GZI Transport Press Release - 2004 Interim Results

PRESS RELEASE

For Announcement of 2004 Interim Results

The Director of GZI Transport Limited (the"Company") are pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the"Group") for the six months ended 30th June 2004 as follows:
(Unaudited)
Six months ended 30th June
		2004			2003
		HK$’000			HK$’000
Turnover		183,258			191,580
Other revenues		1,594			4,102
Amortisation of interests in toll highways and bridges		(50,696)			(47,985)
Toll highways and bridges maintenance expenses		(38,471)			(41,782)
Administrative expenses		(17,333)			(17,548)
Other operating income/(expenses)		(6,655)			6,039
Operating profit		71,697			82,328
Finance costs		(8,822)			(12,614)
Share of profits of associated companies		103,369			87,441
Share of loss of a jointly controlled entity		2,000			(10,215)
Profit before taxation		168,514			146,940
Taxation		(30,469)			(20,698)
Profit after taxation		138,045			126,242
Minority interests		(8,564)			(20,360)
Profit attributable to shareholders		129,481			77,728
Interim dividend		50,151			44,159
Basic earnings per share		HK11.62 cents			HK10.02 cents
Fully diluted earnings per share		HK11.61 cents			HK9.82 cents
Interim dividend per share		HK4.50 cents			HK4.00 cents

Anlysis of Results

In the first half of 2004, despite Xian Expressway being positively affected by its linkage with the Xian City Express Highway and recorded a 33.9 per cent turnover growth over that of the same period in 2003, the overall turnover of the Group declined by 4.3 per cent due to the formation of the highway network which, on one hand, adversely affected the traffic volume of some major subsidiary toll roads such as Guangdong Highway Section I and II and Provincial Highway 1909 which were being affected by Jing Zhu Expressway and the construction work of National Highway 105; traffic volume of Guangshan Highway was also affected by Guanghui Expressway, which commenced operation at the end of 2003. On the other hand, the traffic volume of some toll roads of the Group’s associated companies and a jointly controlled entity such as Northern Ring Road and GNSR Expressway benefited from the newly operated Jing Zhu Expressway and Guanghui Expressway.

The Group adopted the units-of-usage based depreciation and straight-line amortization on tangible infrastructures and intangible operating rights respectively. The difference between the two periods ended 30th June 2003 and 2004 ranges from nil to 1.3 per cent. Additionally, amortization of improvements to intangible operating rights amounted to approximately HK$2.6 million was recorded in the first half of 2004 (2003: nil).

Toll highways and bridges maintenance expenses of those major subsidiary toll roads with negative growth had decreased in line with the turnover decline. Maintenance expense of Xian Expressway in the first half of 2004 was up only by 7.6 per cent.

Administrative expenses incurred in the first half of 2003 and 2004 were almost the same being a slight drop of 1.2 per cent.

Net other operating expenses in the first half of 2004 were higher than the same period in 2003 by 10.2 per cent. During the six months ended 30th June 2004, additional withholding tax of shareholders’ loan interests was provided as a result of increase in repayment of shareholders’ loan interest to the Group. On the other hand, no more exchange loss arising from translating monetary assets and liabilities expressed in foreign currencies had incurred in the first half of 2004, as compared to the HK$2.1 million exchange loss incurred in same period of 2003.

Finance costs declined by 30.1 per cent to HK$8.8 million in the first half of 2004 as the Group continues to repay its bank borrowings and debts.

Share of profits from associated companies continued to increase in the first half of 2004 amounted to HK$103.6 million being 18.5 per cent and 9.4 per cent higher than the first and second half of 2003 respectively. Except for Qinglian Highways which, had a negative contribution due to continued diversion effect caused by Jing Zhhu Exoressway since April 2003, the other associated companies’ toll projects namely Humen Bridge, the Northern Ring Road and Shantou Bay Bridge, all recorded positive growth of 37.2 per cent, 39.4 per cent and 27.0 per cent respectively for the six months ended 30th June 2004.

The Group’s jointly controlled entity, GNSR Expressway, with a continuous strong traffic volume growth of 135.8 per cent in the first half of 2004 recorded its first positive contribution to the Group of HK$2.0 million since its operation commenced in 2002. The loss attributable to the Group during GNSR Expressway’s first year of operation was HK$3.6 million; in the first half of 2003, the loss was HK$10.2 million and for the whole year of 2003, it was HK$20.4 million.

Taxation for the first half of 2004 amounted to HK$30.5 million, representing an increase of 47.2 per cent over the same period in 2003. Despite the decline in taxable profit of a number of the Group’s major subsidiary toll roads, there are certain subsidiaries and an associated company with "tax" concession period expired by end of 2003.

Minority interest for the first half of 2004 had decreased by 57.9 per cent due to overall net profit decline of major subsidiary toll roads and bridges.

For the six months ended 30th June 2004, profit attributable to shareholders increased by 22.3 per cent to HK$129.5 million as compared to the restated amounted in 2003 of HK$105.9 million. Basic earnings per share for the two periods ended 30th June 2004 and 2003 were 11.62 cents and restated 10.02 cent respectively.

Interim Dividend

The Board of Directors has resolved to declare an interim dividend for 2004 of HK$0.045(2003: HK$0.04) per share payable on 6th October 2004 to shareholders whose names appear on the register of members on 28th September 2004. Interim dividend pay out ration will be 38.73 per cent (2003: 39.05 per cent).

New Investment Projects

Total investment amount for Guangzhou Western Second Ring Expressway ("GWSR Expressway") of which the Group participated in will be RMB 2.07 billion, of which RMB 1.0 billion will be in the form of registered capital, whilst the remaining will be raised in the form of project finance. The first installment of registered capital to be contributed to the project will be RMB250 million. The Group is attributable to 35 per cent stake in GWSR Expressway, and has contributed RMB87, 500, 000. Tender invitation activities for the project were fundamentally completed. Construction will officially commence on 16th September 2004. It is expected that it will open to traffic in around three years.

Future Strategies and Prospects

As a progressive and proactive toll highway operator, the Group continues to selectively invest in quality toll highways and bridges projects. The Group is considering to invest in Guangzhou Eastern Second Ring Expressway ("GESR Expressway") and Guangming Expressway at the center of Pearl River Delta, of which, GESR Expressway will commence construction by the end of 2004. Guangming Expressway is still in its planning stage. The Group is considering to invest in about 30 per cent stake in these two projects and is expected that a total of RMB600 million will be contributed in the form of capital. The Group is expected to invest about RMB 250 million each year from 2004 to 2007 for the GWSR Expressway and the other two projects referred to above. These investment amounts shall be comfortably covered by the Groupˇs operating cash and partly by external borrowings.

After the signing of an arrangement for closer economic partnership (Closer Economic Partnership Arrangement) between China and Hong Kong, economic activities between Guangdong Province and Hong Kong will speed up substantially. This, together with the gradual finalization of the Pan-Pearl River Delta economic circle, growth in the economy of the Pearl River Delta Region will accelerate. The sustainable development of the economy in Guangdong Province and the increase in people’s purchasing power will accelerate the growth rate of private car ownership. This will in turn boost traffic volume for various toll roads of the Group, such as GNSR Expressway, Northern Ring Road, Hurmen Bridge and Guangdong Highway. GNP of Guangzhou increased by 16.4 per cent for the first half of 2004. In addition, the Guangdong Province is going through a second industrialization which expedites the development of heavy industry, enhance the economy of Guangdong and strengthens the driving force for further development. As a major toll road operator in the Guangdong Province, the Group will become a major beneficiary of the rapid economic development of Guangdong and Hong Kong.

The Group will continues strengthening the operational and cash flow management of existing projects, and tightening budgetary control on projects under construction, so as to improve service qualities. Through investing in expressway projects located in the Pearl River Delta Region, such as the newly invested GWSR Expressway, the further growth potential of the Group’s toll road investment portfolio return will be enhanced, and will deliver better return to our shareholders.