FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of March, 2004
(Indicate by check mark whether the registrant files or
will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F __X__ Form 40-F _____
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.)
Yes ____ No __X__
(If "Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g3-2(b): 82-__________. )
N/A
Huaneng Power International, Inc.
West Wing, Building C, Tianyin Mansion
No. 2C Fuxingmennan Street
Xicheng District
Beijing, 100031 PRC
This Form 6-K consists of:
An announcement on 2003 annual report, made on March 30, 2004, in
English by Huaneng Power International Inc.
AS A POWER COMPANY, HUANENG POWER INTERNATIONAL, INC. IS COMMITTED TO SUPPLYING
ABUNDANT, RELIABLE AND ENVIRONMENTAL-FRIENDLY ELECTRICITY TO ITS CUSTOMERS. AS A
PUBLICLY LISTED COMPANY, WE ARE DEDICATED TO GENERATING LONG-TERM AND STEADILY
INCREASING RETURN FOR OUR SHAREHOLDERS. TO ACHIEVE BOTH, WE NEVER CEASE TO
PURSUE SUSTAINABLE, STABLE AND HEALTHY GROWTH OF THE COMPANY.
1
CONTENTS
Company Profile 2
Corporate Structure 4
Major Corporate Events in 2003 6
Financial Highlights 8
Letter to Shareholders 10
Management's Discussion and Analysis 18
Corporate Governance 36
Investor Relations 40
Report of the Board of Directors 46
Report of the Supervisory Committee 56
Profiles of Directors, Supervisors and Senior Management 60
Corporate Information 70
Financial statements prepared in accordance with
International Financial Reporting Standards
Auditors' Report 72
Consolidated Income Statement 73
Consolidated Balance Sheet 74
Consolidated Statement of Changes in Shareholders' Equity 76
Statement of Changes in Shareholders' Equity 77
Consolidated Cash Flow Statement 78
Notes to the Financial Statements 80
Supplemental Information for North American Shareholders 123
Financial statements prepared in accordance
with PRC Accounting Standards
Report of the Auditors 135
Balance Sheet 136
Profit and Loss Accounts 138
Statement of Income Appropriation 139
Cash Flow Statement 140
Notes to the Financial Statements 142
Supplemental Information 193
2
COMPANY PROFILE
HUANENG POWER INTERNATIONAL, INC. ("HUANENG POWER" OR THE "COMPANY") AND ITS
SUBSIDIARIES ARE ENGAGED IN DEVELOPING, CONSTRUCTING, OPERATING AND MANAGING
LARGE-SCALE COAL-FIRED POWER PLANTS THROUGHOUT CHINA. THE COMPANY IS ONE OF THE
LARGEST INDEPENDENT POWER PRODUCERS IN CHINA WITH EQUITY-BASED GENERATION
CAPACITY OF 15,736MW AND A TOTAL CAPACITY OF 3,060MW UNDER CONSTRUCTION.
3
The Company was incorporated on 30th June 1994. It completed its initial public
offering of 1,250,000,000 overseas listed foreign shares ("foreign shares") in
October 1994 and such shares (represented by 31,250,000 American Depository
Shares) were listed on the New York Stock Exchange (NYSE: HNP). In January 1998,
the foreign shares of the Company were listed on The Stock Exchange of Hong Kong
Limited (the "Hong Kong Stock Exchange") by way of introduction (Stock Code:
902). Subsequently, in March 1998, the Company successfully completed a global
placement of 250,000,000 foreign shares along with a private placement of
400,000,000 domestic shares. In November 2001, the Company successfully
completed the issue of 350,000,000 A shares in the PRC, of which 250,000,000
shares were domestic public shares. Currently, the total share capital of the
Company amounts to approximately 6 billion shares, approximately 1.75 billion
shares of which are tradable listed shares.
Currently, the Company and its subsidiaries wholly own 14 power plants and have
controlling interests in 5 power plants and minority interests in 3 power
companies. Its power plants have advanced equipment with high efficiency and
stability. Their operations were widely located in those regions in China where
there are rapid economic growth and fast-increasing power demand. The core
business of the Company is to develop, construct, and operate large-scale
coal-fired power plants by making use of modern technology and equipment and
financial resources available domestically and internationally. The Company was
the first power company in China to achieve listing status in New York, Hong
Kong and Shanghai, while our Huaneng Dalian Power Plant was the first one to be
awarded with the honour of "First Class Coal-fired Power Plant" in China. The
Company was also the first to introduce 600MW supercritical coal-fired
generating units in China. The planned Huaneng Yuhuan Power Plant will adopt the
internationally advanced ultra-supercritical technology and will be the
largest-scale coal-fired power generation unit in China. The overall manpower
efficiency of the Company has been remaining at the forefront in China's power
industry. In 2000, the Company was conferred the honour of "First Class Power
Company in China" by the former State Power Corporation.
Throughout the years, with efforts in seeking expansion and operating the
business in a prudent manner, the Company has expanded gradually, with steady
profit growth and increasing competitive strengths. The success of the Company
is attributable to the following competitive advantages: (1) advanced equipment,
highly efficient generating units and stable operation of power plants; (2)
high-quality staff and experienced management; (3) a regulated corporate
governance structure and rationalised decision-making mechanisms; (4)
geographical advantages of the locations of the power plants which present
promising prospects in the power market; (5) good credit standing and reputation
inside and outside China and rich experience in the capital markets; and (6)
strong and full support from the parent Company.
As regards future development, the Company will continue to explore development
opportunities according to the principle of "emphasising both development and
acquisition, emphasising both greenfield and expansion, emphasising both
coal-fuel and other types of fuels, and emphasising both domestic and overseas
funds". At the same time, the Company will continue to focus on the improvement
of management, cost controls and enhancement of efficiency, so as to increase
shareholder value and maintain long-term stable growth.
Huaneng International Power Development Corporation ("HIPDC"), the Company's
parent company and controlling shareholder, was incorporated as a Sino-foreign
joint venture enterprise in 1985. The Company was incorporated by way of joint
promotion by HIPDC and local government investment companies in the regions
where the power plants are located.
4
CORPORATE STRUCTURE
>> Huaneng International Power Development Corporation 42.39%
>> Hebei Provincial Construction Investment Company 7.50%
>> Fujian International Trust & Investment Company 5.56%
>> Jiangsu Province International Trust & Investment Company 5.18%
>> Liaoning Energy Investment (Group) Limited Liability Company 3.81%
>> Dalian Municipal Construction Investment Company 3.75%
>> Nantong Investment Management Centre 1.13%
>> Shantou Electric Power Development Company 0.77%
>> Shantou Power Development Joint Stock Company Limited 0.31%
>> Dandong Energy Investment Development Centre 0.11%
>> Domestic Public Shares 4.15%
>> Foreign Shares 25.34%
5
MAJOR CORPORATE EVENTS IN 2003
1ST HALF YEAR MAJOR CORPORATE EVENTS
>> 6 January Asiamoney published the poll results on the Overall Best
Managed Company in Asia for 2002: Huaneng Power ranked 5th
in Overall Best Managed Company in China, 4th in Best
Corporate Strategy, 5th in Best Financial Management and
5th in Best Operational Efficiency.
>> 21 January Huaneng Power ranked 6th in the Top Ten Best in Corporate
Governance in China for 2002 - The Asset.
>> 28 January Huaneng Power signed an agreement in relation to the
acquisition of 25% equity interest in Shenzhen Energy Group
Co. Ltd.
>> 23 February Huaneng Power announced that its proposal on the Shanghai
Gas-fired project had been approved.
>> 13 March Huaneng Power held the 2002 annual results press conference
in Hong Kong announcing that its net profit increased
13.63%.
>> 19 March Huaneng Power announced that its proposal on Jinling
Combined-Cycle-Gas-Turbine Project, Zhejiang Huaneng Yuhuan
Power Plant and Huaneng Shantou Coal-fired Power Plant
Phase II as well as the feasibility study report on the
construction of Huaiyin Power Plant Phase II had been
approved.
>> 14 April Huaneng Power announced that its total generation in the
first quarter of 2003 increased 42.86% when compared to the
same period of the previous year.
>> 22 April The agreement in relation to the acquisition of 25% equity
interest in Shenzhen Energy Group Co. Ltd. by Huaneng Power
became effective.
>> 28 April Huaneng Power announced its first quarterly operating
results for 2003. Its net profit increased 41.87% when
compared to the same period of the previous year.
>> 5 June The Board of Directors of Huaneng Power approved the
acquisition of 55% equity interest in the registered
capital of Henan Qinbei Power Plant, 60% equity interest in
the registered capital of Shanxi Yushe Power Plant and all
the assets and liabilities of Shandong Xindian Power Plant
owned by China Huaneng Group.
6
2ND HALF YEAR MAJOR CORPORATE EVENTS
>> 9 July Huaneng Power announced that the total generation for the
first half of 2003 increased 39.63% when compared to the
same period of the previous year.
>> 17 July Generating unit No.5 of Huaneng Power Jining Power Plant
completed full-load trial operation.
>> 22 July The resolutions on the acquisition of 55% equity interest
in the registered capital of Henan Qinbei Power Plant, 60%
equity interest in the registered capital of Shanxi Yushe
Power Plant and all the assets of Shandong Xindian Power
Plant owned by China Huaneng Group were passed at the
extraordinary general meeting of Huaneng Power.
>> 6 August Huaneng Power announced its interim results for 2003: net
profit increased 28.58%.
>> 21 August Generating unit No.6 of Huaneng International Jining Power
Plant commenced commercial operation.
>> 4 September Construction works of Huaneng Power Huaiyin Power Plant
Phase II commenced.
>> 19 September Huaneng Power obtained credit facilities of Rmb27 billion
granted by Bank of China.
>> 13 October Huaneng Power announced that the total generation for the
first three quarters of 2003 increased 31.3% when compared
to the same period of the previous year.
>> 21 October Huaneng Power announced the results for the first three
quarters of 2003: net profit increased 30.52%.
>> 27 October The acquisitions of interests and assets in Henan Qinbei
Power Plant, Shanxi Yushe Power Plant and Shandong Xindian
Power Plant owned by China Huaneng Group became effective.
>> 10 November In the PRC Listed Enterprises 100 for 2003 announced by
Asiaweek, Huaneng Power ranked 2nd in PRC Listed
Enterprises 100, 3rd in Highest Net Profit Enterprises,
ranked 5th in Highest Business Turnover and 8th in
Enterprises with Highest Aggregate Asset Value.
>> 19 November Huaneng Power signed the Main Equipment Procument Contract
in relation to the 1,000MW-class ultra-supercritical
coal-fired generating units of Huaneng Yuhuan Power Plant.
>> 20 November Huaneng Power won IR Magazine's "2003 Best IR from a
Chinese Company--Large Cap" award.
>> 3 December The on-grid tariff for newly operated generating units No.5
and No.6 of Jining Power Plant was approved. The on-grid
tariff was Rmb320/MWh (including tax).
>> 22 December Huaneng Power announced that the Feasibility Study Report
on its Huaneng Yuhuan Power Plant was approved.
7
FINANCIAL HIGHLIGHTS
(Amounts expressed in thousands of Rmb, except per share data)
INCOME STATEMENT (Note 1)
Year ended 31st December
1999 2000 2001 2002 2003
Net operating revenue 10,488,158 12,553,254 15,791,362 18,474,469 23,388,237
----------------------------------------------------------------------------------------------------------------------
Profit before taxation 2,252,730 2,927,032 4,237,109 5,057,892 6,763,743
Taxation (384,555) (411,202) (715,220) (980,854) (1,149,441)
----------------------------------------------------------------------------------------------------------------------
Profit after taxation 1,868,175 2,515,830 3,521,889 4,077,038 5,614,302
Minority interests -- -- (71,231) (156,034) (183,894)
----------------------------------------------------------------------------------------------------------------------
Net profit 1,868,175 2,515,830 3,450,658 3,921,004 5,430,408
----------------------------------------------------------------------------------------------------------------------
Basic earnings per share (Rmb/share) 0.33 0.45 0.61 0.65 0.90
----------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share
(Rmb/share) N/A 0.44 0.60 0.65 0.90
----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET (Note 2)
As at 31st December
1999 2000 2001 2002 2003
Total assets 40,582,730 42,466,948 47,292,775 48,461,030 53,609,678
Total liabilities (18,810,325) (18,687,213) (18,512,984) (17,134,266) (18,499,126)
Minority interests -- -- (486,261) (910,704) (1,155,197)
------------------------------------------------------------------------------------------------------------------------
Equity 21,772,405 23,779,735 28,293,530 30,416,060 33,955,355
------------------------------------------------------------------------------------------------------------------------
Notes:
1. The results for the years ended 31st December 1999, 2000 and 2001 are
derived from the historical financial statements of the Company. The
results for the years ended 31st December 2002 and 2003 are set out on page
73.
2. The balance sheets as at 31st December 1999,2000 and 2001 are derived from
the historical financial statements of the Company. The balance sheets as
at 31st December 2002 and 2003 are set out on pages 74 to 75.
8
LETTER TO SHAREHOLDERS
To all our shareholders:
AS A POWER COMPANY, HUANENG POWER IS COMMITTED TO SUPPLYING ABUNDANT, RELIABLE
AND ENVIRONMENTAL-FRIENDLY ELECTRICITY TO ITS CUSTOMERS. AS A PUBLICLY LISTED
COMPANY, WE ARE DEDICATED TO GENERATING LONG-TERM AND STEADILY INCREASING RETURN
FOR OUR SHAREHOLDERS. TO ACHIEVE BOTH, WE NEVER CEASE TO PURSUE SUSTAINABLE,
STABLE AND HEALTHY GROWTH OF THE COMPANY.
9
In 2003, the Company recorded net operating revenues of Rmb23,388 million and
net profit of Rmb5,430 million, representing increases of 26.60% and 38.50% as
compared to the same period of last year. Earnings per share were Rmb0.90,
representing an increase of Rmb 0.25 over the same period of last year. The good
performance of the Company was reflected in the share prices of the Company
during the past year. The overseas share price of the Company rose 115% during
the year. By the end of year 2003, the overall capitalization of the Company has
exceeded US$ 10 billion. The domestic share price has also reached a new high,
up 53% over the year.
HUANENG POWER IS COMMITTED TO SUPPLYING ABUNDANT, RELIABLE AND
ENVIRONMENTAL-FRIENDLY ELECTRICITY TO CONSUMERS
Year 2003 was a year full of opportunities and challenges. Despite the
unexpected "SARS" epidemic in the months between spring and summer, the PRC
economy still maintained a continued and steadily growing trend. GDP increased
by 9.1%, thereby giving an impetus to the strong growth in power demand. The
nation's power demand increased by 15.4%. In particular, the southern region
continuously recorded high temperatures in summer last year, and hydropower
generation was reduced drastically as a result of the low water level. Starting
from November, there was a short supply of coal in the PRC power industry, which
had not happened for many years. However, at the same time, power demand
remained at a high level. As a power generation company, the Company's power
plants strengthened equipment maintenance and operation management in order to
enhance reliability and to ensure safe and full-load production of the
generating units so as to satisfy the requirements of the society, thereby
warranting the safe operation of the power grids and supporting the economic
development. The Company achieved power generation of 90.91billion kWh in the
whole year, an increase of 27.3% when compared to last year. The equivalent
availability factor of the power plants of the Company was 92.15% and the
average utilization hour was 5,933 hours.
In the fourth quarter of 2003, coal prices increased as a result of the
substantial increase in demand for coal and lack of transportation capacity. .
In view of the adverse situation, the Company strengthened cost controls,
particularly control of fuel costs, by adopting measures including coal blending
burning and optimising the level of operation of the generating units in order
to reduce coal consumption, and at the same time stringently controlled coal
purchase costs and strived to reduce transportation costs and storage loss. As a
result, the Company succeeded in maintaining the unit fuel cost for power sold
to Rmb105.05, an increase of 2.28% only when compared to the previous year. The
average coal consumption rates for power generated and power sold, on an equity
basis, were 318.23g/kWh and 335.12g/kWh respectively.
At the same time of achieving effective control of production costs, we also
strived to economise financial charges and reduce financing costs by way of
scientific and rationalised arrangements for collection and payment of funds and
by obtaining favourable lending terms. Owing to effective cost controls by the
Company during the year, the unit cost for power sold of the Company decreased
by 1.21% when compared to the previous year. As the power industry is a capital
intensive industry with a long payback period, the Company has been adopting
prudent financial policies. Good credit standing and sufficient cash flow have
guaranteed fund requirements for the strategic developments of the Company on
new construction, expansion, acquisition, and so forth.
10
All along, the Company adhered to the development strategy of emphasising both
acquisition and development. After the Company completed the acquisition of 25%
equity interest of Shenzhen Energy Group Co. Ltd. at the beginning of the year,
it also realized the acquisition of the assets of Huaneng Xindian Power Plant
owned by China Huaneng Group, and the equity interests of Henan Huaneng Qinbei
Power Generation Limited Company and Shanxi Huaneng Yushe Power Limited Company,
thereby increasing the generation capacity and generation capacity under
construction of the Company on an equity basis by 770MW and 1,020MW
respectively. Such acquisitions brought about further rationalization of the
Company's geographical deployment of power production, and enhanced the
competitiveness of the Company in the central region market, while enabling the
Company to have new generation capacity added for the next two years.
As regards development and construction, generating units No.5 and No.6 of
Jining Power Plant commenced commercial operation in July and August 2003
respectively, thus increasing the power generation capacity of the Company on an
equity basis by 270MW. Construction of two 330MW coal-fired generating units at
Huaiyin Power Plant Phase II and one 600MW coal-fired generating unit at Shantou
Power Plant Phase II had commenced and they were expected to commence operation
in 2005 and 2006 respectively. The feasibility study report on the project of
constructing China's first two 1,000MW ultra-supercritical coal-fired generating
units at Yuhuan Power Plant Phase I has been approved by the State. The project
proposals in relation to the construction of two 600MW coal-fired generating
units at Taicang Power Plant Phase II, three 300MW-class
Combined-Cycle-Gas-Turbine generating units of Shanghai Gas-fired Power Plant
and three 300MW-class Combined-Cycle-Gas-Turbine generating units of Jinling
Gas-fired Power Plant have been approved by the State. The operating scale of
the Company was enlarged continuously as a result of acquisitions and
development. As at the end of 2003, the generation capacity of the Company on an
equity basis amounted to 15,736MW, with additional works-in-progress capacity of
3,060 MW, thus maintaining the Company's advantageous position in the PRC's
power industry and ensuring good development momentum.
While creating economic value, the Company also strives to reduce pollution to
the environment during its power generation . All along, the Company has been
committed to protecting the environment on which we depend to live, and
providing abundant, reliable and environmental-friendly electricity to the
consumers. In 2003, the Company paid close attention to the environmental
protection policies of the State and participated in the formulation and
amendment of certain environmental protection standards. The Company implemented
effective measures including stringent requirements for environmental protection
management of its power plants, controlling the sulphur content of fuel coal,
enhancing the efficiency of electric dust removal and operation, actively
promoting the direct use of dry ash and reducing ash water discharge, thereby
enabling the Company to stay at the forefront in the PRC for its environmental
protection endeavours. In 2003, the total waste discharge fees paid by the
Company to local governments were approximately Rmb72.68 million.
11
HUANENG POWER IS COMMITTED TO GENERATING LONG-TERM AND STEADILY INCREASING
RETURN FOR THE SHAREHOLDERS
The continued expansion of the operating scale and the continued and stable
profit growth of the Company brought about continued and steadily increasing
return for the shareholders. The Company has declared dividends to shareholders
annually ever since 1998, and the dividend payout ratio has been over 50% for 4
consecutive years since 2000. In order to provide good return to our
shareholders and at the same time in view of the further development of the
Company, the Board of Directors of the Company has passed a resolution to
propose the following plan of dividend distribution for 2003: for all
shareholders, every 10 shares will receive a cash dividend of RMB 5.0 and 10
shares (five being bonus shares and the other five to be converted from reserve
fund). This resolution will be submitted to the annual general meeting for
approval. In the future, the Company will continue to adopt a pro-active,
balanced and stable dividend distribution policy and will endeavour to achieve
continued growth in shareholder return.
At the same time, the Company also attaches great importance to communication
with its investors and strives to establish good communication channels and
carry out open and transparent disclosure of information. In 2003, the Company
conducted a total of 74 press releases, held more than a hundred "one-on-one"
meetings with overseas investors through road shows and conferences with the
investment sector, and organized domestic and foreign investors to visit power
plants so as to directly exchange views with the management of the power plants.
The transparency of the Company met the demands of the investors to understand
the production, operation, financial position and strategic information of the
Company in a timely manner, and attracted the following of more and more
investors who have become confident about the prospects of the Company. During
the Year, the Company obtained the "2003 Best IR from a Chinese Company -D Large
Cap" award given by IR Magazine, the "Best Investor Relationship for PRC
Companies" award and the "Best Investor Relationship for Energy Utilities in
Asia-Pacific Region" award given by Institutional Investor, the "Overall Best
Managed Company in China" award given by Asiamoney and the "Best Public
Utilities Company in Asia" award given by Euromoney.
HUANENG POWER WILL PURSUE ITS SUSTAINABLE, STABLE AND HEALTHY GROWTH
Looking ahead in 2004, the government has announced that the anticipated target
for PRC's GDP increase would be 7%, and the authorities concerned have estimated
that the nationwide power consumption growth rate would reach approximately 11%
and new installed capacity will amount to 37,000MW. However, the power supply
situation in the PRC will remain to be tight. Considering the future development
environment for the Company, again, there will be opportunities as well as
challenges.
12
In respect of power generation, the fact that demand will undergo continued,
substantial growth will provide the Company with a favourable condition to
generate more electricity and thus more profits on the one hand, but will create
pressure on safety and stability of the operation due to long, heavy loading of
the generation units on the other hand. As one of the challenges we encounter
this year, we will ensure a safe operation of our generating units and
facilities, thus achieving a safe production.
Another challenge we face is related to coal supply. For a number of reasons,
coal has been in rather short supply since the second half of last year and coal
prices rose. The Company adopted a series of measures to ensure a sufficient
supply of coal. The Company believes that under the government's guidance,
suppliers and customers will co-operate with each other, thus ensuring a healthy
coal market for the power industry.
In respect of development projects, economic growth and people's rising living
standards provide more room for market development, which on the one hand gives
better opportunity to the Company for rapid expansion, and on the other hand
imposes heavy pressure upon project management due to the large-scale power
plant construction. Ensuring the construction projects to be completed on
schedule and with high quality, as well as controlling the construction costs,
will be a challenge for the coming year.
We have full confidence to seize the opportunities and face the challenges to
realize the goals of the Company. First, we have strong support from the parent
company. HIPDC and China Huaneng Group, the direct and indirect parent companies
of the Company, have power-generating assets respectively across the country and
are continuously expanding. They have committed to giving the Company first
right of refusal when developing and transferring power generating assets.
Moreover, the parent companies will give strong support to the Company in other
aspects. The Company shall take full advantage of such support to continuously
enhance its strengths and profitability.
Our competitive advantages include: regulated and outstanding management and an
experienced management team; economies of scale and geographical advantage on
the distribution of power plants; advanced and highly efficient power generation
equipment and technology; and abundant capital and strong financing
capabilities.
Given the above advantages, the Company will develop far and beyond amidst
competition, capture more market shares in power generation and in terms of
generation capacity. The Company has full confidence to maintain its leadership
position among independent power producers in China.
The Company will focus on the following objectives in 2004:
(1) To ensure safe and operating stability of the Company's power plants, and
the achievement of their annual power generation plans; and on this basis,
to analyse and formulate effective market strategies with respect to power
market and power pooling, and to enlarge our power market shares;
13
(2) To undertake stringent control of operating costs and other costs, in
particular fuel costs and construction costs;
(3) To actively develop the proposed projects and push forward the work for
the power plants under construction, with a view to expanding the
Company's operating scale and enhancing its business strength; and
(4) To actively seek new opportunities in order to assure continuous growth of
the Company's profits and shareholders' interests.
THE COMPANY WILL CONTINUE TO PURSUE A MAXIMIZATION OF SHAREHOLDERS' INTERESTS AS
ITS OPERATING OBJECTIVES AND GOALS. GIVEN THE STEADY AND STABLE ECONOMIC GROWTH
IN CHINA, THE GOOD OPPORTUNITIES PROVIDED BY THE POWER REFORM, THE STRONG
SUPPORT FROM GOVERNMENT OF ALL LEVELS AND ITS PARENT COMPANY, AND ESPECIALLY THE
SUPPORT AND TRUST FROM INVESTORS AND SHAREHOLDERS, THE COMPANY WILL FOR SURE BE
ABLE TO CONTINUE ITS HEALTHY AND STEADY GROWTH UNDER THE EFFICIENT AND
EXPERIENCED MANAGEMENT TEAM, BRINGING LONG-TERM AND STABLE GROWTH OF RETURN TO
OUR SHAREHOLDERS.
WANG XIAOSONG LI XIAOPENG YE DAJI
Vice Chairman Chairman President
Beijing, the PRC
30 March 2004
14
EXTENDING OUR COVERAGE,
SPREADING OUR NETWORK --
DEVOTED TO EXPANDING OUR MARKET SHARES.
15
<< MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS REVIEW OF YEAR 2003
Year 2003 was a year full of challenges and opportunities. The steady growth of
China's economy boosted power demand, the nation's power demand increased by
15.4% and more than 20 provinces experienced power shortage. During the year,
the Company continued to strengthen its management, enlarge market shares,
control costs and enhance efficiency by focusing on economic benefits and on
the basis of safe operation, with a view to optimising shareholders' interests.
The management and all staff of the Company and its subsidiaries have seized
the favourable opportunity of the market upturn and accomplished various tasks
exceeding annual targets.
1. STEADY GROWTH OF OPERATING RESULTS
For the twelve months ended 31st December 2003, the Company recorded net
operating revenues of Rmb23.388 billion and a net profit of Rmb5.430 billion,
representing increases of 26.60% and 38.50%, respectively, as compared to the
same period of 2002. Earnings per share was Rmb0.90, representing an increase
of Rmb0.25 over the same period of 2002.
The steady growth in the operating results of the Company was, on the one hand,
attributable to the contribution from increased power generation of the power
plants originally owned by the Company. On the other hand, the impact of
project development and asset acquisition also made significant contribution to
the growth of the Company's operating results for year 2003. At the same time,
facing an increasingly competitive power market, and in view of the twofold
pressure of escalating fuel prices and decreasing power tariffs, the Company
and its subsidiaries enlarged market shares, reinforced the sales strength of
the power market, enhanced internal management and strengthened cost control.
Despite the increase of raw coal price by 2.89%, the average unit fuel cost for
power sold increased only 2.28% over the previous year.
As at the end of 2003, net asset per share of the Company was Rmb5.63,
representing an increase of 11.05% when compared to 2002.
2. SAFE AND STABLE POWER GENERATION
In 2003, the operating power plants of the Company and its subsidiaries
achieved power generation totalling 90.91 billion kWh on a consolidated basis
(including the power generation from Yushe Power Plant and Xindian Power Plant
in November and December), representing an increase of 27.3% over the same
period of the previous year. The growth in power generation of the Company in
2003 laid the foundation for the good operating results.
16
The growth in the Company's power generation was due to the increased power
demand driven by the rapid and steady economic growth of the country. On the
other hand, the increase in power generation was attributable to the whole-year
power generation contribution from the two generating units at Dezhou Power
Plant Phase III which commenced operation in 2002, the power generation
contribution from the commercial operation of two generating units at Jining
Power Plant, together with the contribution of the two months power generation
from the newly acquired Yushe Power Plant and Xindian Power Plant, thus
significantly increasing the power generation capacity of the Company. At the
same time, the rationalised scheduling of the planned maintenance of the
generating units also created favourable conditions for the increased power
generation of the Company.
In 2003, the average availability factor of the power plants of the Company and
its subsidiaries was 92.15%, with an average capacity factor of 68.06% while
the average coal consumption rates for power sold and for power generated were
335.12 gram/kWh and 318.23 gram/kWh, respectively. The average house
consumption rate was 4.76%. The Company's technical and economic indices
remained at the forefront among all other power companies in the PRC.
In 2003, the Company's power plants in Shanghai, Liaoning and Jiangsu
participated in the pilot scheme of power pooling in their respective regions.
The power generation subject to power pooling is 5.159 billion kWh, accounting
for 5.98% of the total power sale in the year. Power pooling not only increased
the market share of the Company in local regions, but also increased the
marginal profit of the Company.
Moreover, taking into account the oil price increase and for the purpose of
controlling generation costs, the Company decided to shut down the two 100MW
oil-fired generating units at Xindian Power Plant Phase I, which have been in
operation for 30 years and is making losses currently. The generation capacity
at Xindian Power Plant was reduced from 650MW to 450MW.
3. BREAKTHROUGHS IN ASSET OPERATION
(1) Through tendering, the Company has acquired 25% interest in Shenzhen
Energy Group Co. Ltd. ("SEG") after the latter's increase in share
capital, enhancing the Company's market share in Guangdong region, a
rapidly-growing market for power demand. The acquisition was
effective on 22nd April 2003.
(2) In 2003, the Company acquired 55% equity interest in the registered
capital of Qinbei Power Plant, 60% equity interest in the registered
capital of Yushe Power Plant, and all the assets and liabilities of
Xindian Power Plant from China Huaneng Group. The acquisitions were
effective on 27th October 2003, thereby increasing the generation
capacity of the Company on an equity basis by 770MW, and the
generation capacity under construction on an equity basis by 1,020MW.
These have enhanced the competitiveness of the Company in Central
China and also contributed to the growth of the Company's annual
results.
17
4. ACHIEVEMENTS IN PROJECT CONSTRUCTION
(1) Owing to the Company's careful organisation and various parties'
efforts, generating units 5 and 6 at Jining Power Plant expansion
project (using Cycled Fluidised Bed Combustion Boilers) commenced
commercial operation in July and August 2003 respectively, thereby
making contribution to the growth in power generation of the Company.
(2) Construction works of Huaiyin Power Plant Phase II project (2x330MW
coal-fired generating units) and the project of one 600 MW coal-fired
generating unit at Shantou Power Plant Phase II have commenced, with
works quality and investment costs under effective control and works
being carried out on schedule.
(3) Construction works of two 600MW coal-fired generating units at Qinbei
Power Plant Phase I and two 300MW coal-fired generating units at
Yushe Power Plant Phase II have been progressing smoothly, and it is
estimated that the plants will be put into full operation in 2004 and
2005 respectively.
5. A NEW CHAPTER OF SUSTAINABLE DEVELOPMENT
The feasibility study report on the project of two 1,000MW ultra-supercritical
coal-fired generating units, which is the first case in China, at Huaneng
Yuhuan Power Plant Phase I has been approved by the State. Project proposals in
relation to the construction of Taicang Power Plant Phase II (2x600MW
coal-fired generating units), Shanghai Gas-fired Power Plant (3x300MW-class
Combined-Cycle-Gas-Turbine generating units) and Jinling Gas-fired Power Plant
(3x300MW-class Combined-Cycle-Gas-Turbine generating units) have obtained
approvals from the State. The Company will actively push forward the progress
of the proposed projects in accordance with commercially viable principles.
PROSPECTS FOR 2004
Year 2004 is also a year of full of challenges and opportunities. In respect of
power generation, the demand will continue to increase with substantial growth.
On the one hand, this provides the Company with a favourable condition to
generate more generation, thus creating more profits. On the other hand, the
consistently heavy loading of the generating units will create pressure on
safety and stability of the operation. As one of the challenges we encounter
this year, we will ensure a safe operation of our generating units and
facilities, thus achieving a safe production.
Another challenge we face is related to coal supply. For a number of reasons,
coal has been in rather short supply since the second half of last year and
coal prices rose. The Company adopted a series of measures to ensure a
sufficient supply of coal. The Company believes that under the government's
guidance, suppliers and customers will co-operate with each other, thus
ensuring a healthy coal market for the power industry.
18
In respect of development projects, economic growth and rising people's living
standards provide more room for market development, which on the one hand gives
better opportunity to the Company for rapid expansion, and on the other hand
imposes heavy pressure upon project management due to the large-scale power
plant construction. Ensuring the construction projects to be completed on
schedule and with high quality and controlling the construction costs are also
a challenge for the coming year.
As emphasized in the Letter to Shareholders, the Company will focus on the
following objectives in 2004:
(1) To ensure safe and operating stability of the Company's power plants, and
the achievement of their annual power generation plans; and on this basis,
to analyse and formulate effective market strategies with respect to power
market and power pooling, and to enlarge our power market shares;
(2) To undertake stringent control of operating costs and other costs, in
particular fuel costs and construction costs;
(3) To actively develop the proposed projects and push forward the work for
the power plants under construction, with a view to expanding the
Company's operating scale and enhancing its business strength; and
(4) To actively seek new opportunities in order to assure continuous growth of
the Company's profits and shareholders' interests.
The Company will continue to pursue a maximization of shareholders' interests
as its operating objectives and goals. Given the steady and stable economic
growth in China, the good opportunities provided by the power reform, the
strong support from government of all levels and its parent company, and
especially the support and trust from investors and shareholders, the Company
will for sure be able to continue its healthy and steady growth under the
efficient and experienced management team, bringing long-term and stable growth
of return to the shareholders.
19
OPERATING RESULTS
Comparison of the operating results between the year 2003 and the year 2002.
SUMMARY
In 2003, the Company has achieved very good operating results.
In 2003, the electricity sale of the Company and its subsidiaries reached
86.242 billion kWh, increased by 28.08% from the 67.332 billion kWh of last
year. Accordingly, net operating revenue, net profit and earnings per share
increased considerably when compared with those of 2002. The Board of Directors
of the Company was satisfied with the operating results of the year 2003.
The Company's good performance is mainly attributable to the rapid development
of the national economy and concerted efforts of all the staff of the Company.
In 2003, the rapid development of the national economy has resulted in a strong
demand for electricity. The growth rate of the production and consumption of
electricity exceeded that of the GDP. In the peak seasons, such as in the hot
summer days when urban residents had higher demand for electricity supply, and
in the arid winter days when hydro power generation decreased significantly,
there was a serious shortage of electricity supply in some regions of the
country, especially in the comparatively developed south-eastern coastal areas.
The local government called on people to save electricity, and part of users
had to pause electricity consumption or was restricted in electricity
consumption. The local government took measures to ensure and faster the
production of the power-generation enterprises, and to limit the electricity
consumption of high power-consuming enterprises in order to ensure the supply
to residential end-consumers and key users such as hospitals.
The Company and its subsidiaries face a prosperous environment as the power
output and the operating hours of the domestic thermal power plants had
increased significantly in 2003, due to the strong demand for electricity
caused by a number of factors including: the rapid development of the national
economy, the significant increase of the consumption of high power-consuming
enterprises; and the arid atmosphere in certain areas.
The Company and its subsidiaries accomplished and significantly exceeded the
annual production and sale plan despite of the SARS conditions, tight situation
in coal transportation and the rarely high temperature in the summer. The
Company and its subsidiaries took advantage of the macro-environment, carefully
maintained the equipments, arranged the overhaul projects with the
consideration of the market demand, managed to meet the demand for fuel. The
superior technology and equipments enhanced the Company's competition position.
For the year ended 31st December 2003, the power generation of the Company and
its subsidiaries reached 90.91 billion kWh, increased by 27.3% compared to the
prior year.
20
The growth of the Company and its subsidiaries' power generation was attributed
to the following factors:
(1) the rapid-growth of the national economy, which resulted in a significant
increase in the demand of electricity and accordingly the increase of
generation of the power plants of the Company and its subsidiaries;
(2) the significant decrease of hydro power generation in Fujian Province,
which resulted in more power generation of the power plants of the Company
in Fujian province;
(3) the remarkable increase of the generation capacity of the Company with two
generation units of Jining Power Plant put into operation in 2003 and the
full year generation capacity of two generation units of Dezhou Power
Plant Phase III which were put into commercial operation in 2002;
(4) two months' power generation contribution from Yushe Power Plant and
Xindian Power Plant, both of which were acquired in 2003.
In 2003, the Company made great achievement in capital transaction.
On 22nd April 2003, the Company acquired equity interests representing 25% of
the enlarged share capital of SEG at a consideration of Rmb2.39 billion.
Through this acquisition, the Company entered the Shenzhen power market, which
is a high potential market. The Company is confident that it can work together
with local power developers to exploit the Shenzhen power market, to provide
power to local customers and to obtain satisfactory returns from this strategic
investment.
On 27th October 2003, the Company acquired from China Huaneng Group all the
assets and liabilities of Xindian Power Plant, 60% of the equity interests of
Yushe Power Plant and 55% of the equity interests of Qinbei Power Plant at a
total consideration of Rmb550 million. This acquisition was in the alignment
with the Company's market development strategy to consolidate the advantages in
the coastal regions and to expand in the middle China. The three power plants
mentioned above are located in Shandong Province, Henan Province and Shanxi
Province, respectively. The Company and its subsidiaries' entry into Henan and
Shanxi Province enlarged its regional coverage to the larger power market in
middle China. Henan Province located at the lower reaches of the Yellow River.
It is a main energy base in China with high production output of coal and oil.
Shanxi Province located at North China, and is the top coal-output province in
China with coal reserve accounted for one third of the total coal reserve in
China. The acquisition was the continuance of the development strategy of the
Company "to focus on both development and acquisition".
NET OPERATING REVENUE
Net operating revenue represents operating revenue net of the value-added tax
and deferred revenue. For the year ended 31st December 2003, the consolidated
net operating revenue of the Company and its subsidiaries was Rmb23.388
billion, representing an increase of 26.60% over net operating revenue of
Rmb18.474 billion of last year.
The significant increase of net operating revenue was primarily because of the
28.08% increase of power output compared to last year. Among the power plants
of the Company and its subsidiaries, the operating revenue of Dezhou Power
Plant, Fuzhou Power Plant, Dalian Power Plant and Dandong Power Plant had
increased significantly. The output of Dezhou Power Plant had increased 42.91%
compared to last year. The main reason of the increase was that the Phase III
of Dezhou Power Plant was put into commercial operation in the second half of
2002. The increase of output of Fuzhou Power Plant was because that the
significant reduction of hydro power generation in Fujian Province offered the
opportunity to our plant to enlarge its generation. The operating revenue of
Dalian Power Plant and Dandong Power Plant increased because of the continuous
expansion of the power market in Liaoning Province.
21
DEVELOPING GAS-FIRED,
PROTECTING THE ENVIRONMENT --
EQUIPPED WITH DIVERSIFIED GENERATION ASSETS.
22
The lower growth rate of operating revenue, when compared with that of power
output, was due to the decrease of the average tariff rate. The average tariff
rate decreased 2.06% from Rmb325.38 per MWh in 2002 to Rmb318.68 per MWh in
2003. The decrease of the average tariff rate was due to the adjustment of
approved tariff rates and the increase of the percentage of excess generation
portion as the total power output increased. In addition, the tariff rates of
the newly acquired Xindian Power Plant and Yushe Power Plant were lower than
that of the original power plants of the Company and its subsidiaries.
DALIAN POWER PLANT
Dalian Power Plant's net operating revenue increased by 19.74% to Rmb1.900
billion in 2003 from Rmb1.587 billion of last year. The average tariff rate was
Rmb272.69 per MWh, which decreased by 2.79% from Rmb280.53 MWh in 2002. The
power output of Dalian Power Plant reached 8.145 billion kWh, increased by
20.43% compared to last year. The significant increase of power output was due
to the continuous expansion of the power market of Liaoning Province and the
increasing power consumption. The increase of power output net of the impact
caused by the decrease of the average tariff rate and resulted in the
significant increase of the operating revenue.
FUZHOU POWER PLANT
Fuzhou Power Plant's net operating revenue increased by 26.51% to Rmb2.390
billion in 2003 from Rmb1.889 billion of last year. The average tariff rate was
Rmb331.82 per MWh, which increased by 1.23% from Rmb327.80 MWh in 2002. The
increase of average tariff rate was caused by the change of the structure the
power output, among which, planned generation portion increased and the excess
generation portion decreased. The power output of Fuzhou Power Plant was 8.464
billion kWh, increased by 23.13% when compared to last year. Both the increase
of the average tariff rate and the power output resulted in significant
increase of the net operating revenue and net operating profit. The main reason
of the increase of the power generation of Fuzhou Power Plant was mainly that
Fuzhou Power Plant had the opportunity to enlarge power generation since the
hydro power generation declined significantly due to the arid climate in Fujian
Province while the power demand increased.
SHANG'AN POWER PLANT
Shang'an Power Plant's net operating revenue increased by 4.34% to Rmb2.008
billion in 2003 from Rmb1.924 billion in 2002. The average tariff rate was
Rmb307.94 per MWh, which decreased by 2.44% from Rmb315.65 MWh of last year.
The decrease of the average tariff rate was mainly caused by the change of the
structure of the power sales. All the increased portion of power output was in
the excess generation category with a lower tariff rate. The increase of the
net operating revenue of Shang'an Power Plant was due to the increase of power
output. The lower growth rate of net operating revenue and net profit was
caused by the decrease of the average tariff rate.
23
NANTONG POWER PLANT
Nantong Power Plant's net operating revenue increased by 9.86% to Rmb2.147
billion in 2003 from Rmb1.955 billion in 2002. The average tariff rate was
Rmb312.52 per MWh, which increased by 0.96% from Rmb309.54 MWh of last year.
The power output of Nantong Power Plant reached 8.078 billion kWh, increased by
7.65% compared to last year. The increase of the net operating revenue and the
net profit of Nantong Power Plant was caused by two factors: the increase of
the power output and the increase of the average tariff rate. The increase of
the average tariff rate was due to the increase of the tariff rate of the
excess generation.
SHANTOU OIL-FIRED POWER PLANT
Shantou Oil-fired Power Plant's net operating revenue increased by 56.57% to
Rmb178 million in 2003 from Rmb114 million in 2002. The average tariff rate was
Rmb672.41 per MWh, which increased by 8.28% from Rmb621.02 MWh of last year.
The power output of Shantou Oil-fired Power Plant reached 296 million kWh,
increased by 45.15% compared to last year.
DANDONG POWER PLANT
Dandong Power Plant's net operating revenue increased by 22.87% to Rmb927
million in 2003 from Rmb754 million in 2002. The increase of the net operating
revenue was mainly caused by the 20.23% increase of power output of Dandong
Power Plant, which reached 4.046 billion kWh in 2003. The increase of power
output was due to the same factors that benefited Dalian Power Plant, namely
the continuous expansion of the power market of Liaoning Province and the
continuous growth of power consumption. The other significant reason was that
the average tariff rate increased by 1.19% to Rmb276.95 MWh in 2003 from
Rmb273.70 per MWh of last year.
SHANTOU COAL-FIRED POWER PLANT
Shantou Coal-fired Power Plant's net operating revenue increased by 2.33% to
Rmb1.522 billion in 2003 from Rmb1.487 billion in 2002. The average tariff rate
was Rmb435.17 per MWh, which decreased by 4.56% from Rmb455.95 MWh of last
year. The power output of Shantou Coal-fired Power Plant reached 4.125 billion
kWh, increased by 6.55% compared to last year. The lower growth rate of the net
operating revenue, when compared with that of power output, was due to that
certain portion of the increase of the power output was offset by the decrease
of the average tariff rate.
24
SHIDONGKOU SECOND POWER PLANT
Shidongkou Second Power Plant's net operating revenue increased by 6.84% to
Rmb2.250 billion in 2003 from Rmb2.106 billion in 2002. The average tariff rate
was Rmb332.85 per MWh, which decreased by 3.77% from Rmb345.90 MWh of last
year. The power output of Shidongkou Second Power Plant reached 8.024 billion
kWh, increased by 10.40% compared to last year. The increase of the power
output was due to that the power demand in the East China (especially in
Shanghai) exceeded the power supply in 2003, which resulted in the significant
increase of the net operating revenue and net profit.
NANJING POWER PLANT
Nanjing Power Plant's net operating revenue increased by 10.03% to Rmb1.027
billion in 2003 from Rmb933 million in 2002, which was mainly caused by two
factors: 1) The average tariff rate reached Rmb307.31 per MWh in 2003,
increased by 1.07% from Rmb304.07 MWh of last year. The increase of the average
tariff rate was mainly due to the increase of the bidding tariff rate and the
tariff rate for the excess generation. 2) The power output of Nanjing Power
Plant reached 3.867 billion kWh, increased by 7.16% compared to last year. The
increase of power generation was mainly due to the significant increase of
power demand of the East China grid.
DEZHOU POWER PLANT
Dezhou Power Plant's net operating revenue increased by 40.27% to Rmb3.206
billion in 2003 from Rmb2.286 billion in 2002. The average tariff rate was
Rmb333.34 per MWh, which decreased by 1.85% from Rmb339.64 MWh of last year.
The increase of the net operating revenue of Dezhou Power Plant was mainly due
to that the increase in the power output offset the impact of decrease of the
average tariff rate. The increase of power output was mainly due to that the
Phase III project (2X660MW) formed additional stable generation capacity.
JINING POWER PLANT
Jining Power Plant's net operating revenue increased by 7.28% to Rmb453 million
in 2003 from Rmb422 million in 2002. The average tariff rate was Rmb274.66 per
MWh, which decreased by 0.18% from Rmb275.15 per MWh of last year. The power
output of Jining Power Plant reached 1.928 billion kWh, increased by 6.82%
compared to last year. The increase of the net operating revenue of Jining
Power Plant was mainly due to the increase of power output. The increase of
power output was mainly due to that the Phase III project (2X135MW) was put
into commercial operation in 2003, which enlarged the total installation
capacity of Jining Power Plant.
25
CHANGXING POWER PLANT
Changxing Power Plant became a wholly-owned plant of the Company on 1st July,
2002. In 2003, Changxing Power Plant's net operating revenue was Rmb454
million. Its power output was 1.657 billion kWh with the average tariff rate of
Rmb320.57 per MWh.
SHIDONGKOU FIRST POWER PLANT
The Company acquired 70% of the equity interests of Shidongkou First Power
Plant on 1st July, 2002, and subsequently acquired the remaining 30% equity
interests on 31st December, 2002. Since then, the plant became a wholly-owned
plant. In 2003, the net operating revenue, power output and average tariff rate
of Shidongkou First Power Plant were Rmb1.623 billion, 7.395 billion kWh and
Rmb256.64 per MWh, respectively.
XINDIAN POWER PLANT
Xindian Power Plant became a branch of the Company by the end of October 2003.
The net operating revenue of Xindian Power Plant from November to December was
Rmb150 million. The power output and average tariff rate of Xindian Power Plant
were 512 million kWh and Rmb342.41 per MWh, respectively.
TAICANG POWER PLANT
The Company acquired 70% of the equity interests of Taicang Power Plant on 1st
July, 2002 and subsequently acquired 5% of the equity interests on 31st
December, 2002. In 2003, the net operating revenue, power output and average
tariff rate of Taicang Power Plant were Rmb1.105 billion, 4.062 billion kWh and
Rmb321.80 per MWh, respectively.
26
HUAIYIN POWER PLANT
The Company acquired 44.16% of the equity interests of Huaiyin Power Plant on
1st July, 2002, and subsequently acquired 19.48% equity interests on 31st
December, 2002. In 2003, the net operating revenue, power output and average
tariff rate of Huaiyin Power Plant were Rmb652 million, 2.435 billion kWh and
Rmb317.21 per MWh, respectively.
WEIHAI POWER PLANT
The Company owns 60% equity interests in Weihai Power Plant. The net operating
revenue of Weihai Power Plant decreased by 4.66% to Rmb1.340 billion in 2003
from Rmb1.405 billion of last year. The decrease was mainly caused by two
factors: 1) The power output of Weihai Power Plant decreased by 2.79% to 4.107
billion kWh from 4.225 billion kWh of last year. 2) The average tariff rate of
Weihai Power Plant decreased by 1.84% to Rmb386.50 per MWh from Rmb393.74 per
MWh of last year. The decrease of the average tariff rate was mainly due to the
change of the structure of power output, among which the portion of the planned
generation decreased and the portion of the generation applied to lower tariff
rates increased.
YUSHE POWER PLANT
The Company acquired 60% of the equity interests of Yushe Power Plant by the
end of October 2003. The net operating revenue of Yushe Power Plant from
November to December were Rmb57 million. The power output and average tariff
rate of Yushe Power Plant were 259 million kWh and Rmb200.63 per MWh,
respectively.
QINBEI POWER PLANT
The Company acquired 55% equity interests of Qinbei Power Plant by the end of
October 2003. Two sets of generation units of Qinbei Power Plant, with the
capacity of 600 MW each, were still under construction.
27
OPERATING EXPENSES
The total operating expenses of the Company and its subsidiaries increased by
26.51% to Rmb16.315 billion in 2003 from Rmb12.896 billion of last year. The
growth rate of operating expenses was lower than that of power output.
The primary operating expenses of the Company and its subsidiaries was fuel
cost. The fuel cost increased by 30.49% to Rmb9.025 billion in 2003, when
compared to Rmb 6.916 billion of last year. The weighted average unit price of
natural coal increased by 2.89% to Rmb239.06 per ton in 2003 from Rmb232.34 per
ton in 2002. Accordingly the unit fuel cost of power output increased by 2.28%
to Rmb105.05 per MWh. Xindian Power Plant and Yushe Power Plant's unit fuel
cost of power output was Rmb103.48 per MWh, which was lower than the average
level of original power plants of the Company.
MAINTENANCE EXPENSE
The maintenance expense incurred by the Company and its subsidiaries was Rmb922
million in 2003. The maintenance expense increased by 51.64% when compared to
Rmb608 million of last year. The increase of the maintenance expense was mainly
due to two factors: 1) The plants acquired in 2002, including Changxing Power
Plant, Shidongkou First Power Plant, Taicang Power Plant and Huaiyin Power
Plant, were consolidated in 2003 on a full-year basis. 2) The original power
plants such as Dezhou Power Plant, Dalian Power Plant and Fuzhou Power Plant,
carried out major overhaul according the annual plan and incurred more
maintenance expense.
DEPRECIATION AND AMORTIZATION
The depreciation and amortization of the Company and its subsidiaries was
Rmb4.117 billion in 2003, increased by 16.50% from Rmb3.534 billion of last
year. The depreciation and amortization of the original power plants and the
headquarter of the Company were Rmb4.093 billion, increased by 15.82% compared
to last year. The newly acquired power plants including Xindian Power Plant and
Yushe Power Plant incurred depreciation and amortization Rmb24 million in 2003.
The increase of depreciation and amortization was mainly due to that the Phase
III of Dezhou Power Plant was put into commercial operation in late 2002, and
that the plants acquired in 2002, including Changxing Power Plant, Shidongkou
First Power Plant, Taicang Power Plant and Huaiyin Power Plant, were
consolidated in 2003 on a full-year basis.
LABOR COST
The labor cost of the Company and its subsidiaries was Rmb1.439 billion in
2003, which increased by 38.90% from Rmb1.036 billion of last year. The
increase of labor cost was mainly due to that the plants acquired in second
half of 2002, including Changxing Power Plant, Shidongkou First Power Plant,
Taicang Power Plant and Huaiyin Power Plant, were consolidated in 2003 on a
full-year basis.
28
SERVICE FEE PAID TO HIPDC
The service fee paid to HIPDC refers to a fee for use of its grid connection
and transmission facilities based on reimbursement of cost plus a profit.
In 2003, the Company incurred the service fee in relation to the grid
connection and transmission facilities for Shang'an Power Plant and Shantou
Coal-fired Power Plant (HIPDC had transferred the ownership of transmission and
transformation facilities of Fuzhou Power Plant Phase I and Shidongkou Second
Power Plant to Fujian Electric Power Company and Shanghai Power Corporation,
respectively, on 1st July, 2002. The Company was not required to pay the
service fee for the two plants since the transfer). The service fee paid to
HIPDC was Rmb215 million in 2003, decreased by 18.56% when compared with Rmb264
million in 2002.
INCOME TAX EXPENSES
Pursuant to the relevant tax regulations, the Company is a Sino-foreign equity
joint venture and enjoys the preferential income tax policy. Each of the power
plants of the Company is exempted from PRC income tax for two years starting
from the first profit-making year after covering the accumulated deficits
followed by a 50% reduction of the applicable tax rate for the next three
years. In addition, as confirmed by the State Tax Bureau, the Company's
wholly-owned power plants pay their respective income tax to local tax
authorities, although they are not separate legal entities. The consolidated
income tax expenses of the Company and its subsidiaries were Rmb1.149 billion,
which increased by 17.13% compared to Rmb981 million of last year. The income
tax expenses of the original power plants and headquarters of the Company
(excluding the newly acquired power plants in 2003) were Rmb1.138 billion,
increased by 16.00% compared to last year. The consolidated income tax of the
newly acquired plant, including Xindian Power Plant and Yushe Power Plant, were
Rmb11 million.
OTHER EXPENSES
With the rapid growth of the power output, the other expenses of the Company
and its subsidiaries were Rmb597 million in 2003, increased by 10.76% from
Rmb539 million of last year. Another factor that caused the increase of other
expenses was the consolidation of the other expenses of the newly acquired
plants, including Xindian Power Plant, Yushe Power Plant and Qinbei Power
Plant. The consolidated other expenses of the original plants and headquarter
of the Company, excluding the newly acquired Xindian Power Plant, Yushe Power
Plant and Qinbei Power Plant were Rmb581 million, which increased by 7.79%
compared to Rmb539 million of last year.
NET PROFIT BEFORE FINANCIAL EXPENSES
The net profit before financial expenses of the Company and its subsidiaries in
2003 was Rmb7.073 billion, which increased by 26.80% compared to Rmb5.578
billion in 2002.
FINANCIAL EXPENSES
The consolidated net financial expenses of the Company and its subsidiaries
were Rmb544 million in 2003, which increased by 6.67% compared to Rmb510
million of last year. The increase of financial expenses was mainly due to the
decrease of interest income.
29
NET PROFIT
The consolidated net profit of the Company and its subsidiaries was Rmb5.430
billion in 2003, increased by 38.50% compared to Rmb3.921 billion of last year.
The significant increase of net profit was primarily due to the increase of
power output, the full year contribution from the plants acquired in 2002
(including Changxing Power Plant, Shidongkou First Power Plant, Taicang Power
Plant and Huaiying Power Plant), the full year contribution from Dezhou Power
Plant Phase III, the commercial operation of the expansion project of Jining
Power Plant and the investment income from SEG.
COMPARISON OF KEY FINANCIAL RATIOS
THE COMPANY AND ITS SUBSIDIARIES
2003 2002
Current ratio 0.90 1.00
Quick ratio 0.81 0.88
Ratio of liabilities and owner's equity 0.54 0.56
Multiples of interest earned 12.03 8.28
--------------------------------------------------------------------------------
After the investment in SEG and the acquisitions of Xindian Power Plant, Yushe
Power Plant and Qinbei Power Plant, the current ratio and quick ratio of the
Company decreased slightly when compared with that in the beginning of 2003.
Multiples of interest earned of the Company and its subsidiaries increased when
compared with that of last year.
The Company and its subsidiaries had strong financing capability. The Company
obtained unsecured borrowing facilities from bank, amounting to Rmb7 billion
and Rmb5 billion, to finance its funding requirement for a period of three
years starting from 18th September, 2003 and 4th March, 2002, respectively.
After the acquisition of the 25% equity interests of SEG and the acquisitions
of Xindian Power Plant, Yushe Power Plant and Qinbei Power Plant, the Company
and its subsidiaries still maintained its strong debt repayment ability.
As at 31st December, 2003, the loans denominated in foreign currencies of the
Company and its subsidiaries amounted to approximately USD872 million and
Japanese Yen1.786 billion, of which USD250 million and Japanese Yen238 million
was repayable within one year. The Company and its subsidiaries will closely
monitor the fluctuation in the foreign exchange market and cautiously assess
the exchange rate risk.
The long-term loan of the Company and its subsidiaries were mainly fixed-rate
loans. As at 31st December, 2003, the balance of the floating-rate loans of the
Company and its subsidiaries were approximately USD262 million and Japanese
Yen1.786 billion according to the original loan agreements. The Company and its
subsidiaries adopted interest swap contracts to reduce its floating rate risk.
Calculation formula of financial ratios:
Ratio of liabilities and = balance of liabilities at the end of the
shareholders' equity year/balance of shareholders' equity
at the end of the year
Current ratio = balance of current assets at the end of
the year/balance of current
liabilities at the end of the year
Quick ratio = (balance of current assets at the end of
the year - balance of inventories at
the end of the year)/balance of current
liabilities at the end of the year
Multiples of interest earned = (profit before tax + interest expense)/
interest expenditure (including
capitalized interests)
30
EXPANDING OUR OPERATIONS,
GROWING OUR PROFITS --
COMMITTED TO ENHANCING SHAREHOLDER RETURN.
31
<< CORPORATE GOVERNANCE
THE COMPANY WILL ADOPT OPTIMISATION OF THE INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS AS THE STARTING POINT TO GOVERN THE COMPANY IN A STRINGENT,
SCIENTIFIC AND REGULATED MANNER, AND TREAT ALL SHAREHOLDERS EQUALLY IN ORDER TO
ENSURE THE LONG-TERM AND STEADILY INCREASING RETURN FOR THE SHAREHOLDERS.
As a public company listed in three places inside and outside the PRC, the
Company is under the governance of the securities regulatory authorities of the
three places where its shares are listed and under the oversight of the
investors. Accordingly, the Company will uphold the principles of a synergic
legal person governance structure by striking balances and checks between power
of decision-making, supervision and operation rights. Honesty and
trustworthiness, compliance with the law, and regulated operation according to
the law are the basic operational guidelines of the Company. Prior to the
promulgation of the relevant regulations of the State's securities regulatory
authority, the Company took the lead in appointing two Independent Directors
and established a management committee, a technology committee and a finance
committee under the Board of Directors. At the same time, the Company also
formulated a comprehensive management system involving various areas including
administration, legal affairs, information, planning, construction, production,
operation, foreign affairs, business affairs, finance, securities, personnel,
monitoring and auditing in order to ensure the Company to operate in a
regulated and proper manner. In 2002, the Company amended and included certain
new clauses in its Articles of Association according to the requirements and
stipulations of the State's relevant regulations, including the Standards for
Governance of Listed Companies, and made adjustments to the composition of the
Board of Directors and the Supervisory Committee of the Company. The number of
members of the Board of Directors was changed from 19 to 12. All vice
presidents of the Company will no longer hold the posts of directors of the
Company. The Company has taken in certain personnel with more extensive
management experience in the power industry to join the Board of Directors, in
particular an expert with professional accounting knowledge has joined the
Board of Directors as an Independent Director. Accordingly, the number of
Independent Directors in the Board of Directors now amounts to four,
representing one-third of the members of the Board of Directors, which is in
compliance with the requirements of the relevant regulations and the amended
Articles of Association. The number of members of the Supervisory Committee was
changed from three to seven by adding four shareholder representatives. The
management committee, technology committee and finance committee under the
Board of Directors were remodelled to Strategy Committee, Audit Committee,
Nomination Committee and Remuneration and Appraisal Committee. Except for the
Strategy Committee, the majority of members of the other three committees were
Independent Directors who hold the posts of chairmen.
32
Through adjustments, the Board of Directors and the Supervisory Committee of
the Company have met the requirements of the relevant laws and regulations to a
greater extent in terms of scale and personnel composition, thus enabling the
Board of Directors to make effective, scientific and prompt decisions and the
Supervisory Committee to exercise independent and effective supervision and
inspection powers upon the directors, presidents and other senior management
and upon the finance matters of the Company. The establishment and regulated
operation of the four special committees under the Board of Directors will also
be conducive to bringing about a highly effective operation and scientific
decision-making process of the Board of Directors.
In 2003, the Company formulated and passed the Rules and Procedures for
Shareholders' Meetings, the Rules and Procedures for the Board of Directors
Meetings, the Rules and Procedures for the Supervisory Committee Meetings, the
Detailed Rules on the Work of the President, the Detailed Rules on the Work of
the Strategy Committee of the Board of Directors, the Detailed Rules on the
Work of the Audit Committee of the Board of Directors, the Detailed Rules on
the Work of the Remuneration and Appraisal Committee of the Board of Directors,
the Detailed Rules on the Work of the Nomination Committee of the Board of
Directors and the Measures on the Management of Investor Relations. The Board
discussed and passed the proposal on the amendments to the Articles of
Association. The Audit Committee of the Board of Directors of the Company has
held various seminars on the financial management issues encountered by the
Company during the course of operation and sought scientific resolutions. At
the same time, the Board of Directors of the Company strengthened the liaison
with regulatory bodies including Beijing Securities Management Authority, and
successfully completed various reports including "Investigation on
Shareholdings of Insiders of Listed Companies" and "Investigation on the
Appointment of Independent Directors", thereby further enhancing the governance
level of the Company.
In 2004, the Company will further improve its corporate governance according to
the laws and regulations imposed by the securities regulatory authorities of
the three places where the shares of the Company are listed. The Company will
improve the working conditions of the Independent Directors by installing
personal e-mail boxes for all the Independent Directors and disclosing the same
to the public in order to ensure clear communication channels between the
Independent Directors and all kinds of investors. The Company will enhance its
internal control system in all aspects and establish a scientific and practical
internal control mechanism. At the same time, the Company will actively proceed
to establish transparent procedures for election and appointment of directors
in accordance with the requirements of the relevant laws and regulations and
the actual situation of the Company, and will implement a cumulative voting
system when circumstances permit.
33
DUTIES OF THE SPECIAL COMMITTEES OF THE BOARD OF DIRECTORS
Duties of the Strategy Committee of the Board of Directors: mainly responsible
for conducting studies on long-term development strategies, important
policy-making on investment and important policy-making on technology, and
putting forward proposals to the Board of Directors.
Duties of the Nomination Committee of the Board of Directors: mainly
responsible for conducting studies on the standards and procedures for the
election of candidates of directors and senior management personnel of the
Company according to the requirements of the operation and management of the
Company and putting forward proposals to the Board of Directors; searching for
qualified candidates of directors and senior management personnel on a broad
basis; conducting examination on the candidates of directors and senior
management personnel and putting forward proposals.
Duties of the Audit Committee of the Board of Directors: mainly responsible for
the communication, supervision and verification of the internal and external
auditing of the Company.
Duties of the Remuneration and Appraisal Committee of the Board of Directors:
mainly responsible for conducting studies on the appraisal standards for
directors and senior management personnel of the Company, conducting appraisal
and putting forward proposals; responsible for conducting studies and
inspection of the remuneration policies and proposals for directors and senior
management personnel of the Company, and shall be accountable to the Board of
Directors.
COMPOSITION OF THE SPECIAL COMMITTEES OF THE BOARD OF DIRECTORS
Strategy Committee:
Li Xiaopeng (chairman), Zheng Jianchao (vice-chairman), Wang Xiaosong, Ye Daji,
Huang Jinkai, Liu Jinlong, Qian Zhongwei (members).
Audit Committee:
Xia Donglin (chairman), Wang Xiaosong, Shan Qunying, Zheng Jianchao,
Qian Zhongwei (members).
Nomination Committee:
Qian Zhongwei (chairman), Huang Jinkai, Yang Shengming, Gao Zongze,
Zheng Jianchao (members).
Remuneration and Appraisal Committee:
Gao Zongze (chairman), Liu Jinlong, Xu Zujian, Zheng Jianchao,
Xia Donglin (members).
All financial reports disclosed to the public by the Company have been examined
and passed by the Audit Committee of the Board of Directors of the Company, and
discussed and approved by the Board of Directors of the Company. All
non-executive directors of the Company conscientiously perform their duties and
diligently perform their duties through the Board of Directors in order to seek
optimisation of shareholders' interests.
34
PERFORMANCE OF DUTIES BY THE INDEPENDENT DIRECTORS
The Independent Directors of the Company attended or appointed proxies to
attend all board meetings in 2003, and expressed independent opinions on the
appointment of senior management personnel and important matters including
connected transactions. The Independent Directors of the Company have
independently, honestly and diligently performed their duties according to the
relevant laws and regulations and the powers conferred by the Articles of
Association, and have indeed fulfilled their function of protecting the
interests of shareholders, particularly medium and small shareholders.
35
<< INVESTOR RELATIONS
INVESTOR RELATIONS WORK IN 2003
The Company attaches great importance to communication with investors and
strives to establish clear communication channels and carry out open and
transparent disclosure of information. In 2003, in line with the businesses of
the Company, we disclosed information of the Company in a timely and accurate
manner by various means. We were able to have information disclosed by the
Company and external publicity complied with the regulatory requirements of
various listing places so that investors have a relatively objective and
comprehensive understanding of the Company and reforms of the power industry in
order to safeguard and enhance the credibility of the Company and its image in
the capital markets.
During the year, the Company dispatched a total of 74 press releases and held
more than a hundred "one to one" meetings for overseas investors through road
shows and conferences with the investment sector, and organized investors
inside and outside the PRC to visit power plants so as to provide them with
opportunities to have direct communication with the power plants' management.
"Openness of the Company" satisfied the demand of the investors to obtain an
understanding of the production and operation, financial position and strategic
information of the Company in a timely manner, and attracted the attention of
more and more investors who have developed their confidence in the prospects of
the Company. During the year, the Company obtained the "2003 Best IR from a
Chinese Company--Large Cap" award given by IR Magazine, the "Best Investor
Relationship for PRC Companies" award and the "Best Investor Relationship for
Energy Utilities in Asia-Pacific Region" award given by Institutional Investor,
the "Overall Best Managed Company in China" award given by Asiamoney and the
"Best Public Utilities Company in Asia" award given by Euromoney.
36
QUESTIONS FREQUENTLY ASKED BY INVESTORS
HOW DOES THE COMPANY COPE WITH FUEL COST INCREASE?
The Company copes with fuel cost increase mainly through the following
measures:
(1) to control coal procurement costs and to reduce transportation costs and
storage loss;
(2) to continue to promote coal blending burning work in order to off-set the
price increase of the originally designed major burning coal types;
(3) to further reduce the oil consumption of certain power plants through
enhancing the operating efficiency of the generating units;
(4) to reduce unit coal consumption through optimising the operational mode of
the generating units;
(5) the economies of scale of centralized coal procurement of the Company is
instrumental in reducing procurement costs.
SINCE THE GOVERNMENT HAS ADOPTED THE NEW ADMINISTRATION PROVISIONS REGARDING
THE COLLECTION AND APPLICATION OF WASTE DISPOSAL FEE, DOES THE COMPANY HAVE ANY
DETAILED PLAN OR MEASURES TO RENOVATE OR MODIFY THE EXISTING POWER PLANTS?
The Company carried out unified planning in accordance with its development
plan and the State's environment protection requirements: for the reduction of
SO2 release, we plan to build sulphur reduction facilities in major areas
gradually and to increase the ratio of low-sulphur coal as fuel in all our
power plants. To control the release of nitrogen oxide chemicals, the power
plants are required to follow strict operation management rules to minimise the
release of nitrogen oxide chemicals, and at the same time we will make
renovation or modification arrangements of low-nitrogen combustion facilities.
Currently the Company is arranging the construction of the flue gas
de-sulphurization facilities for the 2X300MW units of Shantou Coal-fired Power
Plant and the 2X300MW units of Taicang Power Plant.
37
WHAT MEASURES WILL THE COMPANY ADOPT TO IMPROVE THE PERFORMANCE OF THE ACQUIRED
POWER PLANTS AS A WHOLE?
The Company will strengthen its management, further implement the management
methods of the Company, and seek synergy in the following aspects:
o To strengthen financial management: examples include sorting out the
situation of the power plants in relation to loans, improving loans
structure and optimising debt cost.
o To adopt "Status Reparation" system so that the reparation input can have a
higher return.
o To strengthen the administration of bidding and contracting in relation to
reparation and technology improvement projects to lower the costs.
o The Company will apply to the relevant bodies after the completion of the
acquisition to seek favourable tax rates of sino-foreign joint ventures
for the power plants wholly owned by the Company.
WHAT IS THE CONSIDERATION BEHIND THE FIRST-EVER MOVE BY HUANENG POWER TO
DISTRIBUTE SUBSTANTIAL BONUS SHARES?
In the distribution this time, we gave the shareholders RMB0.5 and 1 share to
every share he holds (0.5 being bonus share, and 0.5 to be converted from
reserve fund). The principal considerations are:
First, to ensure the distribution of a cash dividend will enable shareholders
to receive actual benefit. The cash distribution is RMB0.5 / share, accounting
for 56% of the profit of the year;
Secondly, to consider the further development of the Company. The assets scale
and profit level of the Company have been increasing year by year since its
establishment. Taking generation capacity as an example, when the overseas
listing of the Company was completed 10 years ago, it had a total issued share
capital of 5 billion shares and an equity-based generation capacity of 2,900MW;
by the end of 2003, our equity-based generation capacity has reached 15,736MW
while the total issued shares has been increased by merely 20% to approximately
6 billion shares. After the issue of bonus shares and implementation of the
capital conversion plan, the capital of the Company will increase to match the
scale of the Company, which will benefit its business development and increase
its market influence.
In summary, our operation guideline is to maximize the interest of the
shareholders and make them receive actual return.
38
WHAT OPPORTUNITIES AND CHALLENGES DOES THE COMPANY FACE IN YEAR 2004?
In 2004, the Company faces both opportunities and challenges.
In terms of power generation, the continued substantial increase in the demand
of power will enable the Company to generate more electricity and hence more
profits, but on the other hand the highly charged operation of power generating
facilities over a long period of time has brought pressure upon operational
safety and stability. It is one of the challenges this year to achieve safe,
stable yet full-load operation so to ensure safe power supply.
Coal supply is another challenge the Company will face this year. Since the
second half of last year, affected by various factors, the coal supply has been
tight and coal prices have been rising. The Company has adopted a series of
measures to ensure coal supply. The Company believes that under the correct
guidance of the government, suppliers and the purchasers will cooperate to
ensure a safe supply of coal to the power industry.
Regarding the power construction aspect, the economic developments and the
improvements of people's living standards have created enormous room for market
development. This has brought good opportunities for the Company to speed up
its developments, but large-scale power construction has brought huge pressure
on project management. It is one of the challenges this year to ensure that all
work-in-progress projects achieve timely and high-quality operation and
construction costs be under control.
39
FOCUSING ON MANAGEMENT,
EXERCISING STRINGENT COST CONTROLS --
GEARED FOR ENHANCING OPERATING EFFICIENCY.
40
<< REPORT OF THE BOARD OF DIRECTORS
The Board presents the report and the audited financial statements of the
Company and its subsidiaries for the year ended 31st December 2003.
BUSINESS OF THE COMPANY AND OPERATING RESULTS
In 2003, the Company achieved remarkable results by overcoming various
unfavourable external conditions as a result of the joint efforts of all the
staff and management of the Company. In terms of power generation, the
Company's annual generation exceeded its target for the year. Regarding the
operation management, on the one hand, the Company continued to effectively
control and manage costs, on the other hand, power project development and
acquisition also made significant contribution to the remarkable growth of the
Company's operating results for year 2003. The Board of Directors is very
satisfied with the operating results of 2003.
Please refer to pages 73 to 122 of the financial statements for the operating
results of the Company and its subsidiaries for the year ended 31st December
2003.
SUMMARY OF FINANCIAL INFORMATION
Please refer to the Financial Highlights on page 8 for summary of the operating
results and assets and liabilities of the Company and its subsidiaries for the
year ended 31st December 2003.
DIVIDENDS AND OTHER DISTRIBUTION
The Company and its subsidiaries aim to bring long-term, stable and growing
returns to the shareholders. In alignment with this target, on the board
meeting held on 16th March, 2004, the Board of Directors resolved to propose in
the 2003 annual general meeting for the year ended 31st December, 2003 a cash
dividend of Rmb0.50 per ordinary share, totaling approximately Rmb3.014
billion, together with an issue of bonus shares on the basis of 5 bonus shares
for every 10 existing ordinary shares.
Cash dividends will be denominated and declared in Renminbi. Cash dividends on
domestic shares will be paid in Renminbi. Save for the dividends on foreign
shares traded on the Hong Kong Stock Exchange which will be paid in Hong Kong
dollars, cash dividends on foreign shares will be paid in United States
dollars. Exchange rates for dividends paid in United States dollars and Hong
Kong dollars are USD1 to Rmb8.27715 and HK$1 to Rmb1.06175 respectively.
All the cash dividends will be paid and the bonus shares will be issued to
shareholders on or before 30th June 2004, subject to the approval of the annual
general meeting of the Company.
CONVERSION OF THE ADDITIONAL PAID-IN CAPITAL AND THE SURPLUS RESERVE FUND
In addition to the dividends and other distribution as mentioned above, on 16th
March 2004, the Board resolved to propose to convert part of the additional
paid-in capital and the statutory surplus reserve fund into share capital by
issuing new shares to all of its shareholders on the basis of 5 new shares for
every 10 existing ordinary shares (three of which from additional paid-in
capital and two from statutory surplus reserve fund). The proposal is subject
to shareholders' approval at the annual general meeting to be held on 11th May
2004.
41
BOARD RESOLUTIONS OF THE BOARD OF DIRECTORS IN 2003
In 2003, the Board of Directors has held six meetings. Details of the
resolutions are as fellows:
1. On 12th March 2003, the Board of Directors ("the Board") convened the
second meeting of the Fourth Session of the Board. Twelve Directors were
eligible to attend the meeting. The attendants of the meeting included
twelve Directors (either in person or by proxy), The convening of this
meeting complied with the Companies Law of the People's Republic of China
and the articles of association of the Company. The following resolutions
were considered and approved at the meeting:-
(1) The working report from the Board of Directors of the Company for year
2002.
(2) The working report from the President of the Company for year 2002.
(3) The audited financial statements of the Company for year 2002.
(4) The profit distribution plan of the Company for year 2002.
Having been audited by PricewaterhouseCoopers Zhong Tian CPAs Co.
Ltd. and PricewaterhouseCoopers, the Company's net profit under the
PRC GAAP, International Financial Reporting Standards and US GAAP
were Rmb4,082,350,589, Rmb3,921,003,301 and Rmb3,895,191,644
respectively. 10% and 7.5% of the net profit for year 2002 of the
Company under the PRC GAAP (Rmb4,082,350,589) should be appropriated
to the statutory surplus reserve fund and the statutory public
welfare fund respectively, amounting to a total of Rmb714,411,353. No
appropriation will be made to discretionary surplus reserve fund.
According to the articles of association of the Company, dividends
for distribution by the Company will be based on the lowest of the
amounts determined in accordance with the aforesaid standards. The
amount of the profit attributable to shareholders was
RMB3,180,780,291. The distribution of profit for year 2002 by the
Company should be based on the total issued share capital of
6,000,273,960 shares of the Company, and the Company would make a
distribution of cash dividends to all shareholders on the basis of
Rmb3.40 (including tax) for each 10 shares of the Company. It is
estimated that the total amount of dividends to paid would be
Rmb2,040,093,146.40. The remaining Rmb1,140,687,145 would be reserved
for future distribution and the Company would not capitalize the
statutory surplus reserve fund for this year.
(5) The Company's 2002 annual report and its extract.
(6) The proposal regarding the re-appointment of the Company's auditors.
It was resolved to appoint PricewaterhouseCoopers Zhong Tian CPAs Co.
Ltd as the PRC auditors of the Company and PricewaterhouseCoopers as
the Company's international auditors for 2003 with a total
remuneration of US$1.25 million.
(7) The proposal regarding the amendments to the articles of association
of the Company.
(8) The Rules and Procedures for Shareholders' meeting.
(9) Rules and Procedures for the Board of Directors Meetings, the Rules
and Procedures for the Supervisory Committee Meetings, the Detailed
Rules on the Work of the General Manager, the Detailed Rules on the
Work of the Strategy Committee of the Board of Directors, the
Detailed Rules on the Work of the Audit Committee of the Board of
Directors, the Detailed Rules on the Work of the Remuneration and
Appraisal Committee of the Board of Directors, the Detailed Rules on
the Work of the Nomination Committee of the Board of Directors.
42
(10) The proposal regarding the total amount of wages in 2003.
(11) The Consolidated Plan in 2003.
(12) The proposal regarding the remuneration of Independent Directors
i. During the term of service, the Company shall pay to each
Independent Director an annual allowance of Rmb40,000 (tax
exclusive) by two instalments.
ii. The Company shall reimburse to the Independent Directors all
their expenses (including travelling expenses and administrative
expenses) reasonably incurred by them for the purpose of
attending the meetings of Board of Directors and shareholders
meetings and performing their duties as required by the relevant
laws and under the Company's articles of association.
iii. Save and except for the above, the Company shall not provide any
other benefit to the Independent Directors.
(13) To authorise The Stock Exchange of Hong Kong Limited to act on behalf
of the Company to submit all necessary documents as required by the
Securities and Futures Ordinance (the "SFO") to the Securities and
Futures Commission and further to authorise any of the directors of
the Company to execute the relevant power of attorney.
(14) The proposal regarding the convening of the annual general meeting of
year 2002.
The resolutions numbered (1), (3), (4), (6), (7), (8) and (12) above were
submitted to the general meeting of the Company for approval.
2. On 28th April 2003, in accordance with the relevant laws and requirements
under the articles of association of the Company, the Board of Directors
unanimously reviewed and approved the First Quarterly Report of 2003 by
way of written resolutions.
3. On 5th June 2003, in accordance with the relevant laws and requirements
under the articles of association of the Company, the following
resolutions were considered and approved by way of written resolutions :
(1) The proposal regarding the Company's acquisition from China Huaneng
Group a 55% interest in Henan Huaneng Qinbei Power Generation
Limited, a 60% interest in Shanxi Huaneng Yushe Power Limited and all
the assets and liabilities of China Huaneng Group Xindian Power Plant
(the "Acquisition") and the transfer agreement between the Company
and China Huaneng Group in relation of the transfer of Henan Huaneng
Qinbei Power Generation Limited, Shanxi Huaneng Yushe Power Limited
and China Huaneng Group Xindian Power Plant (the "Transfer
Agreement"):
1.1 To approve the Acquisition and the Transfer Agreement; and to
authorise Mr. Ye Daji to execute the Transfer Agreement on
behalf of the Company.
1.2 To approve the Connected Transactions Notice;
1.3 To approve the Acquisition and the Transfer Agreement to be
included in the agenda of the shareholders' general meeting,
which will take effect after approval of the shareholders.
43
(2) The proposal regarding the connected transaction due to the
Acquisition:
2.1 To approve the guarantee arrangements and the relevant
agreements between Henan Huaneng Qinbei Power Generation
Limited, Shanxi Huaneng, Xindian Power Plant and China Huaneng
Group;
2.2 To approve the facilities arrangements and the relevant
agreements between Shanxi Huaneng Yushe Power Limited and China
Huaneng Group;
2.3 To approve the deposit and facilities arrangements and the
relevant agreements between Henan Huaneng Qinbei Power Limited,
China Huaneng Group Xindian Power Plant and China Huaneng
Finance Limited;
2.4 To approve to submit connected transaction arrangements in items
2.1 and 2.3 above to general meeting, and to execute the
relevant agreements after they have been approved by the
shareholders' general meeting.
(3) To discuss and approve the proposal regarding the first temporary
shareholders' general meeting.
Since the Acquisition and the Transfer Agreement in Resolution (1)
and the connected transaction arrangements and the relevant
agreements in items 2.1 and 2.3 in Resolution (2) shall require
approval from the shareholders, the Board of Directors decided to
convene the first extraordinary general meeting. Time, date and
agenda of such meeting were to be announced later.
4. On 6th August 2003, the Board of Directors of the Company convened the
third meeting of the Fourth Session of the Board. Twelve Directors were
eligible to attend the meeting, of which twelve attended the meeting
(either in person or by proxy). The convening of this meeting complied
with the Companies Law and the articles of association of the Company.
The following resolutions were considered and passed unanimously at the
meeting:
(1) the interim report for the first half of 2003 and the summary thereof;
and
(2) the appointment of Mr Zhang Hong as Vice President of the Company.
5. On 30th September 2003, in accordance with the relevant laws and
requirements in the Articles of Association of the Company, the Board of
Directors unanimously approved the "Measures on the Management to Investor
Relationship" by way of written resolution.
6. On 21st October 2003, the Board of Directors convened the fourth meeting
of the Fourth Session of the Board. Twelve Directors were eligible to
attend the meeting, of which twelve attended the meeting (either in person
or by proxy). The convening of this meeting has complied with the
Companies Law and the articles of association of the Company. The Third
Quarterly Report of 2003 was discussed and approved at the meeting.
44
BANK LOANS AND OTHER BORROWINGS
Please refer to Notes 23 to 25 of the financial statements for details of bank
loans of the Company and its subsidiaries as at 31st December 2003.
CAPITALIZED INTEREST
Please refer to Note 10 of the financial statements for details of the Company
and its subsidiaries' capitalized borrowing costs during the year.
FIXED ASSETS
Please refer to Note 10 of the financial statements for changes in the fixed
assets of the Company and its subsidiaries during the year.
RESERVES
Please refer to Note 20 of the financial statements for the reserves of the
Company, including allocation of statutory fund during the year ended 31st
December 2003.
SUBSIDIARIES AND ASSOCIATED COMPANIES
As regards the subsidiaries and associate companies of the Company, please
refer to Notes 11 and 12 of the financial statements.
CHANGES IN SHAREHOLDERS' EQUITY
Please refer to the Statement of Changes in Shareholders' Equity of the
financial statements.
STAFF RETIREMENT SCHEME
Please refer to Note 8 of the financial statements for the Staff Retirement
Scheme.
PRE-EMPTIVE RIGHTS
According to the Articles of Association of the Company and the laws of the
PRC, there are no provisions for pre-emptive rights requiring the Company to
offer new shares to the existing shareholders of the Company in proportion to
their shareholdings when it issues such new shares.
45
MAJOR SUPPLIERS AND CUSTOMERS
The five major suppliers of the Company for year 2003 were coal suppliers,
namely Shenhua Coal Transportation Company, Datong Coal Limited Company, Shanxi
Guoyang Xinneng Limited Company, Shanxi Coking Coal Group and Zhun Ge Er
Company. The purchase amount of coal supplied by the five major suppliers was
about 30.3% of the total amount of the coal consumption of the Company in 2003.
As an independent power producer, the Company sold the electricity generated by
its power plants through local power companies and did not have other
customers.
None of the Directors, Supervisors or their respective associates (as defined
in the Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited) had any interests in the five largest suppliers or customers
mentioned above of the Company in 2003.
CONNECTED TRANSACTIONS
The Independent Directors of the Company confirmed that all connected
transactions in 2003 to which the Company and/or any of its subsidiaries was a
party:
1. had been entered into by the Company and/or any of its subsidiaries in the
ordinary and usual course of its business;
2. had been entered into either (a) on normal commercial terms (which
expression will be applied by reference to transactions of a similar
nature made by similar entities within the PRC), or (b) where there is no
available comparison, on terms that are fair and reasonable so far as the
shareholders of the Company are concerned; and
3. had been entered into either (a) in accordance with the terms of the
agreements governing such transactions, or (b) where there is no such
agreement, on terms no less favourable than terms available to third
parties.
The auditors of the Company have reviewed the connected transactions of
the Company and confirmed to the Directors that:
(a) the transactions had been approved by the Directors; and
(b) the transactions were made in accordance with the terms of the
related agreements governing such transactions.
Please refer to Note 7 of the financial statements for a brief description of
the connected transactions.
46
SHARE CAPITAL STRUCTURE
As at 31st December 2003, the total issued share capital of the Company,
excluding the shares which might be converted from the convertible notes, was
6,027,671,200 shares, of which 4,500,000,000 shares were domestic shares,
representing approximately 74.66% of the total issued share capital, and
1,527,671,200 shares were foreign shares, representing approximately 25.34% of
the total issued share capital. For domestic shares, HIPDC owns a total of
2,554,840,000 shares, representing 42.39% of the total issued share capital of
the Company. Other domestic shareholders hold a total of 1,945,160,000 shares,
representing 32.27% of the total issued share capital.
The USD230 million convertible notes issued by the Company are convertible into
foreign shares of the Company at a price of USD29.2 for each American
Depositary Share on or before 21st May 2004. As at 31st December 2003, there
was an aggregate amount of USD115,000 convertible notes which had not been
redeemed. Assuming the convertible notes were fully converted into foreign
shares of the Company, the total issued share capital of the Company would be
increased by 157,520 foreign shares at most.
As at 31st December 2003, the Company had no notice of any person redeemed the
remaining convertible notes into company's shares.
SHAREHOLDING OF THE COMPANY
The following table sets forth the shareholding position of the Company's
shares as at 31st December 2003:
NO. OF SHARES PERCENTAGE OF
OUTSTANDING SHAREHOLDING
(in thousands) (%)
DOMESTIC SHARES
Huaneng International Power Development Corporation 2,554,840 42.39
Hebei Provincial Construction Investment Company 452,250 7.50
Fujian International Trust & Investment Company 334,850 5.56
Jiangsu Province International Trust & Investment Company 312,375 5.18
Liaoning Energy Investment (Group) Limited Liability Company* 229,685 3.81
Dalian Municipal Construction Investment Company 226,125 3.75
Nantong Investment Management Centre 67,875 1.13
Shantou Electric Power Development Company 46,500 0.77
Shantou Power Development Joint Stock Company Limited 19,000 0.31
Dandong Energy Investment Development Centre 6,500 0.11
Domestic public shares 250,000 4.15
------------------------------------------------------------------------------------------------------
Sub-total 4,500,000 74.66
Foreign Shares 1,527,671 25.34
------------------------------------------------------------------------------------------------------
TOTAL 6,027,671 100.00
======================================================================================================
*Note: On 17th September 2003, Liaoning Energy Corporation changed its name to
Liaoning Energy Investment (Group) Limited Liability Company On 15th
February, 2004, China Securities Registration Limited Liability Company
altered its record accordingly.
Save as mentioned above, as at 31st December 2003, the register maintained by
the Company pursuant to section 336 of the Securities and Futures Ordinance
("SFO"). SFO recorded no other interests or short positions in shares and
underlying shares of the Company.
47
PURCHASE, SALE OR REDEMPTION OF SHARES
According to the terms as stipulated in the convertible notes issued by the
Company and at the request of a noteholder, the Company redeemed an aggregate
amount of USD209,685,000 convertible notes on 21st May 2002. Issued 273,960
overseas listed shares to a holder of convertible notes as a conversion of
USD200,000 convertible notes on 21st August 2002, and issued 27,397,240
overseas listed shares to a holder of convertible notes of USD20,000,000
convertible notes on 24th April 2003. Save and except for the above, the
Company and its subsidiaries did not sell any other types of securities and did
not purchase or redeem its own shares or other securities in 2003.
DIRECTORS' AND SUPERVISORS' INTERESTS
As at 31st December 2003, none of the directors, senior executives, supervisors
or their associates had any interests or short positions in any shares or
debentures of the Company or any associated corporation (within the meaning of
Part XV of the SFO) which were required to be recorded in the register
maintained by the Company pursuant to Section 352 of the SFO or as otherwise
notified to the Company and the Hong Kong Stock Exchange pursuant to the Model
Code for Securities Transaction by Directors of Listed Companies.
DIRECTORS' AND SUPERVISORS' INTEREST IN CONTRACTS AND SERVICE CONTRACTS
Save for the service contracts mentioned below, as at the end of 2003, the
directors and supervisors of the Company did not have any material interests in
any contracts entered into by the Company.
No director or supervisor has entered into any service contract which is not
terminable by the Company within one year without payment of compensation
(other than statutory compensation).
Each and every director and supervisor of the Company had entered into a
service contract with the Company for a term of three years commencing from the
signing of the contract.
STAFF HOUSING
The Company made allocation to the housing common reserve fund for its
employees in accordance with the relevant PRC regulations.
STAFF MEDICAL INSURANCE SCHEME
During year 2003, the Company and its subsidiaries have fulfilled their
obligations regarding staff medical insurance in accordance with the relevant
rules and regulations imposed by the local governments of the places where they
are located. The Directors of the Company are of the view that the performance
of such obligations by the Company did not and will not have significant impact
on the Company's financial position.
48
MAJOR EVENTS
1. Through tendering, the Company has acquired 25% interests in the enlarged
share capital of Shenzhen Energy Group Co. Ltd. after its increase in
share capital, enhancing the Company's market share in Guangdong region, a
rapidly-growing market for power demand. The acquisition was effective on
22nd April 2003.
2. The Company acquired 55% equity interest in Henan Huaneng Qinbei Power
Generation Limited, 60% equity interest in Shanxi Huaneng Yushe Power
Power Limited and all of the assets and liabilities of China Huaneng Group
Xindian Power Plant formerly owned by China Huaneng Group. The acquisition
took effect on 27th October 2003.
3. On 6th August 2003, the third meeting of the fourth session of the Board
of Directors of the Company approved the resolution in relation to the
appointment of Zhang Hong as Vice President.
CODE OF BEST PRACTICE
During the year, the Company has complied with the Code of Best Practice as set
out in Appendix 14 of the Rules Governing the Listing of Securities on the
Stock Exchange.
The Company established an audit committee on 23rd December 2002 with written
terms of reference. The primary duties of the audit committee are to review and
supervise the financial reporting process and internal control system of the
Company.
The audit committee comprises five members, among whom two are non-executive
Directors, namely, Messrs. Wang Xiaosong and Shan Qunying, and three are
Independent Directors, namely, Messrs. Xia Donglin, Zheng Jianchao and Qian
Zhongwei.
The audit committee has reviewed the Company's financial report for the year
ended 31st December 2003 and was of the view that the report has complied with
all applicable accounting standards and relevant regulations and laws, and has
made sufficient disclosure.
DESIGNATED DEPOSIT
As at 31st December 2003, the Company and its subsidiaries did not have any
designated deposit with any financial institutions within the PRC nor any
overdue fixed deposits which could not be recovered.
LEGAL PROCEEDINGS
As at 31st December 2003, the Company and its subsidiaries were not involved in
any material litigation or arbitration and no material litigation or claim was
pending or threatened or made against the Company and its subsidiaries.
49
ANNUAL GENERAL MEETING AND CLOSURE OF REGISTER
The annual general meeting for 2003 will be held on 11th May 2004. The H share
register of the Company will be closed from 11th April 2004 to 10th May 2004
(both dates inclusive). Shareholders on the H share register as at 16th April
2004 will be entitled to attend the 2003 annual general meeting of the Company
and to receive the cash dividends, bonus shares and new shares issued pursuant
to the capital conversion plan.
By Order of the Board
LI XIAOPENG
Chairman
Beijing, the PRC
16th March 2004
50
<< REPORT OF THE SUPERVISORY COMMITTEE
TO: ALL SHAREHOLDERS
During this reporting period, all members of the Supervisory Committee, aiming
at protecting the interest of the shareholders and the benefit of the Company,
have performed their supervisory functions in accordance with the Company Law
of the People's Republic of China ("Company Law") and the relevant provisions
in the Articles of Association of the Company and relevant laws and
regulations. By following the principle of acting honestly and in good faith,
the Supervisory Committee has carried out its work diligently. The Supervisory
Committee has also conducted review on the operational situation, financial
position of the Company for 2003 and the performance of duties of the senior
management of the Company in 2003. On behalf of the Supervisory Committee of
the Company, I am pleased to submit the working report as follows:
I. WORKING REPORT OF THE SUPERVISORY COMMITTEE FOR 2003
During the reporting period, the Supervisory Committee has held two
meetings. Details of the time, venue, attendance and contents of the
meetings are as follows:
1. On 11th March 2003, the second meeting of the fourth session of the
Supervisory Committee was held in Beijing. All seven members of the
Supervisory Committee attended the meeting in person or by proxy.
At the meeting, (1) the Working Report of the Company's Supervisory
Committee for 2002, (2) the audited financial statement of the
Company for 2002, (3) the Company's profit distribution plan for
2002, (4) the annual report and summary of the Company of 2002, and
(5) Rules and Procedures for of the Supervisory Committee of
Huangeng Power International Inc. together with its extract were
discussed and approved.
The Supervisory Committee was of the view that:
(1) In 2003, the Company strictly observed the Company Law, the
Company's Articles of Association and relevant laws and
regulations. The Directors and the senior management of the
Company, in observing their duties, did not violate laws or
regulations or the Company's Articles of Association, or
prejudice the Company's interests.
(2) All connected transactions conducted by the Company were fair
and reasonable, and did not prejudice the interests of
shareholders.
2. On 5th August 2003, the third meeting of the fourth session of the
Supervisory Committee was held in Beijing. All seven members of the
Supervisory Committee attended the meeting in person. The meeting
complied with the relevant requirements of the Company Law and the
Company's Articles of Association. The interim report of the
Company of 2003 and its summary were approved.
During the reporting period, the Supervisors of the Company
attended all meetings of the Company's Board of Directors, the
annual general meeting of 2002 and the extraordinary general
meeting in 2003. At such meetings, all members of the Supervisory
Committee conducted careful review and supervision on the lawful
operation of the Company.
51
II. INDEPENDENT OPINION OF THE SUPERVISORY COMMITTEE ON THE RELEVANT MATTERS
OF THE COMPANY IN 2003
1. LAWFUL OPERATION OF THE COMPANY
The Supervisory Committee performed effective supervision on the
procedures for convening the shareholders' meeting and board
meetings, adoption of resolutions, implementation of the
resolutions of the shareholders' meeting by the Board of Directors,
performance of duties of the senior management of the Company and
internal management system of the Company according to the relevant
laws and regulations.
The Supervisory Committee is of the view that the Board of
Directors is capable of conducting regulated operation in strict
compliance with the Companies Law, the Securities Law, the Articles
of Association of the Company and the relevant regulations and
rules and members of the Board of Directors have performed
dutifully and diligently and their decisions are scientific and
reasonable. The management systems of the Company are effective and
the business activities of the Company are lawful. Moreover, the
Company was actively improving its internal control system in line
with its development. When examining the financial conditions of
the Company and supervising the performance of duties by the
directors and senior management personnel of the Company, the
Supervisory Committee had not found any of their behaviour which
contravened any relevant laws or regulations or any issues that has
caused damage to the interests of the shareholders.
2. EXAMINING THE FINANCIAL CONDITIONS OF THE COMPANY
The Supervisory Committee has carefully examined and verified the
financial reports of the Company for 2003, profit distribution
proposal and capital conversion plan of the Company for 2003 and
the 2003 financial statements audited by the auditors inside and
outside the PRC without any reservation.
The Supervisory Committee is of the view that the financial reports
of the Company for 2003 are true and reliable and objectively
reflect the financial positions and operating results of the
Company. The Supervisory Committee agreed to the auditors' report
issued by the Company's auditors and the profit distribution
proposal and capital conversion plan of the Company for 2003.
52
3. USE OF THE FUNDS RAISED BY THE COMPANY
The most recent fund raising by the Company was the issue of A
Shares in November 2001. The actual use of the fund raised complies
with the Company's undertakings in the A share prospectus.
4. ACQUISITION AND CONNECTED TRANSACTION
During this reporting period, the Company has acquired 25% of
interests in Shenzhen Energy Group at Rmb2.39 billion, 55% of the
equity interest in the registered capital of Henan Huaneng Qinbei
Power Generation Limited, 60% of the equity interest on the
registered capital of Shanxi Huaneng Yushe Power Limited Liability
Company and all the assets and liabilities of Shandong Huaneng
Xindian Power Plant previously owned by China Huaneng Group at
Rmb550 million. The latter acquisition constituted connected
transaction under the Hong Kong Listing Rules and Shanghai Listing
Rules .
The Supervisory Committee was of the view that during the reporting
period, the consideration paid by the Company for the acquisitions
was reasonable, and was in the benefit of the Company and all of
its shareholders.
5. IMPLEMENTATION OF THE RESOLUTIONS OF THE SHAREHOLDERS' MEETING
During this reporting period, all members of the Supervisory
Committee participated in all board meetings of the Company in 2003
and attended two shareholders' meetings. The Supervisory Committee
does not have any objection to the reports and proposals submitted
by the Board of Directors to the shareholders' meetings. The
Supervisory Committee conducted careful supervision on the
implementation of the resolutions adopted at the shareholders'
meetings.
The Supervisory Committee is of the view that the Board of
Directors is capable of seriously implementing the resolutions
adopted at the shareholders' meetings.
53
The Supervisory Committee will continue to live up to the
shareholders' expectations in 2004 and as usual will work hard to
safeguard the interests of the Company and its shareholders and act
in strict compliance with the Companies Law and the relevant
provisions of the Articles of Association of the Company for the
purpose of regulating its operation. The Supervisory Committee will
perform its supervisory functions according to law, act on the
basis of honesty and credibility, enhance its supervision strength
and continue to work hard.
By Order of the Supervisory Committee
WEI YUNPENG
Chairman of the Supervisory Committee
15th March 2004
54
<< PROFILES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
DIRECTORS
LI XIAOPENG Mr. Li is Chairman of the Company, Chairman and President of HIPDC,
as well as President of China Huaneng Group. Starting from June 1994, Mr. Li
was Vice President, President and Vice Chairman of the Company as well as Vice
President, President and Vice Chairman of HIPDC, Chairman of China Huaneng
Group and Vice President of State Power Corporation. Before joining HIPDC, he
had successively served as Engineer of the Power System Research Division, as
Deputy Division Chief of the Planning and Operations Division, and as General
Manager of the Power Technology and Economic Research Division, Electric Power
Research Institute. Mr. Li is a senior engineer and graduated from the North
China Institute of Electric Power specializing in power plants and power
systems.
WANG XIAOSONG Mr. Wang is Vice Chairman of the Company, Director and Vice
President of HIPDC, and Vice President of China Huaneng Group. Beginning from
June 1994, he was General Manager of the Capital Market Department of the
Company, Vice President of the Company, Vice President of HIPDC and Director of
China Huaneng Group. Before joining the Company, he had served as Deputy
General Manager of Fushun Power Plant, General Manager of Yuanbaoshan Power
Plant and Chief of the Labour and Wages Division of Northeast Power
Administration. Mr. Wang is a senior engineer and graduated from Beijing
Institute of Electric Power specializing in thermal power engineering.
YE DAJI Mr. Ye is Director and President of the Company. After joining the
Company, he has been Deputy General Manager of Huaneng Shanghai Branch and
General Manager of Huaneng Shanghai Shidongkou Second Power Plant. From
December 1995, he was Vice President of the Company, Vice President of HIPDC
and Director of China Huaneng Group. Before joining the Company, he had served
as Deputy Chief Engineer of Huaneng Shanghai Shidongkou Second Power Plant. Mr.
Ye is a senior engineer and graduated from Shanghai Jiaotong University
specializing in mechanical engineering.
55
HUANG JINKAI Mr. Huang is the Director of the Company. He served as Director
(General Manager) of the Northeast Power Administration Group Company, Chairman
of the Company, Chairman of HIPDC, General Manager (Director) of North China
Power Group Corporation (Power Administration) and Vice Chairman of China
Huaneng Group. He is a senior engineer and graduated from Shenyang Agricultural
Institute, specialising in agricultural electrization.
LIU JINLONG Mr. Liu is the Director of the Company. He served as General
Manager of Central China Power Group Corporation and Director of Central China
Power Administration, Chairman, General Manager, and Vice Chairman of China
Huaneng Group. Mr. Liu is a senior engineer and graduated from Wuhan
Hydroelectric Institute, specialising in power generation.
SHAN QUNYING Mr. Shan is the Director of the Company and Vice President of
Hebei Provincial Construction Investment Company. He had been the Division
Chief of Hebei Provincial Construction Investment Company. Mr. Shan is a senior
engineer and graduated from Beijing Steel Institute specializing in automation.
56
YANG SHENGMING Mr. Yang is Director of the Company, Vice President of Fujian
International Trust and Investment Company Limited and Chairman of Fujian
International Leasing Company. Mr. Yang is a senior economist and graduated
from Beijing Light Industries Institute.
XU ZUJIAN Mr. Xu is Director of the Company and Chairman of Jiangsu Investment
Management Co. Ltd. He was Vice President of Jiangsu International Trust and
Investment Company Limited, President of Jiangsu Province Investment Management
Co. Ltd., Director and Vice President of Jiangsu Province Guoxin Asset
Management Group Limited Company. Mr. Xu is a senior economist. He graduated
from Liaoning Finance Institute majoring in infrastructure finance.
GAO ZONGZE Mr. Gao is an Independent Director of the Company and Senior Partner
at C&I Partners. He is an approved arbitrator of China International Economic
and Trade Arbitration Commission and China Marine Affairs Arbitration
Commission and President of All China Lawyers Association. Mr. Gao graduated
from Dalian Marine Institute and received a master's degree in law from the Law
Department of the Graduate School of the Institute of China Academy of Social
Sciences.
57
ZHENG JIANCHAO Mr. Zheng is an Independent Director of the Company and Honorary
President of China Electric Power Research Institute in China and Vice Chairman
of its Academic Committee. He was elected Fellow of Chinese Academy of
Engineering in 1995. He is Vice President of China Electrical Engineering
Institute, editor-in-chief of the Journal of Chinese Electrical Engineering and
chief of the Science and Technology Committee of China Guangdong Nuclear Power
Group Corporation. Mr. Zheng graduated from Qinghua University majoring in
electrical engineering and graduated from its Graduate School.
QIAN ZHONGWEI Mr. Qian is an Independent Director of the Company and Vice
President of the United Association of China Electric Enterprises. He has been
the Deputy Chief Engineer, Chief Engineer and Deputy Chief of the Eastern China
Power Industry Management Bureau, Director of Shanghai Electricity Bureau and
President of Eastern China Power Group Company. Mr. Qian is a senior engineer
and graduated from the electrical engineering department of Qinghua University.
XIA DONGLIN Mr. Xia is an Independent Director of the Company, a professor and
Ph.D. tutor of the Economic and Management School of Qinghua University. He is
also the Advisory Specialist of the Accounting Standard Committee of the PRC
Ministry of Finance, committee member of the China Accounting Society, and
Independent Director of Zhejiang Zhongda companies and other companies. He was
the head of Accounting Department of Economic and Management School of Qinghua
University. Mr. Xia is a certified public accountant (non-practising member).
He graduated from the Finance and Administration Science Research Institute of
Ministry of Finance, specialising in accounting and was awarded a Ph.D. degree
of Economics.
58
SUPERVISORS
WEI YUNPENG Mr. Wei is Chairman of the Supervisory Committee of the Company,
Chief Accountant of China Huaneng Group, Chief Accountant of HIPDC and Chairman
of China Huaneng Finance Limited Liability Company. He served as Chief
Accountant of the Company. He is a senior accountant. He graduated from Hunan
Institute of Electric Power, specialising in Finance and Accounting.
LIU SHUYUAN Mr. Liu is Vice Chairman of the Supervisory Committee, President of
Liaoning Energy Investment (Group) Limited Liability Company and Liaoning
Energy Corporation. He has been the General Manager of Liaoning Tieling Steel
Plant, Director of Tieling Municipal Construction Commission and Assistant to
the Mayor. Mr. Liu is a senior economist and a postgraduate specializing in
economic management.
PAN JIANMIN Mr. Pan is a member of the Supervisory Committee of the Company and
General Manager of the Finance Department of China Huaneng Group. He has served
as Deputy Division Chief of the Finance Department and Deputy General Manager
of the Supervising and Auditing Department of China Huaneng Group, and Deputy
General Manager of Beijing Huaneng Real Estate Development Company. Mr. Pan is
a senior accountant and graduated from Liaoning Economic and Finance Institute
specializing in infrastructure finance and credit.
59
LI YONGLIN Mr. Li is a member of the Supervisory Committee and Director of the
Power Department of Dalian Municipal Construction Investment Company. He was a
departmental grade researcher of the Energy and Transportation Department of
Dalian Municipal Planning Committee. Mr. Li graduated from Changchun
Hydro-electric School of Ministry of Water Resources and Electric Power,
specializing in power plants, power grids and power system.
SHEN WEIBING Mr. Shen is Supervisor of the Company and Chief Officer of Nantong
Investment Management Center. He worked in Nantong Planning Commission He was
the Vice President and President of Nantong Municipal Oil Company, Vice
President and legal representative of Nantong Municipal Construction Investment
Company, and Deputy Chief Officer of Nantong Investment Management Centre. Mr.
Shen graduated from the Department of Materials Management of Beijing Materials
Management Institute with a bachelor degree in engineering . In 2002, he
studied the MBA course in Nanjing University and obtained a Master of Business
Administration degree. Mr. Shen is a senior economist.
SHEN ZONGMIN Mr. Shen is Supervisor of the Company and President of Shantou
Electric Power Development Company. Previously, he was the President of Shantou
Light Industry Mechanical (Group) Company and Chairman of Shantou Power
Development Joint Stock Company Limited.
60
ZHAO XISHENG Mr. Zhao is Supervisor and Senior Consultant of the Company. He
has served as Deputy General Manager of the Finance Department, General Manager
of the Management Department of the Company and the General Manager of the
Company's Supervising and Auditing Department. Before joining the Company, he
served as Section Chief, Deputy Chief Accountant and Deputy General Manager of
Beijing Shijingshan Power Plant. Mr. Zhao is a senior accountant and graduated
from the People's University of China specializing in industrial economics.
SENIOR MANAGEMENT
YE DAJI (Mr), aged 58, is Director and President of the Company. After joining
the Company, he has been Deputy General Manager of Huaneng Shanghai Branch and
General Manager of Huaneng Shanghai Shidongkou Second Power Plant. From
December 1995 to December 2002, he was Vice President of the Company, Vice
President of HIPDC and Director of China Huaneng Group. Before joining the
Company, he had served as Deputy Chief Engineer of Huaneng Shanghai Shidongkou
Power Plant. Mr. Ye is a senior engineer and graduated from Shanghai Jiaotong
University specializing in mechanical engineering.
NA XIZHI (Mr), aged 50, is Vice President of the Company and Adjunct Deputy
Chief Engineer of China Huaneng Group. Before he joined the Company, he served
in China Huaneng Group as Deputy Manager of the Power Generation Department,
General Manager of the Operation Department, General Manager of the Power
Safety and Production Department, and Deputy Chief Engineer of China Huaneng
Group. Previously, Mr Na was the Vice General Manager of Fuxin Power Plant,
Deputy Officer of the Planning Department of Suizhong Power Plant, Deputy Chief
and Chief of the Bio-technology Department of Northeast Power Administration
Bureau, and General Manager of Shenyang Shenhai Thermal Power Plant. Mr Na is a
senior engineer. He graduated from Wuhan Hydro-electric University,
specializing in thermal power with a master degree in engineering.
61
ZHANG HONG (Mr), aged 57, is the Vice President of the Company and Deputy Chief
Engineer of China Huaneng Group. Mr. Zhang served as the General Manager of
Dandong Branch of the Company, General Manager of Yingkou Branch of HIPDC,
General Manager of Power Construction Department and Planning Department of
China Huaneng Group, and Deputy Chief Engineer of China Huaneng Group.
Previously, Mr. Zhang was the Manager of the Fourth Engineering Company of
Northeast Power Administration Group. He is a senior engineer and graduated
from Northeast Power Institute specializing in Management Engineering.
CHEN BAOLIANG (Mr), aged 49, is Vice President of the Company. He joined the
Company in 1996 and has worked as General Manager of Huaneng Dalian Branch and
Superintendent of Dalian Power Plant. Before joining the Company, he had been
Deputy Chief Engineer of Liaoning Qinghe Power Plant, Deputy Chief of the
Planning Department and Deputy General Manager of the Construction Department
of Tieling Power Plant, and Superintendent of Yuan Bao Shan Power Plant. Mr.
Chen is a senior engineer and graduated with a M.S. degree from North China
Electric Power University specializing in thermal power engineering.
HUANG LONG (Mr), aged 50, is Vice President of the Company as well as Secretary
of the Board of Directors. After joining the Company, he served as Deputy
General Manager and General Manager of the International Co-operation
Department of the Company. Mr. Huang is a senior engineer and graduated with a
M.S. degree from North Carolina State University in the U.S. specializing in
communications and auto-control.
62
HU JIANMIN (Mr), aged 49, is Vice President of the Company. From April 1998 to
January 2001, he worked as Chief Engineer of Shandong Electric Power Group
Corp. Before joining the Company, he had been Chairman of Shandong Rizhao Power
Company Limited, General Manager of Shandong Liaocheng Power Plant, Shiheng
Power Plant and Zouxian Power Plant respectively. Mr. Hu is a senior engineer
and graduated from Shandong Industrial Institute specializing in relay
protection.
WU DAWEI (Mr), aged 50, is Vice President of the Company. He joined the Company
in 1988 and has served as Deputy General Manager of Huaneng Shanghai Shidongkou
Second Power Plant, Deputy Manager of Shanghai branch of the Company, and the
General Manager of Huaneng Shanghai Shidongkou Second Power Plant. Mr. Wu is a
senior engineer. He has obtained a Master of Business Administration degree
from the Central Europe International Business School.
LIU GUOYUE (Mr), aged 40, is Vice President of the Company. He joined the
Company in 1987 and served as the Deputy General Manager (Vice President) and
General Manager (President) of Shijiazhuang branch (power plant) of the Company
as well as the President of Huaneng Dezhou Power Plant. Mr. Liu is a senior
engineer, graduated from Northern China Electric Power University with a
bachelor degree in engineering and a bachelor degree in business management.
63
LI SHIQI (Mr), aged 47, is the Chief Economic Engineer of the Company. During
the period from 1996 to 2002, he served as Chief Accountant of Beijing Branch
Company of HIPDC, Deputy General Manager and General Manager of the Finance
Department of the Company, and General Manager of the Marketing Department of
China Huaneng Group. Before these, Mr. Li worked in Power Science Institute as
Deputy Manager, Deputy Chief, Chief and Deputy Chief Accountant, and in Beijing
Power Research and Hi-Tech Business Corporation as Chief Accountant. Mr. Li is
a senior accountant and graduated from Renmin University of China, specializing
in finance.
HUANG JIAN (Mr), aged 41, is the Chief Accountant of the Company. He served as
Deputy Chief, Chief of the Finance Department of the Company, Chief Accountant
of the Beijing Branch Company of HIPDC, Deputy General Manager of the Finance
Department of the Company, Deputy Chief Accountant of the Company. Mr. Huang is
a senior accountant and graduated from Finance and Administration Research
Institute of the Ministry of Finance, specializing in accounting, with a master
degree in economics.
64
<< CORPORATE INFORMATION
LEGAL ADDRESS OF THE COMPANY West Wing, Building C
Tianyin Mansion
2C Fuxingmennan Street
Xicheng District
Beijing
The People's Republic of China
COMPANY SECRETARY Huang Long
58, Xizhimenbei Street
Haidian District
Beijing
The People's Republic of China
AUTHORISED REPRESENTATIVES Wang Xiaosong
Huang Long
HONG KONG SHARE REGISTRAR Hong Kong Registrars Limited
1901-5
19/F, Hopewell Centre
183 Queen's Road East
Hong Kong
DEPOSITORY The Bank of New York
Investor Relations
P.O. Box 11258
Church Street Station
New York
NY 10286-1258
USA
LEGAL ADVISERS TO THE COMPANY
As to Hong Kong law: Herbert Smith
23rd Floor, Gloucester Tower
11 Pedder Street, Central
Hong Kong
As to PRC law: Haiwen & Partners
Room 1016, Beijing Silver Tower
No.2, Dong San Huan North Road
Chaoyang District
Beijing
The People's Republic of China
As to US law: Skadden, Arps, Slate, Meagher
& Flom LLP
30th Floor, Peregrine Tower
Lippo Centre
89 Queensway
Hong Kong
65
DOMESTIC AUDITORS PricewaterhouseCoopers Zhong
Tian CPAs Limited Company
12th Floor, Shui On Plaza
333 Huai Hai Zhong Lu
Shanghai, PRC
INTERNATIONAL AUDITORS PricewaterhouseCoopers
22nd Floor
Prince's Building
Central, Hong Kong
LISTING INFORMATION
H Shares: The Stock Exchange of Hong Kong Limited
Stock Code: 902
ADSs: The New York Stock Exchange, Inc.
Ticker Symbol: HNP
A Shares: Shanghai Stock Exchange
Stock Code: 600011
PUBLICATIONS
The Company's interim and annual reports (China mainland version and Hong Kong
version) were published in August and April respectively. As required by the
United States securities laws, the Company will file an annual report in Form
20-F with the Securities and Exchange Commission of the U.S. before 30th June.
As the Company's A shares have already been issued and listed, the Company
shall, in compliance of the relevant regulations of the China Securities
Regulatory Commission and the Shanghai Stock Exchange, prepare quarterly
reports. Copies of the interim and annual reports as well as the Form 20-F,
once filed, will be available at:
Beijing: Huaneng Power International, Inc.
West Wing, Building C
Tianyin Mansion
2C Fuxingmennan Street
Xicheng District
Beijing
The People's Republic of China
Tel: (8610) 6649 1999
Fax: (8610) 6649 1860
Website: http://www.hpi.com.cn
Hong Kong: Rikes Communications Limited
Room 701, Wanchai Central Building
89 Lockhart Road
Wanchai
Hong Kong
Tel: (852) 2520 2201
Fax: (852) 2520 2241
66
AUDITORS' REPORT
TO THE SHAREHOLDERS OF HUANENG POWER INTERNATIONAL, INC.
(Incorporated in the People's Republic of China with limited liability)
We have audited the accompanying balance sheet of Huaneng Power International,
Inc. (the "Company") and consolidated balance sheet of the Company and its
subsidiaries as at 31st December, 2003 and the related consolidated income and
cash flow statements for the year then ended. These financial statements set
out on pages 73 to 122 are the responsibility of the management of the Company
and its subsidiaries. Our responsibility is to express an opinion on these
financial statements based on our audit. This 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 plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view of the
Company's financial position and the financial position of the Company and its
subsidiaries as at 31st December, 2003, and of the results of their operations
and cash flows for the year then ended in accordance with International
Financial Reporting Standards and have been properly prepared in accordance
with the disclosure requirements of the Hong Kong Companies Ordinance.
PRICEWATERHOUSECOOPERS
Certified Public Accountants
Hong Kong, 16th March, 2004
67
CONSOLIDATED INCOME STATEMENT
(Prepared in accordance with International Financial Reporting Standards) FOR
THE YEAR ENDED 31st DECEMBER, 2003 (Amounts expressed in thousands of Rmb,
except per share data)
FOR THE YEAR ENDED 31ST DECEMBER,
Note 2003 2002
OPERATING REVENUE, NET 23,388,237 18,474,469
------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Fuel (9,025,013) (6,916,038)
Maintenance (921,561) (607,951)
Depreciation (4,117,478) (3,533,609)
Labor (1,439,673) (1,035,740)
Service fees to HIPDC 7(a) (214,723) (263,716)
Others 14 (596,627) (539,401)
------------------------------------------------------------------------------------------------------------------------
Total operating expenses (16,315,075) (12,896,455)
------------------------------------------------------------------------------------------------------------------------
PROFIT FROM OPERATIONS 7,073,162 5,578,014
------------------------------------------------------------------------------------------------------------------------
Interest income 53,044 83,015
Interest expense (569,148) (561,875)
Bank charges and exchange losses, net (28,181) (31,405)
------------------------------------------------------------------------------------------------------------------------
Total financial expenses (544,285) (510,265)
------------------------------------------------------------------------------------------------------------------------
Share of profit (loss) of associates 11 212,091 (11,145)
Gain from disposal of investments 10,705 1,288
Other income, net 5 12,070 --
------------------------------------------------------------------------------------------------------------------------
PROFIT BEFORE TAX 6 6,763,743 5,057,892
Income tax expense 32 (1,149,441) (980,854)
------------------------------------------------------------------------------------------------------------------------
PROFIT BEFORE MINORITY INTERESTS 5,614,302 4,077,038
MINORITY INTERESTS 33 (183,894) (156,034)
------------------------------------------------------------------------------------------------------------------------
NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 5,430,408 3,921,004
------------------------------------------------------------------------------------------------------------------------
PROPOSED DIVIDEND 21 3,013,836 2,049,408
------------------------------------------------------------------------------------------------------------------------
PROPOSED DIVIDEND PER SHARE (RMB) 21 0.50 0.34
------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE (RMB) 34 0.90 0.65
------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE (RMB) 34 0.90 0.65
------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
68
CONSOLIDATED BALANCE SHEET
(Prepared in accordance with International Financial Reporting Standards)
AS AT 31st DECEMBER, 2003
(Amounts expressed in thousands of Rmb)
THE COMPANY AND ITS SUBSIDIARIES THE COMPANY
AS AT 31ST DECEMBER, AS AT 31ST DECEMBER,
Note 2003 2002 2003 2002
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment, net 10 42,658,365 41,103,468 34,290,511 35,952,425
Investment in associates 11 2,766,031 200,960 2,766,031 200,960
Investment in subsidiaries 12 -- -- 2,445,550 1,864,996
Available-for-sale investments 13 254,990 254,990 254,990 254,990
Land use rights and other assets 1,037,859 1,067,838 871,529 1,330,449
Deferred tax assets 29 21,311 -- 13,239 --
Goodwill 14 298,876 126,560 107,231 45,612
Less: Negative goodwill 14 (1,730,949) (1,978,227) (1,730,949) (1,978,227)
------------------------------------------------------------------------------------------------------------------------
Total non-current assets 45,306,483 40,775,589 39,018,132 37,671,205
------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Inventories, net 15 800,281 923,341 624,762 748,267
Other receivables and assets, net 16 259,421 242,905 611,444 460,037
Accounts receivable 17 2,804,026 2,361,833 2,341,204 1,985,374
Due from a subsidiary 7(h) -- -- 3,437 --
Due from related parties 7(h) 5,862 -- 5,862 --
Restricted cash 159,961 13,259 158,621 13,008
Temporary cash investments 18 144,996 1,141,502 69,660 1,136,356
Cash and cash equivalents 35(a) 4,128,648 3,002,601 3,291,923 2,703,918
------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,303,195 7,685,441 7,106,913 7,046,960
------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 53,609,678 48,461,030 46,125,045 44,718,165
========================================================================================================================
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
4,250,000,000 PRC Domestic Shares,
par value Rmb1.00 each, in form of
legal person shares 19 4,250,000 4,250,000 4,250,000 4,250,000
250,000,000 A shares,
par value Rmb1.00 each 19 250,000 250,000 250,000 250,000
1,527,671,200 (2002: 1,500,273,960)
Overseas Listed Foreign Shares,
par value Rmb 1.00 each 19 1,527,671 1,500,274 1,527,671 1,500,274
Additional paid-in capital 22 10,780,133 10,604,843 10,780,133 10,604,843
Dedicated capital 20 4,328,423 3,373,423 4,328,423 3,373,423
Equity component of convertible notes 22 255 44,647 255 44,647
Retained earnings 12,818,873 10,392,873 12,818,873 10,392,873
------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 33,955,355 30,416,060 33,955,355 30,416,060
========================================================================================================================
MINORITY INTERESTS 33 1,155,197 910,704 -- --
========================================================================================================================
69
THE COMPANY AND ITS SUBSIDIARIES THE COMPANY
AS AT 31ST DECEMBER, AS AT 31ST DECEMBER,
Note 2003 2002 2003 2002
NON-CURRENT LIABILITIES
Liability component of
convertible notes 22 -- 155,999 -- 155,999
Long-term loans from shareholders 23 -- 388,891 -- 388,891
Long-term bank loans 24 8,305,320 8,464,521 5,317,804 6,463,815
Other long-term loans 25 848,284 331,389 575,000 225,000
Other financial liabilities 38 -- 19,397 -- 19,397
Deferred tax liabilities 29 103,114 121,853 14,028 15,030
------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 9,256,718 9,482,050 5,906,832 7,268,132
------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and other
liabilities 26 3,342,517 3,734,350 2,906,516 3,583,488
Taxes payable 27 917,362 620,189 601,337 395,661
Due to HIPDC 7(h) 87,508 100,475 87,508 100,475
Due to other related parties 7(h) 27,338 -- 24,387 --
Staff welfare and bonus payable 220,896 233,566 212,875 231,726
Short-term loans 28 1,600,000 550,000 280,000 550,000
Current portion of long-term loans
from shareholders 23 388,875 388,891 388,875 388,891
Current portion of long-term
bank loans 24 2,409,240 1,928,732 1,756,074 1,783,732
Current portion of other
long-term loans 25 243,386 96,013 -- --
Liability component of
convertible notes 22 935 -- 935 --
Other financial liabilities 38 4,351 -- 4,351 --
------------------------------------------------------------------------------------------------------------------------
Total current liabilities 9,242,408 7,652,216 6,262,858 7,033,973
------------------------------------------------------------------------------------------------------------------------
Total equity and liabilities 53,609,678 48,461,030 46,125,045 44,718,165
------------------------------------------------------------------------------------------------------------------------
These financial statements have been approved for issue by the Board of
Directors on 16th March, 2004.
WANG XIAOSONG YE DAJI
Vice Chairman Director
The accompanying notes are an integral part of these financial statements.
70
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Prepared in accordance with International Financial Reporting Standards)
FOR THE YEAR ENDED 31st DECEMBER, 2003
(Amounts expressed in thousands of Rmb)
THE COMPANY AND ITS SUBSIDIARIES
EQUITY
ADDITIONAL COMPONENT OF
SHARE PAID-IN CONVERTIBLE
CAPITAL CAPITAL NOTES RETAINED
(Note 19) (Note 19) DEDICATED CAPITAL (Note 20) (Note 22) EARNINGS TOTAL
STATUTORY AND STATUTORY
DISCRETIONARY PUBLIC
SURPLUS WELFARE
RESERVE FUND FUND SUB-TOTAL
Balance at 1st January,2002 6,000,000 10,137,732 1,896,270 762,742 2,659,012 510,506 8,986,280 28,293,530
Dividend relating to 2001 -- -- -- -- -- -- (1,800,000) (1,800,000)
Net profit for the year
ended 31st December, 2002 -- -- -- -- -- -- 3,921,004 3,921,004
Conversion of convertible notes
to share capital (Note 22) 274 1,696 -- -- -- (444) -- 1,526
Redemption of convertible
notes (Note 22) -- 465,415 -- -- -- (465,415) -- --
Transfer from statutory public
welfare fund to discretionary
surplus reserve fund -- -- 15,398 (15,398) -- -- -- --
Transfer to dedicated capital -- -- 408,235 306,176 714,411 -- (714,411) --
--------------------------------------------------------------------------------------------------------------------------------
Balance at 31st December, 2002 6,000,274 10,604,843 2,319,903 1,053,520 3,373,423 44,647 10,392,873 30,416,060
Dividend relating to 2002 -- -- -- -- -- -- (2,049,408) (2,049,408)
Net profit for the year
ended 31st December, 2003 -- -- -- -- -- -- 5,430,408 5,430,408
Conversion of convertible
notes to share capital(Note 22) 27,397 175,290 -- -- -- (44,39) -- 158,295
Transfer from statutory public
welfare fund to discretionary
surplus reserve fund -- -- 2,104 (2,104) -- -- -- --
Transfer to dedicated capital -- -- 545,714 409,286 955,000 -- (955,000) --
--------------------------------------------------------------------------------------------------------------------------------
Balance at 31st December, 2003 6,027,671 10,780,133 2,867,721 1,460,702 4,328,423 255 12,818,873 33,955,355
=================================================================================================================================
The accompanying notes are an integral part of these financial statements.
71
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Prepared in accordance with International Financial Reporting Standards)
FOR THE YEAR ENDED 31st DECEMBER, 2003
(Amounts expressed in thousands of Rmb)
THE COMPANY
EQUITY
COMPONENT
ADDITIONAL OF
SHARE PAID-IN CONVERTIBLE
CAPITAL CAPITAL NOTES RETAINED
(Note19) (Note19) DEDICATED CAPITAL (Note 20) (Note 22) EARNINGS TOTAL
STATUTORY AND STATUTORY
DISCRETIONARY PUBLIC
SURPLUS WELFARE
RESERVE FUND FUND SUB-TOTAL
Balance at 1st January, 2002 6,000,000 10,137,732 1,896,270 762,742 2,659,012 510,506 8,986,280 28,293,530
Dividend relating to 2001 -- -- -- -- -- -- (1,800,000) (1,800,000)
Net profit for the year
ended 31st December, 2002 -- -- -- -- -- -- 3,921,004 3,921,004
Conversion of convertible notes
to share capital (Note 22) 274 1,696 -- -- -- (444) -- 1,526
Redemption of convertible
notes (Note 22) -- 465,415 -- -- -- (465,415) -- --
Transfer from statutory public
welfare fund to discretionary
surplus reserve fund -- -- 15,398 (15,398) -- -- -- --
Transfer to dedicated capital -- -- 408,235 306,176 714,411 -- (714,411) --
---------------------------------------------------------------------------------------------------------------------------------
Balance at 31st December, 2002 6,000,274 10,604,843 2,319,903 1,053,520 3,373,423 44,647 10,392,873 30,416,060
Dividend relating to 2002 -- -- -- -- -- -- (2,049,408) (2,049,408)
Net profit for the year
ended 31st December, 2003 -- -- -- -- -- -- 5,430,408 5,430,408
Conversion of convertible
notes to share capital (Note 22) 27,397 175,290 -- -- -- (44,392) -- 158,295
Transfer from statutory public
welfare fund to discretionary
surplus reserve fund -- -- 2,104 (2,104) -- -- -- --
Transfer to dedicated capital -- -- 545,714 409,286 955,000 -- (955,000) --
---------------------------------------------------------------------------------------------------------------------------------
Balance at 31st December, 2003 6,027,671 10,780,133 2,867,721 1,460,702 4,328,423 255 12,818,873 33,955,355
=================================================================================================================================
The accompanying notes are an integral part of these financial statements.
72
CONSOLIDATED CASH FLOW STATEMENT
(Prepared in accordance with International Financial Reporting Standards)
FOR THE YEAR ENDED 31st DECEMBER, 2003
(Amounts expressed in thousands of Rmb)
FOR THE YEAR ENDED 31ST DECEMBER,
Note 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 6,763,743 5,057,892
Adjustments to reconcile profit before tax to net
cash provided by operating activities:
Depreciation 4,117,478 3,533,609
Amortization of prepaid land use rights 19,136 16,847
Amortization of goodwill and negative goodwill (222,108) (246,128)
Amortization of other long-term assets 41,566 24,112
Provision for bad debts 12,567 15,826
Reversal of provision for inventory obsolescence (751) (945)
Gain from disposal of investments (10,705) (1,288)
Loss on disposals of fixed assets 138,726 31,980
Unrealized exchange loss 1,094 4,846
Gain on interest rate swaps (11,771) (2,179)
Share of (profit)/loss of associates (212,091) 11,145
Interest income (53,044) (83,015)
Interest expenses 569,148 561,875
Changes in working capital:
Restricted cash (146,702) (13,259)
Accounts receivable (353,637) (496,559)
Due from other related parties (5,862) --
Inventories 159,419 (39,272)
Other receivables and assets (65,900) 92,579
Accounts payable and other liabilities 226,584 279,019
Taxes payable 131,281 44,070
Due to HIPDC (12,967) 65,891
Due to Huaneng Group (13,968) --
Due to other related parties 27,338 (3,225)
Staff welfare and bonus payable (12,670) (152,033)
Interest paid (617,162) (733,600)
Income tax paid (989,635) (984,047)
Interest received 54,182 95,577
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,533,289 7,079,718
========================================================================================================================
73
FOR THE YEAR ENDED 31ST DECEMBER,
Note 2003 2002
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,606,704) (1,594,210)
Proceeds from disposals of fixed assets 7,679 41,567
(Increase)/decrease in other long-term assets (29,355) 3,412
Decrease in temporary cash investments 1,066,629 5,082,568
Proceeds from disposal of investments 80,704 2,390
Cash consideration paid for available-for-sale investment 13 -- (254,990)
Cash consideration paid for acquisitions 3 (2,940,000) (2,759,435)
Direct costs paid for acquisitions 3 (19,618) (17,042)
Cash inflow from the acquired power plants 3 215,585 569,841
------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (5,225,080) 1,074,101
------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of short-term loans 769,000 120,000
Repayment of short-term loans (450,000) (190,000)
Repayment of long-term loans from shareholders (388,988) (15,565)
Drawdown of long-term bank loans 1,016,230 173,379
Repayment of long-term bank loans (2,322,348) (2,954,748)
Drawdown of other long-term bank loans 350,000 --
Repayment of other long-term loans (36,060) (283,683)
Capital injection from minority shareholders of the subsidiaries 77,632 --
Dividend paid to shareholders of the Company (2,049,408) (1,800,000)
Dividend paid to minority shareholders of the subsidiaries (148,220) (138,947)
Redemption of convertible notes -- (2,234,790)
------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (3,182,162) (7,324,354)
------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,126,047 829,465
Cash and cash equivalents, beginning of year 3,002,601 2,173,136
------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 35(a) 4,128,648 3,002,601
========================================================================================================================
The accompanying notes are an integral part of these financial statements.
74
NOTES TO THE FINANCIAL STATEMENTS
(Prepared in accordance with International Financial Reporting Standards)
(Amounts expressed in thousands of Rmb unless otherwise stated)
1. COMPANY ORGANIZATION AND PRINCIPAL ACTIVITIES
Huaneng Power International, Inc. (the "Company") was incorporated in the
People's Republic of China (the "PRC") as a Sino-foreign joint stock limited
company on 30th June, 1994. As at 31st December, 2003, the Company and its
subsidiaries had 17,886 employees (2002: 15,222 employees).
The Company and its subsidiaries are principally engaged in the generation and
sale of electric power to the respective regional or provincial grid companies.
Particulars of the Company's, its subsidiaries' and its associates' operating
power plants are as follows:
TOTAL INSTALLED
CAPACITY OF THE EQUITY PORTION
COMPANY, ITS OF TOTAL
SUBSIDIARIES CAPACITY OF THE PROVINCE/
AND ASSOCIATES COMPANY MUNICIPALITY
OPERATING PLANTS (MW) (MW) LOCATED
The Company:
Huaneng Dalian Power Plant (the "Dalian Power Plant") 700 700 Liaoning
Huaneng Shangan Power Plant (the "Shangan Power Plant") 700 700 Hebei
Huaneng Nantong Power Plant (the "Nantong Power Plant") 704 704 Jiangsu
Huaneng Fuzhou Power Plant (the "Fuzhou Power Plant") 700 700 Fujian
Huaneng Shantou Oil-Fired Power Plant
(the "Shantou Oil-Fired Power Plant") 103 103 Guangdong
Huaneng Shantou Coal-Fired Power Plant (the "Shantou Power Plant") 600 600 Guangdong
Huaneng Shangan Power Plant Phase II ( the "Shangan Phase II") 600 600 Hebei
Huaneng Shanghai Shidongkou Second Power Plant
(the "Shanghai Power Plant") 1,200 1,200 Shanghai
Huaneng Dalian Power Plant Phase II (the "Dalian Phase II") 700 700 Liaoning
Huaneng Dandong Power Plant (the "Dandong Power Plant") 700 700 Liaoning
Huaneng Nantong Power Plant Phase II (the "Nantong Phase II") 700 700 Jiangsu
Huaneng Fuzhou Power Plant Phase II (the "Fuzhou Phase II") 700 700 Fujian
Huaneng Nanjing Power Plant (the "Nanjing Power Plant") 640 640 Jiangsu
Huaneng Dezhou Power Plant (the "Dezhou Power Plant") 2,520 2,520 Shandong
Huaneng Jining Power Plant (the "Jining Power Plant") (Note 3) 595 595 Shandong
Huaneng Changxing Power Plant (the "Changxing Power Plant)(Note 3) 250 250 Zhejiang
Huaneng Shanghai Shidongkou I Power Plant
(the "Shidongkou I Power Plant") (Note 3) 1,200 1,200 Shanghai
Huaneng Xindian Power Plant (the "Xindian Power Plant")(Note 3) 450 450 Shandong
75
1. COMPANY ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
TOTAL INSTALLED
CAPACITY OF THE EQUITY PORTION
COMPANY, ITS OF TOTAL
SUBSIDIARIES CAPACITY OF THE PROVINCE/
AND ASSOCIATES COMPANY MUNICIPALITY
OPERATING PLANTS (MW) (MW) LOCATED
Subsidiaries:
Huaneng Weihai Power Limited Liability Company
(the "Weihai Power Company") 850 510 Shandong
Suzhou Industrial Park Huaneng Power Limited Liability Company
(the "Taicang Power Company") (Note 3) 600 450 Jiangsu
Jiangsu Huaneng Huaiyin Power Limited Company
(the "Huaiyin Power Company") (Note 3) 400 255 Jiangsu
Shanxi Huaneng Yushe Power Co., Ltd.
(the "Yushe Power Company") (Note 3) 200 120 Shanxi
Associates:
Shandong Rizhao Power Company Ltd. (the "Rizhao Power Company") 700 178 Shandong
Shenzhen Energy Group Co., Ltd. ("SEG") (Note 3) 1,844 461 Guangdong
------------------------------------------------------------------------------------------------------------------------
Total 18,356 15,736
------------------------------------------------------------------------------------------------------------------------
The parent company and ultimate parent company of the Company are Huaneng
International Power Development Corporation ("HIPDC") and China Huaneng Group
Corporation ("Huaneng Group") respectively. Both companies are incorporated in
the PRC.
2. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below:
(a) Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). The consolidated
financial statements have been prepared under the historical cost convention.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge of current events and
actions, actual results ultimately may differ from those estimates.
76
2. ACCOUNTING POLICIES (Cont'd)
(b) Principles of consolidation
(i) Subsidiaries
Subsidiaries, which are those entities in which the Company has an
interest of more than one half of the voting rights or otherwise has
power to govern the financial and operating policies are
consolidated.
Subsidiaries are consolidated from the date on which control is
transferred to the Company and are no longer consolidated from the
date that control ceases. The purchase method of accounting is used
to account for the acquisition of subsidiaries. The cost of an
acquisition is measured as the fair value of the assets given up,
shares issued or liabilities undertaken at the date of acquisition
plus costs directly attributable to the acquisition. The excess of
the cost of acquisition over the fair value of the net assets of the
subsidiary acquired is recorded as goodwill. See Note 2(f) for the
accounting policy on goodwill. Intercompany transactions, balances
and unrealized gains on transactions between group companies are
eliminated; unrealized losses are also eliminated unless cost cannot
be recovered. Where necessary, accounting policies of subsidiaries
have been changed to ensure consistency with the policies adopted by
the Company.
(ii) Associates
Associates are entities over which the Company generally has between
20% and 50% of the voting rights, or over which the Company has
significant influence, but which it does not control. Investments in
associates are accounted for by the equity method of accounting.
Under this method the company's share of the post-acquisition profits
or losses of associates is recognized in the income statement and its
share of post-acquisition movements in reserves is recognized in
reserves. The cumulative post-acquisition movements are adjusted
against the cost of the investment. Unrealized gains on transactions
between the Company and its associates are eliminated to the extent
of the Company's interest in the associates; unrealized losses are
also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. The Company's investment in
associates includes goodwill (net of accumulated amortization) on
acquisition. When the Company's share of losses in an associate
equals or exceeds its interest in the associates, the Company does
not recognize further losses, unless the Company has incurred
obligations or made payments on behalf of the associates.
(c) Foreign currency translation
(i) Measurement currency
Items included in the financial statements of each entity in the
Company and its subsidiaries are measured using the currency that
best reflects the economic substance of the underlying events and
circumstances relevant to that entity ("the measurement currency").
The consolidated financial statements are presented in Renminbi
("Rmb"), which is the measurement currency of the Company and its
subsidiaries.
(ii) Transactions and balances
Foreign currency transactions are translated into the measurement
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation of monetary
assets and liabilities denominated in foreign currencies, are
recognized in the income statement.
Translation differences on debt securities and other monetary
financial assets measured at fair value are included in foreign
exchange gains and losses.
77
2. ACCOUNTING POLICIES (Cont'd)
(d) Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated
depreciation and accumulated impairment loss. When assets are sold or retired,
their cost and accumulated depreciation and accumulated impairment loss are
eliminated from the accounts and any gain or loss resulting from their disposal
is determined by comparing proceeds with the carrying amount and is included in
the income statement.
The initial cost of property, plant and equipment comprises its purchase price,
including import duties and non-refundable purchase taxes and any directly
attributable costs of bringing the asset to its working condition and location
for its intended use.
Expenditures incurred after the property, plant and equipment have been put
into operation, such as repairs and maintenance and overhaul costs, are
normally charged to income statement in the period the costs are incurred. In
situations where it can be clearly demonstrated that the expenditures have
resulted in an increase in the future economic benefits expected to be obtained
from the use of an item of property, plant and equipment beyond its originally
assessed standard of performance, the expenditures are capitalised as an
additional cost of property, plant and equipment.
Depreciation is calculated on a straight-line basis to write off the cost of
each asset to their estimated residual value over their estimated useful life
as follows:
Buildings 8-35 years
Electric utility plant in service 4-30 years
Transportation facilities 13-27 years
Others 5-13 years
The useful life and depreciation method are reviewed periodically to ensure
that the method and period of depreciation are consistent with the expected
pattern of economic benefits from items of property, plant and equipment.
Where the carrying amount of an asset is greater than its estimated recoverable
amount, it is written down immediately to its recoverable amount.
Construction-in-progress represents plants and properties under construction
and is stated at cost. This includes the costs of construction, plant and
machinery and other direct costs. Construction-in-progress is not depreciated
until such time as the relevant asset is completed and ready for its intended
use.
Interest costs on borrowings to finance the construction of property, plant and
equipment are capitalized during the period of time that is required to
complete and prepare the asset for its intended use. Other borrowing costs are
expensed.
78
2. ACCOUNTING POLICIES (Cont'd)
(e) Investments
The Company and its subsidiaries classify its investments in debt and equity
securities into the following categories: trading, held-to-maturity and
available-for-sale. The classification is dependent on the purpose for which
the investments were acquired. Management determines the classification of its
investments at the time of the purchase and re-evaluates such designation on a
regular basis. Investments that are acquired principally for the purpose of
generating a profit from short-term fluctuations in price are classified as
trading investments and included in current assets; for the purpose of these
financial statements short term is defined as 3 months. Investments with a
fixed maturity that management has the intent and ability to hold to maturity
are classified as held-to-maturity and are included in non-current assets,
except for maturities within 12 months from the balance sheet date which are
classified as current assets. Investments intended to be held for an indefinite
period of time, which may be sold in response to needs for liquidity or changes
in interest rates, are classified as available-for-sale; and are included in
non-current assets unless management has the express intention of holding the
investment for less than 12 months from the balance sheet date or unless they
will need to be sold to raise operating capital, in which case they are
included in current assets.
Purchases and sales of investments are recognized on the trade date, which is
the date that the Company and its subsidiaries commits to purchase or sell the
asset. Cost of purchase includes transaction costs. Trading and
available-for-sale investments are subsequently carried at fair value.
Held-to-maturity investments are carried at amortized cost, which is the amount
at which the investment was measured at initial recognition less principal
repayments, plus or minus the amortization of any difference between that
initial amount and maturity amount by using the effective yield method.
Realized and unrealized gains and losses arising from changes in the fair value
of trading investments are included in the income statement in the period in
which they arise. Unrealized gains and losses arising from changes in the fair
value of securities classified as available-for-sale are recognized in equity.
The fair values of investments are based on quoted bid prices or amounts
derived from cash flow models. Fair values for unlisted equity securities are
estimated using applicable price/earnings or price/cash flow ratios refined to
reflect the specific circumstances of the issuer. Equity securities for which
fair values cannot be measured reliably are recognized at cost less impairment.
When securities classified as available-for-sale are sold or impaired, the
accumulated fair value adjustments are included in the income statement as
gains and losses from investment securities.
(f) Goodwill and negative goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Company's share of the net assets of the acquired
subsidiary/associate at the date of acquisition, and negative goodwill
represents the excess of the fair value of the Company's share of the net
assets of the acquired subsidiary/associate over the cost of an acquisition at
the date of acquisition.
Goodwill and negative goodwill are amortized using the straight-line method
over its estimated useful life and recognized in the income statement.
Management determines the estimated useful life of goodwill and negative
goodwill based on the remaining weighted average useful life of the
identifiable acquired depreciable/amortizable assets of the respective business
at the time of the acquisition.
At each balance sheet date the Company assesses whether there is any indication
of impairment. If such indications exist an analysis is performed to assess
whether the carrying amount of goodwill is fully recoverable. A write down is
made if the carrying amount exceeds the recoverable amount.
79
2. ACCOUNTING POLICIES (Cont'd)
(g) Impairment of long lived assets
Property, plant and equipment and other non-current assets, including goodwill
and intangible assets are reviewed for impairment losses whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized for the amount by which the
carrying amount of the asset exceeds its recoverable amount which is the higher
of an asset's net selling price and value in use. The net selling price is the
amount obtainable from the sale of an asset in an arm's length transaction less
the cost of disposal while value in use is the present value of estimated
future cash flow expected to arise from the continuing use of an asset and from
its disposal at the end of its useful life. For the purposes of assessing
impairment, assets are grouped at the lowest level for which there are
separately identifiable cash flows.
(h) Inventories
Inventories consist of fuel, materials and supplies. They are stated at the
lower of weighted average costs or net realizable values after provision for
obsolete items, and are expensed to fuel costs or repairs and maintenance when
used, or capitalised to fixed assets when installed, as appropriate. Cost of
inventories includes direct material cost and transportation expenses incurred
in bringing the inventories to the working locations.
(i) Receivables
Receivables are carried at original invoice amount less provision made for
impairment of these receivables. A provision for impairment of receivables is
established when there is an objective evidence that the Company and its
subsidiaries will not be able to collect all amounts due according to the
original terms of receivables.
(j) Temporary cash investments
Temporary cash investments are cash invested in fixed-term deposits with
original maturities ranging from more than 3 months to one year. Temporary cash
investments are classified as held-to-maturity investments and are carried at
amortized cost (see Note 2(e)).
(k) Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the
purposes of the cash flow statement, cash and cash equivalents comprise cash on
hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of 3 months or less.
80
2. ACCOUNTING POLICIES (Cont'd)
(l) Borrowings and Convertible Notes
Borrowings are recognized initially at the proceeds received, net of
transaction costs incurred. Borrowings are subsequently stated at amortized
cost using the effective yield method; any difference between proceeds (net of
transaction costs) and the redemption value is recognized in the income
statement over the period of the borrowings.
The proceeds received on the issue of the convertible notes were allocated into
liability and equity components. Upon initial recognition, the liability
component represents the present value, at the issuance date, of the
contractually determined stream of cash flows discounted at the market interest
rate for instruments of comparable credit status providing substantially the
same cash flows, on the same terms, but without the conversion option. The
equity component is then determined by deducting the liability component from
the proceeds received on the issue of the notes. After the initial recognition,
the liability component is measured at amortized cost.
(m) Provisions
Provisions are recognized when the Company and its subsidiaries have a present
legal or constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount can be made. Where the Company and its
subsidiaries expect a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognized as a separate asset but
only when the reimbursement is virtually certain.
(n) Equity transaction costs
Incremental external costs directly attributable to the issue of new shares,
other than in connection with business combinations, are shown in equity as a
deduction, net of tax, from the proceeds. Share issue costs incurred, if any,
directly in connection with a business combination are included in the cost of
acquisition.
(o) Revenue and income recognition
Revenue and income are recognized when it is probable that the economic
benefits associated with the transaction will flow to the Company and its
subsidiaries and the amount of the revenue and income can be measured reliably.
(i) Operating revenue, net
Net operating revenue represents amounts earned for electricity
generated and transmitted to the respective regional or provincial
grid companies (net of value added tax ("VAT") and deferred revenue).
Revenue is earned and recognized upon transmission of electricity to
the power grid controlled and owned by the respective grid companies.
(ii) Interest income
Interest income from deposits in banks or other financial
institutions is recognized on a time proportion basis that reflects
the effective yield on the assets.
(iii) Management service income
As mentioned in Note 5, the company provides management services to
certain power plants owned by Huaneng Group and HIPDC. The Company
recognizes the service income as other income when service is
provided in accordance with the management service agreement.
81
2. ACCOUNTING POLICIES (Cont'd)
(p) Borrowing costs
Borrowing costs generally are expensed as incurred. Borrowing costs are
capitalised as part of the cost of property, plant and equipment, if they are
directly attributable to the acquisition, construction or production of a
qualifying asset. Capitalisation of borrowing costs commences when the
activities to prepare the asset are in progress and expenditures and borrowing
costs are being incurred. Borrowing costs are capitalised until the assets are
substantially ready for their intended use. Borrowing costs include interest
charges and other costs incurred in connection with the borrowing of funds,
including exchange differences arising from foreign currency borrowings used to
finance these projects to the extent that they are regarded as an adjustment to
interest costs.
(q) Operating leases
Leases where a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged
to the income statement on a straight-line basis over the period of the lease.
(r) Taxation
(i) VAT
Under the relevant PRC tax laws, the Company and its subsidiaries are
subject to Value Added Tax ("VAT"). The Company and its subsidiaries
are subject to output VAT levied at 17% of the Company's and its
subsidiaries' operating revenue. The input VAT can be used to offset
the output VAT levied on operating revenue to determine the net VAT
payable. Because the VAT is a tax on the customer and the Company and
its subsidiaries collect such tax from the customers and pay such tax
to the suppliers on behalf of the tax authority, the VAT has not been
included in operating revenues or operating expenses.
(ii) Income Tax
In accordance with the practice notes on the PRC income tax laws
applicable to Sino-foreign enterprises investing in energy and
transportation infrastructure businesses, the reduced income tax rate
of 15% (after the approval of State Tax Bureau) are applicable across
the country.
All the power plants (except for the Dezhou Power Plant, Jining Power
Plant, Changxing Power Plant, Shidongkou I Power Plant, Xindian Power
Plant and Dalian Phase II) are exempted from income tax for two years
starting from the first profit-making year, after offsetting all tax
losses carried forward from the previous years (at most five years),
followed by a 50% reduction of the applicable tax rate for the next
three years ("tax holiday").
The tax holiday of the Dalian Power Plant, the Shangan Power Plant,
the Nantong Power Plant, the Fuzhou Power Plant, the Shantou
Oil-Fired Power Plant, the Shanghai Power Plant and the Nanjing Power
Plant had already expired prior to 2003. The tax holiday of Shang'an
Phase II expired in 2003, the tax holiday of the Nantong Phase II and
Fuzhou Phase II will expire in 2004, and the tax holiday of Shantou
Power Plant will expire in 2005.
82
2. ACCOUNTING POLICIES (Cont'd)
(r) Taxation (Cont'd)
(ii) Income Tax (Cont'd)
The statutory income tax is assessed on an individual power plant
basis, based on each of their results of operations. The commencement
dates of tax holiday of each power plant are individually determined.
The statutory income tax rates applicable to the head office,
Shandong branch and the operating power plants, after taking the
effect of tax holidays into consideration, are summarized below:
2003 2002
Head Office 15.0% 15.0%
Dalian Power Plant
(including Dalian Phase II) 18.0% 18.0%
Shangan Power Plant 18.0% 18.0%
Shangan Phase II 9.0% 9.0%
Nantong Power Plant 15.0% 15.0%
Nantong Phase II * 7.5 % 7.5%
Fuzhou Power Plant 15.0% 15.0%
Fuzhou Phase II ** 7.5% 7.5%
Shantou Oil-Fired Plant 15.0% 15.0%
Shantou Power Plant *** 10.0% 7.5%
Shanghai Power Plant 16.5% 16.5%
Dandong Power Plant ***** -- --
Nanjing Power Plant 15.0% 15.0%
Shandong Branch 17.0% 17.0%
Dezhou Power Plant 17.0% 17.0%
Jining Power Plant 15.0% 15.0%
Changxing Power Plant 16.5% 16.5%
Shidongkou I Power Plant 18.0% 33.0%
Xindian Power Plant **** 18.0% Not Applicable
Weihai Power Company 33.0% 33.0%
Taicang Power Company 33.0% 33.0%
Huaiyin Power Company 33.0% 33.0%
Yushe Power Company **** 33.0% Not Applicable
--------------------------------------------------------------------
* In accordance with Su Guo Shui Han [2003] No. 248 and Tong Guo
Shui Wai Zi [2003] No.1, the tax holiday of the Nantong Phase II
is determined separately from the Nantong Power Plant. The
Nantong Phase II is entitled to a 50% reduction of the
applicable tax rate from 1st January, 2002 to 31st December,
2004. The Nantong Phase II is currently negotiating with the
Jiangsu State Tax Bureau for a refund of the overpaid income tax
for the year ended 31st December, 2002.
** In accordance with Min Guo Shui Han [2003] No. 37 the tax
holiday of the Fuzhou Phase II is determined separately from the
Fuzhou Power Plant. The Fuzhou Phase II is entitled to a 50%
reduction of the applicable tax rate from 1st January, 2002 to
31st December, 2004. The Fuzhou Power Plant is currently
negotiating with the Fujian State Tax Bureau for a refund of the
overpaid income tax for the year ended 31st December, 2002.
83
2. ACCOUNTING POLICIES (Cont'd)
(r) Taxation (Cont'd)
(ii) Income Tax (Cont'd)
*** In accordance with the approval from Shantou State Tax Bureau
Shewai Branch dated 16th January, 2003, the Shantou Power
Plant is qualified as a foreign invested advanced technology
enterprise and is, therefore, entitled to extend its tax
holiday for three years from 1st January, 2003 to 31st
December, 2005. The applicable tax rate during the extension
is 10%.
**** Not applicable in 2002 as they were not subsidiaries or
branches of the Company.
***** The tax holiday of Dandong Power Plant has not commenced yet
as it has not recovered all of the accumulated deficits.
The income tax charge is based on profit for the year and after
considering deferred taxation.
Deferred income tax is provided in full, using the liability method,
on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements.
Currently enacted tax rates are used in the determination of deferred
income tax. Deferred tax assets are recognized to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilized. Deferred income tax
is provided on temporary differences arising on investments in
subsidiaries and associates, except where the timing of the reversal
of the temporary difference can be controlled and it is probable that
the temporary difference will not reverse in the foreseeable future.
(s) Employee benefits
Pension obligations
The Company and its subsidiaries have various defined contribution plans in
accordance with the local conditions and practices in the provinces in which
they operate. A defined contribution plan is a pension plan under which the
Company and its subsidiaries pay fixed contributions into a separate entity (a
fund) and will have no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all employee
benefits relating to employee service in the current and prior periods.
For defined contribution plans, the Company and its subsidiaries pay
contributions to publicly administered pension insurance plans on a mandatory,
contractual or voluntary basis. Once the contributions have been paid, the
Company and subsidiaries have no further payment obligations. The regular
contributions constitute net periodic costs for the year in which they are due
and as such are included in staff costs.
(t) Related parties
Parties are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence.
84
2. ACCOUNTING POLICIES (Cont'd)
(u) Financial instruments
Financial instruments are classified as liabilities or equity in accordance
with the substance of the contractual arrangement. Interest, dividends, gains
and losses relating to a financial instrument classified as a liability, are
reported as expense or income. Distributions to holders of financial
instruments classified as equity are charged directly to equity. When the
rights and obligations regarding the manner of settlement of financial
instruments depend on the occurrence or non-occurrence of uncertain future
events or on the outcome of uncertain circumstances that are beyond the control
of both the issuer and the holder, the financial instrument is classified as a
liability unless the possibility of the issuer being required to settle in cash
or another financial asset is remote at the time of issuance, in which case the
instrument is classified as equity.
Financial instruments are reviewed for impairment at each balance sheet date.
For financial assets carried at amortized cost, whenever it is probable that
the Company and its subsidiaries will not collect all amounts due according to
the contractual terms of loans, receivables or held-to-maturity investments, an
impairment or bad debt loss is recognized in the income statement. Reversal of
impairment losses previously recognized is recorded when the decrease in
impairment loss can be objectively related to an event occurring after the
write-down. Such reversal is recorded in income. However, the increased
carrying amount is only recognized to the extent it does not exceed what
amortized cost would have been had the impairment not been recognized.
(v) Contingencies
Contingent liabilities are not recognized in the financial statements. They are
disclosed unless the possibility of an outflow of resources embodying economic
benefits is remote. A contingent asset is not recognized in the financial
statements but disclosed when an inflow of economic benefits is probable.
(w) Dividends
Dividends are recorded in the financial statements of the Company and its
subsidiaries in the period in which they are approved by the shareholders of
the Company and its subsidiaries.
85
3. ACQUISITIONS
During 2002 and 2003, the Company acquired a number of power plants from both
the Huaneng Group as well as other parties. These acquisitions have been
accounted for under the purchase method of accounting. These acquisitions
became effective when, amongst other things, the Company obtained minority
shareholders' approval where applicable and all necessary government approvals
and made payment of the purchase considerations. All of the acquisitions by the
Company were paid by cash.
Details of these acquisitions are shown in the table below:
FOR THE YEAR ENDED 31ST DECEMBER, 2003
ACQUISITION OF SUBSIDIARIES
AND NET ASSETS ACQUISITION OF AN ASSOCIATE
55% equity interest in
Henan Huaneng Qinbei
Power Co., Ltd. (the
"Qinbei Power Company"),
60% equity interest in
Yushe Power Company
and all of the assets and 25% equity interest in SEG's
liabilities of Xindian Power enlarged share capital
Equity interest acquired Plant* (Note 11)
Acquired from Huaneng Group Shenzhen Investment Holding
Corporation ("SIH") and SEG
Effective date 27th October, 2003 22nd April, 2003
Consideration paid Rmb550 million Rmb 2,390 million
Direct cost of acquisition Rmb12 million Rmb15 million
Fair value of net assets acquired Rmb382 million Rmb1,585 million
Goodwill Rmb180 million Rmb820 million
------------------------------------------------------------------------------------------------------------------
86
3. ACQUISITIONS (Cont'd)
FOR THE YEAR ENDED 31ST DECEMBER, 2002
ACQUISITION OF
SUBSIDIARIES,
AN ASSOCIATE
AND NET ASSETS ACQUISITION OF ADDITIONAL EQUITY INTERESTS IN SUBSIDIARIES
70% equity interest in
Shidongkou I Power
Plant, 70% equity
interest in Taicang 30% additional
Power Company, equity interest 19.48%
44.16% equity interest in Shidongkou I additional
in Huaiyin Power Company Power Plant and equity
and all of the 25% additional additional 5% interest
assets and liabilities equity interest equity interest in Huaiyin
Equity interest of Changxing Power in Jinning Taicang Power Power
acquired Plant* Power Plant Company Company*
Jiangsu
Shandong Huaiyin
Electricity Investment
Power Group Company
Acquired from Huaneng Group Corporation Huaneng Group ("JHIC")
Effective date 1st July, 18th June, 31st December, 31st December,
2002 2002 2002 2002
Consideration paid Rmb2,050 million Rmb109 million Rmb415 million Rmb185 million
Direct cost of acquisitions Rmb18 million -- Rmb4 million --
Fair value of net
assets acquired Rmb2,047 million Rmb106 million Rmb374 million Rmb109 million
Goodwill Rmb21 million Rmb3 million Rmb45 million Rmb76 million
------------------------------------------------------------------------------------------------------------------------
87
3. ACQUISITIONS (Cont'd)
* The aggregated assets and liabilities arising from these acquisitions of
subsidiaries and net assets in 2002 and 2003 were as follows:
2003 2002
Rmb'000 Rmb'000
Property, plant and equipment, net 3,085,503 4,923,490
Deferred tax assets 21,809 --
Other long-term assets 18,667 121,324
Inventories 35,608 164,127
Other current assets 96,608 54,402
Accounts receivable 88,556 458,103
Cash and cash equivalents 215,585 569,841
Minority Interest (115,639) (829,320)
Long-term loans (1,706,104) (2,039,735)
Due to Huaneng Group (13,968) --
Deferred tax liabilities -- (109,568)
Current liabilities (1,344,842) (1,156,534)
------------------------------------------------------------------------------------------------
Fair value of net assets acquired 381,783 2,156,130
Add: Goodwill 179,997 97,280
Less: Direct costs of acquisition (11,780) (18,410)
------------------------------------------------------------------------------------------------
Total consideration paid 550,000 2,235,000
Add: Direct costs of acquisition paid 2,528 17,042
Less: Cash inflow from the acquired power plants (215,585) (569,841)
------------------------------------------------------------------------------------------------
Net cash outflow for the acquisitions 336,943 1,682,201
------------------------------------------------------------------------------------------------
88
4. FINANCIAL RISK MANAGEMENT
(1) Financial risk factors
The Company and its subsidiaries' activities expose them to a variety of
financial risks, including the effects of changes in debt and equity market
prices, foreign currency exchange rates and interest rates. The Company and its
subsidiaries' overall risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse effects on the
financial performance of the Company and its subsidiaries. The Company and its
subsidiaries use derivative financial instruments such as interest rate swaps
to hedge certain exposures.
(a) Interest rate risk
The Company's floating rate bank loans expose the Company to interest
rate risk. The Company uses derivative instruments when considered
appropriate, to manage exposures arising from changes in interest
rates by entering into interest rate swap agreements with PRC banks
to convert certain floating rate bank loans into fixed rate debts of
the same principal amounts and for the same maturities to hedge
against cash flow interest rate risk.
The interest rates and terms of repayment of the convertible notes,
shareholders loans, bank loans and other loans of the Company and its
subsidiaries are disclosed in Notes 22, 23, 24, 25 and 28.
(b) Foreign currency risk
The Company and its subsidiaries have foreign currency risk as a
significant portion of its long-term bank loans, shareholders loans
and other loans are denominated in foreign currencies, principally US
dollars, as described in Note 23, 24(b) and 25. Fluctuation of
exchange rates of Renminbi against foreign currencies could affect
the Company and its subsidiaries' results of operation.
(c) Credit risks
Significant portions of the Company and its subsidiaries' cash and
cash equivalents and temporary cash investments maturing over 3
months are deposited with the four largest state-owned banks of the
PRC and a non-bank financial institution in the PRC, which is a
related party of the Company.
Each power plant of the Company and its subsidiaries sells the
electricity generated to its sole customer (the provincial or
regional grid companies) in the province or region where the power
plant is situated.
89
4. FINANCIAL RISK MANAGEMENT (Cont'd)
(2) Fair value estimation
The fair value of publicly traded derivatives and trading and
available-for-sale securities is based on quoted market prices at the balance
sheet date.
In assessing the fair value of non-traded derivatives and other financial
instruments, the Company and its subsidiaries use a variety of methods and make
assumptions that are based on market conditions existing at each balance sheet
date. Quoted market prices or dealer quotes for the specific or similar
instruments are used for long-term debt. Other techniques, such as option
pricing models and estimated discounted value of future cash flows, are used to
determine fair values for the remaining financial instruments.
The face values less any estimated credit adjustments for financial assets and
liabilities with a maturity of less than one year are assumed to approximate
their fair values. The fair value of financial liabilities for disclosure
purposes is estimated by discounting the future contractual cash flows at the
current market interest rate available to the Company and its subsidiaries for
similar financial instruments.
5. OTHER INCOME, NET
Pursuant to a management service agreement entered into with Huaneng Group and
HIPDC, the Company has, in 2003, provided management services to certain power
plants owned by the Huaneng Group and HIPDC in return for a service fee. Net
other income represented the management service fee income net of relevant
expenses.
90
6. PROFIT BEFORE TAX
Profit before tax was determined after charging and (crediting) the following:
2003 2002
'000 '000
Interest expenses on convertible notes 3,248 47,904
Interest expenses on bank loans:
- repayable within 5 years 104,012 155,987
- repayable beyond 5 years 422,809 415,181
Interest expenses on shareholders loans wholly
repayable within 5 years 22,053 29,622
Interest expenses on other long-term loans wholly
repayable within 5 years 57,493 29,619
--------------------------------------------------------------------------------------------------------
609,615 678,313
Less: Amount capitalised in property, plant and equipment (40,467) (116,438)
--------------------------------------------------------------------------------------------------------
Total interest expenses 569,148 561,875
Interest income (53,044) (83,015)
Bank charges and exchange losses, net 28,181 31,405
Change in fair value on financial instruments:
- Gains of interest rate swaps (11,771) (2,179)
Auditors' remuneration 19,359 10,750
Loss on disposals of fixed assets 138,726 31,980
Gain from disposals of investment (10,705) (1,288)
Operating leases :
- Buildings 25,985 27,566
- Land use rights 44,100 42,293
Depreciation of property, plant and equipment 4,117,478 3,533,609
Amortization of prepaid land use rights 19,136 16,847
Amortization of other long-term assets 41,566 24,112
Amortization of goodwill 25,170 1,150
Amortization of negative goodwill (247,278) (247,278)
Cost of inventories 9,222,583 7,100,336
Provision for doubtful accounts 12,567 15,826
Reversal of provision for inventory obsolescence (751) (945)
Staff costs:
- Wages and staff welfare 1,020,444 698,862
- Retirement benefits 235,950 142,734
- Staff housing benefits 72,163 78,612
- Other staff costs 111,116 115,532
--------------------------------------------------------------------------------------------------------
91
7. RELATED PARTY TRANSACTIONS
The related parties of the Company and its subsidiaries include:
NAME OF RELATED PARTIES NATURE OF RELATIONSHIP
Huaneng Group Ultimate parent
HIPDC Parent
China Huaneng Finance Company
("Huaneng Finance") A subsidiary of Huaneng Group
Weihai Power Development Bureau ("WPDB") Minority shareholder of Weihai
Power Company
Henan Construction Investment Company Minority shareholder of Qinbei
("Henan Investment") Power Company
China Huaneng International Trade A subsidiary of Huaneng Group
Economics Corporation ("CHITEC")
Time Shipping Company ("Time Shipping") A joint venture of Huaneng Group
Rizhao Power Company An associate of the Company
--------------------------------------------------------------------------------
a. Pursuant to the relevant service agreements entered into between the
Company and HIPDC on 30th June, 1994, HIPDC provides transmission services
and transformer facilities to some of the power plants of the Company and
receives service fees. The agreements cover a period of 10 years. Such
service fees represent recoverable costs for rate setting purposes. The
total amount of service fees paid to HIPDC for the year ended 31st
December, 2003 were approximately Rmb215 million (2002: Rmb264 million).
b. In accordance with the leasing agreement entered into between the Company
and HIPDC, the land use rights of the Shanghai Power Plant is leased to
the Company for a period of 50 years at an annual rental payment of Rmb6
million, starting from 30th June, 1997.
c. Pursuant to a leasing agreement entered into amongst the Company, HIPDC
and Nanjing Investment Company, the land use rights of the Nanjing Power
Plant is leased to the Company for 50 years with an annual rental payment
of approximately Rmb1.3 million, starting from 1st January, 1999.
d. As at 31st December, 2003, current deposits of approximately Rmb2,792
million (2002: current deposits: Rmb2,376 million; fixed deposits: Rmb570
million) were placed with a non-bank PRC financial institution, Huaneng
Finance.
As at 31st December, 2003, the interest rate per annum of the current
deposits placed with Huaneng Finance ranged from 0.72% to 1.44% (2002:
current deposits: 0.72% to 1.44%; fixed deposits: 1.71%). The interest
earned from these deposits amounted to Rmb14 million in 2003 (2002: Rmb52
million).
e. Pursuant to the leasing agreement between the Company and HIPDC, HIPDC
agreed to lease its building to the Company for 5 years at an annual
rental of Rmb25 million effective from 1st January, 2000.
f. As described in Note 23 and Note 25, certain loans of the Company and its
subsidiaries were on-lent from HIPDC or borrowed from WPDB and Huaneng
Finance.
g. As at 31st December, 2003, short-term loans amounting to Rmb1,130 million
(2002: Rmb200 million) and Rmb130 million (2002: nil) were borrowed from
Huaneng Finance and Henan Investment, which bore interest at 4.78% to
5.05% (2002: 5.56%) and 4.78% per annum respectively.
92
7. RELATED PARTY TRANSACTIONS (Cont'd)
h. As at 31st December, 2003, the balances with HIPDC, the subsidiaries and
other related parties are unsecured, non-interest bearing and receivable
or repayable within one year.
i. As at 31st December, 2003, long-term bank loans of approximately Rmb4,648
million, Rmb1,096 million, Rmb280 million, and Rmb34 million (2002:
Rmb5,544 million, Rmb1,140 million, Rmb280 million and nil) were
guaranteed by HIPDC, Huaneng Group, WPDB and Henan Investment,
respectively.
j. As at 31st December, 2003, the Company had provided guarantees on certain
long-term bank loans of the Rizhao Power Company totaling approximately
Rmb339 million (2002: Rmb399 million).
k. During the years ended 31st December, 2003 and 2002, the Company entered
into several agreements with Huaneng Group to acquire equity interests or
net assets of certain power plants (See Note 3).
l. On 6th November, 2002, the Company entered into a management service
agreement with Huaneng Group and HIPDC. Pursuant to which, the Company
provides management services to certain power plants owned by Huaneng
Group and HIPDC for 5 years. For the year ended 31st December, 2003, the
service fee earned from Huaneng Group and HIPDC amounted to approximately
Rmb33 million and Rmb17 million, respectively (2002: nil). The Company
incurred a total costs of services of Rmb38 million, and recorded the
management service fee, net of relevant expenses, as other income.
m. In accordance with an equipment import agency service agreement entered
into between Shandong Huaneng and CHITEC, the Company is required to pay
an agency fee at 0.5% of the value of imported equipment in return for the
agency service provided by CHITEC. For the year ended 31st December, 2003,
no agency fee was due to CHITEC (2002: Rmb3 million).
n. For the year ended 31st December, 2003, the Company and its subsidiaries
paid approximately Rmb145 million for coal purchased from CHITEC (2002:
nil).
o. For the year ended 31st December, 2003, the Company and its subsidiaries
paid approximately Rmb457 million for the fuel purchased and
transportation services received from Time Shipping (2002: Rmb301
million).
8. RETIREMENT PLAN AND POST-RETIREMENT BENEFITS
All PRC employees of the Company and its subsidiaries are entitled to a monthly
pension at their retirement dates. The PRC government is responsible for the
pension liability to these employees on retirement. The Company and its
subsidiaries are required to make contributions to the state-sponsored
retirement plan at a specified rate, currently set at 18% to 20%, of the basic
salary of the PRC employees. The retirement plan contributions paid by the
Company and its subsidiaries for the year ended 31st December, 2003 were
approximately Rmb132 million (2002: Rmb89 million).
In addition, the Company and its subsidiaries have implemented a supplementary
defined contribution retirement scheme. Under this scheme, the employees are
required to make a specified contribution based on the number of years of
service with the Company and its subsidiaries, and the Company and its
subsidiaries are required to make a contribution equal to two to three times
the employees' contributions. The employees will receive the total
contributions upon their retirement. The contributions paid by the Company and
its subsidiaries for the year ended 31st December, 2003 totaled approximately
Rmb111 million (2002: Rmb80 million).
The Company and its subsidiaries have no further obligation for post-retirement
benefits beyond the above annual contributions made.
93
9. DIRECTORS', SENIOR MANAGEMENTS' AND SUPERVISORS' EMOLUMENTS
(a) Directors' and supervisors' emolument
The aggregate amounts of emoluments payable to directors and supervisors of the
company during the year are as follows:
2003 2002
'000 '000
Fees for executive directors -- --
Fees for non-executive directors -- --
Fees for supervisors -- --
Other emoluments for executive directors:
Basic salaries and allowances 120 445
Discretionary bonuses 264 1,027
Contributions to pensions schemes
for directors (and past directors):
- as directors -- --
- for other offices 42 263
Other emoluments for non-executive directors 1,332 1,118
Other emoluments for supervisors 850 576
--------------------------------------------------------------------------------
2,608 3,429
===============================================================================
During the year, no option was granted to the directors (2002: nil).
During the year, no emolument was paid to the directors and supervisors
(including the five highest paid employees) as an inducement to join or upon
joining the Company or as compensation for loss of office.
The annual emoluments paid during the year to each of the directors and
supervisors (including the five highest paid employees) fell within the range
of nil to Rmb1 million.
No director had waived or agreed to waive any emoluments during the year.
(b) Five highest paid individuals
For the year ended 31st December, 2003, none of the five individuals, whose
emoluments were the highest in the Company and its subsidiaries, were directors
(2002: all of the five individuals were directors). The emoluments payable to
the five highest paid individuals during the year are as follows:
2003 2002
'000 '000
Basic salaries and allowances 516 477
Bonuses 1,835 1,034
Pensions 192 282
--------------------------------------------------------------------------------
2,543 1,793
===============================================================================
94
10. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net comprised:
THE COMPANY AND ITS SUBSIDIARIES
2003 2002
ELECTRIC
UTILITY PLANT TRANSPORTATION CONSTRUCTION-
BUILDINGS IN SERVICE FACILITIES OTHERS IN-PROGRESS TOTAL Total
'000 '000 '000 '000 '000 '000 '000
COST
Beginning of year 2,097,231 52,567,658 634,870 1,067,217 685,758 57,052,734 50,014,849
Reclassification (895,175) 809,030 (49,930) 136,075 -- -- --
Acquisition (Note 3) 131,452 1,022,451 18,184 115,027 1,798,389 3,085,503 4,923,490
Additions 5,432 26,144 245 46,039 2,655,419 2,733,279 2,257,383
Transfer from CIP 23,540 885,859 699 39,304 (949,402) -- --
Disposals (5,698) (295,512) -- (108,771) -- (409,981) (142,988)
------------------------------------------------------------------------------------------------------------------------
End of year 1,356,782 55,015,630 604,068 1,294,891 4,190,164 62,461,535 57,052,734
------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
Beginning of year 419,048 14,913,396 127,132 489,690 -- 15,949,266 12,457,735
Reclassification (153,025) 169,355 (12,073) (4,257) -- -- --
Charge for the year 68,331 3,877,634 30,035 141,478 -- 4,117,478 3,533,609
Written back on disposals (2,054) (184,152) -- (77,368) -- (263,574) (42,078)
------------------------------------------------------------------------------------------------------------------------
End of year 332,300 18,776,233 145,094 549,543 -- 19,803,170 15,949,266
------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE
End of year 1,024,482 36,239,397 458,974 745,348 4,190,164 42,658,365 41,103,468
------------------------------------------------------------------------------------------------------------------------
Beginning of year 1,678,183 37,654,262 507,738 577,527 685,758 41,103,468 37,557,114
------------------------------------------------------------------------------------------------------------------------
95
10. PROPERTY, PLANT AND EQUIPMENT, NET (Cont'd)
THE COMPANY
2003 2002
ELECTRIC
UTILITY
PLANT TRANSPORTATION CONSTRUCTION-
BUILDINGS IN SERVICE FACILITIES OTHERS IN-PROGRESS TOTAL Total
'000 '000 '000 '000 '000 '000 '000
COST
Beginning of year 1,853,746 47,099,077 528,428 1,011,034 626,226 51,118,511 46,966,145
Reclassification (828,027) 777,567 (55,226) 105,686 -- -- --
Acquisition (Note 3) 30,676 649,904 14,826 99,086 18,811 813,303 2,058,726
Additions 5,101 23,392 -- 40,649 1,203,316 1,272,458 2,197,099
Transfer from CIP 21,648 840,109 699 35,299 (897,755) -- --
Disposals (5,111) (262,337) -- (91,000) -- (358,448) (103,459)
------------------------------------------------------------------------------------------------------------------------
End of year 1,078,033 49,127,712 488,727 1200,754 950,598 52,845,824 51,118,511
------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
Beginning of year 390,353 14,211,658 115,691 448,384 -- 15,166,086 12,097,868
Reclassification (139,826) 110,404 (16,812) 46,234 -- -- --
Charge for the year 58,248 3,408,722 24,215 118,581 -- 3,609,766 3,105,813
Written back on disposals (1,873) (156,936) -- (61,730) -- (220,539) (37,595)
------------------------------------------------------------------------------------------------------------------------
End of year 306,902 17,573,848 123,094 551,469 -- 18,555,313 15,166,086
------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE
End of year 771,131 31,553,864 365,633 649,285 950,598 34,290,511 35,952,425
------------------------------------------------------------------------------------------------------------------------
Beginning of year 1,463,393 32,887,419 412,737 562,650 626,226 35,952,425 34,868,277
------------------------------------------------------------------------------------------------------------------------
Borrowing costs capitalised to construction-in-progress for the year ended 31st
December, 2003 amounted to approximately Rmb40 million (2002: Rmb116 million).
The capitalization rate used to determine the amount of borrowing costs
eligible for capitalization was 5.06% per annum for the year ended 31st
December, 2003 (2002: 5.25%).
There was no write-down of any property, plant and equipment during the year.
96
11. INVESTMENT IN ASSOCIATES
2003 2002
'000 '000
Beginning of year 200,960 226,488
Acquisition of 44.16% equity interest of
Huaiyin Power Company (Note 3) -- 271,598
Acquisition of 25% equity interest of
SEG (Note 3) 2,404,562 --
Share of results before tax 212,091 (11,145)
Share of tax (Note 32) (51,582) (5,059)
Transfer to investment in subsidiary
as a result of acquisition of
additional interest (Note 3) -- (280,922)
--------------------------------------------------------------------------------
End of year 2,766,031 200,960
===============================================================================
The share of results before tax included the amortization charge of goodwill of
Rmb55 million (2002: nil) in respect of the acquisition of an associate.
Investment in associates at 31st December, 2003 included goodwill with a
carrying amount of Rmb765 million (2002: nil).
As at 31st December, 2003, the following are details of the Company's
investment in associates:
PERCENTAGE OF
COUNTRY AND DATE EQUITY ISSUED AND FULLY PRINCIPAL
NAME OF INCORPORATION INTEREST HELD PAID CAPITAL ACTIVITIES
Rizhao Power Company PRC 20th March, 1996 25.5% US$150,000,000 Power generation
SEG PRC 16th July, 1997 25% Rmb955,555,556 Power generation
97
12. INVESTMENT IN SUBSIDIARIES
As at 31st December, 2003, the Company had equity interests in the following
significant subsidiaries:
COUNTRY, DATE PERCENTAGE
OF INCORPORATION OF EQUITY ISSUED AND FULLY
NAME OF AND TYPE OF INTEREST PAID CAPITAL PRINCIPAL ACTIVITIES
SUBSIDIARIES LEGAL ENTITY DIRECTLY HELD
Weihai Power PRC 60% Rmb761,832,800 Power generation
Company 22nd November, 1993
Limited liability company
Taicang Power PRC 75% Rmb682,840,000 Power generation
Company 19th June, 1997
Limited liability company
Huaiyin Power PRC 63.64% Rmb265,000,000 Power generation
Company 26th January, 1995
Limited liability company
Qinbei Power PRC 55% Rmb10,000,000 Power generation
Company 12th July, 1995
Limited liability company
Yushe Power PRC 60% Rmb80,000,000 Power generation
Company 29th November, 1994
Limited liability company
---------------------------------------------------------------------------------------------------------------------
98
12. INVESTMENT IN SUBSIDIARIES (Cont'd)
Summarized financial information of the two subsidiaries (Qinbei Power Company
and Yushe Power Company) acquired in 2003 is as follows:
AS AT
31ST DECEMBER, 2003
'000
BALANCE SHEET
Current assets 323,032
Long-term assets 2,739,414
------------------------------------------------------------------------------
Total assets 3,062,446
------------------------------------------------------------------------------
Current liabilities 1,073,960
Long-term liabilities 1,641,484
------------------------------------------------------------------------------
Total liabilities 2,715,444
------------------------------------------------------------------------------
FOR THE PERIOD FROM
THE EFFECTIVE DATE OF
THE ACQUISITION TO
31ST DECEMBER, 2003
'000
INCOME STATEMENT
Revenue 57,348
Expenses (54,282)
------------------------------------------------------------------------------
Net profit 3,066
------------------------------------------------------------------------------
13. AVAILABLE-FOR-SALE INVESTMENT
Available-for sale investment represents a 3% equity interest (unlisted) in a
power generation company China Yangtze Power Co., Ltd. ("Yangtze Power") in the
PRC.
The investment does not have a quoted market price in an active market. There
is no appropriate method to reliably measure its fair values. Accordingly, the
investment is stated at cost and subject to review for impairment loss.
99
14. GOODWILL AND NEGATIVE GOODWILL
Goodwill and negative goodwill arose from acquisitions. Goodwill and negative
goodwill are recognized in the income statement as other operating expenses and
deduction of other operating expenses respectively on a systematic basis over
the remaining weighted average useful lives of the identifiable acquired
depreciable/amortizable assets (see Note 3). The movement on the carrying
amount of goodwill and negative goodwill during the year is as follows:
THE COMPANY AND ITS SUBSIDIARIES
NEGATIVE
GOODWILL GOODWILL TOTAL
'000 '000 '000
YEAR ENDED 31ST DECEMBER, 2002:
Beginning of year -- (2,225,505) (2,225,505)
Addition from acquisitions (Note 3) 127,710 -- 127,710
Amortization for the year (1,150) 247,278 246,128
------------------------------------------------------------------------------------------------------------------------
End of year 126,560 (1,978,227) (1,851,667)
------------------------------------------------------------------------------------------------------------------------
AS AT 31ST DECEMBER, 2002
Cost 127,710 (2,472,784) (2,345,074)
Accumulated amortization (1,150) 494,557 493,407
------------------------------------------------------------------------------------------------------------------------
Net book value 126,560 (1,978,227) (1,851,667)
------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 31ST DECEMBER, 2003:
Beginning of year 126,560 (1,978,227) (1,851,667)
Addition from acquisitions (Note 3) 197,486 -- 197,486
Amortization for the year (25,170) 247,278 222,108
------------------------------------------------------------------------------------------------------------------------
End of year 298,876 (1,730,949) (1,432,073)
------------------------------------------------------------------------------------------------------------------------
AS AT 31ST DECEMBER, 2003
Cost 325,196 (2,472,784) (2,147,588)
Accumulated amortization (26,320) 741,835 715,515
------------------------------------------------------------------------------------------------------------------------
Net book value 298,876 (1,730,949) (1,432,073)
------------------------------------------------------------------------------------------------------------------------
100
14. GOODWILL AND NEGATIVE GOODWILL (Cont'd)
THE COMPANY
NEGATIVE
GOODWILL GOODWILL TOTAL
'000 '000 '000
YEAR ENDED 31ST DECEMBER, 2002:
Beginning of year -- (2,225,505) (2,225,505)
Addition from acquisitions (Note 3) 45,716 -- 45,716
Amortization for the year (104) 247,278 247,174
------------------------------------------------------------------------------------------------------------------------
End of year 45,612 (1,978,227) (1,932,615)
------------------------------------------------------------------------------------------------------------------------
AS AT 31ST DECEMBER, 2002
Cost 45,716 (2,472,784) (2,427,068)
Accumulated amortization (104) 494,557 494,453
------------------------------------------------------------------------------------------------------------------------
Net book value 45,612 (1,978,227) (1,932,615)
------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 31ST DECEMBER, 2003:
Beginning of year 45,612 (1,978,227) (1,932,615)
Addition from acquisitions (Note 3) 67,916 -- 67,916
Amortization for the year (6,297) 247,278 240,981
------------------------------------------------------------------------------------------------------------------------
End of year 107,231 (1,730,949) (1,623,718)
------------------------------------------------------------------------------------------------------------------------
AS AT 31ST DECEMBER, 2003
Cost 113,632 (2,472,784) (2,359,152)
Accumulated amortization (6,401) 741,835 735,434
------------------------------------------------------------------------------------------------------------------------
Net book value 107,231 (1,730,949) (1,623,718)
------------------------------------------------------------------------------------------------------------------------
101
15. INVENTORIES, NET
Inventories comprised:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Fuel (coal and oil) for power generation 308,861 434,726 219,974 341,446
Material and other supplies 505,041 500,854 414,478 417,221
------------------------------------------------------------------------------------------------------------------------
813,902 935,580 634,452 758,667
Less: provision for inventory obsolescence (13,621) (12,239) (9,690) (10,400)
------------------------------------------------------------------------------------------------------------------------
800,281 923,341 624,762 748,267
========================================================================================================================
As at 31st December 2003, approximately Rmb406 million of the total carrying
amount of inventories are carried at net realizable value (2002: Rmb396
million)
16. OTHER RECEIVABLES AND ASSETS, NET
Other receivables and assets comprised:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Prepayments for inventories 76,543 6,113 51,713 4,813
Prepayments for contractors 42,282 20,356 29,833 19,721
Interest receivable on
temporary cash investments 3,291 3,792 2,388 3,792
Current portion of long-term entrusted
loan to Weihai Power Company -- -- 470,663 256,300
Receivable from Shantou
Coal Port Group Company -- 70,000 -- 70,000
Others 191,190 164,088 85,500 126,515
------------------------------------------------------------------------------------------------------------------------
313,306 264,349 640,097 481,141
Less: Provision for doubtful accounts (53,885) (21,444) (28,653) (21,104)
------------------------------------------------------------------------------------------------------------------------
259,421 242,905 611,444 460,037
=======================================================================================================================
102
17. ACCOUNTS RECEIVABLE
Accounts receivable comprised:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Accounts receivable 2,356,826 1,889,083 2,005,024 1,545,294
Notes receivable 447,200 472,750 336,180 440,080
------------------------------------------------------------------------------------------------------------------------
2,804,026 2,361,833 2,341,204 1,985,374
========================================================================================================================
The Company and its subsidiaries usually grant about one month credit period to
all the local grid companies from the end of the month in which the sales are
made.
As at 31st December, 2003, the aging analysis of accounts receivable was as
follows:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Within one year 2,800,330 2,357,213 2,337,508 1,980,754
Between one to two years -- 4,620 -- 4,620
Between two to three years 3,696 -- 3,696 --
------------------------------------------------------------------------------------------------------------------------
2,804,026 2,361,833 2,341,204 1,985,374
=========================================================================================================================
As at 31st December, 2003, the maturity period of the notes receivable ranged
from one month to six months (2002: one month to six months).
18. TEMPORARY CASH INVESTMENTS
Temporary cash investments consist of fixed-term deposits denominated in
Renminbi and US dollars with original maturities ranging from more than three
months to one year.
103
19. CAPITALISATION
AUTHORIZED SHARE CAPITAL
As at 31st December, 2003, the authorized share capital of the Company was
Rmb6,027,671,200, divided into 6,027,671,200 shares of Rmb1.00 each. In
addition, the issued and fully paid share capital of the Company as at 31st
December, 2003 was Rmb6,027,671,200 (2002: Rmb6,000,273,960) comprising of
4,500,000,000 Domestic Shares and 1,527,671,200 Overseas Listed Foreign Shares.
The holders of Overseas Listed Foreign Shares and Domestic Shares, with minor
exceptions, are entitled to the same economic and voting rights.
CONVERSION OF CONVERTIBLE NOTES TO SHARE CAPITAL
The noteholders converted the convertible notes with principal of US$200,000 to
6,849 American Depositary Shares ("ADS") (273,960 H shares equivalent) during
the year ended 31st December, 2002 (see Note 22).
The noteholders converted the convertible notes with principal of US$20 million
to 685,931 ADS (27,397,240 H shares equivalent) during the year ended 31st
December, 2003 (see Note 22).
CONVERSION OF THE ADDITIONAL PAID-IN CAPITAL AND THE STATUTORY SURPLUS RESERVE
FUND TO SHARE CAPITAL
On 16th March 2004, the Board resolved to propose to convert part of the
additional paid-in capital and the statutory surplus reserve fund into share
capital by issuing new shares to all of its shareholders on the basis of 5 new
shares for every 10 existing ordinary shares (3 of which from additional
paid-in capital and 2 from statutory surplus reserve fund). The proposal is
subjected to shareholders' approval at the annual general meeting.
20. APPROPRIATION AND DISTRIBUTION OF PROFIT
The Board of Directors decides on an annual basis the percentages of the profit
after tax, as determined under the PRC accounting standards and regulations, to
be appropriated to the statutory surplus reserve fund, the statutory public
welfare fund and, on an optional basis, the discretionary surplus reserve fund.
When the balance of the statutory surplus reserve fund reaches 50% of the
Company's share capital, any further appropriation will be optional. The
statutory surplus reserve fund can be used to offset prior years' losses, if
any, and may be converted into share capital by the issue of new shares to
shareholders in proportion to their existing shareholding or by increasing the
par value of the shares currently held by them, provided that the balance after
such issue is not less than 25% of registered capital. The statutory public
welfare fund can only be utilised on capital items for the collective benefits
of the Company's employees. Titles of these capital items will remain with the
Company. This fund is non-distributable other than in liquidation. The
discretionary surplus reserve fund can be provided and used in accordance with
the resolutions of the shareholders.
For the year ended 31st December, 2003, the Board of Directors resolved the
following on 16th March, 2004:
(i) to appropriate 10% and 7.5% (2002: 10% and 7.5%), respectively, of the
profit after taxation as determined under the PRC accounting standards and
regulations to the statutory surplus reserve fund and the statutory public
welfare fund. The total amount of appropriation is approximately Rmb955
million (2002: Rmb714 million).
(ii) to make no appropriation to the discretionary surplus reserve fund.
In accordance with the Articles of Association, earnings available for
distribution by the Company will be based on the lowest of the amounts
determined in accordance with (a) the PRC accounting standards and regulations,
(b) IFRS and (c) US GAAP. The amount of distributable profit resulting from the
current year operation after appropriation to dedicated capital for the year
ended 31st December, 2003 was approximately Rmb4.48 billion (2002: Rmb3.18
billion). The cumulative balance of distributable profit as at 31st December,
2003 was approximately Rmb10.97 billion (2002: Rmb9.13 billion).
104
21. DIVIDENDS
On 16th March, 2004, the Board of Directors proposed a cash dividend of Rmb0.50
per share, totaling approximately Rmb3,014 million, together with an issue of
bonus shares on the basis of 5 bonus shares for every 10 existing ordinary
shares. This proposal is subject to the approval of the shareholders at the
annual general meeting. These financial statements do not reflect this dividend
payable, which will be accounted for in shareholders' equity as an
appropriation of retained earnings in the year ending 31st December, 2004.
On 28th May, 2003, the shareholders approved the declaration of Rmb0.34 per
share, totaling Rmb2,049 million in respect of the year ended 31st December,
2002, based on the 6,027,671,200 outstanding shares on the date, in their
annual general meeting.
22. CONVERTIBLE NOTES
In May 1997, the Company issued at par value convertible notes with an
aggregate principal amount of US$230 million at 1.75% due 2004. These notes are
listed on the New York Stock Exchange and the Luxemburg Stock Exchange. The
notes mature on 21st May, 2004, unless previously redeemed or converted.
The notes are convertible, at the option of the noteholders, at any time from
and including 21st August, 1997 up to and including the date of maturity,
unless previously redeemed, at an initial conversion price of US$29.20 per ADS,
each of which represents 40 Overseas Listed Foreign Shares, subject to
adjustment in certain circumstances.
The notes were redeemable, at the option of the noteholders, in whole or in
part, on 21st May, 2002 at 128.575% of the principal amount of the notes
together with accrued interest, if any.
The notes may be redeemed, at the option of the Company, at any time on or
after 21st May, 2000, but prior to maturity, in whole or in part, at a
redemption price equal to 100% of the principal amount of the notes, together
with accrued interest, if any, if the closing price of the ADSs for a period of
30 consecutive trading days is at least 130% of the conversion price in effect
on each such trading day.
The proceeds received were allocated for accounting purposes into a liability
component of approximately US$168 million (equivalent to Rmb1,393 million) and
an equity component of approximately US$62 million (equivalent to Rmb511
million) at the issuance date.
Before 21st May, 2002, the put option for the noteholders to redeem the notes
at 128.575% of the principal amount of the notes was accounted for as an
embedded derivative. It was separated from the host contract of the convertible
notes and measured at its fair value with changes in fair value included in net
profit or loss. The liability component was measured at amortized cost.
The fair value of the put option was determined on the following basis:
(i) No fair value was attributed to the share conversion option. Management
believed that the probability of the noteholders exercising the conversion
option was very low because the prevailing share price of the Company was
significantly below 128.575% of the principal amount of the notes.
(ii) The fair value of the liability component was determined by discounting
the stream of future payments of interest and principal at the prevailing
market rate for a similar liability (instrument of comparable credit
status and providing substantially the same cash flows, on the same terms,
but without the conversion option).
(iii) Given (i) and (ii) above, the fair value of the put option was then
determined by deducting the fair value of the liability component from
the prevailing market price of the convertible notes.
105
22. CONVERTIBLE NOTES (Cont'd)
On 21st May, 2002, the noteholders, by exercising their put option rights,
redeemed a substantial portion of the convertible notes with an aggregate
principal amount of US$209,685,000, at 128.575% of the principal amount
together with accrued interest. Upon the redemption, the equity component
attributable to the redeemed portion of the convertible notes amounting to
approximately Rmb465 million was transferred to additional paid-in capital as
at 21st May, 2002. The net shortfall of approximately Rmb42 million between (a)
the sum of the relevant principal amount plus accrued interest and the 28.575%
put premium settled upon redemption and (b) the sum of the amortized cost of
the liability component attributable to the redeemed portion of the convertible
notes and the total carrying amount of the put option value as at 21st May,
2003, was charged to the income statement as interest expense.
During the year ended 31st December, 2003, convertible notes with principal of
US$20 million were converted by noteholders to 684,931 ADS (27,397,240 H shares
equivalent) (2002: principal of US$200,000, converted to 6,849 ADS, 273,960 H
shares equivalent). Upon the conversion, the equity component attributable to
the converted portion of the convertible notes amounting to Rmb44 million was
transferred to additional paid-in-capital (2002 Rmb0.44 million).
23. LONG-TERM LOANS FROM SHAREHOLDERS
Long-term loans from shareholders comprised the United States dollar ("US$")
denominated bank loans on lent by HIPDC. These loans bear both fixed and
floating interest rates that ranged from 3.62% to 4.01% per annum for the year
ended 31st December, 2003 (2002: 4.01% to 7.40%), and are repayable in
accordance with the repayment schedules set by the banks.
The shareholders' loans are repayable as follows:
2003 2002
'000 '000
Within one year 388,875 388,891
Between one to two years -- 388,891
--------------------------------------------------------------------------------
388,875 777,782
Less: Amount due within one year
included under current liabilities (388,875) (388,891)
--------------------------------------------------------------------------------
-- 388,891
===============================================================================
106
24. LONG-TERM BANK LOANS
Long-term bank loans comprised:
THE COMPANY AND ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
US$'000 Rmb'000 Rmb'000 US$'000 Rmb'000 Rmb'000
Renminbi bank loans (a) 4,064,499 2,053,000 500,000 --
United States dollar ("US$")
bank loans (b) 803,465 6,650,061 8,340,253 794,265 6,573,878 8,247,547
------------------------------------------------------------------------------------------------------------------------
10,714,560 10,393,253 7,073,878 8,247,547
========================================================================================================================
a. Renminbi bank loans were borrowed from PRC banks to finance the
construction of the power plants of the Company and its subsidiaries.
These loans bore fixed interest rates from 4.94% to 6.21% per annum for
the year ended 31st December, 2003 (2002: 5.76% to 6.21%) and are
repayable in accordance with the agreed repayment schedules set by the
banks.
b. United States dollar bank loans were borrowed to finance the construction
of the power plants of the Company and its subsidiaries. These loans bore
interest at lending rates (both fixed and floating) ranging from 1.18% to
6.60% per annum for the year ended 31st December, 2003 (2002: 2.00% to
6.60%), and are repayable in accordance with the agreed repayment
schedules set by the banks. The Company had entered into interest rate
swap agreements with PRC banks to convert certain floating rate bank loans
into fixed rate debts to hedge against the interest rate risk (See Note
38).
The long-term bank loans are repayable as follows:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Within one year 2,409,240 1,928,732 1,756,074 1,783,732
Between one to two years 1,058,155 2,179,281 723,832 1,532,726
Between two to five years 2,940,506 2,490,335 1,920,313 1,924,184
Over five years 4,306,659 3,794,905 2,673,659 3,006,905
------------------------------------------------------------------------------------------------------------------------
10,714,560 10,393,253 7,073,878 8,247,547
Less: Amount due within one year included
under current liabilities (2,409,240) (1,928,732) (1,756,074) (1,783,732)
------------------------------------------------------------------------------------------------------------------------
8,305,320 8,464,521 5,317,804 6,463,815
========================================================================================================================
107
25. OTHER LONG-TERM LOANS
Other long-term loans comprised:
THE COMPANY AND ITS SUBSIDIARIES THE COMPANY
2003
Original
currency 2002 2003 2002
'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
Renminbi loans 776,342 427,402 575,000 225,000
Foreign currency bank loans
US$ 21,429 177,358 -- -- --
Japanese Yen ("JPY") 1,785,714 137,970 -- -- --
------------------------------------------------------------------------------------------------------------------------
1,091,670 427,402 575,000 225,000
========================================================================================================================
The other long term loans were drawn from:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Long-term loan from WPDB 106,389 106,389 -- --
Long-term loan from Huaneng Finance 610,000 225,000 575,000 225,000
Long-term loan from Jiangsu International Trust
and Investment Corporation 31,505 43,245 -- --
Long-term loan from Huaian Investment Company 8,980 25,050 -- --
Long-term loan from Jiangsu Electric Power
Development Co,. Ltd 19,468 27,718 -- --
Long-term foreign loans on lent by Ministry
of Finance 177,358 -- -- --
Long-term foreign loans on lent by Ministry
of Finance 137,970 -- -- --
------------------------------------------------------------------------------------------------------------------------
1,091,670 427,402 575,000 225,000
========================================================================================================================
The other long-term loans bear both fixed and floating interest rates, which
ranged from 4.94% to 6.21% per annum for the year ended 31st December, 2003
(2002: 5.64% to 6.21%), and are repayable in accordance with the repayment
schedules set by the contracts.
108
25. OTHER LONG-TERM LOANS (Cont'd)
Other long-term loans are repayable as follows:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Within one year 243,386 96,013 -- --
Between one to two years 267,044 106,389 225,000 --
Between two to five years 476,131 225,000 350,000 225,000
Over five years 105,109 -- -- --
------------------------------------------------------------------------------------------------------------------------
1,091,670 427,402 575,000 225,000
Less: Amounts due within one year included
under current liabilities (243,386) (96,013) -- --
------------------------------------------------------------------------------------------------------------------------
848,284 331,389 575,000 225,000
========================================================================================================================
26. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities comprised:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Accounts payable 635,860 471,609 470,676 409,500
Deferred revenue 987,500 939,564 987,500 939,564
Payable to contractors for construction 846,473 1,333,448 805,378 1,319,830
Other payable to contractors 207,257 140,328 157,603 131,129
Accrued interest 96,127 115,861 96,097 113,371
Others 569,300 733,540 389,262 670,094
------------------------------------------------------------------------------------------------------------------------
3,342,517 3,734,350 2,906,516 3,583,488
========================================================================================================================
As at 31st December, 2003, the aging analysis of accounts payable was as follows:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Within one year 595,994 465,624 438,352 406,265
Between one to two year 36,188 3,395 28,843 856
Over two years 3,678 2,590 3,481 2,379
------------------------------------------------------------------------------------------------------------------------
635,860 471,609 470,676 409,500
------------------------------------------------------------------------------------------------------------------------
109
27. TAXES PAYABLE
Taxes payable comprised:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
VAT payable 415,147 291,456 314,158 184,992
Income tax payable 472,850 311,436 272,394 198,256
Others 29,365 17,297 14,785 12,413
------------------------------------------------------------------------------------------------------------------------
917,362 620,189 601,337 395,661
========================================================================================================================
28. SHORT-TERM LOANS
Short-term loans are denominated in Renminbi and bear interest at the
prevailing interest rates in the PRC, which ranged from 4.54% to 5.05% per
annum for the year ended 31st December, 2003 (2002: 4.78% to 5.56%), and are
repayable within one year (see Note 7(g)).
29. DEFERRED INCOME TAXES
Deferred income taxes are calculated in full on temporary differences under the
liability method using the applicable tax rates for the respective operating
units.
The movement on the deferred income tax account is as follows:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
As at 1st January 121,853 -- 15,030 --
Acquisitions (Note 3) (21,809) 109,568 (13,261) --
Charged to income statement (Note 32) (18,241) 12,285 (980) 15,030
------------------------------------------------------------------------------------------------------------------------
As at 31st December 81,803 121,853 789 15,030
========================================================================================================================
The power plants acquired in 2003 (Note 3) recognized deferred tax assets for
the temporary differences of amortization of prepaid land use rights,
provisions for doubtful debt and others.
The Company and its subsidiary recognized deferred tax liabilities mainly
arising from the acquisitions of the Shidongkou I Power Plant, Changxing Power
Plant, Taicang Power Company and Huaiyin Power Company in 2002. The initial
recognition of the identifiable assets and liabilities acquired was based on
valuations performed by valuers. The resulting valuation surplus is not a tax
deductible credit. Deferred tax liability of approximately Rmb107 million
relating to this temporary difference was recorded in 2002.
110
29. DEFERRED INCOME TAXES (Cont'd)
The movement in deferred tax assets and liabilities during the year is as
follows:
THE COMPANY AND THE COMPANY
ITS SUBSIDIARIES DIFFERENCE IN DIFFERENCE IN
AMORTIZATION AMORTIZATION
OF PREPAID PROVISIONS FOR OF PREPAID
AND USE RIGHTS DOUBTFUL DEBTS OTHERS TOTAL LAND USE RIGHTS
DEFERRED TAX ASSETS '000 '000 '000 '000 '000
As at 1st January, 2003 -- -- -- -- --
Acquisition of power plants 13,261 3,288 5,260 21,809 13,261
charged to income statement (22) (69) (407) (498) (22)
------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2003 13,239 3,219 4,853 21,311 13,239
========================================================================================================================
THE COMPANY AND ITS
SUBSIDIARIES THE COMPANY
DIFFERENCE IN DIFFERENCE IN
DEPRECIATION DEPRECIATION
DEFERRED TAX LIABILITIES '000 '000
As at 1st January, 2003 121,853 15,030
Credited to profit and loss account (18,739) (1,002)
------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2003 103,114 14,028
========================================================================================================================
Deferred income tax assets and liabilities are offset when there is legally
enforceable right to set off current tax assets against current tax liabilities
and when the deferred income taxes relate to the same fiscal authority. The
following amounts, determined after appropriate offsetting, are shown in the
consolidated balance sheet:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Deferred tax assets (21,311) -- (13,239) --
Deferred tax liabilities 103,114 121,853 14,028 15,030
------------------------------------------------------------------------------------------------------------------------
81,803 121,853 789 15,030
------------------------------------------------------------------------------------------------------------------------
The amounts shown in the consolidated
balance sheet include the following:
Deferred tax assets to be recovered
after more than 12 months (21,311) -- (13,239) --
Deferred tax liabilities to be
settled after more than 12 months 84,375 121,853 1,003 15,030
========================================================================================================================
111
30. ADDITIONAL FINANCIAL INFORMATION ON BALANCE SHEET
As at 31st December, 2003, the net current liabilities of the Company and its
subsidiaries amounted to approximately Rmb939 million (2002: net current assets
Rmb33 million). On the same date, the total assets less current liabilities was
approximately Rmb44,367 million (2002: Rmb40,809 million).
31. HOUSING SCHEME
In accordance with the PRC housing reform regulations, the Company and its
subsidiaries are required to make contributions to the State-sponsored housing
fund at 7%-11% of the specified salary amount of the PRC employees. At the same
time, the employees are required to make a contribution equal to the Company's
and its subsidiaries' contribution out of their payroll. The employees are
entitled to claim the entire sum of the fund under certain specified withdrawal
circumstances. For the year ended 31st December, 2003, the Company and its
subsidiaries contributed approximately Rmb77 million (2002: Rmb71 million) to
the fund.
In addition, the Company and its subsidiaries provided housing benefits to
certain employees to enable them to purchase living quarters from the Company
and its subsidiaries at a substantial discount. Such housing benefits represent
the difference between the cost of the staff quarters sold to and the net
proceeds collected from the employees. The provision of housing benefits is
expected to benefit the Company and its subsidiaries over the estimated
remaining average service life of the relevant employees. For the year ended
31st December, 2003, the housing benefits provided by the Company and its
subsidiaries to the employees amounted to approximately Rmb29 million (2002:
Rmb18 million) which is recorded as a long-term deferred asset and amortized
over the remaining average service life of the relevant employees which is
estimated to be about 10 years.
The Company and its subsidiaries have no further obligation for housing
benefits.
112
32. INCOME TAX EXPENSE
Income tax expense comprised:
2003 2002
'000 '000
Current tax expense 1,116,100 963,510
Deferred tax (Note 29) (18,241) 12,285
Share of tax of associates (Note 11) 51,582 5,059
--------------------------------------------------------------------------------
1,149,441 980,854
===============================================================================
The reconciliation of the effective income tax rate to the statutory income tax
rate in the PRC is as follows:
2003 2002
Average statutory tax rate 18% 18%
Effect of tax holiday (1%) (1%)
Others -- 2%
-------------------------------------------------------------------------------
Effective tax rate 17% 19%
===============================================================================
The aggregate effect of the tax holiday was approximately Rmb61 million for the
year ended 31st December, 2003 (2002: Rmb58 million).
The average statutory tax rate for the year ended 31st December, 2003
represented the weighted average tax rate of the head office and the individual
power plants calculated on the basis of the relative amounts of net profit
before tax and the applicable statutory tax rates.
33. MINORITY INTERESTS
2003 2002
'000 '000
As at 1st January 910,704 486,261
Acquisitions (Note 3) 115,639 330,993
Minority shares in net profit of subsidiaries 183,894 156,034
Capital injection from minority
shareholders of subsidiaries 77,632 --
Dividends paid (132,672) (62,584)
--------------------------------------------------------------------------------
As at 31st December 1,155,197 910,704
===============================================================================
113
34. EARNINGS PER SHARE
2003 2002
WEIGHTED Weighted
AVERAGE PER SHARE Average Per Share
NET PROFIT SHARES AMOUNT Net Profit Shares Amount
'000 '000 '000 '000
Earnings per Share
Net profit attributable
to shareholders 5,430,408 6,019,114 0.90 3,921,004 6,000,099 0.65
Finance costs in relation to
convertible notes and the
relevant put option
(net of tax effect) 2,746 -- 41,368 --
Effect of assumed conversion -- 8,715 -- 139,754
------------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Share
Net profit attributable to
shareholders plus effect of
assumed conversion 5,433,154 6,027,829 0.90 3,962,372 6,139,853 0.65
========================================================================================================================
Basic earnings per share was computed by dividing the net profit attributable
to shareholders for the year by the weighted average number of ordinary shares
outstanding during the year. On a diluted basis, both net profit and the
weighted average number of ordinary shares outstanding were adjusted on the
assumption that the convertible notes (see Note 22) had been fully converted at
the beginning of the year.
35. NOTES TO CASH FLOW STATEMENT
a. Analysis of cash and cash equivalents
As at 31st December, 2003, cash and cash equivalents consisted of:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Cash in Rmb 726 266 352 253
Current deposits
Rmb 3,763,015 2,815,473 3,088,565 2,516,803
US$ denominated 234,468 186,862 203,006 186,862
JPY denominated 130,439 -- -- --
-----------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 4,128,648 3,002,601 3,291,923 2,703,918
=================================================================================================================
114
35. NOTES TO CASH FLOW STATEMENT (Cont'd)
b. Undrawn borrowing facilities
The Company has obtained unsecured borrowing facilities from banks amounting to
Rmb7 billion (2002: Rmb7 billion) and Rmb5 billion (2002: Rmb5 billion) to
finance its funding requirements for a period of three years starting from 18th
September, 2003 and 4th March, 2002, respectively. As at 31st December, 2003,
the unutilized borrowing facilities amounted to Rmb11,998 million (2002:
Rmb11,993 million). Such borrowing facilities would be drawn down in accordance
with the level of working capital and planned capital expenditure of the
Company and its subsidiaries.
36. OBLIGATIONS AND COMMITMENTS
a. Capital and operational commitments
Commitments mainly relate to the construction of new power projects, certain
complementary facilities and renovation projects for existing power plants and
the purchase of coal. Commitments outstanding as at 31st December, 2003 not
provided for in the balance sheet were as follows:
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Authorized and contracted for
- purchase of inventories 2,279,191 2,012,170 1,829,854 2,012,170
- construction 9,793,244 643,344 5,183,916 642,344
-----------------------------------------------------------------------------------------------------------
12,072,435 2,655,514 7,013,770 2,654,514
===========================================================================================================
115
36. OBLIGATIONS AND COMMITMENTS (Cont'd)
b. Operating lease commitments
The Company has various operating lease arrangements with HIPDC for land and
buildings (see Note 7). Some of the leases contain renewal options. Most of the
leases contain escalation clauses. Lease terms do not contain restrictions on
the Company's activities concerning dividends, additional debts or further
leasing.
Total future minimum lease payments under non-cancellable operating leases in
respect of land and buildings of the Head Office, the Nanjing Power Plant and
the Shanghai Power Plant are as follows:
2003 2002
'000 '000
Land and buildings
- not later than one year 32,334 32,334
- later than one year and not later than two years 7,334 32,334
- later than two years and not later than five years 22,002 22,002
- later than five years 284,360 291,694
--------------------------------------------------------------------------------------------------
346,030 378,364
==================================================================================================
In accordance with the land use operating lease agreement signed by the Dezhou
Power Plant and the relevant land management authorities for the land occupied
by Dezhou Phase I and Phase II, annual rental is approximately Rmb30 million
effective from June 1994 and is subject to revision five years after the said
date. Thereafter, the annual rental is subject to revision once every three
years. The increment for each rental revision is restricted to no more than 30
percent of the previous annual rental amount. For the year ended 31st December,
2003, the annual rental is approximately Rmb30 million.
37. CONTINGENT LIABILITIES
THE COMPANY AND
ITS SUBSIDIARIES THE COMPANY
2003 2002 2003 2002
'000 '000 '000 '000
Guarantee for loan facilities
- granted to an associate 339,250 399,250 339,250 399,250
- granted to subsidiaries -- -- 2,460,613 1,845,706
-------------------------------------------------------------------------------------------------------------
339,250 399,250 2,799,863 2,244,956
=============================================================================================================
38. INTEREST RATE SWAPS
As at 31st December, 2003, the notional amount of the outstanding interest rate
swap agreements was approximately US$20.5 million (2002: US$52 million). Such
agreements will mature in September 2004. For the year ended 31st December,
2003, there was a gain amounting to approximately Rmb11.8 million (2002: Rmb2.2
million) arising from changes in the fair value of the interest rate swaps
subsequent to initial recognition. Since the hedging relationship does not meet
all of the conditions required for special hedge accounting as set out in IAS
39, the gain was credited to earnings in current year.
116
39. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company and its subsidiaries' financial instruments not carried at fair
value are cash and cash equivalents, temporary cash investments, accounts
receivables, other current assets, other non-current assets, accounts and other
payables, short-term borrowings, long-term borrowings and held-to-maturity
investments.
The carrying amounts of the Company and its subsidiaries' cash and cash
equivalents, temporary cash investments, short-term investments, short-term
borrowings and other current financial assets and liabilities approximated
their fair value due to the short-term maturity of these instruments.
Similarly, the historical cost carrying amounts of receivables and payables
which are all subject to normal trade credit terms approximate their fair
values.
Available-for-sale investments are measured at cost as they are not traded in
an active market and their fair value cannot be reliably measured.
The estimated fair value of long-term debt including current maturities was
Rmb12.43 billion as at 31st December, 2003 (2002: Rmb11.93 billion). The fair
value of long-term debt is determined by discounting the stream of future
payments of interest and principal at the prevailing market interest rates for
comparable instruments. The book value of these liabilities was Rmb12.20
billion as at 31st December, 2003 (2002: Rmb11.75 billion).
40. BUSINESS RISK
The Company and its subsidiaries conduct their operations in the PRC and
accordingly investing in the shares of the Company and its subsidiaries are
subject to the risks of, among others, the PRC's political, economic and legal
environment, restructuring of the PRC electric power industry and regulatory
reform, new regulation pertaining to setting of power tariff and availability
of fuel supply at stable price.
For the year ended 31st December, 2003, the Company and its subsidiaries sold
electricity to five major customers, each of which amounted to 10% or more of
the operating revenue. In aggregation, these customers represented
approximately 77% (2002: 90%) of the operating revenue of the Company and its
subsidiaries.
117
SUPPLEMENTAL INFORMATION FOR NORTH AMERICAN SHAREHOLDERS
The consolidated financial statements of the Company and its subsidiaries
prepared under IFRS differ in certain respects from those prepared under
generally accepted accounting principles in the United States of America ("US
GAAP"). Significant differences between IFRS and US GAAP, which affect the
equity and net profit of the Company and its subsidiaries, are summarised
below:
(a) EFFECT OF THE ACQUISITION OF ENTITIES UNDER COMMON CONTROL
Under IFRS, the Company and its subsidiaries adopted the acquisition method to
account for the acquisition of 70% equity interest in Shidongkou I Power Plant,
70% equity interest in Taicang Power Company and all of the assets and
liabilities of Changxing Power Plant in July, 2002 and the acquisition of 55%
equity interest in Qinbei Power Company, 60% equity interest in Yushe Power
Company and all of the assets and liabilities of Xindian Power Plant in
October, 2003. Under the acquisition method, the results of the acquired
businesses are included in the results of operations of the Company and its
subsidiaries from the date of the acquisition. The difference between the
purchase consideration and the fair value of the underlying net assets acquired
is treated as goodwill and amortized on a systematic basis to the income
statement over its useful economic life, being the remaining weighted average
useful life of the acquired depreciable or amortizable assets.
As the Company and its subsidiaries, Shidongkou I Power Plant, Taicang Power
Company, Changxing Power Plant, Qinbei Power Company, Yushe Power Company, and
Xindian Power Plant were under the common control of the Huaneng Group prior to
the acquisition, under US GAAP, the acquisition is considered to be a transfer
of businesses under common control and the acquired assets and liabilities are
accounted for at historical cost in a manner similar to the pooling of
interests method. Accordingly, the consolidated financial statements for all
periods presented have been retroactively restated as if the current structure
and operations resulting from the acquisition had been in existence since the
beginning of the earliest period presented, with financial data of previously
separate entities combined. The cash consideration paid by the Company is
treated as an equity transaction in the year of the acquisition for US GAAP
purposes. Accordingly, the resulting impact of depreciation and amortization
expenses on income is also different.
(b) EFFECT OF ACQUISITION OF 30% ADDITIONAL EQUITY INTERESTS IN SHIDONGKOU I
POWER PLANT, 5% ADDITIONAL EQUITY INTERESTS IN TAICANG POWER COMPANY AND
44.16% EQUITY INTERESTS IN HUAIYIN POWER COMPANY.
On 1st July, 2002, the Company acquired 44.16% equity interests of Huaiyin
Power Company from Huaneng Group. In addition, the Company also acquired 30%
additional equity interests of Shidongkou I Power Plant and 5% additional
equity interests of Taicang Power Company from Huaneng Group on 31st December
2002.
Under IFRS, upon the completion of the above acquisitions, the relevant equity
interests of net assets of Shidongkou I Power Plant, Taicang Power Company and
Huaiyin Power Company are recorded at fair value. The excess of the total cost
of the acquisition over the fair value of the relevant portion of net assets of
power plant acquired is recorded as goodwill. Such goodwill is amortized on a
systematic basis to the income statement over its useful economic life, being
the remaining weighted average useful life of the acquired depreciable or
amortizable assets. Under US GAAP, upon completion of the above acquisitions,
Huaneng Group's proportionate share in the net assets of Shidongkou I Power
Plant, Taicang Power Company and Huaiyin Power Company being sold to the
Company was recorded at the historical carrying value. The excess of the total
cost of acquisition over the net assets acquired was recorded as a reduction of
deemed capital contribution to the Company. Accordingly, the resulting impact
of depreciation and amortization expenses on income is also different.
118
(c) HOUSING BENEFITS PROVIDED BY HIPDC
HIPDC sold to certain qualified employees of the Company living quarters owned
by HIPDC at preferential prices. The difference between the cost of living
quarters and the sales proceeds received from the employees is considered to be
housing benefits. Under IFRS, such housing benefits provided by HIPDC are not
reflected in the financial statements of the Company. Under US GAAP, the amount
of housing benefits provided by HIPDC to the employees of the Company are
recognized as the Company's operating expenses on a straight-line basis over
the estimated remaining average service life of the employees. The
corresponding amount is recorded as an addition of capital contribution from
HIPDC.
(d) ACQUISITION OF SHANDONG HUANENG
Huaneng Group is the controlling parent company of HIPDC, which in turn is the
controlling parent of the Company. Huaneng Group used to be one of the
substantial shareholders of Shandong Huaneng, holding 33.09% equity interest in
it before the Company's acquisition of Shandong Huaneng. Under IFRS, upon the
completion of the acquisition of Shandong Huaneng, the entire net assets of
Shandong Huaneng were recorded at fair value. The excess of the fair value of
the entire net assets acquired over the total cost of the acquisition was
recorded as negative goodwill. Under US GAAP, upon completion of the
acquisition of Shandong Huaneng, Huaneng Group's proportionate share of 33.09%
in the net assets of Shandong Huaneng being transferred to the Company was
recorded at the historical carrying value. The excess of the proportionate
share in the book value of the net assets acquired over the relevant portion of
the cash consideration was recorded as a capital contribution to the Company.
The book value of the remaining 66.91% of the net assets continues to be part
of the recoverable rate base under the cost recovery formula of the tariff
setting mechanism. Under US GAAP, the difference between these net asset values
and the cash consideration was recorded as a reduction to the property, plant
and equipment value of the respective power plants.
As the amount of negative goodwill under IFRS is different from the amount of
the reduction to property, plant and equipment under US GAAP due to the 33.09%
portion of the net assets previously owned by Huaneng Group as described above
and also that the negative goodwill under IFRS is recognized as income over the
remaining weighted average useful life of the acquired depreciable or
amortizable assets whereas, for US GAAP purpose, the property, plant and
equipment, after the reduction described above, are depreciated over the
respective assets' useful life, the net income under IFRS and US GAAP is
different.
119
(e) ACCOUNTING TREATMENT OF CONVERTIBLE NOTES
Under IFRS, the proceeds received on the issue of the convertible notes were
allocated into liability and equity components. Upon initial recognition, the
liability component represented the present value, at the issuance date, of the
contractually determined stream of cash flows discounted at the market interest
rate for instruments of comparable credit status providing substantially the
same cash flows, on the same terms, but without the conversion option. The
equity component was then determined by deducting the liability component from
the proceeds received on the issue of the notes. Under US GAAP, the entire
proceeds of the issue of convertible notes were recorded as a liabilities
without distinguishing between the equity and liability components.
In accordance with IAS 39, the put option of the convertible notes, which
allowed the noteholders to redeem the convertible notes at a premium, was
separated from the host contract and accounted for as an embedded derivative.
This put option was recorded as a liability and measured at its fair value.
When IAS 39 was initially applied in 2001, the difference between the previous
carrying amount and the fair value of the put option was recognised as an
adjustment to the opening retained earnings as at 1st January, 2001. In
addition, the liability component was measured at amortized cost and the
resulting difference with the previous carrying amount was recognized as an
adjustment to the opening retained earnings as at 1st January, 2001. After
initial recognition, subsequent changes in the value of the put option and the
amortized cost of the liability component were charged or credited to the
income statements.
Under US GAAP, it is permitted not to measure the put option separately at its
fair value, as it represents a derivative embedded in a pre-1998 hybrid
instrument. The Company continued to accrue for the put premium liability
together with the interest payable on the notes using effective interest rate
of 6.66% up to the redemption date of 21st May, 2002. On 21st May, 2002, a
portion of the convertible notes was not redeemed by the noteholders. Under US
GAAP, the relevant portion of the accrued put premium attributable to the
remaining convertible notes not redeemed was amortized as a yield adjustment
over the remaining term of the convertible notes because the put price exceeded
the market value of the ordinary shares of the Company at the time of the
redemption.
(f) CAPITALIZATION OF BORROWING COSTS
In accordance with IAS 23, the Company capitalized interests on general
borrowings used for the purpose of obtaining a qualifying asset in addition to
the capitalization of interest on specific borrowings.
Under US regulatory accounting requirements, interest on funds borrowed
generally and used for the purpose of obtaining a qualifying assets are not
capitalized if such interests cannot be taken into consideration when
determining the recoverable rate base for tariff setting purposes.
Consequently, under US GAAP, the Company did not capitalize interest on general
borrowings.
(g) REVERSAL OF GOODWILL AMORTIZATION
Under IFRS, goodwill is amortized using the straight-line method over its
estimated useful life and recognized in the income statement as other operating
expenses. Under US GAAP, in accordance with Statement of Financial Accounting
Standard Number 142 "Goodwill and Other Intangible Assets", goodwill is not
amortized but tested for impairment on an annual basis and between annual tests
in certain circumstances.
120
(h) DEFERRED TAX IMPACT
This represents deferred tax effect on the above GAAP differences where
applicable.
(i) US REGULATORY ACCOUNTING
Under US GAAP, Statement of Financial Accounting Standard Number 71 "Accounting
for the Effects of Certain Types of Regulation" ("SFAS 71") is applicable to
utilities in the United States whose regulators have the power to approve
and/or regulate rates that may be charged to customers. SFAS 71 recognizes that
the regulatory process produces economic effects which should be reflected in
the financial statements. Because revenues are based on costs, SFAS 71 governs
the period in which various costs are included in the income statements with
the objective of matching costs with revenues. Provided that, through the rate
setting process, the utility is substantially assured of recovering its
allowable costs by the collection of revenue from its customers, such costs not
yet recovered are deferred as regulatory assets. The regulatory process may
also impose a liability on a rate-regulated enterprise, usually representing
obligations to the enterprise's customers, which should be recognized as a
regulatory liability.
In order to apply SFAS 71, three criteria must be met. These criteria require
that a) the power rates for regulated services or products provided to
customers be established by or are subject to approval by an independent,
third-party regulator or by an entity's own governing board empowered by
statute or contract to establish power rates that bind customers; b) the
regulated power rates are designed to recover the costs of providing the
regulated services or products; and c) in view of the demand for the regulated
services or products and the level of competition, direct and indirect, it is
reasonable to assume that power rates, which are set at levels that will
recover costs, can be charged to and collected from customers; this criterion
requires consideration of anticipated changes in levels of demand or
competition during the recovery period for any capitalized costs.
The Company and its subsidiaries believe that all of their power plants meet
these specific criteria of SFAS 71 with the exception of the Shidongkou I Power
Plant, the Taicang Power Company, the Huaiyin Power Company, the Changxing
Power Plant, the Qinbei Power Company, Yushe Power Company and Xindian Power
Plant acquired in 2002 and 2003 (the "power plants acquired in 2002 and 2003").
Firstly, the power rates are established by an independent regulator, the
provincial or local price bureau. Secondly, the pricing policy applicable to
the power plants provides for rate-setting based on the specific costs of the
power plants. This process has operated historically and will continue under
the pricing policy. Finally, based on the significant demand for electricity in
the Company and its subsidiaries' service territory, it is reasonable to assume
that the authorized power rates will be collected from customers.
With respect to the power plants acquired in 2002 and 2003, these criteria
mentioned above are not met and, therefore, SFAS71 cannot be applied.
Consequently, the power plants acquired in 2002 and 2003 have adopted US GAAP
without specific reference to the regulatory basis of accounting provided for
under SFAS71.
Under IFRS, as there is no equivalent regulatory accounting standard, the
Company's and its subsidiaries' policy is to recognize regulatory assets
established under SFAS 71 only where they comprise rights or other access to
future economic benefits as a result of past events; or to recognize regulatory
liabilities only where they comprise a present obligation the settlement of
which is expected to result in an outflow of resources embodying economic
benefits.
For the year ended 31st December, 2003, there was no material difference in the
recognition of both regulatory and non-regulatory assets and liabilities
between IFRS and US GAAP.
121
Differences between IFRS and US GAAP which affect the net assets and net profit
of the Company and its subsidiaries are summarized below:
NET ASSETS
AS AT As at
DECEMBER 31, December 31,
Note 2003 2002
RMB'000 Rmb'000
NET ASSETS UNDER IFRS 33,955,355 30,416,060
IMPACT OF US GAAP ADJUSTMENTS Note i:
Effect of acquisition of Qinbei Power Company,
Yushe Power Company and Xindian Power Plant (a) (417,368) 97,690
Effect of acquisition of Shidongkou I Power Plant,
Taicang Power Company and Changxing Power Plant (a) (886,116) (998,752)
Effect of acquisition of 30% additional equity interests in
Shidongkou I Power Plant, 5% additional equity interests
in Taicang Power Company and 44.16% equity interests
in Huaiyin Power Company (b) (296,717) (313,859)
Recording of capital contribution arising from acquisition
of Shandong Huaneng (d) 862,922 862,922
Difference in accounting treatment for acquisition
of Shandong Huaneng (d) (261,273) (174,182)
Adjustments on convertible notes
- Reversal of equity component of the convertible notes (e) (510,506) (510,506)
- Reversal of adjustment relating to the convertible notes arising
form the initial adoption of IAS 39 (e) 463,921 463,921
- Difference in accounting treatment of convertible notes (e) 37,933 5,246
Difference in capitalization of borrowing costs (f) (93,890) (88,412)
Reversal of goodwill amortization
- Reversal of goodwill amortization of equity investment in SEG (g) 54,639 --
- Reversal of goodwill amortization of investment
in Huaiyin Power Company (g) 17,370 --
Applicable deferred tax impact of the above GAAP differences (h) 200,674 261,147
------------------------------------------------------------------------------------------------------------------------
NET ASSETS UNDER US GAAP Note i 33,126,944 30,021,275
------------------------------------------------------------------------------------------------------------------------
122
NET PROFIT
FOR THE YEAR ENDED DECEMBER 31,
Note 2003 2002 2001
RMB'000 Rmb'000 Rmb'000
NET PROFIT UNDER IFRS 5,430,408 3,921,004 3,450,658
IMPACT OF US GAAP ADJUSTMENTS Note i:
Effect of acquisition of Qinbei Power Company,
Yushe Power Company and Xindian Power Plant (a) 13,109 56,919 (42,789)
Effect of acquisition of Shidongkou I Power Plant,
Taicang Power Company and Changxing Power Plant (a) 112,636 126,498 234,127
Effect of acquisition of 30% additional equity
interests in Shidongkou I Power Plant,
5% additional equity interests in Taicang Power
Company and 44.16% equity interests
in Huaiyin Power Company (b) 19,347 10,556 --
Recording housing benefits provided by HIPDC (c) (26,152) (26,152) (26,152)
Difference in accounting treatment for acquisition of
Shandong Huaneng (d) (87,091) (87,091) (87,091)
Difference in accounting treatment of convertible notes (e) 25,434 5,116 --
Difference in capitalization of borrowing costs (f) (5,478) (88,412) --
Reversal of goodwill amortization
- Reversal of goodwill amortization of
equity investment in SEG (g) 54,639 -- --
- Reversal of goodwill amortization of
investment in Huaiyin Power Company (g) 17,370 -- --
Applicable deferred tax impact of the
above GAAP differences (h) (84,181) 33,674 --
------------------------------------------------------------------------------------------------------------------------
NET PROFIT UNDER US GAAP Note i 5,470,041 3,952,112 3,528,753
------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER ORDINARY SHARE UNDER US GAAP(Rmb) Note ii 0.91 0.66 0.62
------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER ADS UNDER US GAAP (Rmb) Note ii 36.35 26.35 24.79
------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER ORDINARY SHARE UNDER US GAAP (Rmb) Note ii 0.90 0.65 0.61
------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER ADS UNDER US GAAP (Rmb) Note ii 36.18 25.99 24.32
------------------------------------------------------------------------------------------------------------------------
(Note i) Consistent with applying the accounting treatment under US GAAP
as described in Note (a) above, the consolidated financial
statements under US GAAP for prior periods presented have been
retroactively restated as if the current structure and
operations resulted from the acquisition of the Qinbei Power
Company, the Yushe Power Company and the Xindian Power Plant had
been in existence since the beginning of the earliest period
presented.
(Note ii) Earning per ordinary shares and per equivalent ADS were
calculated by dividing the net profit for the financial year
under US GAAP by the weighted average number of ordinary shares
and ADS in issue during the financial year. On a diluted basis,
both net profit for the financial year and the weighted average
number of ordinary shares and ADS outstanding for the financial
year were adjusted on the assumption that the convertible notes
had been fully converted at the beginning of the year.
123
In preparing the summary of difference between IFRS and US GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Accounting
estimates have been employed in these financial statements to determine
reported amounts, including realizability, useful lives of assets and other
areas. Actual results could differ from those estimates.
The following are condensed consolidated balance sheets of the Company and its
subsidiaries as at 31st December, 2002 and 2003, and the related condensed
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended 31st December, 2003,
restated to reflect the impact of the effect of the acquisition of entities
under common control which is accounted for at historical cost in a manner
similar to the pooling of interests method, with financial data of previously
separate entities combined, under US GAAP and other differences between IFRS
and US GAAP.
CONDENSED COMBINED BALANCE SHEETS
AS AT 31ST DECEMBER,
2003 2002
Rmb000 Rmb'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment, net 40,042,558 40,207,383
Investment in associates 2,820,669 200,960
Deferred tax assets 210,455 249,804
Land use rights and other assets 1,292,849 1,322,828
Goodwill 78,726 63,754
------------------------------------------------------------------------------------------------------------------------
Total non-current assets 44,445,257 42,044,729
------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Inventories, net 800,281 964,468
Other receivables and assets, net 259,421 269,488
Accounts receivable 2,804,026 2,514,975
Due from related parties 5,862 --
Restricted cash 159,961 13,259
Temporary cash investments 144,996 1,362,065
Cash and cash equivalents 4,128,648 3,145,452
------------------------------------------------------------------------------------------------------------------------
Total current assets 8,303,195 8,269,707
------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 52,748,452 50,314,436
========================================================================================================================
124
AS AT 31ST DECEMBER,
2003 2002
Rmb000 Rmb'000
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY 33,126,944 30,021,275
------------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 1,125,259 957,224
------------------------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Convertible notes -- 166,498
Accrued put premium on convertible notes -- 30,841
Long-term loans from shareholders -- 404,891
Long-term bank loans 8,305,320 9,114,651
Other long-term loans 848,284 671,027
Other financial liabilities -- 19,397
Deferred tax liabilities 91,584 110,510
------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 9,245,188 10,517,815
------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 3,342,517 4,021,982
Taxes payable 917,362 680,692
Due to HIPDC 87,508 100,475
Due to other related parties 27,338 --
Staff welfare and bonus payable 220,896 233,566
Short-term loans 1,600,000 1,266,686
Current portion of long-term loans from shareholders 388,875 404,891
Current portion of long-term bank loans 2,409,240 1,946,732
Current portion of other long-term loans 243,386 163,098
Convertible notes 952 --
Accrued put premium for convertible notes 8,636 --
Other financial liabilities 4,351 --
------------------------------------------------------------------------------------------------------------------------
Total current liabilities 9,251,061 8,818,122
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY 52,748,452 50,314,436
========================================================================================================================
125
CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED 31ST DECEMBER,
2003 2002 2001
Rmb'000 Rmb'000 Rmb'000
OPERATING REVENUE, NET 24,142,713 20,834,089 19,151,816
------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Fuel (9,374,408) (8,007,244) (6,639,223)
Maintenance (971,282) (746,138) (966,985)
Depreciation (4,067,809) (3,609,605) (3,531,839)
Labor (1,532,605) (1,267,136) (1,135,627)
Service fees to HIPDC (230,792) (263,716) (307,322)
Income tax (1,276,478) (1,043,675) (882,465)
Others (706,802) (972,610) (910,127)
------------------------------------------------------------------------------------------------------------------------
Total operating expenses (18,160,176) (15,910,124) (14,373,588)
------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FINANCIAL EXPENSES 5,982,537 4,923,965 4,778,228
------------------------------------------------------------------------------------------------------------------------
Interest income 53,884 88,157 120,146
Interest expense (610,278) (810,879) (1,154,827)
Exchange losses, net (30,929) (33,131) (42,578)
------------------------------------------------------------------------------------------------------------------------
Total financial expenses (587,323) (755,853) (1,077,259)
------------------------------------------------------------------------------------------------------------------------
Share of profit (loss) of associates 266,730 (1,634) (5,381)
Minority interests (191,903) (214,366) (166,835)
------------------------------------------------------------------------------------------------------------------------
NET PROFIT ATTRIBUTABLE TO THE SHAREHOLDERS 5,470,041 3,952,112 3,528,753
========================================================================================================================
126
CONDENSED COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Rmb'000
Balance as at 1st January, 2001 23,991,504
Dividend relating to 2000 (1,243,000)
Net profit attributable to shareholders for the year ended 31st December, 2001 3,528,753
Capital contribution arising from acquisition of Shandong Huaneng 862,922
Capital contribution from HIPDC arising from housing benefits provided by HIPDC 26,152
Issuance and sale of 350,000,000 new Domestic Shares, net of direct issuance cost 2,770,058
Distribution to Huaneng Group (146,546)
------------------------------------------------------------------------------------------------------------------------
Balance as at 31st December, 2001 29,789,843
Dividends relating to 2001 (1,800,000)
Net profit attributable to shareholders for the year ended 31st December, 2002 3,952,112
Conversion of convertible notes to new ordinary shares 1,655
Net deemed capital distribution to Huaneng Group arising from the
acquisition of the equity interests of the Shidongkou I Power Plant,
Taicang Power Company, Huaiyin Power Company and Changxing Power Plant
and additional interests in Shidongkou I Power Plant and Taicang Power Company (2,034,222)
Contribution from Huaneng Group 85,735
Capital contribution from HIPDC arising from housing benefits provided by HIPDC 26,152
------------------------------------------------------------------------------------------------------------------------
Balance as at 31st December, 2002 30,021,275
Dividends relating to 2002 (2,049,408)
Net profit attributable to shareholders for the year ended
31st December, 2003 5,470,041
Conversion of convertible notes to new ordinary shares 165,548
Net deemed capital distribution to Huaneng Group arising from the
acquisition of the equity interests of the
Qinbei Power Company, Yushe Power Company and Xindian Power Plant (506,664)
Capital contribution from HIPDC arising from housing benefits provided by HIPDC 26,152
------------------------------------------------------------------------------------------------------------------------
Balance as at 31st December, 2003 33,126,944
========================================================================================================================
127
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED 31ST DECEMBER,
2003 2002 2001
Rmb'000 Rmb'000 Rmb'000
Net cash provided by operating activities 9,655,472 7,820,762 6,528,209
Net cash (used in)/provided by investing activities (5,904,727) 2,077,754 (5,340,464)
Net cash used in financing activities (2,767,549) (9,239,037) (1,129,337)
--------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 983,196 659,479 58,408
Cash and cash equivalents, beginning of year 3,145,452 2,485,973 2,427,565
--------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 4,128,648 3,145,452 2,485,973
==============================================================================================================
STATEMENT OF COMPREHENSIVE INCOME
Under US GAAP, certain items shown as components of common equity must be more
prominently reported in a separate statement as components of comprehensive
income. However, for each of the year in the three-year period ended 31st
December, 2003, apart from the net income, there was no other comprehensive
income which should be included in the statement of comprehensive income.
NEW ACCOUNTING PRONOUNCEMENTS
In 2003, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149"), Statement of
Financial Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity ("SFAS 150")
and FASB Interpretation No.46, Consolidation of Variable Interest Entities
("FIN 46").
SFAS 149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 is effective for contracts entered into or modified after
30th June, 2003. The Company considered the effects of adoption SFAS 149 and do
not expect any material impact on the financial statements.
128
SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Some of the provisions
of this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining
provisions of this Statement are consistent with the Board's proposal to revise
that definition to encompass certain obligations that a reporting entity can or
must settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. In addition, SFAS
150 concludes the first phase of the Board's redeliberations of the Exposure
Draft, Accounting for Financial Instruments with Characteristics of
Liabilities, Equity, or Both. SFAS 150 is effective for financial instruments
entered into or modified after 31st May, 2003, and otherwise is effective at
the beginning of the first interim period beginning after 15th June, 2003,
except for mandatorily redeemable financial instruments of nonpublic entities.
The Company considered the effects of adoption SFAS 150 and do not expect any
material impact on the financial statements.
FIN 46 provides guidance on the identification of and financial reporting for
entities over which controls is achieved through means other than voting
rights. This interpretation requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among parties involved. FIN 46 applies
immediately to variable interest entities created after 31st January, 2003, and
to variable interest entities in which an enterprise obtains an interest after
that date. It applies in the first fiscal year or interim period beginning
after 15th June, 2003, to variable interest entities in which an enterprise
holds a variable interest that it acquired before 1st February, 2003. The
Company considered the effects of adoption FIN 46 and do not expect any
material impact on the financial statements.
129
REPORT OF THE AUDITORS
PwC Shen Zi (2004) No.1096
TO THE SHAREHOLDERS OF HUANENG POWER INTERNATIONAL, INC.
We have audited the accompanying consolidated balance sheet of Huaneng Power
International, Inc. ("the Company") and its subsidiaries as at 31st December,
2003 and the consolidated profit and loss account and statement of income
appropriation and cash flow statement for the year then ended, and the balance
sheet of the Company as at 31st December, 2003 and its profit and loss account
and statement of income appropriation and cash flow statement for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with China's Independent Auditing
Standards. Those Standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting policies used and significant accounting
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above conform with the
Accounting Standards for Business Enterprises and the Accounting System for
Business Enterprises promulgated by the Central Government of the People's
Republic of China and present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries at 31st
December, 2003 and the consolidated results of their operations and their cash
flows for the year then ended, and the financial position of the Company as at
31st December, 2003 and its results of operations and cash flows for the year
then ended.
PRICEWATERHOUSECOOPERS ZHONG TIAN CPAS Certified Public Accountant
LIMITED COMPANY FENG HEPING
Certified Public Accountant
LI YANYU
16th March, 2004
130
BALANCE SHEET
(Prepared in accordance with PRC Accounting Standards)
AS AT 31st DECEMBER, 2003
(Amounts: In Rmb Yuan)
CONSOLIDATED THE COMPANY
ASSETS 31ST DECEMBER, 31st December, 31ST DECEMBER, 31st December,
Note 2003 2002 2003 2002
CURRENT ASSETS
Cash 6(1) 4,433,604,438 4,157,362,535 3,520,203,732 3,853,281,582
Short-term investment 13,200 -- 13,200 --
Notes receivable 6(2) 447,200,000 472,750,000 336,180,000 440,080,000
Interest receivable 3,291,154 3,792,434 2,387,688 3,792,434
Accounts receivable 6(3), 7(1) 2,356,825,998 1,889,082,774 2,005,023,640 1,545,294,232
Other receivables 6(3), 7(1) 160,720,886 102,595,147 87,489,711 81,195,078
Advance to suppliers 88,194,813 54,040,826 54,736,358 39,068,231
Inventories 6(4) 808,159,276 940,723,848 632,641,423 765,649,739
Deferred expenses 4,779,340 12,451,202 4,594,883 9,659,052
Current portion of
long-term investments 6(6), 7(2,3) 83,060 25,160 470,746,016 256,325,160
Other current assets 6(5) -- 70,000,000 -- 70,000,000
------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,302,872,165 7,702,823,926 7,114,016,651 7,064,345,508
========================================================================================================================
LONG-TERM INVESTMENTS
Long-term equity
investments 6(6), 7(2) 3,407,034,531 776,151,596 5,472,475,440 2,324,449,270
Including: Consolidated
difference in value 6(6) 1,133,262,633 313,862,886 -- --
Long-term debt
investments 6(6), 7(3) 12,500 10,137,770 12,500 450,800,726
------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS 3,407,047,031 786,289,366 5,472,487,940 2,775,249,996
========================================================================================================================
FIXED ASSETS
Fixed assets, cost 6(7) 60,731,810,047 58,940,239,645 52,100,413,665 51,331,689,101
Less: Accumulated
depreciation 6(7) (22,330,922,497) (18,725,078,726) (18,556,962,398) (15,884,329,113)
------------------------------------------------------------------------------------------------------------------------
Fixed assets,
net book value 6(7) 38,400,887,550 40,215,160,919 33,543,451,267 35,447,359,988
Construction materials 6(8) 1,111,654,804 175,117,054 325,349,997 175,117,054
Construction-in-progress 6(9) 3,090,960,181 510,644,503 618,045,031 451,108,518
------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED ASSETS 42,603,502,535 40,900,922,476 34,486,846,295 36,073,585,560
========================================================================================================================
INTANGIBLE AND OTHER ASSETS
Intangible assets 6(10) (1,057,406,729) (1,306,167,496) (1,127,369,140) (1,373,182,297)
Long-term deferred expenses 20,950,014 14,886,880 8,374,230 14,886,880
------------------------------------------------------------------------------------------------------------------------
TOTAL INTANGIBLE AND OTHER ASSETS (1,036,456,715) (1,291,280,616) (1,118,994,910) (1,358,295,417)
------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 53,276,965,016 48,098,755,152 45,954,355,976 44,554,885,647
========================================================================================================================
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
LI XIAOPENG HUANG JIAN ZHOU HUI
131
CONSOLIDATED THE COMPANY
LIABILITIES AND SHAREHOLDERS' 31ST DECEMBER, 31st December, 31ST DECEMBER, 31st December,
EQUITY Note 2003 2002 2003 2002
CURRENT LIABILITIES
Short-term loans 6(11) 1,600,000,000 550,000,000 280,000,000 550,000,000
Accounts payable 6(12) 653,100,248 471,608,936 486,384,541 409,500,258
Salary payable 10,157,597 9,276,290 7,209,340 9,077,965
Welfare payable 214,006,684 224,289,622 203,101,081 222,648,524
Dividends payable 14,780,096 -- -- --
Interest payable 94,083,122 115,860,824 92,823,122 113,370,824
Taxes payable 6(13) 917,362,692 620,188,900 601,337,983 395,661,112
Other levies payable 2,955,512 7,805,368 12,748,584 2,713,031
Other payables 6(14) 1,670,941,617 2,280,414,185 1,418,213,280 2,199,243,434
Accrued expenses 26,733,205 26,273,238 26,733,205 26,273,238
Current portion of
long-term loans 6(15) 3,041,501,169 2,413,636,557 2,144,948,831 2,172,623,070
Convertible notes 6(16) 951,821 -- 951,821 --
------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,246,573,763 6,719,353,920 5,274,451,788 6,101,111,456
------------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term loans 6(15) 9,153,604,209 9,184,800,869 5,892,803,985 7,077,706,287
Convertible notes 6(16) -- 166,497,890 -- 166,497,890
------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 9,153,604,209 9,351,298,759 5,892,803,985 7,244,204,177
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 17,400,177,972 16,070,652,679 11,167,255,773 13,345,315,633
------------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 1,089,686,841 818,532,459 -- --
------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 6(17) 6,027,671,200 6,000,273,960 6,027,671,200 6,000,273,960
Capital surplus 6(18) 10,403,229,361 10,260,830,755 10,403,229,361 10,260,830,755
Surplus reserves 6(19) 4,374,668,188 3,419,668,242 4,374,668,188 3,419,668,242
Including: Statutory
public welfare fund 6(19) 1,460,700,799 1,053,519,606 1,460,700,799 1,053,519,606
Undistributed profits 6(20) 13,981,531,454 11,528,797,057 13,981,531,454 11,528,797,057
------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 34,787,100,203 31,209,570,014 34,787,100,203 31,209,570,014
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 53,276,965,016 48,098,755,152 45,954,355,976 44,554,885,647
========================================================================================================================
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
LI XIAOPENG HUANG JIAN ZHOU HUI
132
PROFIT AND LOSS ACCOUNTS
(Prepared in accordance with PRC Accounting Standards)
FOR THE YEAR ENDED 31st DECEMBER, 2003
(Amounts: In Rmb Yuan)
CONSOLIDATED THE COMPANY
Note 2003 2002 2003 2002
1. REVENUES FROM PRINCIPAL
OPERATIONS 6(21), 7(4) 23,479,646,958 18,725,340,857 20,287,987,380 15,720,550,997
Less: Cost of principal
operations 6(21), 7(4) (15,690,199,491) (12,528,622,594) (13,698,115,361) (10,480,868,719)
Tax and levies on
principal operations (45,334,549) (38,116,331) (7,542,002) (5,839,726)
------------------------------------------------------------------------------------------------------------------------
2. PROFIT FROM PRINCIPAL OPERATIONS 7,744,112,918 6,158,601,932 6,582,330,017 5,233,842,552
Add: Profit from other
operations 30,574,635 16,821,913 31,991,798 14,421,931
Less: General and
administrative
expenses (441,548,979) (327,188,932) (327,750,541) (229,565,700)
Financial expenses,net 6(22) (559,636,467) (562,719,815) (430,705,990) (450,065,716)
------------------------------------------------------------------------------------------------------------------------
3. OPERATING PROFIT 6,773,502,107 5,285,515,098 5,855,865,284 4,568,633,067
Add: Income (loss) from
investments 6(23), 7(5) 133,885,686 (46,138,983) 567,970,021 288,673,388
Non-operating income 20,485,605 50,717,819 2,108,848 19,264,890
Less: Non-operating
expenses 6(24) (153,792,811) (78,014,523) (143,297,291) (71,346,712)
------------------------------------------------------------------------------------------------------------------------
4. PROFIT BEFORE TAXATION AND
MINORITY INTERESTS 6,774,080,587 5,212,079,411 6,282,646,862 4,805,224,633
Less: Income tax (1,116,100,498) (963,510,283) (825,504,311) (722,874,044)
Minority interests (200,837,538) (166,218,539) -- --
------------------------------------------------------------------------------------------------------------------------
5. NET PROFIT 5,457,142,551 4,082,350,589 5,457,142,551 4,082,350,589
------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
CONSOLIDATED THE COMPANY
2003 2002 2003 2002
1. Profit from sale or disposal of a business
unit or investments -- -- -- --
2. Loss due to natural disaster -- -- -- --
3. Increase/(decrease) in profit before
taxation and minority interests as a result
of changes in accounting policies -- -- -- --
4. Increase/(decrease) in profit before taxation
and minority interests as a result of
changes in accounting estimates -- -- -- --
5. Loss on debt restructuring -- -- -- --
6. Others -- -- -- --
------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
LI XIAOPENG HUANG JIAN ZHOU HUI
133
STATEMENT OF INCOME APPROPRIATION
(Prepared in accordance with PRC Accounting Standards)
FOR THE YEAR ENDED 31st DECEMBER, 2003
(Amounts: In Rmb Yuan)
CONSOLIDATED THE COMPANY
2003 2002 2003 2002
1. NET PROFIT 5,457,142,551 4,082,350,589 5,457,142,551 4,082,350,589
Add: Unappropriated profit
brought forward 11,528,797,05 7 9,960,857,821 11,528,797,057 9,960,857,821
------------------------------------------------------------------------------------------------------------------------
2. UNAPPROPRIATED PROFIT 16,985,939,608 14,043,208,410 16,985,939,608 14,043,208,410
Less: Transfer to statutory surplus
reserve fund (545,714,255) (408,235,059) (545,714,255) (408,235,059)
Transfer to statutory public
welfare fund (409,285,691) (306,176,294) (409,285,691) (306,176,294)
------------------------------------------------------------------------------------------------------------------------
3. PROFIT DISTRIBUTABLE TO SHAREHOLDERS 16,030,939,662 13,328,797,057 16,030,939,662 13,328,797,057
Less: Dividends (2,049,408,208) (1,800,000,000) (2,049,408,208) (1,800,000,000)
------------------------------------------------------------------------------------------------------------------------
4. UNAPPROPRIATED PROFIT CARRIED FORWARD 13,981,531,454 11,528,797,057 13,981,531,454 11,528,797,057
------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
LI XIAOPENG HUANG JIAN ZHOU HUI
134
CASH FLOW STATEMENT
(Prepared in accordance with PRC Accounting Standards)
FOR THE YEAR ENDED 31st DECEMBER, 2003
(Amounts: In Rmb Yuan)
ITEMS Note CONSOLIDATED THE COMPANY
1. CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from sale of goods and services 27,129,383,880 23,327,923,627
Other cash received relating to operating activities 148,138,072 118,556,992
------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 27,277,521,952 23,446,480,619
------------------------------------------------------------------------------------------------------------------------
Cash paid for goods and services (9,941,830,698) (8,642,057,829)
Cash paid to and on behalf of employees (1,079,192,007) (918,563,772)
Payment of all types of taxes (3,855,986,487) (3,199,900,923)
Other cash paid relating to operating activities 6(26) (2,243,538,053) (1,753,373,344)
------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (17,120,547,245) (14,513,895,868)
------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 10,156,974,707 8,932,584,751
------------------------------------------------------------------------------------------------------------------------
2. CASH FLOWS FROM INVESTING ACTIVITIES
Cash received on disposal of investments 1,147,192,869 1,417,003,473
Cash received on investment income 10,704,716 244,302,149
Net cash received from disposals of fixed assets 121,074,089 116,867,453
Other cash received relating to investing activities 215,665,745 28,193,651
------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 1,494,637,419 1,806,366,726
------------------------------------------------------------------------------------------------------------------------
Cash paid to acquire fixed assets, intangible assets
and other long-term assets (3,760,373,288) (2,327,081,953)
Cash paid to acquire investments other than
the equity interest in subsidiaries (2,390,013,200) (2,618,881,200)
Cash paid to acquire equity interest in subsidiaries 6(25) (550,000,000) (550,000,000)
------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (6,700,386,488) (5,495,963,153)
------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (5,205,749,069) (3,689,596,427)
------------------------------------------------------------------------------------------------------------------------
3. CASH FLOWS FROM FINANCING ACTIVITIES
Cash received form investments 77,632,000 --
Including: cash received from minority shareholders
equity investment in subsidiaries 77,632,000 --
Cash received from borrowings 2,135,230,542 560,363,542
------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOW 2,212,862,542 560,363,542
------------------------------------------------------------------------------------------------------------------------
Cash paid on repayment of borrowings (3,197,395,992) (2,623,089,472)
Cash payments of interest expenses and appropriation of
dividends or profit (2,841,265,670) (2,548,620,805)
Including: Dividends paid to minority shareholders of subsidiaries (133,244,836 )--
------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (6,038,661,662) (5,171,710,277)
------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS USED IN FINANCING ACTIVITIES (3,825,799,120) (4,611,346,735)
------------------------------------------------------------------------------------------------------------------------
4. EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 620,026 (193,468)
------------------------------------------------------------------------------------------------------------------------
5. NET INCREASE IN CASH AND CASH EQUIVALENTS 1,126,046,544 631,448,121
------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
LI XIAOPENG HUANG JIAN ZHOU HUI
135
SUPPLEMENTARY INFORMATION CONSOLIDATED THE COMPANY
1. RECONCILIATION OF NET PROFIT TO CASH FLOWS FROM OPERATING ACTIVITIES
Net profit 5,457,142,551 5,457,142,551
Add: Minority interests 200,837,538 --
Provision for asset impairment 11,815,322 6,837,653
Depreciation of fixed assets 4,063,465,119 3,611,012,801
Amortization of intangible assets (229,670,474) (231,701,267)
Amortization of long-term deferred expenses 8,070,188 8,070,188
Decrease in deferred expenses 8,383,311 5,316,161
Decrease in accrued expenses (4,336,944) (4,336,944)
Losses on disposal of fixed assets 137,719,028 133,427,243
Financial expenses 612,257,765 478,934,847
Gains arising from investments (133,885,686) (567,970,021)
Decrease in inventories 168,923,943 156,628,864
Increase in operating receivables items (577,868,758) (492,481,282)
Increase in operating payables items 433,435,156 371,703,957
Others 686,648 --
------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 10,156,974,707 8,932,584,751
------------------------------------------------------------------------------------------------------------------------
2. INVESTING AND FINANCING ACTIVITIES THAT DO NOT INVOLVE CASH
RECEIPTS OR PAYMENTS
Conversion of debt into capital 165,548,000 165,548,000
Reclassification of current portion of convertible notes to current liabilities 951,901 951,901
Fixed assets capitalized under finance leases -- --
3. NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash at end of year 4,128,648,014 3,291,922,217
Less: cash at beginning of year (3,002,601,470) (2,660,474,096)
Cash equivalents at end of year -- --
Less: cash equivalents at beginning of year -- --
------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,126,046,544 631,448,121
------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
LI XIAOPENG HUANG JIAN ZHOU HUI
136
NOTES TO THE FINANCIAL STATEMENTS
(Prepared in accordance with PRC Accounting Standards)
AS AT 31st DECEMBER, 2003
(Amounts: In Rmb Yuan unless otherwise stated)
1. COMPANY BACKGROUND
Huaneng Power International, Inc. (the "Company") was incorporated in the
People's Republic of China (the "PRC") as a Sino-foreign joint stock company on
30th June, 1994.
The Company and its subsidiaries are principally engaged in the generation and
sale of electric power to ultimately consumers through the respective
provincial or regional grid companies.
Five of the power plants were already in commercial operations at time of
incorporation of the Company in 1994 (hereinafter collectively referred to as
the "five original operating plants"). The five original operating plants were
previously divisions of Huaneng International Power Development Corporation
("HIPDC"), which is a Sino-foreign equity joint venture established in the PRC.
In accordance with the Reorganization Agreement dated 30th June, 1994, the
Company acquired the assets, liabilities and businesses of the five original
operating plants from HIPDC which in return received an equity interest in the
Company (the "Reorganization"). The other operating plants were either
constructed or acquired by the Company after the Reorganization.
The Company's Overseas Listed Foreign Shares were listed on the New York Stock
Exchange and The Stock Exchange of Hong Kong Limited on 6th October, 1994 and
4th March, 1998, respectively. The A shares of the Company issued to the public
were listed on the Shanghai Stock Exchange on 6th December, 2001.
The Company's ultimately parent company is China Huaneng Group ("Huaneng
Group"). Huaneng Group is a state-owned enterprise registered in the People's
Republic of China. For details, please refer to Note 8(1).
137
1. COMPANY BACKGROUND (Cont'd)
Particulars of operating power plants of the Company, its subsidiaries and
associates are as follows:
TOTAL INSTALLED
CAPACITY OF
THE COMPANY, EQUITY PORTION OF
ITS SUBSIDIARIES TOTAL CAPACITY PROVINCE/
AND ASSOCIATES OF THE COMPANY MUNICIPALITY
OPERATING PLANTS (MW) (MW) LOCATED
Wholly-owned power plants:
Huaneng Dalian Power Plant (the "Dalian Power Plant") 700 700 Liaoning
Huaneng Shangan Power Plant (the "Shangan Power Plant") 700 700 Hebei
Huaneng Nantong Power Plant (the "Nantong Power Plant") 704 704 Jiangsu
Huaneng Fuzhou Power Plant (the "Fuzhou Power Plant") 700 700 Fujian
Huaneng Shantou Oil-Fired Power Plant (the "Shantou Oil-Fired Power Plant") 103 103 Guangdong
Huaneng Shantou Coal-Fired Power Plant (the "Shantou Power Plant") 600 600 Guangdong
Huaneng Shangan Power Plant Phase II ( the "Shangan Phase II") 600 600 Hebei
Huaneng Shanghai Shidongkou Second Power Plant
(the "Shanghai Power Plant") 1,200 1,200 Shanghai
Huaneng Dalian Power Plant Phase II (the "Dalian Phase II") 700 700 Liaoning
Huaneng Dandong Power Plant (the "Dandong Power Plant") 700 700 Liaoning
Huaneng Nantong Power Plant Phase II (the "Nantong Phase II") 700 700 Jiangsu
Huaneng Fuzhou Power Plant Phase II (the "Fuzhou Phase II") 700 700 Fujian
Huaneng Nanjing Power Plant (the "Nanjing Power Plant") 640 640 Jiangsu
Huaneng Dezhou Power Plant (the "Dezhou Power Plant") 2,520 2,520 Shandong
Huaneng Jining Power Plant (the "Jining Power Plant") 595 595 Shandong
Huaneng Changxing Power Plant (the "Changxing Power Plant) 250 250 Zhejiang
Shanghai Shidongkou Power Plant (the "Shidongkou I Power Plant") 1,200 1,200 Shanghai
Huaneng Xindian Power Plant (the "Xindian Power Plant")** 450 450 Shandong
Subsidiaries:
Huaneng Weihai Power Company (the "Weihai Power Company") 850 510 Shandong
Suzhou Industrial Park Huaneng Power Limited Liability Company
(the "Taicang Power Company") 600 450 Jiangsu
Jiangsu Huaneng Huaiyin Power Limited Company
(the "Huaiyin Power Company") 400 255 Jiangsu
Huaneng Yushe Power Company (the "Yushe Power Company")** 200 120 Shanxi
Associates:
Shandong Rizhao Power Company Ltd. (the "Rizhao Power Company") 700 178 Shandong
Shenzhen Energy Group Co., Ltd. (the "SEG")* 1,844 461 Guangdong
------------------------------------------------------------------------------------------------------------------------
18,356 15,736
------------------------------------------------------------------------------------------------------------------------
138
1. COMPANY BACKGROUND (Cont'd)
* On 28th January, 2003, the Company entered into an agreement with Shenzhen
Investment Holding Corporation ("Shenzhen Investment") and SEG. Pursuant
to which, SEG increased its original registered capital by 10%. The
Company subscribed equity interest representing 10% of SEG's expanded
share capital and acquired additional equity interest representing 15% of
SEG's expanded share capital from Shenzhen Investment at a total
consideration of Rmb 2.39 billion. The acquisition became effective on
22nd April, 2003 after obtaining all necessary government approvals on the
transaction and the payment of the consideration.
** On 5th June, 2003, the Company entered into an agreement with Huaneng
Group, pursuant to which the Company acquired from Huaneng Group 55%
equity interest in Huaneng Qinbei Power Company (the "Qinbei Power
Company"), 60% equity interest in Yushe Power Company and all the assets
and liabilities of Xindian Power Plant at a total consideration of Rmb550
million. The acquisition became effective on 27th October, 2003 after
obtaining all necessary government approvals on the transaction and the
payment of the consideration. Qinbei Power Company has two 600MW units
under construction.
2. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
Effective 1st July, 2003, the Company has adopted the revised "Accounting
Standards for Business Enterprises - Events Occurring After the Balance Sheet
Date". Prior to the adoption of the revised standard, profit distribution was
transferred out of shareholders' equity and cash dividends were recognized as
payables in the period related to which the Board of Directors proposed the
distribution plan. Subsequent to 1st July 2003, profit distribution is
recognized as a liability in the period when the distribution plan is approved
at the general meeting of the shareholders. This change in accounting policy
has been accounted for retroactively, and as a result, the net assets as at 1st
January, 2003 and 1st January, 2002 have been increased by Rmb2,040,093,146 and
Rmb1,800,000,000, respectively. For details, please refer to Note 6(20).
3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of preparation
The financial statements have been prepared in accordance the Accounting
Standards for Business Enterprises and Accounting Systems for Business
Enterprises and relevant regulations as promulgated by the government of the
PRC.
(2) ACCOUNTING YEAR
The financial year starts on 1st January and ends on 31st December.
(3) REPORTING CURRENCY
The Company and its subsidiaries use the Renminbi as reporting currency.
(4) BASIS OF ACCOUNTING AND MEASUREMENT BASES
Accrual method is used as the basis of accounting. Assets are initially
recorded at their costs. Subsequently, if they are impaired, impairment
provisions are taken accordingly.
139
3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(5) FOREIGN CURRENCY TRANSLATION
Transactions denominated in foreign currencies are translated into Rmb at the
exchange rates stipulated by the People's Bank of China (the "PBOC") prevailing
at the transaction dates. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into Rmb at the
exchange rates stipulated by the PBOC at the balance sheet date. Exchange
differences arising from these translations are taken to the profit and loss
account, except that when they are attributable to foreign currency borrowings
that have been taken out specifically for construction of fixed assets, which
are capitalized as part of the fixed asset costs accordingly.
(6) CASH AND CASH EQUIVALENTS
For the purpose of the cash flow statement, cash refers to all cash on hand and
deposits held at call with banks. Cash equivalents refers to short-term,
highly-liquid investments with original maturities of three months or less that
are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
For the purpose of the cash flow statement, restricted cash and time deposits
with maturity beyond of three months are not considered as cash and cash
equivalents. Their movements are considered as cash flow from investing
activities.
(7) RECEIVABLES AND PROVISION FOR BAD DEBTS
Receivables include accounts receivable and other receivables.
The Company and its subsidiaries make provision for bad debts using the
"allowance method". Receivables are netted with the provision for bad debts.
Provisions for bad debts are made based on the assessment of the collectibility
of the receivables. Based on the actual circumstances and experiences, the
Company and its subsidiaries made specific provisions against balances that
have been assessed to be uncollectible.
For balances where there are clear evidence that they cannot be recovered (e.g.
creditor has been deregistered, declared bankruptcy, unable to meet its
liabilities as they fall due or having serious cash flow problem), then bad
debts are recognized and the balances are written off against the provision.
(8) INVENTORIES
Inventories include fuel for power generation, materials and supplies for
repairs and maintenance. Inventories are recorded at actual cost and are
charged to fuel costs or repairs and maintenance when used, or capitalized to
fixed assets when installed, as appropriate, using weighted average cost basis.
Cost of inventories includes costs of purchase and transportation costs.
Inventories at balance sheet date are stated at lower of cost and net
realizable values. When their costs exceed their net realizable value, the
excess of their original cost over their net realizable value is taken as a
"provision for loss on realization of inventories". Net realizable value is the
estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to conclude the sale.
140
3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(9) LONG-TERM INVESTMENTS
Long-term investments comprise equity investments in companies that the Company
does not intend to dispose of within one year, bonds and other debt investments
that are not readily convertible into cash or the Company does not intend to
dispose.
Subsidiaries are investees in which the Company has, directly or indirectly, an
interest of more than 50% of the voting rights, or otherwise has power to
govern the investees' financial and operating policies. Associates generally
represent investees in which the Company has an interest of between 20% to 50%
(excluding 20% and 50%) of the voting rights or otherwise has significant
influence over the financial and operating policies.
(a) Equity investment
Long-term equity investments are recorded at the actual cost of
acquisition. The Company accounts for long-term equity investments in
subsidiaries and associates using the equity method of accounting.
Other equity investments, which the Company intends to hold for more
than one year, are accounted for using the cost method of accounting.
When long-term equity investments acquired prior to 17th March, 2003
are accounted for using the equity method of accounting, the
difference between the initial cost of investment and the
proportionate share of the net assets of the investee is amortized
using the straight-line method over a certain period. According to
Cai Kuai [2003] No.10, when long-term equity investments acquired
after 17th March, 2003 are accounted for using the equity method of
accounting, if the initial cost of investment is less than the
proportionate share of the net assets of the investee, the difference
is accounted for as capital surplus. If there is an excess of the
initial cost of investment over the proportionate share of net assets
of the investee, the excess is amortized using the straight-line
method over a certain period.
Under the equity method of accounting, the attributable share of the
investees' net profit or loss for the period is recognized as an
investment income or loss. When the investees declare dividends, the
carrying amount of the investment is reduced accordingly. Under the
cost method of accounting, investment income is recognized when the
investees declare dividends.
(b) Debt investment
Long-term debt investments are recorded at cost on acquisition, less
unpaid interest which has been accrued. Interest income from
investments is computed for each period.
Entrusted loans refers to loans that the Company provides to other
companies via intermediary financial institutions with maturities
over one year. Interest income is accrued and recorded as income in
each period. Interest receivable that has been accrued, but cannot be
collected when due, should be written off. At the balance sheet date,
when events indicate that the principal amount is higher than the
recoverable amount of the entrusted loans, provision for impairment
loss will be made.
141
3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(10) FIXED ASSETS AND DEPRECIATION
Fixed assets include buildings, plant and other equipment related to the
production and operation of the Company and its subsidiaries with useful lives
over one year. Effective from 1st January, 2001, when construction takes place
on the Company's land and the construction is for its own use, the carrying
value of land use right is capitalized as part of the cost of buildings.
Fixed assets purchased or constructed were initially recorded at cost. Fixed
assets obtained upon Reorganization were initially recorded at their appraised
value approved by relevant government authorities.
Depreciation of fixed assets is calculated on the straight-line method to write
off the cost of each asset, net of estimated residual values, over their
estimated useful lives. When a provision for impairment loss has been made for
a fixed asset, the depreciation rate and depreciation charge for the fixed
asset should be recalculated based on the asset's carrying amount and its
remaining useful life.
The estimated useful lives, estimated residual value and depreciation rates of
the fixed assets of the Company and its subsidiaries are as follows:
ESTIMATED ESTIMATED
USEFUL RESIDUAL DEPRECIATION
LIVES VALUE RATE
CATEGORIES
Buildings 8-35 years 0%-11% 2.54%-12.50%
Electric utility plant
in service 4-30 years 0%-11% 2.97%-25.00%
Transportation and
transmission facilities 13-27 years 5%-11% 3.30%-7.31%
Others 5-13 years 0%-11% 6.85%-20.00%
When fixed assets are sold, transferred, disposed of or destroyed, proceeds
reduced by the carrying amount of the assets, related taxes and expenses, are
included in non-operating income or expenses.
Repairs and maintenance of fixed assets are expensed as incurred. Subsequent
expenditures for major reconstruction, expansion, improvement and renovation
are capitalized when it is probable that future economic benefits in excess of
the original assessment of performance will flow to the Company. Capitalized
expenditures arising from major reconstruction, expansion and improvement are
depreciated using the straight-line method over the remaining useful lives of
the fixed assets.
(11) CONSTRUCTION-IN-PROGRESS
Construction-in-progress represents capital assets under construction or being
installed and is stated at cost. Cost comprises original cost of plant and
equipment, installation, construction and other direct costs which include
interest costs incurred on specific borrowings used to finance the capital
assets, prior to the date at which the asset reaches the expected usable
condition. Construction-in-progress is transferred to the fixed assets account
and depreciation commences when the assets has been substantially completed and
reaches the expected usable condition.
142
3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(12) BORROWING COSTS
The borrowings are initially recognized at the amount of the proceeds received.
Ancillary costs incurred in connection with the borrowing arrangement are
expensed as incurred.
Interest, ancillary costs incurred, and exchange differences incurred in
connection with specific borrowings obtained for the acquisition or
construction of fixed assets are capitalized as costs of the assets when the
capital expenditures and borrowing costs have been incurred and the activities
to enable the assets to reach their expected usable condition have commenced.
The capitalization of borrowing costs ceases when the construction-in-progress
has reached the asset's expected usable condition. Borrowing costs incurred
thereafter are recognized as expenses in the period in which they are incurred.
The capitalization amount of interest for each accounting period is determined
by using the weighted average amount of accumulated expenditures incurred for
the acquisition or construction of a fixed asset up to the end of the current
period and the weighted average capitalization rate of the relevant borrowings.
The amount of interest for each capitalization period shall not exceed the
actual amount of interest incurred of the specific borrowings during that
period. Exchange difference for specific borrowings denominated in foreign
currency and ancillary costs incurred in connection with the arrangement of
specific borrowings are capitalized in the period in which they are incurred.
Interests incurred in connection with other borrowings are recognized as
expenses in the period in which they are incurred.
(13) INTANGIBLE ASSETS
Intangible assets include land use rights, goodwill and negative goodwill and
are stated at cost net of accumulated amortization.
The land use rights acquired directly from the land bureau, through payment of
land use fees, are initially recorded at cost. They are amortized using the
straight-line method over the land use rights period of 20-70 years. Effective
1st January, 2001, when construction is taking place on land for which will
eventually be utilized by the Company, then the carrying value of the land use
rights is transferred into the construction-in-progress account. Land use
rights acquired prior to 1st January, 2001 that have already been constructed
and utilized by the Company and its subsidiaries are not reclassified.
Goodwill and negative goodwill arose from acquisitions are amortized over 10
years on a straight-line basis.
(14) LONG-TERM DEFERRED EXPENSES
Long-term deferred expenses represent other deferred expenses with amortization
period of more than one year. They are stated at cost and amortized using the
straight-line method over the expected beneficial period of the asset.
143
3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(15) ASSET IMPAIRMENT
The recognition of impairment provisions against entrusted loans, receivables
and loss on realization of inventories is described in the respective
accounting policies. When events or changes in circumstances indicate that the
carrying value of other individual assets is higher than their recoverable
amounts, then test for impairment is undertaken. If the carrying amount is
higher than the recoverable amount, then the excess is recognized as an
impairment provision and taken into the profit and loss account.
The recoverable amount of an individual asset item is the higher of its net
selling price and its value in use. Net selling price is the amount obtainable
from the sale of an asset in an arm's length transaction between knowledgeable,
willing parties, after deducting any direct incremental disposal costs. Value
in use is the present value of estimated future cash flows expected to be
derived from continuing use of an asset and from its disposal at the end of its
useful life.
If there are indications that the impairment loss recognized for an asset in
prior years no longer exist or have decreased, then the recoverable amount of
the asset will be assessed. If the carrying value of the asset is lower than
the reassessed recoverable amount, then the provision for asset impairment is
reversed to the extent of impairment loss being recognized in the previous
years.
(16) CONVERTIBLE NOTES
Convertible notes are stated at principal plus interest receivable.
As mentioned in Note 6(16), the convertible notes are issued at par value with
redemption rights. The notes might be redeemed, at the option of the
noteholders, on 21st May, 2002 at 128.575% of the principal amount of the notes
together with accrued interest. Such premium is accrued together with the
interest payable on the notes from date of issuance to date of redemption. The
accounting treatment of accrued interest of the convertible notes is the same
as that of borrowing costs.
(17) EMPLOYEE SOCIAL SECURITY BENEFITS
The Company and its subsidiaries participate in employee social security plans,
including pension, medical, housing and other welfare benefits, organised by
the local government authorities in accordance with relevant regulations.
Except for the above social security benefits as disclosed, the Company and its
subsidiaries have no additional material commitment to other employee welfare
benefits.
According to the relevant regulations, premium and welfare benefit
contributions are remitted to the social welfare authorities and are calculated
based on percentages (47% to 62.5%) of the total salary of employees, subject
to certain ceilings. Contributions to the plans are charged to the profit and
loss account as incurred.
(18) PROFIT DISTRIBUTION
If a profit distribution plan is proposed by the Board of Directors after the
balance sheet date but before the date the financial statements are authorized
for issuance, statutory surplus reserve fund, statutory public welfare fund and
discretionary surplus reserve fund are recognized in related equity account.
Profit distribution is transferred out of owners' equity in the period when the
distribution plan is approved by the shareholders at their annual general
meeting.
144
3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(19) REVENUE RECOGNITION
Revenue is recognized under the following methods:
(a) Operating revenue
Operating revenue represents amounts earned for electricity generated
and transmitted to the ultimate consumers through respective
provincial or regional gird companies (net of Value Added Tax
("VAT")). The Company and its subsidiaries bill the respective power
companies based on the actual quantity of electricity transmitted or
sold to the power grid controlled and owned by the respective grid
companies and recognize revenue at the end of each month.
(b) Interest income
Interest income is recognized on a time proportion basis on the
amounts deposited/entrusted lending and the effective yield.
(c) Management service income
As mentioned in Note 8(5)(l), the Company provides management service
to certain power plants owned by Huaneng Group and HIPDC. The Company
recognized the service income as other income when service was
provided in accordance with the management service agreement.
(20) LEASE
Leases of fixed assets where all the risks and rewards of ownership of the
assets are in substance transferred to the lessees are classified as finance
leases. All other leases are operating leases. Payments made under operating
leases are expensed on a straight-line basis over the period of the lease.
(21) ACCOUNTING FOR INCOME TAX
The Company and its subsidiaries account for enterprise and local income taxes
using the tax payable method. Tax expense is recognized based on current period
taxable income and tax rates.
145
3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(22) CONSOLIDATION OF FINANCIAL STATEMENTS
The consolidated financial statements, including the financial statements of
the Company and its subsidiaries, are prepared in accordance with the Cai Kuai
Zi (1995) 11 "Tentative Regulations for Consolidated Financial Statements" and
relevant regulations issued by the Ministry of Finance of the PRC.
Subsidiaries are consolidated from the date on which control is obtained by the
Company. Major intercompany balances, transactions and unrealized gains between
the Company and its subsidiaries are eliminated upon consolidation. Minority
interests in the consolidated financial statements represent the portion of the
shareholders equity of the subsidiaries that are not owned by the Company.
When the accounting policies adopted by subsidiaries are not consistent with
those adopted by the Company and such inconsistency created a material impact
to the consolidated financial statements, accounting policies of subsidiaries
are changed to ensure consistency with the policies adopted by the Company.
4. TAXATION
(1) VALUE ADDED TAX
The electricity sales of the Company and its subsidiaries is subjected to Value
Added Tax ("VAT"). The applicable tax rate is 17%. Input VAT from purchase of
raw materials and other production materials can be netted off against output
VAT from sales.
(2) INCOME TAX
According to the relevant income tax law, Sino-foreign enterprises are, in
general, subject to statutory income tax of 33% (30% of Enterprise Income Tax
("EIT") and 3% of local income tax). If these enterprises are located in
specified location or city, or specifically approved by the State Tax Bureau, a
lower tax rate can be enjoyed. Effective from 1st January, 1999, in accordance
with the practice notes on the PRC income tax laws applicable to Sino-foreign
enterprises investing in energy and transportation infrastructure businesses, a
reduced income tax rate of 15% (after the approval of State Tax Bureau) are
applicable across the country. The Company applied this rule in all operating
power plants after the approval of State Tax Bureau since 1st January, 1999.
Pursuant to "Income Tax Law of the People's Republic of China for Enterprises
with Foreign Investment and Foreign Enterprises", all power plants (except for
the Dezhou Power Plant, Jining Power Plant, Changxing Power Plant, Shidongkou I
Power Plant, Xindian Power Plant and Dalian Power Plant Phase II) are exempted
from income tax for two years starting from the first profit-making year, after
offsetting all tax losses carried forward from the previous years (at most five
years), followed by a 50% reduction of the applicable tax rate for the next
three years ("tax holiday").
In accordance with Guo Shui Han [1994] No.381, the head office, the Shandong
branch (the former headquarter of Shandong Huaneng Power Development Company
Limited ("Shandong Huaneng")) and all the individual power plants make their
income tax payment to local tax bureau individually.
146
4. TAXATION (Cont'd)
(2) INCOME TAX (Cont'd)
The statutory income tax rates applicable to the head office, the Shandong
branch and the operating individual power plants after the expiration of tax
holiday are summarized as follow:
EIT RATE TAX HOLIDAY PERIOD
Head Office 15.0% None
Dalian Power Plant (including Dalian Phase II) 18.0% Till 31st December, 1994
Shangan Power Plant 18.0% Till 31st December, 1996
Shangan Phase II 18.0% Till 31st December, 2003
Nantong Power Plant 15.0% Till 31st December, 1996
Nantong Phase II 15.0% Till 31st December, 2004
Fuzhou Power Plant 15.0% Till 31st December, 1995
Fuzhou Phase II 15.0% Till 31st December, 2004
Shantou Oil-Fired Plant 15.0% Till 31st December, 1994
Shantou Power Plant 15.0% Till 31st December, 2005
Shanghai Power Plant 16.5% Till 31st December, 1998
Dandong Power Plant 18.0% Not commenced yet
Nanjing Power Plant 15.0% Till 31st December, 2001
Shandong Branch 17.0% None
Dezhou Power Plant 17.0% None
Jining Power Plant 15.0% None (Effective from 1st September, 2002)
Changxing Power Plant 16.5% None (Effective from 1st July, 2002)
Shidongkou I Power Plant 18.0% None
Xindian Power Plant* 18.0% None
Weihai Power Company 33.0% None
Taicang Power Company 33.0% None
Huaiyin Power Company 33.0% None
Yushe Power Company 33.0% None
* The Company acquired all of the assets and liabilities of Xindian Power
Plant in 2003. As such, Xindian Power Plant is entitled to preferential
tax treatment applicable to Sino-foreign enterprises and it is in the
process of applying to the relevant tax bureau for such preferential
treatment.
147
4. TAXATION (Cont'd)
(2) INCOME TAX (Cont'd)
The actual income tax rates applicable to the head office, the Shandong branch
and the operating individual power plants, after taking the effect of tax
holiday into consideration are summarized as follow:
APPROVED FILE NO. 2003 2002
Head Office Guo Shui Han [1997]368 15.0% 15.0%
Dalian Power Plant
(including Dalian Phase II) Guo Shui Han [1994]381 18.0% 18.0%
Shangan Power Plant Guo Shui Han [1994]381 & Guo Shui Han [1999]604 18.0% 18.0%
Shangan Phase II Guo Shui Han [1994]381 & Guo Shui Han [2000]194 9.0% 9.0%
Nantong Power Plant Guo Shui Han [1994]381 15.0% 15.0%
Nantong Phase II (i) Su Guo Shui Han [2003]248 &
Tong Guo Shui Wai Zi [2003] 1 7.5% 7.5%
Fuzhou Power Plant Guo Shui Han [1994]381 15.0% 15.0%
Fuzhou Phase II (ii) Min Guo Shui Han [2003]37 7.5% 7.5%
Shantou Oil-Fired Plant Guo Shui Han [1994]381 15.0% 15.0%
Shantou Power Plant (iii) Approved by Shantou State Tax Bureau 10.0% 7.5%
Shanghai Power Plant Approved by Shanghai State Tax Bureau 16.5% 16.5%
Dandong Power Plant (vii) Dan Guo Shui She Wai [1999]7 -- --
Nanjing Power Plant Ning Guo Shui Wai Zi [1997]039 15.0% 15.0%
Shandong Branch Guo Shui Han [2001]866 17.0% 17.0%
Dezhou Power Plant Guo Shui Han [2001]866 17.0% 17.0%
Jining Power Plant (iv) Guo Shui Han [2002]1063 and
Ji Guo Shui Han [2003]1 15.0% 15.0%
Changxing Power Plant (v) Guo Shui Han [2002]1030 16.5% 16.5%
Shidongkou I Power Plant Hu Guo Shui Ba Shui [2003]31 18.0% 33.0%
Xindian Power Plant (vi) Not applicable 18.0% Not applicable
Weihai Power Company Not applicable 33.0% 33.0%
Taicang Power Company Not applicable 33.0% 33.0%
Huaiying Power Company Not applicable 33.0% 33.0%
Yushe Power Company (vi) Not applicable 33.0% Not applicable
------------------------------------------------------------------------------------------------------------------------
148
4. TAXATION (Cont'd)
(2) INCOME TAX (Cont'd)
(i) In accordance with Su Guo Shui Han [2003] No. 248 and Tong Guo Shui Wai
Zi [2003] No.1, the tax holiday of the Nantong Phase II is determined
separately from the Nantong Power Plant. The Nantong Phase II is entitled
to a 50% reduction of the applicable tax rate from 1st January, 2002 to
31st December, 2004. The Nantong Phase II is currently negotiating with
the Jiangsu State Tax Bureau for a refund of the overpaid income tax for
the year ended 31st December, 2002.
(ii) In accordance with Min Guo Shui Han [2003] No. 37 the tax holiday of the
Fuzhou Phase II is determined separately from the Fuzhou Power Plant. The
Fouzhou Phase II is entitled to a 50% reduction of the applicable tax
rate from 1st January 2002 to 31st December, 2004. The Fuzhou Power Plant
is currently negotiating with the Fujian State Tax Bureau for a refund of
the overpaid income tax for the year ended 31st December, 2002.
(iii) In accordance with the approval from Shantou State Tax Bureau Shewai
Branch dated 16th January, 2003, the Shantou Power Plant is qualified as
a foreign invested advanced technology enterprise and is, therefore,
entitled to extend its tax holiday for three years from 1st January, 2003
to 31st December, 2005. The applicable tax rate during the extension is
10%.
(iv) Effective from 1st September, 2002, Jining Power Plant enjoyed an income
tax rate of 15%.
(v) Effective from 1st July, 2002, Changxing Power Plant enjoyed an income
tax rate of 16.5%.
(vi) Not applicable in 2002 as they were not subsidiaries or branches of the
Company.
(vii) The tax holiday of Dandong Power Plant has not commenced yet as it has
not recovered all of the accumulated deficits.
5. SUBSIDIARIES
As at 31st December 2003, the Company had equity interests in the following
subsidiaries, which are included in the consolidated financial statements:
TOTAL INVESTMENT PERCENTAGE OF
PLACE AND DATE OF REGISTERED PRINCIPAL CONTRIBUTED BY EQUITY INTEREST
NAME INCORPORATION CAPITAL ACTIVITIES THE COMPANY HELD
Weihai Power Company Weihai, Shandong Rmb761,832,800 Power generation Rmb457,103,040 60%
22nd November, 1993
Taicang Power Company Suzhou Industrial Park, Rmb682,840,000 Power generation Rmb512,130,000 75%
Jiangsu
19th June, 1997
Huaiyin Power Company Huaiyin, Jiangsu Rmb265,000,000 Power generation Rmb168,646,000 63.64%
26th January, 1995
Qinbei Power Company Jiyuan, Henan Rmb10,000,000 Power generation Rmb148,200,000 55%
12th July, 1995
Yushe Power Company Dengyu village, Yushe Rmb80,000,000 Power generation Rmb48,000,000 60%
county, Shanxi
29th November, 1994
------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2003, Yushe Power Company, one of the Company's
subsidiaries, had 95% equity interests in Shanxi Huaneng Yushe Yuanheng Service
Company ("Yuanheng Company"). As at 31st December, 2003, the registered capital
of Yuanheng Company was Rmb3,000,000, and Yushe Power Company's investment in
Yuanheng Company was Rmb2,850,000. The princinpal operating activities of
Yuanheng Company is providing logistic services and other services to Yushe
Power Company. As at 31st December, 2003, the total assets of Yuanheng Company
amounted to Rmb18,276,165, and net assets amounted to Rmb2,186,689. For the
period from the date when Yushe Power Company became a subsidiary of the
Company to 31st December, 2003, the net profit of Yuanheng Company amounted to
Rmb815,270. Since the assets, liabilities and operating result of Yuanheng
Company are immaterial to the Company, it is not included in the consolidated
financial statement.
149
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) CASH AND CASH EQUIVALENTS
31ST DECEMBER, 2003 31st December, 2002
ORIGINAL Original
CURRENCY EXCHANGE Rmb currency Exchange Rmb
AMOUNT RATE EQUIVALENT amount rate equivalent
Cash - RMB 726,410 266,342
------------------------------------------------------------------------------------------------------------------------
Bank deposit - RMB 4,018,311,639 3,610,632,507
- USD 34,328,609 8.2767 284,127,729 66,019,558 8.2773 546,463,686
- Japanese yen 1,688,242,236 0.0773 130,438,660 -- --
------------------------------------------------------------------------------------------------------------------------
Sub-total 4,432,878,028 4,157,096,193
------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 4,433,604,438 4,157,362,535
------------------------------------------------------------------------------------------------------------------------
The cash and cash equivalents as stated in the cash flow statement comprised the following:
31st December, 2003
Cash 4,433,604,438
Less: Time deposit with maturity of more than 3 months (144,995,813)
Restricted cash (159,960,611)
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents as at 31st December, 2003 4,128,648,014
Less: Cash and cash equivalents as at 31st December, 2002 (3,002,601,470)
------------------------------------------------------------------------------------------------------------------------
Net Increase in cash and cash equivalents 1,126,046,544
------------------------------------------------------------------------------------------------------------------------
150
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(2) NOTES RECEIVABLE
31ST DECEMBER, 31st December,
2003 2002
Banking notes receivable 149,940,000 --
Commercial notes receivable 297,260,000 472,750,000
------------------------------------------------------------------------------------------------------------------------
447,200,000 472,750,000
------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2003 and 31st December, 2002, all the notes receivable were unsecured notes receivable.
(3) ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
(i) Accounts receivable
31ST DECEMBER, 31st December,
2003 2002
Accounts receivable 2,356,825,998 1,889,082,774
--------------------------------------------------------------------------------------------------------------
Aging of the accounts receivable was as follows:
31ST DECEMBER, 2003 31st December, 2002
Aging AMOUNT PERCENTAGE (%) Amount Percentage (%)
Within 1 year 2,353,129,998 100 1,884,462,774 100
1 - 2 years -- -- 4,620,000 --
2 - 3 years 3,696,000 -- -- --
--------------------------------------------------------------------------------------------------------------
2,356,825,998 100 1,889,082,774 100
==============================================================================================================
All accounts receivable represented receivable from the provincial or
regional grid companies for the sale of electric power. Since these
accounts receivable are collectible, no bad debt provision was
provided by the Company and its subsidiaries.
As at 31st December, 2003, the five largest accounts receivable of
the Company and its subsidiaries amounted to Rmb1,966,974,945 (31st
December, 2002: Rmb1,607,995,057), representing 83.46% of total
accounts receivable (31st December, 2002: 85.12%).
151
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(3) ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES (Cont'd)
(ii) Other receivables
31ST DECEMBER, 31st December,
2003 2002
Other receivables 214,605,918 124,038,553
Less: bad debt provision (53,885,032) (21,443,406)
--------------------------------------------------------------------------------------------------------------
160,720,886 102,595,147
--------------------------------------------------------------------------------------------------------------
Aging and bad debt provision for other receivables were as follow:
31ST DECEMBER, 2003 31st December, 2002
PERCENTAGE BAD DEBT Percentage Bad debt
Aging AMOUNT (%) PROVISION Amount (%) provision
Within 1 year 88,240,614 41 (2,647,218) 51,988,624 42 (1,559,659)
1-2 years 18,827,094 9 (1,564,813) 28,088,594 23 (842,658)
2-3 years 55,952,155 26 (1,678,565) 22,129,117 18 (663,874)
Over 3 years 51,586,055 24 (47,994,436) 21,832,218 17 (18,377,215)
--------------------------------------------------------------------------------------------------------------
214,605,918 100 (53,885,032) 124,038,553 100 (21,443,406)
==============================================================================================================
Breakdown of other receivables was as follow:
31ST DECEMBER, 31st December,
2003 2002
Prepayments for materials 4,667,925 26,468,978
Receivable from employees for sales of staff quarters 10,272,586 10,086,707
Social insurance funds 14,680,384 14,442,688
Petty cash 11,103,320 3,328,956
Transmission fee refund receivable from Shandong Electric Power Corporation 19,067,120 --
Payment on behalf of Huai'an Huaneng Shiye Company 21,735,192 --
Others 133,079,391 69,711,224
--------------------------------------------------------------------------------------------------------------
214,605,918 124,038,553
==============================================================================================================
As at 31st December, 2003, the five largest other receivables of the
Company and its subsidiaries amounted to Rmb82,448,358 (31st
December, 2002: Rmb54,172,387), representing 38.42% of total other
receivables (31st December, 2002: 43.67%).
As at 31st December, 2003 and 31st December, 2002, there were no
accounts receivable and other receivables from shareholders who hold
5% or more of the equity interest in the Company.
See Note 8 for related party transactions.
152
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(4) INVENTORIES
31ST DECEMBER, 31st December,
2003 2002
Fuel (coal and oil) for power generation 308,861,120 434,725,588
Material and spare parts 512,919,617 518,237,161
-------------------------------------------------------------------------------------------------
821,780,737 952,962,749
-------------------------------------------------------------------------------------------------
Less: provision for inventory obsolescence-spare parts (13,621,461) (12,238,901)
-------------------------------------------------------------------------------------------------
808,159,276 940,723,848
=================================================================================================
Movements of provision for inventory obsolescence during the year are analyzed
as follows:
PROVISION FOR INVENTORY
OBSOLESCENCE
31st December, 2002 (12,238,901)
Current year addition (2,262,847)
Current year reversal 880,287
------------------------------------------------------------------------------
31st December, 2003 (13,621,461)
==============================================================================
(5) OTHER CURRENT ASSETS
Other current assets represented receivable from Shantou Harbor Group Company
Limited for coal-port construction. On 28th January, 2003, Shantou Harbor Group
Company Limited had repaid the amount to the Company.
153
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(6) LONG-TERM INVESTMENTS
1ST JANUARY, CURRENT YEAR CURRENT YEAR 31ST DECEMBER,
2003 ADDITIONS DECREASE 2003
Long-term equity investment
Consolidated difference in value (i) 313,862,886 908,047,944 (88,648,197) 1,133,262,633
Associates (ii) 200,960,043 1,816,809,699 (4,830,110) 2,012,939,632
Other long-term equity investments (iii) 254,989,551 -- -- 254,989,551
Others 6,364,276 -- (521,561) 5,842,715
------------------------------------------------------------------------------------------------------------------------
776,176,756 2,724,857,643 (93,999,868) 3,407,034,531
------------------------------------------------------------------------------------------------------------------------
Less: current portion of other
long-term investments (25,160) -- 25,160 --
------------------------------------------------------------------------------------------------------------------------
Long-term equity investments 776,151,596 2,724,857,643 (93,974,708) 3,407,034,531
------------------------------------------------------------------------------------------------------------------------
Long-term debt investments 10,137,770 -- (10,042,210) 95,560
Less: current portion of long-term
debt investments -- (83,060) -- (83,060)
------------------------------------------------------------------------------------------------------------------------
Long-term debt investments 10,137,770 (83,060) (10,042,210) 12,500
------------------------------------------------------------------------------------------------------------------------
Total long-term investments 786,289,366 2,724,774,583 (104,016,918) 3,407,047,031
========================================================================================================================
As at 31st December, 2003 and 31st December, 2002, there was no indication of
impairment of long-term investments of the Company and its subsidiaries and
therefore no provision of impairment of long-term investments was made.
The long-term investments of the Company and its subsidiaries are not subject
to restriction on conversion into cash or restriction on remittance of
investment income.
154
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(6) LONG-TERM INVESTMENTS (Cont'd)
(i) Equity investment difference that resulted in consolidated difference
in value
Consolidated difference in value represents the difference between
the considerations paid for the acquisitions of Taicang Power
Company, Huaiyin Power Company, Qinbei Power Company and SEG and the
proportionate share of the net assets of these four companies.
Details are summarized as follows:
BALANCE AT CURRENT CURRENT BALANCE AT
AMORTIZATION ORIGINAL 1ST JANUARY, YEAR YEAR ACCUMULATED 31ST DECEMBER,
NAME PERIOD COST 2003 ADDITIONS AMORTIZATION AMORTIZATION 2003
Taicang Power Company 10 years 191,587,073 180,549,248 2,203,583 (18,938,349) (27,772,591) 163,814,482
Huaiyin Power Company 10 years 151,623,305 133,313,638 15,285,580 (15,162,331) (18,186,418) 133,436,887
Qinbei Power Company 10 years 96,461,357 -- 96,461,357 (1,607,689) (1,607,689) 94,853,668
SEG 10 years 794,097,424 -- 794,097,424 (52,939,828) (52,939,828) 741,157,596
----------------------------------------------------------------------------------------------------------------------
1,233,769,159 313,862,886 908,047,944 (88,648,197) (100,506,526) 1,133,262,633
======================================================================================================================
(ii) Investment in associates
TOTAL INVESTMENT
PLACE AND DATE PRINCIPAL CONTRIBUTED PERCENTAGE OF
NAME OF INCORPORATION REGISTERED CAPITAL ACTIVITIES BY THE COMPANY EQUITY INTEREST HELD
Associates:
Rizhao Power Rizhao, Shandong US$150 million Power generation Rmb317.5 million 25.5%
Company 20th March, 1996
-------------------------------------------------------------------------------------------------------------------
SEG Shenzhen, Guangdong Rmb955.56 million Development, Rmb2,390 million 25%
16th July, 1997 production
and sale of
energy, and
energy
construction
project
-------------------------------------------------------------------------------------------------------------------
INVESTMENT COST MOVEMENT
1ST JANUARY, CURRENT YEAR 31ST DECEMBER,
NAME INVESTMENT PERIOD 2003 ADDITIONS 2003
Rizhao Power Company 20 years 231,868,800 -- 231,868,800
SEG No specific terms -- 1,595,902,576 1,595,902,576
--------------------------------------------------------------------------------------------------------------
231,868,800 1,595,902,576 1,827,771,376
==============================================================================================================
155
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(6) LONG-TERM INVESTMENTS (Cont'd)
(ii) Investment in associates (Cont'd)
ACCUMULATED EQUITY PICK-UP MOVEMENT
1ST JANUARY, CURRENT YEAR OTHER 31ST DECEMBER,
NAME 2003 PROFIT/(LOSS) ADDITIONS 2003
Rizhao Power Company (30,908,757) (4,830,110) -- (35,738,867)
SEG -- 216,659,277 4,247,846 220,907,123
--------------------------------------------------------------------------------------------------------------
(30,908,757) 211,829,167 4,247,846 185,168,256
==============================================================================================================
NET CARRYING VALUE
1ST JANUARY, 31ST DECEMBER,
NAME 2003 2003
Rizhao Power Company 200,960,043 196,129,933
SEG -- 1,816,809,699
--------------------------------------------------------------------------------------------------------------
200,960,043 2,012,939,632
--------------------------------------------------------------------------------------------------------------
(iii) Other long-term equity investment
Other long-term equity investment represents investment in China
Yangtze Power Co., Limited (the "Yangtze Power"), details are as
follows:
TOTAL INVESTMENT
CONTRIBUTED BY PERCENTAGE OF
NAME INVESTMENT PERIOD THE COMPANY EQUITY INTEREST HELD
Yangtze Power Starting from 22nd August, 2002, Rmb254,989,551 3%
with no specific terms
--------------------------------------------------------------------------------------------------------------
156
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(7) FIXED ASSETS
The movement of cost of fixed assets and related accumulated depreciation were
as follow:
TRANSPORTATION AND
ELECTRIC UTILITY TRANSMISSION
BUILDINGS PLANT IN SERVICE FACILITIES OTHERS TOTAL
COST
1st January, 2003 2,273,032,382 54,658,543,525 741,285,113 1,267,378,625 58,940,239,645
Reclassification* (908,905,012) 155,042,162 (55,226,096) 92,257,319 (716,831,627)
Additions from acquisitions 291,015,974 1,453,073,048 31,639,264 128,711,813 1,904,440,099
Transfer from construction-
in-progress 23,539,769 874,482,743 699,413 39,303,641 938,025,566
Current year additions 7,086,187 26,143,672 244,843 46,038,761 79,513,463
Current year disposals (5,698,146) (298,639,644) -- (109,239,309) (413,577,099)
------------------------------------------------------------------------------------------------------------------------
31st December, 2003 1,680,071,154 56,868,645,506 718,642,537 1,464,450,850 60,731,810,047
------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
1st January, 2003 435,772,726 17,509,933,141 235,361,812 544,011,047 18,725,078,726
Reclassification* (150,456,717) (560,338,084) (15,322,318) 9,285,492 (716,831,627)
Additions from acquisitions 67,957,223 430,621,762 13,456,091 13,842,777 525,877,853
Current year depreciation 69,956,077 3,824,607,298 29,276,851 141,136,214 4,064,976,440
Current year disposals (2,054,447) (188,287,489) -- (77,836,959) (268,178,895)
------------------------------------------------------------------------------------------------------------------------
31st December, 2003 421,174,862 21,016,536,628 262,772,436 630,438,571 22,330,922,497
------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE
31st December, 2003 1,258,896,292 35,852,108,878 455,870,101 834,012,279 38,400,887,550
------------------------------------------------------------------------------------------------------------------------
1st January, 2003 1,837,259,656 37,148,610,384 505,923,301 723,367,578 40,215,160,919
------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2003 and 31st December, 2002, there was no indication of
impairment of fixed assets of the Company and its subsidiaries and therefore no
impairment provision of fixed assets was made. No fixed assets were pledged as
at 31st December, 2003.
As at 31st December, 2003, fixed assets amounted to Rmb413.81million had been
fully depreciated but still in use (31st December, 2002: 83.77 million).
* Reclassification includes reclassification of Jining Power Plant's fixed
assets. Because Jining Power Plant became a branch of the Company. The net book
value of its fixed assets became the cost of the fixed assets.
157
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(8) CONSTRUCTION MATERIALS
31ST DECEMBER, 31st December,
2003 2002
Specified material & equipment 165,740,734 125,182,754
Prepayment for major equipment 939,069,664 49,934,300
Utility & instrument for production 6,844,406 --
------------------------------------------------------------------------------------------------------------------------
1,111,654,804 175,117,054
------------------------------------------------------------------------------------------------------------------------
(9) CONSTRUCTION-IN-PROGRESS
CURRENT
1ST JANUARY, ADDITIONS FROM YEAR TRANSFER TO 31ST DECEMBER, PERCENT OF SOURCE OF
PROJECTS 2003 ACQUISITIONS ADDITIONS FIXED ASSETS 2003 BUDGET COMPLETION FINANCING
Yuhuan Power 2,294,815 -- 262,552,871 -- 264,847,686 8,529,430,000 5% Funds
Plant project borrowed
from
financial
institutions
and internal
funds
Huaiyin Power 29,357,635 -- 215,847,514 -- 245,205,149 2,380,000,000 22% Funds
Plant Phase II borrowed
project from
financial
institutions
and
internal
funds
Taicang Power 29,418,220 -- 106,385,461 -- 135,803,681 4,400,000,000 13.50% Funds
Plant Phase II borrowed
project from
financial
institutions
and
internal
funds
Shantou Power 2,884,812 -- 57,235,357 -- 60,120,169 2,260,230,000 2.66% Funds
Plant Phase borrowed
II project from
financial
institutions
and
internal
funds
Jining Power 141,823,501 -- 608,176,499 (750,000,000) -- 850,900,000 100% Funds
Plant Phase borrowed
III expansion from
project financial
institutions
and
internal
funds
158
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(9) CONSTRUCTION-IN-PROGRESS (Cont'd)
1ST JANUARY, ADDITIONS FROM CURRENT YEAR TRANSFER TO 31ST DECEMBER, PERCENT OF SOURCE OF
PROJECTS 2003 ACQUISITIONS ADDITIONS FIXED ASSETS 2003 BUDGET COMPLETION FINANCING
Yushe Power -- 386,902,091 182,670,267 (12,827,380) 556,744,978 4,676,310,000 24% Funds
Company borrowed
Phase II from
project financial
institutions
and
internal
funds
Qinbei Power -- 1,252,683,768 285,567,545 (2,718,570) 1,535,532,743 2,686,250,000 60% Funds
Company project borrowed
from
financial
institutions
and
internal
funds
Other projects 304,865,520 18,811,030 141,508,841 (172,479,616) 292,705,775 -- Internal
fund
---------------------------------------------------------------------------------------------------------------------------------
510,644,503 1,658,396,889 1,859,944,355 (938,025,566) 3,090,960,181
=================================================================================================================================
For the year ended 31st December, 2003, the interest capitalized for
construction-in-progress was Rmb21,224,053 and the capitalized rate per annum
was 4.83% ( 2002: Rmb28,026,381, at 4.24% per annum).
As at 31st December, 2003 and 31st December, 2002, there was no indication of
impairment of construction-in-progress of the Company and its subsidiaries.
Accordingly, no provision for impairment loss was made.
159
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(10) INTANGIBLE ASSETS
The movement of intangible assets, which comprised land-use rights, goodwill
and negative goodwill, was as follow:
ADDITION CURRENT CURRENT 31ST REMAINING
1ST JANUARY, FROM YEAR YEAR ACCUMULATED DECEMBER, AMORTIZATION OBTAINED
ORIGINAL COST 2003 ACQUISITIONS ADDITION AMORTIZATION AMORTIZATION 2003 PERIOD THROUGH
Land use
rights 759,966,621 662,762,458 -- 14,853,403 (15,387,447) (97,738,207) 662,228,414 17-65 Purchase
years
Negative
goodwill (2,472,783,635) (1,978,226,907) -- -- 247,278,363 741,835,091 (1,730,948,544) 7 Acquisition
years
Goodwill 2,778,712 2,674,976 -- -- (313,067) (416,803) 2,361,909 7.5 Acquisition
years
Others 13,469,428 6,621,977 446,417 3,790,473 (1,907,375) (4,517,936) 8,951,492 2-18 Purchase
years
--------------------------------------------------------------------------------------------------------------------------------
(1,696,568,874) (1,306,167,496) 446,417 18,643,876 229,670,474 639,162,145 (1,057,406,729)
================================================================================================================================
As at 31st December, 2003 and 31st December, 2002, there was no indication that
the intangible assets of the Company and its subsidiaries were impaired and
therefore no provision for impairment loss was made. No intangible assets of
the Company and its subsidiaries were pledged as at 31st December, 2003.
(11) SHORT-TERM LOANS
31ST DECEMBER, 31st December,
2003 2002
Credit loans 1,600,000,000 550,000,000
-------------------------------------------------------------------------------
All of the short-term loans of the Company and its subsidiaries were dominated
in Rmb, with the interest rate of 4.54% to 5.05% per annum as at 31st December,
2003 (31st December, 2002: 4.78% to 5.56% per annum).
As at 31st December, 2003, short-term loans amounted to Rmb1,130 million was
borrowed from China Huaneng Finance Company ("Huaneng Finance"), with the
interest rate of 4.78% to 5.05% per annum. (31st December, 2002: Rmb200
million, with interest rate of 5.56% per annum); Short-term loans amounted to
Rmb130 million was borrowed from Henan Construction Investment Company ("Henan
Investment"), with the interest rate of 4.78% (31st December, 2002: nil).
(12) ACCOUNTS PAYABLE
Accounts payable was mainly the amounts due to coal suppliers. As at 31st
December, 2003 and 31st December, 2002, there was no accounts payable that were
due to the shareholders who were holding 5% or more of the equity interest in
the Company, and there was no accounts payable aged over three years.
See Note 8 for related party transactions.
160
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(13) TAXES PAYABLE
Taxes payable comprised:
31ST DECEMBER, 31st December,
2003 2002
Income tax payable 472,850,018 311,436,416
VAT payable 415,147,473 291,456,338
Others 29,365,201 17,296,146
-------------------------------------------------------------------------------
917,362,692 620,188,900
===============================================================================
(14) OTHER PAYABLES
Other payables comprised:
31ST DECEMBER, 31st December,
2003 2002
Payable to contractors 572,459,421 1,333,447,550
Other payable to contractors 207,257,299 140,328,419
Payable to HIPDC 87,507,580 100,475,344
Technical service fee payable -- 28,124,210
Project saving bonus 26,541,527 62,110,406
Payable of housing maintenance fund 66,807,932 47,488,793
Others 710,367,858 568,439,463
-------------------------------------------------------------------------------
1,670,941,617 2,280,414,185
===============================================================================
As at 31st December, 2003, there was no other payable that were due to the
shareholders who were holding 5% or more of the equity interest in the Company,
except for the payable to HIPDC amounted to Rmb87,507,580 as mentioned in Note
8(7) (31st December, 2002: Rmb100,475,344), and there was no other payable aged
over three years.
See Note 8 for related party transactions.
161
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(15) LONG-TERM LOANS
Long-term loans comprised (all were credit loans unless otherwise stated):
31ST DECEMBER, 31st December,
2003 2002
Long-term loans from shareholders (i) 388,875,071 777,782,754
Long-term bank loans (ii) 10,714,560,499 10,393,252,361
Other long-term loans (iii) 1,091,669,808 427,402,311
----------------------------------------------------------------------------------------------------------
12,195,105,378 11,598,437,426
Less: current portion of long-term loans (3,041,501,169) (2,413,636,557)
----------------------------------------------------------------------------------------------------------
9,153,604,209 9,184,800,869
==========================================================================================================
(i) Long-term loans from shareholders
Long-term loans from shareholders were all foreign bank loans on-lent
by HIPDC, which would mature within on year.
31ST
DECEMBER,2003
ORIGINAL EXCHANGE Rmb
CURRENCY CURRENCY RATE EQUIVALENT
Current portion of long-term loans:
Foreign currency bank loans
on-lent by HIPDC US$ 46,984,314 8.2767 388,875,071
-------------------------------------------------------------------------------------------------
As at 31st December, 2003, detailed information of the long-term
loans from shareholders was as follow:
31ST DECEMBER, ANNUAL
LENDER 2003 LOAN PERIOD INTEREST RATE
Bank loans on-lent by HIPDC
Bank of China 388,875,071 1997 -2004 LIBOR+0.9%
---------------------------------------------------------------------------------------------------
The foreign currency bank loans bore interest at the prevailing
lending rates (both fixed and floating), prescribed by the loan
contracts, which ranged from 3.62% to 4.01% per annum for the year
ended 31st December, 2003 (2002: 4.01% to 7.40%). These loans are
repayable in accordance with the repayment schedules set by the
banks.
The foreign-currency bank loans were previously borrowed by HIPDC for
financing the construction of power plants. Upon the restructuring of
the Company in 1994 or on the acquisition of the relevant power
plants from HIPDC, all these outstanding long-term bank loans were
restructured. HIPDC continued to borrow the loans from the banks and
then on-lent to the Company as shareholders loans. The existing terms
of the loans including interest rates and repayment schedules
remained intact after the restructuring.
162
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(15) LONG-TERM LOANS (Cont'd)
(ii) Long-term bank loans
Long-term bank loans (including current portion) comprised:
31ST DECEMBER,
2003
Renminbi bank loans 4,064,499,370
United States dollar bank loans 6,650,061,129
---------------------------------------------------------------------
10,714,560,499
---------------------------------------------------------------------
Less: current portion of long-term bank loans (2,409,240,130)
---------------------------------------------------------------------
8,305,320,369
=====================================================================
163
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(15) LONG-TERM LOANS (Cont'd)
(ii) Long-term bank loans (Cont'd)
As at 31st December, 2003, detailed information of the long-term bank
loans was as follows:
INTEREST
31ST DECEMBER, RATE CURRENT
LENDERS 2003 LOAN PERIOD PER ANNUM PORTION TERMS
Renminbi bank loans 480,000,000 1998-2004 5.76% 480,000,000 Guaranteed by the
China Construction Company and Weihai Power
Bank-Weihai branch Development Bureau("OWPDB")
China Construction
Bank-Weihai branch* 30,000,000 1999-2005 5.76% -- Guaranteed by the Company
China Construction
Bank-Weihai branch* 100,000,000 1999-2007 5.76% -- Guaranteed by the WPDB
Bank of China** 276,000,000 1999-2009 5.76% -- Guaranteed by the Company
Bank of China-
Taicang branch* 664,000,000 1999-2014 5.76% -- Guaranteed by the Company
Bank of China-
Suzhou branch** 98,000,000 1999-2009 5.76% -- Guaranteed by the Company
China Construction
Bank-Huaian 10,000,000 1994-2004 5.76% 10,000,000 Guaranteed by the Company
Yangzhuang sub branch
China Construction
Bank-Huaian 10,000,000 1994-2004 5.76% 10,000,000 Guaranteed by Jiangsu Huaian
Investment Company
Yangzhuang sub branch
China Commercial Bank-
Nanjing branch* 100,000,000 2003-2006 4.94% -- Nil
China Development Bank
Jiangsu branch* 300,000,000 2003-2008 5.02% -- Nil
China Construction Bank
-Jiyuan sub branch* 905,000,000 2003-2019 5.18% -- Guaranteed by the Company
China Construction
Bank-Linzi sub branch* 50,000,000 2000-2009 6.21% -- Guaranteed by the Company
China Construction Bank
-Linzi sub branch* 250,000,000 2001-2009 6.21% -- Guaranteed by the Company
China Construction
Bank-Linzi sub branch* 80,000,000 2002-2005 5.94% -- Guaranteed by the Company
China Construction
Bank-Linzi sub branch 120,000,000 2001-2004 5.94% 120,000,000 Guaranteed by the Company
China Construction Bank
-Yushe sub branch* 5,500,000 1994-2006 5.76% -- Nil
China Construction Bank
-Yushe sub branch 119,700,000 1991-2005 5.76% 32,000,000 Nil
China Construction Bank
-Yushe sub branch 13,430,000 1995-2004 5.76% 13,430,000 Guaranteed by the Company
Bank of China-
Jinzhong branch* 340,000,000 2003-2019 5.18% -- Nil
China Construction Bank
-Yushe sub branch* 30,000,000 2002-2005 4.94% -- Guaranteed by the Company
China Construction Bank-
Yushe sub branch 13,000,000 2001-2004 5.49% 13,000,000 Guaranteed by the Company
China Construction Bank
-Yushe sub branch 49,869,370 Not fixed 4.78% 49,869,370 Nil
China Construction Bank
-Yushe sub branch 10,000,000 1994-2004 5.76% 10,000,000 Guaranteed by the Company
China Construction Bank
-Yushe sub branch 10,000,000 1995-2004 5.76% 10,000,000 Nil
--------------------------------------------------------------------------------------------------------------
Sub-total of Renminbi
bank loans 4,064,499,370 748,299,370
==============================================================================================================
164
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(15) LONG-TERM LOANS (Cont'd)
(ii) Long-term bank loans (Cont'd)
INTEREST
31ST DECEMBER, RATE CURRENT
LENDERS 2003 LOAN PERIOD PER ANNUM PORTION TERMS
United States dollar
bank loans
Bank of China 719,029,656 2002-2004 LIBOR+0.6% 719,029,656 Nil
Bank of China 103,458,750 2002-2004 LIBOR+0.6% 103,458,750 Nil
Bank of Communication 7,536,645 2000-2005 LIBOR+1.1% 3,808,800 Nil
Bank of China-
Taicang branch* 76,183,384 1999-2006 Interest 24,867,000 Guaranteed by the Company
rate of
foreign
currency loan
prescribed by
Bank of
China-0.5%
--------------------------------------------------------------------------------------------------------------
906,208,435 851,164,206
--------------------------------------------------------------------------------------------------------------
On-lent loans by
Bank of China
American I&E Bank 1,203,707,516 1997-2011 6.54% 145,231,780 Guaranteed by HIPDC
American I&E Bank 1,026,672,698 1995-2011 5.95% 128,334,081 Guaranteed by HIPDC
American I&E Bank 1,186,168,372 1997-2011 5.95% 148,271,131 Guaranteed by HIPDC
American I&E Bank 295,904,293 1997-2012 6.60% 32,878,255 Guaranteed by HIPDC
KFW Bank 765,822,240 1996-2012 6.60% 90,098,087 Guaranteed by HIPDC
Japan Fuji Bank 169,672,354 1996-2004 LIBOR 169,672,354 Guaranteed by HIPDC
+0.38%
On-lent loans by China
Construction Bank
KFW Bank 493,658,339 1999-2015 6.36% 42,871,766 Guaranteed by Huaneng Group
Citibank*** 602,246,882 1999-2015 LIBOR+ 52,419,100 Guaranteed by Huaneng Group
0.075%
--------------------------------------------------------------------------------------------------------------
5,743,852,694 809,776,554
--------------------------------------------------------------------------------------------------------------
Sub-total of US$ bank loans 6,650,061,129 1,660,940,760
--------------------------------------------------------------------------------------------------------------
Total 10,714,560,499 2,409,240,130
==============================================================================================================
* As at 31st December, 2003, these loans were not repayable within
one year and therefore there was no current portion.
** In accordance with repayment schedules, there was no repayable
in 2004, and therefore there was no current portion.
*** The interest rate of the loan from Citibank was LIBOR prior to
the last drawdown date and LIBOR plus 0.075% thereafter. The
last drawdown date was 20th July, 2003 or the date of loan
cancellation, whichever earlier.
(iii) Other long-term loans
31ST DECEMBER,
2003
Other long-term loans 1,091,669,808
Less: current portion of other long-term loans (243,385,968)
-----------------------------------------------------------------------------------------------------
848,283,840
=====================================================================================================
165
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(15) LONG-TERM LOANS (Cont'd)
(iii) Other long-term loans (Cont'd)
As at 31st December, 2003, other long-term loans comprised of:
31ST DECEMBER, LOAN ANNUAL CURRENT
LENDER 2003 PERIOD INTEREST RATE PORTION TERMS
Renminbi loans
WPDB 106,388,822 1994-2004 5.76% 106,388,822 Nil
Huaneng Finance 225,000,000 2002-2005 5.64% -- Nil
Huaneng Finance 350,000,000 2003-2006 4.94% -- Nil
Jiangsu International Trust 31,505,374 1997-2003 5.76% 31,505,374 Nil
and Investment Company*
Jiangsu Huaian Investment
Company* 8,980,253 1997-2003 5.76% 8,980,253 Nil
Jiangsu Electric Power 19,467,860 1999-2003 5.76% 19,467,860 Nil
Development Company Limited
("Jiangsu Electric Power")*
Huaneng Finance 35,000,000 2001-2004 5.22% 35,000,000 Guaranteed by
the Company
-----------------------------------------------------------------------------------------------------------
Subtotal of RMB loans 776,342,309 201,342,309
-----------------------------------------------------------------------------------------------------------
US$ loan:
On-lent foreign loans of 177,357,857 1996-2011 LIBOR+0.43% 23,647,707 US$15 million
Ministry of Finance of the loan
were guaranteed
by Hua Zhong
Power Group
Finance Company
("Hua Zhong
Power")
Japanese yen loan:
On-lent foreign loans of 137,969,642 1996-2011 LIBOR+0.3% 18,395,952 RMB34,492,441
Ministry of Finance of the loan were
guaranteed by
Henan Investment
------------------------------------------------------------------------------------------------------------
Subtotal of foreign loans 315,327,499 42,043,659
------------------------------------------------------------------------------------------------------------
Total 1,091,669,808 243,385,968
============================================================================================================
* Pursuant to the related loan contracts, these loans were matured
in 2003. However, Huaiyin Power Company had reached an agreement
with the lenders that the loans will be repaid in 2004.
166
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(16) CONVERTIBLE NOTES
Details of convertible notes comprised:
1ST JANUARY, CURRENT YEAR INTEREST INTEREST 31ST DECEMBER,
2003 CONVERSION ACCRUAL PAYMENT 2003
-------------------------------------------------------------------------------------------------------
Convertible notes 166,497,890 (165,548,000) 10,260 (8,329) 951,821
-------------------------------------------------------------------------------------------------------
In May 1997, the Company issued at par value convertible notes with an
aggregate principal amount of US$230 million (Rmb1.904 billion) at 1.75% per
annum due in 2004. These notes are listed on the New York Stock Exchange and
the Luxemburg Stock Exchange.
On 21st May, 2002, notes amounted to US$209,685,000 were redeemed by the
noteholders. The accrued put premium and interests in connection of the
unredeemed portion were charged to the profit and loss account in 2002.
The noteholders converted the convertible notes with principal amount of
US$200,000 to 6,849 ADSs (equivalent to 273,960 Overseas Listed Foreign Shares)
in 2002. During the year ended 31st December, 2003, the notedholders converted
the convertible notes with principal amount of US$20 million to 684,931 ADSs
(equivalent to 27,397,240 Overseas Listed Foreign Shares).
As at 31st December, 2003, the Company has convertible notes with principal
amount of US$115,000 which have not been redeemed or converted into ADSs.
167
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(17) SHARE CAPITAL
1ST JANUARY, CURRENT YEAR 31ST DECEMBER,
2003 ADDITION 2003
Unlisted shares
Promoters shares 4,250,000,000 -- 4,250,000,000
Including: Domestic legal person shares 4,250,000,000 -- 4,250,000,000
-----------------------------------------------------------------------------------------------------------
Sub-total of unlisted shares 4,250,000,000 -- 4,250,000,000
-----------------------------------------------------------------------------------------------------------
Listed shares
Domestic shares listed in the PRC 250,000,000 -- 250,000,000
Overseas listed shares 1,500,273,960 27,397,240 1,527,671,200
-----------------------------------------------------------------------------------------------------------
Sub-total of listed shares 1,750,273,960 27,397,240 1,777,671,200
-----------------------------------------------------------------------------------------------------------
Total shares 6,000,273,960 27,397,240 6,027,671,200
===========================================================================================================
As mentioned in Note 6(16), the increase of share capital is due to exercise of
conversion rights by noteholders with principal amount of US$20,000,000 into
684,931 ADSs (equivalent to 27,397,240 overseas listed foreign shares) during
the year ended 31st December, 2003.
(18) CAPITAL SURPLUS
Movement of capital surplus was as follow:
1ST JANUARY, CURRENT YEAR 31ST DECEMBER,
2003 ADDITION 2003
Share premium* 10,260,830,755 138,150,760 10,398,981,515
Equity investment provision -- 4,247,846 4,247,846
------------------------------------------------------------------------------------------------------------
10,260,830,755 142,398,606 10,403,229,361
============================================================================================================
* The increase of capital surplus is mainly due to the exercise of
conversion rights by noteholders with principal amount of US$20,000,000
into 684,931 ADSs at a premium during the year ended 31st December, 2003
(Note 6(16)).
168
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(19) SURPLUS RESERVES
DISCRETIONARY
STATUTORY CAPITAL STATUTORY PUBLIC RESERVE
SURPLUS FUND WELFARE FUND SURPLUS FUND TOTAL
1st January, 2003 2,350,750,442 1,053,519,606 15,398,194 3,419,668,242
Addition in current year 545,714,255 409,285,691 2,104,498 957,104,444
Deduction in current year -- (2,104,498) -- (2,104,498)
------------------------------------------------------------------------------------------------------------------
31st December, 2003 2,896,464,697 1,460,700,799 17,502,692 4,374,668,188
==================================================================================================================
According to the Company Law of the PRC and the Company's articles of
association, the Company appropriates 10% of each year's net profit to the
statutory surplus reserve fund until the fund balance reaches 50% of the
registered share capital. After obtaining the approval from the relevant
authorities, this reserve can be used to make up any losses incurred or to
increase share capital. Except for setting off against losses incurred, any
other usage may not result in this reserve balance falling below 25% of the
registered share capital. Pursuant to the decision of the Board of Directors,
the Company appropriated 10% of the profit after taxation to the statutory
capital surplus fund amounted to Rmb545,714,255 in 2003 (2002:Rmb408,235,059).
Each year, the Company appropriates 5% to 10% of net profits to the statutory
public welfare fund. The use of this reserve is restricted to the provision of
employees' collective welfare benefits. The statutory public welfare fund is
not available for distribution to shareholders. When utilizing the statutory
public welfare fund, the amount is transferred from this account to the
discretionary surplus reserve funds account. Any amounts utilized are
capitalized in the Company's balance sheet or expensed in the Company's profit
and loss. For the year ended 31st December, 2002, 7.5% of net profit was
provided for as statutory public welfare fund amounted to Rmb409,285,691 (2002:
7.5%, amounted to Rmb306,176,294).
The Board of Directors, after obtaining approval from the shareholders, has the
discretion to provide for discretionary surplus reserve fund. This reserve can
be used to make up any losses incurred or to increase the share capital after
approval is obtained from the Board of Directors. For the year ended 31st
December, 2003, no discretionary surplus reserve fund is provided (2002: nil).
169
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(20) UNAPPROPRIATED PROFIT
FOR THE For the
YEAR ENDED year ended
31ST DECEMBER, 31st December,
2003 2002
Unappropriated profit brought forward 9,488,703,911 8,160,857,821
Add: Retroactive adjustments-cash dividends approved by the
general meeting of the shareholders subsequent to the
balance sheet date (Note 2)* 2,040,093,146 1,800,000,000
------------------------------------------------------------------------------------------------------------------------
Adjusted unappropriated profit brought forward 11,528,797,057 9,960,857,821
Add: Net profit of the year 5,457,142,551 4,082,350,589
Less: Appropriation of statutory surplus reserve fund (545,714,255) (408,235,059)
Appropriation of statutory public welfare fund (409,285,691) (306,176,294)
Dividends payable to ordinary shareholders-cash dividend of
prior year approved by the general meeting of the shareholders * (2,049,408,208) (1,800,000,000)
------------------------------------------------------------------------------------------------------------------------
Unappropriated profit carried forward 13,981,531,454 11,528,797,057
========================================================================================================================
* As at 12th March, 2003, the Board of Directors proposed a dividend of
Rmb0.34 per ordinary share for the year ended 31st December, 2002. As the
outstanding ordinary shares of the company was 6,000,273,960 as at 12th
March, 2003, the Company recorded dividends payable amounted to
Rmb2,040,093,146 in the financial statements of 2002. On 24th April,
2003, the noteholders converted the convertible notes with principal
amount of US$20,000,000 to 684,931 ADSs (equivalent to 27,397,240.
Overseas Listed Foreign Shares), resulted in the increase of ordinary
shares from 6,000,273,960 to 6,027,671,200. As at 28th May, 2003, the
shareholders approved the declaration of above dividends in the annual
general meeting. As there were 6,027,671,200 shares outstanding on that
date, the total dividends payable amounted to Rmb2,049,408,208.
As mentioned in Note 2, effective 1 July 2003, the Company has adopted the
revised "Accounting Standards for Business Enterprise - Events Occurring After
the Balance Sheet Date". If a profit distribution plan is proposed by the Board
of Directors after the balance sheet date but before the date the financial
statements are authorized for issuance, cash dividends are recognized as a
liability in the period in which a profit distribution plan is approved by the
general meeting of the shareholders. The retroactive adjustments of the
accounting changes were required upon the adoption of this standard and
resulted in an increase of unappropriated profit amounted to Rmb2,040,093,146
as at 31st December, 2002 and Rmb1,800,000,000 as at 31st December, 2001.
Pursuant to the resolution of the Board of Directors on 16th March, 2004, on
the basis of 6,027,671,200 ordinary shares outstanding as at 31st December,
2003, the directors proposed a cash dividend of Rmb5.0 (inclusive tax) and 5
bonus shares for every 10 existing ordinary shares. In addition, on the basis
of 6,027,671,200 ordinary shares outstanding as at 31st December, 2003, the
Board of Directors proposed to convert part of the capital surplus and
statutory surplus reserve fund into the share capital by issuing new shares to
its shareholders on the basis of 5 new shares for every 10 existing ordinary
shares (3 of which from capital surplus and 2 of which from statutory surplus
reserve fund). This proposal is subjected to the approval of the shareholders
at the annual general meeting. Proposed dividends plan had not been reflected
in the financial statements. Once the distribution plan is approved by the
general meeting of the shareholders, the dividend distribution will be
accounted for in the financial statements for the year ended 31st December,
2004.
170
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(20) UNAPPROPRIATED PROFIT (Cont'd)
The maximum amount available for distribution to the shareholders is the lowest
of the amount (i.e. net profit in current year plus undistributed profit
brought forward from the beginning of the year, deducting the appropriations to
the statutory surplus reserve fund and the statutory public welfare fund)
determined under the PRC accounting standards, the amount determined under the
International Financial Reporting Standards (" IFRS") and generally accepted
accounting principles in the United States of America ("US GAAP").
(21) REVENUES FROM PRINCIPAL OPERATIONS AND COSTS OF PRINCIPAL OPERATIONS
FOR THE YEAR ENDED For the year ended
31ST DECEMBER, 2003 31st December, 2002
REVENUES FROM COSTS OF Revenues from Costs of
PRINCIPAL PRINCIPAL principal principal
OPERATIONS OPERATIONS operations operations
Sales of electric power 23,479,646,958 15,690,199,491 18,725,340,857 12,528,622,594
---------------------------------------------------------------------------------------------------------
The Company and its subsidiaries have contractual arrangements for the sale of
electric power with the provincial or regional grid companies.
For the year ended 31st December, 2003 and 2002, the revenue from the five
largest customers of the Company and its subsidiaries amounted to
Rmb18,115,304,793 and Rmb14,948,671,962, representing 77.15% and 79.83% of the
total revenue, respectively.
(22) FINANCIAL EXPENSES
FOR THE For the
YEAR ENDED year ended
31ST DECEMBER, 31st December,
2003 2002
Interest expenses 584,499,789 614,329,847
Less: Interest income (53,044,361) (83,014,926)
Exchange losses 630,164 2,893,186
Less: Exchange gain (154,820) (66,116)
Others 27,705,695 28,577,824
--------------------------------------------------------------------------------
559,636,467 562,719,815
================================================================================
171
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(23) INVESTMENT INCOME (LOSSES)
FOR THE For the
YEAR ENDED year ended
31ST DECEMBER, 31st December,
2003 2002
Investment income on bonds 906,302 1,327,073
Investment income on other debt investments 9,213,072 421,285
Share of profit(loss) of associates for the year 211,829,167 (10,137,288)
Investment income on other equity investment 585,342 --
Amortization of equity investment differences (88,648,197) (37,750,053)
-----------------------------------------------------------------------------------------
133,885,686 (46,138,983)
=========================================================================================
There was no material restriction on the Company and its subsidiaries to obtain
the remittance of investment income.
(24) NON-OPERATING EXPENSES
FOR THE For the
YEAR ENDED year ended
31ST DECEMBER, 31st December,
2003 2002
Loss on disposal of fixed assets 139,033,651 31,000,935
Housing benefits to the employees -- 17,856,026
Donations 4,859,649 4,469,616
Others 9,899,511 24,687,946
-----------------------------------------------------------------------------------------
153,792,811 78,014,523
=========================================================================================
172
6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(25) CASH PAID FOR ACQUISITION OF SUBSIDIARIES AND CONDENSED INCOME STATEMENTS
OF ACQUIRED SUBSIDIARIES FROM ACQUISITION DATE TO THE YEAR ENDED 31ST
DECEMBER, 2003
As mentioned in Note 1, on 27th October, 2003 the Company entered into an
agreement with Huaneng Group, pursuant to which the Company acquired from
Huaneng Group 55% equity interest in Qinbei Power Company, 60% equity interest
in Yushe Power Company and all the assets and liabilities of Xindian Power
Plant. At the acquisition date, the assets, liabilities and acquisition costs
comprised:
Current assets 486,477,407
Fixed assets 3,196,602,135
Intangible assets 446,417
Other long-term assets 13,262,433
Current liabilities (1,411,789,489)
Long-term loans (1,706,103,649)
------------------------------------------------------------------------------------------------------------------------
Net assets 578,895,254
Acquired equity interest portion 55%-100%
------------------------------------------------------------------------------------------------------------------------
Net assets acquired 453,538,643
Add: Equity investment difference 96,461,357
------------------------------------------------------------------------------------------------------------------------
Total of consideration for acquisition 550,000,000
Less: Cash inflow relating to acquisition of 3 power plant (215,584,684)
------------------------------------------------------------------------------------------------------------------------
Cash outflow relating to acquisition of 3 power plant in 2003 334,415,316
------------------------------------------------------------------------------------------------------------------------
The condensed income statements of above three power
plants from acquisition date to the end of
year 2003 were as follows:
Revenues from principal operations 205,460,863
Costs of principal operations (136,645,022)
------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 68,815,841
------------------------------------------------------------------------------------------------------------------------
Profit before taxation 47,828,366
Income tax (10,041,131)
------------------------------------------------------------------------------------------------------------------------
Net profit 37,787,235
------------------------------------------------------------------------------------------------------------------------
(26) OTHER CASH PAID RELATING TO OPERATING ACTIVITIES
Cash paid for repair and maintenance expenses 813,176,376
Service fee paid to HIPDC 126,956,210
Payment of balance due to HIPDC 12,967,764
Others 1,290,437,703
------------------------------------------------------------------------------------------------------------------------
2,243,538,053
========================================================================================================================
173
7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS
(1) ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
(i) Accounts receivable
31ST DECEMBER, 31st December,
2003 2002
Accounts receivable 2,005,023,640 1,545,294,232
--------------------------------------------------------------------------------------------------------------
Aging of the accounts receivable was as follow:
31ST DECEMBER, 2003 31st December, 2002
AGING AMOUNT PERCENTAGE Amount Percentage
(%) (%)
Within 1 year 2,001,327,640 100 1,540,674,232 100
1-2 years -- -- 4,620,000 --
2-3 years 3,696,000 -- -- --
--------------------------------------------------------------------------------------------------------------
2,005,023,640 100 1,545,294,232 100
==============================================================================================================
All accounts receivable represented receivable from the provincial or
regional grid companies for the sale of electric power. Since these
accounts receivable are collectible, no bad debt provision was
provided by the Company.
As at 31st December, 2003, the five largest accounts receivable of
the Company amounted to Rmb1,636,534,781 (31st December, 2002:
Rmb1,264,206,514), representing 81.62% of total accounts receivable
(31st December, 2002: 81.81%).
174
7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS (Cont'd)
(1) ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES (Cont'd)
(ii) Other receivables
31ST DECEMBER, 31st December,
2003 2002
Other receivables 116,142,277 102,299,280
Less: bad debt provision (28,652,566) (21,104,202)
--------------------------------------------------------------------------------------------------------------
87,489,711 81,195,078
--------------------------------------------------------------------------------------------------------------
Aging and bad debt provision for other receivables were as follow:
31ST DECEMBER, 2003 31st December, 2002
BAD DEBT Bad debt
AGING AMOUNT PERCENTAGE PROVISION Amount Percentage provision
(%) (%)
Within 1 year 65,168,643 56 (1,955,059) 43,906,321 43 (1,317,190)
1-2 years 7,931,460 7 (237,944) 27,725,976 27 (831,779)
2-3 years 9,896,662 8 (296,900) 9,122,225 9 (273,667)
Over 3 years 33,145,512 29 (26,162,663) 21,544,758 21 (18,681,566)
--------------------------------------------------------------------------------------------------------------
116,142,277 100 (28,652,566) 102,299,280 100 (21,104,202)
==============================================================================================================
Breakdown of other receivables was as follows:
31ST DECEMBER, 31st December,
2003 2002
Prepayments for materials 3,313,689 24,534,432
Receivables from employees for sales of staff quarters 10,272,586 9,744,849
Petty cash 8,566,762 2,431,802
Transmission fee refund receivable from Shandong Electric Power Corporation 19,067,120 --
Others 74,922,120 65,588,197
--------------------------------------------------------------------------------------------------------------
116,142,277 102,299,280
==============================================================================================================
As at 31st December, 2003, the five largest other receivables of the
Company amounted to Rmb57,070,487 (31st December, 2002:
Rmb45,783,552), representing 49.14% of total other receivables (31st
December, 2002: 44.75%).
As at 31st December, 2003 and 31st December, 2002, there were no
accounts receivable and other receivables from shareholders who hold
5% or more of the equity interest in the Company.
See Note 8 for related party transactions.
175
7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS (Cont'd)
(2) LONG-TERM EQUITY INVESTMENTS
1ST JANUARY, CURRENT YEAR CURRENT YEAR 31ST DECEMBER,
2003 ADDITIONS DEDUCTIONS 2003
Long-term equity investments
Subsidiaries (i) 1,548,297,672 735,058,468 (217,915,233) 2,065,440,907
Associates (ii) 200,960,043 1,816,809,699 (4,830,110) 2,012,939,632
Equity investment difference* 313,862,886 908,047,944 (88,648,197) 1,133,262,633
Other long-term equity investment 254,989,551 -- -- 254,989,551
Others * 6,364,278 -- (521,561) 5,842,717
------------------------------------------------------------------------------------------------------------------------
2,324,474,430 3,459,916,111 (311,915,101) 5,472,475,440
------------------------------------------------------------------------------------------------------------------------
Less: current portion of other
long-term equity investments (25,160) -- 25,160 --
------------------------------------------------------------------------------------------------------------------------
2,324,449,270 3,459,916,111 (311,889,941) 5,472,475,440
========================================================================================================================
* Please refer to Note 6(6) for details.
(i) Long-term equity investments in subsidiaries
INVESTMENT COST MOVEMENT
INVESTMENT 1ST JANUARY, CURRENT YEAR 31ST DECEMBER,
NAME PERIOD 2003 ADDITIONS 2003
Weihai Power Company No specific terms 474,038,793 -- 474,038,793
Taicang Power Company No specific terms 469,706,560 37,500,000 507,206,560
Huaiyin Power Company No specific terms 341,176,226 76,368,000 417,544,226
Yushe Power Company No specific terms -- 134,085,896 134,085,896
Qinbei Power Company 50 years -- 84,055,599 84,055,599
--------------------------------------------------------------------------------------------------------------
1,284,921,579 332,009,495 1,616,931,074
==============================================================================================================
176
7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS (Cont'd)
(2) LONG-TERM EQUITY INVESTMENTS (Cont'd)
(i) Long-term equity investments in subsidiaries (Cont'd)
ACCUMULATED EQUITY PICK-UP MOVEMENT
1ST JANUARY, CURRENT YEAR INCOME 31ST DECEMBER,
NAME 2003 PROFIT/(LOSS) APPROPRIATION 2003
Weihai Power Company 167,986,263 146,768,214 (134,354,145) 180,400,332
Taicang Power Company 79,999,084 181,999,742 (33,053,751) 228,945,075
Huaiyin Power Company 15,390,746 70,485,291 (49,925,580) 35,950,457
Yushe Power Company -- 3,795,726 -- 3,795,726
Qinbei Power Company -- (581,757) -- (581,757)
--------------------------------------------------------------------------------------------------------------
263,376,093 402,467,216 (217,333,476) 448,509,833
--------------------------------------------------------------------------------------------------------------
NET CARRYING AMOUNT
1ST JANUARY, 31ST DECEMBER,
NAME 2003 2003
Weihai Power Company 642,025,056 654,439,125
Taicang Power Company 549,705,644 736,151,635
Huaiyin Power Company 356,566,972 453,494,683
Yushe Power Company -- 137,881,622
Qinbei Power Company -- 83,473,842
--------------------------------------------------------------------------------------------------------------
1,548,297,672 2,065,440,907
==============================================================================================================
There was no significant difference in accounting policies used by
the subsidiaries and the Company. There was no significant
restriction on the realizability of the investments or the remittance
of investment income.
177
7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS (Cont'd)
(2) LONG-TERM EQUITY INVESTMENTS (Cont'd)
(ii) Long-term equity investments in associates
INVESTMENT COST MOVEMENT
INVESTMENT 1ST JANUARY, CURRENT YEAR 31ST DECEMBER,
NAME PERIOD 2003 ADDITIONS 2003
Rizhao Power Company 20 years 231,868,800 -- 231,868,800
SEG No specific terms -- 1,595,902,576 1,595,902,576
--------------------------------------------------------------------------------------------------------------
231,868,800 1,595,902,576 1,827,771,376
==============================================================================================================
ACCUMULATED EQUITY PICK-UP MOVEMENT
1ST JANUARY, CURRENT YEAR OTHER 31ST DECEMBER,
NAME 2003 PROFIT/(LOSS) ADDITIONS 2003
Rizhao Power Company (30,908,757) (4,830,110) -- (35,738,867)
SEG -- 216,659,277 4,247,846 220,907,123
--------------------------------------------------------------------------------------------------------------
(30,908,757) 211,829,167 4,247,846 185,168,256
==============================================================================================================
NET CARRYING AMOUNT
1ST JANUARY, 31ST DECEMBER,
NAME 2003 2003
Rizhao Power Company 200,960,043 196,129,933
SEG -- 1,816,809,699
--------------------------------------------------------------------------------------------------------------
200,960,043 2,012,939,632
==============================================================================================================
There was no significant difference in accounting policies used by
the associates and the Company. There was no significant restriction
on the realizability of the investments or the remittance of
investment income.
178
7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS (Cont'd)
(3) LONG-TERM DEBT INVESTMENTS
1ST JANUARY, CURRENT YEAR CURRENT YEAR 31ST DECEMBER,
2003 ADDITIONS DEDUCTIONS 2003
Long-term entrusted loans to a subsidiary* 696,962,956 -- (226,300,000) 470,662,956
Others 10,137,770 -- (10,042,210) 95,560
------------------------------------------------------------------------------------------------------------------------
707,100,726 -- (236,342,210) 470,758,516
Less: Current portion of
long-term debt investments (256,300,000) (470,746,016) 256,300,000 (470,746,016)
------------------------------------------------------------------------------------------------------------------------
450,800,726 (470,746,016) 19,957,790 12,500
========================================================================================================================
* Long-term entrusted loans to a subsidiary
In order to finance the construction of Weihai Power Company Phase II, the
Company had granted entrusted loans to Weihai Power Company through a financial
institution on September 1995. These loans were unsecured, not guaranteed and
bore interests at 6.21% per annum. As at 31st December, 2003, most of the
entrusted loans is mature within one year.
For the year ended 31st December, 2003, the Company received interest income of
approximately Rmb33.60 million (2002: Rmb41.10 million) from Weihai Power
Company. As at 31st December, 2003, the outstanding entrusted loans, the
related interest income and interest expense were eliminated in the
consolidated financial statements.
(4) REVENUES FROM PRINCIPAL OPERATIONS
FOR THE YEAR ENDED For the year ended
31ST DECEMBER, 2003 31st December, 2002
REVENUES FROM COSTS OF Revenues from Costs of
PRINCIPAL PRINCIPAL principal principal
OPERATIONS OPERATIONS operations operations
Sales of electric power 20,287,987,380 13,698,115,361 15,720,550,997 10,480,868,719
=============================================================================================================
The Company has contractual arrangements for the sales of electric power with
the provincial or regional grid companies.
For the year ended 31st December, 2003 and 2002, the revenue from the five
largest customers of the Company amounted to Rmb16,098,304,242 and
Rmb11,939,005,458, representing 79.35% and 75.95% of the total revenue,
respectively.
179
7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS (Cont'd)
(5) INVESTMENT INCOME
FOR THE For the
YEAR ENDED year ended
31ST DECEMBER, 31st December,
2003 2002
Investment income on bonds 906,302 482,857
Investment income on entrusted loans 40,769,124 41,097,920
Investment income on other debt investments 61,067 421,286
Share of profit of subsidiaries and associates 614,296,383 284,421,378
Other equity investment income 585,342 --
Amortization of equity investment differences (88,648,197) (37,750,053)
--------------------------------------------------------------------------------------------
567,970,021 288,673,388
============================================================================================
There was no material restriction on the Company when remitting the investment income.
180
8. RELATED PARTY TRANSACTIONS
(1) RELATED PARTIES THAT CONTROL/ARE CONTROLLED BY THE COMPANY:
RELATIONSHIP
TYPE OF LEGAL REGISTERED WITH THE PRINCIPAL
NAME ENTERPRISE REPRESENTATIVE ADDRESS COMPANY ACTIVITIES
Huaneng Group State-owned Li Xiaopeng 23 Xueyuan Ultimate parent Investment in power
enterprise South Road, company stations, coal,
Haidian District, minerals, railways,
Beijing transportation,
Beijing petrochemical,
energy-saving facilities,
steel, timber,
cement and
related industries and
others
HIPDC Sino-foreign Li Xiaopeng 23 Xueyuan Parent company Investment in power plants,
equity limited South Road, development and
liability company Haidian District, investment in other
Beijing export-oriented
enterprises
Weihai Power Limited liability Wu Dawei No. 58 Haifu road, Subsidiary Power generation
Company company Economic
Development
Zone, Weihai,
Shandong province
Taicang Power Limited liability Hu Jianmin Jinjihupan, Subsidiary Power generation
Company company Sanxing Road,
Suzhou,
Jiangsu province
Huaiyin Power Limited liability Liu Guoyue No. 291 Huaihai Subsidiary Power generation
Company company West Road, Huaian,
Jiangsu province
Qinbei Power Limited liability Xiao An Wulong county, Subsidiary Power generation
Company company Jiyuan city,
Henan Province
Yushe Power Limited liability Na Xizhi Dengyu village, Subsidiary Power generation
Company company Yushe county,
Shanxi Province
181
8. RELATED PARTY TRANSACTIONS (Cont'd)
(2) REGISTERED CAPITAL AND CHANGES IN REGISTERED CAPITAL OF RELATED PARTIES
THAT CONTROL/ARE CONTROLLED BY THE COMPANY:
1ST JANUARY, CURRENT YEAR 31ST DECEMBER,
NAME CURRENCY 2003 ADDITIONS 2003
Huaneng Group RMB 1,900,000,000 -- 1,900,000,000
HIPDC US$ 450,000,000 -- 450,000,000
Weihai Power Company RMB 761,832,800 -- 761,832,800
Taicang Power Company RMB 632,840,000 50,000,000 682,840,000
Huaiyin Power Company RMB 265,000,000 -- 265,000,000
Qinbei Power Company RMB 10,000,000 -- 10,000,000
Yushe Power Company RMB 80,000,000 -- 80,000,000
(3) EQUITY SHARES AND CHANGES IN EQUITY SHARES HELD BY PARTIES THAT
CONTROL/ARE CONTROLLED BY THE COMPANY:
1ST JANUARY, CURRENT YEAR CURRENT YEAR 31ST DECEMBER,
NAME 2003 ADDITIONS DEDUCTIONS 2003
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
Huaneng Group* 1,675,660,547 51.98 -- -- -- -- 1,675,660,547 51.98
HIPDC** 2,554,840,000 42.58 -- -- -- (0.19) 2,554,840,000 42.39
Weihai Power Company 457,103,040 60 -- -- -- -- 457,103,040 60
Taicang Power Company 474,630,000 75 37,500,000 -- -- -- 512,130,000 75
Huaiyin Power Company 168,646,000 63.64 -- -- -- -- 168,646,000 63.64
Qinbei Power Company -- -- 148,200,000 55 -- -- 148,200,000 55
Yushe Power Company -- -- 48,000,000 60 -- -- 48,000,000 60
* Huaneng Group holds 51.98% equity interest in HIPDC.
** In accordance with a shareholders' agreement entered into by certain
founding shareholders, during the operating period of the Company, the
voting rights of seven founding shareholders are given to HIPDC. Thus,
HIPDC holds 70.09% voting rights in the shareholders' meetings.
(4) NATURE OF RELATED PARTIES THAT DO NOT CONTROL/ARE NOT CONTROLLED BY THE
COMPANY:
NAME OF RELATED PARTIES RELATIONSHIP WITH THE COMPANY
Huaneng Finance A subsidiary of Huaneng Group
WPDB Minority shareholder of
Weihai Power Company
Henan Investment Minority shareholder of
Qinbei Power Company
China Huaneng International
Trade Economics Corporation ("CHITEC") A subsidiary of Huaneng Group
Shanghai Time Shipping Company ("Time Shipping") A Joint venture company of
Huaneng Group
Rizhao Power Company An associate of the Company
182
8. RELATED PARTY TRANSACTIONS (Cont'd)
(5) RELATED PARTY TRANSACTIONS
a. On 30th June, 1994, the Company and HIPDC entered into a service
agreement pursuant to which HIPDC provides transmission service and
transformer facilities to some of the power plants of the Company and
receives service fees. The agreements cover a period of 10 years. The
total amount of service fees paid to HIPDC for the year ended 31st
December, 2003 were approximately Rmb215 million (2002: Rmb264
million).
b. In accordance with the leasing agreement entered into between the
Company and HIPDC, the land use right of Shanghai Power Plant is
leased to the Company for a period of 50 years from 30th June, 1997
at an annual rental payment of Rmb6 million.
c. Pursuant to a leasing agreement entered into amongst the Company,
HIPDC and Nanjing Investment Company, the land use right of Nanjing
Power Plant is leased to the Company for 50 years from 1st January,
1999 at an annual rental payment of Rmb1.334 million.
d. Pursuant to a leasing agreement between the Company and HIPDC, HIPDC
agreed to lease its building to the Company as office at an annual
rental of Rmb25 million from 1st January, 2000.
e. As described in Note 6 (15)(i), certain bank loans were on-lent from
HIPDC, and as described in Note 6 (15)(iii), certain bank loans were
drawn from WPDB and Huaneng Finance.
f. As at 31st December, 2003, Huaneng Finance had granted short-term
loans amounted to Rmb1,130 million (31st December, 2002: Rmb200
million) to the Company and its subsidiaries, and Henan Investment
had granted short-term loans amounted to Rmb130 million (31st
December, 2002: nil) to the Company and its subsidiaries. The
interest rates for such loans are not materially different from the
prevailing market interest rate (see Note 6(11)).
g. As at 31st December, 2003, long-term bank loans of approximately
Rmb4,648 million, Rmb1,096 million, Rmb280 million and Rmb34.49
million were guaranteed by HIPDC, Huaneng Group, WPDB and Henan
Investment, respectively (31st December, 2002: Rmb5,544 million,
Rmb1,140 million, Rmb280 million and nil, respectively) (see Note
6(15)).
h. As described in Note 9, certain bank loans of Taicang Power Company,
Huaiyin Power Company, Rizhao Power Company, Weihai Power Company,
Yushe Power Company and Qinbei Power Company were guaranteed by the
Company.
i. On 9th May, 2002, the Company entered into an agreement with Huaneng
Group under which the Company agreed to acquire from Huaneng Group
70% equity interest in Shidongkou I Power Plant, 70% equity interest
in Taicang Power Plant, 44.16% equity interest in Huaiyin Power Plant
and all of the assets and liabilities of Changxing Power Plant. The
total consideration for the acquisition of four power plants was
Rmb2,050 million payable in cash using internal surplus cash
resources.
j. On 15th November, 2002, the Company entered into an agreement with
Huaneng Group under which the Company agreed to acquire from Huaneng
Group 30% equity interest in Shidongkou I Power Plant and 5% equity
interest in Taicang Power Plant. The total consideration for the
additional acquisition of two power plants was Rmb415 million payable
in cash.
k. On 5th June, 2003, the Company entered into an agreement with Huaneng
Group under which the Company agreed to acquire from Huaneng Group
55% equity interest in Qinbei Power Company, 60% equity interest in
Yushe Power Company and all of the assets and liabilities of Xindian
Power Plant. The total consideration for the acquisition of three
power plants was Rmb550 million, and the Company paid the
consideration in cash.
183
8. RELATED PARTY TRANSACTIONS (Cont'd)
(5) RELATED PARTY TRANSACTIONS (Cont'd)
l. On 6th November, 2002, the Company entered into a management service
agreement with Huaneng Group and HIPDC. Pursuant to which, the
Company provides management services to certain power plants owned by
Huaneng Group and HIPDC. For the year ended 31st December, 2003, the
Company earned service fees amounted to Rmb33,294,800 from Huaneng
Group and paid expenses on behalf of Huaneng Group's power plants
amounted to Rmb6,839,017 (2002: nil). In addition, the Company earned
service fees amounted to Rmb17,305,200 and paid expenses on behalf of
HIPDC's power plant amounted to Rmb1,273,524 (2002: nil). For the
year ended 31st December, 2003, the related cost incurred for the
management service provided was approximately Rmb38 million.
m. In accordance with an equipment import agency service agreement
entered into between Shandong Huaneng and CHITEC, the Company is
required to pay an agency fee at 0.5% of the value of imported
equipment in return for the agency service provided by CHITEC. For
the year ended 31st December, 2003, the Company did not pay any
agency fee to CHITEC for equipment transportation and insurance
service (2002: RMB3 million).
n. For the year ended 31st December, 2003, the Company and its
subsidiaries paid approximately Rmb145.06 million for coal purchased
from CHITEC (2002: nil).
o. For the year ended 31st December, 2003, the Company and its
subsidiaries paid approximately Rmb457 million for the fuel purchased
and transportation services received from Time Shipping (2002:
Rmb301million).
(6) CASH DEPOSITED WITH A RELATED PARTY
31ST DECEMBER, 31st December,
2003 2002
Deposited in Huaneng Finance:
- Current deposit 2,791,770,168 2,376,197,356
- Fixed deposit -- 570,000,000
-------------------------------------------------------------------------------
2,791,770,168 2,946,197,356
===============================================================================
As at 31st December, 2003, the interest rates per annum for the current
deposits placed with Huaneng Finance ranged from 0.72% to 1.44% (31st December,
2002: 0.72% to 1.44%). As at 31st December, 2002, the interest rate per annum
for the fixed deposit was 1.71%.
184
8. RELATED PARTY TRANSACTIONS (Cont'd)
(7) ACCOUNTS RECEIVABLE FROM/ACCOUNTS PAYABLE TO RELATED PARTIES
31ST DECEMBER, 2003 31st December, 2002
AMOUNT PERCENTAGE Amount Percentage
Interest receivables (payables)
Interest receivables (payables)
on deposits (loans) from
Huaneng Finance (1,418,954) 1.51% 1,630,137 42.98%
Other receivables
Other receivables from Huaneng
Group's subsidiaries 5,286,705 3.29% -- --
Other receivables from
HIPDC's subsidiaries 575,120 0.36% -- --
Accounts payable
Accounts payable to CHITEC (14,484,416) 2.22% -- --
Accounts payable to Time Shipping (11,434,522) 1.75% (13,917,467) 2.95%
Other payables
Other payables to HIPDC (87,507,580) 5.24% (100,475,344) 4.41%
-----------------------------------------------------------------------------------------------------------
The balances with Huaneng Group's subsidiaries, HIPDC and its subsidiaries,
CHITEC and Time Shipping were unsecured, non-interest bearing and repayable
within one year.
9. CONTIGENT LIABILITY
31ST DECEMBER, 2003
THE COMPANY AND
ITEM ITS SUBSIDIARIES THE COMPANY
Guarantee on the long-term bank loans of Rizhao Power Company 339,250,000 339,250,000
Guarantee on the long-term bank loans of Weihai Power Company -- 330,000,000
Guarantee on the long-term bank loans of Taicang Power Company -- 1,114,183,384
Guarantee on the long-term bank loans of Huaiyin Power Company -- 10,000,000
Guarantee on the long-term bank loans of Qinbei Power Company -- 905,000,000
Guarantee on the long-term bank loans of Yushe Power Company -- 101,430,000
-------------------------------------------------------------------------------------------------------------
339,250,000 2,799,863,384
=============================================================================================================
Guarantees on the long-term bank loans of Taicang Power Company, Huaiyin Power
Company, Rizhao Power Company, Weihai Power Company, Yushe Power Company and
Qinbei Power Company by the Company had no significant financial impact on the
Company's operation.
185
10. OBLIGATION AND COMMITMENTS
Commitments mainly relate to the construction of electric generation
facilities, renovation projects for existing power plants and purchase of coal.
Capital commitment and coal purchase commitment amounted to Rmb12.07 billion
was not included in the consolidated balance sheet of the Company and its
subsidiaries as at 31st December, 2003 (31st December, 2002: Rmb2.66 billion).
The Company had various operating lease arrangements with HIPDC for land and
buildings. Total future minimum lease payments under non-cancelable operating
leases were as follow:
31ST DECEMBER, 31st December,
2003 2002
Land and buildings
- within 1 year 32,334,000 32,334,000
- 1-2 years 7,334,000 32,334,000
- 2-3 years 7,334,000 7,334,000
- after 3 years 299,028,000 306,362,000
--------------------------------------------------------------------------------
346,030,000 378,364,000
--------------------------------------------------------------------------------
In addition, in accordance with a 30-year operating lease agreement signed by
the Dezhou Power Plant and Shandong Land Bureau for the land occupied by Dezhou
Power Plant Phase I and Phase II in June 1994 annual rental is approximately
Rmb29.874 million effective from June 1994 and is subject to revision at the
fifth year since the contract date. Thereafter, the annual rental is subject to
revision once every three years. The increment for each rental revision is
restricted to no more than 30 percent of the previous annual rental amount. For
the year ended 31st December, 2003, the rental charged was Rmb29,902,347 (2002:
Rmb29,884,933).
11. INTEREST RATE SWAP CONTRACT
The Company entered into interest rate swap agreements with the Bank of China
to convert certain floating rate bank loans into fixed rate debts of the same
principal amounts and for the same maturities to hedge against interest rate
risk. As at 31st December, 2003, the notional amount of the outstanding
interest swap agreements were approximately US$20.50 million (31st December,
2002: US$51.66 million).
186
12. NET PROFIT AFTER DEDUCTING NON-RECURRING ITEMS
Net profit 5,457,142,551
Add (Less): non-recurring items
- Loss from disposal of fixed assets 137,631,682
- Income from entrusted investments (9,171,085)
- Non-operating income (19,083,635)
- Non-operating expense 14,759,159
Less: tax impact on non-recurring items (17,362,130)
----------------------------------------------------------------------------
Net profit after deducting non-recurring items 5,563,916,542
----------------------------------------------------------------------------
13. RECLASSIFICATION OF COMPARATIVE FIGURES
Certain prior year comparative figures have been reclassified to conform to the
current period presentation.
187
SUPPLEMENTAL INFORMATION
FOR THE YEAR ENDED 31st DECEMBER, 2003
(Prepared on consolidation basis; all amounts are stated in
Rmb Yuan unless otherwise stated)
NET PROFIT AND NET ASSETS RECONCILIATION BETWEEN PRC GAAP AND I
NTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
The financial statements, which are prepared by the Company and its
subsidiaries in conformity with the Accounting Standards for Business
Enterprises and Accounting Systems for Business Enterprises ("PRC GAAP"),
differ in certain respects from IFRS. Major differences between PRC GAAP and
IFRS, which affect the net income and net assets of the Company and its
subsidiaries, are summarized as follow:
NET INCOME
FOR THE YEAR ENDED 31ST DECEMBER,
2003 2002
NET INCOME UNDER PRC GAAP 5,457,142,551 4,082,350,589
IMPACT OF IFRS ADJUSTMENTS:
Effect of recording deferred revenue (a) (47,936,528) (212,755,386)
Difference in the basis of determining the
amount of materials and supplies (b) 9,503,446 3,078,998
Difference in the recognition policy on
housing benefits to the employees of the Company (c) (26,258,956) 6,457,886
Difference in accounting treatment of the convertible notes (d) (3,228,425) (35,957,003)
Difference in capitalization of borrowing costs (e) 12,681,881 88,411,906
Difference in the recognition of financial liabilities (f) 11,771,302 2,179,464
Applicable deferred tax impact of the above GAAP differences (g) 18,362,679 (10,457,892)
Others (1,630,343) (2,305,261)
------------------------------------------------------------------------------------------------------------------
NET INCOME UNDER IFRS 5,430,407,607 3,921,003,301
------------------------------------------------------------------------------------------------------------------
188
NET PROFIT AND NET ASSETS RECONCILIATION BETWEEN PRC GAAP AND
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") (Cont'd)
NET ASSETS
31ST, DECEMBER
2003 2002
NET ASSETS UNDER PRC GAAP 34,787,100,203 31,209,570,014
IMPACT OF IFRS ADJUSTMENTS:
Effect of recording deferred revenue (a) (987,500,122) (939,563,594)
Difference in the basis of determining the amount of materials and supplies (b) (7,879,241) (17,382,687)
Difference in the recognition policy on housing benefits
to the employees of the Company (c) 63,726,056 89,985,012
Difference in accounting treatment of convertible notes (d)
- Effect of recording the equity component of convertible notes (d) 510,506,379 510,506,379
- Adjustment relating to convertible notes arising from initial
adoption of IAS 39 (d) (463,920,605) (463,920,605)
- Difference in accounting treatment of amortized cost of the liability
component and put option relating to the convertible notes (d) (46,568,506) (36,086,925)
Difference in capitalization of borrowing costs (e) 101,093,787 88,411,906
Difference in the recognition of financial liabilities (f) (924,686) (12,695,988)
Applicable deferred tax impact of the above GAAP differences (g) 7,568,346 (10,457,892)
Others (7,847,178) (2,305,261)
------------------------------------------------------------------------------------------------------------------------
NET ASSETS UNDER IFRS 33,955,354,433 30,416,060,359
------------------------------------------------------------------------------------------------------------------------
(a) Recording of deferred revenue
Under the rate making process applicable to the Company and its subsidiaries
except for certain power plants, major repair and maintenance expenses
determined on the basis of 1% of the fixed asset cost is recovered through the
current power rates. In a particular year, to the extent that the actual repair
and maintenance expenses incurred is less than the amount determined on the
above basis, the difference is recorded as deferred revenue under IFRS. For PRC
statutory financial reporting purposes, in accordance with the requirement of
PRC GAAP, no such amount is recorded and revenue is determined and recognized
based on the actual amount of electricity transmitted to the grid and the
prevailing approved power rates.
(b) Difference in the basis of determining the amount of material and supplies
Under PRC GAAP, materials and supplies have been restated to the appraised
value determined by independent valuer during the reorganization of the five
original operating plants in 1994 and the appraised value has been used as the
basis in determining the amount charged to operating expenses upon actual
utilization. Under IFRS, materials and supplies are charged to operating
expenses at cost based on actual utilization.
189
NET PROFIT AND NET ASSETS RECONCILIATION BETWEEN PRC GAAP AND
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") (Cont'd)
(c) Difference in the recognition policy on housing benefits to the employees
of the company
The Company and HIPDC provided housing benefits to certain qualified employees
of the Company whereby the living quarters owned by the Company and HIPDC were
sold to these employees at preferential prices. The housing benefits represent
the difference between the cost of the staff quarters sold to and the net
proceeds collected from the employees, which are borne by the Company and
HIPDC.
For PRC statutory reporting purposes, in accordance with the relevant
regulations issued by the Ministry of Finance, the total housing benefits
provided by the Company are charged to non-operating expenses in the year when
incurred. Under IFRS, the housing benefits provided by the Company are
recognized on a straight-line basis over the estimated remaining average
service lives of the employees.
(d) Accounting treatment of convertible notes
Under PRC GAAP, the Company had accrued for the put premium liability together
with the interest payable on the notes using the effective interest rate of
6.66% till 21st May, 2002. As at 21st May, 2002, all accrued put premium of
unredeemed notes was charged to the income statement as reversal of interest
expense.
Under IFRS, the proceeds received on the issue of the convertible notes were
allocated into liability and equity components. Upon initial recognition, the
liability component represented the present value, at the issuance date, of the
contractually determined stream of cash flows discounted at the market interest
rate for instruments of comparable credit status providing substantially the
same cash flows, on the same terms, but without the conversion option. The
equity component was then determined by deducting the liability component from
the proceeds received on the issue of the notes. Under PRC GAAP, the entire
proceeds of the issue of convertible notes were recorded as long-term
liabilities without distinguishing between the equity and liability components.
In accordance with IAS 39, the put option of the convertible notes, which
allowed the noteholders to redeem the convertible notes at a premium, was
separated from the host contract and accounted for as an embedded derivative.
This put option was recorded as a liability and measured at its fair value.
When IAS 39 was initially applied in 2001, the difference between the previous
carrying amount and the fair value of the put option was recognised as an
adjustment to the opening retained earnings as at 1st January, 2001. In
addition, the liability component was measured at amortized cost and the
resulting difference with the previous carrying amount was recognised as an
adjustment to the opening retained earnings as at 1st January, 2001. After
initial recognition, subsequent changes in the value of the put option and the
amortised cost of the liability component were charged or credited to the
profit and loss account.
(e) Capitalization of borrowing costs
Under PRC GAAP, the capitalization of interests is limited to specific
borrowings. No interest can be capitalized on general borrowings.
In accordance with IAS 23, the Company capitalized interests on general
borrowings used for the purpose of obtaining a qualifying asset in addition to
the capitalization of interests on specific borrowings.
The GAAP difference of capitalized interests on general borrowings also causes
the difference of depreciation expense of relevant fixed assets.
190
NET PROFIT AND NET ASSETS RECONCILIATION BETWEEN PRC GAAP AND
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") (Cont'd)
(f) Accounting treatment of financial liability
The Company enters into interest rate swap agreements with local banks to
convert certain floating rate debts to fixed rate debts of the same principal
amounts and for the same maturities to hedge against interest rate risk. As at
31st December, 2003, the notional amount of the outstanding interest rate swap
agreements was approximately US$20.5 million. For the year ended 31st December,
2003, there was a gain amounted to approximately Rmb 11.77 million arising from
changes in the fair value of the interest rate swaps. Under PRC GAAP, such
interest swap contracts are considered and disclosed as off balance sheet
items. Under IFRS, derivative instruments are recorded as either assets or
liabilities in the balance sheet at fair value, which is determined based on
market conditions at each balance sheet date. Changes in the fair value of
derivatives are recorded each period in current earnings or recognized directly
in equity through the statement of changes in shareholder's equity, depending
on whether a derivative is designated as part of a hedge transaction and the
type of hedge transaction. Since the hedging relationship does not meet all of
the conditions required for special hedge accounting as set out in IAS 39, such
gain was credited to the profit and loss account in current period.
(g) Deferred tax impact
This represents deferred tax effect on the above GAAP differences where
applicable.
191
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
under-signed, thereunto duly authorized.
HUANENG POWER INTERNATIONAL, INC.
By /s/ Wang Xiaosong
-----------------------------
Name: Wang Xiaosong
Title: Vice Chairman
Date: March 30, 2004