Zhejiang Expressway Co., Ltd Annual Report 2001

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FY2001 Annual Report · Zhejiang Expressway Co., Ltd

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Contents

Company Profile

Particulars of Major Road Projects

Definition of Terms

Major Corporate Events

Financial and Operating Highlights

Chairman’s Statement

Management Discussion and Analysis

Frequently Asked Questions

Corporate Governance

Directors, Supervisors and Senior Management Profiles

Report of the Directors

Report of the Supervisory Committee

Report of the International Auditors

106

Notice of 2001 Annual General Meeting

110

Corporate Information

112

Location Map of Expressways Operated by the Group

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Company Profile

Zhejiang Expressway Co., Ltd. is an infrastructure company principally engaged in investing in,
constructing and managing high grade roads. The Company and its subsidiaries also carry out
certain ancillary businesses such as automobile servicing and the operations of gas stations
and billboard advertising along expressways.

The Company was incorporated on March 1, 1997 as the main vehicle of the Zhejiang Provincial
Government for investing in, constructing and operating expressways and class 1 roads in
Zhejiang Province.

The H Shares of the Company, which represent approximately 33% of the issued share capital
of the Company, were listed on the Hong Kong Stock Exchange in May 1997, and subsequently
obtained a secondary listing on the London Stock Exchange in May 2000.

On February 14, 2002, a Level I American Depositary Receipt program sponsored by the
Company in respect of its H Shares, with the Bank of New York as depositary, was established
in the United States and became effective. Each of the ADSs evidenced by the ADRs represents
30 deposited H Shares of the Company. The ADSs are traded on the over-the-counter market
in the United States. The H Shares of the Company also have a secondary listing on the
Unofficial Regulated Market of the Berlin Stock Exchange.

The Company intends to take advantage of the improved investment environment resulting
from the latest round of restructuring of State-owned assets. It will actively pursue potential
projects to further expand its toll road portfolio within Zhejiang Province, while keeping a look
out for suitable projects outside of the province.

Set out below is the corporate and business structure of the Group.

Holders of H
Shares

Provincial
Investment Co*

Huajian

33%

56%

11%

The Company

70%

99.99%

51%

63%

50%

27.58%

Advertising Co

Jiaxing Co

Yuhang Co

Shangsan Co

Petroleum Co

Shida Co

JoinHands
Technology

100%

Jiaxing
Section

88.1 km

Yuhang
Section

11.1 km

Hangzhou
Section

3.4 km

Advertising

Hangzhou -
Ningbo
Expressway

145.0 km

Shangsan
Expressway

142.0 km

Operation of
gas station
and sale of
petroleum
related
products

Development,
operation, and
management
Shida Road

Development
and application
of computer
technologies

Shanghai - Hangzhou Expressway
102.6 km

subsidiary

associates

jointly-controlled entity

* To be replaced by Communications Investment Group

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Particulars of Major Road Projects

Percentage of Ownership

Length in

Number of

Start of

Years of

Project

As at February 28, 2002

Kilometers

Lanes

Toll Stations

Service Areas

Operation

Remaining

Shanghai-Hangzhou Expressway

– Jiaxing Section

– Yuhang Section

– Hangzhou Section

Hangzhou-Ningbo Expressway

Shangsan Expressway

99.99%

51%

100%

63%

88.1

11.1

3.4

145.0

142.0

1998

1995 – 1998

1995

1992 – 1996

2000

Detailed locations of these projects are shown on the map provided in the center divide.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Definition of Terms

A Shares

ADR(s)

ADR Program

ADS(s)

Advertising Co

Board

Company

Communications Investment

Group

Directors

GDP

Group

H Shares

the domestic ordinary shares of RMB1.00 each in the share capital
of the Company proposed to be offered to the public in the PRC by
the Company

American Depositary Receipt(s)

American Depositary Receipt program

American Depositary Share(s)

Zhejiang Expressway Advertising Co., Ltd., a 70% owned subsidiary
of the Company

the board of Directors

Zhejiang Expressway Co., Ltd., a joint stock limited company
incorporated in the PRC with limited liability on March 1, 1997

Zhejiang Communications Investment Group Co., Ltd.
（浙江省交通投資集團有限公司）, a sole State-owned enterprise
established on December 29, 2001

the directors of the Company

gross domestic product

the Company and its subsidiaries

the overseas listed foreign shares of RMB1.00 each in the share
capital of the Company which are primarily listed on the Hong Kong
Stock Exchange and traded in Hong Kong dollars

Hong Kong Stock Exchange

The Stock Exchange of Hong Kong Limited

Huajian

Jiaxing Co

JoinHands Technology

Listing Rules

Period

Petroleum Co

Huajian Transportation Economic Development Center, a State-
owned enterprise

Zhejiang Jiaxing Expressway Co., Ltd., a 99.99% owned subsidiary
of the Company

JoinHands Technology Co., Ltd., a 27.58% owned associate of the
Company

the Rules Governing the Listing of Securities on the Hong Kong
Stock Exchange

the period from January 1 to December 31, 2001

Zhejiang Expressway Petroleum Development Co., Ltd., a 50%
owned associate of the Company

PRC

the People’s Republic of China

Provincial Investment Co

RMB

Shangsan Co

Shida Co

Zhejiang Provincial High Class Highway Investment Co., Ltd., the
former controlling shareholder of the Company, to be replaced by
the Communications Investment Group

Renminbi, the lawful currency of the PRC

Zhejiang Shangsan Expressway Co., Ltd., a 63% owned subsidiary
of the Company

Hangzhou Shida Highway Co., Ltd., a 50% jointly-controlled entity
of the Company

Supervisory Committee

the supervisory committee of the Company

Yuhang Co

Zhejiang Yuhang Expressway Co., Ltd., a 51% owned subsidiary of
the Company

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Major Corporate Events

January 4, 2001
The China Classification Society Quality Assurance Ltd. certified the quality system of the

Company in expressway management as conforming to Quality Standard GB/TI9002-1994

idt ISO9002:1994.

February 27, 2001
Trading of the H Shares of the Company on the Berlin Stock Exchange commenced following

a secondary listing on the Unofficial Regulated Market of the Berlin Stock Exchange.

March 5, 2001
Annual results for 2000 were announced in Hong Kong.

March 22, 2001
The Company held an extraordinary general meeting, authorizing the Company to issue not

more than 300 million A Shares to the public in the PRC.

May 11, 2001
A meeting of the Chairmen of the H Share toll road companies was held in Hangzhou.

June 4, 2001
The Company acquired a 2.1% and a 1.0% interest in the capital of Jiaxing Co.

December 26, 2001
The Ministry of Foreign Trade and Economic Cooperation of the PRC approved the transfer of

476,760,000 State-owned shares of the Company from Provincial Investment Co to Huajian.

December 27, 2001
The Company acquired a 1.5% and a 1.3% interest in the capital of Jiaxing Co, and a 2%

interest in the capital of Shangsan Co.

January 18, 2002
The Company further acquired a 9.9% interest in the capital of Jiaxing Co.

February 14, 2002
The United States Securities and Exchange Commission declared the registration statement in

respect of the ADSs evidenced by the ADRs representing deposited H Shares of the Company

effective.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Financial and Operating Highlights

Financial and Operating Highlights
Results

1997

1998

1999

2000

2001

Rmb’000

Year ended December 31

Turnover

463,692

655,069

1,050,498

1,188,604

1,722,517

Profit Before Tax

Tax

Minority Interests

372,226

547,100

706,552

879,752

1,235,540

(58,639 )

(17,255 )

(73,795 )

(68,914 )

(71,810 )

(86,431 )

(186,391 )

(57,360 )

(363,970)

(110,957)

Net Profit From Ordinary Activities

Attributable To Shareholders

296,332

404,391

548,311

636,001

760,613

Earnings Per Share (EPS)

7.15 cents

9.31 cents

12.62 cents

14.64 cents

17.51 cents

Return on Equity (ROE)

1997

1998

1999

2000

2001

ROE

3.61%

4.97%

6.50%

7.10%

8.19%

Monthly Average Daily Full Trip Traffic Volume of Shanghai-
Hangzhou-Ningbo Expressway

1998

1999

2000

2001

2002

January

February

March

April

May

June

July

August

September

October

November

December

21,804

20,952

9,881

9,683

11,096

12,159

11,485

11,264

11,004

11,115

12,448

12,710

13,028

13,424

12,559

11,688

13,686

15,061

14,474

14,066

14,546

15,204

16,610

17,012

16,744

16,386

17,125

13,853

18,082

19,458

19,061

17,496

17,058

17,738

18,750

18,300

18,155

17,990

17,290

18,450

20,557

20,993

20,776

19,962

19,520

21,172

22,666

21,887

22,219

21,525

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

2,100

1,800

1,500

1,200

900

600

300

2
0

Turnover

1,723

1,189

1,050

655

464

1997

1998

1999

2000

2001

EPS (RMB cents)

17.51

14.64

12.62

9.31

7.15

1997

1998

1999

2000

2001

900

800

700

600

500

400

300

200

100

Net Profit (RMB million)

761

636

548

404

296

1997

1998

1999

2000

2001

ROE (%)

8.19

7.10

6.50

4.97

3.61

1997

1998

1999

2000

2001

Full Trips

Monthly Average Daily Full Trip Traffic Volume of Shanghai-Hangzhou-Ningbo Expressway

23,000

21,000

19,000

17,000

15,000

13,000

11,000

9,000

7,000

5,000

3,000

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

1998

1999

2000

2001

2002

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Chairman’s Statement

Practicing Good Corporate Governance

Pursuing Growth in Shareholder Value

2001 was a satisfactory year. By relying on profit contributions from new expressway projects

and strong growth in traffic volume from existing expressways, the Company achieved a double-

digit profit growth for the fifth consecutive year. In Asiamoney’s 2001 Best Managed Companies

poll, the Company was nominated as one of the top ten China companies in the categories of

“Best Overall Managed Company”, “Best Overall Investor Relations” and “Treatment of Minority

Shareholders”. It was in fact the fourth time the Company was nominated into the lists by

investors. Recently, The ASSET magazine published the results of a survey regarding corporate

governance among Asian companies, and the Company was nominated as one of the best

companies in the PRC. This achievement is partly attributable to a favorable operating

environment, but more importantly, attributable to a quality focused management team with

clear vision and a strategy of steady growth concentrating on core businesses. While the

above nominations are recognitions of our achievement, we believe that there is room for us to

grow and to strive to attain even better results.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

We believe that the primary duty of the Directors and management of the Company is to

maintain sustained growth in shareholder value. Good corporate governance will enhance the

Company’s trustworthiness, sense of responsibility and transparency, thereby bringing direct

benefits to both investors and the Company. As a result, over the past few years, we have

actively implemented the principles of good corporate governance and view such efforts as a

long-term responsibility for the Company’s management.

The Company has enhanced the independence of the Board of Directors by appointing additional

independent non-executive directors. The Company appointed two independent non-executive

directors upon the establishment of the Company, and since March 2000, the number of

independent non-executive directors of the Company has increased to three, representing

one third of the members of the Board. The introduction of independent directors enables the

Board to make more fair and prudent decisions. In addition, an Audit Committee, a Strategy

Committee and a Nomination and Remuneration Committee have also been set up under the

Board, thereby making the operation of the Board more effective.

Huajian, a subsidiary of the China Merchants Group, officially became the second largest

substantial shareholder of the Company, thereby reducing the shareholding of Provincial

Investment Co in the Company from 67% to 56%. We believe that an appropriate dilution of

State-owned shares is conducive to the improvement of corporate governance.

Under the request of Zhejiang provincial government on the reorganisation of State-owned

assets, Provincial Investment Co will be replaced by the newly established Communications

Investment Group. As a result, all of the shares in the Company previously held by Provincial

Investment Co will be transferred to the Communications Investment Group. Communications

Investment Group is one of the State-owned asset management companies established by

Zhejiang provincial government, responsible for the management of the State-owned assets

of Zhejiang provincial government in the communications industry. I myself have been appointed

as Managing Director of Communications Investment Group. I am confident that

Communications Investment Group will provide strong support to the future development of

the Company.

I have been Chairman and General Manager of the Company for the past five years. Such an

arrangement was beneficial for the management and development of the Company when it

was at an infant stage. Now that the Company is operating smoothly, I believe that separating

the roles of Chairman and General Manager will be beneficial to the Company’s long-term

development. When I was re-elected as General Manager of the Company at the Board Meeting

on February 28, 2000, I indicated that these positions should be separated when the time was

right.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Chairman’s Statement (Cont’d)

The time has now arrived. On the one hand, a solid operating mechanism and a sound corporate

culture are now in place to ensure that the Company will continue to operate on the right track

and will be adaptable to changes. On the other hand, the emerging corporate governance

practice, both domestically and overseas, requires the separation of the roles of Chairman and

General Manager. I believe that the separation of the two roles will enhance the demarcation of

the different duties of these two positions, thereby serving to clearly distinguish the duties

between the board of directors and management.

I have resigned as General Manager of the Company, but will continue to serve as Chairman.

I believe that in this way I will be able to devote more time to focus on the planning of the long-

term development of the Company. I shall continue to provide direction at the Board of the

Company and to give my best efforts to enhance shareholder value.

I am very pleased to inform you that the position of General Manager of the Company will be

taken up by Mr. Fang Yunti. Mr. Fang has many years of experience in the management of

expressway and transportation operations, and participated in the establishment of the

Company. He has been a Director and Deputy General Manager of the Company for the past

five years, and is fully acquainted with the overall business operations of the Company. I believe

that under the leadership of the Board, the new management will be able to deliver further

growth and realize even better returns to shareholders, customers and staff.

Finally, I would like to express my sincerest gratitude to all of our staff and stakeholders for their

support and assistance during my office as General Manager.

Geng Xiaoping

Chairman

March 13, 2002

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Management Discussion and Analysis

Business Review

The Operating Environment

In the face of a global economic slowdown in 2001, the economies in the PRC in general and

Zhejiang Province in particular were able to sustain high growth rates, albeit at a slower pace

than in the previous year. In 2001, national and provincial GDP grew by 7.3% and 10.5%

respectively, compared to 8.0% and 11.0% in 2000.

GDP Growth Rate: The PRC Vs Zhejiang Province

The PRC

GDP

Zhejiang Province

GDP

(RMB bil.) % growth

9,593

8,940

8,191

7,835

7,446

7.3

8.0

7.1

7.8

8.8

670

603

537

499

464

10.5

11.0

10.0

10.1

11.1

2001

2000

1999

1998

1997

Source: China Statistical Year Book and Periodical Announcements

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

The unrivaled growth was most evident in the cities and provinces situated along the east

coast of the PRC. Once again, leading the cities and provinces in economic performance was

Zhejiang Province where all of the Company’s business operations are carried out.

Economic Performance of East Coast Cities and Provinces in 2001

GDP Total

Total

Export

(RMB mil.) % growth

(USD mil.) % growth

Shandong Province

Jiangsu Province

Shanghai

Zhejiang Province

Fujian Province

943,830

951,460

495,084

670,000

425,800

Guangdong Province

1,055,600

Source: China Statistical Year Book and Media Reportings

10.1

10.2

10.5

9.0

9.5

18,478

29,388

26,865

24,261

14,790

95,829

14.8

11.4

9.0

18.5

8.6

2.6

A major contributing factor to economic growth was the growth in imported and exported

goods. During the Period, total imported and exported goods attributable to Zhejiang Province

was valued at US$32.8 billion, a growth of 17.8% over 2000, compared with the national

growth of 7.5%. The province’s export growth rate of 18.5% was the highest among the east

coast cities and provinces for the third consecutive year.

GDP Growth Rate: PRC vs Zhejiang

GDP % Growth of East Coast Cities and Provinces in 2001

Growth %

The PRC

Zhejiang Province

Growth %

The PRC

Zhejiang Province

1997 1998 1999 2000 2001

Shandong
Province

Jiangsu
Province

Shanghai

Zhejiang
Province

Fujian
Province

Guangdong
Povince

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 13

Management Discussion and Analysis (Cont’d)

Reflecting the robust economic environment was the sale of motor vehicles in the PRC, which

had another record year of growth in 2001, especially with regard to sales to private consumers.

It was reported that, in 2001, the total number of vehicles manufactured by the 103 major car

maufacturers in China was 2.33 million, and the number of vehicles sold was 2.36 million,

representing increases of approximately 12.8% and 13.3% over the previous year respectively.

Half of these vehicles were sold to private consumers. The number of sedans manufactured

and sold was 703,500 and 721,500, respectively, representing year-on-year growth of 16.4%

and 18.3% respectively.

To properly serve an increasing number of motor vehicles is a constant challenge for the country’s

road system. In 2001, the total mileage of operational expressways in the PRC increased by

3,017km to approximately 19,000km, with another 2,500km earmarked to be operational by

the end of 2002.

Having a more direct impact on the Company’s business environment was the increasing

enhancement of the expressway network within Zhejiang Province, which saw its total mileage

of operational expressways extend from 627km to 770km during the year.

More mileage of expressways is expected to be completed in the province by the end of 2002

as a result of increased investments in infrastructure.

Cumulative Mileage of Expressways in Zhejiang Province

1996

1997

1998

1999

2000

2001

2002

Mileage (km)

158

168

344

392

627

770

1,310*

Forecast figure

The combination of growth in the national and provincial economies, together with growth in

the number of motor vehicles and the length of operational expressways, provided an all-

round favorable business environment for the Group’s business operations.

Cumulative Mileage of Expressways in Zhejiang Province

Mileage(km)

1,400

1,200

1,000

800

600

400

200

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

1996

1997

1998

1999

2000

2001

2002*

* forecast

Analysis of Business Operations

During the Period, the Group recorded a turnover of RMB1,722.5 million, representing an

increase of 44.9% over 2000. Net profit attributable to shareholders was RMB760.6 million,

representing an increase of 19.6% over 2000.

The core business operation of toll roads continued to dominate the Group’s turnover. Of the

total turnover of RMB1,722.5 million for the Period, RMB1,663.4 million or 96.6% was from toll

road operations, with the remainder mainly from advertising along expressways, road

maintenance works provided to third parties and services provided at service stations along

the expressways.

Toll income

Other incomes

Advertising

Road maintenance

Service stations, etc

Revenue taxes

Turnover

2001

2000

RMB’000

% Change

1,756,265

1,219,672

44.0

22,462

4,649

34,465

15,878

5,130

15,582

1,817,841

1,256,262

(95,324)

(67,658)

1,722,517

1,188,604

41.5

-9.4

121.2

40.9

44.9

For further analysis on the business segments, please refer to Note 5 to the financial statements.

Breakdown of the Group's Income

Breakdown of the Group's Other Income

3.4%

96.6%

56.0%

36.5%

7.6%

Other income

Toll income

Service stations

Advertising

Road maintenance

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 15

Management Discussion and Analysis (Cont’d)

Toll Road Operations

Following Shangsan Expressway’s completion and opening to traffic on December 26, 2000, toll income

for the Group during the Period grew strongly by 44.0% over the same period last year to reach

RMB1,756.3 million.

Toll Income Contribution by Expressway/Section

Shanghai-Hangzhou Expressway

Jiaxing section

Yuhang section

Hangzhou section

Hangzhou-Ningbo Expressway

Shangsan Expressway

Toll Income

% of Total

% of Growth

RMB’000

Toll Income

Over 2000

506,463

115,560

36,062

780,106

318,074

28.8%

6.6%

2.1%

44.4%

18.1%

30.0%

14.1%

16.0%

18.3%

732.7%

Total

1,756,265

100.0%

44.0%

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

The significant growth in toll income was also attributable to the adoption of a new vehicle

classification policy, which started on June 13, 2001. This effectively decreased the percentage

of the smaller class 1 vehicles by 9.0%, while increasing the percentage of the larger class 2 and

3 vehicles by 6.7% and 1.9% respectively on the Shanghai-Hangzhou-Ningbo Expressway.

Vehicle Makeup on Shanghai-Hangzhou-Ningbo Expressway in 2001

Class Vehicles

% Before

June

% After

June

Change

in %

Passenger vehicles with up to 20 seats;

69.9

60.9

-9.0

Trucks with tonnage of 2 tons or below

Passenger vehicles with seats above 20

19.8

26.5

6.7

and below 40 (inclusive);

Trucks with tonnage of above 2 tons

and below 5 tons (inclusive)

Passenger vehicles with seats above 40;

9.0

10.8

1.9

Trucks with tonnage of above 5 tons

and below 10 tons (inclusive)

Trucks with tonnage above 10 tons

and below 20 tons (inclusive)

Trucks with tonnage above 20 tons

and below 50 tons (inclusive)

1.3

0.1

1.7

0.1

0.4

0.0

Due to higher fees charged for larger vehicles, the new vehicle classification policy directly

increased the average toll collected per vehicle by approximately 9.5% on the Shanghai-

Hangzhou-Ningbo Expressway, and by approximately 9.0% on the Shangsan Expressway.

With increasing mileage of expressways completed and opened to traffic within Zhejiang

Province, a province-wide integrated toll collection system came into effect on December 25,

2001. The Shanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway were

incorporated into this toll collection system.

The new toll collection system, managed by the Provincial Integrated Toll Collection Center

（省聯網收費中心） under the Provincial Roadway Authority (浙江省公路管理局), aims to
integrate the toll collection and distribution of all expressways in the province into one centralized

system. With the integrated toll collection system, expressway users who travel across different

but inter-connected expressways, which are independently operated, need only stop and pay

the usage fees once, upon leaving the expressway system.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 17

Management Discussion and Analysis (Cont’d)

Shanghai-Hangzhou-Ningbo Expressway

Toll income on the Shanghai-Hangzhou-Ningbo Expressway grew by 21.7% during the Period
as compared with 2000 to reach RMB1,438.2 million, representing approximately 81.9% of
the Group’s total revenue. The corresponding average daily full trip traffic volume grew by
15.9% over 2000, details of which are set out below:

Monthly Average Daily Full Trip Traffic Volume in 2001

Shanghai-Hangzhou Expressway

Hangzhou-

Ningbo

Hangzhou section

Yuhang section

Jiaxing section

Expressway

(3.4km)

(11.1km)

(88.1km)

(145.0km)

vehicles

per day

YoY vehicles

% per day

29,915
33,606
37,262
37,264
36,504
34,123
33,347
36,344
39,446
37,865
38,290
37,038
35,917

2.68
50.15
18.75
9.88
10.57
11.68
10.13
14.07
13.87
14.41
15.40
12.08
15.31

29,092
32,485
36,257
36,389
35,682
33,382
32,553
35,536
38,519
36,950
37,186
35,716
34,979

2.19
48.71
18.74
10.28
10.83
12.48
10.63
14.72
14.82
14.63
15.03
11.19
15.35

16,964
17,915
20,491
21,277
21,232
20,467
20,198
22,398
24,061
23,070
22,940
21,796
21,067

10.23
40.28
23.57
16.54
16.83
23.15
22.04
28.65
35.88
30.49
30.03
24.73
25.20

16,274
17,329
18,982
19,237
18,965
18,273
17,761
18,942
20,179
19,609
20,230
19,790
18,798

YoY

-4.41
26.55
7.13
2.32
3.90
8.90
10.34
14.27
12.96
13.68
18.90
17.42
11.00

Mileage (km)

Month

January
February
March
April
May
June
July
August
September
October
November
December
Average

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

An issue of concern for the Company during the year was to maintain a relatively high level of

service for expressway users, while accommodating the growing traffic volume. In addition to

putting increased efforts into the maintenance of road surfaces and bridges, a number of

measures were taken by the Company to improve the quality of operational management.

The computer main board used in toll collection was upgraded to reduce processing time at

toll stations, as a result of which incidents of road congestion were reduced by approximately

21% through streamlining the traffic monitoring and control system on the expressway.

A further development welcomed by expressway users was the May 2001 launch of the

rechargeable non-contact prepaid IC card used in paying toll charges. The new card offers

further flexibility and convenience to frequent users, in addition to reducing error rates as well

as improving the level of reliability of the collection system and safeguarding of toll income.

The unusual surge in traffic volume on the Jiaxing section during the second half of the year

was due in part to traffic diversions from the parallel section of Nation Road 320 which was

partially closed off for repairs and renovation during that time. The effect is considered to be

temporary, and is not expected to last into 2002.

Shangsan Expressway

2001 was the first year of operation since the expressway was fully completed and opened to

traffic in December 2000. Daily full trip traffic volume grew steadily from an average of 7,901

during the first half of the year to 8,695 during the second half of the year. Daily average full trip

traffic volume for the year was 8,301.

With toll income contribution of approximately RMB318 million in 2001, representing 18.1% of

the Group’s total toll income, Shangsan Expressway has become a significant contributor to

the Group in both revenue and net profit.

The performance in traffic volume and toll income was generally in line with the latest forecast

conducted by the Company’s traffic consultant. This was despite a higher occurrence of partial

road closure due to expressway traffic accidents as well as adverse weather conditions during

the Expressway’s first year of full operation.

Shida Road

Traffic volume on Shida Road benefitted from an increasingly enhanced expressway network,

as well as persistent efforts by Shida Co in promoting the use of Shida Road through traffic

radio broadcastings and installation of road signs. Average daily traffic volume on Shida Road

grew by 65% to reach 6,767 vehicles, while toll income grew by 74.3% to reach RMB19.2

million.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 19

Management Discussion and Analysis (Cont’d)

Despite its toll income growth, Shida Co nevertheless recorded a loss of RMB5.0 million due to

substantial interest payments and depreciation charges. The loss for the year was reduced by

67.9% as compared to the loss of approximately RMB15.6 million during the same period in

2000. The company is expected to break even by the end of 2002.

Other Businesses

In addition to carrying out advertising business along expressways through a subsidiary, the

Group is also involved in the retail sale of petroleum products, as well as the design and

marketing of logistics management and anti-counterfeiting systems through two associates,

details of which are set out below.

Advertising Co

During the Period, Advertising Co further expanded advertising along the expressways operated

by the Group through flexible pricing and incentive marketing strategies. Turnover from

Advertising Co was approximately RMB21.2 million, representing an increase of approximately

46.2% over 2000.

Net profit realized by Advertising Co during the Period was approximately RMB7.3 million,

representing a reduction of 43.0% over 2000. The reduction was due to the first time levy of

enterprise income tax, from which the company has been exempted for the past two years.

Petroleum Co

With a new emphasis on retail sales of petroleum products, Petroleum Co was able to record

a 21% growth in retail sales amid increasing retail competition and substantially reduced

wholesale business.

However, mainly due to a

revocation in corporate income

tax exemptions which the

Company had enjoyed over the

past two years, Petroleum Co

suffered a loss of approximately

RMB10.4 million for the Period.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

JoinHands Technology

Following the completion of a successful trial phase in Zhejiang Province, JoinHands Technology

has begun to market its core-technology in logistics management and anti-counterfeiting systems

in a number of other provinces with an aim of becoming a leading player in the market.

Turnover realized during the Period was approximately RMB24.9 million, while net profit was

approximately RMB6.9 million, compared to RMB6.25 million and RMB0.25 million respectively

in 2000.

Human Resources

As at December 31, 2001, the Group had a total of 1,959 employees, of whom 342 were

administrative staff, 136 were engineering technicians, and 1,481 were toll collection and

maintenance staff.

The Company has consistently strived to improve the overall quality of staff through active

human resource management. The objective is reflected in its selective training courses organized

for existing employees, as well as in its hiring practices.

Considering the need for well-rounded management staff, the Company will be conducting

periodic rotations in management posts in 2002 to provide different exposures offered by the

various positions.

Remuneration to staff is

devised on a competitive

basis, with dual emphasis on

job performance and work

experience. In addition, the

Company has set up an

incentive policy under which

a portion of the bonus paid

t o m i d d l e a n d s e n i o r

management relates to the

price performance of the

Company’s shares.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 21

Management Discussion and Analysis (Cont’d)

Project Acquisition

In light of the favorable economic growth prospects and the potential growth in expressway

traffic in Zhejiang Province, the Company remains focused in its development strategy of

acquiring toll road projects within Zhejiang Province, with a preference for operational projects.

Through arm’s length negotiations with relevant parties, the Company was able to successfully

increase its stake in Jiaxing Co, which is the holding company of the Jiaxing section of the

Shanghai-Hangzhou Expressway, details of which are set out below:

— On June 4, 2001, the Company entered into agreements to acquire a 2.1% and a 1.0%

interest in the capital of Jiaxing Co from Jiaxing Xiuzhou Yitong Development Company

（嘉興市秀洲區益通開發公司）and Jiashan County Yintong Company Limited（嘉善縣
銀通有限公司） for a consideration of RMB63,249,984 and RMB30,119,040, respectively.

— Subsequently, on December 27, 2001, the Company entered into agreements to acquire

a 1.5% and a 1.3% interest in the capital of Jiaxing Co from Haining Hengtong Development

Company（海寧囱通開發公司）and Tongxiang Huatong Company（桐鄉市華通總公司）
for a consideration of RMB44,620,800 and RMB38,671,400, respectively.

— And finally on January 18, 2002, the Company entered into an agreement to further acquire

9.9% interest in the capital of Jiaxing Co from Jiaxing Road and Bridge Construction and

D e v e l o p m e n t C o m p a n y （嘉興市路橋建設開發公司）f o r a c o n s i d e r a t i o n o f
RMB303,700,000.

In addition to the above, the Company entered into an agreement on December 27, 2001 to

acquire a 2% equity interest in Shangsan Co from Shengzhou Shangsan Development Company

Limited（嵊州市上三發展有限公司）for a consideration of RMB57,600,000.

Through the above-mentioned transactions, the Company increased its stake in Jiaxing Co

from 84.19% to 99.99% in aggregate, and in Shangsan Co from 61% to 63%, for a total

consideration of RMB537,961,224.

Project under Construction

Construction work to expand a 44km section of the Shanghai-Hangzhou-Ningbo Expressway

between Hongken and Guzhu from four lanes to six lanes progressed in accordance with the

work schedule. During the Period, soft soil ground treatment and most of the roadbed buildup

works were completed along the expansion route.

The Company took extensive measures to minimize inconveniences to road users brought on

by the construction. As a result, the overall effect on the flow of traffic on existing lanes was not

significant.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Financial Analysis

The Group adopts a financial policy characterized by being both proactive and prudent. The
Directors and senior management review the Group’s liability portfolio from time to time, and
make adjustments whenever they deem necessary, to establish an effective and stable capital
structure. In view of the Group’s future profitability, the Directors and senior management also
make prudent investment decisions from time to time with an aim to achieve long-term stable
growth for the Group.

Return on Equity

The return on equity for the period (before charging the distributable dividends) is 8.2% (2000:
7.1%) representing an increase of 15.5% over the previous period:

2001
RMB mil.

2000
RMB mil.

Net profit attributable to shareholders
Shareholders’ equity (proposed final dividend not deducted)
Return on equity

760.6
9,289.1
8.2%

636.0
8,962.1
7.1%

The growth in return on equity is mainly due to:

the opening of Shangsan Expressway to traffic;

the natural growth in vehicle flow on the Shanghai-Hangzhou-Ningbo Expressway;

the favourable classification policy for vehicles; and

a one-off net gain arising from the advance repayment of the World Bank loan amounting
to RMB27.8 million.

Liquidity

As the Group is principally engaged in toll road operations, the Group generates strong and
steady cash inflows from its ordinary operations.

2001
RMB mil.

2000
RMB mil.

% Increase

Daily average toll fee revenue
Net cash inflow from operations

4.8
1,603

3.3
1,040

45.5%
54.1%

The amount of trade receivables, other receivables and inventories of the Group is small. As at
December 31, 2001, of the current assets of RMB1,950,483,000 in aggregate, trade receivables,
other receivables and inventories represented approximately 6% (December 31, 2000: 6%).

The Company plans to raise approximately RMB1 billion by issuing not more than 300,000,000
A shares in the PRC.

As a result of these factors, in the opinion of the Board, the Group should not experience any
liquidity problems in the foreseeable future.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 23

Management Discussion and Analysis (Cont’d)

Capital Expenditure Commitments

In 2001, the capital expenditure of the Group was approximately RMB560,000,000 of which

the capital expenditure of the Company was approximately RMB210,000,000.

As at December 31, 2001, the Group and the Company planned that in 2002 and thereafter,

there would be capital expenditure commitments of RMB2,589,625,000 and

RMB2,068,945,000 respectively.

Details of Expenditure Commitments

1st stage of the project to widen the Shanghai-

Hangzhou-Ningbo Expressway

(Hongken to Guzhu section)

2nd stage of the project to widen the Shanghai-

Hangzhou-Ningbo Expressway

(Shenshi to Hongken section)

Acquisition of additional 18.4% equity interest in Shangsan Co.

Remaining construction works of the Shangsan Expressway

Construction works under Contract No. 11 of the

Shanghai-Hangzhou Expressway

Acquisition of additional stake in Shangsan Co

Acquisition of additional stake in Jiaxing Co

Others

Total

Group

Company

RMB mil.

273.6

860.0

485.0

485.3

35.4

57.6

387.0

5.7

860.0

485.0

—

57.6

387.0

5.7

2,589.6

2,068.9

In particular, capital expenditure marked for 2002 and 2003 are RMB1,055.3 million and

RMB350.0 million respectively for the Group.

The above capital expenditure will firstly be financed by the Group’s internal financial resources,

and any shortfall will be financed by new equity issue, bank loans and other appropriate means.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Capital Structure

The Group’s capital structure as at December 31, 2001, and the comparative figures for the

corresponding period in 2000 are as follows:

2001

2000

RMB’000

Shareholders’ equity

Fixed rate liabilities

Floating rate liabilities

Interest-free liabilities

9,289,081

2,093,569

935,440

2,159,448

64.2%

14.5%

8,962,135

1,668,069

6.5%

1,778,529

14.9%

2,177,687

61.4%

11.4%

12.3%

14.9%

Total

14,477,538

100.0% 14,586,420

100.0%

Gearing ratio 1

Gearing ratio 2

55.9%

15.3%

62.8%

18.0%

Note: Gearing ratio 1 represents the sum of fixed rate liabilities, floating rate liabilities and interest-free

liabilities vs. the equity; gearing ratio 2 represents the total amount of the long-term liabilities vs.

the equity.

The Directors believe that the current gearing ratio is relatively low, thus allowing room for

obtaining debt financing for the future development of the Group.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 25

Management Discussion and Analysis (Cont’d)

Financial Resources and Financing Arrangements

As at December 31, 2001 the Group held RMB1,831,212,000 in cash and cash equivalents,

time deposits and other short-term investments, details of which are set out below:

Cash and cash equivalent

RMB

US$ in RMB equivalent

Euro in RMB equivalent

HK$ in RMB equivalent

Time deposits

RMB

US$ in RMB equivalent

Euro in RMB equivalent

HK$ in RMB equivalent

Short term investments

RMB

Total

RMB

US$ in RMB equivalent

Euro in RMB equivalent

HK$ in RMB equivalent

December 31

2001

2000

RMB’000

434,771

365,110

7,393

56,991

5,277

384,255

260,579

92,731

24,259

6,686

1,012,186

1,831,212

1,637,875

100,124

81,250

11,963

1,323,513

390,449

932,337

727

390,821

273,764

111,754

5,303

377,965

2,092,299

1,042,178

1,044,091

6,030

The average interest rates during the period for bank deposits in Renminbi, US dollars, Euro

and Hong Kong dollars were approximately 1.5%, 4.0%, 4.1% and 3.6% respectively.

Short-term Investments

Short-term investments in low risk marketable securities were carried out by the Group as part

of its treasury management to maximize returns on funds temporarily idle while limiting investment

risks.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

As at December 31, 2001, the market value of the remaining short-term investments for the
Group was RMB1,012,186,000. The distribution of investments is summarized as fllows:

Government bonds
Convertible bonds
Close-end equity investment funds
Open-end equity investment funds

Total

2001
RMB’000

733,724
160,614
97,810
20,038

December 31
2000
RMB’000

156,525
99,485
121,955
—

1,012,186

377,965

In 2001, profit before taxation derived from short-term investments was approximately
RMB105,522,000 (2000: RMB153,566,000), and the corresponding average rate of return on
investments was approximately 10% (2000: 12%).

Borrowings

As at December 31, 2001, the interest-bearing borrowings profile of the Group are summarized as
follows:

Gross
Amount
RMB’000

Maturity Profiles
Within
1 year
RMB’000

2-5 years
Inclusive
RMB’000

Beyond
5 years
RMB’000

935,440

77,809

296,692

560,939

Floating rates

World Bank loan

Fixed rates

Commercial bank loans
Policy loans
Corporate bonds

1,655,500
238,069
200,000

1,510,500
32,469
—

145,000
200,800
200,000

—
4,800
—

Total as at December 31, 2001

3,029,009

1,620,778

842,492

565,739

Total as at December 31, 2001

3,446,598

1,831,817

948,328

666,453

During the Period, the interest rates of all borrowings of the Group were not materially different
to those in 2000. In particular, the floating rate of World Bank loans in US dollars ranged
between 5.11% and 8.76%; the interest rate of commercial bank loans in Renminbi ranged
between 5.022% and 5.643%, with the average interest rate of approximately 5.22%. The
interest rate of policy loans in Renminbi ranged between 3% and 5.5% and the interest rate of
corporate bonds was 3.78%. The average interest rate of all borrowngs of the Group was
approximately 5.23% in 2001.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 27

Management Discussion and Analysis (Cont’d)

Ratio of Gains to Interests

The interest expenses for the Period was RMB218,045,000 (2000: RMB224,318,000) while

the profit before tax but before interests was approximately RMB1,038,429,000 (2000:

RMB849,659,000). The ratio of profit to interests was 4.8 (2000: 3.8).

Profit before tax

Interest expenses

Ratio of profit to interests

Foreign Exchange Exposure

2001

2000

RMB’000

1,038,429

218,045

4.8

849,659

224,318

3.8

With the Company's advance repayment of the World Bank loan denominated in US dollars

during 2001, as at December 31, 2001, the Group's liabilities in foreign currency mainly represent

a World Bank loan borrowed for the construction of Shanghai-Hangzhou Expressway of

approximately US$113 million.

In addition, the Company's dividends for H Shares are settled in HK dollars.

Currently, the exchange rate of RMB is stable and the Directors do not anticipate any material

foreign exchange exposure to the Group. However, there can be no assurance that the foreign

exchange exposure will not affect the operating results of the Group.

Contingent Liability

Other than a loan guarantee provided to a jointly-controlled entity, namely, Shida Co, of RMB30

million, the Group does not have any contingent liability as at December 31, 2001.

Pledges and Guarantees of Assets

As at December 31, 2001, the details of pledged and guaranteed assets of the Company are

set out below:

The Company provided a guarantee of RMB200 million in respect of corporate bonds issued

by Shangsan Co in November 2000. The maturity of the bonds is 3 years with an annual

interest rate of 3.78%. The principal and the interest have to be paid in a lump sum when they

fall due.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

The Company has provided a guarantee of RMB565 million in respect of bank loans to Shangsan

Co from February 2001 to July 2004, and has provided a guarantee of RMB30 million in

respect of bank loans to Shida Co from September 2001 to September 2007 .

Shangsan Co has provided a guarantee of RMB280 million in respect of bank loans to the

Company from February 2001 to February 2002.

Other than the guarantees above, the Company does not have any other guarantees and

pledges of assets.

Restructuring of State-owned Shares

The transfer of 476,760,000 State-owned shares of the Company, representing approximately

11% of the issued share capital of the Company, from Provincial Investment Co to Huajian on

December 28, 2000 was approved by the Ministry of Foreign Trade and Economic Cooperation

of the PRC on December 26, 2001. Accordingly, Provincial Investment Co’s interest in the

issued capital of the Company is reduced from approximately 67% to 56%, while the remaining

approximate 33% interest held by overseas investors remains unchanged.

Pursuant to a notice (Zhe Zheng Fa [2001] No. 42) issued by Zhejiang provincial government

dated July 2, 2001, Provincial Investment Co will be replaced by Communications Investment

Group, a newly formed State-owned enterprise under the provincial asset management authority,

as the parent company holding approximately 56% of the issued share capital of the Company.

The replacement of Provincial Investment Co by Communications Investment Group is subject

to the approval of and registration with the relevant government authorities.

The change in the Company’s parent company is part of a province-wide restructuring of

State-owned assets by the Zhejiang provincial government aimed at improving the effectiveness

in the management of designated State-owned assets. Details of the change were set out in

the Company’s announcement dated January 21, 2002.

The Hong Kong Securities and Futures Commission has confirmed that Communications

Investment Group will not be obliged to make a general offer for all the issued shares of the

Company upon the completion of the proposed change.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 29

Management Discussion and Analysis (Cont’d)

Level-I ADR Program

The Board authorized the establishment of a Level-I ADR program sponsored by the Company

on October 30, 2001, with the aim of enhancing the liquidity of the Company’s H Shares as

well as broadening the Company’s investor base.

The Company’s sponsored Level-I ADR program is maintained by The Bank of New York, as

depositary, pursuant to a deposit agreement dated February 14, 2002, among the Company,

The Bank of New York, as depositary, and all owners and beneficial owners of ADRs representing

deposited H Shares of the Company. No new shares of the Company will be issued in connection

with the Level-I ADR program.

The Registration Statement in respect of the ADSs evidenced by the ADRs was declared

effective by the U.S. Securities and Exchange Commission on February 14, 2002. The ADSs

are traded on the over-the-counter market in the United States. Investors who wish to participate

in the Company’s ADR program are advised to consult with their professional advisors.

Proposed Issue of A Shares

The volatility of the Chinese stock market during the second half of 2001 resulted in the

postponement of the Company’s plan to issue not more than 300 million A Shares for the

funding of the 1st and 2nd stages of the project to widen the Shanghai-Hangzhou-Ningbo

Expressway.

The Board has resolved to seek a further approval from the shareholders of the Company for

the plan in the upcoming annual general meeting scheduled to be held on April 30, 2002.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Outlook for 2002

2001 was an eventful year for China, capped with its successful entry into the World Trade

Organization in November, a development that has been anticipated with both excitement and

anxiety across the country.

Nowhere was the news more welcomed than in Zhejiang Province, where the economy is

dominated by small to medium-sized non-State-owned enterprises eager to join the global

competition.

While the forecast GDP growth rate for Zhejiang Province is slightly lower in 2002 when compared

to the past few years, the growth rate in traffic volume on expressways operated by the Group

overall is expected to be higher than the regional GDP growth rate.

With approximately 540km of expressways expected to be completed and opened to traffic in

Zhejiang Province in 2002, more kilometers than any other single year before, the need for

coordination and cooperation between the various independent expressway operators is

stronger than ever.

The newly implemented integrated toll collection system, though not without problems and

challenges such as the standardization of toll collection procedures among the different

participants during its early stage of operation, is nevertheless expected to enhance further

growth in traffic volume on the expressways by providing seamless transition for users who

travel across different expressways.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 31

Management Discussion and Analysis (Cont’d)

The long awaited fuel tax may be implemented later in 2002. The move is structured to reduce

government red tape by substituting the numerous administrative fees levied on vehicle owners

with a flat surcharge on fuel consumption. This, combined with the immediate reduction in

prices of both domestic and imported cars following China’s accession to the World Trade

Organization, will make owning a private car in China much more affordable than before, serving

to boost traffic volume growth on the expressways.

The plan to build a new bridge across the Hangzhou Bay, linking the two major port cities of

Shanghai and Ningbo, is reportedly to have obtained the central government’s approval. Though

no immediate impact is foreseen in the short-term on the expressways operated by the Group,

the new bridge does have the potential to compete to a certain extent with the Shanghai-

Hangzhou-Ningbo Expressway for traffic flow upon its completion.

The Company intends to take advantage of the improved investment environment resulting

from the latest round of restructuring of State-owned assets. The Company will actively pursue

potential projects to further expand its toll road portfolio within Zhejiang Province, while keeping

a look out for suitable projects outside of the province.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Frequently Asked Questions

From left to right: Tony H. Zheng, Assistant Company Secretary; Xuan Daoguang, Deputy

General Manager; Geng Xiaoping, Chairman; Wen Xinran, Chairman of Communications

Investment Group; Fang Yunti, General Manager; Jiang Wenyao, Company Secretary

Frequently Asked Questions

Q: What impact does China’s WTO accession have on the Company’s business prospects?

A: While the WTO accession presents both opportunities and challenges for China as a
whole, Zhejiang Province is poised to be one of the biggest beneficiaries of this development

among the provinces due to its well-diversified economy, which is dominated by medium

to small enterprises competitive on the world stage. The growth of the economy is expected

to increase demand on the expressway networks in the province, thereby benefitting the

toll road operations of the Company within Zhejiang Province.

Q: What is the Company’s strategy for project acquisitions and what are the assessment

criteria?

A: The Company remains focused on toll road projects, with a preference for completed and
operational projects, located within Zhejiang Province and in other regions where there is

good potential for growth in traffic volume.

The main criteria for any investment decision in the toll road sector would be the internal

rate of return offered by the project. The exact rate is based on the Company’s weighted

average cost of capital as calculated from time to time.

Q: How does the Company manage its debt and cash, especially its short-term investment

portfolios?

A: Due to the nature of investment in toll road projects as well as the need for a healthy
gearing ratio, the Company maintains both a sizeable position in cash or cash equivalents,

supported by its stable cash inflow from its business operations, and short-term borrowings.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

As an integral part of its cash management strategy, the Company invests part of its cash

in fully liquid short-term investments such as government bonds, corporate bonds, and

equity investment funds. While the Company actively manages its short-term investments

with prudence, the overriding factor is always to manage the risk of these investments.

Q: What is the Company’s dividend policy?

A: The Company intends to distribute both interim dividends and final dividends every year,
the actual amount of which will be determined each year. In general, the overall payment

in dividends is expected to be around 40-60% of net profit attributable to shareholders.

Q: Does the Company have stock option plans or other share price-linked incentive schemes

for its management?

A: At present, the Company does not have stock option plans for its management due to
regulatory limitations. But the Company has set an incentive policy whereby a portion of

the management’s bonus can be linked with share price performance so that shareholders’

interests can be more directly reflected.

Q: Who are the Communications Investment Group?

A: Communications Investment Group is a State-owned enterprise formed by the Zhejiang
provincial government. As part of State-owned assets restructuring by the Zhejiang

provincial government aimed at improving the effectiveness of management of designated

State-owned assets, it is charged specifically to manage State-owned assets in the

communications sector within Zhejiang Province.

In addition to holding stakes in numerous expressways, the Communications Investment

Group also has interests in coastal and transoceanic transport as well as construction of

transport facilities.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 35

Corporate Governance

Pursuant to the “PRC Company Law” and other prevailing laws and regulations, the Company

has adopted a dual system corporate governance structure. Under this structure, the Board of

Directors is the decision making body of the Company, and with the assistance of management,

manages the operations entrusted by the shareholders at the general meetings of the Company.

The Supervisory Committee is the Company’s supervisory body, whose duty is to determine

whether the conduct of the Directors and the General Manager as well as other senior

management members of the Company is in compliance with the laws and regulations and in

the interests of the Company.

Board of Directors

The Board of Directors is the decision making body of the Company, and is accountable to the

shareholders at the Company’s general meetings. The Directors are elected by the shareholders,

and their remuneration is also decided upon by the shareholders.

The Board of Directors of the Company comprise nine Directors, four of whom are Executive

Directors, and five are Non-executive Directors. Among the five Non-executive Directors, three

are Independent Non-executive Directors, representing one third of the Board of Directors.

Independent Non-executive Directors do not take up any positions in the Company, and have

no connections with shareholders. Accordingly, we believe that the existence of Independent

Non-executive Directors is beneficial for maintaining the independence of the Board of Directors

and shareholders vis-à-vis the management, and for ensuring that the Board of Directors can

make prudent decisions.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

There are also three specialized committees under the Board of Directors, namely, the Audit

Committee, the Strategy Committee and the Nomination and Remuneration Committee which

assist the Board of Directors in exercising its authorities and duties.

— Audit Committee

The Audit Committee comprises Non-executive Directors, the majority of whom are

Independent Directors. The committee members hold meetings at least twice annually to

review the completeness, accuracy and fairness of the Company’s financial reports, and

to discuss with the external auditors the nature and scope of the audit work before

commencement of audit as well as to review the effectiveness of the internal control system

of the Company.

— Strategy Committee

The Strategy Committee comprises Executive Directors. The principal duties of the Strategy

Committee are to appraise the Company’s medium to long-term development objectives,

plans and strategies; to ensure that the plans and strategies are in compliance with the

long-term interest of the shareholders, customers and staff of the Company and the

community. For plans of significance and plans involving mergers and acquisitions,

connected transactions or investments in new sectors, the committee will first review

such plans before submission to the Board of Directors for decision making to ensure that

the Board of Directors has sufficient information to make prudent decisions. The Strategy

Committee is also responsible for the appraisal of the implementation of such plans and

strategies.

— Nomination and Remuneration Committee

The Nomination and Remuneration Committee comprises three Independent Directors,

whose principal duties are:

(1) To study the criteria and procedures in the selection of directors, general manager

and other senior management, and to make proposals;

(2) To search for qualified candidates for the positions of directors, general manager and

other senior management;

(3) To assess the suitability of candidates for the positions of directors, general manager

and other senior management, and to make proposals;

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 37

Corporate Governance (Cont’d)

(4) To review and supervise the salary and welfare schemes of the Company and the

remuneration system for senior management members; to make recommendations

to the Board of Directors on the principles of the Company’s salary and welfare

schemes, the service agreements and the remuneration system for the Company’s

executive Directors, General Manager and other senior management members; and

to review and discuss the Share Option Plan, Retirement Plan and Long Service

Bonus Plan of the Company.

Supervisory Committee

The Supervisory Committee is responsible to all shareholders for the supervision of the

Company’s finance, and the discharge of duties by the Company’s Directors, General Manager

and other senior management members to ensure compliance with the laws and regulations,

and to safeguard the lawful interests of the Company and its shareholders. The Supervisory

Committee comprises one shareholder representative, one staff representative and three

independent supervisors, so as to ensure that the Supervisory Committee can exercise its

duties independently and effectively.

The principal duties of the Supervisory Committee are to examine the Company’s financial

matters; to supervise the discharge of duties of the Company’s Directors, General Manager

and other senior management and to determine whether such discharge of duties is in violation

of the laws and regulations or the Company’s Articles of Association, and in the event that the

actions of such personnel are harmful to the Company’s interests, to request remedial actions;

to audit financial information such as financial reports, operating reports and profit distribution

which the Directors intend to submit to the shareholders at general meetings, and in the event

of any reservations, to entrust a registered accountant or certified public auditor in the name of

the Company to assist in re-auditing; to propose the convening of a shareholders’ extraordinary

general meeting, and to negotiate with the Directors or commence litigation against the Directors

on behalf of the Company.

Shareholder

Being holders of shares in the Company, shareholders enjoy the rights conferred to them

under relevant laws and regulations. The Company treats all shareholders equally, and

encourages shareholders to participate in corporate governance. Shareholders have the right

to access the relevant information and the right to participate in decision making on major

issues of the Company.

Each shareholder has the right of speech and the right to vote at the shareholders’ general

meetings of the Company, except that on approving connected transactions, interested

shareholders have to abstain from voting at the shareholders’ general meetings.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

The powers and duties of shareholders principally include :

(1) To decide on the operating directions and investment plans of the Company;

(2) To elect and remove Directors and Supervisors who are shareholders representatives,

and to decide on remuneration in relation to Directors and Supervisors;

(3) To consider and approve the Report of the Board of Directors and the Report of the

Supervisory Committee;

(4) To consider and approve the annual financial budget, the final accounts, the profit

appropriation plans and the loss compensation plans;

(5) To make resolutions on the increase or reduction of the registered capital, mergers,

separation, dissolution and winding up of the Company;

(6) To make resolutions on the Company’s issue of bonds;

(7) To amend the Articles of Association;

(8) To consider resolutions proposed by shareholders representing shares with voting rights

of 5% or over; and

(9) To make resolutions on the retention or termination of the Company’s auditors.

Over the years, the Company has received

various international accolades for its

achievements in corporate governance.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 39

Directors, Supervisors and Senior Management Profiles

Directors, Supervisors and Senior
Management Profiles

Executive Directors

Mr. GENG Xiaoping, aged 53, is the Chairman of the Company. Mr. Geng

graduated from the East China College of Political Science and Law in 1984.

From 1979 to 1991, he held various positions at the People’s Procuratorate of

Zhejiang Province including Secretary, Division Chief and Deputy Procurator.

In 1991, he was appointed Deputy Director of the Zhejiang Provincial

Expressway Executive Commission, responsible for the business operation

and administration of the expressway system in Zhejiang Province. Mr. Geng

was the General Manager of the Company from March 1997 to March 2002,

and has been Chairman since March 1997.

Mr. FANG Yunti, aged 52, senior engineer, is an Executive Director and the General

Manager of the Company responsible for the overall management of the Company.

Mr. Fang graduated from Qing Hua University and majored in automotive engineering

in 1976. From 1983 to 1988, he was the Deputy General Manager of Zhejiang

Province Automobile Transport Company. From 1988 to 1990, he was the Chief

Engineer at the Provincial Road Transport Company. During the period from 1991 to

1996, he was the Deputy Chief and Chief of the Operating Administrative and

Technical Equipment Divisions of the Zhejiang Provincial Expressway Executive

Commission where his responsibilities included operation management and

equipment management for the Shanghai-Hangzhou-Ningbo Expressway. Mr. Fang

was the Deputy General Manager of the Company from March 1997 to March

2002. Mr. Fang has been a Director of the Company since 1997.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Mr. ZHANG Jingzhong, aged 38, senior lawyer, is an Executive Director and

Deputy General Manager of the Company. Mr. Zhang 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. In 1992, he obtained the qualifications required by the

regulatory authorities in China to practice securities law. In January 1994, Mr.

Zhang became Senior Partner at T&C Law Firm in Hangzhou. Mr. Zhang has

been a Director since April 1997, and Secretary to the Board from April 1997

to June 2001.

Mr. XUAN Daoguang, aged 57, senior engineer, is an Executive Director and Deputy

General Manager of the Company. Mr. Xuan graduated from Tong Ji University in

1967 with a degree in engineering, and majored in the construction and design of

bridges and tunnels. Mr. Xuan has 31 years of experience in engineering

maintenance with the Road Administration Division and has held positions such

as Section Head and Head of the Road Administrative Division of Jinhua City. He

has worked for the Zhejiang Provincial Expressway Executive Commission and

was responsible for the administration of engineering work within Zhejiang Province,

including repair and maintenance on the completed sections of the Shanghai-

Hangzhou-Ningbo Expressway. Mr. Xuan has been a Director of the Company

since March 1997.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 41

Directors, Supervisors and Senior Management Profiles (Cont’d)

Non-executive Directors

Mr. XIA Linzhang, aged 58, senior engineer, is a non-executive Director and

member of the Audit Committee. Mr. Xia graduated from Jiao Zou Mining

College. He was the head of Suichang Coal Mine, Standing Deputy Head

and Head of Suichang County, Zhejiang Province. Mr. Xia was appointed

Chief of the Planning and Finance Division of the Zhejiang Provincial

Expressway Executive Commission and the Deputy General Manager and

Financial Manager of Provincial Investment Co. Mr. Xia was the Chairman of

the Supervisory Committee from March 1997 to February 2000.

Ms. ZHANG Chunming, aged 37, senior lawyer, is a non-executive Director

and member of the Audit Committee. Ms. Zhang graduated from the East

China College of Political Science and Law in Shanghai with a Bachelor’s degree

in law in 1986. From 1987 to 1994, she practiced as a lawyer with the Zhejiang

Provincial Economics Law Firm in Hangzhou where her practice included

financial, securities and property matters. Ms Zhang has also obtained the

qualifications required by the regulatory authorities in China to practice securities

law and, in 1994, she spent six months undergoing training in Hong Kong.

Since 1994 she has been a Partner and Director of Zhejiang Shield Law Office.

Ms. Zhang has been a Director of the Company since March 1997.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Independent Non-executive Directors

Dr. HU Hung Lick, Henry G.B.S. O.B.E. Ph.D. J.P., aged 82, is an independent

non-executive Director and a member of the Audit Committee. Dr. Hu has

been practicing as a barrister for over 45 years and is currently the President

of Shue Yan College in Hong Kong, 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. Dr. Hu has been an

independent non-executive Director since March 1997.

Mr. TUNG Chee Chen, aged 59, Chairman of Orient Overseas (International)

Limited, is an independent non-executive Director and the Chairman of the

Audit Committee. Mr. Tung was educated at the University of Liverpool, England,

where he received his Bachelor of Science degree. He later acquired a Master’s

degree in mechanical engineering at the Massachusetts Institute of Technology

in the United States. He is currently a registered Professional Engineer in the

State of California. Mr. Tung has been an independent non-executive Director

since March 1997.

Mr. ZHANG Junsheng, aged 65, professor, is a member of the Audit Committee.
Mr. Zhang graduated from Zhejiang University in 1958, and was a lecturer, an
associate professor, an advising professor at the Zhejiang University, and a
professor concurrently at, amongst other universities, the Zhongshan University.
In 1980, he became the Deputy General Secretary of Zhejiang University. In
1983, Mr. Zhang served as Deputy General Secretary of the Hangzhou City
Government. In 1985, he began to work for the Xinhua News Agency, Hong
Kong Branch, and became its Deputy Director in 1987. Mr. Zhang took up the
post of General Secretary of Zhejiang University in September 1998. In addition,
Mr. Zhang is currently a Special Advisor to the Zhejiang Provincial Government,
an Advisor to the Sichuan Provincial Government, and a Senior Advisor to the Shenzhen City Government.
Mr. Zhang has been an independent non-executive Director of the Company since March 2000.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 43

Directors, Supervisors and Senior Management Profiles (Cont’d)

Supervisors

Mr. MA Kehua, aged 49, senior economist, is the Chairman and non-executive

member of the Supervisory Committee. Mr. Ma graduated from Shanghai

Railway Institute in 1977, after which he worked as an engineer at Shanghai

Railway Bureau No. 1 Construction Company and the Plumbing and Electricity

Section of Shanghai Railway Bureau, Hangzhou Branch. Mr. Ma was in charge

of the Planning and Finance Division at the Zhejiang Local Railway Company,

and became Deputy Division Chief and Division Chief of Zhejiang Jinwen

Railway Executive Commission responsible for material supply since 1993.

Mr. Ma took up the post of Deputy General Secretary of Zhejiang Construction

and Investment Company in March 1999, and is currently the Deputy General

Secretary of Provincial Investment Co.

Mr. NI Ciyun, aged 51, senior economist, is a member of the Supervisory

Committee representing the staff and workers. Mr. Ni graduated from Tianjin

University in 1976 majoring in mechanical manufacturing. He was a Deputy

Manager and Manager at Zhejiang Jiaxing Shipping Company since 1981,

Deputy Director of Jiaxing Communications Bureau in 1989, Director of

Zhapu Port Executive Commission in 1990, Director of Jiaxing Zhapu Port

Authority in 1992, and Deputy Director of Shanghai-Hangzhou-Ningbo

Expressway Jiaxing Construction Executive Commission in 1993. Mr. Ni is

currently the Chief Administrator of the Jiaxing Section of the Shanghai-

Hangzhou-Ningbo-Expressway.

Mr. LU Fan, aged 46, senior economist, is an independent non-executive

member of the Supervisory Committee. Mr. Lu has a Master’s degree in

economics and was an assistant researcher at the World Economy Research

Institute of Zhejiang Social Science Academy. He became the Vice-Director

of Zhejiang Asia-Pacific Research Institute in 1991. Mr. Lu joined Zhejiang

Securities Co., Ltd. in 1994. He was the General Manager of the Investment

Banking Division and is currently the Vice President of Zhejiang Securities

Co., Ltd.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Mr. SUN Xiaoxia, aged 39, professor, is an independent non-executive

member of the Supervisory Committee. Mr. Sun graduated from China

Academy of Social Sciences （中國社會科學院）with a Doctor’s degree in
law. He worked as Assistant Lecturer, Lecturer, Assistant Professor,

Professor and Tutor for graduate students at Hangzhou University, School

of Law. Mr. Sun is currently Deputy Dean at the School of Law and Dean of

the Department of Law, Zhejiang University. In addition, Mr. Sun is a lawyer

with Zhejiang Zheda Law Firm, a standing member of China Jurisprudence

Research Society, a standing member of China WTO Legal Research

Society, a member of the International Society for Philosophy of Law and

Social Philosophy (“IVR”), and a member of the IVR’s China Branch.

Mr. ZHENG Qihua, aged 39, senior accountant, is an independent non-

executive member of the Supervisory Committee. He is currently the Deputy

General Manager of Zhejiang Pan-China Certified Public Accountants, and a

guest professor at the Zhejiang Finance and Economics Institute. Mr. Zheng

was among the first batch of Chinese registered accountants to obtain

qualifications required for practicing accountancy involving securities in 1992.

He has working and training experience in Hong Kong and Singapore, and he

spent approximately six months working with the Listing Division of the China

Securities Regulatory Commission during 1997 and 1998.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 45

Report of the Directors

The Directors present their report and the audited financial statements of the Company and

the Group for the year ended December 31, 2001.

Principal Activities

The principal activities of the Group comprise the design, 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. There were no changes in the nature

of the Group’s principal activities during the period.

Segment Information

During the period, the entire turnover and contribution to profit from operating activities of the

Group was derived from Zhejiang Province in the PRC. Accordingly, a further analysis of the

turnover and contribution to profit from operating activities by geographical area is not presented.

However, an analysis of the Group’s turnover and contribution to profit from operating activities

by principal activity for the year ended December 31, 2001 is set out in note 4 to the financial

statements.

Results and Dividends

The Group’s profit for the year ended December 31, 2001 and the state of affairs of the Group

and the Company at that date are set out in the financial statements on pages 59 to 105.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

An interim dividend of RMB0.03 per share (approximately HK$0.0283) was paid on October

24, 2001. The Directors recommend the payment of a final dividend of RMB0.07 per share

(approximately HK$0.0660) in respect of the year, to shareholders in the register of members

on April 8, 2002. This recommendation has been incorporated into the financial statements as

an allocation of retained earnings within capital and reserves in the balance sheet. Further

details of this accounting treatment are set out in note 12 to the financial statements.

Summary Financial Information

The following is a summary of the published consolidated results, and of the assets and liabilities

of the Group prepared on the basis set out in the notes below. The amounts for each of the 4

years ended December 31, 2000 in the summary have been adjusted for the effect of the

retrospective changes in accounting policy affecting dividends, as detailed in note 2 to the

financial statements.

Summary of the Group’s Five Years Consolidated Results

Results

Turnover

Operating costs

Gross profit

Other revenue

Administrative expenses

Other operating expenses

2001
RMB’000

2000
RMB’000

1999
RMB’000

Year ended December 31
1997
RMB’000

1998
RMB’000

1,722,517

1,188,604

1,050,498

655,069

463,692

(392,535)

(248,429)

(298,417)

(220,537)

(146,046)

1,329,982

216,690

(88,487)

(18,236)

940,175

242,888

(64,978)

(75,317)

752,081

167,528

(60,320)

(2,374)

434,532

317,646

234,573

(45,611)

(635)

197,034

(31,126)

(978)

Profit from operating activities

1,439,949

1,042,768

856,915

622,859

482,576

Finance costs

(215,346)

(197,083)

(172,922)

(94,741)

(110,350)

Share of profits of associates

12,396

40,584

22,559

18,982

Share of loss of a jointly-

controlled entity

Profit before tax

Tax

(1,459)

(6,517)

—

1,235,540

879,752

706,552

547,100

372,226

(363,970)

(186,391)

(71,810)

(73,795)

(58,639)

—

Profit before minority interests

871,570

693,361

634,742

473,305

313,587

Minority interests

(110,957)

(57,360)

(86,431)

(68,914)

(17,255)

Net profit from ordinary activities

attributable to shareholders

760,613

636,001

548,311

404,391

296,332

Earnings per share

17.51 cents

14.64 cents

12.62 cents

9.31 cents

7.77 cents

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 47

Report of the Directors (Cont’d)

Summary of the Group’s Five Years Assets and Liabilities

Assets and liabilities

Total assets

Total liabilities

2001
RMB’000

2000
RMB’000

1999
RMB’000

Year ended December 31
1997
RMB’000

1998
RMB’000

14,477,538

14,586,420

13,925,688

12,993,990

11,466,377

3,685,828

4,128,921

3,868,691

3,457,029

2,529,105

Minority interests

1,502,629

1,495,364

1,449,432

1,245,782

667,714

Net assets

Notes:

9,289,081

8,962,135

8,607,565

8,291,179

8,269,558

The consolidated results of the Group for the three years ended December 31, 2000, together with

the pro forma consolidated results of the Group for the year ended December 31, 1997 have been

extracted from the Company’s 2000 annual report dated March 5, 2001, while those of the year

ended December 31, 2001 were prepared based on the consolidated income statement as set out

on page 60 of the financial statements.

The 2001 earnings per share is based on the net profit from ordinary activities attributable to

shareholders for the year ended December 31, 2001 of RMB760,613,000 (2000: RMB636,001,000)

and the 4,343,114,500 shares (2000: 4,343,114,500 shares) in issue during the period.

Major Customers and Suppliers

The five largest customers and suppliers contributed less than 30% of the total toll revenue

and purchases, respectively, of the Group during the period. Accordingly, a corresponding

analysis of major customers and suppliers is not presented.

Connected Transactions

Details of the connected transactions of the Group (the “Connected Transactions”) carried out

during the period, for which the Hong Kong Stock Exchange has granted a waiver from

compliance with Chapter 14 of the Listing Rules pursuant to its letter of March 10, 2000, are

disclosed in note 39 to the financial statements.

The independent non-executive Directors have reviewed the Connected Transactions and

confirmed that, during the period from January 1, 2001 to December 31, 2001, such transactions

were:

(i)

carried out in accordance with the terms of the agreements governing each respective

transaction in question;

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

(ii)

entered into in the usual and ordinary course of business of the Company; and

(iii) entered into on normal commercial terms and are fair and reasonable so far as the

shareholders of the Company are concerned.

Ernst & Young, the auditors of the Company (as required by the Stock Exchange in its letter of

March 10, 2000), have also reviewed the said transactions and have confirmed that the

independent non-executive Directors have given their approval of these transactions and that

they were carried out by the Company in accordance with the terms of the agreements governing

each respective transaction during the period from January 1, 2001 to December 31, 2001.

Fixed Assets

Details of movements in the fixed assets of the Company and the Group are set out in note 14

to the financial statements.

Capital Commitments

Details of the capital commitments of the Company and the Group as at December 31, 2001

are set out in note 36 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 34 to the financial statements.

Distributable Reserves

As at December 31, 2001, the Company’s reserves available for distribution by way of cash or

in kind, calculated in accordance with relevant rules and regulations, amounted to

RMB634,528,000. In addition, in accordance with the Company Law of the PRC, the amount

of approximately RMB3,638,229,000 standing to the credit of the Company’s share premium

account as prepared in accordance with the PRC accounting standards was available for

distribution by way of capitalisation issues.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 49

Report of the Directors (Cont’d)

Substantial Shareholders

As at December 31, 2001, the following shareholders held 10% or more of the share capital of

the Company according to 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”):

The Group’s Substantial Shareholders

Name

Number of shares

Percentage

Provincial Investment Co*

2,432,500,000

56.01%

Huajian

(domestic shares)

476,760,000

10.98%

(domestic shares)

HKSCC Nominees Limited

1,397,795,499

32.18%

(H Shares)

* To be replaced by Communications Investment Group

Save as disclosed above, no person had registered an interest in the share capital of the

Company that was required to be recorded pursuant to Section 16(1) of the SDI Ordinance.

Purchase, Sale or Redemption of the Listed Securities of
the Company

Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the

Company’s listed securities during the period.

Trust Deposits

As at December 31, 2001, the Company did not have any trust deposits, nor any time deposits

with any financial institution in the PRC. Other than the deposit of HK$4,956,000 (equivalent to

RMB5,257,000 approximately) placed in a non-bank financial institution in Hong Kong, all of

the Company’s deposits have been placed with commercial banks in the PRC. The Company

has not encountered any difficulty in the withdrawal of funds.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Directors

The Directors of the Company during the period were:

Executive Directors

Mr. Geng Xiaoping

Mr. Fang Yunti

Mr. Zhang Jingzhong

Mr. Xuan Daoguang

Non-executive Directors

Mr. Xia Linzhang

Ms. Zhang Chunming

Independent Non-executive Directors

Dr. Hu Hung Lick, Henry

Mr. Tung Chee Chen

Mr. Zhang Junsheng

Change in Directors and Senior Management

At the meeting of the Directors held on March 13, 2002, the Directors resolved to accept the

proposal by Mr. Xia Linzhang to resign from his current directorship, and submit his proposal

for approval by the shareholders of the Company at the upcoming annual general meeting; the

Directors also resolved to accept the proposal to elect Ms. Zhang Yang to be a non-executive

(external) director of the Company, and to submit the proposal for approval by the shareholders

of the Company at the upcoming annual general meeting.

At the same board meeting, the Directors resolved to accept Mr. Geng Xiaoping’s proposal to

resign from the post of General Manager of the Company, and resolved to appoint Mr. Fang

Yunti as General Manager of the Company, and Mr. Zhang Jingzhong as Deputy General

Manager of the Company. The terms of office for Mr. Fang and Ms. Zhang is from March 14,

2002 to February 28, 2003. Mr. Geng continues to serve as Chairman of the Company.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 51

Report of the Directors (Cont’d)

Directors’ and Supervisors’ Service Contracts

Each of the Executive Directors and one supervisor of the Company has entered into a service

agreement with the Company, with effect from February 28, 2000, for a 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.

Directors’ and Supervisors’ Interests in Contracts

None of the Directors or Supervisors had any material interest, whether direct or indirect, in any

contract of significance to which the Company, or any of its subsidiaries, fellow subsidiaries or

its holding company was a party, at the end of the year or at any time during the year.

Directors’ and Supervisors’ Interests in Shares

As at December 31, 2001, none of the Directors, Supervisors or their associates had any

personal, family, corporate or other interests in any equity or debt securities of the Company or

any associated corporations (as defined in the SDI Ordinance) as recorded in the register

maintained by the Company pursuant to 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 year was the Company or any of its subsidiaries, jointly-controlled entities,

associates or fellow subsidiaries or its holding company a party to any arrangement enabling

any Directors or Supervisors or their spouses or children under the age of 18 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 year and up to the date of this report.

Pension Scheme

As required by the state regulations of the PRC, the Group participates in a defined contribution

pension scheme organised by local social security authorities. Under the 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 Group is

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

required to make contributions to local social security authorities at rates ranging from 20% to

22.5% of the average basic salaries of the previous year within the geographical area where

the employees are under employment with the Group. The Group has no obligation for the

payment of pension benefits beyond such annual contributions to the registered insurance

companies. When an employee leaves the scheme, the Group is not entitled to forfeit any

amount of the contributions that it has previously made. Hence, no forfeited contribution was

used by the Group to reduce the level of its contributions during the period. During the period,

contributions to registered insurance companies made by the Group under the defined

contribution retirement scheme amounted to RMB6,900,000 (2000: RMB4,358,000).

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 require the Company to offer new shares on a pro rata basis to

existing shareholders.

Taxation of the United Kingdom

An individual holder of H Shares who is resident and domiciled in the UK will, in general, be

liable to UK income tax on dividends received from the Company. Where such an individual

receives dividends from the Company without deduction of tax the amount included as income

for the purposes of computing his or her UK tax liability is the gross amount of the dividend and

this is taxed at the appropriate marginal rate (currently 10% in the case of a basic rate or lower

rate taxpayer and 32.5% in the case of a higher rate taxpayer). Where tax is withheld from the

dividend, credit will be given against UK income tax for any tax withheld from the dividend up

to the amount of the UK income tax liability. The Company would assume responsibility for

withholding tax at source within the PRC if such a withholding is required. The current UK-

Chinese Double Taxation Agreement provides that the maximum withholding tax on dividends

from Chinese resident companies paid to UK residents is 10% of the gross dividend.

UK resident holders of H Shares who are individuals not domiciled within the UK will only be

liable to income tax on a dividend from the Company to the extent that it is remitted to the UK.

A holder of H Shares which is a UK tax resident company will, in general, be liable to UK

corporation tax on dividends received from the Company, with double tax relief available for

withholding tax suffered. In certain cases (not discussed here), a holder of H Shares which is a

UK tax resident company may be entitled to relief for “underlying” tax paid by the Company or

its subsidiaries.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 53

Report of the Directors (Cont’d)

Accommodation Benefits for Employees

According to the relevant rules and regulations in the PRC, the Group and its employees are

each required to make contributions to an accommodation fund to local social security

authorities, which are in proportion to the salaries and wages of the employees at an average

rate of 7%. There are no further obligations beyond the contribution to the accommodation

fund organised by local social security authorities. In 1998, in addition to the contributions

made to the accommodation fund, the Company purchased apartments for a sum of RMB19

million and made a provision of RMB15.3 million in that year for the estimated loss on their

disposal. As at December 31, 2001, all the apartments have been disposed and cumulative

proceeds of RMB4.3 million have been received from its employees.

Save as disclosed above, the Company did not own any staff quarters nor dispose of any staff

quarters during the period.

Subsequent Events

Details of the significant subsequent events of the Group are set out in note 40 to the financial

statements.

Compliance with the Code of Best Practice

Only one full board meeting of the Directors was held by the Company during the year as

opposed to no less than one such meetings every six months recommended by paragraph 1

of the Code of Best Practice set out in Appendix 14 to the Listing Rules (the “Code”). Except

for the above, the Directors are of the opinion that the Company has complied with the Code

throughout the accounting period covered by the annual report.

Audit Committee

The Company has an audit committee which was established in accordance with the requirement

of the Code, for the purpose of reviewing and providing supervision over the Group’s financial

reporting process and internal controls. The audit committee comprises three independent

non-executive Directors and two non-executive Directors.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

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.

Gratitude

The Board would like to take this opportunity to express its gratitude to Mr. Geng Xiaoping who

served as General Manager until March 13, 2002 for his contribution to the Company.

ON BEHALF OF THE BOARD

Geng Xiaoping

Chairman

Hangzhou, Zhejiang Province, the PRC

March 13, 2002

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 55

Report of the Supervisory Committee

In compliance with the Company Law of the PRC, the Company’s Articles of Association and

the Regulations of the Supervisory Committee, the five-member committee earnestly discharged

its statutory supervisory duties, safeguarding the lawful interests of the shareholders of the

Company. The main tasks of the Committee in 2001 included, among others, attending board

meetings; advising on important issues such as the Company’s investment decisions and

dividend policies; participating in major functions of the Company, and through other means,

understanding and monitoring the conduct of the Directors, General Manager and other senior

officers in business management; carefully reviewing the financial position of the Company,

discussing and reviewing the financial statements and dividend distribution proposal to be

submitted by the Board to the annual general meeting.

The Committee concludes that the Directors, General Manager and other senior officers of the

Company have adopted steady development strategies in 2001, focusing on the principal

business operations, obtaining sustained growth in operating results and providing good returns

to shareholders, and have expanded the influence of the Company in the international capital

market through the establishment of the Level-I ADR program. The efforts of the Board and

management in corporate governance have obtained recognition and approval from investors,

and this has consolidated the positive corporate image of the Company in both domestic and

overseas capital markets.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

The Committee has examined the financial statements of the Company for 2001 prepared to

be submitted by the Board to the annual general meeting, and concluded that the statements

accurately reflected the Company’s operating results and asset position in 2001 and were in

compliance with relevant laws and regulations and the Company’s Articles of Association.

Although the dividend payout ratio in 2001 was lower than that of the previous year, the ratio is

still relatively high, providing appropriate cash return to shareholders. We, therefore, endorse

this profit distribution proposal, and recommend shareholders to approve the proposal at the

forthcoming annual general meeting.

The Committee reviewed the Report of the Directors to be submitted to the annual general

meeting, and consider it to be a fair representation of the Company’s actual situation. In the

course of the Company’s business operations, the members of the Board, General Manager

and other senior officers of the Company observed their fiduciary duties and worked diligently

while exercising their rights or discharging their duties. We did not find any abuse of power or

infringement of the interests of shareholders and employees.

The Committee is satisfied with the accomplishments attained by the Company in its various

tasks.

March 12, 2002

By the Order of the Supervisory Committee

Ma Kehua

Chairman of the Supervisory Committee

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 57

Report of the International Auditors

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 59 to 105 which have been prepared in

accordance with accounting principles generally accepted in Hong Kong. These financial

statements are the responsibility of the Company’s directors. Our responsibility is to express

an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those

standards require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement. An audit includes examining,

on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates

made by the Company’s directors, as well as evaluating of the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements give a true and fair view of the state of affairs of the

Company and of the Group as at December 31, 2001 and of the profit and cash flows of the

Group for the year then ended and have been properly prepared in accordance with the

disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young

Certified Public Accountants

Hong Kong

March 13, 2002

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 59

Consolidated Income Statement

TURNOVER

Operating costs

Gross profit

Other revenue

Administrative expenses

Other operating expenses

PROFIT FROM OPERATING ACTIVITIES

Finance costs

Share of profits of associates

Share of loss of a jointly-controlled entity

PROFIT BEFORE TAX

Tax

Year ended December 31, 2001

Notes

2001
RMB’000

2000
RMB’000
(Restated)

1,722,517

1,188,604

(392,535)

(248,429)

1,329,982

940,175

216,690

(88,487)

(18,236)

242,888

(64,978)

(75,317)

1,439,949

1,042,768

(215,346)

(197,083)

12,396

(1,459)

40,584

(6,517)

1,235,540

879,752

(363,970)

(186,391)

PROFIT BEFORE MINORITY INTERESTS

871,570

693,361

Minority interests

(110,957)

(57,360)

NET PROFIT FROM ORDINARY ACTIVITIES

ATTRIBUTABLE TO SHAREHOLDERS

DIVIDENDS

Interim

Proposed final

760,613

636,001

(130,293)

(304,018)

(86,862)

(304,018)

(434,311)

(390,880)

EARNINGS PER SHARE

17.51 cents

14.64 cents

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Consolidated Statement of Recognised Gains and Losses

Year ended December 31, 2001

Notes

2001
RMB’000

2000
RMB’000

Net profit from ordinary activities

attributable to shareholders

760,613

636,001

Total recognised gains and losses

760,613

636,001

Goodwill eliminated directly against reserves

—

(20,844)

760,613

615,157

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 61

Consolidated Balance Sheet

December 31, 2001

Notes

2001
RMB’000

NON-CURRENT ASSETS
Fixed assets
Interest in a jointly-controlled entity
Interests in associates
Expressway operating rights
Long term investments
Long term receivables
Goodwill

CURRENT ASSETS
Short term investments
Inventories
Trade receivables
Other receivables
Cash and cash equivalents

CURRENT LIABILITIES
Trade payables
Profits tax payable
Other taxes payable
Other payables and accruals
Interest-bearing bank and other borrowings

NET CURRENT LIABILITIES

TOTAL ASSETS LESS CURRENT LIABILITIES

NON-CURRENT LIABILITIES
Interest-bearing bank and other loans
Long term bonds
Other long term liabilities
Deferred tax

Minority interests

CAPITAL AND RESERVES
Issued capital
Reserves
Proposed final dividend

14
16
17
18
19
20
21

22
23
24

26
27

28
29

33
34
12

Geng Xiaoping
Director

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Fang Yunti
Director

2000
RMB’000
(Restated)

11,681,806
57,126
167,316
232,045
32,867
6,450
—

12,031,012
54,082
156,909
223,345
32,867
9,030
19,810

12,527,055

12,177,610

1,012,186
1,274
54,219
63,778
819,026

377,965
718
19,202
296,591
1,714,334

1,950,483

2,408,810

240,818
95,229
23,219
157,326
1,620,778

204,559
103,022
17,003
313,504
1,831,817

2,137,370

2,469,905

(186,887)

(61,095)

12,340,168

12,116,515

1,208,231
200,000
8,694
131,533

1,414,781
200,000
1,134
43,101

1,548,458

1,659,016

1,502,629

1,495,364

9,289,081

8,962,135

4,343,115
4,641,948
304,018

4,343,115
4,315,002
304,018

9,289,081

8,962,135

Consolidated Cash Flow Statement

NET CASH INFLOW FROM OPERATING ACTIVITIES

35(a)

1,603,180

1,040,303

Year ended December 31, 2001

Notes

2001
RMB’000

2000
RMB’000

RETURNS ON INVESTMENTS

AND SERVICING OF FINANCE
Interest received
Interest paid
Dividends paid
Dividends paid to minority interests
Dividends from an associate
Exchange gains realised arising on the advance

repayment of the World Bank loan

Net cash outflow from returns on investments

and servicing of finance

TAX

Taxes paid and refunded, net

INVESTING ACTIVITIES

Proceeds from disposal of fixed assets
Additions to fixed assets
Additions to construction in progress
Decrease in time deposits
Decrease/(increase) in short term investments
Acquisition of additional interests in existing subsidiaries
Acquisition of an associate
Decrease in investment in an associate

59,869
(260,878)
(434,311)
(31,177)
6,620

67,253
(254,312)
(260,587)
(33,324)
8,302

53,172

—

(606,705)

(472,668)

(276,904)

(99,805)

1,400
(29,471)
(441,630)
311,721
(634,221)
(93,368)
—
—

—
(72,469)
(1,126,911)
27,131
705,429
(172,800)
(18,500)
100,000

Net cash outflow from investing activities

(885,569)

(558,120)

NET CASH OUTFLOW BEFORE FINANCING ACTIVITIES

(165,998)

(90,290)

FINANCING ACTIVITIES

New bank and other loans
Repayment of bank and other loans
Minority interests
Issue of bonds

35(b)

3,113,850
(3,531,439)
—
—

2,732,281
(2,645,580)
176,381
200,000

Net cash inflow/(outflow) from financing activities

(417,589)

463,082

INCREASE/(DECREASE) IN CASH

AND CASH EQUIVALENTS

Cash and cash equivalents at beginning of year

(583,587)

1,323,513

372,792

950,721

CASH AND CASH EQUIVALENTS AT END OF YEAR

739,926

1,323,513

ANALYSIS OF BALANCES OF CASH

AND CASH EQUIVALENTS
Cash and bank balances
Time deposits with original maturity of less

than three months when acquired

434,771

320,304

305,155

1,003,209

739,926

1,323,513

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 63

Balance Sheet

NON-CURRENT ASSETS
Fixed assets
Interests in subsidiaries
Interest in a jointly-controlled entity
Interests in associates
Expressway operating rights
Long term investments
Long term receivables

CURRENT ASSETS
Short term investments
Inventories
Trade receivables
Other receivables
Cash and cash equivalents

CURRENT LIABILITIES
Trade payables
Profits tax payable
Other taxes payable
Other payables and accruals
Interest-bearing bank and other borrowings

NET CURRENT ASSETS/(LIABILITIES)

TOTAL ASSETS LESS CURRENT LIABILITIES

NON-CURRENT LIABILITIES
Interest-bearing bank and other loans
Deferred tax

CAPITAL AND RESERVES
Issued capital
Reserves
Proposed final dividend

December 31, 2001

Notes

2001
RMB’000

2000
RMB’000
(Restated)

5,095,680
3,549,568
64,910
126,500
182,578
30,000
6,450

5,202,986
3,617,048
64,359
126,500
175,644
30,000
9,030

9,225,567

9,055,686

715,876
610
54,196
58,640
333,420

180,294
454
19,202
190,234
1,340,260

1,162,742

1,730,444

84,269
50,429
10,225
89,288
990,500

13,118
23,020
4,353
224,104
1,320,376

1,224,711

1,584,971

(61,969)

145,473

9,163,598

9,201,159

100,000
62,261

288,526
21,655

162,261

310,181

9,001,337

8,890,978

4,343,115
4,354,204
304,018

4,343,115
4,243,845
304,018

9,001,337

8,890,978

14
15
16
17
18
19
20

22
23
24

26
27

28
32

33
34
12

Geng Xiaoping
Director

Fang Yunti
Director

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Notes to Financial Statements

1. Corporate Information

December 31, 2001

Zhejiang Expressway Co., Ltd. was established on March 1, 1997. The H shares of the Company

(“H Shares”) were subsequently listed on The Stock Exchange of Hong Kong Limited (the “Stock

Exchange”) on May 15, 1997.

All of the H Shares of the Company were admitted to the Official List of the United Kingdom Listing

Authority (the “Official List”). Dealings on the London Stock Exchange commenced on May 5, 2000.

On July 18, 2000, with the approval of the Ministry of Foreign Trade and Economic Co-operation of

the People’s Republic of China (the “PRC”), the Company changed its business registration into a

Sino-foreign joint stock limited company.

On February 27, 2001, trading of the H Shares of the Company on the Berlin Stock Exchange

commenced following a secondary listing on the Unofficial Regulated Market of the exchange.

On February 14, 2002, the United States Securities and Exchange Commission, following approval

by the board of directors and the China Securities Regulatory Commission, declared the registration

statement in respect of the ADSs evidenced by the ADRs representing deposited H Shares of the

Company effective.

The registered office of the Company is located at 19/F, Zhejiang World Trade Centre, 15 Shuguang

Road, Hangzhou, Zhejiang Province, the PRC. During the year, the Group was involved in the following

principal activities:

(a)

the design, construction, operation, maintenance and management of high grade roads; and

(b)

the development and operation of certain ancillary services such as technical consultation,

automobile servicing and fuel facilities.

In the opinion of the Directors, the ultimate holding company of the Company is Zhejiang

Communications Investment Group Co., Ltd. (the “Communications Investment Group”), a State-

owned enterprise established in the PRC.

Zhejiang Provincial High Class Highway Investment Co., Ltd. (the “Provincial Investment Co”) was

replaced by the Communications Investment Group as part of the restructuring of the Zhejiang

Government. The Communications Investment Group was incorporated on December 29, 2001.

As such, the Communications Investment Group was considered by the Directors of the Company

as the ultimate holding company of the Company, which owns approximately 56% of the shares of

the Company.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 65

Notes to Financial Statements (Cont’d)

2. Impact of New/Revised Statements of Standard Accounting

Practice (“SSAPs”)

The following SSAPs and related interpretations have been adopted for the first time in the preparation

of the current year’s consolidated financial statements:

•

SSAP 9 (Revised)

SSAP 14 (Revised)

SSAP 18 (Revised)

SSAP 26

SSAP 28

SSAP 29

SSAP 30

SSAP 31

SSAP 32

Events after the balance sheet date

Leases

Revenue

Segment reporting

Provisions, contingent liabilities and contingent assets

Intangible assets

Business combinations

Impairment of assets

Consolidated financial statements and accounting for

investment in subsidiaries

Interpretation 12

Business combinations — subsequent adjustment of fair

values and goodwill initially reported

Interpretation 13

Goodwill — continuing requirements for goodwill and negative

goodwill previously eliminated against/credited to reserves

SSAP 9 (Revised) prescribes which type of events occurring after the balance sheet date require

adjustment to the financial statements, and which require disclosure but no adjustment. Its principal

impact on these financial statements is that the proposed final dividend which is not declared and

approved until after the balance sheet date, is no longer recognised as a liability at the balance sheet

date, but is disclosed as an allocation of retained earnings on a separate line within the capital and

reserves section of the balance sheet. The prior year adjustment arising from the adoption of this

revised SSAP is detailed in note 12 to the financial statements.

SSAP 14 (Revised) prescribes the basis for lessor and lessee accounting for finance and operating

leases, and the required disclosures in respect thereof. Certain amendments have also been made

to the previous accounting treatments, which may be accounted for retrospectively or prospectively

in accordance with the requirements of the SSAP. The revised SSAP requirements have not had a

material effect on the amounts previously recorded in the financial statements, therefore no prior

year adjustment has been required.

SSAP 18 (Revised) prescribes the recognition of revenue and was revised as a consequence of the

revision to SSAP 9 described above. Proposed final dividends from subsidiaries that are declared

and approved by the subsidiaries after the balance sheet date are no longer recognised in the

Company’s own financial statements for the year. The adoption of the SSAP has no material impact

on these financial statements.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Impact of New/Revised Statements of Standard Accounting
Practice (“SSAPs”) (Continued)

SSAP 26 prescribes the principles to be applied for reporting financial information by segment. It

requires management to assess whether the Group’s predominant risks or returns are based on

business segments or geographical segments and determine one of these bases to be the primary

reporting format, with the other as the secondary segment information reporting format. The impact

of the SSAP is the inclusion of significant additional segment reporting disclosures which are set out

in note 4 to these financial statements.

SSAP 28 prescribes the recognition criteria and measurement bases to apply to provisions, contingent

liabilities and contingent assets, together with the required disclosures. These amendments do not

have a material impact on these financial statements.

SSAP 29 prescribes the recognition and measurement criteria for intangible assets, together with

the disclosure requirements. The adoption of this SSAP has resulted in no change to the previously

adopted accounting treatment for intangible assets and the additional disclosures that it requires

have not been significant for these financial statements. The SSAP does, however, require that

impairment losses on intangible assets be aggregated with the accumulated amortisation, whereas

previously they were deducted from the cost of the relevant asset. This disclosure reclassification

has had no effect on the net carrying amount of intangible assets in the balance sheet.

SSAP 30 prescribes the accounting treatment for business combinations, including the determination

of the date of acquisition, the method for determine the fair value of the assets and liabilities acquired,

and the treatment of goodwill or negative goodwill arising on acquisition. The SSAP requires the

disclosure of goodwill on future acquisitions in the non-current assets section of the balance sheet,

and that such goodwill is amortised to the income statement over its estimated useful life. Interpretation

13 prescribes the application of SSAP 30 to goodwill arising from acquisition in previous years

which remains eliminated against reserves. The adoption of the SSAP and Interpretation has not

resulted in a prior year adjustment, for the reasons detailed in note 21 to the financial statements.

SSAP 31 prescribes the recognition and measurement criteria for impairments of assets. The SSAP

is required to be applied prospectively and therefore, has had no effect on amounts previously

reported in prior year financial statements.

SSAP 32 prescribes the accounting treatment and disclosures for the preparation and presentation

of consolidated financial statements, and has had no significant impact on the preparation of these

financial statements.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 67

Notes to Financial Statements (Cont’d)

2. Impact of New/Revised Statements of Standard Accounting

Practice (“SSAPs”) (Continued)

In addition to the above new and revised SSAPs and related Interpretations, certain minor revisions

to the following SSAPs are effective for the first time for the current year’s financial statements:

•

SSAP 10:

SSAP 17:

SSAP 21:

“Accounting for investments in associates”

“Property, plant and equipment”

“Accounting for interests in joint ventures”

The only significant effect of these revisions is that SSAP 17 requires that impairment losses on fixed

assets be aggregated with accumulated depreciation in note 14 to the financial statements, whereas

previously they were deducted from the cost of the relevant assets in the balance sheet. The minor

revisions to SSAP 10 and SSAP 21 have no material impact on these financial statements.

3. Summary of Significant Accounting Policies

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of

Standard Accounting Practice (“HK SSAP”), accounting principles generally accepted in Hong Kong

and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared

under the historical cost convention, modified with respect to the measurement of investments in

securities, as further explained below.

Basis of consolidation

The consolidated financial statements include the audited financial statements of the Company and

its subsidiaries for the year ended December 31, 2001. The results of subsidiaries acquired or

disposed of during the year are consolidated from or to their effective dates of acquisition or disposal,

respectively. All significant intercompany transactions and balances are eliminated on consolidation.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

3. Summary of Significant Accounting Policies (Continued)

Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or

indirectly, so as to obtain benefits from its activities.

Interests in subsidiaries are stated at cost less any impairment losses.

Jointly-controlled entities

A jointly-controlled entity is a joint venture company which is subject to joint control, resulting in

none of the participating parties having unilateral control over the economic activity of the jointly-

controlled entity.

The Group’s share of the post-acquisition results and reserves of jointly-controlled entities is included

in the consolidated income statement and consolidated reserves, respectively. The Group’s interests

in jointly-controlled entities are stated in the consolidated balance sheet at the Group’s share of net

assets under the equity method of accounting less any impairment losses.

The results of jointly-controlled entities are included in the Company’s income statement to the

extent of dividends received and receivable. The Company’s interests in jointly-controlled entities

are treated as long term assets and are stated at cost less any impairment losses.

Associates

An associate is a company, not being a subsidiary or a joint venture, in which the Group has a long

term interest of generally not less than 20% of the equity voting rights and over which it is in a

position to exercise significant influence.

The Group’s share of the post-acquisition results and reserves of associates is included in the

consolidated income statement and consolidated reserves, respectively. The Group’s interests in

associates are stated in the consolidated balance sheet at the Group’s share of net assets under the

equity method of accounting, less any impairment losses.

The results of associates are included in the Company’s income statement to the extent of dividends

received and receivable. The Company’s interests in associates are treated as long term assets and

are stated at cost less any impairment losses.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 69

Notes to Financial Statements (Cont’d)

3. Summary of Significant Accounting Policies (Continued)

Goodwill

Goodwill arising on acquisition of subsidiaries, associates and jointly-controlled entities represents

the excess of the cost of the acquisition over the Group’s share of the fair values of the identifiable

assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisitions is recognised in the balance sheet as an asset and amortised on

straight-line basis over its estimated useful life of ten years. In the case of associates and joint-

controlled entities, any unamortised goodwill is included in the carrying amount thereof, rather than

as a separately identified asset on the consolidated balance sheet.

In prior years, goodwill arising on acquisitions was eliminated against reserves in the year of acquisition.

The Group has adopted the transitional provision of SSAP 30 that permits goodwill on acquisitions

which occurred prior to January 1, 2001, to remain eliminated against reserves. Goodwill on

subsequent acquisitions is treated according to the new accounting policy above.

On disposal of subsidiaries, associates or jointly-controlled entities, the gain or loss on disposal is

calculated by reference to the net assets at the date of disposal, including the attributable amount of

goodwill which remains unamortised and any relevant reserves, as appropriate. Any attributable

goodwill previously eliminated against reserves at the time of acquisition is written back and included

in the calculation of the gain or loss on disposal.

The carrying amount of goodwill, including goodwill remaining eliminated against reserves, is reviewed

annually and written down for impairment when it is considered necessary. A previously recognised

impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific

external event of an exceptional nature that was not expected to recur, and subsequent external

events have occurred which have reversed the effect of that event.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

3. Summary of Significant Accounting Policies (Continued)

Fixed assets and depreciation

Fixed assets, other than construction is progress, are stated at cost less accumulated depreciation

and any impairment losses. The cost of an asset comprises its purchase price, costs transferred

from construction in progress and any directly attributable costs of bringing the asset to its working

condition and location for its intended use. Expenditure incurred after the fixed assets have been put

into operation, such as repairs and maintenance and overhaul costs, is normally charged to the

income statement in the period in which it is incurred. In situations where it can be clearly demonstrated

that the expenditure has resulted in an increase in the future economic benefits expected to be

obtained from the use of the fixed assets, the expenditure is capitalised as an additional cost of the

fixed assets.

Depreciation of expressways and bridges is provided by using the sinking fund method whereby the

aggregate annual depreciation amounts, compounded at average rates ranging from 6.11% to

8.77% per annum, up to the expiry of the underlying 30-year expressway concession period, will be

equal to the total cost of the expressways and bridges.

Amortisation of land is provided on a straight-line basis to write off the cost of the land use rights

over the underlying 30-year expressway concession period.

Depreciation of fixed assets, other than expressways, bridges and land, is provided 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

Communications and signalling equipment

Motor vehicles

Machinery and equipment

Estimated
useful life

Annual
depreciation
rate

30 years

10 years

8 years

3.2%

9.7%

12%

5-8 years

12-19.4%

The gain or loss on disposal or retirement of a fixed asset recognised in the income statement is the

difference between the net sales proceeds and the carrying amount of the relevant asset.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 71

Notes to Financial Statements (Cont’d)

3. Summary of Significant Accounting Policies (Continued)

Construction in progress

Construction in progress represents costs incurred in the construction of expressways and bridges,

which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the

direct costs of construction and capitalized borrowing costs on related borrowed funds, during the

period of construction, installation and testing. Construction in progress is reclassified as fixed assets

when completed and ready for use.

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment

of any asset, or whether there is any indication that an impairment loss previously recognised for an

asset in prior years may no longer exist or may have decreased. If any such indication exists, the

asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher

of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable

amount. An impairment loss is charged to the income statement in the period in which it arises,

unless the asset is carried at a revalued amount, when the impairment loss is accounted for in

accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates

used to determine the recoverable amount of an asset, however not to an amount higher than the

carrying amount that would have been determined (net of any depreciation/amortisation), had no

impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is credited to the income statement in the period in which it arises,

unless the asset is carried at a revalued amount, when the reversal of the impairment losses is

accounted for in accordance with the relevant accounting policy for that revalued asset.

Expressway operating rights

Expressway operating rights represent the rights to operate the expressways and are stated at cost

less accumulated amortisation and any impairment losses.

Amortisation is provided on a straight-line basis over the periods of the expressway operating rights

granted to the Company and its subsidiaries.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

3. Summary of Significant Accounting Policies (Continued)

Long term investments

Long term investments are non-trading investments in listed and unlisted securities intended to be

held on a long term basis.

Held-to-maturity securities are stated at cost plus or minus the cumulative amortisation of the difference

between the purchase price and the maturity amount, less any provision for permanent diminutions

considered necessary by the directors, on an individual basis. The provision is recognised as an

expense immediately. The profit or loss on disposal of a held-to-maturity security is accounted for in

the period in which the disposal occurs and is the difference between the net sales proceeds and

the carrying amount of the security.

Unlisted equity securities are stated at cost, less any provisions for permanent diminutions considered

necessary by the directors, on an individual basis. The provision is recognised as an expense

immediately. The profit or loss on disposal of an unlisted security is accounted for in the period in

which the disposal occurs and is the difference between the net sales proceeds and the carrying

amount of the security.

Short term investments

Short term investments are investments in securities held for trading purposes and are stated at

their fair values on the basis of their quoted market prices at the balance sheet date, on an individual

investment basis. The gains or losses arising from changes in the fair value of a security are credited

or charged to the income statement for the period in which they arise.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 73

Notes to Financial Statements (Cont’d)

3. Summary of Significant Accounting Policies (Continued)

Revenue recognition

Revenue is recognised 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:

(a)

from toll revenue, net of any applicable revenue taxes, when received;

(b)

from the sale of goods, when the significant risks and rewards of ownership have been transferred

to the buyers, provided that the Group maintains neither managerial involvement to the degree

usually associated with ownership, nor effective control over the goods sold;

(c)

from the rendering of services, based on the percentage of completion basis, provided that this

and the costs incurred as well as the estimated costs to completion can be measured reliably.

The stage of completion of a transaction associated with the rendering of services is established

by reference to the costs incurred to date as compared to the total costs to be incurred under

the transaction;

(d)

rental income, on a time proportion basis over the lease terms;

(e)

interest income, on a time proportion basis taking into account the principal outstanding and

the effective interest rate applicable; and

(f)

dividends, when the shareholders’ right to receive payment is established.

Tax

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, practices and interpretations

thereof.

Deferred tax is provided, using the liability method, on all significant timing differences to the extent

it is probable that the liability will crystallise in the foreseeable future. A deferred tax asset is not

recognised until its realisation is assured beyond reasonable doubt.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

3. 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 income statement unless such exchange differences relate to funds borrowed specifically

for the financing of construction of expressways and bridges, in which case they are capitalised to

the extent that they can be regarded as an adjustment to interest costs.

Capitalisation of borrowing costs

Borrowing costs directly attributable to the construction of expressways, tunnels and bridges are

capitalised as part of the cost of those 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

recognised as an expense in the period in which they are incurred.

The amount of borrowing costs capitalised 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.

Capitalisation of borrowing costs on funds borrowed specifically for the construction of expressway

sections ceases when the construction of such expressway sections is substantially completed and

are capable of commencing toll operations.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor

are accounted for as operating leases. Rentals applicable to such operating leases are charged to

the income statement on a straight-line basis over the lease terms.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 75

Notes to Financial Statements (Cont’d)

3. Summary of Significant Accounting Policies (Continued)

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted

average basis. Net realisable value is based on estimated selling prices less any estimated costs

expected to be incurred to completion and disposal.

Dividends

Interim and final dividends proposed by the directors are classified as a separate allocation of retained

earnings within capital and reserves in the balance sheet, until they have been approved by the

shareholders in a general meeting. When these dividends are approved by the shareholders and

declared, they are recognised as a liability.

In previous years, the Company recognised its proposed final dividend to shareholders, which was

declared and approved after the balance sheet date, as a liability in its balance sheet. The revised

accounting treatments for dividends resulting from the adoption of SSAP 9 (Revised), have given

rise to prior year adjustments in the Group’s financial statements, further details of which are included

in note 12 to the financial statements.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the

other party, or exercise significant influence over the other party in making financial and operating

decisions. Parties are also considered to be related if they are subjected to common control or

common significant influence.

Related parties may be individuals or corporate entities.

Cash equivalents

For the purpose of the consolidated cash flow statement, cash equivalents represent short term

highly liquid investments which are readily convertible into known amounts of cash and which were

within three months of maturity when acquired. For the purpose of balance sheet classification,

cash equivalents represent assets similar in nature to cash, which are not restricted as to use.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

4. Segment Information

In accordance with the Group’s internal financial reporting, the Group has determined that business

segments are its primary reporting format. During the year, the entire turnover and contribution to

profit from operating activities of the Group was derived from Zhejiang Province in the PRC.

Accordingly, a further analysis of the turnover and contribution to profit from operating activities by

geographical area is not presented.

Business segments

The Group’s operating businesses are organised and managed separately, according to the nature

of services provided, with each segment representing a strategic business unit that serves different

markets:

— Toll operation represents the design, construction, operation and management of high grade

roads and collecting the expressway tolls.

— Advertising business represents the design and rental of advertising billboards along the

expressways.

— Road maintenance represents the maintenance of expressways and roads, including cleaning

of the road surface, minor repairs to the lanes, cleaning of the gutters and sewers, grass mowing,

afforestation and maintenance of buildings, equipment and facilities provided to third parties.

— Ancillary businesses mainly represent sales of foods, restaurant servicing, automobile servicing,

as well as oil stations.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 77

Notes to Financial Statements (Cont’d)

4. Segment Information (Continued)

Group

Segment revenue:

Turnover - third parties
Other revenue - third parties

Total revenue

Segment results

Finance costs
Share of profits of associates
Share of loss of

a jointly-controlled entity

Profit before tax
Tax

Profit before minority interests
Minority interests

Net profit from ordinary activities
attributable to shareholders

Segment assets
Interests in associates

Interest in

a jointly-controlled entity

Goodwill

Total assets

Segment liabilities

Deferred tax

Tolls

Advertising

Road maintenance

Ancillary businesses

Consolidated

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

1,663,362
209,319

1,157,098
228,950

21,190
72

14,535
23

4,617
3,511

4,853
1,083

33,348
3,788

12,118
12,832

1,722,517
216,690

1,188,604
242,888

1,872,681

1,386,048

21,262

14,558

8,128

5,936

37,136

24,950

1,939,207

1,431,492

1,425,341

1,024,432

11,084

11,261

(976)

3,409

4,500

3,666

1,439,949

1,042,768

—
—

(1,459)

(6,517)

—
—

—

—
—

—

—
—

—

—
—

—

—
12,396

—
40,584

(215,346)
12,396

(197,083)
40,584

—

(1,459)

(6,517)

1,235,540
(363,970)

879,752
(186,391)

871,570
(110,957)

693,361
(57,360)

760,613

636,001

14,089,709
—

14,209,868
—

24,947
—

19,086
—

42,225
—

47,360
—

89,856
156,909

85,664
167,316

14,246,737
156,909

14,361,978
167,316

54,082

19,810

57,126

—

54,082

19,810

57,126

—

14,163,601 14,266,994

24,947

19,086

42,225

47,360

246,765

252,980 14,477,538 14,586,420

3,514,937

4,038,430

131,533

43,101

5,416

—

3,626

—

6,132

12,371

27,810

31,393

3,554,295

4,085,820

—

131,533

43,101

Total liabilities

3,646,470

4,081,531

5,416

3,626

6,132

12,371

27,810

31,393

3,685,828

4,128,921

Other segment information

Capital expenditure

Depreciation and amortisation

Impairment loss

recognised in the

income statement

Write-off of bad debts

546,401

1,228,007

207,099

144,275

7,975

1,692

8,014

1,207

1,190

4,398

446

3,304

187

1,093

13,383

555,753

1,249,850

1,994

214,282

150,780

—

42,239

7,500

—

42,239

7,500

—

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

5. Turnover and Revenue

Turnover mainly represents toll income from the operation of expressways, the value of advertising

services rendered, and the value of road maintenance services rendered, net of relevant revenue

taxes.

An analysis of turnover and revenue is as follows:

Toll income - third parties

Advertising income - third parties

Road maintenance income - third parties

Others - third parties

Less: Revenue taxes

Turnover

Income on short term investments

Interest income

Rental income

Trailer income

Exchange gains

Others

Other revenue

2001
RMB’000

2000
RMB’000

1,756,265

1,219,672

22,462

4,649

34,465

15,878

5,130

15,582

1,817,841

1,256,262

(95,324)

(67,658)

1,722,517

1,188,604

105,522

41,503

6,726

8,278

53,172

1,489

153,566

73,195

7,098

6,821

—

2,208

216,690

242,888

1,939,207

1,431,492

The Company and its subsidiaries are subject to Business Tax (“BT”), levied at 5% on toll income

and 3%-5% on other services income. In addition, the subsidiaries are subject to the following types

of revenue taxes:

— City Development Tax, levied at 1% to 7% of BT;

— Education Supplementary Tax, levied at 3.5% to 4% of BT; and

— Culture and Education Fees, levied at 3% on advertising income.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 79

Notes to Financial Statements (Cont’d)

6. Profit from Operating Activities

The Group’s profit from operating activities is arrived at after charging/(crediting):

2001
RMB’000

2000
RMB’000

205,582

142,080

1,364

3,709

75,773

6,900

—

8,700

1,043

7,500

4,313

—

(6,726)

(53,172)

(41,503)

(105,522)

930

2,267

51,593

4,358

42,239

8,700

—

5,595

5,783

(7,098)

(73,195)

(153,566)

2001
RMB’000

2000
RMB’000

188,400

29,645

218,045

(2,699)

184,969

39,349

224,318

(27,235)

215,346

197,083

Depreciation

Operating lease rentals on land and buildings

Auditors’ remuneration

Staff costs:

Wages and salaries

Pension contributions

Impairment loss on the termination of toll

collection in a connection road

Amortisation of expressway operating rights

Amortisation of goodwill

Write-off of bad debts

Loss on disposal of fixed assets

Provision for impairment of long term investments

Net rental income

Exchange (gains)/losses, net

Interest income

Income on short term investments

7. Finance Costs

Interest on bank loans and other loans

wholly repayable within five years

Interest on other loans

Total finance costs

Interest capitalised

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

8. Tax

No Hong Kong profits tax has been provided as the Group had no taxable profits in Hong Kong

during the year.

The Group was subject to the Corporate Income Tax (the “CIT”) 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 a directive issued by Zhejiang Provincial People’s Government in 1997, the Company

was entitled to a refund from the Zhejiang Finance Bureau of an amount equal to 18% of its taxable

income in respect of the CIT paid to Zhejiang tax bureau. According to a directive of the State

Council, the Company was entitled to the tax refund until December 31, 2001. Such beneficial

treatment was not granted to subsidiaries, associates or jointly-controlled entities of the Company.

As Huajian Transportation Economic Development Center (“Huajian”), a state-owned enterprise under

the China Merchants Group, became a major shareholder of the Company, the CIT that the Company

paid has been divided into the national portion and the Zhejiang portion. The national portion of the

total CIT paid, being Huajian’s portion of the total domestic shares (i.e. 16.39%) according to relevant

regulations issued by the Ministry of Finance, is no longer entitled to the 18% refund granted by

Zhejiang Provincial People’s Government.

In this regard, the tax refunded and refundable represents the financial subsidies received and

receivable by the Company from Zhejiang Finance Bureau in respect of the year.

Group:

Tax charged

Overprovision in prior year

Tax refunded/refundable

Deferred - note 32

Share of tax attributable to associates

Share of deferred tax attributable to an associate

Share of deferred tax attributable to a jointly-controlled entity

2001
RMB’000

2000
RMB’000

327,718

—

(68,791)

258,927

88,432

17,528

(1,951)

1,034

185,307

(1,474)

(50,840)

132,993

39,755

6,074

6,302

1,267

Tax charge for the year

363,970

186,391

There was no material unprovided deferred tax in respect of the year (2000: Nil).

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 81

Notes to Financial Statements (Cont’d)

9. Net Profit from Ordinary Activities Attributable to Shareholders

The net profit from ordinary activities attributable to shareholders dealt with in the financial statements

of the Company is RMB544,670,000 (2000: RMB504,441,000).

10. Directors’ Remuneration

Directors’ remuneration disclosed pursuant to the Listing Rules and Section 161 of the Companies

Ordinance is as follows:

Fees

Other emoluments:

Salaries, allowances and benefits in kind

Bonuses paid and payable

2001
RMB’000

2000
RMB’000

—

1,641

552

2,193

1,440

477

1,917

Salaries, allowances and benefits in kind include HK$150,000 (2000: HK$145,000) payable to each

of two independent non-executive directors and RMB20,000 (2000: RMB5,000) payable to another

independent non-executive director. There were no other emoluments payable to the independent

non-executive directors during the year (2000: Nil).

The remuneration of the directors fell within the following band:

Nil to HK$1,000,000

Number of directors

2001

2000

There was no arrangement under which a director waived or agreed to waive any remuneration

during the year.

11. Five Highest Paid Employees

The five highest paid employees during the year included four (2000: five) directors, details of whose

remuneration are set out in note 10 above, as well as a non-director employee, whose remuneration

for the year was less than HK$1,000,000.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

12. Dividends

Company

Interim

Proposed final

2001

2000
Per ordinary share
RMB

RMB

2001

2000

RMB’000

0.03

0.07

0.10

0.02

0.07

0.09

130,293

304,018

86,862

304,018

434,311

390,880

The proposed final dividend for the year is subject to the approval of the Company’s shareholders at

the forthcoming annual general meeting.

During the year, the Group adopted the revised SSAP 9 “Events after the balance sheet date”.To

comply with this revised SSAP, a prior year adjustment has been made to reclassify the proposed

final dividend for the year ended December 31, 2000, of RMB304,018,000, which was recognised

as a liability in the prior year, to the proposed final dividend reserve account within the capital and

reserves section of the balance sheet. The result of this has been to reduce the Group’s and the

Company’s current liabilities and increase the reserves previously reported as at December 31,

2000, by RMB304,018,000.

The effect of this change in accounting policy as at December 31, 2001, is that the current year’s

proposed final dividend of RMB304,018,000, was included in the proposed final dividend reserve

account within the capital and reserves section of the balance sheet at that date, whereas in previous

years it would have been recognised as a current liability at the balance sheet date.

13. Earnings Per Share

The calculation of basic earnings per share is based on the net profit from ordinary activities attributable

to shareholders for the year of RMB760,613,000 (2000: RMB636,001,000) and the 4,343,114,500

shares (2000: 4,343,114,500 shares) in issue during the year.

Diluted earnings per share for the years ended December 31, 2001 and 2000 have not been calculated

as no diluting event existed during these years.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 83

Notes to Financial Statements (Cont’d)

14. Fixed Assets

Expressways
and
bridges
RMB’000

Land
RMB’000

Toll
stations
and
ancillary
facilities
RMB’000

Communi-
cations
and
signalling
equipment
RMB’000

Machinery

Motor
vehicles
RMB’000

and Construction
in progress
RMB’000

equipment
RMB’000

Total
RMB’000

527,628

11,029,432

212,761

9,881

53,008

205,162

53,346

12,091,218

—

44,160

—

44,160

527,628
—
—
—
—

11,073,592
(842 )
277
109,603
—

212,761
(12,344 )
5,720
165,461
—

9,881
118,654
7,944
3,309
—

53,008
19,552
4,927
778
(334 )

205,162
(125,020 )
6,050
7,566
(396 )

53,346
—
530,835
(287,214 )
—

12,135,378
—
555,753
(497 )
(730 )

Group

Cost

At beginning of year:

As previously reported
Reclassified to
accumulated
depreciation and
impairment (Note)

As restated
Reclassification
Additions
Transfers
Disposals

At December 31, 2001

527,628

11,182,630

371,598

139,788

77,931

93,362

296,967

12,689,904

Accumulated depreciation

and impairment:

At beginning of year:

As previously reported
Reclassified from
cost (Note)

As restated
Reclassification
Provided during the year
Disposals

53,404

277,760

13,501

5,544

13,130

46,073

—

44,160

—

53,404
—
17,525
—

321,920
164
140,550
—

13,501
(1,465 )
14,269
—

5,544
18,293
12,601
—

13,130
11,031
8,668
(40 )

46,073
(28,023 )
11,969
(222 )

At December 31, 2001

70,929

462,634

26,305

36,438

32,789

29,797

—

—
—
—
—

—

409,412

44,160

453,572
—
205,582
(262 )

658,892

Net book value:

At December 31, 2001

456,699

10,719,996

345,293

103,350

45,142

63,565

296,967

12,031,012

At December 31, 2000

474,224

10,751,672

199,260

4,337

39,878

159,089

53,346

11,681,806

Note:

Accumulated impairment losses are aggregated with accumulated depreciation under the revised

disclosure requirements of SSAP17, whereas previously they were disclosed as an adjustment to the

cost of the assets. This change has been disclosed as a retrospective reclassification.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

14. Fixed Assets (Continued)

Expressways
and
bridges
RMB’000

Land
RMB’000

Toll
stations
and
ancillary
facilities
RMB’000

Communi-
cations
and
signalling
equipment
RMB’000

Machinery

Motor
vehicles
RMB’000

and Construction
in progress
RMB’000

equipment
RMB’000

Total
RMB’000

350,384

4,712,616

95,847

9,868

—

(159 )

105,986

4,471

9,858

—

3,298

325

—

28,532

19,221

3,846

—

(24 )

174,798

(125,048 )

37,063

5,409,108

—

3,282

196,988

211,885

766

(150 )

(10,949 )

—

(174 )

Company

Cost:

At January 1, 2001

Reclassification

Additions

Transfers

Disposals

At December 31, 2001

350,384

4,712,616

110,017

119,477

51,575

53,648

223,102

5,620,819

Accumulated depreciation:

At January 1, 2001

Reclassification

Provided during the year

Disposals

41,330

206,672

—

11,668

—

170

63,816

—

9,045

(153 )

3,631

—

5,538

16,981

12,351

—

10,496

11,025

5,833

(2 )

40,347

(28,023 )

7,181

(73 )

At December 31, 2001

52,998

270,658

12,523

34,870

27,352

19,432

—

313,428

—

104,480

(75 )

417,833

Net book value:

At December 31, 2001

297,386

4,441,958

97,494

84,607

24,223

34,216

223,102

5,202,986

At December 31, 2000

309,054

4,505,944

86,802

4,330

18,036

134,451

37,063

5,095,680

All fixed assets are located in the PRC.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 85

Notes to Financial Statements (Cont’d)

15. Interests in Subsidiaries

Unlisted shares, at cost

Due from subsidiaries

Due to subsidiaries

Company

2001
RMB’000

2000
RMB’000

3,648,673

3,555,304

2,375

(34,000)

4,099

(9,835)

3,617,048

3,549,568

The amounts due from/to subsidiaries are unsecured, interest-free and have no fixed terms of

repayment.

Particulars of the Company’s subsidiaries, all of which are directly held, are as follows:

Names of
subsidiaries

Zhejiang Yuhang

Expressway Co.,

Ltd. (“Yuhang Co”)

Zhejiang Jiaxing

Expressway Co.,

Ltd. (“Jiaxing Co”)

Date and
place of
registration

Registered

Percentage
of equity
capital attributable to
RMB the Company

Principal activities

Note 1

75,223,000

Construction and

management of the

Yuhang Section of the

Shanghai - Hangzhou

Expressway

Note 2

1,859,200,000

87.29

Construction and

management of the

Jiaxing Section of the

Shanghai-Hangzhou

Expressway

Zhejiang Gaotong Stone

Note 3

5,000,000

Manufacturing, designing

Development Co.,

Ltd. (“Gaotong”)

Zhejiang Shangsan

Expressway Co.,

Ltd. (“Shangsan Co”)

Zhejiang Expressway

Advertising Co.,

Ltd. (“Advertising Co”)

and selling of stone and

quarry materials

Note 4

2,400,000,000

Construction and

management of the

Shangsan Expressway

Note 5

1,000,000

Advertising

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

15. Interests in Subsidiaries (Continued)

Note 1. Yuhang Co was established on June 7, 1994 in the PRC as a joint stock limited company and was

subsequently restructured into a limited liability company under its current name on November 28,

1996.

Note 2. Jiaxing Co was established on June 30, 1994 in the PRC as a joint stock limited company and was

subsequently restructured into a limited liability company under its current name on November 29,

1996.

Note 3. Gaotong Co was established on November 3, 1997 in the PRC as a limited liability company. Gaotong

Co is in the process of liquidation.

Note 4. Shangsan Co was established on January 1, 1998 in the PRC as a limited liability company.

Note 5. Advertising Co was established on June 1, 1998 in the PRC as a limited liability company.

16. Interest in a Jointy-Controlled Entity

Unlisted shares, at cost

Share of net assets other

than goodwill

Amount due to

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

—

65,000

54,723

57,216

—

(90)

a jointly-controlled entity

(641)

(90)

(641)

54,082

57,126

64,359

64,910

The amount due to a jointly-controlled entity is unsecured, interest-free and has no fixed term of

repayment.

Particulars of the jointly-controlled entity, which is directly held by the Company, are as follows:

Name

Business
structure

Place of
registration and Ownership
interest
operations

Percentage of
Voting
power

Profit
sharing

Principal activities

Hangzhou Shida

Corporate

The PRC

Construction

Expressway Co.,

Ltd. (“Shida Co”)

and operation

of Shiqiao-

Dajing Road

(“Shida Road”)

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 87

Notes to Financial Statements (Cont’d)

17. Interests in Associates

Unlisted shares, at cost

Share of net assets other

than goodwill

Amount due to an associate

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

—

126,500

158,159

(1,250)

167,316

—

156,909

167,316

126,500

The amount due to an associate is unsecured, interest-free and has no fixed terms of repayment.

The Group’s share of post-acquisition accumulated reserves of the associates at December 31,

2001 was RMB31,659,000 (2000: RMB40,816,000).

Particulars of the associates, which are directly held by the Company, are as follows:

Name

Business
structure

Place of
registration
and operations

Percentage of
equity
attributable to
the Group

2001

2000

Principal activities

Zhejiang Expressway

Corporate

The PRC

Construction and operation

Petroleum

Development

Co., Ltd.

(“Petroleum Co”)

of gas stations and the

sale of petroleum

products

JoinHands Technology

Corporate

The PRC

27.58

Providing logistic management

Co., Ltd

(“JoinHands Co”)

and anti-counterfeiting system

in the PRC

The financial statements of the above associates are coterminous with those of the Group. The

consolidated financial statements have been adjusted for material transactions between the associates

and Group companies.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

18. Expressway Operating Rights

Group
RMB’000

Company
RMB’000

Cost:

At January 1, 2001 and December 31, 2001

261,000

208,000

Accumulated amortization:

At January 1, 2001

Provided during the year

28,955

8,700

25,422

6,934

At December 31, 2001

37,655

32,356

Net book value:

At December 31, 2001

223,345

175,644

At December 31, 2000

232,045

182,578

19. Investments

Long term investments

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

Held-to-maturity securities

30,000

Unlisted equity investments,

at cost

8,650

—

38,650

30,000

Provisions for impairment

of unlisted equity

investments

(5,783)

—

32,867

30,000

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 89

Notes to Financial Statements (Cont’d)

19. Investments (Continued)

Short term investments

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

Listed in the PRC, at market

value

— Government bonds

— Convertible bonds

— Close-end equity funds

733,724

160,614

97,810

156,525

99,485

121,955

562,848

101,078

51,950

—

99,486

80,808

— Open-ended

equity funds

20,038

—

1,012,186

377,965

715,876

180,294

The market value of the Group’s short term investments at the date of approval of these financial

statements was approximately RMB1,022,210,000 (2000: RMB393,704,000).

20. Long Term Receivables

Group and Company

2001
RMB’000

2000
RMB’000

Interest receivable in respect of the held-to-maturity securities

9,030

6,450

The interest receivable will be settled upon the maturity of the held-to-maturity securities.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

21. Goodwill

SSAP 30 was adopted during the year, as detailed in note 2 to the financial statements. The amounts

of the goodwill capitalised as an asset or recognised in the balance sheet, arising from the acquisition

of subsidiaries, are as follows:

Cost:

Acquisition of additional interests in a subsidiary and balance

at December 31, 2001

Accumulated amortisation:

Provided during the year and balance at December 31, 2001

Net book value:

At December 31, 2001

At December 31, 2000

Group
RMB’000

20,853

1,043

19,810

—

As detailed in note 2 to the financial statements, the Group has adopted the transitional provision of

SSAP 30 which permits goodwill and negative goodwill in respect of acquisitions which occurred

prior to January 1, 2001, to remain eliminated against reserves or credited to the capital reserve,

respectively.

The amounts of goodwill remaining in reserves, arising from the acquisition of subsidiaries, is

RMB352,860,000, as at December 31, 2001. The amount of goodwill is stated at cost which arose

in prior years.

22. Trade Recivables

An aged analysis of the trade receivables as at the balance sheet date, based on invoice date, is as

follows:

Within 1 year

1 to 2 years

2 to 3 years

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

44,918

9,301

—

18,162

208

832

44,895

9,301

—

18,162

208

832

54,219

19,202

54,196

19,202

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 91

Notes to Financial Statements (Cont’d)

23. Other Receivables

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

Prepayments

Deposits and other debtors

Profits tax refundable

30,808

10,225

22,745

45,214

238,817

12,560

30,028

5,867

22,745

3,637

174,037

12,560

63,778

296,591

58,640

190,234

24. Cash and Cash Equivalents

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

Cash and bank balances

Time deposits

434,771

384,255

320,304

1,394,030

137,556

195,864

161,078

1,179,182

819,026

1,714,334

333,420

1,340,260

25. Trade Payables

An aged analysis of the trade payables as at the balance sheet date, based on invoice date, is as

follows:

Within 1 year

1 to 2 years

2 to 3 years

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

113,793

126,796

229

200,761

3,798

—

82,711

1,550

12,113

1,005

—

240,818

204,559

84,269

13,118

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

26. Other Payables and Accruals

Group

Company

Notes

2001
RMB’000

Accruals

Other liabilities

Amounts due to

42,566

100,010

2000
RMB’000
Restated

89,943

126,448

2001
RMB’000

10,814

66,323

2000
RMB’000
Restated

42,769

84,222

related parties

12,151

92,304

12,151

92,304

Amount due to

the holding

company

2,599

4,809

—

4,809

157,326

313,504

89,288

224,104

27. Interest-Bearing Bank and Other Borrowings

Group

Company

Notes

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

Current portion

of bank and other

borrowings

1,620,778

1,831,817

990,500

1,320,376

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 93

Notes to Financial Statements (Cont’d)

28. Interest-Bearing Bank and Other Loans

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

Bank loans, unsecured

Other loans, unsecured

1,655,500

1,173,509

1,230,000

2,016,598

1,090,500

—

800,000

808,902

Bank loans repayable:

Within one year

In the second year

In the third to fifth years,

2,829,009

3,246,598

1,090,500

1,608,902

1,510,500

130,000

970,000

160,000

990,500

100,000

540,000

160,000

inclusive

15,000

100,000

—

100,000

1,655,500

1,230,000

1,090,500

800,000

Other loans repayable:

Within one year

In the second year

In the third to fifth years,

inclusive

Beyond five years

110,278

76,524

420,968

565,739

861,817

80,646

407,682

666,453

1,173,509

2,016,598

—

780,376

9,487

—

19,039

808,902

2,829,009

3,246,598

1,090,500

1,068,902

Portion classified as current

liabilities - note 27

(1,620,778)

(1,831,817)

(990,500)

(1,320,376)

Long term portion

1,208,231

1,414,781

100,000

288,526

(a) The bank loans are unsecured and bear interest at rates ranging from 5.022% to 5.643% per

annum.

(b) The other loans are unsecured and bear interest at rates ranging from 3% to 5.5% per annum.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

29. Long Term Bonds

Long term bonds

Group

2001
RMB’000

2000
RMB’000

200,000

The bonds are unsecured, bear interest at 3.78% per annum and are repayable in 2003 upon

maturity.

30. Amounts Due to Related Parties

The amounts due to related parties are unsecured, interest-free and have no fixed terms of repayment.

31. Amount Due to the Holding Company

The amount due to the holding company (i.e. the Communications Investment Group) is unsecured,

interest-free and has no fixed terms of repayment.

32. Deferred Tax

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

At January 1,

Charge for the year - note 8

43,101

88,432

3,346

39,755

21,655

40,606

3,346

18,309

At December 31,

131,533

43,101

62,261

21,655

The deferred tax of the Group and the Company arose from differences in accounting profit of these

financial statements prepared under HK SSAP, and the taxable income based on income for financial

reporting purposes prepared in accordance with the laws and regulations in the PRC.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 95

Notes to Financial Statements (Cont’d)

33. Share Capital

2001
Number
of shares

2000
Number
of shares

2001
RMB’000

2000
RMB’000

Registered, issued and fully paid:

Domestic shares of

RMB1.00 each

2,909,260,000

H shares of RMB1.00 each

1,433,854,500

2,909,260

1,433,855

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 May 15, 1997,

and were admitted to the Official List on May 5, 2000. Dealings on the London Stock Exchange

commenced on the same day.

On February 27, 2001, trading of the H Shares of the Company on the Berlin Stock Exchange

commenced following a secondary listing on the Unofficial Regulated Market of the exchange.

On February 14, 2002, the United States Securities and Exchange Commission, following approval

by the board of directors and the China Securities Regulatory Commission, declared the registration

statement in respect of the ADSs evidenced by the ADRs effective.

All the domestic shares and H shares rank pari passu with each other as to dividends and voting

rights.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

34. Reserves

premium Goodwill
account
Total
reserve
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

welfare Retained
profits

fund

Public

Statutory
surplus
reserve

Group

At January 1, 2000

3,645,082

(332,016)

182,990

82,856

511,813 4,090,725

Goodwill arising on

acquisition of

additional interest in

a subsidiary

—

(18,315)

—

(18,315)

Goodwill arising on

acquisition of

additional interest in

an associate

Interim dividend

- note 12

Net profit for the year

Transfer from/(to)

reserves

Proposed final

dividend - note 12

At December 31, 2000

and beginning

—

(2,529)

—

(2,529)

—

(86,862)

— 636,001

636,001

— 102,041

45,146

(147,187)

—

— (304,018)

(304,018)

of year

3,645,082

(352,860)

285,031

128,002

609,747 4,315,002

Share premium shared

from an associate

644

Interim dividend

- note 12

Net profit for the year

Transfer from/(to)

reserves

Proposed final

dividend - note 12

At December

—

644

— (130,293)

(130,293)

— 760,613

760,613

— 130,267

62,762

(193,029)

—

— (304,018)

(304,018)

31, 2001

3,645,726

(352,860)

415,298

190,764

743,020 4,641,948

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 97

Notes to Financial Statements (Cont’d)

34. Reserves (Continued)

premium Goodwill
account
Total
reserve
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

welfare Retained
profits

fund

Public

Statutory
surplus
reserve

Company

Balance at

January 1, 2000

3,645,082

— 115,911

57,956

311,335 4,130,284

Interim dividend

- note 12

Net profit for the year

Transfer from/(to)

reserves

Proposed final

dividend - note 12

At December 31, 2000

and beginning

—

(86,862)

— 504,441

504,441

57,063

28,531

(85,594)

—

— (304,018)

(304,018)

of year

3,645,082

172,974

86,487

339,302 4,243,845

Interim dividend

- note 12

Net profit for the year

Transfer from/(to)

reserves

Proposed final

dividend - note 12

At December

—

— (130,293)

(130,293)

— 544,670

544,670

79,434

39,717

(119,151)

—

— (304,018)

(304,018)

31, 2001

3,645,082

— 252,408

126,204

330,510 4,354,204

In accordance with the Company Law of the PRC and the companies’ articles of association, the

Company, its subsidiaries, its associates and its jointly-controlled entity (the “Entities”) are required

to allocate 10% of their profit after tax, as determined in accordance with the PRC accounting

standards and regulations applicable to the Entities, to the statutory surplus reserve (the “SSR”) until

such reserve reaches 50% of the registered capital of the Entities. Subject to certain restrictions set

out in the Company Law of the PRC and the respective articles of association of the Entities, part of

the SSR may be converted to increase the Entities’ share capital.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

34. Reserves (Continued)

In addition, Shangsan Co was required by the relevant tax authorities to transfer the CIT waived for

2000 to its SSR account in 2001. The transfer has been incorporated in these financial statements.

In accordance with the Company Law of the PRC, the Entities are required to transfer 5% to 10% of

their profit after tax, as determined in accordance with PRC accounting standards and regulations

applicable to the Entities, to the statutory public welfare fund (the “PWF”), which is a non-distributable

reserve other than in the event of the liquidation of the Entities. The PWF must be used for capital

expenditure on staff welfare facilities and these facilities remain as properties of the Entities.

The Directors of the Company have proposed to transfer RMB79,434,000 (2000: RMB57,063,000)

and RMB39,717,000 (2000: RMB28,531,000) to the SSR and the PWF, respectively. This represents

10% (2000: 10%) and 5% (2000: 5%), respectively, of the Company’s profit after tax of

RMB794,343,000 (2000: RMB570,629,000) determined in accordance with the PRC accounting

standards.

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 the HKGAAP.

As at December 31, 2001, the Company had reserves of approximately RMB634,528,000 (2000

restated: RMB643,320,000) available for distribution by way of cash or in kind.

As at December 31, 2001, in accordance with the Company Law of the PRC, the amount of

approximately RMB3,638,229,000 (2000: RMB3,633,159,000) standing to the credit of the

Company’s share premium account was available for distribution by way of capitalisation issues.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 99

Notes to Financial Statements (Cont’d)

35. Notes to the Cash Flow Statement

(a) Reconciliation of profit from operating activities to net cash inflow from operating activities:

Profit from operating activities

Depreciation

Amortisation of expressway operating rights

Amortisation of goodwill

Write-off of bad debts

Interest income

Arising on advance repayment of World Bank loan

Loss on disposal of fixed assets

Impairment loss

Provision for impairment of long term investments

Decrease/(increase) in inventories

Increase in trade receivables

Decrease/(increase) in deposits and other debtors

Decrease in trade payables

Increase in amount due from the holding company

Decrease in amounts due to related parties

Increase in other taxes payable

Increase/(decrease) in other liabilities

Increase/(decrease) in accruals

Increase in amount due to an associate

Increase in amount due to a jointly-controlled entity

2001
RMB’000

2000
RMB’000

1,439,949

1,042,768

205,582

8,700

1,043

7,500

(41,503)

(53,172)

4,313

—

(556)

(35,017)

164,981

(874)

(2,210)

(80,153)

6,216

(26,438)

3,018

1,250

551

142,080

8,700

—

(73,195)

—

5,595

42,239

5,783

331

(14,453)

(105,859)

(12,027)

(31,838)

—

5,268

31,624

(6,803)

—

Net cash inflow from operating activities

1,603,180

1,040,303

100

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

35. Notes to the Cash Flow Statement (Continued)

(b) Analysis of changes in financing during the year:

Long term
bonds
RMB’000

Bank and
other loans
RMB’000

Minority
interests
RMB’000

—

3,159,897

1,449,432

200,000

86,701

Balance at January 1, 2000

Cash inflow from financing

Arising from dilution of minority interests

Dividends paid to minority shareholders

Profit attributable to minority shareholders

—

176,381

(154,485)

(33,324)

57,360

Balance at December 31, 2000

and January 1, 2001

Cash outflow from financing

Arising from dilution of minority interests

Dividends paid to minority interests

Profit attributable to minority interests

200,000

3,246,598

1,495,364

—

(417,589)

—

(72,515)

(31,177)

110,957

Balance at December 31, 2001

200,000

2,829,009

1,502,629

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 101

Notes to Financial Statements (Cont’d)

36. Commitments

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

Capital commitments
Contracted, but not provided

for:
— Construction

of expressways

344,127

622,684

188,041

356,012

— Addition of

machinery

— Proposed investments
in Shangsan Co.
— Proposed investments

in Jiaxin Co.

— Purchase of

a new building

— Others

Authorised, but not
contracted for:
— Construction

35,446

—

542,600

485,000

542,600

485,000

386,992

—

386,992

5,720
—

—
1,886

5,720
—

—

—
1,886

1,314,885

1,109,570

1,123,353

842,898

of expressways

1,274,740

2,500,980

945,592

898,182

2,589,625

3,610,550

2,068,945

1,741,080

37. Contingent Liabilities

At the balance sheet date, contingent liabilities not provided for in the financial statements were as

follows:

Group

Company

2001
RMB’000

2000
RMB’000

2001
RMB’000

2000
RMB’000

Guarantees provided
in connection with
corporate bonds granted to
— A subsidiary

Guarantees provided to
banks in connection
with facilities granted to:
— A subsidiary
— A jointly-controlled entity

102

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

—

208,694

201,134

—
30,000

30,000

—
30,000

565,000
30,000

—
30,000

30,000

803,694

231,134

38. Differences in Financial Statements Prepared under PRC and

Hong Kong Accounting Standards

Profit after tax

2001
RMB’000

2000
RMB’000

Net assets
as at December 31
2001
RMB’000

2000
RMB’000

As reported in statutory accounts

928,132

642,023

9,218,047

8,881,679

HK SSAP adjustments:

(a) Goodwill

(b)

Provision for deficit arising on

37,170

35,885

(214,452)

(251,622)

the disposal of staff quarters

4,626

—

(c)

Interest on subscription monies,

of subscription, net of

deferred tax

(d)

Depreciation provided, net of

760

(2,484)

—

(15,300)

4,310

deferred tax

(77,039)

(26,241)

(74,656)

(14,733)

(e)

Difference in share premium

(f)

(g)

during establishment

Profits tax refundable

Restatement of short term

investments in securities

at market value, net of

deferred tax

(h)

Recognition of tax exemption

(i)

General provision on trade

—

10,186

(20,224)

—

12,560

38,868

17,805

11,923

19,059

18,287

—

11,923

8,873

36,967

6,964

receivables and other debts

(738)

5,548

2,187

3,450

(j)

Impairment loss, net of

deferred tax

(1,307)

(28,300)

6,443

(14,433)

(k)

CIT payment which was waived

in prior years

(10,064)

(l)

Proposed final dividend

(m) Others

As restated in the financial

statements

—

(2,303)

—

304,018

(1,775)

—

304,018

—

871,570

693,361

9,289,081

8,962,135

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 103

Notes to Financial Statements (Cont’d)

39. Related Party Transactions

The following is a summary of the significant related party transactions carried out in the ordinary

course of business between the Company, its subsidiaries and certain government bodies in the

year.

Under the reorganisation agreement, the Provincial Investment Co gave a number of undertakings

to the Company, including a non-competition undertaking, a tax indemnity and 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 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.

Pursuant to a supplemental agreement dated April 18, 1997, the Company, the Provincial Investment

Co, and the Executive Commission have agreed that the Company will take over the repayment

responsibilities under the reorganisation agreement in respect of the World Bank financing. An

appropriate agreement was entered into between the Company and the Executive Commission,

pursuant to which the Company will be charged the same rate of interest as that charged to the

Executive Commission.

During the year, the Company repaid all the outstanding principal of the World Bank loan in advance,

amounting to US$91,636,418 through the Executive Commission. The additional interest charges

and exchange gains arising from the advance repayment charged to the Company were the same

as those charged to the Executive Commission.

104

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ANNUAL REPORT 2001

40. Post Balance Sheet Events

The Company has entered into agreements (the “Agreements”) with the minority shareholders of

Jiaxing Co and Shangsan Co to further acquire a 12.7% equity interest and a 2% equity interest in

Jiaxing Co and Shangsan Co, respectively. The details are as follows:

Date of
agreement

Jiaxing Co

Minority
shareholder

Cash
consideration
RMB’000

Date of
acquisition

December 27, 2001

Tongxiang

1.3%

38,671

January 1

Huatong Co., Ltd.

2002

December 27, 2001

Haining Hengtong

1.5%

44,621

January 1

Development Co., Ltd.

2002

January 18, 2002

Jiaxing Luqiao

Construction

Development Co., Ltd.

9.9%

303,700

January 18

2002

Total

Shangsan Co

12.7%

386,992

December 27, 2001

Shenzhou Shangsan

57,600

January 1

Development Co., Ltd.

2002

41. Comparative Amounts

As explained in note 2 to the financial statements, due to the adoption of new/revised SSAPs during

the current year, the presentation of the income statement, the balance sheets and certain supporting

notes have been revised to comply with the new requirements. Accordingly, certain comparative

amounts have been reclassified to conform with the current year’s presentation. The changes made

are explained in note 2 to the financial statements.

42. Approval of Financial Statements

The financial statements were approved by the board of directors on March 13, 2002.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 105

Notice of 2001 Annual General Meeting

NOTICE IS HEREBY GIVEN that the 2001 Annual General Meeting (“AGM”) of Zhejiang
Expressway Co., Ltd. (the “Company”) will be held at 10:00 a.m. on Tuesday, April 30, 2002 at
18th Floor, Zhejiang World Trade Center, 15 Shuguang Road, Hangzhou 310007, the People’s
Republic of China (the “PRC”) for the conduct of the following business:

A. To pass the following matters as ordinary resolutions:

To consider and approve the report of the directors of the Company for the year
2001;

To consider and approve the report of the supervisory committee of the Company for
the year 2001;

To consider and approve the audited financial statements of the Company for the
year 2001;

To consider and approve the proposed distribution of profits and the final dividend of
the Company for the year 2001;

To consider and approve the budget plan of the Company for the year 2002;

To consider and approve the re-appointment of Ernst & Young as the international
auditors of the Company and Zhejiang Pan-China Certified Public Accountants （浙
江天健會計師事務所）as the PRC auditors of the Company and to authorize the
board of directors of the Company to fix their remuneration;

To consider and approve the resignation of Mr. Xia Linzhang as an external director of
the Company and to consider and approve the appointment of Ms. Zhang Yang (see
Appendix I) as an external director of the Company.

B. To consider and, if thought fit, pass the following as special resolutions:

To amend paragraph 3 in article 1 of the Articles of Association of the Company as
follows:

“The promoter of the Company was Zhejiang Provincial High Class Highway Investment
Company Limited（浙江省高等級公路投資有限公司). Pursuant to the document Zhe
Zheng Fa [2001] No. 42, Zhejiang Provincial High Class Highway Investment Company
Limited was replaced by Zhejiang Communications Investment Group Co., Ltd.（浙
江省交通投資集團有限公司）upon reorganization.”

To amend the article 11 of the Articles of Association of the Company as follows:

“The scope of business of the Company shall be that as approved by the competent
authority in charge of the Company’s registration.

The scope of business of the Company is the construction, design, toll collection,
maintenance, and management of and the provision of technical consultation and
ancillary services to high-grade roads; ancillary services for high-grade roads such as
gas station along the road, car rescue, car wash, warehousing, food and beverage,
advertising (subject to the approval of the relevant department).”

106

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ANNUAL REPORT 2001

To amend the article 18 of the Articles of Association as follows:

“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
(浙江省高等級公路投資有限公司) (subsequently reorganised as Zhejiang
Communications Investment Group Co., Ltd. (浙江省交通投資集團有限公司)),
representing approximately 67% of the total ordinary shares issued by the Company.”

To amend the article 19 of the Article of Association as follows:

“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 which were
issued by the Company. The shareholding structure of the Company comprises
4,343,114,500 ordinary shares of which 2,432,500,000 domestic invested shares
are held by the promoter, Zhejiang Communications Investment Group Co., Ltd. (浙
江省交通投資集團有限公司), 476,760,000 domestic invested shares are held by
Huajian Transportation Economic Development Center (華建交通經濟開發中心), and
1,433,854,500 overseas listed foreign invested shares are held by holders of overseas
listed foreign invested shares.”

To authorize the board of directors of the Company (the “Board”) to issue additional
shares not exceeding 20 per cent. of each of the existing issued domestic shares
and overseas listed foreign shares of the Company.

“THAT:

(1) Subject to paragraphs (2) & (3) below, the exercise by the Board during the
Relevant Period (as defined in paragraph (5) hereunder) of all the powers of the
Company to allot, issue or otherwise deal with, either separately or concurrently,
each of the existing issued domestic shares (“Domestic Shares”) and overseas
listed foreign shares (“H Shares”) in the capital of the Company be and is hereby
approved;

(2) Subject to the approval as required under paragraph (1) above, the Board shall
be authorised to allot or issue Domestic Share and/or H Shares, either separately
or concurrently, of not more than 20 per cent. of each of the existing issued
Domestic Shares and H Shares in the capital of the Company as at the date of
passing this resolution;

(3) Approval as required in paragraph (1) above is subject to the granting of approval

from the China Securities Regulatory Commission;

(4) Approval of paragraph (1) above includes the authorization of the Board to deal
with the matters concerning the issue of A shares to the public (“A Share Issue”)
in accordance with the resolutions in relation to the A Share Issue passed at the
extraordinary general meeting of the Company held on March 22, 2001, including:

(a) To determine the basic offer price, the price range of the issue, methods of
the issue and the final issue price and the final number of shares to be
issued;

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 107

Notice of 2001 Annual General Meeting (Cont’d)

(b) To execute any material contracts in connection with the investment projects

in relation to the A Share Issue;

(5) 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)

(b)

(c)

from the passing of this special resolution, until conclusion of the Company’s
next annual general meeting;

the expiry of the twelve month period from the date of the passing of this
resolution; or

the date of revocation or variation of the authority given under this resolution
by a special resolution of the Company in general meeting.

(6) The Board be authorised to make appropriate amendments to the relevant articles
of the Articles of the Association of the Company after the completion of the
allotment or issuance as provided in paragraph (1) above, to increase the share
capital of the Company and reflect the new share capital structure of the Company,
and to complete the related registration formalities at the relevant regulatory
authorities of the government.”

By Order of the Board
Jiang Wenyao
Company Secretary

Hangzhou, Zhejiang Province, the PRC
March 13, 2002

Notes:

Eligibility for attending the Annual General Meeting

Holders of H Shares who intend to attend the Annual General Meeting must deliver all transfer
instruments and the relevant share certificates to the share registrar for H Shares, Hong Kong
Registrars Limited (the address of which is set out in paragraph 5 below), at or before 4:00 p.m. on
March 30, 2002.

2. Registration procedures for attending the Annual General Meeting

(1) Holders of H Shares and Domestic Shares intending to attend the Annual General Meeting
should return the reply slip for attending the Annual General Meeting to the Company by post
or by facsimile (address and facsimile numbers are shown in paragraph 5 below) such that the
same shall be received by the Company on or before April 10, 2002.

(2) A shareholder (“Shareholder”) or his/her/its proxy should produce proof of identity when attending
the meeting. If a Shareholder appoints a 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 at
the meeting.

108

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Proxy

(1) A Shareholder eligible to attend and vote at the Annual General Meeting is entitled to appoint,
in written form, one or more proxies to attend and vote on his/her/its behalf. A proxy need not
be a Shareholder.

(2) A proxy should be appointed by a written instrument signed by the appointor or his/her/its
attorney. If the appointor is a corporation, the same shall be affixed with its common seal or
signed by its director(s) or duly authorized representative(s). If the form of proxy is signed by the
attorney of the appointor, the power of attorney or other authorization document(s) of such
attorney should be notarised.

(3)

To be valid, the power of attorney or any other authorization document(s) (which have been
notarised) together with the completed form of proxy must be delivered, in the case of holders
of Domestic Shares, to the Company at the address shown in paragraph 5 below and, in the
case of holders of H Shares, to Hong Kong Registrars Limited at the address shown in paragraph
5 below, not less than 24 hours before the time designated for the holding of the Annual
General Meeting.

(4) 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 of H Shares will be closed from March 31, 2002 to April 29, 2002
(both days inclusive).

5. Miscellaneous

(1) The Annual General Meeting will not last for more than one day. Shareholders who

attend shall bear their own travelling and accommodation expenses.

(2) The address of the share registrar for H Shares, Hong Kong Registrars Limited, is at:

2/F, Vicwood Plaza
199 Des Voeux Road Central
Hong Kong

(3) The address of the Company is at:

19th Floor, Zhejiang World Trade Center
15 Shuguang Road, Hangzhou 310007
PRC

Telephone No.:
Facsimile No.:

(86)-571-87987700
(86)-571-87950329

Appendix I — Biography of Proposed Director

Ms. ZHANG Yang (張楊), aged 38, proposed director of the Company, is currently the assistant
general manager and manager at the securities management department of Huajian
Transportation Economic Development Centre. Ms. Zhang graduated from Lanzhou University
（蘭州大學）in 1987 with a bachelor of science degree in economics. She worked at various
posts at the Ministry of Aerospace Industries（航天工業部）from 1987 to 1994 when she
joined Huajian. Ms. Zhang also serves as a director of Shenzhen Expressway Company Limited
and Sichuan Expressway Company Limited.

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 109

Corporate Information

Representative office in
Hong Kong
Suite 2910

29/F, Bank of America Tower

12 Harcourt Road

Hong Kong

Tel:

852-2537 4295

Fax: 852-2537 4293

Legal advisers

As to Hong Kong law:
Herbert Smith

23rd Floor, Gloucester Tower

11 Pedder Street, Central

Hong Kong

As to English and US law:
Herbert Smith

Exchange House

Primrose Street

London EC2A 2HS

United Kingdom

As to PRC law:
T & C Law Firm
18/F, Block A

100 Moganshan Road
Yaojiang International Building

Hangzhou, Zhejiang
PRC

Executive directors
Geng Xiaoping

Fang Yunti

Zhang Jingzhong

Xuan Daoguang

Non-executive directors
Xia Linzhang
Zhang Chunming

Independent non-executive
Directors
Hu Hung Lick, Henry

Tung Chee Chen

Zhang Junsheng

Supervisors
Ma Kehua

Ni Ciyun

Lu Fan

Sun Xiaoxia

Zheng Qihua

Company secretary
Jiang Wenyao

Authorised representatives
Geng Xiaoping

Zhang Jingzhong

Statutory address
19/F, Zhejiang World Trade Centre

15 Shuguang Road
Hangzhou City, Zhejiang Province
PRC 310007

Tel:
86-571-8798 5588
Fax: 86-571-8798 5599

110

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001

Auditors and reporting
accountants
Ernst & Young

Certified Public Accountants

15th Floor

Hutchison House

Principal bankers
Bank of China, Zhejiang Branch

Industrial and Commercial Bank of China,

Zhejiang Branch

Agriculture Bank of China, Zhejiang Branch

Shanghai Pudong Development Bank,

10 Harcourt Road, Central

Hangzhou Branch

Hong Kong

Financial advisor
Credit Agricole Indosuez

44th Floor
One Exchange Square, Central

Hong Kong

H Share registrar and
transfer office
Hong Kong Registrars Limited

2nd Floor, Vicwood Plaza
199 Des Voeux Road, Central

Hong Kong

Corporate broker in the
United Kingdom
Cazenove & Co. Ltd

H Shares listing information
The Stock Exchange of Hong Kong Limited
Code: 0576

London Stock Exchange plc
Code: ZHEH

ADRs information
US Exchange: OTC

Symbol: ZHEXY

CUSIP: 98951A100

DR: H Shares 1:30

12 Tokenhouse Yard

London EC2R 7AN

United Kingdom

Investor relations consultant
Rikes Communications Limited

Room 701, Wanchai Central Building

89 Lockhart Road, Wanchai

Hong Kong

Tel:

852-2520 2201

Fax: 852-2520 2241

Paying agent for London
listing
Lloyds TSB Registrars
The Causeway, Worthing

West Sussex
BN99 6DA

United Kingdom

ZHEJIANG EXPRESSWAY CO., LTD.

ANNUAL REPORT 2001 111

Location Map of Expressways
Operated by The Group

Shangsan Expressway Panlongling Tunnel No.1 & No.2

SHANGHAI - HANGZHOU EXPRESSWAY

Location Map

Shangsan Expressway

Shanghai-Hangzhou Expressway Jiaxing Section

SHANGSAN EXPRESSWAY

Shanghai-Hangzhou-Ningbo Expressway
Qianjiang er Qiao

112

ZHEJIANG EXPRESSWAY CO., LTD. ANNUAL REPORT 2001

ZHEJIANG EXPRESSWAY CO., LTD. ANNUAL REPORT 2001 113