GZI Transport Press Release - 2003 Final Results

Analysis of Results

In spite of traffic performance being dragged down by the outbreak of SARS in the first half of 2003, full year turnover increased by 14.0 per cent to HK$405.6 million due to strong recovery in second half. With the exception of Xian Expressway, Guangcong Highway Section II & Provincial Highway 1909, all the other major subsidiary toll highways and bridges of the Group showed satisfactory performance in 2003. For example, Guangshen and Guangshan Highways both recovered substantially due to easing of diversion from other new roads.

In the second half of 2003, new accounting policy in respect of amortization of interests in toll highways and bridges was adopted. It is considered more appropriate to reflect the performance of the Group in line with industry practice. The effect of the change was taken up retrospectively by prior year adjustments. The additional amortisation resulted from the adoption of the revised accounting policy was HK$18.1 million for 2003 and HK$19.7 million for 2002.

Apart from additional repair and maintenance expenses amounted to approximately HK$3.8 million incurred by a toll bridge in 2003, maintenance expenses of the other toll highways and bridges increased in line with turnover growth.

Administrative expenses incurred during 2003 increases by 21.4 per cent to HK$38.8 million due to the full year amortisation of goodwill from acquisition of 30.0 per cent strake of Shantou Bay Bridge in July 2002 and increase in provision of director’ discretionary bonus.

Net other operating expenses of HK$ 9.3 million in 2003 included a HK$2.1 million exchange loss arising from translating monetary assets and liabilities expresses in foreign currencies. In 2002, the Group recorded net other operating expenses of HK$0.38 million which included a disposal gain of HK$6.2 million and HK$1.9 million exchange gain arising from foreign currencies transactions.

Finance costs declined by 33.4 per cent to HK$24.3 million for 2003 as the Group continues to repay its bank borrowings and debts.

Although contribution from Qinglian Highways in 2003 recorded a negative growth of 82.2 per cent with traffic diversion to a recently completed section of Jing Zhu Expressway, all the other associated companies recorded positive growth in contributions to the Group in 2003. Share of profits from associated companies for 2003 increased strongly by 20.9 per cent to HK$182.2 million. Full year contribution from Shantou Bay Bridge acquired in July 2002 was also recorded in 2003.

The share of loss of the Group’s jointly controlled entity, Guangzhou Northern Second Ring Expressway Co., Limited, narrowed down by 43.3 per cent to HK$20.4 million in 2003 as traffic volume rose tremendously by 79.9 percent.

Taxation for 2003 amounted to HK$6.1 million, which was greater than 2002 by HK$29.2 million as a result of higher level of profit before taxation.

Minority interest for 2003 increased only by 5.4 per cent with overall profit growth of major subsidiary toll highways and bridges was partially off-set by the negative growth of Guangcong Highway Section II & Provincial Highway 1909.

For the year ended 31st December 2003, the Group’s profit attributable to shareholders grew by 57.1 per cent to HK$223.8 million as compared to the restated amount in 2002 of HK$142.5 million. Basic earnings per share for the two years were HK$0.207 and HK$0.136 (restated) repectively.

Final Dividend

The directors recommended the payment of final dividend of HK$0.045 (2002: HK$0.03) per share to shareholders whose names appeared on the register of members of the Company on 2nd June 2004. Subject to the approval of shareholders at the Annual General Meeting to be held on 2nd June 2004, the final dividend will be paid on 8th June 2004. Together with the interim dividend of HK$0.04 (2002: HK$0.03) per share, total dividends for the year ended 31st December 2003 will amount to HK$0.085 (2002: HK$0.06) per share, representing a dividend pay out ratio of 42.15 percent.

Future strategies and prospects

The performance of the Group’s toll roads and bridges in 2002 was adversely affected by a number of temporary negative factors, including diversion effect of newly built roads and the end of tax holiday. However, a turnaround in the performance of the Group’s toll road projects was seen in 2003. The outbreak of SARS in the beginning of the year had limited impact on traffic volume. The net profit for the year increased by 57.1 per cent to HK$223.8 million.

The sustainable development of the economy in Guangdong and the increase in people’s purchasing power will accelerate the rate of growth in private car ownership. This will in turn boost traffic volume for various toll roads of the Group. After the signing of an arrangement for closer economic partnership (Closer Economic Partnership Arrangement) between China and Hong Kong, economic activities will speed up substantially between Guangdong Province and Hong Kong. Accelerating growth and further expected. In addition, the Guangdong Province is going through a second industrialization, which expedites the development of heavy industry, enhances 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 under the rapid economic development of Guangdong and Hong Kong.

The Group will also strengthen the operational and cash flow controls on existing projects. We believe investment in expressway projects in the center of the Pearl River Delta, including Ring Road and Guangming Expressway, will underpin future growth potential of the Group’s toll road investment portfolio so as to enhance return to shareholders.