paid and payable
Rmb’000
—
971
—
—
971
None of the Directors and Supervisors received remuneration in excess of HK$1 million.
The amount disclosed above included remuneration of HK$80,000 paid to each of the
independent non-executive Directors. There was no arrangement under which any of the
Directors or Supervisors had waived or agreed to waive any remuneration.
Highest Paid Individuals
The five highest paid individuals of the Company were all Directors. The aggregate amount
paid to them for the Period was approximately Rmb643,000. None of them received
remuneration in excess of HK$1 million.
Retirement Scheme
As stipulated by the State regulations of the PRC, the Company participates in a defined
contribution retirement scheme. All employees are entitled to an annual pension equal to
a fixed proportion of the average basic salary amount within the geographical area of their
last employment at their retirement date. The Company is required to make contributions
Report of the Directors
Retirement Scheme (continued)
to registered insurance companies at a rate of 23% of the average basic salaries of the
previous year within the geographical area where the employees are under employment
with the Company. The Company has no obligation for the payment of pension benefits
beyond such annual contributions to the registered insurance companies.
Pre-emptive Rights
There is no provision for pre-emptive rights in the Company’s articles of association or the
laws of the PRC which would oblige the Company to offer new shares on a pro rata basis to
existing shareholders.
Accommodation Benefits for Employees
According to relevant rules and regulations in the PRC, the Group and its employees are
required to contribute to an accommodation fund, being a certain percentage of the salaries
and wages of the employees. There are no further obligations beyond the contribution to
the accommodation fund.
Disposal of Staff Quarters
The Company does not own any staff quarters and has not disposed of any staff quarters
during the Period.
30
any adverse impact on the Company’s operations.
Recent Economic Developments
The Directors are of the view that the recent economic developments in Asia do not have
Compliance with the Code of Best Practice
In the opinion of the Directors, the Company has complied with the Code of Best Practice
as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited ("Listing Rules") since the listing of the H Shares on 15
May 1997, except for full board meetings (within the meaning of the Appendix 14 of Listing
Rules) held during the Period due to personal commitments of the non-executive Directors.
Auditors
Ernst & Young will retire, and a resolution for their reappointment, as international auditors
of the Company will be proposed at the forthcoming annual general meeting.
On behalf of the Board
Geng Xiaoping
Chairman and General Manager
Hangzhou, Zhejiang Province, the PRC
24 March 1998
Report of the Supervisory Committee
Dear Shareholders,
The Supervisory Committee, which comprises three supervisors, was established upon the
incorporation of the Company in accordance with the PRC Company Law and the articles
of association of the Company. The major tasks of the Supervisory Committee are to carry
out the supervisory duties according to law and protect the lawful rights and interests of
the shareholders and the Company. The scope of its task includes :
1.
supervising the Directors, general manager and senior management staff. The
Supervisory Committee supervises the acts of the Directors, general manager and
other senior management staff in business operations and daily affairs mainly by
attending board meetings and participating in major events of the Company; and
2.
examining the operation and financial conditions of the Company.
The Supervisory Committee is of the opinion that the Directors, general manager and other
senior management staff of the Company have implemented all the resolutions passed in
general meetings in good faith, and they have been fully committed to their jobs and
conduct the business according to applicable laws. The Supervisory Committee has not
noticed any act of the Company and members of the board which violates any law, regulation
and provisions of the articles of association.
The Company was not engaged in any major litigation and there were no disputes between
any representative of the Supervisory Committee and any of the Directors and no litigation
has been instituted against any of the Directors.
The Supervisory Committee has examined the financial reports for the year 1997 prepared
by domestic and international accountants which the Directors intend to deliver to the
shareholders. In our opinion, these reports have been prepared in compliance with the
relevant laws, regulations and provisions of the articles of association and give a true and
fair view of the operating results and asset position of the Company.
On behalf of the Supervisory Committee
Xia Linzhang
Chairman of the Supervisory Committee
Hangzhou, Zhejiang Province, the PRC
24 March 1998
31
Report of the International Auditors
(cid:1) (cid:2) ! " # $ %
To the shareholders
Zhejiang Expressway Co., Ltd.
(Established in the People’s Republic of China with limited liability)
We have audited the financial statements on pages 33 to 57 which have been prepared in
accordance with accounting principles generally accepted in Hong Kong.
Respective responsibilities of directors and auditors
The Company’s directors are responsible for the preparation of financial statements which
give a true and fair view. In preparing financial statements which give a true and fair view it
is fundamental that appropriate accounting policies are selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on those
statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Statements of Auditing Standards issued by
the Hong Kong Society of Accountants. An audit includes an examination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial statements. It also
includes an assessment of the significant estimates and judgments made by the directors in
the preparation of the financial statements, and of whether the accounting policies are
appropriate to the Company’s and the Group’s circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations
which we considered necessary in order to provide us with sufficient evidence to give
reasonable assurance as to whether the financial statements are free from material
misstatement. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
Opinion
In our opinion the financial statements give a true and fair view, in all material respects, of
the state of affairs of the Company and the Group as at 31 December 1997 and of the profit
and cash flows of the Group for the period from 1 March 1997 (date of the Company’s
establishment) to 31 December 1997 and have been properly prepared in accordance with
the disclosure requirements of the Hong Kong Companies Ordinance.
Ernst & Young
Certified Public Accountants
Hong Kong
24 March 1998
32
Consolidation Profit and Loss Account
Period from 1 March 1997 (date of establishment) to 31 December 1997
Notes
Rmb’000
TURNOVER
OPERATING PROFIT BEFORE EXCEPTIONAL ITEM
Exceptional item
OPERATING PROFIT BEFORE TAXATION
Taxation
PROFIT BEFORE MINORITY INTERESTS
Minority interests
NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
Transferred to reserves
Dividends
RETAINED PROFITS AT THE END OF THE PERIOD
3
4
5
6
7
26
8
376,785
329,044
25,355
354,399
(53,085)
301,314
(15,986)
285,328
(45,253)
(69,490)
170,585
EARNINGS PER SHARE
9
7.15 cents
The notes on pages 37 to 57 form an integral part of these financial statements.
33
Consolidated Balance Sheet
31 December 1997
FIXED ASSETS
CONSTRUCTION IN PROGRESS
DEFERRED COSTS
OPERATING RIGHTS
LONG TERM INVESTMENTS
CURRENT ASSETS
CURRENT LIABILITIES
NET CURRENT ASSETS
TOTAL ASSETS LESS CURRENT LIABILITIES
LONG TERM BANK LOANS
OTHER LONG TERM LOANS
DEFERRED TAXATION
MINORITY INTERESTS
SHARE CAPITAL
RESERVES
Notes
Rmb’000
10
11
12
13
15
16
20
21
24
25
26
5,571,783
1,643,231
3,181
256,378
11,149
7,485,722
3,980,655
900,218
3,080,437
10,566,159
125,000
1,570,335
3,042
667,714
8,200,068
4,343,115
3,856,953
8,200,068
Geng Xiaoping
Director
Ying Shudeng
Director
The notes on pages 37 to 57 form an integral part of these financial statements.
34
Consolidated Cash Flow Statement
Period from 1 March 1997 (date of establishment) to 31 December 1997
Notes
Rmb’000
NET CASH INFLOW FROM OPERATING ACTIVITIES
27(a)
423,159
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received
Interest paid
Dividends paid to minority interests
27(b)
Net cash inflow from returns on investments and servicing of finance
19
32
27(b)
TAXATION
Taxes paid
INVESTING ACTIVITIES
Purchases of fixed assets
Increase in time deposits
Additions to construction in progress
Prepayment for the Shangsan Agreement
Increase in long term investments
Acquisition of additional interest in a subsidiary
Net cash outflow from investing activities
NET CASH OUTFLOW BEFORE FINANCING ACTIVITIES
FINANCING ACTIVITIES
Issue of share capital
Share issue expenses
New long term loans
New short term loans
Repayment of loans
Minority interests
Net cash inflow from financing activities
INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of the Period
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances
Time deposits
144,761
(105,455)
(6,145)
33,161
(35,746)
(8,390)
(2,049,865)
(624,348)
(637,500)
(4,849)
(29,362)
(3,354,314)
(2,933,740)
3,655,382
(154,893)
486,222
174,679
(621,015)
135,069
3,675,444
741,704
105,042
846,746
840,746
6,000
846,746
The notes on pages 37 to 57 form an integral part of these financial statements.
35
Balance Sheet
31 December 1997
FIXED ASSETS
CONSTRUCTION IN PROGRESS
OPERATING RIGHTS
INTERESTS IN SUBSIDIARIES
CURRENT ASSETS
CURRENT LIABILITIES
NET CURRENT ASSETS
TOTAL ASSETS LESS CURRENT LIABILITIES
LONG TERM BANK LOANS
OTHER LONG TERM LOANS
DEFERRED TAXATION
SHARE CAPITAL
RESERVES
Notes
Rmb’000
10
11
12
14
15
16
20
21
24
25
26
5,075,424
10,633
203,378
777,299
6,066,734
3,627,944
530,220
3,097,724
9,164,458
125,000
842,635
3,042
8,193,781
4,343,115
3,850,666
8,193,781
Geng Xiaoping
Director
Ying Shudeng
Director
The notes on pages 37 to 57 form an integral part of these financial statements.
36
Notes to Financial Statements
31 December 1997
1.
COMPANY REORGANIZATION AND PRINCIPAL ACTIVITIES
Zhejiang Expressway Co., Ltd. (the “Company”) was established as a joint stock limited company in the People’s
Republic of China (the “PRC”) on 1 March 1997. The principal activities of the Company and its subsidiaries
(hereinafter collectively referred to as the “Group”) are the investment in, the construction, operation and
management of high grade roads. In addition, the Company has the rights to develop and operate certain
ancillary services such as automobile servicing and fuel facilities.
Before the establishment of the Company and the corporate reorganization described below was effected,
Zhejiang Provincial High Class Highway Investment Company Limited (“Provincial Investment Co”), owned the
assets and liabilities of the Company’s investments in the Hangzhou-Ningbo Expressway, the Hangzhou Section
of the Shanghai-Hangzhou Expressway, a 51% equity interest in Zhejiang Yuhang Expressway Company Limited
(“Yuhang Co”), which owned the Yuhang Section of the Shanghai-Hangzhou Expressway, and a 51% equity
interest in Zhejiang Jiaxing Expressway Company Limited (“Jiaxing Co”), which owned the Jiaxing Section of
the Shanghai-Hangzhou Expressway (hereinafter collectively referred to as the “Relevant Investments of the
Old Group”).
Provincial Investment Co and its subsidiaries are hereinafter collectively referred to as the “Old Group”.
As of the Company’s date of establishment, the Company issued 2,909,260,000 fully paid domestic shares of
Rmb1 each to Provincial Investment Co as consideration for the acquisition of the exclusive operating rights
relating to the Hangzhou-Ningbo Expressway and the Hangzhou Section of the Shanghai-Hangzhou Expressway,
together with the following assets and liabilities (hereinafter collectively referred to as the “Selected Assets and
Liabilities”):
(1)
certain assets and liabilities of Provincial Investment Co, which included all the fixed assets and other
long term assets, together with the current assets and liabilities relating to the daily operation of the
Hangzhou-Ningbo Expressway and the Hangzhou Section of the Shanghai-Hangzhou Expressway and
all bank loans and other loans as at 30 November 1996;
(2)
a 51% interest in Yuhang Co; and
(3)
a 51% interest in Jiaxing Co.
The Selected Assets and Liabilities together with the operating rights were revalued to Rmb4,475,785,000 by
Zhejiang Assets Evaluation Company and Zhejiang Provincial Land Evaluation & Advisory Centre on 30 November
1996 in accordance with the guidelines set out by the PRC Ministry of Finance.
The Company was listed on The Stock Exchange of Hong Kong Limited on 15 May 1997, by placing a public
offer of 1,433,854,500 overseas listed foreign shares (“H Shares”) and of which, 187,024,500 H Shares were
issued as a result of the oversubscription of the initial offering.
37
Notes to Financial Statements
31 December 1997
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting
Practice (“HKSSAP”), accounting principles generally accepted in Hong Kong and the disclosure requirements
of the Hong Kong Companies Ordinance. The pro forma consolidated profit and loss account, which is presented
for information purposes only, shows the results of the Group for the two years ended 31 December 1997 as if
the Group structure has been in existence since 1 January 1996.
Basis of consolidation
The consolidated financial statements include the audited financial statements of the Company and its subsidiaries
for the ten months ended 31 December 1997 ( the “Period”). The results of subsidiaries acquired or disposed
of during the Period are consolidated from their effective dates of acquisition or disposal. All significant inter-
company transactions and balances are eliminated on consolidation.
Goodwill
Goodwill arising on consolidation of subsidiaries and on acquisition of associated companies represents the
excess purchase consideration paid for subsidiaries/associates over the fair values ascribed to the net underlying
assets acquired and is eliminated against reserves in the year of acquisition.
Subsidiaries
Interests in subsidiaries are stated at cost unless, in the opinion of the directors, there have been permanent
diminutions in value, when they are written down to values determined by the directors.
Related parties
A related party is a company or a government body in which one or more of the beneficial shareholders of the
Company or its subsidiaries have a beneficial interest therein or are in a position to exercise significant influence.
Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase
price, cost transferred from construction in progress and any directly attributable cost of bringing the asset to
its present working condition and location for its intended use. Expenditures incurred after the tangible fixed
assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged
to the profit and loss account in the period in which they are incurred. In situations where it can be clearly
demonstrated that the expenditure has resulted in an increase in future economic benefits expected to be
obtained from the use of the tangible fixed assets, the expenditure is capitalized as an additional cost of the
tangible fixed assets.
Depreciation of expressways and bridges is provided by using the sinking fund method whereby the aggregate
annual depreciation amounts, compounded at an average rate of 7% per annum, up to the expiry of the
underlying 30 year expressway concession period will equal the total cost of the expressways and bridges.
Amortization of land is provided for on a straight-line basis to write off the valuation of the land use rights over
the underlying 30 year expressway concession period.
38
Notes to Financial Statements
31 December 1997
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fixed assets and depreciation (continued)
Depreciation of fixed assets other than expressways, bridges and land is provided for on a straight-line basis to
write off the cost of the assets, less their estimated residual values, being 3% of the cost, over their estimated
useful lives. The principal annual rates used for this purpose are as follows:
Toll stations and ancillary facilities
Communication and signalling equipment
Motor vehicles
Machinery and equipment
Construction in progress
Estimated
useful life
30 years
10 years
8 years
5-8 years
Annual
depreciation
rate
3.2%
9.7%
12%
12-19.4%
Construction in progress represents costs incurred in the construction of expressways and bridges. Cost comprises
direct costs of construction as well as interest charges and certain exchange differences related to funds borrowed
during the periods of construction, installation and testing. No provision for depreciation is made on construction
in progress until such time as the relevant assets are completed and put into use.
Operating rights
Operating rights represent the rights to operate the expressways and are stated at valuation less accumulated
amortization.
Amortization is provided on a straight-line basis over the periods of operating rights granted to the Company
and its subsidiaries.
Revenue
Revenue is recognized when it is probable that the economic benefits will flow to the Group and when the
revenue can be measured reliably, on the following bases:
— toll revenue, net of any applicable revenue taxes, when received; and
— interest, on a time proportion basis.
Taxation
PRC income tax is provided at rates applicable to enterprises in the PRC on income for financial reporting
purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes,
based on existing PRC income tax legislation, practice and interpretations thereof.
Deferred taxation is provided, using the liability method, on all significant timing differences to the extent it is
probable that the liability will crystallize in the foreseeable future. A deferred tax asset is not recognized until its
realization is assured beyond reasonable doubt.
39
Notes to Financial Statements
31 December 1997
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency transactions
The financial records of the Company and its subsidiaries are maintained and the financial statements are
stated in Renminbi (“Rmb”).
Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at
the applicable rates of exchange ruling at that date. Exchange differences are dealt with in the profit and loss
account unless such exchange differences relate to funds borrowed specifically for the financing of construction
of expressways and bridges in which case they are capitalized to the extent that they can be regarded as an
adjustment to interest costs.
Capitalization of borrowing costs
Borrowing costs that are directly attributable to the construction of expressways, tunnels and bridges are
capitalized as part of the cost of such assets when it is probable that they will result in future economic benefits
to the Group and the costs can be measured reliably. Other borrowing costs are recognized as an expense in
the period in which they are incurred.
The amount of borrowing costs capitalized is determined by reference to the actual borrowing costs incurred
on funds borrowed specifically for the construction of expressways, tunnels and bridges during the period less
any investment income arising from the temporary investment of those borrowings.
Capitalization of borrowing costs on funds borrowed specifically for the construction of completed expressway
sections ceases when the construction of such expressway sections is completed and the section completed is
capable of commencing toll operations.
Leased assets
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are
accounted for as operating leases. Rentals applicable to such operating leases are charged to the profit and
loss account on a straight-line basis over the lease terms.
Investments
Investments held on a long term basis are stated at cost less provisions for any permanent diminutions in values
on an individual investment basis.
Short term investments are stated at the lower of cost and market value.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined on the weighted
average basis. Net realizable value is based on estimated selling prices less any further costs expected to be
incurred to completion and disposal.
Deferred costs
40
of commencement of operations. They are stated at cost less accumulated amortization.
Deferred costs include deferred pre-operating expenses and are amortized over 5 years starting from the date
Notes to Financial Statements
31 December 1997
3.
TURNOVER
Turnover represents toll income from operation of expressways, net of relevant revenue taxes.
Toll income
Less: Revenue taxes
The Company and its subsidiaries are subject to the following types of revenue taxes:
— Business tax (“BT”), levied at 5% of toll income;
— City Development Tax, levied at 1% - 7% of BT; and
— Education Supplementary Tax, levied at 3.5% - 4% of BT.
4.
OPERATING PROFIT BEFORE EXCEPTIONAL ITEM
The Group’s operating profit before exceptional item is arrived at after charging/(crediting):
Depreciation charges
Operating lease rentals
— land and buildings
Interest expense on:
— bank loans
— other loans
Less: Amount capitalized in construction in progress and fixed assets
Interest income
Less: Amount capitalized in construction in progress and fixed assets
Interest expense/(income), net
Amortization of deferred costs
Amortization of operating rights
Profit on disposal of short term investments
Directors’ remuneration:
Fees
Other emoluments
Auditors’ remuneration
Pension cost
Exchange differences incurred, net
Less: Amount capitalized in construction in progress and fixed assets
Exchange differences, net
Rmb’000
398,468
(21,683)
376,785
Rmb’000
58,549
1,746
29,325
130,184
(69,237)
90,272
(119,406)
13,623
(105,783)
(15,511)
745
4,622
(52,347)
—
951
1,006
988
(2,620)
3,021
401
41
Notes to Financial Statements
31 December 1997
5.
EXCEPTIONAL ITEM
The exceptional item represents interest earned on the oversubscription monies of the Company’s H Shares.
6.
TAXATION
No Hong Kong profits tax has been provided as the Group had no taxable profit in Hong Kong during the
Period.
The Group was subject to Enterprise Income Tax (“EIT”) levied at a rate of 33% of taxable income based on
income for financial reporting purposes prepared in accordance with the laws and regulations in the PRC.
Pursuant to directives numbered 1997 (27) dated 20 February 1997 and 1997(53) dated 11 August 1997 issued
by the Zhejiang Provincial People’s Government, the Company is entitled to a refund from the Zhejiang Finance
Bureau of an amount equal to 18% of the Company’s taxable income in respect of EIT paid to the Zhejiang
Taxation Bureau with effect from 1 March 1997, being the date of establishment of the Company. Such a tax
refund is also applicable to Yuhang Co and Jiaxing Co, with effect from 15 May 1997, being the date of listing
of the Company’s shares on The Stock Exchange of Hong Kong Limited, pursuant to directives numbered 1997
(68) dated 2 April 1997 and 1997(67) dated 2 April 1997, issued by the Yuhang Municipal Government and the
Jiaxing Municipal Government, respectively. However, there is no assurance that the Company, Yuhang Co
and Jiaxing Co will continue to enjoy such preferential tax treatment in the future.
Taxation charged
Taxation refundable
PRC taxation
Deferred (note 24)
Group
Rmb’000
110,095
(60,052)
50,043
3,042
53,085
7.
NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
Net profit attributable to shareholders dealt with in the financial statements of the Company is
Rmb275,074,000.
8.
DIVIDENDS
Proposed final dividend Rmb0.016 (approximately HK$0.015) per share
9.
EARNINGS PER SHARE
Company
Rmb’000
69,490
42
Rmb285,328,000 and the weighted average of 3,986,994,000 shares in issue during the Period.
The calculation of earnings per share is based on the net profit attributable to shareholders for the Period of
Notes to Financial Statements
31 December 1997
10.
FIXED ASSETS
Group
Toll
Communi-
stations
Expressways
and
cation
and
Machinery
and
ancillary
signalling
Motor
and
Land
bridges
facilities
equipment
vehicles
equipment
Total
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Cost:
At 1 March 1997
527,628
4,908,585
69,949
Additions
—
40,700
415
2,109
195
12,377
4,642
60,595
5,581,243
3,137
49,089
At 31 December 1997
527,628
4,949,285
70,364
2,304
17,019
63,732
5,630,332
Accumulated depreciation:
At 1 March 1997
—
—
Provided during the Period
6,326
43,406
At 31 December 1997
6,326
43,406
Net book value:
—
1,833
1,833
—
181
181
—
1,500
1,500
—
—
5,303
58,549
5,303
58,549
At 31 December 1997
521,302
4,905,879
68,531
2,123
15,519
58,429
5,571,783
Company
Cost:
Toll Communi-
stations
cation
Expressways
and
and
Machinery
and
ancillary
signalling
Motor
and
Land
bridges
facilities equipment
vehicles equipment
Total
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
At 1 March 1997
350,384
4,592,253
65,269
2,109
11,919
60,440
5,082,374
Additions
—
40,700
287
195
4,642
2,847
48,671
At 31 December 1997
350,384
4,632,953
65,556
2,304
16,561
63,287
5,131,045
Accumulated depreciation:
At 1 March 1997
—
—
—
Provided during the Period
6,326
40,660
1,759
At 31 December 1997
6,326
40,660
1,759
—
181
181
—
—
—
1,500
5,195
55,621
1,500
5,195
55,621
Net book value:
At 31 December 1997
344,058
4,592,293
63,797
2,123
15,061
58,092
5,075,424
All fixed assets are situated in the PRC.
43
Notes to Financial Statements
31 December 1997
11. CONSTRUCTION IN PROGRESS
Movements of construction in progress during the Period are as set out below:
At 1 March 1997
Additions, net
At 31 December 1997
12. OPERATING RIGHTS
Group
Company
Rmb’000
Rmb’000
1,079,270
563,961
1,643,231
—
10,633
10,633
Group
Company
Rmb’000
Rmb’000
Cost:
At 1 March and 31 December 1997
261,000
208,000
Amortization:
At 1 March 1997
Provided during the Period
At 31 December 1997
Net book value:
At 31 December 1997
13.
LONG TERM INVESTMENTS
Unlisted investments, at cost
Provision for diminution in value
14.
INTERESTS IN SUBSIDIARIES
Unlisted shares, at cost
Due from subsidiaries
44
—
4,622
4,622
—
4,622
4,622
256,378
203,378
Group
Company
Rmb’000
Rmb’000
11,149
—
11,149
—
—
—
Company
Rmb’000
758,943
18,356
777,299
Notes to Financial Statements
31 December 1997
14.
INTERESTS IN SUBSIDIARIES (continued)
Particulars of the Company's subsidiaries, all of which are directly held, are as follows:
Percentage of
Issued &
equity
Date and
fully paid
attributable
place of
registered
to the
registration
capital
Company
Principal activities
Name of
subsidiaries
Zhejiang Yuhang
Note 1
75,222,997
51%
Construction and
Expressway
Company Limited
(“Yuhang Co”)
management of the
Yuhang Section of
the Shanghai-
Hangzhou Expressway
Zhejiang Jiaxing
Note 2
1,159,200,000
53.44%
Construction and
Expressway
Company Limited
(“Jiaxing Co”)
management of the
Jiaxing Section of the
Shanghai-Hangzhou
Expressway
Zhejiang Gaotong
Note 3
5,000,000
80%
Processing,
Stone Developing
Company Limited
(“Gaotong”)
designing and selling
of stone and quarry
materials
Note 1.
Yuhang Co was established on 7 June 1994 in the PRC as a joint stock limited company and was subsequently restructured into a
limited liability company under its current name on 28 November 1996.
Note 2.
Jiaxing Co was established on 30 June 1994 in the PRC as a joint stock limited company and was subsequently restructured into a
limited liability company under its current name on 29 November 1996.
Note 3. Gaotong was established on 3 November 1997 in the PRC as a limited liability company.
45
Notes to Financial Statements
31 December 1997
15. CURRENT ASSETS
Cash and bank balances
Time deposits
Short term investments
Accounts receivable
Profits tax refundable
Inventories
Prepayments, deposits and other receivables
Due from related parties
16. CURRENT LIABILITIES
Bank loans
Other loans
Accounts payable
Other payables and accrued liabilities
Due to related parties
Due to holding company
Profits tax payable
Other taxes payable
Proposed final dividends
17.
SHORT TERM INVESTMENTS
Investments in government debentures, at cost
Provision for diminution in value
Market value of investments
Group
Company
Notes
Rmb’000
Rmb’000
17
18
19
22
840,746
813,367
2,055,865
2,042,865
21,991
9,629
17,172
400
21,991
9,629
9,496
262
1,025,733
730,334
9,119
—
3,980,655
3,627,944
Group
Company
Notes
Rmb’000
Rmb’000
20
21
22
23
8
284,679
244,022
31,030
166,068
25,338
19,779
42,447
17,365
69,490
279,679
84,702
1,657
50,719
3,722
13,287
17,409
9,555
69,490
900,218
530,220
Group
Company
Rmb’000
Rmb’000
21,991
—
21,991
21,991
21,991
—
21,991
21,991
46
18. ACCOUNTS RECEIVABLE
Accounts receivable
Provision for doubtful debts
Accounts receivable, net
Notes to Financial Statements
31 December 1997
Group
Company
Rmb’000
Rmb’000
9,629
—
9,629
9,629
—
9,629
19.
PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
Prepayments for the Shangsan Agreement (Note 29)
637,500
637,500
Group
Company
Note
Rmb’000
Rmb’000
Prepayment to contractors in relation to
construction of expressways
Others
20.
BANK LOANS
Balances due:
Within one year
In the second year
In the third to fifth years, inclusive
370,888
17,345
79,662
13,172
1,025,733
730,334
Group
Company
Note
Rmb’000
Rmb’000
284,679
105,000
20,000
279,679
105,000
20,000
409,679
404,679
Portion classified as current liabilities
16
(284,679)
(279,679)
Portion classified as long term liabilities
125,000
125,000
Included in the total bank loans of Rmb409,679,000, Rmb120,000,000 is secured by time deposits of
Rmb111,000,000, US$6,000,000 is secured by time deposits of HK$46,497,000 and Rmb5,000,000 is guaranteed
by related parties. The remaining balance is unsecured.
The bank loans bear interest at rates ranging from 6.6% to 13.14% per annum.
47
Notes to Financial Statements
31 December 1997
21. OTHER LOANS
Group
Company
Note
Rmb’000
Rmb’000
Balances due:
Within one year
In the second year
In the third to fifth years, inclusive
Thereafter
Portion classified as current liabilities
16
244,022
158,234
307,562
1,104,539
1,814,357
(244,022)
84,702
62,098
139,266
641,271
927,337
(84,702)
Portion classified as long term liabilities
1,570,335
842,635
Other loans are unsecured and bear interest at rates ranging from 3% to 14.5% per annum.
22.
BALANCES WITH RELATED PARTIES
The amounts due from related parties are unsecured, bear interest at 7.2% per annum and are repayable within
1 year.
The amounts due to related parties are unsecured, interest-free and have no fixed terms of repayment.
23. DUE TO HOLDING COMPANY
The amount due to holding company is unsecured, interest-free and has no fixed term of repayment.
24. DEFERRED TAXATION
At 1 March 1997
Charge for the Period (note 6)
At 31 December 1997
Group
Company
Rmb’000
Rmb’000
—
3,042
3,042
—
3,042
3,042
The deferred taxation of the Company and the Group is made in respect of the difference in income recognition
for accounting and taxation purposes of interest income arising from the oversubscription monies of the H
Shares proceeds.
48
25.
SHARE CAPITAL
Registered, issued and fully paid:
Domestic shares of Rmb1.00 each
H Shares of Rmb1.00 each
Notes to Financial Statements
31 December 1997
Number
of shares
Rmb’000
2,909,260,000
1,433,854,500
2,909,260
1,433,855
4,343,114,500
4,343,115
The domestic shares are not currently listed on any stock exchange.
The H Shares have been listed on The Stock Exchange of Hong Kong Limited since 15 May 1997.
All the domestic shares and H Shares rank pari passu with each other as to dividends and voting rights.
During the Period, the following changes in the Company’s share capital took place:
(a)
On the date of establishment, 1 March 1997, the registered share capital of the Company was
Rmb2,909,260,000 consisting of 2,909,260,000 domestic shares of Rmb1.00 each, all of which were
issued and credited as fully paid in consideration for the acquisition of the Selected Assets and Liabilities
together with the operating rights relating to the Hangzhou-Ningbo Expressway and the Hangzhou
Section of the Shanghai-Hangzhou Expressway transferred from Provincial Investment Co at valuation of
Rmb4,475,785,000.
(b)
On 15 May 1997, 1,433,854,500 H Shares of Rmb1.00 each were issued to public investors outside the
PRC at HK$2.38 each, for a total cash consideration of approximately Rmb3,524,000,000 (approximately
HK$3,293,458,000), net of share issue expenses.
49
Notes to Financial Statements
31 December 1997
26.
RESERVES
Share
Capital/
Statutory
Public
premium (Goodwill)
surplus
welfare
Retained
account
reserve
reserve
fund
profits
Total
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Group
At 1 March 1997
Arising on issue of H Shares
Share issue expenses
Goodwill arising on acquisition
of further interests in a subsidiary
Net profit for the Period
Transfer from/(to) reserves
Dividends (note 8)
1,578,448
2,221,527
(154,893 )
—
—
—
—
2,850
—
—
(6,817 )
—
—
—
—
—
—
—
—
—
—
—
—
—
— 1,581,298
— 2,221,527
—
(154,893 )
—
(6,817 )
285,328
285,328
30,169
15,084
(45,253 )
—
—
—
(69,490 )
(69,490 )
At 31 December 1997
3,645,082
(3,967 )
30,169
15,084
170,585
3,856,953
Company
At 1 March 1997
Arising on issue of H Shares
Share issue expenses
Net profit for the Period
Transfer from/(to) reserves
Dividends (note 8)
1,578,448
2,221,527
(154,893 )
—
—
—
At 31 December 1997
3,645,082
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
26,722
13,361
—
—
— 1,578,448
— 2,221,527
—
(154,893 )
275,074
275,074
(40,083 )
(69,490 )
—
(69,490)
26,722
13,361
165,501
3,850,666
In accordance with the Company Law of the PRC and the Company’s articles of association, the Company is
required to allocate 10% of its profit after taxation, as determined in accordance with the PRC accounting
standards and regulations applicable to the Company, to the statutory surplus reserve (the “SSR”) until such
reserve reached 50% of the registered capital of the Company. Subject to certain restrictions set out in the
Company Law of the PRC and the Company’s articles of association, part of the SSR may be converted to
increase share capital.
In accordance with the Company Law of the PRC, the Company is required to transfer 5% to 10% of its profit
after taxation to its statutory public welfare fund (the “PWF”) which is a non-distributable reserve other than in
the event of the liquidation of the Company. PWF must be used for capital expenditure on staff welfare
facilities and these facilities remain as property of the Company.
The directors of the Company have proposed to transfer Rmb26,722,000 and Rmb13,361,000 to the SSR and
the PWF, respectively. This represents 15% of the Company’s profit after taxation of Rmb267,218,000 determined
in accordance with PRC accounting standards. The transfer to the PWF is subject to shareholders’ approval at
the forthcoming annual general meeting.
50
Notes to Financial Statements
31 December 1997
26.
RESERVES (continued)
According to the relevant regulations in the PRC, the amount of profit available for distribution is the lower of
the amount determined under the PRC accounting standards and the amount determined under HKSSAP.
As at 31 December 1997, the Company had reserves of approximately Rmb157,645,000 available for distribution
by way of cash or in kind.
As at 31 December 1997, in accordance with the Company Law of the PRC, the amount of approximately
Rmb3,645,082,000 standing to the credit of the Company’s share premium account was available for distribution
by way of capitalization issues.
27. NOTES TO THE CASH FLOW STATEMENT
(a)
Reconciliation of operating profit to net cash inflow from operating activities:
Operating profit before taxation and minority interests
Depreciation charges
Decrease in deferred costs
Amortization of operating rights
Interest income
Interest expense
Decrease in prepayments, deposits and other receivables
Increase in due to holding company
Increase in due to related parties, net
Increase in other taxes payable
Decrease in other payables and accrued liabilities
Increase in inventories
Increase in accounts receivable
Increase in short term investments
Net cash inflow from operating activities
Rmb’000
354,399
58,549
5,963
4,622
(131,138)
90,272
66,655
9,840
18,422
13,862
(36,267)
(400)
(9,629)
(21,991)
423,159
51
Notes to Financial Statements
31 December 1997
27. NOTES TO THE CASH FLOW STATEMENT (continued)
(b)
Analysis of changes in financing during the Period:
At 1 March 1997
Cash inflows from financing
Arising from dilution of
minority interests
Dividends paid to
minority interests
Profit attributable to
minority shareholders
At 31 December 1997
Share capital
(including premium)
Loans
Minority
interests
Rmb’000
Rmb’000
Rmb’000
4,487,708
3,500,489
2,184,150
39,886
545,349
135,069
—
—
—
—
—
—
(22,545)
(6,145)
15,986
7,988,197
2,224,036
667,714
52
Notes to Financial Statements
31 December 1997
27. NOTES TO THE CASH FLOW STATEMENT (continued)
(c)
Major non-cash transaction
As more fully described in note 1 above, the Company received the Selected Assets and Liabilities
together with the exclusive operating rights of the Hangzhou-Ningbo Expressway and the Hangzhou
Section of the Shanghai-Hangzhou Expressway thereof from Provincial Investment Co by issuing
2,909,260,000 fully paid domestic shares of Rmb 1.00 each. Details of the Selected Assets and Liabilities
as at 1 March 1997 are set out below:
Net assets acquired:
Fixed assets
Construction in progress
Long term investments
Deferred costs
Operating rights
Cash and bank balances
Prepayments, deposits and other receivables
Due from related parties
Bank loans
Other loans
Accounts payable
Other payables and accrued liabilities
Other tax payables
Income tax payable
Due to holding company
Minority interests
Capital reserve on consolidation
Satisfied by:
2,909,260,000 domestic shares issued
Rmb’000
5,581,243
1,079,270
6,300
9,145
261,000
105,042
425,713
2,203
(607,224)
(1,576,926)
(71,720)
(153,718)
(3,503)
(10,978)
(9,940)
(545,349)
4,490,558
(2,850)
4,487,708
The net inflow of cash and cash equivalents in respect of the take over of assets and liabilities from
Provincial Investment Co was approximately Rmb 105,042,000.
(d)
The exceptional item had the following attributable cash inflows to the operating activities:
Interest earned on the oversubscription monies of the H Shares offering
Rmb’000
25,355
53
Notes to Financial Statements
31 December 1997
28. COMMITMENTS
Contracted, but not provided for
— Construction of expressways
— Proposed investments in the
Jiaxing section of the Shanghai-
Hangzhou Expressway and the
Shangyu-Sanmen Road
Authorized, but not contracted for
— Construction of expressways
— Proposed investment in the
Hangzhou-Nanjing Expressway
29.
POST BALANCE SHEET EVENTS
Group
Rmb’000
586,741
586,500
726,554
900,000
2,799,795
Company
Rmb’000
142,378
960,165
—
900,000
2,002,543
As of 18 December 1997, an agreement in respect of the proposed investment in the Shangyu-Sanmen Road
(the “Shangsan Agreement”) was entered into between Provincial Investment Co, Shangyu Municipal Transport
Bureau, Shengzhou Municipal Transport Bureau, Xinchang County Transport Development Company, Tiantai
County Transport Development Company and Huajian Transportation Economic Development Center, a
subsidiaries of the Ministry of Communications of the PRC, (hereinafter collectively referred to as the “Other
Parties”) and the Company to set up a limited liability company, Zhejiang Shangyu-Sanmen Class 1 Highway
Company Limited (the “Shangsan Co”). Shangsan Co was established on 1 January 1998. According to the
Shangsan Agreement, the Company will contribute Rmb1,224 million in cash for a 51% interest in the Shangsan
Co. Other Parties will contribute a total of Rmb1,176 million for an aggregate of 49% interest in the Shangsan
Co.
Pursuant to the Shangsan Agreement and a supplemental agreement, Shangsan Co will be principally engaged
in the development, operation, management and toll-collection of the Shangyu-Sanmen Road and the
development of other related businesses.
The Shangyu-Sanmen Road is a Class 1 Road which, upon completion, will run from Guzhu Interchange on the
Hangzhou-Ningbo Expressway to Wuao Interchange on the Ningbo-Taizhou-Wenzhou Expressway. The total
length of the Shangyu-Sanmen Road will be approximately 143km. The construction of the project is divided
into two phases. Phase 1, consisting of four short sections Shangyu, Shengzhou, Xinchang and Tiantai, has a
total length of 37.5km and has been operational since February 1997. The construction of the second phase
commenced in February 1998 and will be completed in four years. Upon completion the Shangyu-Sanmen
Road will connect with the Hangzhou-Ningbo Expressway and the Ningbo-Taizhou-Wenzhou Expressway.
54
Pursuant to the Shangsan Agreement and a supplemental agreement, the total investment of the Shangyu-
Sanmen Road is budgeted at approximately Rmb4,290 million.
Notes to Financial Statements
31 December 1997
30. DIFFERENCE IN FINANCIAL STATEMENTS PREPARED UNDER PRC AND HONG KONG
ACCOUNTING STANDARDS
Other than the difference in recognizing the interest income arising from oversubscription monies received on
listing of the Company’s H Shares as described below, there are no material differences between the Company’s
consolidated financial statements for the Period ended 31 December 1997 prepared in accordance with PRC
and Hong Kong accounting standards.
Under the PRC accounting standards, the interest income arising from H Shares oversubscription monies is
treated as deferred income and is amortised on a straight-line basis over 5 years. Under Hong Kong accounting
standards, the entire interest income net of related taxation is accounted for in the current period profit and
loss account.
31. ULTIMATE HOLDING COMPANY
In the opinion of the directors, the ultimate holding company of the Company is Zhejiang Provincial High Class
Highway Investment Company Limited, a state-owned enterprise established in the PRC.
32. CONNECTED TRANSACTIONS
The following is a summary of significant transactions carried out in the ordinary course of business between
the Company, its subsidiaries and certain government bodies in the Period:
Under the reorganization agreement, the Provincial Investment Co gave a number of undertakings to the
Company including a non-competition undertaking, a tax indemnity, an indemnity against losses incurred which
were not expressly transferred to the Company pursuant to the reorganisation and general indemnity provisions
against any breach of representation warranty and undertakings contained in the agreement.
The World Bank provided financing for the construction of the Shanghai-Hangzhou Expressway and the
Hangzhou-Ningbo Expressway through the Ministry of Finance and the Zhejiang Provincial Expressway Executive
Commission (the “Executive Commission”) which was responsible for the control of the construction and the
management of the Hangzhou-Ningbo Expressway and the Zhejiang Section of the Shanghai-Hangzhou
Expressway. The repayment responsibility for the financing provided for the Hangzhou-Ningbo Expressway
which amounted to US$112,000,000 as at 31 December 1997 was assumed by the Company. The loan repayment
responsibility for the Shanghai-Hangzhou Expressway which amounted to US$58,313,158 as at 31 December
1997 was assumed by Yuhang Co and Jiaxing Co.
Pursuant to a supplemental agreement dated 18 April 1997, the Company, Provincial Investment Co, Jiaxing
Co, Yuhang Co, the Executive Commission, the Yuhang Executive Commission and the Jiaxing Executive
Commission have agreed that the Company will take over the repayment responsibilities under the reorganization
agreement and in respect of the World Bank financing as separately agreed. Jiaxing Co and Yuhang Co shall
take over the repayment obligations with regard to World Bank financing for their respective sections. Appropriate
agreements were entered into between the Company and its subsidiaries and the executive commissions,
pursuant to which the Company and its subsidiaries will be charged the same rate of interest as that charged to
the executive commissions.
55
Notes to Financial Statements
31 December 1997
32. CONNECTED TRANSACTIONS (continued)
The Zhejiang Provincial Government provided a number of loans for the construction of the Shanghai-Hangzhou
Expressway. These loans were made available through the Yuhang Executive Commission and the Jiaxing
Executive Commission to Yuhang Co and Jiaxing Co, respectively in the amount of Rmb169 million and Rmb718
million. As at 31 December 1997, each of Yuhang Co and Jiaxing Co has agreed to repay the loans. All of these
loans are unsecured. The terms of the loans to the executive commissions are the same as those from the
respective executive commissions to the companies.
A management agreement in relation to the Yuhang Section of the Shanghai-Hangzhou-Ningbo Expressway
was entered into between the Company and Yuhang Co. The purpose of this agreement is to enable the
Company to ensure that the Yuhang Section, together with all other sections of the Shanghai-Hangzhou-Ningbo
Expressway, are operated and managed in a uniform manner, and to allocate the revenue, expenses and
maintenance obligations of the Yuhang Section on an agreed basis between the Company and Yuhang Co.
The Company purchased an additional 2.44% of the issued capital of Jiaxing Co for a cash consideration of
Rmb29.4 million from Provincial Investment Co.
A contract between the Company and the Executive Commission was reached whereby the Executive Commission
will enter into a number of contracts relating to Contract No. 8 on behalf of the Company for the purpose of
upgrading the Operating Systems (as defined in the section “Operation of the Expressway” of the prospectus)
of the Shanghai-Hangzhou-Ningbo Expressway. The Company will take the benefit of these contracts when
entered into and will assume the repayment obligations for any drawdowns on World Bank funding in respect
of Contract No. 8.
56
Notes to Financial Statements
31 December 1997
33.
PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
The following pro forma consolidated profit and loss account, which is presented for information purposes
only, has been prepared on the basis as if the current Group structure had been in existence since 1 January
1996.
Two months
Ten months
ended
ended
Year ended
31 December
28 February 1997 31 December
1997
1996
pro forma
1997
pro forma
pro forma
Rmb’000
Rmb’000
Rmb’000
Rmb’000
Turnover
63,004
376,785
439,789
273,843
Operating profit before exceptional item
17,827
329,044
346,871
159,964
Exceptional item
—
25,355
25,355
—
Operating profit before taxation
Taxation
Profit before minority interests
Minority interests
17,827
(5,554)
12,273
(1,269)
354,399
372,226
159,964
(53,085)
(58,639)
(60,296)
301,314
313,587
(15,986)
(17,255)
Net profit attributable to shareholders
11,004
285,328
296,332
99,668
186
99,854
Earnings per share
7.77 cents
3.43 cents
The pro forma earnings per share of 1997 is based on the pro forma net profit attributable to shareholders for
the year ended 31 December 1997 of Rmb296,332,000 and 3,812,785,000 shares, being the weighted average
of 2,909,260,000 domestic shares, as if they were issued on 1 January 1997, and the 1,433,854,500 H Shares
issued on 15 May 1997.
The pro forma earnings per share of 1996 is based on the pro forma net profit attributable to shareholders for
the year ended 31 December 1996 of Rmb99,854,000 and 2,909,260,000 domestic shares as if they were
issued on 1 January 1996.
34. APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on 24 March 1998.
57
Corporate Information
58
Company Secretary
Mr. Zhang Jingzhong
Authorised Representatives
Mr. Geng Xiaoping
Mr. Zhang Jingzhong
Statutory Address
78 Beishan Road
Hangzhou, Zhejiang
PRC
Tel:
86-571-7964605
Fax:
86-571-7963205
E-mail: zjewltd@public.hz.zj.cn
Place of Business in Hong Kong
c/o Ernst & Young
11th Floor, Tower 2
The Gateway
25-27 Canton Road
Kowloon
Hong Kong
H Share Registrar and Transfer Office
HKSCC Registrars Limited
2nd Floor, Vicwood Plaza
199 Des Voeux Road, Central
Hong Kong
Principal Bankers
Bank of China, Hong Kong Branch
China Investment Bank, Zhejiang Branch
Industrial & Commercial Bank of China,
Zhejiang Branch
Construction Bank of China, Zhejiang
Branch
Listing Information
H Shares
The Stock Exchange of Hong Kong
Limited
Code: 0576
Executive Directors
Geng Xiaoping
Ying Shudeng
Xu Yikuang
Fang Yunti
Zhang Jingzhong
Zhang Chunming
Xuan Daoguang
Independent Non-executive Directors
Hu Hung Lick, Henry
Tung Chee Chen
Supervisors
Xia Linzhang
Ge Ailian
Jiang Wenyao
Legal Advisers
As to Hong Kong law:
Herbert Smith
23rd Floor, Gloucester Tower
11 Pedder Street, Central
Hong Kong
As to PRC Law:
T & C Law Firm
18/F, Block A
100 Moqianshan Road,
Yaojian International Building,
Hangzhou, Zhejiang
PRC
Auditors and Reporting Accountants
Ernst & Young
Certified Public Accountants
15th Floor
Hutchison House
10 Harcourt Road, Central
Hong Kong
Sponsor
Kleinwort Benson Limited
33rd Floor, Jardine House
1 Connaught Place
Central
Hong Kong
(a joint stock limited company incorporated in the People’s Republic of China with limited liability)
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that the 1997 Annual General Meeting of Zhejiang Expressway Co., Ltd. (the
“Company”) will be held at 10:00 a.m. on Monday, 25 May 1998 at 78 Beishan Road, Hangzhou 310007, the
PRC for the conduct of the following business:
A.
As ordinary resolutions:—
1.
2.
3.
4.
5.
6.
To consider and approve the report of the Directors for the year 1997;
To consider and approve the report of the Supervisory Committee for the year 1997;
To consider and approve the audited financial statements for the year 1997;
To consider and approve the budget plan for the year 1998;
To consider and approve the proposed distribution of profits for the year 1997;
To consider and approve the re-appointment of Ernst & Young (Hong Kong Certified Public Accountants)
and Zhejiang Certified Public Accountants as the international auditors and the PRC auditors of the
Company respectively and to authorise the Board of Directors to fix their remunerations;
B.
As special resolutions:—
1.
To approve the Company’s allotting, issuing or otherwise dealing with, either separately or concurrently
not more than 20% of each of the existing issued domestic invested shares and overseas listed foreign
invested shares during the Relevant Period (as defined below) and to authorise the Board of Directors to
deal with all necessary matters relating to such allotment and issue.
For the purpose of this resolution, “Relevant Period” means the period from the date upon which this
resolution is passed until whichever is the earliest of:—
(a)
the last day of the twelve-month period from the date this resolution is passed; and
(b)
the revocation or variation of the authority given under this resolution by a special resolution of
the shareholders of the Company in general meeting.
1
2.
Subject to the passing of the resolution set out in paragraph 1 of this part B, to consider and approve
the following amendments to the Articles of Association of the Company and to authorise the Board of
Directors to file the amended Articles of Association with the relevant approval authority of the PRC:—
Article 18 be replaced in its entirety as follows:—
“ Article 18
As approved by the examination and approval authority authorised by the State Council,
the Company has issued a total of 4,343,114,500 ordinary shares. Upon the
establishment of the Company, 2,909,260,000 domestic invested shares were issued
to the promoter, Zhejiang Provincial High Class Highway Investment Company Limited
((cid:1)(cid:2) !"#$%&'()$*), representing approximately 67% of the total ordinary
shares issued by the Company.”
Article 19 be replaced in its entirety as follows:—
“Article 19
After the establishment of the Company, 4,343,114,500 ordinary shares were issued
of which 1,433,854,500 were issued as overseas listed foreign invested shares
representing approximately 33% of the total number of ordinary shares issued by the
Company. The shareholding structure of the Company comprises 4,343,114,500
ordinary shares of which 2,909,260,000 domestic invested shares are held by the
promoter, Zhejiang Provincial High Class Highway Investment Company Limited ((cid:1)(cid:2)
(cid:1)(cid:2) !"#$%&'"() and 1,433,854,500 overseas listed foreign invested shares
are held by holders of overseas listed foreign invested shares.
If the Company concurrently issues all of the domestic invested shares and overseas
listed foreign invested shares being 20% of each of the existing issued domestic invested
shares and overseas listed foreign invested shares pursuant to Article 89(1), the
shareholding structure of the Company shall comprise 5,211,737,400 ordinary shares
of which 3,491,112,000 shall be issued as domestic invested shares to Zhejiang Provincial
High Class Highway Investment Company Limited ((cid:1)(cid:2) !"#$%&'()$*)
and 1,720,625,400 shares shall be issued as overseas listed foreign invested shares to
holders of overseas listed foreign invested shares.”
By Order of the Board
Zhang Jingzhong
Company Secretary
Hangzhou, Zhejiang Province, the PRC
24 March 1998
2
Notes:
1.
Eligibility for attending the Annual General Meeting
Holders of H Shares who intend to attend the Annual General Meeting must give all transfer instruments
and the relevant shares certificates to the share registrars for H Shares of the Company, HKSCC Registrars
Limited, at or before 4:00 p.m. on Friday, 24 April 1998.
2.
Registration procedures for attending the Annual General Meeting
(i)
A shareholder or his proxy should produce proof of identity when attending the meeting. If a
holder of domestic invested share(s) appoints its legal representative to attend the meeting, such
legal representative shall produce proof of identity and a copy of the resolution of the board of
directors or other governing body of such shareholder appointing such legal representative to
attend the meeting.
(ii)
Holders of H Shares and domestic invested shares intending to attend the Annual General Meeting
should return the reply slip for attending the Annual General Meeting to the Company on or
before 5 May 1998.
(iii)
Shareholders may send the above registration documents to the Company in person, by post or
by fax.
3.
Proxy
(i)
A member eligible to attend the Annual General Meeting is entitled to appoint, in written form,
one or more proxies to attend and vote on behalf of him. A proxy need not be a member.
(ii)
A proxy should be appointed by a written instrument signed by the appointor or its attorney. If
the form of proxy is signed by the attorney of the appointor, the power of attorney or other
authorisation document(s) of such attorney should be notarised.
(iii)
To be valid, the power of attorney or other authorisation document(s) which have been notarised
together with the completed form of proxy must be delivered, in the case of holders of domestic
invested shares, to the Company and, in the case of holders of H Shares, to HKSCC Registrars
Limited, not less than 24 hours before the time designated for holding of the Annual General
Meeting.
(iv) A proxy may exercise the right to vote by a show of hands or by poll. However, if more than one
proxy is appointed by a shareholder, such proxies shall only exercise the right to vote on a poll.
4.
Closure of Register of Members
The register of members holding H Shares of the Company will be closed from 25 April 1998 to 25 May
1998 (both days inclusive).
3
5. Miscellaneous
(i)
The Annual General Meeting will not last for more than one day. Shareholders who attend shall
bear their own travelling and accommodation expenses.
(ii)
Share Registrars for H Shares of the Company, HKSCC Registrars Limited is at:
2/F, Vicwood Plaza
199 Des Voeux Road Central
Hong Kong
(iii)
The registered address of the Company is at:
No. 2 Villa, 78 Beishan Road
Hangzhou 310007,
The PRC
Telephone No.:
(+86)-571-7964605
Facsimile No.:
(+86)-571-7963205
4