粤高速Ｂ(200429)2007年年度报告（英文版）

2007 Annual Report Guangdong Provincial Expressway Development Co., Ltd. March 2008 Important Notes The board of directors and directors of the Company hereby guarentes that there are no false records, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. The annual report of this year is adopted by the seventh meeting of the fifth board of directors of the company. Director He Qiang did not present the meeting for other important duties, all the other directors presented the meeting made their votes. Lixin Yangcheng Certified public Accountants audited the financial report of the Company for this Report period and issued standard unqualified auditor’s report. Chairman of board of directors Mr.Zhou Yuming, General Manager of the Company Mr. Li Xiyuan and Chief Accountant of the Company Mr.Xiao Laijiu State:Financial Report in the report is true and complete. Table of Contents I.Basic Information of the Company -1- II.Summary of Accounting Highlights and Business Highlights -3- III.Change of share capital and shareholding of Principal -6- Shareholders IV.Information abount Directors, Supervisors and -12- SeniorExecutives V.Administrative stucture -20- VI.Particulars about shareholders’ general Meeting -27- VII.Report of the Board of Directors -28- VIII.Report of the Supervisory Committee -41- IX.Important Events -44- X.Financial Report -50- XI.Documents available for inspection -59- This report has been prepared in both Chinese and English. In case of any discrepancy , the Chinese version shall prevail. I.Basic Information of the Company (1)Legal name of the company Name in chinese：广东省高速公路发展股份有限公司 Name in English：Guangdong Provincial Expressway Development Co.Ltd. English abbreviation：GPED (II)Legal representative:Zhou Yuming (III)Secretary of the Board of Directors：Zuo Jiang Contact Address：85 Banyun Road, Guangzhou, Guangdong Province Tel：(020)83731365 Fax：(020)83731363 E-mail：zqb@gpedcl.com zuojiang22@yahoo.com.cn Securities affair representative：Qi Shiyin Contact Address：85 Banyun Road, Guangzhou, Guangdong Province Tel：(020)83731388-230 Fax：(020)83731384 E-mail：season508@163.com (IV).Registered address of the Company：85 Banyun Road, Guangzhou, Guangdong Province Office address：85 Banyun Road, Guangzhou, Guangdong Province Postal code：510100 Website：http:www.gpedcl.com E-mail：ygs@gpedcl.com (V).Designated newspapers for information disclosure ： Securities Times, China Secuties, Shanghai Secuties Daily ,Ta Kong Pao(H.K), and Hongkong Commercial Daily Web Address for publication of Annual Report(Appointed by the China SecuritiesRegulatory Commission)：www.cninfo.com.cn Address for Reference：85 Banyun Road, Guangzhou, Guangdong Province (VI)Stock exchange for listing：Shenzhen Stock Exchange Stock abbreviation:Expressway A,Expressway B Stock code：000429、200429 (VII)Relevant information 1.First Registration Date of Company：February 9,1993 Registered Address：4/F,Dongjian Building, No.503, Dongfeng Zhong Road, Guangzhou, Guangdong Province The date of last registration change：December 17,2007 Registered address：85 Banyun Road, Guangzhou, Guangdong Province 2.Company’s business registration Namber：QGYZZD No.002875 3.Company’s Tax Registration Namber：440102190352102 第 1 页 4.Organization Code：19035210-2 5.Company’s Auditor’s Lixin Yangcheng Certified Public Accountants Co., Ltd. Office address：11/F,Yaozhong Plaza, No.3-15 Linhe Xi Road, Tianhe District,Guangzhou Ernst & Young Address：Block B,36/F,Zhong Tai International Plaza, No.161 Hexi Road, Tianhe District,Ghuangzhou,Guangdong. 第 2 页 II.Summary of Accounting Highlights and Business Highlights (1)The total profit earned by the company in the report year and its composition: Unit：RMB Item 2007 Total profit 741,353,475.45 Operation profit 793,229,345.06 Net profit attributable to shareholders of the listed company 493,661,982.44 Net profit after deducting of non-recurring gain/lossattributable 532,651,070.07 to the shareholders of the listed company Cash flow generated by business operation , net 690,825,203.69 Note1.Apart form issuing financial report pursuant to Chinese accounting standards, the Company also issued financial report pursuant international accounting standards for reference by overseas investors. The net profit calculated by domestic accountants prusuant to Chinese accounting standards is RMB 493,661,982.44.The net profit calculated by overseas accountants pursuant to international accounting standards is RMB475,807,000.The difference between them is RMB17,854,982.44.Refer to supplementary accounting information (I) The net assets calculated by domestic accountants prusuant to Chinese accounting standards is RMB 3,324,552,209.45.The net assets calculated by overseas accountants pursuant to international accounting standards is RMB4,000,182,000. The difference between them is RMB675,659,790.55.In this this chapter for detailed reasons for the difference. Note2.Deducted nonrecurring gain or loss items and related amount of money Unit：RMB Item Amount (1)Gain/loss form disposal of non-current assets -50,861,486.19 (II)Tax refund, deduction and exemption that is examined 0.00 and approved by authority exceeding or has no official approval document. (III)Governmental Subsidy accounted as current gain/loss, 0.00 except for those subsidies at with amount or quantity fixed by the national government and closely related to the Company’s business operation. (IV)Capital occupation fee collected from non-financial 0.00 organizations and accounted as current gain/loss, except for those capital occupation fee collected by national certified financial organizations from non-financial organizations. (V)Gain/loss generated when the consolidation costs is less 0.00 then the recognizable fair value attributable to the Company. (VI)Non-monetary asset exchange gain/loss. 0.00 (VII)Gain/loss investment of short-term 0.00 (VIII)Asset impairment provisions for force major such as 0.00 第 3 页 natural disasters (IX) Gain/loss from debt reorganization 0.00 (X) Enterprise reorganization expenses, such as payment to 0.00 stuff placement and consolidation expenses (XI Gain/loss from trades obviously departed from fair 0.00 value (XII) Net gain/loss of current term from consolidation of 0.00 subsidiaries under common control from beginning of term to the consolidation date (XIII) Gain/loss from debt forcasting without connection to 0.00 the main business operation (XIV) Net amount of non-business gain/loss other than the -1,014,383.42 above items (IV) Other items confirmed by CSRC 50,600.00 Amount of influence of the above items on income tax. -277,957.85 Influences on net profit after tax 13,114,139.83 Total -38,989,087.63 (II).Highlights of accounting data and financial indicators in the latest three years （1）Highlights of accounting data Unit：RMB Changed Year 2007 Year 2006 over last Year 2005 year（％） Not Adjusted Not adjusted Adjusted Not adjusted adjusted Tumover 1,113,184,855.26 1,059,262,516.32 1,067,225,172.69 4.31% 1,024,526,485.09 1,034,375,571.35 Total profit 741,353,475.45 568,885,239.33 587,877,680.80 26.11% 578,798,838.98 584,449,425.59 Net profit attributable to the shareholder 493,661,982.44 331,377,200.57 343,832,811.98 43.58% 325,211,552.47 448,946,498.32 s of the listed company Net profit after deducting of 532,651,070.07 379,250,998.62 344,647,694.90 54.55% 350,333,257.54 312,064,946.78 non-recurri ng gain/loss attributable to the 第 4 页 shareholder s of listed company Cash flow generated by business 690,825,203.69 596,064,454.05 596,064,454.05 15.90% 628,203,881.22 628,203,881.22 operation, net Changed End of 2007 End of 2006 over last End of 2005 year（％） Not Adjusted Not adjusted Adjusted Not adjusted adjusted Gross 5,802,360,457.26 6,674,681,644.60 5,885,270,482.17 -1.41% 6,801,082,456.91 6,011,127,431.10 Assets Shareholder s’ equity attributable to 3,324,552,209.45 3,910,675,820.07 3,044,600,244.17 9.20% 3,781,044,355.73 2,926,531,776.84 shareholder s of the company 第 5 页 （2）Highlights o financial indicators Unit：RMB Changed over last Year 2007 Year 2006 Year 2005 year（%） Not Adjusted Not adjusted Adjusted Not adjusted adjusted Basic gains per share 0.39 0.2636 0.2735 42.60% 0.26 0.26 Diluted gains per share 0.39 0.2636 0.2735 42.60% 0.26 0.26 Basic earning per share after deducting of 0.42 0.3017 0.2742 53.17% 0.28 0.25 non-recurring gains/losses Net income on asset, fully 14.85% 8.47% 11.30% +3.55% 8.60% 11.08% diluted Net income on asset, 15.59% 8.73% 11.63% +3.96% 8.90% 11.05% Weighted Net income on asset, fully diluted and deducted 16.02% 9.70% 11.32% +4.70% 9.27% 10.66% non-recurring gain/loss Net income on asset, weighted and deducted 16.72% 9.99% 11.66% +5.06% 9.58% 10.66% non-recurring gain/loss Net cash flow per share generated by business 0.55 0.47 0.47 17.02% 0.50 0.50 operation End of Changed over last End of 2006 End of 2005 2007 year（%） Not Adjusted Not adjusted Adjusted Not adjusted adjusted Net asset per share attributable to 2.64 3.11 2.42 9.09% 3.01 2.33 shareholders of the listed company (III) Supplementary accounting information (1) Reason for the difference between net assets and net profits for the report period calculated pursuant to domestic and international accounting standards Unit：RMB’000 Net profit Net profit attributable attributable to the to the owners of owners equity Item parent company of parent company As of As of December 31,2007 December 31,2007 Under PRC Accounting Standards 493,662 3,324,552 第 6 页 1. Adjustment of goodwill amortization generated by the acquisition of the shareholders' equity of affiliated -18,293 752,225 companies and subsidiaries, net value. 2. Writeback adjustment of the unrealized income from 2,754 -28,130 the transfer of assets 3. Difference of deferred tax of subsidiary and affiliated -3,562 -51,323 company 4.Other 1,246 2,858 Under International Accounting standards 475,807 4,000,182 The auditing company which conducted audit on the Company is Ernst & Young . The major event notes for the above adjustment include: In 1999, among the incomes from the transferring all the operating right of Jiujiang Bridge and relevant assets to Fokai Company, because the Group occupies 35% of the equity of Fokai Company, and make corresponding offsetting adjustment, and adjustment of the confirmation and amortization and other international financial report of the amortization, depreciation, deferred taxes and other long-term assets of the purchased company and the affiliated company. III. Change of Share Capital and Shareholding of Principal Shareholders (I).Changes in share capital 1.Changes in share capital Unit: share At this time before the change Changed At this time after the (December 31,2006) currently(+,-) change(December 31,2007) Amount Proportio Others changed Amount Proportio n(%) n(%) 1.Shares with conditional subscription 549,048,706 43.68% -59,127,900 489,920,806 38.97% 1.State-owned shares （Note 1） 400,447,277 31.85% 7,782,117 408,229,394 32.47% 2.State-owned legal （Note 2） person shares 37,752,261 3.00% -14,283,720 23,468,541 1.87% 3.Other domestic shares 110,849,168 8.82% -52,626,297 58,222,871 4.63% Incl ： Non-state owned （Note 3） domestic legal person 110,532,862 8.79% -52,526,194 58,006,668 4.61% shares Domestic （Note 4） Natureperson shares 316,306 0.03% -100,103 216,203 0.02% (Executive shares) 4.Foreign shareholding Incl ： Overseas legalperson shares Foreign nature person 第 7 页 share II.Shares with unconditional 708,069,042 56.32% 59,127,900 767,196,942 61.03% subscription 1.Common shares in （Note 5） RMB 359,319,042 28.57% 59,127,900 418,446,942 33.29% 2.foreign shares in domestic market 348,750,000 27.75% 348,750,000 27.74% 3.Foregn shares in overseas market 4.Other III.Total of capital shares 1,257,117,748 100.00% 1,257,117,748 100.00% Note 1:In the report term, the former 112 conditional legal person shareholders and 1 state-owned legal person shareholders have returned the consideration shares of 7,498,894 shares and 283,223 shares to the state-owned shareholder respectively, which was totaled to 7,782,117 shares. 2. The 283,223 consideration shares returned by China Xinda Capital Management Co. to state-owned shareholder have been transformed from “state-owned legal person shares” into “state-owned shares”. (2) The 12,174,345 shares held by state-owned legal person Guangdong Yuecai Trust & Investment Co., Ltd. and 1,826,152 shares held by China Xinda Capital Management Co. were freed from the condition and transformed to unconditional common shares on February 26 2007 and March 22 2007 respectively. 3. The 7,498,894 consideration shares paid by 112 of the former conditional share holders to state-owned shareholder were transformed from “domestic legal person shares” to “state-owned shares”. (2) The 37,348,196 shares held by 61 of the former domestic legal persons, and the 7,679,104 shares held by 14 of the former domestic legal persons were freed from the condition and transformed to unconditional common shares on February 26 2007 and March 22 2007 respectively. 4. Six months after the quitting of Huo Yanbin, the former director, and Peng Xiaofang, the former executive, the 28,034 shares of Yue_Gao_Su A were released from freezing, and became unconditional shares. (2) According to “Managerial Instructions on Shareholding by Directors, Supervisors and Executives of Listed Company – Shenzhen Stock Exchange”, 25% of the shares held by directors, supervisors and executives, i.e. 72,069 shares, were released as unconditional shares. 5. On February 26 ,2007 and March 22, 2007, there were respectively 49,522,541 shares and 9,505,256 shares released to unconditional shares. (2) 100,103 of executive shares were released to unconditional shares. 2.Change in conditional shares Name of the Conditional Released Increased Conditional Reason of Date of releasing shareholder shares at this year this year shares at end condition 第 8 页 beginning of of year year Guangdong 400,447,277 0 7,782,117 408,229,394 Note 1 February 17,2009 Communication Group Co.,Ltd Guangdong 16,775,435 0 0 16,775,435 Note 1 February 17,2009 Expressway Co., Ltd Guangdong 589,239 0 0 589,239 Note 1 February 17,2009 Communication Development Company Guangdong 3,242,107 0 3,242,107 Note 1 February 17,2009 Guanghua 0 Expressway Company Guangdong 2,130,510 0 0 2,130,510 Note 1 February 17,2009 Traffic Development Company Other legal 125,547,832 49,522,541 0 66,520,035 Note 2 See Note 3,4 person shares （Note 3） and Domestic 9,505,256 legal person （Note 4） shares（Note 2） Directors , 316,306 100,103 0 216,203 Note 5 Uncertainty Supervisors and Senior executive Total 549,203,706 59,127,900 7,782,117 497,702,923 Note1：Guangdong Communication Group Co., Ltd. and its related companies Guangdong Expressway Co., Ltd.., Guangdong Communication Development Company ,Guangdong Guanghua Expressway Co. and Guangdong Traffic Development Company made the following commitment: The non-negotiable shares of the Company will not be listed, traded or assigned within 12 months from the date of obtaining the right of listing and negotiation. Such shares shall not be listed or traded within twenty four months after the expiration of the said period of 12 months. Note 2: The name list of "other state-owned corporate legal persons and domestic legal persons" has more than 6,850 persons, the specific name list is successively published onto the Giant Tidal Web(www.cninfo.com.cn) on February 15, 2006, February 11, 2007, March 22, 2007 and January 4, 2008, in the temporary notice column. The reasons for the limit the sale of its shares are: on the one hand, promised in equity reform scheme "since the date of the non-tradable shares of the company owning the right of listing, within 12 months, they can not be listed for transactions or transfers"; On the other hand, part of legal shareholders paid the price of equity reform on be half of Guangdong Communication Group Co.,Ltd., before they return the price to Guangdong Commmunication Group Co.,Ltd., their shares will be limited to sell. Note 3: The state-owned legal person of the Company Guangdong Yuecai Trust Company Limited (holding 第 9 页 12174345 shares) and other 62 domestic legal persons, holdings 49522541 shares, in February 26, 2007, due to the expiry of restrictions on sale, so the sale limit had been cancelled after some procedures. Note 4: The state-owned legal person China Xinda Asset Management Company (holding 2109375 shares) and 15 domestic legal peson shareholders, after returning of the price of equity reform to Guangdong Communication Group Co.,Ltd ., on March 22, 2007, the limit on sale is canceled. Note 5: The specific changes of the equity of directors, supervisors and Senior Executives are described in Chapter IV1. (II)Issuing and placing of shares 1.Ended by the end of the report period, there existed no particulars about listing ofsharesor dervative securities over all previous three years in the Company. (III)Particulars about the shsreholders 1.Top 10 holders of shares with subscription conditions Unit:shares Total of shareholders(as of 110429 December31,2007) Top 10 holders of shares(As of (December 31,2007) Share Properties of Conditional Pledged or Name of the shareholder proportion Total shares shareholder shares frozen % Guangdong Communication State-owned 507,161,585 408,229,394 98,932,191 Group Co.,Ltd legal 40.34% person CREDIT SUISSE (HONG KONG) Overseas 39,700,000 0 Unknown LIMITED legal 3.16% person Guangdong Expressway Co., Ltd State-owned 16,775,435 16,775,435 No legal 1.33% person State-owned 12,174,345 0 No Guangdong Yuecai Turst legal 0.97% Investment CO., Ltd. person 108 Portfolio of National Social Other 10,500,000 0 Unknown 0.84% Security Fund 102 Portfolio of National Social Other 6,669,900 0 Unknown 0.53% Security Fund China Life insurance Co., Other 4,999,958 Unknown Ltd.—Dividend-Individual 0.40% 0 dividend-005L-FH002 Shen Xinhui Siqian Town Economic Other 4,481,795 4,481,795 No 0.36% Unit Co KGI ASIA LIMITED Overseas 4,396,395 0 Unknown legal 0.35% person 第 10 页 Pensioenfouds PGGM Overseas 3,275,900 0 Unknown legal person 0.26% Top 10 holders of unconditional shares(As of December 31,2007) Name of shareholders Unconditional shares Type of shares Guangdong Communication 98,932,191 A Group Co., Ltd. CREDIT SUISSE (HONG KONG) 39,700,000 B LIMITED Guangdong Yuecai Turst 12,174,345 A Investment CO., Ltd. 108 Portfolio of National Social 10,500,000 A Security Fund 102 Portfolio of National Social 6,669,900 A Security Fund China Life insurance Co., 4,999,958 A Ltd.—Dividend-Individual dividend-005L-FH002 Shen KGI ASIA LIMITED 4,396,395 B Pensioenfouds PGGM 3,275,900 B Industrial and commercial band of 3,148,755 A china-110 Rongtong Shenzheng Exponent securities investment Fund Huabao Trust Co., Ltd. 2,786,573 A Notes to the related relationship Among the top ten shareholders，Guangdong Communication Group Co., Ltd. is the between the shareholders or their parent company of Guangdong Expressway Co., Ltd. Among the top ten concerted action Unconditional shareholders，108 portfolio of National Social Security Fund, 102 portfolio of National Social Security Fund, Boshi Selection Securities Investment Fund and Boshi Subject Industry Securities Investment Fund are all managed by Boshi Fund Management Co., Ltd. It is unknown whether there is relationship between other shareholders and whether they are persons taking concerted action specified in the Regulations on Disclosure of Information about Change in Shareholding of Shareholders of Listed Companies. Among the top ten shareholders, Guangdong Communication Group Co., Ltd. holds 507,161,585 state-owned shares on behalf of the state. 98,932,191 shares are the shares that Guangdong Communication Group Co., Ltd. promised to purchase in the plan for share holding structure reform. Such purchased shares were registered as shares in frozen state not subject to sale restriction at China Securities Registration & Settlement Co., Ltd. Shenzhen Branch. 2.Brief introduction of the controlling shareholder Guangdong Communication Group Co., Ltd. is the largest shareholder of the Company. legal representative: Zhu Xiaoling. Date of establishment: August 23, 2000. Registered capital: RMB 19.8 billion. It is a solely state-owned limited company. Business scope：equity management, organization of asset reorganization and 第 11 页 optimized allocation, raising funds by means including mortgage, transfer of property rights and joint stock system transformation, project investment, operation and management, traffic infrastructure construction, highway and railway project operation and relevant industries, technological development, application, consultation and services, highway and railway passenger and cargo transport, ship industry, relevant overseas businesses. 3. Brief introduction of the controlling shareholder (1) Information of the actual controller: Guangdong 100% Guangdong 40.34% Guangdong Expressway 4.No other situation of legal person shareholders holding more than 10% (including 10%) shares. 5. The equity of non-current shareholders in the top 10 shareholders and the conditions for limit on sale. (As of December 31,2007) Unit：Shares Shares with Date when trading Newly added No Name of holder conditioned Conditions allowed tradable shares subscription Guangdong Communication Group 408,229,394 February 1 400,447,277 Co., Ltd. 17,2009 Note 1 Guangdong Expressway Co., Ltd. 16,775,435 February 2 16,775,435 17,2009 Xinhui Siqian Town Economic Unit 4,481,795 3 January 7,2008 4,481,795 Note 2 Co Note 1 ：Guangdong Communication Group Co., Ltd. and its related companies Guangdong Expressway Co., Ltd. and Guangdong Guanghua Expressway Co. ,Guangdong Guanghua Expressway Company and Guangdong Traffic Development Company made the following commitment: The non-negotiable shares of the Company will not be listed, traded or assigned within 12 months from the date of obtaining the right of listing and negotiation. 第 12 页 Such shares shall not be listed or traded within twenty four months after the expiration of the said period of 12 months. Note 2：According to the Company's plan for share holding structure reform, the non-negotiable shares held by Xinhui County Siqian Town Economic Cooperation Association will not be listed, traded or assigned within 12 months from the date of obtaining the right of listing and negotiation. The period of limit on sale was expired on February 16, 2007, but because of the price of payable shares is paid by Guangdong Communication Group Co., Ltd. in advance, therefore, time for listing was delayed to January 7, 2008 after Guangdong Communication Group Co., Ltd. had returned the price for equity reform. IV Directors, Supervisors ,Senior Executives and Employee 第 13 页 1. Status of Directors, Supervisors and Senior Executives (1)Basis status Quantity of Quantity The total amount of remuneration Stock The Starting and Expiry Reason for shares held at of shares received from the Company in the options limited-sale Nate Position Sex Age date of term of office beginning of held at end change report period (RMB) shares year of year Zhou Yuming Board chaiman, Male 55 2007.11.28—2009.12.20 0 0 - - - Secretary of Party 64,228 committee Li Xiyuan Director and Male 46 2006.12.20—2009.12.20 0 0 - - - 317,438 general Manager Xiao Laijiu Director, Deputy Male 44 2006.12.20—2009.12.20 20,043 20,043 - 279,861 - - General Manager,Chief accountant Yang Director Male 55 2006.12.20—2009.12.20 0 0 - 60,000 - - Miaojiang Luo Yingsheng Director Male 54 2006.12.20—2009.12.20 0 0 - 60,000 - - Wan Tao Director Male 44 2006.12.20—2009.12.20 0 0 - 60,000 - - Li Wenzheng Director Male 56 2006.12.20—2009.12.20 23,400 23,400 - 60,000 - - Liu Qin Independent Male 43 2006.12.20—2008.4.25 注 1 0 0 - 60,000 - - director He Hongdi Independent Female 67 2006.12.20—2008.4.25 注 1 0 0 - 60,000 - - director He Qing Independent Male 55 2006.12.20—2009.6.1 注 2 0 0 - 60,000 - - director Xiang Tiangui Independent Female 51 2006.12.20—2009.6.1 注 2 0 0 - 60,000 - - director Li Dongshan Chairman of the Male 43 2006.12.20—2009.12.20 0 0 - 60,000 - - Supervisory Committee t Wu Jianxiang Supervisor Male 60 2006.12.20—2009.12.20 0 0 - 60,000 - - Zhong Supervisor Male 48 2006.12.20—2009.12.20 0 0 - - - 278,967 Zhenguang Li Mei Supervisor Female 38 2006.12.20—2009.12.20 123,205 123,205 - 223,972 - - Tu Huiling Supervisor Female 48 2006.12.20—2009.12.20 56,887 56,887 - 171,061 - - Hou Jingfang Deputy general Male 55 2006.12.20—2009.12.20 0 0 - 283,653 - - manager 第 14 页 Wang Deputy Ma 43 2006.12.20— 0 0 - 258,740 - - Chunhua general le 2009.12.20 manager Yun Chief Ma 53 2006.12.20— 20,043 20,043 - 273,621 - - Wujun economic le 2009.12.20 engineer,C hief legal adviser Wang Senior Ma 43 2006.12.20— 43,990 43,990 - 272,061 - - Jiachen engineer le 2009.12.20 Zuo Secretary Fe 35 2006.12.20— 0 0 - 225,706 - - Jiang of the ma 2009.12.20 board of le directors Total - - - - - - - 2,349,308 - - Note 1: The General shareholders meeting held on April 26, 2002 approved to employ Mr. Liu Qin, Ms. He Hongdi as the independent directors of the Company. According to "systems for independent directors", the independent directors shall not serve more than six years. Note 2: The General shareholders meeting held on May 31, 2003 approved to employ Mr. He Qiang, Ms Xiang Tiangui as the independent directors of the Company. According to "systems for independent directors", the independent directors shall not serve more than six years. (2) Particulars about directors and supervisors holding positions at corporate shareholders Whether receiving Name of corporate Name Position Term of office remuneration or shareholders subsidy Employee Supervisor , Guangdong Communication chief economic Yang Miaojian 2005 till now Yes Group Co., Ltd. engineer , Director of Investment Dept. Director of Guangdong Communication Financial Audit March 2003 till Li Dongshan Yes Group Co., Ltd. Dept. and deputy now chief accountant. Guangdong Communication Vice chairman of March 2003 till Wu Jianxiang Yes Group Co., Ltd. labor union now Secretary of Party Guangdong Expressway Co., committee, October 2006 Luo Yingsheng Yes Ltd chairman of board till now of directors Guangdong Yuecai Turst Chairman of board October 2005 till Wang Tao Yes Investment CO., Ltd. of directors now (3)Main work experience of directors, supervisors and senior executives for the recent five 第 15 页 years: Mr.Zhou Yuming, the chairman of the board of the Company, party secretary, a bachelor's degree holder , senior engineer, from September 1997 to March 2003, served as deputy general manager of the Guangdong Provincial Expressway Company Limited (January 2002 to March 2003, served as director , the member of party committee), from March 2003 to September 2007, served as the directors, member of the party committee, general manager of Guangdong Communication Industrial Investment company, and on September 26, 2007 he was transferred to the Company and also concurrently served as the chairman of Guangfo Expressway Co., Ltd. and the vice chairman of Guangdong Guanghui Expressway Co., Ltd.. Mr. Li Xiyuan, Now serves as director General Manager , Member of Party committee of the company, a post-doctoral senior engineer of professor level, From September 2001 to August 2006, served in Guangdong Jingtong Highway Construction Group as the party secretaries, the director and general manager. He has worked at the Company since August 2006 and now concurrently serves as the chairman of the board of directors of Guangdong Fokai Expressway Company and vice chairman of the board of directors of Guangdong Jiangzhong Expressway Co., Ltd. Mr. Xiao Laijiu , Now serves as director, deputy general manager and chief accountant of the Company. a bachelor's degree holder , senior accountant. He has worked at the Company since 1992 . From 2003 to now, serve in the current position, and from 2003 to March 2006 also served as the secretary of the Board of Directors. He now concurrently serves as director of Guangdong Fokai Expressway Co., Ltd and director of Guangfo Expressway Company. Mr. Yang Miaojian, Now serves as director of the company,a senior engineer with Master's degree.He now serves as deputy chief economic engineer and director of Investment Development Dept. of Guangdong Communication Group Co., Ltd. He has concurrently served as employee-representing supervisor of Guangdong Communication Group Co., Ltd. since May 2002. Mr. Luo Yingsheng now serves as director and senior political engineer of the Company. Junior college, graduate ,He now serves as the chairman of the board of directors and secretary of Party committee of Guangdong Expressway Co., Ltd. He has worked at the Guangdong Road-bridge Construction Development Company from 2001 to 2006. He once served as secretary of Party committee, vice board chairman & secretary of Party committee, board chairman & secretary of Party committee . Mr. Wang Tao, a postgraduate, now serves as director of the Company,. Economic engineer , He served as deputy general manager vice chairman of the board of directors, General manager and chairman of the board of directors of Guangdong Yuecai Trust Investment Company from 1995 to 2005. He has served as vice Secretary of Party committee ,General Manager and board chairman of Guangdong Yuecai Trust Investment Co., Ltd. since 2005. Mr. Li Wenzheng, Malaysian citizens, Malaysia chartered Accountants, a master degree holder, Economic engineer .now serves as director of the Company. He has served as group finance director of Malaysia Yibao Engineering Co., Ltd., director of Yibao International (Hong Kong) Co., Ltd. and board chairman of Yangzhong Changjiang River Bridge Co., Ltd since 1981 . Mr. Liu Qin, a post-doctoral degree holder, now serves as independent director of the Company. From 2002 第 16 页 to 2003, he served as technical supervisor of Preparation Team of Huashang Fund Management Co., Ltd. Since 2004, he has served as information technology and finance engineering technology director of Guotai Fund Management Company. Ms.He Hongdi, a certified public accountant and senior auditor with bachelor's degree, now serves as independent director of the Company. From 1996 to 1997, she served as certified public accountant of Guangdong Hongjia Auditors' Office. She now serves as certified public accountant and chief auditors of Guangdong Jianwei Engineering Consultation Company. Mr.He Qiang, a bachelor's degree holder, now serves as independent director of the Company. Since 1985, he has worked at Central Financial University.He now is Professor, Superintendent, Doctoral tutor doctor tutor and concurrently serves as independent director of Jinan Diesel Engine Co., Ltd., Hunan Dongting Aquaculture Co., Ltd., Zhanjiang Harbour Co., Ltd. Ms Xiang Tiangui, a bachelor's degree holder, now serves as independent director of the Company. Since 1994, she has been a partner of Beijing Changan Law Office and practiced law. Mr. Li Dongshan, a bachelor's degree holder, senior accountant.now serves as chairman of the supervisory committee of the Company. He has worked Guangdong Communications Group since 2000. He now serves as director of Financial Audit Dept. and deputy chief accountant. He once served as chairman of the fourth supervisory committee of the Company. Mr. Wu Jianxiang, a junior college graduate, now serves as supervisor of the Company,Political engineer,as deputy general manager and secretary of Party committee at Guangdong Communication Investment Company from 2000 to 2003 and has served as vice chairman of labor union at Guangdong Communication Group Co., Ltd. since 2003. Mr. Zhong Zhenguang, a junior college graduate and political engineer, now serves as deputy secretary of Party committee, secretary of discipline committee and chairman of labor union of the Company, as deputy general manager at Guangdong Communication Industry Investment Company from February 2002 to December 2003. He has worked at the comany. Ms Li Mei, a junior college graduate and political engineer, now serves as supervisor, office director, director of Party Office and member of discipline inspection committee. She has worked at the Company since 1998 and now concurrently serves as chairman of the supervisory committee of Guangdong Guanghui Expressway Co. and Zhongjiang Expressway Co., Ltd. Ms Tu Huiling, a Master's degree holder and senior political engineer, now serves as supervisor and vice chairman of labor union of the Company. She has worked at the Company since 1992. Mr. Hou Jingfang, a bachelor of engineering, senior economic engineer and senior political engineer, now serves as deputy general manager of the Company. He once served as deputy general manager and general manager of Fokai Expressway Co., Ltd. from February 1998 to October 2003. He served as general manager of Guanghua Expressway Co., Ltd. from November 2003 to May 2005. He now concurrently serves as board chairman of Guangdong Express Technology Investment Co., Ltd. and board chairman of Shenhui Expressway Co., Ltd.and director of Zhaoqing Yuezhao Highway Co., Ltd. 第 17 页 Mr. Wang Chunhua, a senior engineer and senior economic engineer with Master's degree, now serves as deputy general manager of the Company. He once served as deputy director of Guangdong Communication Group Co., Ltd. From April 2001 to August 2006, He has worked at the Company since September 2006, He now concurrently serves as vice chairman of the board of directors of Jingzhu Expressway Guangzhu Section Co., Ltd. and director of Guangdong Guanghui Expressway Co., Ltd. Mr. Yun Wujun, a senior accountant with bachelor's degree, now serves as chief economic engineer and chief legal adviser of the Company. He has worked at the Company since 1995. He now concurrently serves as vice chairman of the board of directors of Guangdong Maozhan Expressway Co., Ltd., chairman of the supervisory committee of Guangdong Fokai Expressway Co., Ltd. and independent director of Guangdong Second Hydropower Bureau Co., Ltd. Mr. Wang Jiachen, a senior engineer with Bachelor's degree, now serves as chief engineer of the Company. He has worked at the Company since 2000, He now concurrently serves as director of Guangdong Jiangzhong Expressway Co., Ltd. and board chairman of Zhaoqing Yuezhao Highway Co., Ltd. Ms Zuo Jiang, a senior economic engineer with master's degree, now serves as board secretary and manager of Securities Dept of the Company. She has worked at the Company since 1994 and once served manager of Securities Dept. (4). Annual recompense (1) The decision-making procedures, and determining basis and the actual payment of the salaries of directors, supervisors and Senior Executives staff. During the reporting period, the annual salary of directors, supervisors, senior management is described in the table of basic information of directors, supervisors, Senior Executives staff. . （2）The remuneration of members of the fifth board of directors and supervisory committee was examined and determined at the first shareholders' general meeting in 2006. The remuneration of senior executives of the Company is determined according to the appraisal result under assets operation responsibility system in current year. Refer to the table of basic information of directors, supervisors and senior executives for details of annual remuneration obtained by directors, supervisors and senior executives from the Company in the report period. (5) Name of the directors, supervisors or senior executives who were elected or left their posts in the report period and the reason therefor (1) November 9, 2007, adopted in fifth meeting of the Board of Directors, Mr. Chao Xiaofeng was approved to resign the chairman and director of the Company. (2) November 28, 2007, in the second general shareholders meeting in 2007, Mr. Zhou Yumin was elected as the company director, whose term is the same as the member of the fifth board of directors. On the same day, in the sixth meeting of the fifth board of directors, Mr. Zhou Yumin was elected as the company chairman. (II) Particulars about employees As of the end of 2007, the Company had 1266 on-the-job employees. The particulars are as follows: Number of Divided by function persons Proportion Managerial personnel 246 19.43% 第 18 页 Toll collectors 747 59.00% Road service personnel 47 3.71% Logistical personnel 226 17.86% Total 1266 100% Divided by professional title Senior professional title 28 2.21% Semi-senior professional 5.37% title 68 Junior professional title 75 5.93% Other 1095 86.49% Total 1266 100% Divided by academic qualification Holders of master's degree or 0.95% above 12 Graduates of regular 9.95% university 126 Graduates of junior colleges 42.90% and secondary technical schools 543 Other 583 46.05% Total 1266 100% 5 retired employees for whom it bore expenses. 第 19 页 V Administrative Structure (1).Administrative Particulars The Company has constantly improved its corporate governance structure, established modern enterprise system and standardized its operation strictly according to the requirements of new Company Law, Securities Law and relevant laws and regulations of CSRC. According to requirement in "notice on strengthening the specific activities of governance of the listed companies" (Security Corporation zi [2007] 28), Guangdong Security Supervision Bureau "notice on conducting the work of specific activities of governance of the listed companies " (Guangdong Security Commission [2007] No. 48), and Shenzhen Stock Exchanges "notice on strengthening the specific activities of governance of the listed companies", from mid-April 2007, the company launched special management activities, self-examination, public comment and on-site inspection, and rectification and improvement, and had completed the established objectives and tasks of the special governance activities of the Company. The information on rectification of special governance activities summarized as follows: 1. Rectification of the problems found by self examination. Since listed in 1996, in accordance with the relevant laws and regulations and the requirements of the China Securities Regulatory Commission, Guangdong Security Supervision Bureau, Shenzhen Stock Exchange, the Company has always adhered to standardized operation, and has constantly improved the management structure, and overall corporate governance is in good situation. Through this in-depth self examination activity, the company found the following problems to be further improved, and the Company has actively carried out the rectification: Problem One: Some of management systems of the Company need to further improved. As measures for rectification: the fifth board of directors of the Company held a provisional meeting on October 30, 2007, and adopted "work systems for independent director", "approaches for fund-raising management", " work rules for general manager". Problem Two: The board of directors of the Company established a Salary and Evaluation Commission and did not establish other special committees of the board of directors. Notes and rectification measures: The board of directors of the Company established a Salary and Evaluation Commission, currently, the Board of Directors is working well. The board of directors of the Company will gradually establish the necessary special committees according to the actual situations. Question Three: Due to industry characteristics of the construction of expressways in Guangdong Province, the Company had more related transactions. As the rectification measures, the Board of Directors had approved to establish "management system for the related transactions of the Company" on October 30, so as to further improve the 第 20 页 situation of related transactions of the Company. Problem Four: As the investment subjects of the newly built business highway, are basically determined through open bidding. Therefore, when bidding for new investment projects in the future, the Company may face competition from the affiliated companies of the Company. Rectification measures: The controlling shareholders had made promise of avoiding same-industry competition in 2003, and it is still valid now. When the Company makes bidding for new investment projects, shareholders are suggested to avoid the competition from the affiliated companies. If a affiliated company of the controlling shareholders participate in the bidding, the company will be suggested to make joint bidding with the Company. 2. Notes for the problems found on site by Guangdong Security Supervision Bureau and rectification. On September 6 and 7 2007, Guangdong Security Supervision Bureau had an on-site inspection of the governance situation of the Company, and proposed the problems and defects in company governance of the Company, and the Company was required to have further improvement and rectification. For the problems discovered on site, the Company analyzed the root of the problems one by one, and developed complete plans for rectification, and some have already made rectification according to requirement. Problem One: personnel files of the management staff are under the custody the Company, the independence of the Company should be further strengthened. The rectification plans of the Company: the Company and the controlling shareholders should be completely separated in business, personnel, assets, institution, finance and other aspects, all the chairman, general manager, vice general manager, secretary of the Board, financial staff should be full-time, should not have part time duties in the shareholders or other related companies. As a state-owned holding company, according to the relevant regulations for state-owned and holding companies, the files of management staff of the Company should by kept by the higher authorities, which need to be improved, an also need further harmonization of the higher supervisory authorities in policies and regulations. The Company will report the views of Guangdong Security Supervision Bureau to the higher authorities, and will make further improvement. Problems Two: The employment format of the management staff is not standardized. The rectification plans of the Company: the labor contract between the Company and the staff is signed according to the Labor Contract compiled by Guangdong Labor and Social Security Authority, some of the contents and format are different from the Employment Contract produced by Guangdong Security Supervision Bureau. From the angle of Labor Contract, the contract of the company is standardized; according to the requirement of Guangdong Security Supervision Bureau, in order to further identify the responsibilities and rights and duties of the management staff, the employment contract shall include employment forms, period, salary, and duties of the position and other information. The Company will consider the actual situations of the Company to make further improvements. 第 21 页 Problem Three: some of directors entrust other directors to vote in the meeting of the board of directors, but the entrusting document is not clear. Rectification measures adopted by the Company: the Company had informed all the directors, and had made further regulations on the format and content of the entrusting documents of the directors, the entrusting document shall make clear statement of the resolutions to be examined and give entrusting opinions (approval, opposition or abstention). This rectification measure shall be executed in the meeting of the board of directors after October 2007. Problem Four: As the investment subjects of the newly built business highway, are basically determined through open bidding. Therefore, when bidding for new investment projects in the future, the Company may face competition from the affiliated companies of the Company. Rectification measures: The controlling shareholders had made promise of avoiding same-industry competition in 2003, and it is still valid now. When the Company makes bidding for new investment projects, shareholders are suggested to avoid the competition from the affiliated companies. If a affiliated company of the controlling shareholders participate in the bidding, the company will be suggested to make joint bidding with the Company. Problem Five: The Company Constitution was not developed according to the requirement in the "Notice on further enhancing the work of liquidation" (SFC company word [2006] 92) issued by the China Securities Regulatory Commission, to contain the content of specific measures to prohibit shareholders and actual controlling persons to occupy the assets of the listed company and the accountability system for the relevant responsible persons, and to the system of "occupying means freezing" for the shares held by big shareholders, and to improve the provisions of the Constitution. Rectification measures of the Company: the Company held a provisional meeting of the board of directors on October 30, and examined and adopted the "resolution on the change of part of provisions of the Company Constitution", that is, add the following contents on the basis of the original "Company Constitutions" Article 39: "to maintain the security of the funds of the Company is the legal liability of the directors, supervisors, management staff, when the controlling shareholders and the actual controllers are found have occupied the assets of the Company, the board of directors shall apply for judicial freeze, if can repay the assets by cash, their equity shall be cashed to repay the assets occupied. If company directors, senior managements assist the controlling shareholder and its subsidiary enterprises to occupy the assets of the Company, the board of directors will punish the direct responsible persons according to situations, the person taking serious responsibility shall be dismissed. " 3. The Company did not receive views from Shenzhen Stock Exchange and the public on company governance. In short, the special governance activities carried out by China Securities Regulatory Commission, provide a good chance to improve the governance level of the Company. The company will take this opportunity, standardize the system construction as a breakthrough, to overcome the weak link in corporate governance, and to promote company governance towards the goals of standardization, self discipline, innovation, and development. (II) Particulars about duty performance of independent directors 第 22 页 Four independent directors of the Company, i.e., Liu Qin, He Hongdi, He Qiang and Xiang Tiangui, performed duties strictly according to rules and regulations including Guidelines for Governance of Listed Companies, Independent Director System, the Articles of Association of the Company and Rules of Procedure of the Board of Directors. In the report period, 4 independent directors actively attended board meetings and shareholders' general meetings held by the Company, made independent, objective and fair judgment and gave professional opinions on the Company's daily operation and important investment decisions, expressed independent opinions on the special statement on fund transfer between the Company and its related parties and the Company's external guarantee, related transactions, appointment and dismissal of senior executives and earnestly safeguarded the interests of the Company and all shareholders based on their expertise and ability. (1).Attendance of board meetings by independent directors Name The times of Times of Times of Times of Remarks holding of attendance in attendance by absence board person proxy meetings in this year Liu Qin 11 11 0 0 He Hongdi 11 11 0 0 He Qiang 11 10 1 0 Can not present the temporary meeting of the fifth board of directors due to job duties. （May 25,2007） Xiang 11 11 0 0 Tiangui (2). Objection made by independent directors to relevant matters of the Company In the report period，4 independent directors of the Company did not make objection to the proposals of the board of directors of the Company in the year. (III) Notes to the separation of the Company from its controlling shareholder in respect of business, personnel, assets, organs and finance The controlling shareholder of the Company is Guangdong Communication Group Co., Ltd. It 第 23 页 holds 507,161,585 shares of the Company，which account for 40.34% of the total share capital of the Company. The Company has sound corporate administration structure. It has been completely independent of its controlling shareholder in respect of business, personnel, assets, organs and finance and has independent and complete business and the ability of independent operation. 1. Independent business The Company is mainly engaged in the toll collection and maintenance of Guangfo Expressway and Fokai Expressway. Meanwhile, it has invested in or holds Shenzhen Huiyan Expressway Co., Ltd., Guangdong Maozhan Expressway Co., Ltd., Guangdong Guanghui Expressway Co., Ltd., Jingzhu Expressway Guangzhu Section Co., Ltd., Zhongjiang Expressway Co., Ltd.,Zhaoqing Yuezhao Highway Co., Ltd., Zhaoqing Yuezhao Highway Co., Ltd. and Guangdong Express Technology Investment Co., Ltd. The Company has outstanding main operation, independent and complete business and the ability of independent operation. All business decisions of the Company were made independently, being completely separated from the shareholder with actual control. Related transactions were carried out in light of the principle of fair transaction, which did not harm the interests of the Company and other shareholders of the Company. The content of related transactions was fully, timely and accurately disclosed, which did not have negative influence on the Company. 2. Complete assets The relationship of the Company's property right is clear. The assets injected by shareholders in the Company are independent and complete and have clear property right. All capital was paid up and relevant formalities of property right change were settled. 3. Independent personnel As for personnel relationship, the general manager, deputy general managers, the secretary to the board of directors and financial controller of the Company were full-time employees and received salary from the Company, who did not concurrently hold positions at the parent company. All directors and supervisors of the Company were elected through legal procedure. The general manager, deputy general managers, chief accountant, chief economic engineer and chief engineer were directly appointed by the board of directors. Other managerial personnel of all levels were directly appointed by the general manager. The Company owns independent power of 第 24 页 personnel appointment and removal. 4. Independent finance The Company, including subsidiaries and branches, established independent accounting department，independent accounting system and regulations on financial management. The Company independently opened bank account and did not deposit funds in the accounts of the finance company or settlement center of the majority shareholder. The Company independently paid tax. The Company's financial decisions were independently made. The majority shareholder did not interfere with the use of funds by listed companies. 5. Independent organization The board of directors, the supervisory committee and and other internal organs of the Company operated independently. Its organs are complete and independent. (IV)Establishment and improvement of internal control system. (1) The work plan for the establishment and improvement of internal control system and its implementation. According to the regulations in the Company Constitutions, the Company set up an independent internal auditing agencies – internal auditing room, the auditing room will 6-7 projects of audit and audit investigation, to audit the financial revenue and expenditure and the implementation of the budget of the controlling companies; and to audit the financial revenue and expenditure of the share participating company every 2-3 years; Furthermore, conduct the audit of economic responsibility and other special audit investigation. (2) The presentation of the internal control staff. The internal auditing room of the Company had three full-time staff. The information of the internal staff is shown on the following table: No Name Sex Age Position Title Education Manager of OIA Senior economic Master's 1 Liu Yan Female 36 Room engineer degree Li Assistant Bachelor's 2 Female 34 DM of OTA Room Haifeng Accountant degree Liang Bachelor's 3 Male 27 Director Auditor Liang degree (3) The board of directors arranged the relevant work of internal control. 1. According to the relevant requirements of special governance activity for listed 第 25 页 companies carried by China Securities Regulatory Commission, Shenzhen Stock Exchange, Guangdong Supervisory Authority, the company launched and timely completed the special governance activity for listed companies in 2007. 2. In order to further clarify the work flows the responsibilities and improve the mechanism of level management and improve work efficiency, the Company revised the management process 53 items, and newly added 18 management processes. 3. Reform the salary appraisal system. Train the company management staff to manage the salaries and make appraisals, and the work of revising the manual for the positions and the evaluations of the positions. 4. Supplement and improve the management system of the Company, including "work system for independent director", "measures for the management of fund raising", "rules for general manager", "rules for the management of related transactions", etc. 5. Accordance with the relevant national laws and regulations, make timely revision of the company's internal management system, for example, revise the labor contract an relevant internal control system in accordance with the regulations in "Labor Contract Law", and revise the holiday system according to the year holiday system. Standardize the management and avoid legal risk. (4) The improvement of internal control system related to financial accounting. Because the Company implement the new "Accounting Standards for Business Enterprises" on January 1, 2007, the Company shall revise " internal control system on drawing preparations for assets devaluation", to make the internal control system related to financial accounting be further improved. (5) Report of self evaluation of internal control system of the Company. The board of directors of the Company believed that the company's existing internal control system is in line with China's relevant laws and regulations and the requirements of regulatory authorities, and is also in line with the actual situations of the Company, with reasonability, legitimacy and effectiveness. The Company had strictly enforce the internal control system, and there are no major deficiencies in the management and control of the subsidiaries, the internal controls of related transactions, internal controls of external security, the internal controls of raising funds, internal controls of major investments, internal controls of information disclosure and other internal controls, and the Company had achieved the intended target of the Company. Along with the further development of business, changes in the external environment and the improvement of management requirements, internal controls of the Company still need to be strengthened and improved. (V) Appraisal of Senior Executives in the reporting period and the establishment and implementation of related incentive mechanisms and incentive systems. The Company implemented position responsibility to every senior management, and made clear 第 26 页 regulations on job standards, appraisal standards. The Salary and Evaluation Commission of the board of directors conducted assessment to the senior management staff. The senior management staff shall report to worker representatives and accept comments. If not qualified in successively 2 years, they will be demoted or dismissed. VI Brief Introduction of Shareholders' General Meeting In the report period, The Company held 3 shareholders meetings，Relevant particulars are as follows: 1. 2006 annual shareholders' general meeting was held on May 25, 2007. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on May 26, 2007. 2. The first provisional shareholders' general meeting in 2007 was held on September 27, 2007. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on September 28, 2007. 3. The Second provisional shareholders' general meeting in 2007 was held on November 28, 2007. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on November 29, 2007. 第 27 页 VII.Report of the Board of Directors (I). Review of the Company's operating status in the report period 1. Overall operating status in the report period In 2007, as the rapid development of regional economy, the total number of motor vehicles increased which provided a better space for development for the Company; the regional advantage of the road controlled is obvious, the operating situation is in good condition which provided a good support for the sustained development of the Company; under the good macroeconomic environment, the company chose to invest some high-quality roads, and assets the Company have been expanding, on the other hand, the Company is actively planning the capital operation and expanding financing channels. Companies 2007 annual operating income, operating profits and net profits continue to show a stable growth trend. Unit:RMB Year 2007 Year 2006 Increase/Decrease （%） Business Income 1,113,184,855.26 1,067,225,172.69 4.31 Business profit 793,229,345.06 589,006,261.48 34.67 Net profit 493,661,982.44 343,832,811.98 43.58 The main factors for the changes in the same period last year are as follows: 1. Operating income increased by RMB 45.96 million than the previous year, the growth rate of 4.31%, the main reason is that the traffic on Fokai expressway increased and the income increase. The main business income achieved in the current period RMB 1.10607 billion , and completed 103.03% of the annual budget RMB 1.0735 billion . The cause for over budget is that Fokai Company achieved a good traffic income in this year. 2. Factors for the average annual increase of operating profit and net profit than the same period last year: lower operating costs, lower financial costs, asset impairment losses reduced, investment income increased, non-operating expenses increased. Operating costs in this year reduced by RMB 37.78 million than in last year, decrease rate 10.06 %, the major reduction factors: (1) The devaluation of Fokkai expressway increased RMB 10.31 million than that of last year. (2)The technology company confirmed the income of installation of Guanghui solar lighting system, and therefore, transferred the prepaid payment for the projects RMB 4.7713 million to the cost and therefore the cost in this relatively increased. (3) Fokai special project cost reduced RMB 54.1 million than the same period of last year, the daily maintenance reduced RMB 1.44 million than the same period of last year. The costs of Guangfu Company basically keep the same than last year. In addition, the financial costs of the Company in this year decreased RMB 12.22 million than the previous year, reduction rate 10.71 %, mainly due to the return of short-term loan RMB 300 million by parent company in this year and Fokai Company returned the principal of bank loan RMB 250 million to the Company. 第 28 页 Asset impairment losses decreased RMB 48.37 million over the previous year, reduction rate 85.58%, main reasons for the change: in the previous year, the parent company and the technology company accounted provisions for bad debt RMB 57.29 million on the receivables, in this year, the two companies extracted provisions for bad debt RMB 8.15 million on receivables, the main reason for the significant reduction was that last year the parent and the technology company drew provisions for bad debt RMB 51.68 million , 100% of the fund deposited in Kunlun Security. Investment income increased by RMB 72.97 million over the previous year, the growth rate 38.97%, mainly due to increase in the net income of investment unit, and the investment income accounted according to the equity method increased. This year the non-operating expenditure increased by RMB 50.03 million over last year, the growth rate 956.88%, the main factors are: (1) Guangfo company pay back the tax late payment of RMB 2.72 million which happened in 2002 to 2006 for the amortization of intangible assets income tax. (2) Jiujiang Bridge was accidently damaged and caused the collapse and accordingly caused a large number of clean-up costs. The clean-up expenditure for Jiujiang Bridge in the current period RMB 40.23 million and the loss for the broken part of Jiujiang bridge RMB 9.5415 million were include in the non-operating operating expense. (II).Main operation and operating status In the report period, the income from main operation and profit from main operation of the Company were RMB 1,113,184,855.26 and RMB 793,229,345.06 respectively, which mainly came from the commercial toll collection of expressways and huge bridges. The concrete composition is as follows: 1. By operation category during the reporting period the main business revenue, operating profit composition. Unit:RMB Item Income from key business Profit from key business (1) Highway Transportation 1,093,153,839.00 769239485.18 (2)High-tech 12,919,593.90 3781480.46 Total 1,106,073,432.90 773020965.64 2.By product category during the reporting period the main business revenue, operating profit composition. Unit:RMB Item Income from key business Profit from key business (1) Tolls 1,093,153,839.00 769239485.18 (2)Other 12,919,593.90 3781480.46 Total 1,106,073,432.90 773020965.64 2. By Area category during the reporting period the main business revenue, operating profit 第 29 页 composition. Unit:RMB Item Income from key business Profit from key business Guangfo Expressway Co., Ltd. 375,485,580.41 269422373.41 Fokai Expressway Co., Ltd. 696,272,685.59 494532063.88 Jiujiang Bridge 21,395,573.00 5285047.89 Other 12,919,593.90 3781480.46 Total 1,106,073,432.90 773020965.64 3. Guangfo Expressway, Fokai Expressway tolls on vehicles formed by the business activities of the company's operating revenues account for over 10% of revenue, and its major operating conditions are as follows: Unit:RMB Profit rate from main Income from main operation Cost from main operation operation tem Year Year 2007 Year 2007 Year Year 2006 Year 2006 2007 2006 Guangfo Expressway Co., 380,288,112.12 398,851,069.98 108,051,852.87 109,180,430.13 64.50% 66.34% Ltd. Fokai Expressway Co., 698,738,210.57 621,732,773.78 204,595,020.64 244,653,992.10 49.81% 38.06% Ltd. (III). Year-on-year material change in composition of assets and influencing factors in the report period Unit:RMB Year 2007 Amount of Proportion Item of Balance Sheet Year 2006 changed of changed Other receivables 2,261.01 1,933.47 327.54 16.94% Long-term investment 185,248.39 177,390.89 7,857.50 4.43% shareholding Long-term investment - - - - Creditor’s right Fixed assets 310,102.81 334,602.15 -24,499.33 -7.32% Constructions under process 42,077.04 1,188.69 40,888.35 3,439.79% Short-term loans 10,000.00 30,000.00 -20,000.00 -66.67% Long-term loans 98,832.48 170,832.48 -72,000.00 -42.15% 第 30 页 Year 2007 Amount of Proportion Item of Profit Statement Year 2006 changed of changed Operating costs 33,763.92 37,541.67 -3,777.75 -10.06% Administrative expenses 9,610.18 8,413.90 1,196.28 14.22% Financial Expenses 10,182.02 11,403.76 -1,221.74 -10.71% Investment revenue 26,023.98 18,726.64 7,297.33 38.97% Income tax expenses 15,085.68 15,226.96 -141.28 -0.93% Influencing factors are as follows: 1. Net receivables other than an increase of RMB 3.27 million last year, the growth rate of 16.94%, the increase was mainly due to charges of Guangfo company as a stand-payment mode for a fee increase liquidity imprest. 2. Net long-term equity investments over the previous year increased by RMB 78.58 million , the growth rate of 4.43%, the main reason for the change: (1) This year, according to the investment unit investment income increased net profit accounting RMB 260.24 million long-term investment; (2) Salt-back this year received a total of RMB 10 million dividend, in accordance with the equity method to reduce long-term equity investment. (3) company-wide this year declared to be distributed a total of RMB 171.67 million dividend, in accordance with the equity method to reduce long-term equity investment. 3. Works the same period last year an increase of RMB 408.88 million , the growth rate of 3439.79%, the increase was mainly due to: (1) Guangfo, a Dover expansion project 291.21 million yuan (2) into the restoration project Jiujiang Bridge RMB 88.33 million . 4. Ending balance short-term borrowing RMB 100 million , is the flow of Guangfo company loans. Short-term borrowing over the previous year decrease is attributable to the parent company of this report commissioned by the loan repayment period of RMB 300 million . 5.Long-term borrowing for the reasons for the reduction in companies Dover long-term bank loans to repay RMB 250 million and RMB 470 million a year in long-term borrowings due to the non-current liabilities. 6.Causes for the reduction of operating costs and the increase of investment income are described in (1) of this chapter. 7. Management costs increased by RMB 11.96 million over the previous year, the growth rate 14.22 %, mainly because: (1) Fokai Company exercised the rule of linked performance approved State Assets Commission, and according to annual budget accounted performance bonus of 2007, so the labor cost increased RMB 2.1255 million . (2) Due to a better operating performance in this year, the parent company correspondingly extracted wages for performance according to the system of linked performance, which increased RMB 3.47 million over the same period of last year, and the issuance of convertible bonds resulted in the RMB870,000 increase in intermediate cost. 8. Financial cost was RMB 12.22 million less than the previous year, reduction rate 10.71%, main reason for the decrease is that this year the parent company returned the short-term borrowing RMB 300 million and Fokai Company returned RMB 250 million principal bank loan this year. 9.Income tax expense was RMB 1.41 million less than last year, reduction rate 0.93%, main factors are: on the one hand: 第 31 页 (1) the parent company decided to recheck the 2002 and 2003 income tax RMB 5.91 million and included in 2006 income tax expense; (2) In 2007 Fokai Company, approved by SAC (Yue Jiaoji letter [2007] 263), implemented the system of linked performance, and saved tax about RMB 5.28 million ; On the other hand: this year Guangfo paid back the income tax RMB 6.74 million which was the less accounted from 2002 to 2006 due to the amortization of intangible assets, and in this period, the corresponding amortization payable income tax was newly added. （IV）Composition of the Company's cash flows from business activities, investing activities and financing activities Unit:RMB Year 2007 Changed Item Year 2006 Increase/Decrease rate Net cash flows from operating 15.90% 690,825,203.69 596,064,454.05 94,760,749.64 activities Net cash flows from investing -715.28% -124,607,312.07 20,252,102.79 -144,859,414.86 activities Net cash flows from financing 28.95% -866,841,485.99 -672,209,770.03 -194,631,715.96 activities Influencing factors are as follows: 1. Funds raising. Funds inflow of the Company RMB 1796.5237 million year in 2007. Operating cash inflow RMB 1189.5129 million, mainly the revenue from the traffic fee of Guangfo Expressway, Fokai Expressway. Investment cash inflow RMB 107.0108 million , mainly received the cash dividends from Guanghui Company and Huiyan Company RMB 78.71 million , RMB 10 million . Financing cash inflow RMB 500 million , Fokai Company and Guangfo Company borrowed money from bank RMB 400 million and RMB 100 million . 2. Use of the funds. Capital outflow in 2007 totally RMB 209,7.1473 million. Operating cash outflow RMB 498.6877 million, the main projects are: (1) cash payments on the purchase of goods and services received RMB 133.0161 million; (2) Paid to the staff and payments paid for the staff RMB 100.1857 million ; (3) paid various taxes and fees RMB 169.4567 million; (4)Paid the other operating cash RMB 96.0292 million , mainly the other management expenses besides the payment paid to and paid for the staff and the foreign dividends remitted by Guangfo company RMB 41.1 million . Investment cash outflow RMB 231.6181 million , and the cash paid for the purchase of fixed assets, intangible assets and other long-term RMB 231.6181 million . Mainly: Guangfo company prepaid the fund for the expansion project Yayao to Xiebian RMB 124.15 million and for the 第 32 页 balance payment of the first phase of expansion project RMB 9.71 million , the balance payment for Xiebian Bridge RMB 7.5 million, expenses on projects under construction RMB 5.87 million ; Fokai prepaid the repair payment for Jiujiang Bridge RMB 40 million and funds for large and medium maintenance, etc.. Financing cash outflow RMB 1366.8415 ,mainly: (1) Parent company and Fokai Company returned loans RMB 300 million , RMB 650 million ; (2) Interest and dividends paid in this year RMB 416.8415 million. (V). Analysis of operating status and results of main controlled subsidiaries and joint ventures In the report period, the vehicle traffic and toll income of the controlled subsidiaries and joint ventures of the Company are as follows: Volume of Year-on-year Toll income in Year-on-year increase vehicle traffic in increase or 2007 (RMB or decrease (%) 2007 decrease (%) million) Guangfo Expressway 37880148 -6.27% 375.4856 -12.31% Fokai Expressway 21418802 23.27% 694.3907 12.26% Jiujiang bridge 3052885 -52.61% 21.3956 -51.23% Huiyan Expressway 25285795 20.40% 303.2663 16.11% Maozhan Expressway 3304388 12.17% 337.4237 23.63% Jingzhu Expressway 28882491 19.57% 1004.9508 21.56% Guangzhu East Section Guangzhao Expressway 8673071 22.94% 180.1161 17.68% Guangzhao First-class 12317024 11.53% 102.8768 19.20% Highway Guanghui Expressway 16343226 13.10% 1108.9501 18.92% Jiangzhong Expressway 14414647 51.24% 212.1788 49.55% (1) Guangfo Expressway Co., Ltd. The Company holds 75% equity of this company. The registered capital of the company is RMB 200 million. It is engaged in construction and operation of Guangzhou-Foshan Expressway, including the maintenance and toll collection of the expressway, the maintenance of traffic facilities including signs and marked lines, vehicle salvation, etc. For the year 2007, the total assets, net assets, income from main operation, profit from main operation and net profit of Guangfo Company are RMB 783,107,686.78, RMB 470,394,871.21, RMB 380,288,112.12, RMB 245,268,463.90 and RMB 186,145,200.67 respectively. (2) Guangdong Fokai Expressway Co., Ltd. The Company holds 75% equity of this company. The registered capital of the company is RMB 1.108 billion. It is engaged in operation and 第 33 页 management of Fokai Expressway, supporting salvage, maintenance and cleaning, supply of parts and components, etc. For the year 2007, the total assets, net assets, income from main operation, profit from main operation and net profit of Fokai Company are RMB 3,098,566,158.24, RMB 1,343,589,282.69, RMB720,133,783.57,RMB 347,585,975.49 and RMB 203,665,165.52 respectively. On June 15, 2007, Jiujiang Bridge of Fokai Company damaged, fixed assets of Fokai Company significantly reduced, the estimated damage value was partly diverted to the current profit and loss, but its operating performance has no sharp fluctuation. (3) Guangdong Express Technology Investment Co., Ltd. The Company holds 95% equity of this company. The registered capital of Guangdong Express Technology Investment Co., Ltd. is RMB 100 million. It is engaged in investing in science and technology industries. For the year 2007, the total assets, net assets and net profit of this company were RMB 15,885,338.54, RMB 9,928,770.03 and RMB -12,357,805.04 respectively. (4) Shenzhen Huiyan Expressway Co., Ltd. The Company holds one third equity of this company. The registered capital of the company is RMB 36 million. The company is engaged in the organization and management of the construction of the main line of Shenzhen section of Huiyan Expressway, its operation, management and maintenance after its completion, collection of toll and road service management, the construction management of road, bridge and culvert projects and engineering consultation. It is engaged in investing in science and technology industries.For the year 2007, the total assets, net assets, income from main operation, profit from main operation and net profit of this Company were RMB 604,715,790.53, RMB 392,808,575.51, RMB 307,310,384.83, RMB 214,566,678.85 and RMB 181,473,593.63 respectively. (5) Guangdong Maozhan Expressway Co., Ltd. The Company holds 20% equity of this company. The registered capital of the company is RMB 1.12 billion. The company is engaged in operation, maintenance and management of Dianbai-Zhanjiang Expressway and relevant supporting facilities. For the year 2007, the total assets, net assets, income from main operation, profit from main operation and net profit of this Company were RMB 2,968,429,175.02, RMB 105,475,797.81, RMB 339,076,212.72, RMB 5,707,268.04 and RMB -4,141,111.53 respectively. (6) Jingzhu Expressway Guangzhu Section Co., Ltd. The Company holds 20% equity of this company. The registered capital of the company is RMB 580 million. The company is engaged in the operation and management of Guangzhou-Zhuhai Expressway and provision of supporting 第 34 页 services including fueling, salvage and supply of parts and components. For the year 2007, the total assets, net assets, income from main operation, profit from main operation and net profit of this Company were RMB 4,498,484,462.83, RMB 1,423,467,607.93, RMB 1,024,755,151.01, RMB 516,102,502.02 and RMB 472,035,191.84 respectively. (7) Zhaoqing Yuezhao Highway Co., Ltd. The Company holds 25% equity of this company. The registered capital of the company is RMB 818.3 million. It is engaged in the construction, operation and management of Guangzhao Expressway, old highways and their supporting facilities, service facilities and integrated projects. For the year 2007, the total assets, net assets, income from main operation, profit from main operation and net profit of this Company were RMB 2,476,874,702.06, RMB823,390,466.54, RMB294,227,480.01, RMB 67,373,500.29 and RMB 75,418,783.36 respectively. (8) Guangdong Guanghui Expressway Co., Ltd. The Company holds 30% equity of this company. The registered capital of the company is RMB 2.352 billion. It is engaged in the investment in and construction of Guanghui Expressway and supporting facilities, the toll collection and maintenance management of Guanghui Expressway. For the year 2007, the total assets, net assets, income from main operation, profit from main operation and net profit of this Company were RMB 6,731,788,341.23, RMB2,331,224,286.32, RMB1,125,831,784.00, RMB 470,089,681.29 and RMB 353,404,311.41 respectively. (9) Guangdong Jiangzhong Expressway Co., Ltd.. The Company holds 15% equity of this company. The registered capital of Jiangzhong Co. is RMB 945 million. It is engaged in investing in, constructing, operating and managing Jiangzhong Expressway and phase-II project of Jianghe Expressway and developing supporting projects. Jiangzhong Expressway was built up and open to traffic on December 8, 2005. For the year 2007, the total assets, net assets and net profit of this company were RMB 2,942,134,660.81, RMB 919,307,650.56 and RMB -26,507,124.68 respectively. (II) Forecast of the Company's future development 1. Development trend of expressway industry According to the Network Plan for State Expressway adopted by the State Council in 2004, by the year 2010, China will build 5~55,000 km, 60% to 65% of the total length of the expressway. State highway network will achieve the goal of "East network, contacting the middle, connecting the 第 35 页 west". The eastern area will basically form an expressway network, the Yangtze River Delta, Pearl River Delta, and around Bohai region will form a better inter-city highway network; external link in the central area will be built, center cities in the area will have expressway communication; and eight inter-provincial highways will be constructed in western regions and will achieve the goal of east-west connection and reaching rivers and sea. 2.Development opportunities and challenges With the acceleration of city progressing, civil vehicles continue to rise, and the effect of road network distinguished. As the leading enterprise among Guangdong expressway enterprises, and prospects for future development is broad. During the reporting period, some sections of Guangfo expressway was conducting the expansion project, which may have a certain impact on the conpany’s operation. However, the other projects of the company remain steady growth, so the impact from the expansion was small. In addition, the Company was facing capital expenditure pressure for the investment of new projects, but the asset and liability rate of the company is low, coupled with adequate capital operation, the capital demand and pressure can be effectively addressed. The new investment projects laid a good foundation for further development in the future, and had a good start for the investment strategy of “rooting in Gunagdong, expanding to other provinces". 3. Business plan of the Company for 2008 (1)Strictly implement budget management and performance appraisal to the operating company, and strengthen the internal audit and financial inspection and supervision, effectively control the operating costs, and increase efficiency. The 2008 annual revenue target is RMB 1024.52 million, and operating costs RMB 488.6631 million. (2) Organize the initial work for the project of extension of Fokai expressway, try to start the project as soon as possible to ease the pressure on Fokai expressway. (3) Actively explore multi-channel financing methods, and achieve the financing projects of issuance of convertible bonds with the share warrants and bonds separated. (4) Strengthen the supervision and audit on key areas, key sectors and key capital, explore a new road which combines effect supervision and internal audit. 4.The planned fund use and fund source in 2008. 1. The acquisition of 30% of the shares of Ganzhou Kangda Expressway Co., Ltd., planning to use RMB 216.25 million. 2. The acquisition 30% of the shares of Ganzhou Gankang Expressway Co., Ltd., planning to use RMB130.5million . 3. The expansion project of the expressway from Guangfo Yayao to Fokai Sanbao, planning to use RMB 118 million for Guangfo part, and planning to use RMB 1113 million for Fokai part. The funds required for the above projects will be solved with own funds and through debt financing. 5.Analysis of operating risk Macroeconomic policy: Rules for Highway Management regulates that: the charge period of the operating highway is determined according to principle of recovering the investment with reasonable returns, no longer than 25 years; the longest charge period of the operating highway in 第 36 页 the central and western provinces and autonomous regions, no longer than 30 years. The company needs to conduct reasonable arrangement on the charge highway projects under operation or under construction or planning to invest, so that the projects can be well matched to each other to maintain the operating ability. Business: The Fokai expansion project, the length of the project and the quality will have direct impact on the company's future operation. The company need to use the experiences accumulated in the past to strengthen internal control and lower construction costs. (III)Investment of the Company (1) No use of the fund raised in the reporting period, and no use of the fund raised before the reporting period which extended to the reporting period. (2) Use of non-raised funds. Unit：RMB Name of Projects Amount happened in 2007 Fokai expansion project 167,059,941.59 Yayao—Xiebian expansion project 124,148,389.38 Jiujiang Bridge restoration project 93,160,441.66 Asphalt pavement rectification project 14,410,000.00 Rectification works of State Road G325 Heshan Road section 7,974,800.00 Fokai Expressway rectification project 4,126,340.43 Project of Simple video monitoring system 1,258,269.00 Project of charging system in Yayao logo station 1,001,000.00 Other projects 11,271,491.22 IV. Daily work of the Board of Directors (1) Meetings of the board of directors in the reporting period and the resolutions. In the reporting period, the board of directors of the Company held a total of 11 meetings, and the main contents and resolutions are as follows: 1. The provisional meeting of the fifth board of directors was held in the afternoon on February 15, 2007.The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on February 16,2007. 2.The Second meeting of the fifth board of directors was held in the morning on March 23, 2007， The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on March 24,2007. 3. The provisional meeting of the fifth board of directors was held in the morning on April 25, 第 37 页 2007，The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on April 26,2007. 4. The provisional meeting of the fifth board of directors was held on May 25, 2007，The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on May 26,2007. 5. The provisional meeting of the fifth board of directors was held in the morning on June 29, 2007，The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on June 30,2007. 6. The Third meeting of the fifth board of directors was held in the morning on August 10, 2007，The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on August 11,2007. 7. The Fourth meeting of the fifth board of directors was held in the morning on September 11, 2007，The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on September 12,2007. 8.The provisional meeting of the fifth board of directors was held on October 30, 2007，The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on October 31,2007. 9. The fifth meeting of the fifth board of directors was held in the morning on November 9, 2007，The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on November 10,2007. 10. The Sixth meeting of the fifth board of directors was held in the morning on November 28, 2007，The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on November 29,2007. 第 38 页 11. The provisional meeting of the fifth board of directors was held in the morning on December 26, 2007， The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao, Hong Kong Commercial Daily and www.cninfo.com.cn on December 27,2007. (2) The Board of Directors implements the resolutions of the general shareholders meeting. 1. Implementation of the programs of profits distribution of and public reserves transferring to capital: the 2006 general shareholders meeting adopted the resolution of 2006 profit distribution: the total capital 1,257,117,748 shares at the end of 2006 as the base number, every 10 shares distributed cash dividends 1.70 yuan (include tax). The profit distribution program was completed in August 2007. 2. The 2007 the second provisional general shareholders meeting authorized the Board of Directors to deal with company warrants and convertible bonds of separate bonds trading (in short "Convertible Bonds"). The board of directors of the company has arranged a work group and related business staff to apply for the issuance of convertible bonds to China Security Commission. After the company releases 2007 annual report, application materials will be submitted to the Security Commission, so as to achieve the regulations of the general shareholders meeting. (3) Audit Committee, Salary Committee. 1. In the reporting period, the board of directors of the company has not established audit committee. But the company has set up Internal Audit Department to conduct internal control on finance, operation and management of the company. 2. The Board of Directors has a salary committee, composed of three directors, two of them are independent directors, The independent director He Qiang served as the chairman. During the reporting period, according to the relevant laws and regulations of China Securities Regulatory Commission, Shenzhen Stock Exchange and internal control system, and "implementation rules for the salary and appraisal commission of the board of directors of the company, the salary and appraisal commission made audit on the salary disclosed by directors, supervisors and senior management, and make the following audit opinions: The decision-making procedure of salary of directors, supervisor and senior management complied with the relevant regulations; the release of salary of directors, supervisors and senior management complied with the regulations of the salary system approved by the board of directors of the company; the salary of directors, supervisors and senior management disclosed in 2007 annual report was true and accurate. (6). Profit distribution plans and the plans of transfer of reserve to common shares The 2007 financial account of the Company had been audited by Guangzhou Yangcheng Certified Public Accountants Co., Ltd. and Ernst & Young according to Chinese accounting standards and international accounting standards. The net profit on the 2007 annual consolidated statements audited by Guangzhou Yangcheng Certified Public Accountants Co., Ltd. which belong to the owners of the parent company was RMB 493,661,982.44, the net profit of the parent company is RMB 481,403,964.66. The after tax profit in 2007 audited by Ernst & Young was RMB 475,807,000.00. 第 39 页 Since January 1, 2007, the Company had implemented the new enterprise accounting standards, profit distribution refers to the statement data of the parent company. The profit and loss in the previous year was adjusted according to the business accounting standards and its explanation No. 1, and after adjustment, for the retained profits of the parent company in early 2007 was RMB -42,883,219.82, the current profit of the parent company RMB 481,403,964.66 , deducting the statutory public reserves extracted in accordance with the Company Law and Company Constitution RMB 43,852,074.48 and the dividend RMB 213,710,017.16 of 2006 distributed in 2007, at the period end the retained profit was RMB 180,958,653.20. Because the Company had promised the policy of cash dividend in the reform of equity allocation, as follows: "Since the company’s listing, from 1996 to 2004, the amount of cash dividend occupied 61.26% of the arithmetic average ratio of net profit in the current year, and in the future three years, the cash dividend ratio will not be less than this percentage". The amount of cash dividend for the shareholders according to the promise should be the amount of cash dividend occupied 61.26% of the arithmetic average ratio of net profit in the current year, this may result in the situation that the retained profits is insufficient to cover the amount promised. In light of the above situation resulted from the implementation of new accounting standards, the company will make two steps to realize the profit distribution plan in the 2007: 1. In accordance with the after-tax profit RMB 481,403,964.66 which attributed to the parent company audited by Lixin Yangcheng Certified Public Accountants Co., Ltd. in 2007, deduct the balance of retained profit at early 2007, draw 10% of the statutory public reserves RMB 43,852,074.48; 2. Distribute cash dividends, but the specific ways of distribution will be determined after the relevant department give the instructions and assist the parent company has the sufficient retained profits to cover the amount promised. Before holding the 2007 shareholders’ meeting the board of directors will hold another meeting to determine. The proposal of 2007 profit distribution plan combines by 2 components, one is the above 1st step of profit distribution plan, and the other component will be determined by the next meeting of board of directors. The combined 2007 profit distribution plan will be exam and adopt by the 2007 shareholder’s meeting. (7). Implementation of the new accounting standards 1. The Company had fully implemented the new accounting standards its application guidelines and other relevant explanations and notice, to prepare the financial statement in 2007. 2. Develop accounting policies and accounting estimates. (1) Depreciation of fixed assets Except Guangfo expressway, Fokai expressway and Jiujiang Bridge adopted the method of workload to account depreciation of fixed assets, other projects adopted the method of straight line, and except Guangfo expressway, Fokai expressway and Jiujiang bridge do not save residuals, the other projects will save 3% -10% for residuals, the rates of depreciation for all types of fixed assets as follows: 第 40 页 Asset categories Year of service Expected Yearly depreciation life residual rate rate Guangfo Expressway By the method of By the 28 years 0 method of workload Fokai Expressway By the method of 30 years 0 workload Jiujiang bridge By the method of 19 years 0 workload House and Building 20-30 years 3%—10％ 3.17%-4.75% Machinery equipment 10 years 3%—10％ 9％-9.6% Transportation equipment 5-8 years 3%—10％ 11.88%-19% Electronic equipment 6.33%-19.4% 5-15 years 3%—10％ (VII)The newspapers selected by the Company and statutory website for information disclosure The Company selected Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily as newspapers for information disclosure and www.cninfo.com.cn as the website for information disclosure. VIII.Report of the Supervisory Committee I. Work of the Supervisory Committee In the report period, the Company held 4 meetings of supervisory committee in total. The particulars of the meetings are as follows: (1)The second meeting of the fifth Board of Supervisors was held on March 23, 2007. The meeting discussed and approved Work Report of the Board of Supervisors in 2006, Financial Accounts Report in 2006, Profit Allocation Plan in 2006, and Annual Report and its summary in 2006, and approved to submit to 2006 general shareholders meeting for approval, and examined and discussed the resolutions made in the second meeting of the fifth board of directors on the Resolution on Drawing Preparations for Bad Account from Receivables and the Resolution on Liquidation of Fixed Assets, the board of supervisors agreed to the above resolutions, made the following specific comments: The supervisors did not find any violation of relevant accounting rules when drawing provisions 第 41 页 for bad debt of receivables, and believe that: drawing provisions for bad debt of receivables embodied the accounting principle of carefulness, and complied with the requirement of relevant accounting systems. The notice of this meeting was published in the Securities Times,China Securities,Tak Kong Pao(H.K),Shanghai Securities Daily and Hongkong Commercial Daily on March 27, 2007. (2) The provisional meeting of the fifth board of supervisors held on April 25, 2007, the meeting examined and approved the Resolution on the First quarter Report of 2007. The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on April 26,2007. （3）The provisional meeting of the fifth board of supervisors held on August 10, 2007, the meeting examined and approved the Resolution on the Semi-Annual Report 2007 and its summary . The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on August 13,2007. (4) The provisional meeting of the fifth board of supervisors held on October 30, 2007, the meeting examined and approved the Resolution on Liquidation of Fixed Assets and Third quarter Report of 2007. The provisional meeting of the fifth board of supervisors held on October 30, 2007, the meeting examined and approved the Resolution on the First Season Report of 2007. The announcement of resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on October 31,2007. II.Independent Opinions of the Supervisory Committee (1) The company had strictly complied wit the requirement of Company Law, Securities Act and Company Constitution and relevant laws and regulations of China Securities Regulatory Commission, and had constantly improved the corporate governance structure. Under the leading of the board of directors, the operating team of the company completed all the operational tasks, and was affirmed and recognized in the stock market. The operating team adopted democratic decision-making methods, fully listened to various views, decision-making procedures were conducted strictly in accordance with the Company Constitution and the authorization of the Board of Directors, at the same time, established a sound internal control system, system of reception and promotion, rules for information disclosure management, system of independent directors, management system of funds raising, general manager work rules, management system of related transactions and other systems. The directors and general managers 第 42 页 were not found the acts of violation of the law, regulations, company constitutions or damage of company interests. (2) The board of supervisors established internal audit system, adhered to strengthening the financial auditing supervisory work on the participating companies, controlling companies and the headquarter of the company. After the audit and inspection, no violations were found. In addition, Yangchenc Accounting Firm and Anyong Accounting Firm conducted audit on the 2007 financial report of the Company according to China CPA Independent Auditing Standards and international auditing standards, and issued an audit report. The audit report accurately reflected financial positions and operating results of the company, the audit report was fair, objective, truthful and reliable. (3) The company did not raise funds from the stock market in the last three years. (4)Acquisition and sale of assets 1. In order to utilize idle fixed assets and reduce property management fee and city real estate tax expenses, the company entrusted Zhonglian Auction Co., Ltd to conduct public auction to the 8 sets of property rights of Foshan Jiujiang Yujiang Gardern with the price no less than RMB 0.238543. 2. The company invested 30% shares of Ganzhou Kangda Expressway Co., Ltd., and invested 30% shares of Ganzhou Gankang Expressway Co., Ltd. The board of supervisors believed that: The above sold assets had been independently accessed by intermediary agencies, and had been approved by relevant authorities, the new projects invested had good development prospects, and the transaction price was fair and reasonable. No internal transactions were found in the above transaction, found no damage on shareholders’ equity and assets loss of the company. (5) Related transactions During the reporting period, related transactions are: the event of the controlling subsidiary Guangdong Fokai Expressway Co., Ltd. (in short "Fokai Company") increasing capital for the expansion of Fokai Expressway Xiebian to Sanbao. The board of supervisors believed that this transaction belonged to the event of joint investment with Fokai Company, each party invested the project of expressway expansion according to each other’s equity ratio. The project and the investment budget were approved by the state Development and Reform Commission, this related transaction was fair, reasonable and did not damage the interests of the company. IX Important events 1.The significant litigation and arbitration events in the reporting period. 第 43 页 There are litigation in the reporting period: (1)On March 15, 2007, Guangzhou Yuexiu District People's Court made the (2006) Yuefamingzi 1708 judgment on the lawsuit of Guangdong Express Technology Investment Co., Ltd.lending RMB 8 million to Beijing Gelin Enze Organic Fertilizer Co., Ltd.. See the note to the financial report 8 (a), 2 for details. (2) On September 3, 2007, Beijing Gelinenze Organic Fertilizer Co., Ltd. initiated a lawsuit to Beijing First Intermediate People's Court, sued the subsidiary of the company Guangdong Express Technology Investment Co., Ltd . damaging the company interest, and was demanded to pay RMB 21,549,783 as economic losses. The controlling subsidiary of the company Guangdong Gaoshu Science and Technology Investment Co. Ltd. asserted that Beijing First Intermediate People's Court did not have jurisdiction over the case, and requested transferring the case to Guangzhou Intermediate People's Court. According to the content of (2007)Zhongminchudi Zi 11465, the objection raised by Guangdong Gaoshu Science and Technology Investment Co. Ltd. was dismissed. On November 12, 2007, The controlling subsidiary of the company Guangdong Gaoshu Science and Technology Investment Co. Ltd. initiated a lawsuit to Beijing Higher People's Court, requesting cancelling the judgment of (2007) Zhongmindizi 11465 and transferring this case Guangzhou Intermediate People's Court. By December 31, 2007, this case had not got a trial outcome. (3) On June 15, 2007 morning, the Nanguiji 035 ship owned by Yang Xiong, Foshan Nanhaiyu Ship Co., Ltd. heated Jiujiang Bridge on 325 National Road owned by the controlling company of the company, and resulted in more than 200 meters of Jiujiang Bridge collapsed. On June 19, 2007, the Ministry of Communications, the State Administration of Production Safety Supervision and Management Committee issued the [2007]No.8 File Notification of the 6 • 15 Accident of the collapse of Jiujiang Bridge, initially determined the reasons for the accident are: the incident ship bounded for Shunde from Foshan, and met a heavy fog, the captain neglected to look out, and deviated from the main path, heated the non-navigable hole pier of Jiujiang Bridge on 325 National Road, caused the collapse of part of Jiujiang Bridge. The accident is a unilateral responsibility accident of ship heating bridge. On July 19, 2007, Fokai Company applied the preservation of property to Guangzhou Maritime Court. On August 22, 2007, Fokai company officially initiated a lawsuit to Guangzhou Maritime Court, requesting for Foshan Nanhaiyu Ship Company Limited and Yang Xiong to compensate RMB 25,587,684. On August 28, 2007, Guangzhou Maritime Court accepted the case. According to the (2007) Guanghaifachuzi No.332 judgment issued by Guangzhou Maritime Court on November 5, 2007, the case was suspended. 2. Major Bankruptcy Reorganization of the company and the related events During the reporting period, the company had no major bankruptcy-related events. 3. The company hold shares of other listed companies, shares of financial firms. During the reporting period, the company hold the shares of Huaxia Securities Co., Ltd.: 第 44 页 In 1993, the company invested RMB 5.4 million on the equity of Huaxia Securities Co., Ltd., occupying 54 percent of the registered capital ofRMB 1 billion), later, Huaxia Securities increased its capital, the share ratio of the company is 0.27%. On December 19, 2005, Huaxia Securities Clearing Team issued Notice of Liquidation Group of Huaxia Securities Co., Ltd. No. 1 and No. 2. The Clearing Team exercises its rights on behalf of Huaxia Securities Co., Ltd. and is responsible for the liquidation. The company accounted full impairment for the long-term equity investment in Huaxia Securities Co., Ltd in 2005. At present, Huaxia Securities Co., Ltd. has not closed, and the company still holds 0.27% shares of Huxia Securities. 4.Acquisition and sale of assets and corporate merger during the reporting period and their impacts. 1. In order to utilize idle fixed assets and reduce property management fee and city real estate tax expenses, the company entrusted Zhonglian Auction Co., Ltd to conduct public auction to the 8 sets of property rights of Foshan Jiujiang Yujiang Gardern with the price no less than RMB 238,543. 2. The company invested 30% shares of Ganzhou Kangda Expressway Co., Ltd., and invested 30% shares of Ganzhou Gankang Expressway Co., Ltd. The projects of Kangda expressway, Gankang expressway, Ganjiang highway bridge are good projects with bright prospects, it is beneficial for improving the business performance and profits. And the company’s main business is expressway, and is trying to seek good project resources and improve the competitiveness of the company. This investment will promote the investment strategy of “rooting Guangdong, expanding to other provinces” of the company. 5.Major related transactions occurred during the reporting period In the reporting period, the company and Guangdong Provincial Expressway Company Limited ( in short "Provincial Expressway"), according their respective shareholding ratio, jointly increased capital to Guangdong Fokai Expressway Company Limited (in short “Fokai company") for the expansion project of expressway from Xiebian to sahbao. The expansion project was approved by File [2007] 1119 issued by the National Development and Reform Commission. The total investment of the project was approved as RMB 3.71 billion , of which domestic bank loan RMB 2.24 billion , and the remaining RMB 1.47 billion was solved by Fokai Company through increasing capital. The issuer accounted 75% per cent of shares in Fokai Company, that is, part of 第 45 页 capital replenishment about RMB 1.1 billion. The above related transaction was adopted in the fourth meeting of the board of directors in 2007 and the first provisional general shareholders meeting in 2007. 6. Important contracts and implementing 1. The Company did not hold in trust or contract for or lease the assets of other companies nor did other companies hold in trust, contract for or lease the assets of the Company in the report period. 2. The Company did not provide important external guarantee in the report period. 3. The Company did not entrust others with money management in the report period. 4. The Company's material contracts in the report period In December 27, 2007, the company and Ganzhou Expressway Co., Ltd and Jiangxi Investment Group signed the Contract on Equity Transfer of Ganzhou Kangda Expressway Co., Ltd. and the Contract on Capital Expansion of Ganzhou Gankang Expressway Co., Ltd. The related events were disclosed in Securities Times,China Secuties,Ta Kong Pao(H.K),Shanghai Secuties Daily and Hongkong Commercial Daily on December 27, 2007. 7. Commitments. The Company's plan for share holding structure reform was voted through at the shareholders' meeting concerning share holding structure reform on December 21, 2005. On February 16, 2006, the non-tradable shares obtained the listing flow right. In addition to honoring specified statutory commitment, shareholders holding non-negotiable shares made the following commitment in this plan: (1) The non-negoti1ble sh1res held by the Comp1ny's sh1reholders holding non-negoti1ble sh1res sh1ll not be listed, tr1ded or 1ssigned within twelve months from the d1te of obt1ining the right of listing 1nd negoti1tion. Meanwhile, Guangdong Communication Group Co., Ltd., the controlling shareholder, and its related companies including Guangdong Expressway Co., Ltd., Guangdong Traffic Development Company, Guangdong Communication Development Company and Guangdong Guanghua Expressway Company further promised that the non-negotiable shares held by them would not be listed and traded within twenty four months after the expiration of the said period of twelve months. (2) After the implementation of share holding structure reform, Guangdong Communication Group Co., Ltd. promised to propose the maintenance of the Company's cash dividend policy in force for the period from 2005 to 2007 and cast affirmative vote at the shareholders' general 第 46 页 meeting. Since the listing of the Company, i.e., in the period from 1996 to 2004, the arithmetic average of the proportion of the amount of cash dividends to the net profit for current year was 61.26%. The proportion of cash dividend distribution of the Company in the next three years will not be lower than this proportion. (3) In order to maintain appropriate holding level and enhance its position of controlling shareholder after share holding structure reform, Guangdong Communication Group Co., Ltd. promised that it or its wholly-owned subsidiaries would invest RMB 400 million in purchasing negotiable Guangdong Expressway A shares in secondary market at appropriate time within twelve months after adoption of the plan for share holding structure reform at relevant shareholders' meeting of the Company under the premise of obtaining CSRC's exemption of general tender offer. Within six months after the completion of share purchase plan each time, Guangdong Communication Group Co., Ltd. and its wholly-owned subsidiaries will not sell the shares purchased and will perform relevant information disclosure obligation. In case of sales in the said period, all income shall belong to all shareholders of the Company. Status of fulfillment: (1)The former non-tradable shareholders have fulfilled the commitment, before the expiry of deadline February 16, 2007, the non-tradable shares held were not transacted or transferred; in the same time, the big shareholder Guangdong Commmunication Group Co.,Ltd . and the related company Guangdong Expressway Co., Ltd., Guangdong Traffic Development Company, Guangdong Guanghua Expressway Company kept their promise, and did not conduct transactions in the stock market. （2）Guangdong Communication Group Co., Ltd. proposed cash dividend distribution and cast affirmative vote at 2006 annual shareholders' general meeting. it was decided to distribute RMB1.70 to each 10 shares to the entire shareholders in 2006. The dividend was totalled to RMB213,710,017.16 and accounted for 61.26% of the total net profit of the year. (3)Guangdong Communication Group Co., Ltd., the largest shareholder has fulfilled its commitment,The company had constantly purchased Guangdong Expressway A-share from the second stock market, by February 16, 2007, the company had held 98,932,191 shares. The commitment had fulfilled. 第 47 页 8. Appointment of certified public accountants In the report period ， the Company continued to engage Yangcheng Certified Public Accountants as domestic and overseas audit bodies for the Company. According to File No.30 Zhengjian Kuaiji Zi [2007], the Notice on the Audit-related Problems of Issuance of Domestic Foreign Shares, the foreign audit for the issuance of domestic listed foreign shares company would not be conducted, therefore, in 2008, the Company would not employ Ernst & Young . The particulars about the remuneration of certified public accountants: Year 2007 Number of continuous Certified public Financial audit Other expenses years of provision of accountants expenses audit services to the Company Guangzhou Yangcheng Certified 390,000ＲＭＢ 382,000ＲＭＢ 16years Public Accountants Co., Ltd. Ernst & Young . 1100,000ＲＭＢ - 13 years The Company did not bear the traveling expenses of certified public accountants. 9. The Company, its board of directors and its directors were not investigated by CSRC, administratively punished or publicly criticized by CSRC or publicly condemned by stock exchange. 10. No other major events 第 48 页 X. Financial Report Guangdong Provincial Expressway Development Co., Ltd. (Established in the People’s Republic of China with limited liability) Consolidated Financial Statements 31 December 2007 Guangdong Provincial Expressway Development Co., Ltd. CONTENTS Pages INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. 1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Income Statement 2 Consolidated Balance Sheet 3-4 Consolidated Statement of Changes in Equity 5 Consolidated Cash Flow Statement 6 Notes to the Consolidated Financial Statements 7 - 52 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. We have audited the accompanying financial statements of Guangdong Provincial Expressway Development Co., Ltd. and its subsidiaries (the “Group”), which comprise the consolidated balance sheet as at 31 December 2007 and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. 29 February 2008 Hong Kong 1 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2007 Notes 2007 2006 RMB’000 RMB’000 Toll revenue 1,057,736 1,022,108 Rendering of services 12,131 6,204 Rental income 5,595 3,480 Revenue 3 1,075,462 1,031,792 Operating costs 4.5 & 4.6 (358,578) (347,593) Gross profit 716,884 684,199 Other income 4.1 4,851 4,981 Administrative expenses 4.5 & 4.6 (104,711) (101,055) Provision for placements with Kunlun Securities 4.5 - (51,684) Other expenses 4.2 (55,970) (37,707) Operating profit 561,054 498,734 Finance revenue 4.4 5,849 4,511 Finance costs 4.3 (107,209) (118,142) Share of profits and losses of associates 12 260,908 191,465 Profit before tax 720,602 576,568 Income tax expense 5 (147,606) (158,714) PROFIT FOR THE YEAR 572,996 417,854 Attributable to: Equity holders of the parent 475,807 325,682 Minority interests 97,189 92,172 572,996 417,854 Dividends - proposed 7 - 213,710 Earnings per share 6 - basic and diluted, for profit for the year attributable to ordinary equity holders of the parent RMB0.378 RMB0.259 The notes on pages 7 to 52 form an integral part of these financial statements. 2 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET as at 31 December 2007 Notes 2007 2006 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 8 4,260,049 4,131,645 Investment properties 9 2,959 4,351 Goodwill 10 65,875 65,875 Bridge operating right 11 38,742 42,264 Investments in associates 12 1,859,713 1,781,179 Available-for-sale financial assets 14 227 227 Deferred tax assets 5 11,002 - 6,238,567 6,025,541 Current assets Inventories 141 120 Prepayments and other receivables 24,436 18,469 Due from associates 15.1 764 8,074 Due from related companies 17 26,378 25,518 Cash and cash equivalents 16 190,665 490,764 242,384 542,945 TOTAL ASSETS 6,480,951 6,568,486 The notes on pages 7 to 52 form an integral part of these financial statements. 3 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET (continued) as at 31 December 2007 Notes 2007 2006 RMB’000 RMB’000 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Issued capital 20 1,257,118 1,257,118 Retained profits 21 1,164,451 458,737 Other reserves 21 1,578,613 2,022,230 4,000,182 3,738,085 Minority interests 461,099 453,363 Total equity 4,461,281 4,191,448 Non-current liabilities Interest-bearing loans and borrowings 19 530,000 1,250,000 Due to minority shareholders 18 458,325 458,325 Other liabilities 2,022 2,022 Deferred tax liabilities 5 80,717 79,401 1,071,064 1,789,748 Current liabilities Other payables 22 62,894 58,571 Interest-bearing loans and borrowings 19 570,000 300,000 Income tax payable 33,942 6,279 Due to an associate 15.2 12,647 106,979 Due to related companies 17 41,418 45,092 Due to minority shareholders 18 227,705 70,369 948,606 587,290 Total liabilities 2,019,670 2,377,038 TOTAL EQUITY AND LIABILITIES 6,480,951 6,568,486 Director Director The notes on pages 7 to 52 form an integral part of these financial statements. 4 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2007 Attributable to equity holders of the parent Issued Retained Other capital profits reserves Minority Total (Note 20) (Note 21) (Note 21) Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2007 1,257,118 458,737 2,022,230 3,738,085 453,363 4,191,448 Profit for the year - 475,807 - 475,807 97,189 572,996 Equity dividends - (213,710) - (213,710) - (213,710) Dividends of subsidiaries - - - - (89,453) (89,453) Transfers to: Statutory surplus reserve - 443,617 (443,617) - - - At 31 December 2007 1,257,118 1,164,451 1,578,613 4,000,182 461,099 4,461,281 for the year ended 31 December 2006 Attributable to equity holders of the parent Issued Retained Other capital profits reserves Minority Total (Note 20) (Note 21) (Note 21) Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2006 1,257,118 367,343 1,989,081 3,613,542 454,822 4,068,364 Profit for the year - 325,682 - 325,682 92,172 417,854 Equity dividends - (201,139) - (201,139) - (201,139) Dividends of subsidiaries - - - - (93,631) (93,631) Transfers to: Statutory surplus reserve - (33,149) 33,149 - - - Statutory public welfare fund - - (116,725) (116,725) - (116,725) Discretionary surplus reserve - - 116,725 116,725 - 116,725 At 31 December 2006 1,257,118 458,737 2,022,230 3,738,085 453,363 4,191,448 The notes on pages 7 to 52 form an integral part of these financial statements. 5 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2007 Note 2007 2006 RMB’000 RMB’000 Operating activities Receipts from customers 1,108,270 1,073,334 Payments to services providers and employees (286,923) (275,973) Provision for placements with Kunlun Securities - (51,684) Income tax paid (129,629) (142,961) Net cash flows from operating activities 691,718 602,716 Investing activities Proceeds from disposal of property, plant and equipment 2,781 224 Purchases of property, plant and equipment (237,258) (36,658) Receipt of insurance indemnity 15,000 - Interest received 5,849 4,511 Payments for acquisition of minority interests in a subsidiary - (24,626) Capital injections in associates - (10,500) Dividends received from associates 88,707 57,699 Proceeds from disposal of held-for-trading financial assets - 2,120 Net cash flows used in investing activities (124,921) (7,230) Financing activities Proceeds from loans and borrowings 500,000 650,000 Repayments of loans and borrowings (950,000) (900,000) Interest paid (107,711) (117,540) Dividends paid to equity holders of the parent (211,624) (185,300) Dividends paid to minority interests (97,561) (98,541) Net cash flows used in financing activities (866,896) (651,381) Net decrease in cash and cash equivalents (300,099) (55,895) Cash and cash equivalents at 1 January 16 490,764 546,659 Cash and cash equivalents at 31 December 16 190,665 490,764 The notes on pages 7 to 52 form an integral part of these financial statements. 6 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 1. Corporate information The consolidated financial statements of Guangdong Provincial Expressway Development Co., Ltd. (the “Company”) and its subsidiaries (collectively the “Group”) for the year ended 31 December 2007 were authorised for issue in accordance with a resolution of the directors on 29 February 2008. The Company was established in the People’s Republic of China (the “PRC”) on 9 February 1993 in the name of Guangdong Foshan-Kaiping Expressway Shareholding Company Ltd. (the “Predecessor Company”) as a joint stock limited company in accordance with the regulations for joint stock limited companies. Pursuant to the approval at the shareholders’ meeting of the Predecessor Company and the approval of the Guangdong Provincial State Asset Bureau in June 1993, Guangdong Provincial Freeway Company transferred its 75% equity interest in Guangzhou-Foshan Expressway Company Limited (“Guangfo Company”) and its 100% ownership of Jiujiang Bridge to the Predecessor Company in exchange for shares of the Company. In July 1996, the Predecessor Company issued for subscription of 135,000,000 B shares by way of private placement with foreign investors. Dealings in the B shares on the Shenzhen Stock Exchange commenced in August 1996. After the completion of the issuance of B shares, the Predecessor Company changed its name to Guangdong Provincial Expressway Development Co., Ltd. Pursuant to the resolution at the shareholders’ general meeting in May 1997, the Company distributed a scrip dividend of 1.7 shares for every 10 shares of RMB1 and a bonus issue of 3.3 shares for every 10 shares of RMB1 to shareholders in the register of members dated 20 June 1997. In January 1998, the Company issued for subscription of 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Stock Exchange commenced in February 1998. In August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of three new shares of RMB1 each for every 10 existing shares for the shareholders in the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. Pursuant to the approval of the Shenzhen Stock Exchange and the China Securities Regulatory Commission (the “CSRC”), dealings of 53,020,500 unlisted A shares on the Shenzhen Stock Exchange commenced on 5 February 2001. On 23 April 2001, the Company transferred RMB419,039,249 of share premium and capital surplus to share capital. Pursuant to the approval of the Company’s shareholders on 21 December 2005, the shareholders of unlisted A shares of the Company would make equivalent payment of 3.1 shares for every 10 existing shares to the shareholders of listed A shares in the register of members dated 16 February 2006. The Group completed its share-merger reform on 17 February 2006. 7 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 1. Corporate information (continued) There were no significant changes in the principal activities of the Group for the year ended 31 December 2007. The principal activities of the Group are investment holdings and the operations of Guangfo Expressway, Fokai Expressway and Jiujiang Bridge. Jiujiang Bridge ceased operation since the collapse of the bridge on 15 June 2007 (See Note 8). The parent company of the Company for the year ended 31 December 2007 was Guangdong Communications Group Company Limited (“GCGC”), a company established in the PRC. The registered office of the Company is located at No. 85 Baiyun Road, Guangzhou, Guangdong Province, the PRC. The Group operates in Guangdong Province of the PRC and has 1,234 employees as at 31 December 2007. 2.1 Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, except for available-for-sale financial assets that have been measured at fair value. The consolidated financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated. The Group maintains its books and prepares its statutory financial statements in accordance with the relevant accounting principles and financial regulations applicable to joint stock limited companies established by the Ministry of Finance of the PRC. The accounting policies and bases adopted in the preparation of the statutory financial statements differ in certain material respects from International Financial Reporting Standards (“IFRSs”). The material adjustments arising from restating the results and net assets to comply with IFRSs have been made in the preparation of these financial statements, but they will not be taken up in the accounting records of the Group. The principal adjustments made to conform to IFRSs are set out below: • Elimination of the unrealised profits arising on the disposal of 100% ownership of Jiujiang Bridge and the related assets to Guangdong Provincial Foshan-Kaiping Expressway Limited Liability Company (“Fokai Company”) against the Group’s 35% equity interest in Fokai Company in 1999 • Goodwill arising on the acquisition of a subsidiary and an associate • Other adjustments made in accordance with IFRSs 8 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.1 Basis of preparation (continued) As at 31 December 2007, the Group has unutilised borrowing facilities of RMB1,600 million available (see Note 23). Pursuant to the approval by the shareholders on 28 November 2007, the Company will issue convertible bonds and raise funds of no more than RMB1,200 million within the next 12 months. According to the resolution of the shareholders’ meeting of Fokai Company on 6 December 2007, Fokai Company was approved to borrow RMB3,500 million from the banks among which China Construction Bank Corporation has signed the bank facility agreement with Fokai Company after the balance sheet date for granting RMB1,000 million and other banks have agreed to grant the remaining RMB2,500 million. The written documentation for granting bank facilities by other banks is still in process. The directors consider that the Group has adequate working capital to finance its operation and is able to meet its liabilities and capital commitments contracted but not provided for (see Note 24 (a)) as and when they fall due. Accordingly, these financial statements are prepared on a going concern basis. Statement of compliance The consolidated financial statements of the Group have been prepared in accordance with IFRSs. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December each year. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All intra-group balances, transactions, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Minority interests represent the portion of profit or loss and net assets of Guangfo Company, Fokai Company, Guangdong Gaosu Science and Technology Investment Company Limited (“Gaosu Company”) and Guangzhou Proteam Technology Incorporation (“Proteam Incorporation”) not held by the Group. Minority interests are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from equity attributable to equity holders of the parent. The difference between the cost of the additional interest in the subsidiary and fair values of the minority interest’s share of the assets and liabilities reflected in the consolidated balance sheet at the date of the acquisition of the minority interest was treated as goodwill. The assets and 9 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 liabilities of the subsidiary would be remeasured restricted to fair values of the minority interest’s share of the assets and liabilities for that particular acquisition and no adjustments are made to incorporate any revaluations in respect of the interest in the subsidiary that was already held. 10 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.2 Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended IFRSs and IFRIC interpretations during the year. • IAS 1 Amendment Capital Disclosures • IFRS 7 Financial Instruments: Disclosures • IFRIC 8 Scope of IFRS 2 • IFRIC 9 Reassessment of Embedded Derivatives • IFRIC 10 Interim Financial Reporting and Impairment The principal effects of these changes are as follows: Amendment to IAS 1 Presentation of Financial Statements-Capital Disclosures This amendment requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group's objectives, policies and processes for managing capital. These new disclosures are shown in Note 27. IFRS 7 Financial Instruments: Disclosures This standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group's financial instruments and the nature and extent of risks arising from those financial instruments. The new disclosures are included throughout the financial statements. While there has been no effect on the financial position or results, comparative information has been revised where needed. IFRIC 8 Scope of IFRS 2 This interpretation requires IFRS 2 to be applied to any arrangements in which the entity cannot identify specifically some or all of the goods received, in particular where equity instruments are issued for consideration which appears to be less than fair value. As the Group has no share-based payment, the interpretation had no impact on the financial position or performance of the Group. IFRIC 9 Reassessment of Embedded Derivatives IFRIC 9 states that the date to assess the existence of an embedded derivative is the date that an entity first becomes a party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. As the Group has no embedded derivative requiring separation from the host contract, the interpretation had no impact on the financial position or performance of the Group. IFRIC 10 Interim Financial Reporting and Impairment The Group adopted IFRIC 10 as of 1 January 2007, which requires that an entity must not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. As the Group had no impairment losses previously reversed, the interpretation had no impact on the financial position or performance of the Group. 11 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.3 Significant accounting judgements, estimates and assumptions The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future. Judgements In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the consolidated financial statements: Operating lease commitments – Group as a lessor The entity has entered into commercial property leases on its property portfolio. The entity has determined based on evaluation of the terms and conditions of the arrangements that it retains all the significant risks and rewards of ownership of these properties and so accounts for them as operating leases. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2007 was RMB65,875,000. Further details are given in Note 13. Impairment of bridge operating right The Group has to determine whether the bridge operating right is impaired, particularly in assessing (i) whether an event has occurred that may affect the value of the bridge operating right; (ii) whether the carrying value of the bridge operating right can be supported by the net present value of future cash flows which are estimated based upon the continued use of the asset or derecognition; and (iii) the appropriate key assumption to be applied in preparing cash flow projections including whether these cash flow projections are discounted using the appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test. The carrying amount of bridge operating right at 31 December 2007 was RMB38,742,000. Further details are given in Note 11. Corporate income tax The Group is subject to corporate income tax in the PRC. As a result of the fact that certain matters relating to corporate income tax have not been confirmed by the local tax bureau, objective estimate and judgement based on the current tax laws, regulations and other related policies are required in determining the provision of corporate income tax. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact on the corporate income tax and deferred tax provision in the period in 12 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 which such differences are made. 13 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.3 Significant accounting judgements, estimates and assumptions (continued) Estimates and assumptions (continued) Useful lives and residual values of items of property, plant and equipment In determining the useful lives and residual values of items of property, plant and equipment, the Group has to consider various factors, such as technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset, expected usage of the asset, expected physical wear and tear, the care and maintenance of the asset, and legal or similar limits on the use of the asset. The estimation of the useful life of the asset is based on the experience of the Group with similar asset that is used in a similar way. Additional depreciation is made if the estimated useful lives and/or the residual values of items of property, plant and equipment are different from previous estimation. Useful lives and residual values are reviewed, at each financial year end date based on changes in circumstances. Impairment of property, plant and equipment The Group assesses at each reporting date whether there is an indication that property, plant and equipment may be impaired. If any such indication exists, the Group makes an estimate of the recoverable amount of property, plant and equipment. This requires an estimation of the value in use of property, plant and equipment. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from property, plant and equipment and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of property, plant and equipment as at 31 December 2007 was RMB4,260,049,000. Further details are given in Note 8. 2.4 Summary of significant accounting policies Property, plant and equipment Property, plant and equipment are stated at cost, excluding the cost of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of property, plant and equipment when that cost is incurred, provided that the recognition criterions are met. Expressways and a bridge are depreciated to write off their costs by the sum-of-the-units method whereby depreciation is provided based on the share of the actual traffic volume for a particular period over the projected total traffic volume throughout the remaining operating periods of the respective expressways and the bridge, or their estimated useful lives, whichever is shorter. In addition, the directors review the projected total traffic volume throughout the operating periods of the respective toll expressways and the bridge annually. An independent professional traffic survey is obtained if the directors consider it appropriate. Appropriate adjustments are made if there is a material change. All direct costs relating to the construction of expressways, a bridge and buildings, including interest expenses on related borrowed funds during the construction period, are capitalised as the cost of property, plant and equipment. 14 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies Property, plant and equipment (continued) Depreciation of other items of property, plant and equipment is calculated on the straight-line basis over their useful lives. The principal annual rates used for this purpose are analysed as follows: Buildings 3.2 - 4.75% Machinery 6.4 -12% Furniture, fixtures and other equipment 9.5 - 19.4% Motor vehicles 12 -19% The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. When each major inspection is performed, the cost is recognised in the carrying amount of property, plant and equipment as a replacement, provided that the recognition criterions are satisfied. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. An item’s residual value, useful life and the method of depreciation is reviewed, and adjusted if appropriate, at each financial year end. Construction in progress represents the costs incurred in connection with the construction of property, plant and equipment, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises direct costs of construction and capitalised borrowing costs on related bank and other borrowings during the period of construction. No provision for depreciation is made for construction in progress until such time as the relevant assets are put into use. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Other borrowing costs are recognised as an expense when incurred. 15 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Investment properties Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criterions are met; and excludes the costs of day-to-day servicing of an investment property. The cost model is used for subsequent measurement of investment properties. Investment properties are stated at cost less accumulated depreciation and accumulated impairment in value. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of retirement or disposal. Transfers are made to investment properties when, and only when, there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development. Transfers are made from investment properties when, and only when, there is a change in use, evidenced by the commencement of owner occupation or commencement of development with a view to sale. For a transfer from investment property to owner-occupied property or inventory, the deemed cost of the property for subsequent accounting is its carrying amount at the date of change in use. If the property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. Depreciation is calculated on a straight-line basis over the useful lives of investment properties. The annual rates used for this purpose are analysed as follows: Investment properties 4.75% 16 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Business combination and goodwill Business combinations are accounted for using the acquisition accounting method. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value. Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or groups of units to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. Where goodwill forms part of a cash-generating unit (or a group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the part of operation. Goodwill disposed of in the circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and unamortised goodwill is recognised in the income statement. Bridge operating right Bridge operating right represents the right to operate a bridge and is initially measured at cost and carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is provided on a straight-line basis over the period of the bridge operating right granted to the Group. The amortisation period and the amortisation method are reviewed, and adjusted if appropriate, at least at each financial year end. Impairment is assessed whenever there is an indication that the bridge operating right may be impaired. 17 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Investments in associates The Group’s investments in associates are accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, investments in associates are carried in the balance sheet at cost plus post acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to associates is included in the carrying amount of the investment and is not amortised. The income statement reflects the share of the results of operations of the associates. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Profits and losses resulting from transactions between the Group and the associates are eliminated to the extent of the interests in the associates. The reporting dates of the associates and the Group are identical and the associates’ accounting policies conform to those used by the Group for transactions and events in similar circumstances. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Impairment losses recognised in relation to goodwill are not reversed for subsequent increases in its recoverable amount. 18 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Impairment of non-financial assets (continued) The following criterions are also applied in assessing impairment of specific assets: Goodwill Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit (or a group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or a group of cash-generating units) is less than the carrying amount of the cash-generating unit (or a group of cash-generating units) to which goodwill has been allocated, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. The Group performs its annual impairment test of goodwill as at 31 December. Intangible assets Intangible assets with indefinite useful lives are tested for impairment annually as at 31 December either individually or at the cash-generating unit level, as appropriate. Associates After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss of the Group’s investments in its associates. The Group determines at each balance sheet date whether there is any objective evidence that the investments in associates are impaired. If this is the case, the Group calculated the amount of impairment as being the difference between the fair value of the associates and the acquisition cost and recognises the amount in the income statement. Investments and other financial assets Financial assets in the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year end. All regular way purchases and sales of financial assets are recognised on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. 19 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Investments and other financial assets (continued) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Gains or losses on investments held for trading are recognised in profit or loss. Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial asset at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited. Financial assets may be designated upon initial recognition as at fair value through profit or loss if the following criterions are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis; or (ii) the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a document risk management strategy; or (iii) the financial asset contains an embedded derivative that would need to be separately recorded. As at 31 December 2007, the Group had no financial assets at fair value through profit or loss (2006: Nil). Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity and which the Group has the positive intention and ability to hold to maturity. After initial measurement, held-to-maturity investments are measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount, less allowance for impairment. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. Gains and losses are recognised in the income statement when the investments are derecognised or impaired, as well as through the amortisation process. As at 31 December 2007, the Group had no held-to-maturity investments (2006: Nil). Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. 20 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Investments and other financial assets (continued) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified in any of the three preceding categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. Interest earned or paid on the investments is reported as interest income or expense using the effective interest rate. Dividends earned on investments are recognised in the income statement as “Dividends received” when the right of payment has been established. Fair value The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis or other valuation models. Impairment of financial assets The Group assesses at each balance sheet date whether a financial asset or a group of financial assets is impaired. Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in the income statement. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. 21 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Impairment of financial assets (continued) Assets carried at amortised cost (continued) In relation to receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoices. The carrying amount of the receivables is reduced through use of an allowance account. Impairment debts are derecognised when they are assessed as uncollectible. Available-for-sale financial assets If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available for sale are not recognised in the income statement. Reversals of impairment losses on debt instruments are reversed through the income statement, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Provisions A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Financial liabilities Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process. 22 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • the rights to receive cash flows from the asset have expired; • the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or • the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or a similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or a similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement. Retirement benefits The Group is required to make contributions on behalf of its employees to a government administered retirement scheme in accordance with the rules and regulations thereof. The Group’s liability with regard to this retirement scheme is limited to its contributions, which are accounted for on an accrual basis. 23 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consolidation received, excluding discounts, rebates, and other sales taxes or duty. The following specific recognition criterions must also be met before revenue is recognised: Toll revenue Toll revenue, net of any applicable revenue taxes, is recognised when received. Rendering of services Service revenue is recognised by reference to the stage of completion. The stage of completion is measured by reference to labour hours incurred to date as a percentage of the total estimated labour hours for each contract. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable. Interest income Revenue is recognised as interest accrues using the effective interest method by applying the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset. Dividends Revenue is recognised when the Group’s right to receive the payment is established. Rental income Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms. Taxes Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Deferred income tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. 24 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.4 Summary of significant accounting policies (continued) Taxes (continued) Deferred income tax (continued) Deferred income tax liabilities are recognised for all taxable temporary differences, except: • where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except: • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Revenue tax Revenues, expenses and assets are recognised net of revenue tax. The net amount of revenue tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. 25 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.5 Future changes in accounting policies IFRSs and IFRIC Interpretations not yet effective The Group has not applied the following new and revised IFRSs and IFRIC interpretations, that have been issued but are not yet effective, in these financial statements. IFRS 8 Operating Segments IAS 1 (revised) Presentation of financial statements IAS 23 (revised) Borrowing Costs IAS 27 (revised) Consolidated and Separate Financial Statements IAS 32 & IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation Amendments IFRS 2 Amendments Share-based Payment - Vesting Conditions and Cancellations IFRS 3 (revised) Business Combinations IFRIC 11 IFRS2-Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements IFRIC 13 Customer Loyalty Programmes IFRIC 14 IAS 19-The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction IFRS 8 was issued in November 2006 and is effective for financial years beginning on or after 1 January 2009. The standard will replace IAS14 Segment Reporting, specifies how an entity should report information about its operating segments, based on information about the components of the entity that is available to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The standard also requires the disclosure of information about the products and services provided by the segments, the geographical areas in which the Group operates, and revenue from the Group’s major customers. The Group expects that this standard will have no impact on the Group's financial statements as almost all revenue and profit of the Group are derived from the management and operations of toll expressways and a bridge, which are located in Guangdong Province, the PRC. IAS 23 (revised) was issued in March 2007, and is effective for financial years beginning on or after 1 January 2009. The standard has been revised to require capitalisation of borrowing costs when such costs relate a qualifying asset. As the Group’s current accounting policy for borrowing costs aligns with the requirements of the revised standard, the Group expects that this revised standard is unlikely have any financial impact on the Group. IFRIC 11 was issued in November 2006 and becomes effective for annual periods beginning on or after 1 March 2007. This interpretation requires arrangements whereby an employee is granted rights to an entity's equity instruments to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed. The Group expects that this interpretation will have no impact on the Group's financial statements as no such schemes currently exist. 26 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 2.5 Future changes in accounting policies (continued) IFRSs and IFRIC Interpretations not yet effective (continued) IFRIC 12 was issued in November 2006 and becomes effective for annual periods beginning on or after 1 January 2008. This interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. The Group made an assessment of the impact of this interpretation and concluded that this interpretation may result in reclassification of some balance sheet items. Except for this, this interpretation will not have any significant impact on the financial position and performance of the Group. IFRIC 13 was issued in June 2007 and is effective for annual periods beginning on or after 1 July 2008. This interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and deferred over the period that the award credits are fulfilled. The Group expects that this interpretation will have no impact on the Group’s financial statements as no such schemes currently exist. IFRIC 14 was issued in July 2007 and is effective for annual periods beginning on or after 1 January 2008. This interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset under IAS 19 Employee Benefits. The Group expects that this interpretation will have no impact on the Group’s financial statements as no such schemes currently exist. IAS 1 (revised), IAS 27 (revised), IAS32 & IAS1 Amendments, IFRS 2 Amendments and IFRS 3 (revised) shall be applied for annual periods beginning on or after 1 January 2009, 1 July 2009, 1 January 2009, 1 January 2009 and 1 July 2009, respectively. The Group is in the process of making an assessment of the impact of these new and revised IFRSs upon initial application. The Group anticipates that these new and revised IFRSs are unlikely to have any significant impact on the Group’s results of operations and financial position. 27 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 3. Revenue Revenue mainly represents toll income from the operations of toll expressways and a bridge (net of relevant revenue taxes), rental income and income from the rendering of services. 2007 2006 RMB’000 RMB’000 Toll revenue 1,093,154 1,056,763 Less: Revenue taxes (35,418) (34,655) Toll revenue 1,057,736 1,022,108 Rendering of services 12,686 6,627 Rental income 5,875 3,711 Less: Revenue taxes (835) (654) Service revenue 17,726 9,684 Total revenue 1,075,462 1,031,792 The Group is subject to the following types of revenue taxes in the PRC: • Business Tax (“BT”), levied at 3% on toll revenue and 5% on rental income and income from the rendering of services; • City Development Tax, levied at 7% of BT; and • Education Supplementary Tax, levied at 3% of BT. 28 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 4. Other income and expenses 4.1 Other income 2007 2006 RMB’000 RMB’000 Gains on held-for-trading financial assets - 758 Other operating income 4,851 4,223 4,851 4,981 4.2 Other expenses 2007 2006 RMB’000 RMB’000 Write-off of construction in progress - 32,075 Write-off of Jiujiang Bridge and related cleanup expenses (Note 24 (c)) 49,624 - Loss on disposal of property, plant and equipment 1,561 434 Others 4,785 5,198 55,970 37,707 4.3 Finance costs 2007 2006 RMB’000 RMB’000 Interest expenses on: Related party loans and advances 30,679 27,919 Bank loans 76,530 90,223 107,209 118,142 4.4 Finance revenue 2007 2006 RMB’000 RMB’000 Bank interest receivable 5,849 4,511 29 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 4. Other income and expenses (continued) 4.5 Depreciation, amortisation and other major operating costs included in the consolidated income statement 2007 2006 RMB’000 RMB’000 Depreciation (Note 8 and 9) 198,035 188,288 Reversal of impairment of property, plant and equipment (Note 8) - (2,600) Write-off of other long term assets - 14,079 Amortisation of bridge operating right (Note 11) 3,522 3,522 Provision for placements with Kunlun Securities - 51,684 Provision for doubtful debts 8,152 5,620 Maintenance and repair expenses 80,025 87,178 Rental expenses 1,327 1,105 Handling charges 16,301 14,676 4.6 Employee benefits expense 2007 2006 RMB’000 RMB’000 Wages and salaries 66,257 57,902 Housing benefits 5,870 5,576 Retirement benefits 14,105 11,010 Staff welfare 10,439 8,350 96,671 82,838 30 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 5. Income tax The major components of income tax expense for the years ended 31 December 2007 and 2006 are: 2007 2006 RMB’000 RMB’000 Consolidated income statement Current income tax Current income tax charge 157,292 144,826 Deferred income tax Relating to the origination of deductible temporary differences (11,002) 748 Effect on opening deferred tax liabilities due to changes in tax rates (2007: 25%; 2006: 33% and 18%) 5.3 (12,094) - Relating to the origination of taxable temporary differences 13,410 13,140 Income tax expense reported in the consolidated income statement 147,606 158,714 The PRC income tax for the Company and its subsidiaries operating in the PRC has been provided at the applicable income tax rate of 33% on the assessable profits, except for Guangfo Company, which is subject to an income tax rate of 18%. The effective income tax rates applicable to the Company and its subsidiaries are analysed as follows: 2007 2006 The Company 33% * 33% * Guangfo Company 18% ** 18% ** Fokai Company 33% * 33% * Gaosu Company 33% * 33% * Proteam Incorporation 33% * 33% * * In accordance with the tax regulations of the PRC, the applicable PRC income tax rate for the Company, Fokai Company, Gaosu Company and Proteam Incorporation is 33%. As the Company, Gaosu Company and Proteam Incorporation incurred taxable losses for the year, no provision for PRC income tax has been made. ** In accordance with the tax regulations of the PRC, the applicable PRC income tax rate for Guangfo Company is 18%. 31 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 5. Income tax (continued) A reconciliation of the expected tax to the actual tax expenses is presented as follows: 2007 2006 RMB’000 RMB’000 Accounting profit before income tax 720,602 576,568 Tax at the applicable tax rate of 33% 237,799 190,267 Effect of lower tax rate of 18% for a subsidiary (36,063) (41,918) Unrecognised deferred tax assets for taxable losses 5.1 5,824 1,095 Income not subject to tax 5.2 (87,019) (50,713) Non-deductible expenses 32,418 54,068 Tax expense in respect of the current year at an effective tax rate of 21.2% (2006: 26.5%) 152,959 152,799 - Effect on opening deferred tax liabilities due to changes in tax rates (2007: 25%; 2006: 33% and 18%) 5.3 (12,094) - Additional tax charges requested by tax bureau 6,741 5,915 Income tax expense included in the consolidated income statement for the year 147,606 158,714 Deferred income tax Deferred income tax as at 31 December relates to the following: Consolidated Consolidated balance sheet income statement 2007 2006 2007 2006 RMB’000 RMB’000 RMB’000 RMB’000 Deferred income tax liabilities Depreciation differences between tax base and carrying amount of expressways (80,717) (79,401) (1,316) (13,140) Deferred income tax assets Unrealised profit from disposal of a bridge - - - (748) Expenses subject to tax bureau’s approval for deductible purpose 11,002 - 11,002 - Deferred income tax expense 9,686 (13,888) Deferred tax liabilities (80,717) (79,401) Deferred tax assets 11,002 - 32 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 33 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 5. Income tax (continued) 5.1 As at 31 December 2007, the Company, Gaosu Company and Proteam Incorporation have accumulated tax losses of RMB117,545,000 (2006: RMB62,968,000) that are available for offset against future taxable profits of the individual companies in which the losses arose. These tax losses will expire from the year ending 31 December 2008 to the year ending 31 December 2012. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and they have arisen in the Company and the two subsidiaries that have been loss-making in recent years. 5.2 Share of profits and losses from associates by the Company is exempted from corporate income tax. 5.3 During the 5th Session of the 10th National People’s Congress, which was concluded on 16 March, 2007, the PRC Corporate Income Tax Law (the “New CIT Law”) was approved and has become effective on 1 January 2008. The New Law establishes a unified 25% tax rate for both domestic enterprises and foreign invested enterprises. Before 2007, deferred tax liabilities were recognised based on the applicable income tax rate of 33% by Fokai Company and 18% by Guangfo Company. In 2007, according to the New CIT Law, Fokai Company and Guangfo Company adjusted the opening balances of deferred tax liabilities based on the applicable income tax rate when the taxable temporary differences are expected to be reversed. 6. Earnings per share Basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the parent for the year of RMB475,807,000 (2006: RMB325,682,000) by the weighted average number of ordinary shares outstanding during the year of 1,257,117,748 (2006: 1,257,117,748). Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. Since there were no dilutive potential ordinary shares as at 31 December 2007 (2006: Nil), the diluted earnings per share amount was equal to the basic earnings per share amount for the year ended 31 December 2007 (2006: the same). 7. Dividends paid and proposed During the year ended 31 December 2007, a dividend of RMB0.17 per share (totalling RMB213,710,017) for the fiscal year of 2006 was declared, out of which RMB195,785,325 was paid in the year 2007 and RMB17,924,692 (See Note 22) remained unpaid as at 31 December 2007. Pursuant to the board of directors’ meeting on 29 February 2008, no dividends of the fiscal year of 2007 have been declared tentatively. During the year ended 31 December 2006, a dividend of RMB0.16 per share (totalling RMB201,138,840) for the fiscal year of 2005 was declared, out of which RMB185,299,840 was paid in the year 2006 and RMB15,839,000 (See Note 22) remained unpaid as at 31 December 2006. 34 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 8. Property, plant and equipment Furniture, fixtures Expressway Constru s and other Motor and a bridge Buildings Machinery equipment vehicles in pro RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB Cost: At 1 January 2006 41 5,167,697 172,137 139,669 38,133 41,172 Additions 12,757 1,462 2,222 8,110 6,034 8 Transfer out - - - - - (7 Disposals/write-off - - (18) (3,381) (1,859) (32 At 31 December 2006 10 5,180,454 173,599 141,873 42,862 45,347 Additions 3,426 1,577 4,442 3,562 594 158 Transfer (out)/in (157,489) 5,716 3,785 8,493 - 251 Disposals/write-off - (2,735) (137) (13,840) (2,185) At 31 December 2007 419 5,026,391 178,157 149,963 41,077 43,756 Depreciation and impairment: At 1 January 2006 1,056,423 55,962 117,432 14,613 37,857 Depreciation charge for the year 156,500 5,939 17,953 5,349 2,349 Disposals - - (16) (3,038) (1,546) Reversal of impairment (2,600) - - - - At 31 December 2006 1,210,323 61,901 135,369 16,924 38,660 Depreciation charge for the 6,050 14,322 7,493 2,790 year 167,233 Disposals - (300) (160) (11,792) (2,098) 35 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 Transfer out (47,849) - - - - At 31 December 2007 1,329,707 67,651 149,531 12,625 39,352 Net book value: At 31 December 2007 419 3,696,684 110,506 432 28,452 4,404 At 31 December 2006 10 3,970,131 111,698 6,504 25,938 6,687 At 1 January 2006 41 4,111,274 116,175 22,237 23,520 3,315 36 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 8. Property, plant and equipment (continued) As at 31 December 2007, no accumulative impairment (2006: RMB1,373,000) has been included in property, plant and equipment. The amount of year 2006 represented certain parts of the old toll collection systems used by Guangfo Expressway, which was written off in the current year. On 15 June 2007, Jiujiang Bridge collapsed and ceased for operation. The net book value of Jiujiang Bridge as at 15 June 2007 of approximately RMB112,869,000 has been reclassified to construction in progress (“CIP”) and no depreciation was provided accordingly. All restoration expenditures incurred have been recorded in construction in progress. The first instalment of insurance indemnity amounting to RMB15,000,000 has been recorded in CIP to net off the additional construction costs incurred for Jiujiang Bridge restoration during 2007. All cleanup expenses and estimated net book value of the collapsed bridge and the part to be removed of RMB49,624,000 were charged to the income statement for the year ended 31 December 2007. As at 31 December 2007, property, plant and equipment fully depreciated but still in use of RMB53,639,000 were included in the cost of property, plant and equipment (2006: RMB51,883,000). Construction in progress consists of various construction projects in progress. These projects mainly include the Jiujiang restoration project and the construction of expansion and improvement projects of Guangfo and Fokai Expressways. 37 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 9. Investment properties 2007 2006 RMB’000 RMB’000 Cost: At 1 January 7,076 3,970 Addition - 3,106 Disposal (3,970) - At 31 December 3,106 7,076 Accumulated depreciation: At 1 January 2,725 2,527 Depreciation charge for the year 147 198 Disposal (2,725) - At 31 December 147 2,725 Net book value at 31 December 2,959 4,351 Investment properties in 2006 mainly represented real estate for rental purposes located in Shunde city and Guangzhou city in Guangdong Province, the PRC. The Company sold the investment property located in Shunde city in 2007. 10. Goodwill RMB’000 At 1 January 2006 41,249 Additions 24,626 At 31 December 2006 65,875 Additions - At 31 December 2007 65,875 38 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 11. Bridge operating right RMB’000 Cost: At 1 January 2006 66,918 Additions - At 31 December 2006 66,918 Additions - At 31 December 2007 66,918 Amortisation: At 1 January 2006 21,132 Amortisation 3,522 At 31 December 2006 24,654 Amortisation 3,522 At 31 December 2007 28,176 Net book value: At 31 December 2007 38,742 At 31 December 2006 42,264 At 1 January 2006 45,786 Fokai Company acquired the bridge operating right to operate Jiujiang Bridge for the period from 1 January 2000 to 10 June 2018. 12. Investments in associates 2007 2006 RMB’000 RMB’000 Share of net assets - At 1 January 1,755,091 1,610,725 - Addition - 10,500 - Write-off (709) - - Share of profits and losses for the year 260,908 191,465 - Dividends received (181,665) (57,599) - At 31 December 1,833,625 1,755,091 Goodwill on acquisition - At 1 January 27,038 27,038 - Write-off (950) - - At 31 December 26,088 27,038 Provision for impairment - At 1 January (950) (950) - Write-off 950 - - At 31 December - (950) Carrying amount at 31 December 1,859,713 1,781,179 39 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 12 Investments in associates (continued) Particulars of the associates, which operate in the PRC, are analysed as follows: Attributable equity Name Date of incorporation interest of the Group 2007 2006 Shenzhen Huiyan Expressway Company Limited 20 November 1991 33.33%* 33.33%* (“Huiyan Company”) Guangdong Maozhan Expressway Company Limited 8 February 1999 20%* 20%* (“Maozhan Company”) Guangdong Guanghui Expressway Company Limited 12 August 1999 30%* 30%* (“Guanghui Company”) Beijing-Zhuhai Expressway Guangzhou-Zhuhai 13 May 1993 20%* 20%* Section Company Limited (“Guangzhu Company”) Zhaoqing Yuezhao Expressway Company Limited 23 November 1998 25%* 25%* (“Yuezhao Company”) Green Angel Organic Fertilizer Company Limited 23 January 2002 33.25%* 33.25%* M (“Green Angel Company”) Guangzhou Xinlu Transportation Technology 7 March 2004 38%* 38%* Company Limited (“Xinlu Company”) Jiangmen-Zhongshan Expressway Company Limited 26 August 2002 15%* 15%* (“Jiangzhong Company”)** * The Group’s share of profits and losses of associates is in proportion to its share of equity interest therein. **The Company has significant influence over Jiangzhong Company, which is evidenced by its power to partic decisions of Jiangzhong Company, but not control or joint control over those policies. The 40 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 accounted for under the equity method. 41 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 12. Investments in associates (continued) The following table illustrates the summarised financial information of the Group’s investments in associates: Share of th revenue and Share of the associates’ balance sheets for the y as at 31 December 2007 31 Dece Name Current Non-current Current Non-current assets assets liabilities liabilities Net assets Revenue RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Huiyan Company 70,047 130,505 10,727 - 189,825 97,935 Maozhan Company 9,975 673,199 134,062 407,309 141,803 108,294 Guanghui Company 262,731 1,904,315 230,353 1,240,672 696,021 357,479 Guangzhu Company 16,058 1,067,327 347,173 270,744 465,468 324,962 Yuezhao Company 61,669 557,880 133,067 279,860 206,622 90,438 Xinlu Company 1,484 215 300 - 1,399 1,110 Jiangzhong Company 22,254 419,067 36,425 272,409 132,487 68,495 Total 1,833,625 Since Green Angel Company ceased operation due to its poor operations in the current year, the Company had carrying value of investments in Green Angel Company of RMB707,000 in year 2007. 42 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 12. Investments in associates (continued) Share of th revenue and Share of the associates’ balance sheets for the y as at 31 December 2006 31 Dece Name Current Non-current Current Non-current assets assets liabilities liabilities Net assets Revenue RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Huiyan Company 21,295 144,257 15,472 7,439 142,641 84,345 Maozhan Company 16,185 688,496 164,158 399,347 141,176 52,909 Guanghui Company 399,787 1,893,325 250,005 1,283,363 759,744 270,622 Guangzhu Company 22,590 1,103,697 136,976 608,115 381,196 160,377 Yuezhao Company 38,239 562,502 131,345 278,938 190,458 58,364 Green Angel Company 2,083 3,963 5,339 - 707 103 Xinlu Company 1,171 238 142 - 1,267 1,326 Jiangzhong Company 14,514 429,681 43,948 262,345 137,902 20,610 Total 1,755,091 43 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 13. Impairment testing of goodwill and intangible assets with definite lives Goodwill and bridge operating right acquired through business combinations have been allocated to individual cash-generating units for impairment testing as follows: Goodwill: Fokai Expressway Bridge operating right: Jiujiang Bridge The recoverable amount of each cash-generating unit has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management covering a five-year period. The discount rates applied to cash flow projections are 6.9% for Fokai Expressway and Jiujiang Bridge. The cash flows beyond the five-year period are extrapolated using the long term average growth rate of 4.4% for Fokai Expressway and Jiujiang Bridge. The long term average growth rate is relatively low compared with the average growth rate of the market and that within five-year period of the Company but keep stable attributable to the nature of the operation of the Company. Key assumptions used in value in use calculation of individual cash-generating units for 31 December 2007 The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill and bridge operating right. Discount rate - The discount rates used were before tax and were determined by the weighted average cost of capital of each cash-generating unit which reflected the way that the market would assess the specific risks associated with the cash-generating unit’s estimated cash flows and exclude the risks that are not relevant to the cash-generating unit’s estimated cash flows. Forecasted traffic volume - Forecasted traffic volume was used to determine the forecasted toll revenue, depreciation charges and maintenance and repair expenses for the remaining operating periods. Unit toll charges - Unit toll charges were expected to be unchanged during the remaining operating periods. Sensitivity to changes in assumptions With regard to the assessment of value in use of the cash-generating unit, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying values of the cash-generating units to materially exceed their recoverable amounts. No impairment loss provision for the carrying values of goodwill and intangible assets have been considered necessary by management as at 31 December 2007. 44 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 14. Available-for-sale financial assets 2007 2006 RMB’000 RMB’000 Equity investments, unlisted 37,020 37,020 Provision for impairment (36,793) (36,793) 227 227 Available-for-sale financial assets consist of equity investments in non-listed companies, and therefore have no fixed maturity date or coupon rate. Provision for impairment was made for investments in Kunlun Securities, Huaxia Securities and Huazheng Company, which started liquidation in the year 2005. 15. Due from/to associates Notes 2007 2006 RMB’000 RMB’000 Due from associates 15.1 764 8,074 Due to an associate 15.2 12,647 106,979 15.1 Due from associates The amounts due from associates mainly represent the current accounts with Guanghui Company and Maozhan Company. A provision of RMB7,350,000 was made for the amount due from Green Angel Company in the year of 2007. 15.2 Due to an associate An advance of RMB12,647,000 from Guanghui Company is unsecured, interest-free and has no fixed terms of repayment. A dividend of RMB171,665,000 was declared and attributed by Guanghui Company to the Company among which RMB78,707,000 was received in cash in 2007 and RMB92,958,000 offset the amount due to Guanghui Company as at 31 December 2007. 16. Cash and cash equivalents 2007 2006 RMB’000 RMB’000 Cash at banks and on hand 190,665 490,764 Cash at banks earns interest at floating rates based on daily bank deposit rates. 45 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 17. Due from/to related companies The amounts due from related companies are unsecured, interest-free and fully settled in January 2008. The amounts due to related companies include an amount of RMB14,275,000, which is unsecured, bears interest at the prevailing market rates based on the rates quoted by the People’s Bank of China (2007: 7.09% per annum; 2006: 6.03% per annum) and has no fixed terms of repayment. The interest payable for this balance amounted to RMB5,381,000 as at 31 December 2007. The remaining amounts due to related companies are unsecured, interest-free and have no fixed terms of repayment. 18. Due to minority shareholders The amounts due to minority shareholders at the balance sheet date are unsecured and are analysed as follows: 2007 2006 RMB’000 RMB’000 Interest-bearing borrowings: Non-current portion 458,325 458,325 Non-interest-bearing borrowings: Current portion 227,705 70,369 686,030 528,694 The maturities of the amounts due to minority shareholders at the balance sheet date are analysed as follows: 2007 2006 RMB’000 RMB’000 Amounts repayable: Within one year 227,705 70,369 Beyond five years 458,325 458,325 686,030 528,694 The amount of RMB458,325,000 due to a minority shareholder bears interest at a rate of 6.804% (2006: 6.156%) per annum. The nominal interest rate of amount due to a minority shareholder approximates to its effective interest rate. The remaining amounts due to minority shareholders are interest-free. 46 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 19. Interest-bearing loans and borrowings 2007 2006 RMB’000 RMB’000 Current Bank loans, unsecured 570,000 300,000 Non-current Bank loans, unsecured 530,000 1,250,000 The current bank loans bear interest at rates ranging from 5.265% to 6.300% (2006: 4.860%) per annum and are due between 13 January 2008 and 12 July 2008. The non-current bank loans bear interest at rates ranging from 5.913% to 6.642% (2006: 5.022% to 6.156%) per annum and are due between 11 April 2009 and 13 November 2013. The nominal interest rates of interest-bearing loans and borrowings approximate to their effective interest rates. 20. Issued capital 2007 2006 RMB’000 RMB’000 Registered, issued and fully paid: − 489,920,806 (2006: 549,048,706) unlisted A shares of RMB1 each 489,921 549,049 − 348,750,000 (2006: 348,750,000) listed B shares of RMB1 each 348,750 348,750 − 418,446,942 (2006: 359,319,042) listed A shares of RMB1 each 418,447 359,319 1,257,118 1,257,118 47 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 21. Retained profits and reserves Other reserves Share premium Statutory account Statutory public Discretionary and surplus welfare surplus Retained capital reserve fund reserve profits Total surplus RMB’000 * RMB’000 * RMB’000 * RMB’000 * RMB’000 RMB’000 At 31 January 2006 1,534,761 223,030 116,725 114,565 367,343 2,356,424 Profit for 2006 - - - - 325,682 325,682 Equity dividends - - - - (201,139) (201,139) Transfers to: Statutory surplus reserve - 33,149 - - (33,149) - Statutory public welfare fund - - (116,725) 116,725 - - At 31 December 2006 and 1 January 2007 1,534,761 256,179 - 231,290 458,737 2,480,967 Profit for 2007 - - - - 475,807 475,807 Equity dividends - - - - (213,710) (213,710) Transfers to: Statutory surplus reserve - (212,327) - (231,290) 443,617 - At 31 December 2007 1,534,761 43,852 - - 1,164,451 2,743,064 * These reserve accounts comprise the other reserves of the Group of RMB1,578,613,000 (2006: RMB2,022,230,000) on the consolidated balance sheet. Pursuant to the resolution of the board of directors’ meeting held on 29 February 2008, the statutory surplus reserve of the Company as at 31 December 2007 was RMB43,852,074. This represents approximately 10% of the accumulated retained profits as reported in the Company’s statutory financial statements for the year ended 31 December 2007 in accordance with the New Chinese Accounting Standards with effect from 1 January 2007. According to the relevant regulations of the PRC, the retained profits available for distribution as dividends is the lower of the amount determined under the PRC accounting principles and the amount determined under IFRSs. 48 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 22. Other payables 2007 2006 RMB’000 RMB’000 Dividend payable (Note 7) 17,925 15,839 Others 44,969 42,732 62,894 58,571 Other payables are non-interest-bearing and have no fixed terms of repayment. 23. Unutilised borrowing facilities As at 31 December 2007, the unutilised borrowing facilities available to settle the Group’s capital commitments for investment and construction amounted to RMB1,600,000,000 (2006: RMB1,160,000,000). The above unutilised borrowing facilities were made available in accordance with the terms and conditions set out in the offered borrowing facilities as follows: 2007 2006 RMB’000 RMB’000 Amounts to be expired: Within one year 630,000 - After one year but not more than five years 970,000 1,160,000 1,600,000 1,160,000 24. Commitments and contingencies (a) Capital commitments As at 31 December 2007, the Group had the following capital commitments principally relating to the expansion and improvement projects of Guangfo and Fokai Expressways and other construction projects: 2007 2006 RMB’000 RMB’000 Contracted, but not provided for 4,185,565 26,631 Authorised, but not contracted for - 3,748,000 4,185,565 3,774,631 49 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 24. Commitments and contingencies (continued) (a) Capital commitments (continued) In addition, the Group’s commitments relating to the Company’s capital injections to the associates, which are not included in the above, are as follows: 2007 2006 RMB’000 RMB’000 Contracted, but not provided for 862,296 862,296 (b) Operating lease commitments – the Group as lessee The Group leases certain of its operating properties under operating lease arrangement with an associate. This lease is negotiated for terms of 10 years. At 31 December 2007, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows: 2007 2006 RMB’000 RMB’000 Within one year 2,520 5,040 In the second to fifth years, inclusive 10,080 20,160 Over five years 8,820 18,480 21,420 43,680 (c) Significant matter On 15 June 2007, part of Jiujiang Bridge was collapsed and Jiujiang Bridge, operated by Fokai Company, was closed for traffic since then. Jiujiang Bridge has not resumed operation up to the date of this report. The net book value of Jiujiang Bridge as at 15 June 2007 of approximately RMB112,869,000 has been reclassified to construction in progress (“CIP”) and no depreciation was provided accordingly. All restoration expenditures incurred have been recorded in CIP. The first instalment of insurance indemnity amounting to RMB15,000,000 has been recorded in CIP to net off the additional construction costs incurred for Jiujiang Bridge restoration during 2007. Since the plan for cleanup, restoration and insurance claim has not be determined by the relevant parties and therefore, the cleanup expenses, insurance indemnity and restoration costs cannot be estimated currently. All cleanup expenses and estimated net book value of the collapsed bridge and the part to be removed of RMB49,624,000 were charged to the income statement for the year ended 31 December 2007. 50 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 25. Retirement benefits and housing benefits (a) Retirement benefits As stipulated by the regulations issued by the State Council of the PRC, the Group participates in a defined contribution retirement plan organised by the Guangdong Provincial Government. All staff are entitled to an annual pension which is equal to a fixed proportion of their final basic salary on retirement. The Group is required to make contributions to the retirement plan at rates ranging from 12% to 20% (2006: 12% to 20%) of the basic salaries of its staff. The Group has no obligations for the pension benefits beyond the said annual contributions. During the year ended 31 December 2007, contributions to registered insurance companies made by the Group under the defined contribution retirement scheme amounted to RMB14,105,000 (2006: RMB11,010,000). (b) Housing benefits In accordance with the PRC housing reform regulations, the Group is required to make contributions to the government administered housing fund schemes at rates ranging from 8% to 20% (2006: 8% to 20%) of the specified salaries of the PRC employees. The employees are required to make contributions equal to the Group’s contributions out of their payroll. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. The Group has no further obligation for housing benefits beyond these contributions. During the year ended 31 December 2007, the Group contributed RMB5,870,000 (2006: RMB5,576,000) to the housing fund schemes. 51 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 26. Related party disclosures The consolidated financial statements of the Group include the financial statements of the Company and the subsidiaries listed in the following table: Country of Percentage of Name incorporation equity interest 2007 2006 Guangfo Company PRC 75 75 Fokai Company PRC 75 75 Gaosu Company PRC 95 95 Proteam Incorporation PRC 57 57 (a) Related party transactions The following is a summary of the significant transactions carried out between the Group and its related parties during the year: 2007 2006 RMB’000 RMB’000 Transaction with the parent company Shareholder’s loan repaid to the parent company 300,000 - Transactions with associates Advance from associates 976 313 Rental expense payable to an associate - 2,000 Transactions with minority shareholders Interest expenses payable to a fellow subsidiary, which is also a minority shareholder 30,679 27,059 Construction expenditures for expansion projects payable to a fellow subsidiary, which is also a minority shareholder 291,208 - Acquisition of minority interests in a subsidiary from a fellow subsidiary, which is also a minority shareholder - 24,626 Transactions with related companies Interest expenses payable to a fellow subsidiary 1,012 860 Rental expenses payable to a related company 1,002 1,060 Expressway maintenance and repair expenses payable to fellow subsidiaries 44,802 15,531 Expressway maintenance and repair expenses payable to other related companies 22,354 50,141 Construction fees payable to a fellow subsidiary 2,928 5,194 Handling charges payable to a related company 11,559 10,955 52 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 26. Related party disclosures (continued) (a) Related party transactions (continued) Expressway maintenance and repair expenses payable to fellow subsidiaries and other related companies were based on the agreements determined by the Company and a fellow subsidiary and other related companies. Construction fees payable to a fellow subsidiary were based on the agreements entered into between the Company and a fellow subsidiary. Rental expenses payable to a related company were based on the agreements entered into between the Company and a related company. Handling charges mainly represented the service fees payable to Guangdong Unitoll Collection Incorporate, a related company, which were charged on the toll revenue of toll expressways in Guangdong Province commencing on 1 January 2004. Pursuant to the approval issued by the relevant local authority, the handling charges were charged on a progressive basis at rates from 0.25% to 2% of the toll revenue. (b) Directors’ remuneration During the year, the executive members of the board of directors received remuneration, inclusive of basic salaries, bonuses and allowances, totalling RMB3,249,000(2006: RMB2,644,000). The Company contributed RMB89,000 (2006: RMB89,000) to defined contribution retirement schemes of the executive members administered by registered insurance companies. 27. Financial risk management objectives and policies The Group conducts its major operations in the PRC and is exposed to market risks from changes in interest rates. In addition, they are also subject to special considerations and risks including risks associated with, the political, economic and legal environment and restrictions pertaining to the setting of a stable toll tariff. Financial assets of the Group include cash and cash equivalents, investments, other receivables, amounts due from associates, amounts due from related companies and available-for-sale financial assets. Financial liabilities of the Group include interest-bearing loans and borrowings, an amount due to an associate, amounts due to related companies, amounts due to minority shareholders and other payables. 53 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 27. Financial risk management objectives and policies (continued) (a) Credit risk Substantial amounts of the Group’s cash and cash equivalents are deposited with the China Construction Bank Corporation, the Bank of China Limited, the Agriculture Bank of China, China Citic Bank, the Shenzhen Development Bank, the Industrial and Commercial Bank of China, the China Everbright Bank, Huaxia Bank, the Bank of Communications, the Shanghai Pudong Development Bank, China Minsheng Banking Corp., Ltd., the China Merchants Bank, the Guangzhou Commercial Bank, Beijing City Commercial Bank Co., Ltd., Industrial Bank Co., Ltd. and Guangdong Development Bank. The Group has no other significant concentration of credit risk with any single counterparty or group counterparties. (b) Liquidity risk Liquidity risk is the risk of non-availability of funds to meet all contractual financial commitments as they fall due. The Group’s policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed annual borrowing facilities from banks to meet its commitments over the following year in accordance with its strategic plan. The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2007 and 31 December 2006 based on contractual undiscounted payments. Year ended 31 December 2007 On Less than 3 to 12 1 to 5 demand 3 months months years >5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Interest-bearing loans and borrowings - 25,000 545,000 300,000 230,000 1,100,000 Due to minority shareholders 227,705 - - - 458,325 686,030 Due to an associate 12,647 - - - - 12,647 Due to related companies 41,418 - - - - 41,418 Other payables 62,894 - - - 2,022 64,916 344,664 25,000 545,000 300,000 690,347 1,905,011 Year ended 31 December 2006 On Less than 3 to 12 1 to 5 Demand 3 months months years >5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Interest-bearing loans and borrowings - 300,000 - 800,000 450,000 1,550,000 Due to minority shareholders 70,369 - - - 458,325 528,694 Due to an associate 106,979 - - - - 106,979 Due to related companies 45,092 - - - - 45,092 54 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 Other payables 58,571 - - - 2,022 60,593 281,011 300,000 - 800,000 910,347 2,291,358 55 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 27. Financial risk management objectives and policies (continued) (c) Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to its bank loans and amounts due to minority shareholders and related companies. The Group manages its interest rate exposure with a focus on reducing the Group’s overall cost of debt and exposure to changes in interest rates. Management continues to monitor the cash flow of the operations and the debt markets, when considered appropriate, the Group would expect to refinance these borrowings with lower cost of debt. The Group’s revenue and operating cash flows are substantially independent of changes in market interest rates. Interest rate risk table The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings). Increase/(decrease) Increase/(decrease) in basis points in profit before tax % RMB’000 2007 RMB 1% (16,793) RMB -1% 16,793 2006 RMB 1% (22,111) RMB -1% 22,111 (d) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. (e) Fair values The fair values of cash and cash equivalents, investments, other receivables, amounts due from/to associates, amounts due from/to related companies, interest-bearing loans and borrowings, other payables and amounts due to minority shareholders are not materially different from their carrying amounts. Fair value estimates are made at a specific point in time and based on the relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 56 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2007 27. Financial risk management objectives and policies (continued) Capital management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders or issue new shares or bonds. No changes were made in the objectives, policies or processes during the year ended 31 December 2007. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group’s policy is to keep the gearing ratio between 20% and 35%. The Group includes within net debt, interest-bearing loans and borrowings, trade and other payables, amounts due to minority shareholders, amounts due to related companies and associates, less cash and cash equivalents, excluding discontinued operations. Capital includes equity attributable to the equity holders of the parent. 2007 2006 RMB’000 RMB’000 Interest-bearing loans and borrowings 1,100,000 1,550,000 Other payables and other liabilities 64,916 60,593 Due to minority shareholders 686,030 528,694 Due to related companies/associates 54,065 152,071 Less: cash and cash equivalents (190,665) (490,764) Net debt 1,714,346 1,800,594 Capital 4,000,182 3,738,085 Capital and net debt 5,714,528 5,538,679 Gearing ratio 30% 33% 57 28. Segment information The Group’s revenue and profit for the year were almost entirely derived from the management and operations of toll expressways and a bridge, which are located in Guangdong Province, the PRC. Accordingly, no segment analysis by activity and geographical area is provided. 29. Post balance sheet events Pursuant to the resolution of the shareholders’ meeting on 11 January 2008, the Company will acquire 30% equity interests in Ganzhou Kangda Expressway Co., Ltd (“Kangda Company”) at a consideration of RMB172,432,700, and will further contribute RMB43,818,400 to Kangda Company as capital injection with other shareholders based on their respective share portion. Therefore, the attributable equity interests of the Company in Kangda Company will remain unchanged at 30%. The Company will contribute RMB289,300,200 to establish Ganzhou Gankang Expressway Co., Ltd (“Gankang Company”) and account for 30% equity interests in Gankang Company. Gankang Company will operate the Maodian-Shanyi sector of Ganzhou-Dayu Expressway and Ganjiang Highway Bridge. 30. Comparative amounts Certain comparative amounts in the prior year have been reclassified so as to conform to the current year’s presentation. 31. Approval of the financial statements The financial statements were approved and authorised for issue by the board of directors on 29 February 2008. 58 XI. Documents Available for Inspection 1. Accounting statements carried with personal signatures and seals of legal representative, Chief Financial officer and Financial Principal. 2. Original of Aditors’ Report carried with the seal of Certified Public Accountants as well as personal signatures of certified Public accountants. 3. The texts of all the Company's documents publicly disclosed on the newspapers and periodicals designated by China Securities Regulatory Commission in the report period; 59