行 The Chinese character “行” (pronounced as “xing”) denotes the idea of going forward（ 前 行）. The annual report this year is centred on the theme of “行”, which on the first level of significance, refers to the relentless efforts made by the Company to go forward despite numerous challenges and pressure on the operating results in the near future. “行” also has the meaning of action. On another level, the theme this year reflects the actions of * The Ming philosopher, Wang Shouren the Company to continuously enhance its (Yangming)（王守仁（陽明））, advocated the executive power based on meticulous analysis philosophy of uniting knowledge (“知”) with of external opportunities and challenges as well action (“行”) for achievement of virtue (“善”), as recognition of its own advantages and which exemplifies the inseparability of the shortcomings, with the aim of achieving the unity theoretic knowledge and actual actions. of knowledge and action（ 知行合一）*. In the future, the Company will insist on the market- oriented principle, continuously develop the expressway industry business and strengthen the exploring of relative business of entrusted construction management and entrusted operation management, realising a synergistic growth in both of scale and return. The character “行” can also mean “capability”. With the recovery of economy, support of the national policies and ceaseless self-improvement of the Company, we firmly believe that the Company is embracing a bright future. The Chronicle of Yan Zi（晏子春秋） says: “the one who works completes his mission, the one who is capable achieves his goal”（為者常成，行者常 至）. Through persistent implementation of the Company’s philosophies, our goals and objectives will eventually become reality and bring greater values and returns to the Company, our shareholders and society! Contents Overview 2 Introduction to the Company 4 Financial Highlights 6 Events of the Year Management Discussion and Analysis 9 Chairman’s Statement 14 Business Review 29 Financial Analysis 47 Risk Management 54 Outlook and Plans 59 Report of the Directors Corporate Governance Report 70 Corporate Governance Practice Report 87 Shareholders and Investor Relations 95 Self-assessment Report on Internal Control 101 Report of the Audit Committee 103 Report of the Remuneration Committee 107 Report of the Supervisory Committee 109 Directors, Supervisors and Senior Management Social Responsibility Report 120 Overview of Social Responsibility 122 Products 125 Customers 129 Staff 133 Environment and Community 136 Co-development Accounts 142 Independent Auditor’s Report 143 Consolidated Financial Statements Prepared in Accordance with HKFRS General Information 214 Corporate Information 215 Definitions 218 Information and Map of Highways 227 Operational Statistics Summary for Last Ten Years Confirmation to the Annual Report I ntroduction to the Company The Company was established on 30 December 1996. It is principally engaged in the investment, construction, operation and management of toll highways and roads. The Company aims at enhancing the ability of wealth creation by improving the quality of operation, obtaining reasonable returns through providing high-quality service to the society, and achieving satisfaction of customers, employees, shareholders and related parties by balancing their interests, so as to foster the Company’s sustainable development. Currently, the Company will maintain its market orientation, focus on the expressway industry, actively explore and engage in new investments in the industry for a synergistic growth in both its scale and efficiency. In the early stage of establishment, the operating revenue and profit of the Company were derived mainly from the three toll highway assets injected by the promoter. On an equity basis, the mileage of expressways was approximately 11 km, while the mileage of Class 1 highways was approximately 70 km. After over a decade’s development with listing on the financing platforms in both Hong Kong and the PRC, the Company has leveraged on the efforts of its own management team in building a number of high-quality expressways and provision of outstanding construction management and operation management services for government and private-invested highway projects. The Company has also further expanded its coverage to Guangdong Province and other economically developed regions in the PRC by ways of acquisition and participation. As at the end of the Reporting Period, the mileage of the highways invested by the Company (on an equity basis) exceeded 400km. The construction management of 7 projects was entrusted to the Company, with an investment amount of over RMB6.2 billion being completed. The principal business structure of the Company is set out as follows: 2 Shenzhen Expressway Company Limited Annual Report 2009 3 F inancial Highlights (Prepared in accordance with HKFRS) Results Highlights (For the year ended 31 December) (RMB’000) 2009 2008 2007 2006 2005 Restated(1) Restated(1) Restated(1) Revenue 2,475,410 4,242,041 3,845,511 1,805,983 1,057,368 Including: Toll revenue 1,335,482 984,818 965,850 719,067 602,363 Revenue from construction services under concession arrangements(2) 1,033,736 3,178,980 2,742,056 1,036,692 367,881 Other income 106,192 78,243 137,605 50,224 87,124 Profit before interests, tax, depreciation and amortization 1,360,308 1,026,942 1,056,077 792,748 714,384 Profit before interests and tax 963,961 822,872 873,445 672,694 616,345 Profit before tax 570,159 560,785 715,031 576,007 555,179 Profit for the year 525,333 494,528 616,937 544,334 506,139 Profit attributable to equity holders of the Company 540,219 503,195 622,393 532,651 496,552 Basic earnings per share for profit attributable to equity holders of the Company (RMB) 0.248 0.231 0.285 0.244 0.228 Dividends per share to equity holders of the Company (RMB) 0.12 0.12 0.16 0.13 0.12 Assets Highlights (As at 31 December) (RMB’000) 2009 2008 2007 2006 2005 Restated(1) Restated(1) Restated(1) Total assets 22,253,514 18,263,578 14,711,393 9,400,124 9,134,375 Total liabilities 13,343,662 10,511,437 7,104,868 3,100,670 3,020,362 Total equity 8,909,852 7,752,141 7,606,525 6,299,454 6,114,013 Equity attributable to equity holders of the Company 8,219,955 7,047,358 6,893,075 6,299,454 6,070,875 Net assets per share to equity holders of the Company (RMB) 3.77 3.23 3.16 2.89 2.78 4 Shenzhen Expressway Company Limited Principal Financial Ratios(3) (For the year ended 31 December) 2009 2008 2007 2006 2005 Restated(1) Restated(1) Restated(1) Operating profit ratio(2) 25.02% 12.59% 17.93% 27.31% 43.46% Toll highway operating profit ratio 49.10% 55.25% 61.49% 68.57% 68.60% Return on equity attributable to equity holders of the Company 6.57% 7.14% 9.03% 8.46% 8.18% Interest covered multiple 1.86 1.82 3.16 6.34 5.88 (As at 31 December) 2009 2008 2007 2006 2005 Restated(1) Restated(1) Restated(1) Gross liabilities-to-equity ratio 149.76% 135.59% 93.40% 49.22% 49.40% Net borrowings-to-equity ratio 108.87% 96.75% 69.29% 33.17% 21.97% Notes: (1) The Group has adopted IFRIC 12 since 2008. The comparative information in previous years has been restated in accordance with the relevant requirements. (2) According to IFRIC 12, the Group was required to recognize its revenue from construction services under concession arrangements. It reflected that there was no real cash inflow from the construction or reconstruction works carried out on the roads for which the operating rights were owned by the Group. As a corresponding construction cost was also recognized, the amount of revenue-related profit was insignificant or not recognized, significant difference existed between the Group’s overall operating profit ratio and toll highway operating profit ratio. (3) Description of principal financial ratios: Operating profit ratio = Operating profit / Revenue Toll highway operating profit ratio = Operating profit from toll highways / Revenue from toll highways Return on equity attributable to equity holders = Profit attributable to equity holders of the Company / Equity attributable to equity holders of the Company Interest covered multiple = Profit before interests and tax / Interest expenses Gross liabilities-to-equity ratio = Total liabilities / Total equity Net borrowings-to-equity ratio = (Total amount of borrowings – Cash and cash equivalents) / Total equity Annual Report 2009 5 E vents of the Year 6 Shenzhen Expressway Company Limited M anagement Discussion and Analysis This section focuses on the Company’s business performance, operating results, financial performance, internal control and material transactions in 2009 to provide a systematic way for the readers to understand the operation management of the year and the future plans and goals of the managements. 9 Chairman’s Statement 14 Business Review 14 Toll Highway Business 23 Entrusted Management and Other Businesses 25 Material Contracts and Major Transactions 29 Financial Analysis 29 Operating Results 41 Financial Position 43 Capital and Financing 45 Changes in Accounting Estimates 46 Profit Distribution 47 Risk Management 47 Policies and Market Risks 49 Financial Risks 51 Operational Risks 54 Outlook and Plans 59 Report of the Directors Annual Report 2009 7 Quote from chapter 64 of Lao Tzu (《老子》): “A big tree grows from a tiny twig; a tall tower is built from the ground; and the longest journey begins with the first step.” (合抱之木，生於毫末；九層之台，起於累土；千里之 行，始於足下 ) Even the longest journey starts from taking the first step. The saying points out that all achievements are the results of persistent smaller efforts. Chairman's Statement To all shareholders, On behalf of the Board, I hereby report to the shareholders that in 2009, the Group realised a net profit of RMB540 million with earnings per share being RMB0.248, representing an increase of 7.36% over 2008.