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, 2005
(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:
Announcements on (i) resolutions passed at the tenth meeting of the fourth
session of the board of directors, (ii) resolutions passed at the sixth
meeting of the fourth session of the supervisory committee, and (iii) results
for the year 2004, by Huaneng Power International, Inc. in English on March
15, 2005.
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/ Huang Long
----------------
Name: Huang Long
Title: Company Secretary
Date: March 15, 2005
[GRAPHIC OMITTED]
(a Sino-foreign joint stock limited company incorporated in the People's
Republic of China)
(Stock Code: 902)
OVERSEAS REGULATORY ANNOUNCEMENT
ANNOUNCEMENT FOR RESOLUTIONS PASSED AT
THE TENTH MEETING OF THE FOURTH SESSION
OF THE BOARD OF DIRECTORS
This announcement is made by Huaneng Power International, Inc. (the "Company")
pursuant to Rule 13.09(2) of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited.
On 15th March 2005, the Board of Directors ("the Board") of the Company
convened the tenth meeting of the Fourth Session of the Board at the Company's
head office at 2C, Fuxingmennan Street, Xicheng District, Beijing. Fifteen
Directors were eligible to attend the meeting. The attendants of the meeting
included 15 Directors, either in person or by proxy (Mr. Xu Zujia and Mr. Gao
Zongze, being engaged by other matters, were absent from the meeting and both
of them had appointed Mr. Li Xiaopeng as their proxy for voting), the
Secretary of the Board, the Supervisors and other senior management of the
Company. The convening of this meeting has complied with the Companies Law of
the People's Republic of China and the articles of association of the Company.
Mr Li Xiaopeng, Chairman of the Company, presided over the meeting. The
following resolutions were considered and approved at the meeting:-
1. The working report from the Board of Directors of the Company for year
2004.
2. The working report from the President of the Company for year 2004.
3. The audited financial statements of the Company for year 2004.
4. The profit distribution plan of the Company for year 2004.
Having been audited by PricewaterhouseCoopers Zhong Tian CPAs Co. Ltd.
and PricewaterhouseCoopers, the Company's net profit for the year ended
31st December 2004 under the PRC GAAP, International Financial Reporting
Standards and US GAAP were Rmb5,389,057,047, Rmb5,323,875,726 and
Rmb5,740,320,198 respectively. 10% and 7.5% of the net profit for year
2004 of the Company under the PRC GAAP (Rmb5,389,057,047) should be
appropriated to the statutory surplus reserve fund and the statutory
public welfare fund respectively, amounting to a total of
Rmb943,084,984. 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 for 2004 was
RMB4,380,790,742.
The Company's proposed dividend distribution plan for the year of 2004
was a cash dividend of RMB0.25 (tax inclusive) for every share of the
Company. It was estimated that the total amount of cash to be paid as
dividend was Rmb3,013,845,860.
5. The Company's 2004 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 2005 with a total remuneration of
US$2.01 million.
7. Proposal regarding amendments of the articles of association of the
Company
Details will be available in the website of Shanghai Stock Exchange
(www.sse.com.cn).
8. Proposal regarding change of the Company's senior management
(1) the appointment of Mr. Li Shiqi as the Company's Vice President;
and
(2) the resignation of Mr. Wu Dawei as the Company's Vice President
and the resignation of Mr. Li Shiqi as the Company's Chief
Economist.
9. Proposal regarding the change of the session of board of directors
(1) the nomination of Mr. Li Xiaopeng, Mr. Huang Yongda, Mr. Wang
Xiaosong, Mr. Na Xizhi, Mr. Huang Long, Mr. Wu Dawei, Mr. Shan
Qunying, Mr. Yang Shengming, Mr. Xu Zujian and Mr. Liu Shuyuan as
candidates of the directors of the fifth session of the board of
directors of the Company;
Li Xiaopeng Mr. Li, aged 46, graduated from the North China
Institute of Electric Power specializing in power plants and power
systems and is a senior engineer. He is Chairman and President of
Huaneng International Power Development Corporation ("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.
Huang Yongda Mr. Huang, aged 48, graduated from China Renmin
University, specializing in industrial financial accounting and is
a senior accountant. He is the President of the Company and the
Vice President of China Huaneng Group. He was the deputy manager
of the Pricing Department of the Economic Moderation Office of the
Ministry of Energy, manager and deputy head of the Economic
Moderation and State Asset Supervision Office of Ministry of Power
Industry, deputy head of the General Office of the Ministry of
Power Industry, deputy officer of the Finance and Asset Management
Department of State Power Corporation, deputy manager of the Power
Department of the State Economic and Trade Commission, president
of Jiangxi Province Power Corporation and vice president of HIPDC.
Wang Xiaosong Mr. Wang, aged 59, graduated from Beijing Institute
of Electric Power specializing in thermal power engineering and is
a senior engineer. He is 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.
Na Xizhi Mr. Na, aged 51, graduated from Wuhan Hydro-electric
University, specializing in thermal power with a master degree in
engineering and is a senior engineer. He is Vice President of the
Company and Deputy Chief Engineer of China Huaneng Group. He has
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.
Huang Long Mr. Huang, aged 51, graduated with a M.S. degree from
North Carolina State University in the U.S. specializing in
communications and auto-control and is a senior engineer. He 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.
Wu Dawei Mr. Wu, aged 51, has obtained a Master of Business
Administration degree from the Central Europe International
Business School and is a senior engineer. He is Deputy Chief
Engineer of China Huaneng Group and President of China Huaneng
Group East China Branch 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.
Shan Qunying Mr. Shan, aged 51, graduated from Beijing Steel
Institute specializing in automation and is a senior engineer. He
is the Vice President of Hebei Provincial Construction Investment
Company. He had been the Division Chief of Hebei Provincial
Construction Investment Company.
Yang Shengming Mr. Yang, aged 61, graduated from Beijing Light
Industries Institute and is a senior economist. He is the Vice
President of Fujian International Trust and Investment Company
Limited, Executive Director of Hong Kong Minxin Group Limited
Company, Director of Yongcheng Property Insurance Joint Stock
Company and Director of Xiamen International Bank.
Xu Zujian Mr. Xu, aged 50, graduated from Liaoning Finance
Institute majoring in infrastructure finance and is a senior
economist. He is Director and Vice President of Jiangsu Province
Guoxin Asset Management Group Limited 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.
Liu Shuyuan Mr. Liu, aged 54, is a senior economist and a
postgraduate specializing in economic management. He is the
director and is president of Liaoning Energy Investment (Group)
Limited Liability Company. He has been the vice president of
Liaoning Provincial Trust and Investment Corporation, of Liaoning
Chuangye (Group) Limited Liability Company (Liaoning Energy
Corporation) and director and president of Liaoning Chuangye
(Group) Limited Liability Company (Liaoning Energy Corporation).
(2) the nomination of Mr. Qian Zhongwei, Mr. Xia Donglin, Mr. Liu
Jipeng, Mr. Wu Yushang and Mr. Yu Ning as candidates of
independent directors of the fifth session of the board of
directors of the Company;
Biographies of Independent Directors
Qian Zhongwei Mr. Qian, aged 68, graduated from the electrical
engineering department of Qinghua University and is a senior
engineer. 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, Director of
Eastern China Power Administration Bureau, and President of
Eastern China Power Group Company.
Xia Donglin Mr. Xia, aged 44, 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. He is a certified public accountant (non practising
member). He is 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, Deputy Secretary of 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.
Liu Jipeng Mr. Liu, aged 48, graduated from the Economic
Department of the Graduate School of China Academy of Social
Science with a master's degree in economics. He is titled as
professor, senior researcher and senior economist and is a
certified public accountant. He is the chairman of Beijing
Standard Consulting Company, professor and head of corporate
research institute of Capital Economic and Trade University. He is
also a professor of the Graduate School of China Academy of Social
Science, mentor of graduate students of the Centre for Financial
Studies of the Ministry of Finance, senior consultant of China
Power Enterprises Union, China Securities Market Research and
Design Centre and consultant of State Power Corporation.
Wu Yusheng (Mr), aged 49, graduated from Postgraduate School of
China Electric Power Research Institute specializing in electric
power system and automation with a master degree. Mr. Wu is a
senior engineer. He is Deputy Chief Engineer of State Grid
Corporation of China and President of China Electric Power
Research Institute. Mr. Wu served as Deputy Director and senior
engineer of Electric Grid Department of China Electric Power
Research Institute and Deputy Chief Engineer and Deputy Dean of
China Electric Power Research Institute.
Yu Ning (Mr), aged 51, graduated from Peking University
specializing in economic law with a master degree. He is the
Deputy President of All China Lawyers Association, part-time
Professor at Peking University, mentor of master postgraduates at
Tsinghua University Law School, practicing lawyer at Beijing Times
Law Firm (currently under the name "Beijing Times Highland Law
Firm"). Mr. Yu served as Deputy Director and Director of CCP
Central Disciplinary Inspection Commission.
The Company's Board of Directors were satisfied with the
performance of Mr. Ye Daji (Vice Chairman), Mr. Huang Jinkai
(Directors), Mr. Liu Jinlong (Directors), Mr. Gao Zongze
(Directors) and Mr. Zheng Jianchao (Directors), and highly
appreciated and express heartfelt gratitudes to their contribution
to the development of the Company.
10. Proposal regarding entrusting China Huaneng Group to manage Sichuan
Huaneng Hydro Power Development Limited Liability Company
(1) It was resolved to approve the management of Sichuan Huaneng Hydro
Power Development Limited (which is 60% owned by the Company) be
entrusted to China Huaneng Group and the entrusted management
agreement in relation thereto, and that Mr. Huang Long, Company
Secretary, be authorised to sign such agreement and any ancillary
documents in relation thereto;
(2) the announcement relating to the entrusted management transaction
of Huaneng Power International Inc. was approved and that Mr.
Huang Long, Company Secretary, was authorised to amend the
announcement and to make timely disclosure in accordance with the
practical circumstances.
11. Proposal regarding the convening of the Company's annual general meeting
for 2004
After the convening of the tenth meeting of the fourth session of the
Board of Directors and the sixth meeting of the fourth session of the
Supervisory Committee, the relevant resolutions should be tabled at
general meeting for approval. The Board of Directors has decided to
convene the annual general meeting for 2004. For details of the relevant
timing, venue, agenda and proposed resolutions of the meeting, please
refer to the notice of annual general meeting to be issued by the
Company.
By Order of the Board
Li Xiaopeng
Chairman
As at the date of this announcement, the Board comprises:
Li Xiaopeng (Non-exective director) Gao Zongze (Independent director)
Wang Xiaosong(Non-executive director) Zheng Jianchao (Independent director)
Huang Yongda (Executive director) Qian Zhongwei (Independent director)
Ye Daji (Non-executive director) Xia Donglin (Independent director)
Huang Jinkai (Non-executive director) Liu Jipeng (Independent director)
Liu Jinlong (Non-executive director)
Shan Qunying (Non-executive director)
Yang Shengming (Non-executive director)
Xu Zujian (Non-executive director)
Liu Shuyuan (Non-executive director)
Beijing, the PRC
15th March 2005
[GRAPHIC OMITTED]
(a Sino-foreign joint stock limited company incorporated in the People's
Republic of China)
(Stock Code: 902)
OVERSEAS REGULATORY ANNOUNCEMENT
ANNOUNCEMENT FOR RESOLUTIONS PASSED AT
THE SIXTH MEETING OF THE FOURTH SESSION
OF THE SUPERVISORY COMMITTEE
This announcement is made by Huaneng Power International Inc. (the "Company")
pursuant to Rule 13.09(2) of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited.
On 14th March 2005, the sixth meeting of the Fourth Session of the Supervisory
Committee of the Company was convened at the Company's head office at 2C,
Fuxingmennan Street, Xicheng District, Beijing. Six Supervisors were eligible
to attend the meeting. A total of six Supervisors attended the meeting in
person. 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. Mr
Wei Yunpeng, the Chairman of the Supervisory Committee, presided over the
meeting. The following resolutions were considered and approved at the
meeting:
1. The working report from the Supervisory Committee for year 2004.
2. The audited financial statements of the Company for year 2004.
3. The profit distribution plan of the Company for year 2004.
4. The Company's annual report for year 2004 and its extract.
5. The proposal regarding the election of supervisors due to change of
session
(1) The nomination of Mr. Ye Daji, Mr. Shen Weibing, Mr. Shen Zongmin
and Ms. Yu Ying as candidates of supervisors of the fifth session
of the supervisory committee and such nomination be put forward to
shareholders' meeting for approval.
Biographies of candidates of Supervisors:-
Ye Daji (Mr), aged 59, graduated from Department of Mechanical
Engineering Shanghai Jiao Tong University and is a senior
engineer. He is Chief Engineer of China Huaneng Group. After
joining in the Company, Mr. Ye served as Deputy Manager of
Shanghai branch company of Huaneng International Inc., President
of Huaneng Shanghai Shidongkou Second Power Plant. Since December
1995, Mr. Ye served as Vice President and President of the
Company, Vice President of Huaneng International Power Development
Corporation ("HIPDC") and Director of China Huaneng Group. Before
joining the Company, Mr. Ye served as Deputy Chief Engineer of
Shanghai Shidong Kou Power Plant.
Shen Weibing (Mr), aged 47, graduated from Material Management
Department of Beijing Material Institute with a bachelar of
science degree. He is a senior economist. In 2003, he studied at
Nanjing University and received a master degree in business
administration. He is Deputy Chief Officer of Nantong Investment
Management Center. He served as Vice President and President of
Nantong Municipal Oil Company, Vice President and Legal
Representative of Nantong Municipal Construction Investment
Company, and Deputy Chief Officer and Chief Officer of Nantong
Investment Management Center.
Shen Zongmin (Mr), aged 50, has a MBA degree. He is Manager of
Shantou Electric Power Development Corporation. He was President
of Shantou Light Industry Mechanical Group, Deputy Manager, and
Manager of Shantou Power Development Corporation and Chairman of
Shantou Power Development Joint Stock Company.
Yu Ying (Ms), aged 50, graduated from Liaoning University of
Finance and Economics, specializing in finance and credit, with a
master degree in Economics. Ms. Yu is a senior economist. She is
President of Dalian Municipal Investment Corporation. Ms. Yu
served as Director of Social Affair Department of Dalian Municipal
Government and Director of Fixed Assets Investment Department of
Dalian Municipal Development and Reform Commission.
(2) Ms. Zou Cui and Mr. Wang Zhaobin were elected by the staff of the
Company as the staff's representative in the supervisory
committee.
Biographies of Staff's Representatives in Supervisory Committee:-
Zou Cui (Ms), aged 52, graduated from Xian Jiaotong University
specializing in computer science and is a senior engineer. She is
Manager of Supervision and Auditing Department of the Company. She
served as Deputy Director and Director of Personnel Division,
Human Resource Department, Director of Human Resource Department
of HIPDC, Deputy Manager of Labor Management Department and Deputy
Manager of Supervision and Auditing Department of Huaneng Power
International Inc.
Wang Zhaobin (Mr), aged 49, has a university degree and is a
specialist in corporate culture. He is Deputy Manager of Corporate
Culture Department of the Company. He served as Director of
Corporate Culture Division of Human Resources and Labour
Department, and Director of Retirement Department of HIPDC, Deputy
Secretary of Communist Party Commission, Secretary of Communist
Party Disciplinary Inspection Commission and Chairman of labour
union of HIPDC, Beijing Branch.
(3) The Supervisory Committee was satisfied with the performance of
Mr. Wei Yunpeng, Mr. Li Yonglin and Mr. Pan Jianmin and Mr. Zhao
Xisheng and highly appraised and expressed their heartfelt
gratitudes to their contribution to the development of the
Company.
The Supervisory Committee was of the view that:
1. In 2004, the operation of the Company was in strict compliance with the
Companies Law of the People's Republic of China, the Company's articles
of association and other relevant laws and regulations. In performing
their duties, the Directors and the senior management of the Company
have not contravened any relevant laws and regulations of the People's
Republic of China and the Company's articles of association and have not
done any act which has caused any damage to the interests of the
Company.
2. The connected transactions of the Company were fair and reasonable and
under no circumstance, such transactions were detrimental to the
interests of the Company and its shareholders.
The above resolutions were considered and approved on 14th March 2005 in
Beijing.
Supervisory Committee of
Huaneng Power International, Inc.
As at the date of this announcement, the Board comprises:
Li Xiaopeng (Non-exective director) Gao Zongze (Independent director)
Wang Xiaosong(Non-executive director) Zheng Jianchao (Independent director)
Huang Yongda (Executive director) Qian Zhongwei (Independent director)
Ye Daji (Non-executive director) Xia Donglin (Independent director)
Huang Jinkai (Non-executive director) Liu Jipeng (Independent director)
Liu Jinlong (Non-executive director)
Shan Qunying (Non-executive director)
Yang Shengming (Non-executive director)
Xu Zujian (Non-executive director)
Liu Shuyuan (Non-executive director)
Beijing, the PRC
15th March 2005
[GRAPHIC OMITTED]
(a Sino-foreign joint stock limited company incorporated in the People's
Republic of China)
(Stock Code: 902)
Announcement of Results for 2004
-------------------------------------------------------------------------------
Power generation: 114.28 billion kWh
Consolidated net operating revenue: Rmb30.118 billion
Net profit: Rmb5.324 billion
Earnings per share: Rmb0.44
Dividends declared: Rmb0.25 per share
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SUMMARY OF OPERATING RESULTS
The Board of Directors of Huaneng Power International, Inc. (the "Company") is
pleased to announce the audited operating results of the Company and its
subsidiaries for the year ended 31st December 2004 (the "Accounting Year" or
the "Year").
For the twelve months ended 31st December 2004, the Company recorded net
operating revenues of Rmb30.118 billion, representing an increase of 28.78%
over 2003 and a net profit of Rmb5.324 billion, representing a decrease of
1.96% over 2003. Basic earnings per share was Rmb0.44. In view of the
difficult situations of the coal supply market in 2004, the Board of Directors
was satisfied with the operating results of the Year.
The Company's Board of Directors proposed to declare cash dividend of Rmb0.25
for each ordinary share of the Company.
Details of the operating results are set out in the financial information
attached.
BUSINESS REVIEW OF YEAR 2004
In 2004, China's economy continued to grow steadily with a relatively fast
pace and there was a strong demand for electricity, thereby bringing about
good opportunities for the development of the Company. However, at the same
time, continued coal shortage, declining coal quality and rise of coal price
posed the greatest operating difficulties for the Company since its
establishment ten years ago. During the year, the Company continued to
strengthen its management, open up markets, 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 were committed and united as ever and strived to
do their utmost, hereby having effectively overcome the challenges and
achieved a stable operating result during the year.
1. STEADY GROWTH OF OPERATING RESULTS
For the twelve months ended 31st December 2004, the Company recorded net
operating revenues of Rmb30.118 billion and a net profit of Rmb5.324
billion, representing an increase of 28.78% and a decrease of 1.96%
respectively, as compared to the same period of 2003. Earnings per share
was Rmb0.44.
The decrease of net profit in 2004 was mainly due to the substantial
increase of the operating cost of the Company and it subsidiaries in
2004. Notwithstanding the substantial increase of the net operating
revenue brought about by the increase of the power generation and the
rise of tariff, as well as the contribution of the previously acquired
power plants (including Xindian Power Plant and Yueshe Power Plant which
were acquired in October 2003 and the five power plants, namely, Yingkou
Power Plant, Jinggangshan Power Plant, Yueyang Power Plant, Luohuang
Power Plant and Hanfeng Power Plant which were acquired in July 2004),
the operating cost still could not be offset the impact due to the
increase of fuel cost, thus still affecting the Company's profit.
Therefore, the consolidated net profit of the Company and its
subsidiaries has decreased slightly, compared with approximately
Rmb5.430 billion in 2003.
2. SAFE AND STABLE POWER GENERATION
In 2004, the operating power plants of the Company and its subsidiaries
achieved power generation totalling 114.28 billion kWh on a consolidated
basis, representing an increase of 25.7% over the same period of the
previous year.
The general growth in power generation of the power plants owned by the
Company was benefited from the strong increase in power demand
nationwide driven by a rapid growth of the national economy. On the
other hand, the significant increase in power generation was
attributable to the whole-year power generation contribution from the
two generation units at Jining Power Plant which commenced operation in
2003 and the power generation contribution from the new generation units
at Yushe Power Plant Phase II and Qinbei Power Plant at the end of 2004,
together with the contribution of the half-year power generation from
the newly acquired Yingkou Power Plant, Jinggangshan Power Plant,
Yueyang Power Plant and Luohuang Power Plant, thus significantly
increasing the power generation capacity of the Company. At the same
time, the sound and stable operation of the equipment of the power
plants owned by the Company and its subsidiaries and the scientific and
rationalized scheduling of the planned maintenance of the generating
units also created favourable conditions for the increased power
generation of the Company.
In 2004, the average availability factor of the power plants of the
Company and its subsidiaries was 93.84%, with an average capacity factor
of 72.92% while weighted average coal consumption rates for power sold
and power generated were 337.49 gram/kWh and 319.27 gram/kWh
respectively. The weighted average house consumption rate was 5.64%. The
Company's technical and economic indices remained at the forefront among
all other power companies in the PRC.
In 2004, the Company has reinforced its safety responsibilities system
since the safety of the Company's production has encountered challenges
resulting from the long time heavy loading of its production facilities.
The Company has strengthened its management so as to implement such
measures. During the Year, no causality or damages to the production
facilities has been caused by operation. Further, there was no material
facilities defaults, fire and transportation accidents. The target of
safety was achieved and the foundation of production safety was
strengthened.
3. NEW CHALLENGES OF COST CONTROL
During 2004, the nationwide short supply of coal, rising coal prices and
declining coal quality caused great impact on the production and
operation of the Company. Although there is a relatively significant
increase in power generation when compared to the same period in 2003
and we have adopted various measure to control costs, the Company still
could not offset the increase in power generation costs caused by
escalating coal prices. Unit fuel cost of the Company increased 32.97%
when compared to the same period of the previous year.
In view of the unfavourable conditions brought by the coal market to
power generating enterprises, in 2004 the Company formulated the
following measures to ensure long-term stable and effective supply of
coal, including relying on the temporary inference measures as a result
of the new governmental policy on coal supply, allying with other market
practitioners to stabilize the market, exploring low cost resources and
transportation capacities by strengthening the co-operation with
large-scale coal and transportation enterprises, enhancing fuel
management so as to materialise the project contracts; ensuring full
loading of the power generation so as to reduce the increase of the fuel
cost. The Company has also proactively formulated a new fuel management
model of centralizing coal purchase, reallocation and settlement by
entering into three to five-year mid and long term coal supply
agreements with several large-scale national and local coal enterprises,
such as Shenhua. The main channel of coal supply was developed
primarily, which has laid a solid foundation for stable fuel supply.
While endeavouring to control fuel costs, the Company also adopted cost
control measures including management of centralised payment of funds,
strengthening the internal management of the Company and strictly
controlling various expenses.
4. BREAKTHROUGHS IN ASSET OPERATION
(1) In 2004, the Company acquired the following power assets for
Rmb4.575 billion: (i) 90% interest in Jinggangshan Huaneng Power
Limited Liability Company and 40% interest in Hebei Hanfeng Power
Limited Liability Company owned by Huaneng Group; (ii) all the
assets and liabilities of Yingkou Power Plant, 60% interest in
Huaneng Chongqing Luohuang Power Limited Liability Company and 55%
interest in Huaneng Hunan Yueyang Power Limited Liability Company
owned by Huaneng International Power Development Corporation
("HIPDC"); (iii) 10% interest in Jinggangshan Power Plant owned by
Jiangxi Investment Company.
The acquisitions took effect on 1st July 2004. The increased
generation capacity on an equity basis is 3,096MW and the increased
installed capacity under construction on an equity basis is 1,050MW,
thereby ensuring the growth of the power generation installed
capacity of the Company in the next few years and making
contribution to continued growth of profitability of the Company in
the future.
(2) The Company acquired the following owned by Huaneng Group for
Rmb2.025 billion: (i) 60% interest in Sichuan Huaneng Hydro Power
Development Limited Liability Company ("Sichuan Hydro Power"); and
(ii) 65% interest in Gansu Huaneng Pingliang Power Limited Liability
Company ("Pingliang Power"). The acquisitions were effective in
January 2005, thereby increasing the power generation installed
capacity of the Company on an equity basis by 1,146MW and increasing
the installed capacity under construction of the Company on an
equity basis by 389MW.
These acquisitions are a new step forward of the Company after
implementation of the development strategy of "emphasizing both
thermal power and other viable energies" and a continuation of
upholding the development strategy of "emphasizing both development
and acquisition". Owing to the current strong growth of electricity
in the PRC and shortage of coal, both the acquisition of hydropower
assets for improving the energy structure of power generation and
the acquisition of mine-month power plant (that is Pingliang Power
Plant) for lowering fuel costs are instrumental in enhancing
profitability of the Company and effectively controlling fuel costs.
5. ACHIEVEMENTS IN PROJECT CONSTRUCTION
(1) Owing to the Company's careful organisation and various parties'
efforts, generating units 3 and 4 (2 X 300 MW) of Yushe Power Plant
commenced commercial operation in October and November 2004
respectively whereas generating units 1 and 2 (2 X 600 MW) of Qinbei
Power Plant also commenced commercial operation in November and
December respectively. Moreover, generating units 3 and 4 of Huaiyin
Power Plant Phase II project commenced commercial operation in
January and March 2005 respectively. The commencement of operation
of the new generating units made contribution to the growth in power
generation of the Company.
(2) Construction works of the project of one 330MW generating unit at
Huaiyin Power Plant Phase II, one 600MW generating unit at Shantou
Power Plant Phase II, two 300MW generating units at Yueyang Power
Plant Phase II, two 600MW generating units at Taicang Phase II, two
600MW generating units at Luohuang Phase III and two 1,000MW
generating units at Yuhuan Phase I has been carried out smoothly,
with works quality and investment costs under effective control and
works being carried out on schedule.
PROSPECTS FOR 2005
Year 2005 is a year full of challenges and opportunities. The Company has been
provided with more market space for its steady growth in power generation as a
result of continued growth in power demand which was given rise to the
continued rapid development of the national economy. The generating units
acquired last year and the new generating units which were put into commercial
operation last year will make significant contribution to power generation and
profit of the Company. The implementation of the State's coal-electricity
price linkage mechanism will be conducive to raise the Company's tariff.
Macro-economic control and clearance of illegal construction projects will
enhance a national development of the power industry and provide the Company
with an opportunity for orderly development. The in-depth reforms of the power
industry will be instrumental in establishing an open, fair and equitable
power market which may also bring about development opportunities for the
Company.
At the same time, the Company also faces a number of challenges. Major
challenge encountered by the Company is cost control, particularly regarding
unit fuel costs. In 2005, coal will continue to be in short supply. One of our
major tasks is to ensure a long-term, stable and effective supply of coal and
to control unit fuel costs.
In addition, other challenges encountered by us are how to ensure high
quality, speedy completion and low costs during the course of power
construction, and how to further enhance the management level of the Company
and maintain the competitiveness of the Company.
In respect of power production, the continued growth in power demand has
caused long-time heary loading to the generating units. It is also a challenge
for us to ensure a sound operation of our generating units and facilities, to
achieve safe, steady and full-load power generation so as to assure safe power
supply.
As China's power market continues to evolve, it is only natural that the
Company will encounter competition and challenges. We are confident that we
can seize the opportunities and encounter the challenges. Our advantages
include: advanced and highly efficient power generation equipment and
technology; a regulated corporate governance structure with an experienced
management team and outstanding staff; abundant capital and solid reputation;
economies of scale and geographical advantages on the distribution of our
power plants; and strong support from our parent company. Given these
advantages, the Company will further develop amid competition, capture more
market share and seize more opportunities in asset acquisition as a result of
the power industry's restructuring and from its parent company. The Company
has full confidence to maintain its leadership position among independent
power producers in China.
The Company will focus on the following work objectives in 2005:
(1) To enhance production safety and to ensure stable and safe power
generation;
(2) To strengthen coal purchase management and ensure a safe, stable and
effective supply of coal;
(3) To strengthen marketing and cost controls so as to increase income and
decrease expenses, thus enhancing economic returns;
(4) To strengthen management of projects under construction so as to achieve
high quality, speedy completion, low costs and timely commencement of
production;
(5) To enhance strategic planning and the preliminary stage of work of new
projects to ensure a long-term, stable and healthy development of the
Company.
The Company will continue to pursue a maximization of shareholders' interests
as its operating objectives and goals. Given the continued economic growth in
China, good opportunities provided by the power system reforms and strong
support from the government at all levels and from the parent company, and
especially the support and trust from investors and shareholders, the Company
will definitely be able to continue its healthy and steady growth under an
efficient and experienced management team, thereby bringing long-term, stable
and increasing in the returns to its shareholders.
Operating and financial reviews and prospect
Summary
Our core business is to invest, construct and operate power plants and provide
sustainable and stable electricity supply to users through local grid
companies.
Huaneng Power International, Inc. is one of the largest independent power
generation enterprises in China. As at 31st December, 2004, the Company wholly
owned 16 operating coal-fired power plants, had controlling interests in 7
operating coal-fired power companies and minority interests in 4 power
companies. These power plants and power companies are widely located covering
the Northeast grid (Liaoning), the Northern China grid (Hebei, Shanxi and
Shandong), the Central China grid (Henan, Hunan and Chongqing), the Eastern
China grid (Shanghai, Jiangsu, Zhejiang and Fujian) and the Southern China
grid (Guangdong).
In January, 2005, the Company obtained a controlling interest in a hydro power
generation company covered by the Sichuan grid located in Southwest China (60%
equity interest of Sichuan Huaneng Hydropower Development Corporation, Ltd.
(the "Sichuan Hydropower")) and one coal-fired power company covered by the
Northwest grid (65% equity interest of Gansu Huaneng Pingliang Power
Generation Limited Liability Company (the "Pingliang Power Company")) located
in Northwest China through acquisitions.
A. Operating results
1. In 2004, the Company has achieved expected operating results and the
board of directors was satisfied with such operating results.
Comparing 2004 against prior year, the increase in average power
generation hours, the overall expansion of the Company and its
subsidiaries and the stable increase in average tariff rates contributed
to the significant increase in output and revenue. However, the high
level of coal prices, which in turn led to the increase in unit fuel
costs, has offset the increase in revenue and the decrease in other
costs.
Overcoming difficulties, Seizing opportunities and Achieving good
operating results
In 2004, 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 PRC. All of
these events provided favourable external factors for the Company and its
subsidiaries to generate more power.
Because of the rapid development of the national economy and the strong
demand for electricity, there was a shortage in coal supply and in
railway, marine and river transportation. These have led to an
insufficient coal storage, an increase in coal price and a lowering of
the quality of coal acquired, which in turn created a tremendous
challenge for the Company and its subsidiaries to ensure an adequate coal
supply for the stable generation of electricity and to maintian cost
control and achieve, targeted profit.
All of our staff worked hard to strengthen our management over coal
supply. Through various means, we were able to secure an adequate supply
of coal to avoid a shut down of any of our plants due to a shortage of
coal. Taking advantage of our advanced technological facilities, we
increased our output, maintained our market share and created marginal
profit that partially offset the increase in coal cost.
For the year ended 31st December, 2004, the total power generation of our
operating power plants has increased by 23.37 billion kWh or 25.7% from
90.91 billion kWh in the prior year to 114.28 billion kWh, of which 10.58
billion kWh was attributable to newly acquired power plants, 1.41 billion
kWh was attributable to new generators that were put into commercial
operation this year and 11.38 billion kWh was attributable to increased
utilization rate.
The increase in utilization rate is due primarily to the following
factors:
1) The rapid-growth of the national economy in 2004, which resulted in
a significant increase in the demand for electricity and caused, in
general, a proportionate increase in the generation of our power
plants;
2) Arrangement of the overhaul programmes. The power plants planned
their overhaul programmes, to the extent possible, around the
off-peak period and without compromising on the quality of
performance, reduced the duration period of the overhaul programme
to increase the utilization rate on the generators; and
3) Technological improvements in our skill sets and facilities have
ensured an increase in our generation.
Strive hard and exceeded planned construction projects
In 2004, the Company focused on large-scale construction projects and its
mission was to ensure commencement of commercial operations of many new
generators. The Company strengthened its construction management through
improving the coordination of equipment delivery, design, construction
work and generator inspection. Through the hard work of all staff and the
cooperation of other participating parties, the Company has met its two
targets of starting in both the Yushe Phase II and the Qinbei power
plants, achieving an additional production capacity of 1.8 million kW
which surpassed the annual plan of achieving an additional production
capacity of 1.2 million kW. Currently, all the Company's projects are
proceeding smoothly. There are 8 projects underway with an expected
production capacity of up to 8.06 million kW. The progress, quality and
investments of all these projects were well managed.
Breakthrough in acquisitions
In July, 2004, the Company acquired all the assets and liabilities of the
Yingkou Power Plant (in Liaoning Province) and the Jinggangshan Power
Plant (in Jiangxi Province), 55% equity interest in Huaneng Hunan Yueyang
Power Generation Limited Liability Company ("Yueyang Power Company" in
Hunan Province), 60% equity interest in Huaneng Chongqing Luohuang Power
Generation Limited Liability Company ("Luohuang Power Company" in
Chongqing) and 40% equity interest in Hebei Hanfeng Power Generation
Limited Liability Company (the "Hanfeng Power Company in Hebei Province)
and paid a total consideration of Rmb4.575 billion. These acquisitions
were in line with our market development strategy to consolidate our
positions in the coastal regions and to expand into central China.
Prospects for 2005 - the Company and its subsidiaries' missions of
achieving better results and maintaining strong development will face
difficulties. There will be both opportunities and challenges.
Electricity demand in the PRC power market is expected to grow throughout
2005 providing more market capacity for the stable power generation of
the Company and its subsidiaries. The acquired power plants and newly
operation and generators in 2004 will provide a positive contribution.
However, the large-scale increase in power generation construction and
operation in the PRC during the last two years presents certain
difficulties to the Company and its subsidiaries in achieving a higher
growth rate in power generation.
The issuance of the national "coal-electricity price linkage mechanism
policy" will be an advantage in increasing tariff rates. However, the
close relationship between supply and demand of coal and the possibility
that coal prices will remain at high level will create challenges for the
coal supply and cost control requirements of the Company and its
subsidiaries in 2005.
The continuous growth of the Chinese national economy and increasing
living standards will provide significant opportunity for the expansion
of PRC power market. Macroeconomic control and restraints on illegal
construction projects will promote the positive development of the power
industry providing opportunities for the Company and its subsidiaries to
develop in an orderly manner. All of these favourable external factors
will assist the Company and its subsidiaries in developing new projects
and enlarging the scales of their operations. However, large scale power
construction projects will also bring management and financing challenges
to the Company.
We are confident in seizing opportunities and face the challenges. In
terms of cost control, the Company and its subsidiaries will seek to
achieve a stable long-term coal supply and to effectively control the
level of increase in unit fuel costs. In terms of power construction, the
Company and its subsidiaries will increase the pace of lower-costs power
generation construction projects while maintaining high quality. In terms
of power generation, the Company and its subsidiaries will ensure more
power generated in a safe and stable manner. In order to minimize fuel
and geographical risks, the Company and its subsidiaries will adjust the
structure of power generation location and the energy resources
structures through construction and acquisitions. The Company and its
subsidiaries will also aim for greater competitive advantage through the
use of advanced, efficient and environmentally friendly power generation
facilities and technologies, proper corporate governance, experienced
management and high quality staff, sufficient funding and strong
reputation. The Company and its subsidiaries are confident of maintaining
their leading status as an independent power generation enterprise in the
PRC.
2. Comparative analysis of operating results
2.1 Net operating revenue
Average tariff rate and net operating revenue
Average tariff rate Net operating
(inclusive of VAT) revenue
(Rmb/MWh) (Rmb million)
Operating power plants 2004 2003 Variance 2004 2003 Variance
Dalian 283.62 272.69 4.01% 2,225 1,900 17.11%
Fuzhou 365.00 331.82 10.00% 3,047 2,390 27.49%
Nantong 325.18 312.52 4.05% 2,507 2,147 16.77%
Shang'an 303.25 307.94 -1.52% 2,107 2,008 4.93%
Shantou Oil-Fired 604.08 672.14 -10.13% 155 178 -12.92%
Shantou 446.86 435.17 2.69% 1,631 1,522 7.16%
Dandong 289.05 276.95 4.37% 1,117 927 20.50%
Shidongkou II 342.56 332.85 2.92% 2,367 2,250 5.20%
Nanjing 321.67 307.31 4.67% 1,146 1,027 11.59%
Dezhou 332.58 333.34 -0.23% 3,519 3,206 9.76%
Weihai 394.06 386.50 1.96% 1,494 1,340 11.49%
Jining 299.89 274.66 9.19% 648 453 43.05%
Shidongkou I 285.43 256.64 11.22% 1,907 1,623 17.50%
Taicang 341.10 312.80 9.05% 1,256 1,105 13.67%
Changxing 351.94 320.57 9.79% 565 454 24.45%
Huaiyin 330.88 317.21 4.31% 772 652 18.40%
Xindian1 320.83 342.41 -6.30% 609 150 306.00%
Yushe1 282.10 200.63 40.61% 444 57 678.95%
Yingkou2 315.48 N/A N/A 584 N/A N/A
Jinggangshan2 325.67 N/A N/A 531 N/A N/A
Luohuang2 286.74 N/A N/A 871 N/A N/A
Yueyang2 316.52 N/A N/A 588 N/A N/A
Qinbei3 273.11 N/A N/A 29 N/A N/A
Total 327.88 318.68 2.89% 30,118 23,388 28.78%
Note1: Since November, 2003, we held a more than 50% equity interest in the
Xindian Power Plant and the Yushe Power Company.
Note2: Since July, 2004, we held a more than 50% equity interest in the
Yingkou Power Plant, the Jinggangshan Power Plant, the Luohuang Power
Company and the Yueyang Power Company.
Note3: The two generators of the Qinbei Power Company commenced production
in November and December 2004 respectively.
The average tariff rate of the Company and its subsidiaries increased by
approximately 2.89% from Rmb318.68 per MWh in 2003 to Rmb327.88 per MWh. The
major reason was the implementation of an adjustment on the tariff for
electricity sold and the related operating hours of the power plants in
accordance with instructions from National Development and Reform Commission
("NDRC").
Net operating revenue represents operating revenue net of value-added tax and
amounts received in advance. For the year ended 31st December, 2004, the
consolidated net operating revenue of the Company and its subsidiaries
amounted to Rmb30.118 billion, representing an increase of approximately
28.78% over the Rmb23.388 billion in the prior year. The increase of the net
operating revenue is mainly due to the increase of generation capacity,
operating hours of the power plants and the average tariff rates. The increase
of generation capacity was mainly attributable to the acquired power plants in
the current year which contributed approximately Rmb2.573 billion net
operating revenue to the Company and its subsidiaries. Excluding the impact of
acquisitions, the increase of the utilization rate and average tariff rates
contributed approximately Rmb3.392 billion and Rmb765 million net operating
revenue to the Company and its subsidiaries in the current year respectively.
2.2 Operating expenses
The total operating expenses of the Company and its subsidiaries
increased by 42.20% from approximately Rmb16.315 billion in 2003 to
approximately Rmb23.2 billion in 2004. Such an increase was attributable
to the expansion of the scale of operations and the increase in fuel
costs. The power plants acquired in 2004 accounted for Rmb2.074 billion
of the operating expenses. Excluding the impact from the power plants
acquired in 2004, the increase in operating expenses amounted to
approximately Rmb4.811 billion.
The growth of operating expenses outweighed both the growth of power
generation and net operating revenue. The significant increase in fuel
costs is deemed to be the primary reason for such increase. The
economies of scale as a result of enhancing utilization rates brought
about a slower increase in fixed costs (such as depreciation) when
compared with that of power generation, however, could not fully offset
the impact of higher rate of increase in fuel costs. Hence, the growth
of operating expenses of the Company and its subsidiaries than that of
power generation. As net operating revenue is determined by power
generation and tariff rates and given the limited increase in average
tariff rate, the growth of operating expenses was also higher than that
of net operating revenue.
2.2.1 Fuel
Fuel costs represented the major operating expenses of the Company and
its subsidiaries, which has increased by approximately 67% from prior
year. The increase in coal consumption as a result of increasing power
generation of the Company and its subsidiaries and the increase in fuel
price primarily contributed to an increase in fuel cost. There was an
increase of approximately 32.97% of unit fuel cost from prior year in
2004.
2.2.2 Maintenance
The maintenance expense of the Company and its subsidiaries amounted to
approximately RMB808 million in 2004, representing a decrease of
approximately 12.36% from approximately RMB922 million in the prior
year. The decrease in the maintenance expense was mainly due to two
factors: 1) enhanced utilization rate of equipment and minimized
duration of maintenance projects through the careful scheduling of
maintenance programmes; and 2) the improvement of the operating
condition of the equipment as a result of continuous technological
improvement.
2.2.3 Depreciation and amortization
Depreciation and amortization expenses of the Company and its
subsidiaries have increased by approximately 14.32% from prior year.
Newly acquired power plant in 2004 contributed to an increase of
approximately 12.34%.
2.2.4 Labour
Labour costs of the Company and its subsidiaries amounted to
approximately Rmb1.877 billion in 2004, representing an increase of
approximately 30.4% from approximately Rmb1.440 billion in 2003. The
labour cost of the original power plants increased to approximately
Rmb1.744 billion, representing an increase of approximately 21.14%
compared to prior year, among which, the full year impact from the
Xindian Power Plant and the Yushe Power Company acquired in October,
2003 contributed approximately Rmb112 million. The newly acquired
Yingkou Power Plant, the Jinggangshan Power Plant, the Yueyang Power
Company and the Luohuang Power Company contributed additional labour
costs of approximately Rmb133 million in 2004.
2.2.5 Service fees to HIPDC
The service fees paid to HIDPC refer to fees paid for use of its grid
connection and transmission facilities based on reimbursement of cost
plus a profit.
The service fee paid to HIPDC amounted to approximately Rmb134 million
in 2004, representing a decrease of 37.78% compared to approximately
Rmb215 million in 2003. The decrease of service fee rate upon the
conclusion of a supplementary agreement with HIPDC represented the
primary reason for this decrease.
2.2.6 Enterprise income tax ("EIT")
Pursuant to the relevant tax regulations, the Company is treated as a
Sino-foreign equity joint venture that enjoys a preferential income tax
treatment. This allows the power plants of the Company to be exempted
from EIT for two years starting from the first profit-making year after
covering the accumulated deficits. This is 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 wholly-owned power plants pay
their respective EIT to local tax authorities, even though they are not
separate legal entities. The consolidated EIT of the Company and its
subsidiaries amounted to approximately Rmb1.014 billion in 2004 which
represented a decrease of approximately 11.76% from approximately
Rmb1.149 billion in prior year. The main reason for such a decrease was
the decreased net profit and the increasing ratio of the profit from the
power plants with lower applicable tax rates. This contributed to the
effective tax rate decreasing from approximately 16.99% in 2003 to
approximately 15.38% in 2004.
2.2.7 Other operating expenses
Other operating expenses of the Company and its subsidiaries amounted to
approximately Rmb606 million in 2004, representing an increase of
approximately 2.23% from approximately Rmb597 million in 2003. The major
reason for this increase was the full year impact from the Xindian Power
Plant, the Yushe Power Company and Qinbei Power Company acquired in
October, 2003 and the six-month contribution from the Yingkou Power
Plant, the Jinggangshan Power Plant, the Yueyang Power Company and the
Luohuang Power Company acquired in July, 2004. The other operating
expenses of the original power plants accounted for approximately Rmb542
million, representing a decrease of approximately 9.2% from
approximately Rmb597 million in prior year.
2.2.8 Net profit before financial expenses
The increasing fuel costs contributed to a decrease of net profit before
financial expenses of approximately 2.19% from approximately Rmb7.073
billion in 2003 to approximately Rmb6.918 billion in 2004.
2.2.9 Financial expenses
The net financial expenses of the Company and its subsidiaries totalled
approximately Rmb740 million for the year 2004 which represented an
increase of approximately 35.92% from approximately Rmb544 million. The
original power plants accounted for approximately Rmb554 million,
representing an increase of approximately 1.8% from the prior year. The
financial expenses of the Yingkou Power Plant, the Jinggangshan Power
Plant, the Yueyang Power Company and the Luohuang Power Company acquired
in 2004 accounted for approximately Rmb186 million.
2.3 Net profit
The 2004 consolidated net profit of the Company and its subsidiaries was
RMB5.324 billion in 2004, which represented a decrease of approximately
1.96% from approximately RMB5.430 billion in the prior year. This
decrease was primarily due to the increased operating expenses of the
Company and its subsidiaries in 2004. A significant increase power
output, the average tariff rates and the respective full year and half
year profit impacts from the acquisition of the Xindian Power Plant and
the Yushe Power Company in October, 2003 and the acquisition of the
Yingkou Power Plant, the Jinggangshan Power Plant, the Yueyang Power
Plant, the Luohuang Power Company and the Hanfeng Power Company in July,
2004 have brought about increases in the net operating revenue and net
profit respectively. However, all the factors described above could not
fully offset the increased operating expenses caused by the increase in
fuel costs. Hence, the consolidated net profit of the Company and its
subsidiaries has decreased slightly when compared with the prior year.
The consolidated net profit of the Company and its subsidiaries,
excluding the impact of newly acquired plants in the current year was
approximately RMB4,927 billion in current year, which represented a
decrease of 9.28% compared to RMB5.430 billion in 2003.
2.4 Comparison of financial positions
As at 31st December, 2004, total assets of the Company and its
subsidiaries amounted to approximately Rmb72.78 billion, which
represented an increase of approximately 35.76% from approximately
Rmb53.61 billion in the prior year. Non-current assets increased by
approximately 39.33% to approximately Rmb63.126 billion while current
assets increased by approximately 16.26% to approximately Rmb9.654
billion. Acquisitions and capital expenditure on construction projects
primarily accounted for these increases with the total assets being
obtained through acquisitions in the current year amounting to
approximately Rmb13.251 billion, including non-current assets of
approximately Rmb10.735 billion as at 31st December, 2004.
Total capital expenditure (primarily spending on construction projects),
amounted to approximately Rmb10.036 billion, with its main source of
financing being from bank borrowings.
In accordance with the schedule of development plans, the capital
expenditure of the Company and its subsidiaries will remain at a high
level in 2005 and the Company expects there will be continued increases
in both total assets and liabilities. Other-so far unplaned acquisitions
will also have a certain impact on the financial position of the Company
and its subsidiaries.
As at 31st December, 2004, total liabilities of the Company and its
subsidiaries amounted to approximately Rmb33.248 billion, representing
an increase of approximately 79.73% from approximately Rmb18.499 billion
in the prior year. Non-current liabilities were increased by
approximately 78.41% to approximately Rmb16.515 billion while current
liabilities increased by approximately 81.05% to approximately Rmb16.733
billion. The increase in liabilities is mainly caused by the increase in
bank borrowings as a result of acquisitions and capital expenditure on
construction projects.
Primary financial ratios
The Company and its subsidiaries
2004 2003
Current ratio 0.58 0.90
Quick ratio 0.49 0.81
Ratio of liabilities and owner's equity 0.92 0.54
Multiples of interest earned 7.29 12.03
Calculation formula of the financial ratios:
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-net amount of inventories at
the end of the year) / balance of
current liabilities at the end of the
year
Ratio of liabilities and
owner's equity = balance of liabilities at the end of the
year / balance of owners' equity at the
end of the year
Multiples of interest earned = (profit before tax + interest expense) /
interest expenditure (including
capitalized interest)
The current ratio and quick ratio of the Company and its subsidiaries
decreased significantly compared to the prior year, which was mainly due to
increased capital expenditure and the cash consideration paid during
acquisitions. These factors contributed to a significant increase in
short-term borrowings as at the year end.
Similarly the significant increases in short-term and long-term borrowings,
arising from the reasons discussed above, contributed to the significant
increase in the ratio liabilities and owner's equity.
The multiples of interest earned of the Company and its subsidiaries decreased
from that of the prior year mainly due to the increasing interest expenses
(including capitalized interest) incurred on increased loans borrowed to
finance construction.
During 2004, a significant portion of the Company and its subsidiaries'
funding requirements for capital expenditure was met by short-term borrowings.
Consequently, as at 31st December, 2004, the Company and its subsidiaries had
a negative working capital balance of approximately Rmb7 billion. Based on the
successful financing history of the Company and its subsidiaries, the
significant amount of undrawn banking facilities (See Note B 2.2) available to
the Company and the stable operating results, the Company and its subsidiaries
believe that they are able to meet their liabilities as and when they fall due
and meet the capital required for operations. In addition, the Company and its
subsidiaries also use low-interest short-term borrowings replacing the
high-interest long-term borrowings in order to minimize the interest burden.
B. Liquidity and cash resources
1. Liquidity
2004 2003 Variance
Rmb billion Rmb billion %
Net cash provided by operating activities 8.163 9.533 (14.37)
Net cash used in investing activities (13.650) (5.225) 161.24
Net cash provided by / (used in) financing activities 3.654 (3.182) 214.83
Net (decrease) / increase in cash and cash equivalents (1.833) 1.126 262.79
Cash and cash equivalents, beginning of year 4.129 3.003 37.5
Cash and cash equivalents, end of year 2.296 4.129 (44.39)
Net cash provided by operating activities is the main source of cash for the
Company and its subsidiaries. The net cash provided by operating activities
amounted to Rmb8.163 billion which was lower than that of the prior year. The
significant increase in fuel costs primarily contributed to the fact that cash
paid for goods and services outweighed that received from sales of goods or
rendering of services.
The Company and its subsidiaries expect that the operating activities will
continue to provide sufficient and sustained cash flows in the future.
Net cash used in investing activities mainly consisted of capital expenditure
for the purchase of property, plant and equipment and cash paid for
acquisitions of power plants.
The cash flows in financing activities consist of repayments of loans,
dividend payments and financing for new projects.
In 2003, the Company repaid loans of approximately Rmb3.198 billion, paid
dividends of approximately Rmb2.197 billion and took out new loans of
approximately Rmb2.135 billion.
In 2004, the Company repaid loans of approximately Rmb8.317 billion, paid
dividends of approximately Rmb3.173 billion and took out new loans of
approximately Rmb14.468 billion.
In 2005, the Company and its subsidiaries will enter into a comparatively
concentrated period of capital expenditure for construction projects. In order
to minimize the cost of capital, the newly developed projects will be financed
by borrowings. The Company and its subsidiaries are confident in managing the
scale of liabilities and financial risks.
As at 31st December, 2004, the interest-bearing liabilities of the Company and
its subsidiaries totalled approximately Rmb25.6 billion, including both
long-term borrowings (inclusive of current portion) and short-term borrowings.
Within which, approximately Rmb7.6 billion was from foreign borrowings.
2. Capital expenditure and cash resources
2.1 Capital expenditure
2.1.1 Capital expenditure on acquisitions
Cash payments for acquisitions during 2004 amounted to approximately
Rmb4.575 billion when the Company acquired all of the assets and
liabilities of the Yingkou Power Plant and the Jinggangshan Power Plant,
a 55% equity interest in the Yueyang Power Company, a 60% equity
interest in the Luohuang Power Company and a 40% equity interest in the
Hanfeng Power Company.
Cash payments for acquisitions during 2003 amounted to Rmb2.94 billion.
In January, 2005, the Company paid a cash consideration of Rmb2.025
billion in acquiring a 65% equity interest in the Pingliang Power
Company and a 60% equity interest in Sichuan Hydropower. These power
plants are located in Gansu Sichuan Provinces in western China
respectively. The acquisition enabled the Company to enter a fast
growing power market in western China, achieving the marketing
development strategy of "consolidating our positions in the coastal
regions, to expand into central China and to enter into western China".
This is also one of the milestones of the Company in realizing the
development strategy of "combination of hydro and coal-fired power", and
represents a continuation of the established strategy of a balance
between development and acquisitions. While considering scale, geography
or energy type, the acquisition undoubtedly enabled the Company to be
the largest Asian integrated power generation enterprise. Given strong
demand for electricity in the PRC and intense coal supply, improving the
energy mix through acquiring a hydropower generation company and
lowering fuel costs through acquiring power plants close to coal mines
(the Pingliang Power Company) enabled the Company and its subsidiaries
to improve profitability and effectively control fuel costs.
The Company and its subsidiaries will continue to follow the
construction and acquisition strategy by proactively seeking new
acquisition opportunities to ensure the sustainable growth of
profitability and shareholders' value. Since there are uncertainties
associated with acquisition projects, the amount of capital expenditure
required is also uncertain. However, the significant cash flows from
operating activities and the available undrawn borrowing facilities
provide the Company with strong cash support for acquisition projects.
2.1.2 Capital expenditure on construction and renovation
The capital expenditure for construction and renovation in 2004 amounted
to approximately Rmb10.036 billion, including approximately Rmb1.632
billion for the Qinbei Phase I project, approximately Rmb1.219 billion
for the Yushe Phase II project, approximately Rmb1.566 billion for the
Taicang Phase II project, approximately Rmb1.199 billion for the Yuhuan
Phase I project, approximately Rmb228 million for the Shantou Phase II
project, approximately Rmb1.216 billion for the Huaiyin Phase II
project, approximately Rmb126 million for the Shidongkou II Phase II
project, approximately Rmb281 million for the Xindian project,
approximately Rmb451 million for the Luohuang Phase III project,
approximately Rmb446 million for the Yueyang Phase II project,
approximately Rmb2 million for the Jinggangshan project. Others
expenditure consists mainly of approximately Rmb24 million of prepaid
construction of the Company, approximately Rmb361 million for the
settlement of a construction payable in respect of the Dezhou Phase III
and the approximately Rmb364 million for the acquisition of property,
plant and equipment and routine renovation expenditure.
Capital expenditure for construction and renovation in 2003 amounted to
approximately Rmb3,607 million, including approximately Rmb355 million
for the Jining Phase III expansion construction, approximately Rmb439
million for the Yuhuan Phase I project, approximately Rmb215 million for
the Shantou phase III project, approximately Rmb497 million for the
Huaiyin Phase II project, approximately Rmb240 million for the Qinbei
Phase I project, approximately Rmb177 million for the Yushe Phase II
project, approximately Rmb80 million for the Xindian expansion
construction, approximately Rmb144 million for the renovation of the
Shidongkou I Power Plant and approximately Rmb459 million for the
renovation of the Taicang Power Plant. Other items mainly consist of the
expenditure of approximately Rmb349 million for the settlement of a
construction payable in respct of the Dezhou Phase III and the
expenditure of approximately Rmb214 million of construction payable for
the Nantong Phase II.
The above capital expenditure items were mainly financed by long-term
borrowings and cash from operations.
The Company and its subsidiaries will continue to incur significant
capital expenditure in 2005. The construction projects of the Company in
2005 include two 1,000MW ultra super critical coal-fired generator units
for the Yuhuan Power Plant Phase I project, two 300MW coal-fired
generator units for the Yueyang Phase II project, two 600MW coal-fired
generator units of the Taicang Power Plant Phase II, two 600MW
coal-fired generator units for the Luohuang Phase III project and one
600MW coal-fired generator unit for the Shantou Phase II project.
Planned construction items mainly include two 1,000 ultra super critical
coal-fired generator units for the Yuhuan Power Plant Phase II project;
two 600MW coal-fired generator units for the Yingkou Power Plant Phase
II project, two 600MW coal-fired generator units for the Qinbei Phase II
project, two 600MW coal-fired generator units for the Shang'an Phase III
project, three 350MW gas-fueled generator units for the Shanghai Ranji
and three 350MW gas-fueled generator units for the Jinling Power Plant.
The Company and its subsidiaries will also proactively promote the
construction of disulphuric facilities. The Company and its subsidiaries
will actively monitor the progress of the above projects based on
commercial feasibility principles and engage in new project developments
for the long-term. The Company expects to finance such projects through
internal funding, available undrawn borrowing facilities and cash flows
provided by operating activities.
2.2 Cash resources and anticipated financing cost
The Company and its subsidiaries expect the cash resources for capital
expenditure for construction and acquisitions to be principally
generated from internal funds, cash flows from operating activities and
future debt and equity financing.
Through years of successful operations, the market image and "brand" of
the Company and its subsidiaries have been continuously enhanced.
Standard & Poors upgraded the credit rating on the Company to BBB+,
outlook of the rating is stable in February, 2004. Good operating
results and good credit status give the Company strong financing
capabilities. As at 31st December, 2004, the Company and its
subsidiaries had available unsecured borrowing facilities from banks of
approximately Rmb30 billion (including in these undrawn borrowing
facilities and medium to long-term loan facilities amounted to Rmb20
billion with the drawdown subject to application and approval
procedures). These unsecured borrowing facilities from PRC banks provide
the Company and its subsidiaries with a sufficient level of available
cash and raise the level of liquidity and repayment capabilities of the
Company and its subsidiaries effectively.
Despite the acquisitions of the Yingkou Power Plant, the Jinggangshan
Power Plant, a 55% equity interest of the Yueyang Power Company, a 60%
of the Luohuang Power Company, a 40% equity interest in the Hanfeng
Power Company in July, 2004 and a 65% equity interest in the Pingliang
Power Company and a 60% equity interest in the Sichuan Hydropower in
January, 2005, the Company and its subsidiaries have maintained a strong
level of ability to service their debts.
As at 31st December, 2004, short-term borrowings of the Company amounted
to approximately Rmb8.099 billion with interest charged between 4.3% and
5.02% per annum (2003: approximately Rmb1.6 billion with interest
charged between 4.54% and 5.05% per annum).
As at 31st December, 2004, the total long-term bank borrowings of the
Company and its subsidiaries amounted to approximately Rmb16.112 billion
(2003: approximately Rmb10.715 billion). These loans include bank
borrowings denominated in Renminbi of approximately Rmb8.805 billion
(2003: approximately Rmb4.064 billion); US dollar of approximately
US$778 million (2003: approximately US$803 million) and Euro of
approximately 77 million (2003: N/A). Included in these borrowings,
approximately US$67 million represented floating-rate borrowings. For
the year ended 31st December, 2004, these borrowings bore interest
ranged from 1.225% to 6.97% (2003: from 1.18% to 6.60%) per annum. The
Company and its subsidiaries have entered into interest rate swap
contracts with PRC banks to reduce the floating interest rate risk. As
at 31st December,2004, current portion of these long-term bank Loans,
bank loans between 1 to 2 years, between 2 to 5 years and over 5 years
amounted to Rmb1,257 million, Rmb1,363 million, Rmb5,831 million and
Rmb7,661 million, respectively.
As at 31st December, 2004, the total long-term shareholders' loan to the
Company and its subsidiaries amounted to Rmb800 million (2003:
approximately Rmb420 million). The loans are denominated in Renminbi
(2003: denominated in Renminbi of approximately Rmb32 million and US$ of
approximately US$47 million). Included in these borrowings are
approximately Rmb200 million of floating-rate borrowings. For the year
ended 31st December, 2004, these borrowings bore interest that ranged
from 3.60% to 5.76% #% (2003: 3.62% to 5.76%) per annum respectively.
All these borrowings from shareholders will mature 5 years later.
As at 31st December, 2004, the total other long-term loans of the
Company and its subsidiaries amounted to approximately Rmb587 million
(2003: approximately Rmb1.06 billion). These loans include borrowings
denominated in Renminbi of approximately Rmb310 million (2003:
approximately Rmb745 million), US$ of approximately US$19 million (2003:
approximately US$21 million) and Japanese Yen of approximately |SY1.548
billion (2003: approximately |SY1.786 billion). All these foreign
currency borrowings were at floating rates. For the year ended 31st
December, 2004, these borrowings bore interest that ranged from 1.7% to
5.93% (2003: from 4.94% to 6.21%) per annum. The Company will closely
monitor the foreign exchange market and cautiously assess the exchange
rate and interest rate risks. As at 31st December, 2004, current portion
of these other long-term loans, other long-term loans between 1 to 2
years, between 2 to 5 years and over 5 years amounted to Rmb286 million,
Rmb109 million, Rmb128 million and Rmb64 million, respectively.
Combining the current development of the power industry and the growth
of the Company and its subsidiaries, the Company and its subsidiaries
will make continuous efforts to not only of meet daily operations,
construction and acquisition needs of the Company and its subsidiaries,
but also to establish an optimal capital structure to minimize the cost
of capital and manage financial risk through effective financial
management activities thereby maintaining stable returns to the
shareholders.
2.3 Other financing requirements
The objective of the Company and its subsidiaries is to bring long-term,
stable and growing returns to the shareholders. In line with this
objective, the Company follows a proactive, stable and balanced dividend
policy. In 2005, in accordance with the income appropriation plan of the
board of directors of the Company (subject to the approval of the
shareholders' meeting), the Company expects to pay a cash dividend of
approximately Rmb3.014 billion.
C. Trend information
1. Impact of demand and supply
Restrictions on power supply and demand in 2005 are expected to be
somewhat relaxed but the overall power supply and demand will still be
tensed with some restrictions on power consumption during peak season in
certain regions. In 2006 the power supply and demand in the PRC can
hopefully be fully balanced. As a result of good functionality of the
generators of the Company and its subsidiaries, whilst there maybe some
short-term decline in utilization hours, the Company and its
subsidiaries are confident in maintaining high utilization hours in the
long-term.
2. Impact of the electricity pricing policy
The State Council approved the Electricity Pricing Reform Scheme on 3rd
July, 2003, which defined the short-term and long-term objectives of the
power pricing reform. The specific implementation methods are still
being established.
The short-term objectives for the electricity pricing reform are to
establish an appropriate on-grid price setting mechanism to accommodate
a reasonable level of competition in power generation; to establish a
preliminary pricing mechanism for transmission and distribution to
facilitate the healthy development of the power grids; to link the
retail prices with the on-grid prices; to optimize the structure of the
retail price; and to pilot-run the practice for high voltage users to
directly make purchases from the power generation companies based on a
reasonable price for transmission and distribution.
The long-term objective for the electricity pricing reform is to
establish a standardized and transparent tariff setting mechanism,
classifying the electricity prices into the on-grid price, the
transmission price, the distribution price and the end-user retail
price, and to allow the on-grid prices and retail prices to be
determined through market competition. The transmission and distribution
prices are to be regulated by the government.
The tariff rate level will be comparatively stable at the initial stage
of reform in order to ensure the smooth transition between the old and
new tariff setting system.
3. Impact of the environmental protection policies
2004 is the second implementation year of both the "Regulations on the
Administration of the Levy and Usage of Emission Fee" and the "Rules on
the Administration of the Levy Standards of Emission Fees". Pursuant to
the relevant regulations, emission fee charged on discharging sulphur
dioxide increased from Rmb0.21/kg to Rmb0.42/kg while a new item was
created on nitric oxides discharge materials which Rmb0.63/kg was
charged from 1st July, 2004 onwards. The Company paid a far total of
approximately Rmb170.32 million of emission fees to local governments in
2004.
The government continuously strengthened the enforcement of
environmental protection regulations and issued stricter benchmarks on
pollutants emitted by the coal-fired power plants. These policies
benefited the society and nation as a whole. However, such measures
created pressure on the operations of the Company.
The Company is determined to support the strengthened government
policies and steadily implement the theory of balanced and sustainable
development, and is confident of both satisfying the environmental
protection requirements of the government through implementing measures
for enhancing the environmental protection standards and of effectively
controlling the operating costs of newly setup power plants
simultaneously. Given its competitive advantage as a result of the new
generators, advanced equipment and effective control over pollution
discharge, the Company will step up the installation of desulphuric
facilities and NOx emission reduction facilities, proactively lobbying
for discharge fee refund for renovation item and the enactment of a
pollution discharging fee-electricity price linkage mechanism.
4. Impact of power market pilot
In June, 2003, NDRC started a pilot programme to establish a regional
power market in both the Northeastern China and the Eastern China.
On 15th January, 2004, the power market formally commenced in
Northeastern China and after several rounds of simulated operations, the
market was formally established on 13th December, 2004 and has initiated
the bidding practice for the year 2005 (not yet completed).
From the results of simulated operations and trial runs, the
"Transaction regulations for the Northeastern China power market" was
not mature and currently its monthly bidding practice has been suspended
while opinions are gathered from each participant in order to amend and
improve the regulation. During this period, all the tariff rates for
individual power plants will follow those in affect in 2004. In this
region, the Company owns three power plants, namely, the Dalian Power
Plant, the Dandong Power Plant and the Yingkou Power Plant with eight
300,000kW generators, total operating capacity of 2.74 million kW and
all are located at the demanding areas within Liaoning Province.
The Company and its subsidiaries will pay attention to the amendments of
the regulation, proactively support and take part in the construction of
a power market in Northeastern China and ensure that all three of the
Company's power plants of the Company in Liaoning Province can compete
in a "fair" market environment. The Company is confident in maintaining
its competitive advantage in this fair market.
Pursuant to the regulation, "Proposal of pilot activities in Eastern
China power market", approximately 85% and 15% of power transactions
will be confirmed through agreements conclusion and the bidding practice
respectively in the first stage of this power market. The bidding
practice is on a monthly basis with price setting at a day before spot
market.
The Eastern China power market started the simulated operations on 18th
May, 2004 and there were eight monthly simulated bidding rounds to date.
From the results of these simulations, there is room for improvement.
Simulated operations using price setting at a day before spot market
should be ready by the second half of 2005.
The Company currently owns eight power plants, including 22 generators
with operating capacity totaling 7.14 million KW which accounted for
approximately 15% of total operating capacity in Eastern China. These
power plants are mainly located in Jiangsu, Shanghai and Fujian where
demand for electricity is relatively high and most of them are within
the high loading centre. With high individual operating capacity, good
functionalities, smaller head count and high quality management, these
power plants would be more competitive under the centralized management
and coordination of the Company.
Given that the bidding practice was only partially implemented in
Eastern China power market and the fast growing electricity consumption
in the region, according to the forecast, the power supply in the region
will be in shortage in the future two years. Hence, there should be no
material impact upon full implementation.
5. Importance of both construction and acquisitions
In 2005, one of the focuses is to continuously work on construction
projects. Through proactively developing new construction projects which
establish a strong foundation for long-term development of the Company,
the Company also proactively seeks new acquisition opportunities to
ensure the sustainable growth of profitability and shareholders' value.
D. Performance of significant investments and their prospects
On 22th April, 2003, the Company acquired a 25% equity interest in
Shenzhen Energy Group ("SEG") with a cash consideration of approximately
Rmb2.39 billion. This investment brought the Company and its
subsidiaries a net profit of approximately Rmb 209 million in 2004 under
IFRS. SEG is the largest power generation supplier in Shenzhen and its
power plants are located in one of the prosperous provinces - Guangdong
Province. With strong demand for electricity in that region, such an
investment will bring stable returns to the Company and its subsidiaries
in the future.
In July, 2004, the Company acquired a 40% equity interest of the Hanfeng
Power Company with a cash consideration of approximately Rmb1.375
billion. This investment brought the Company and its subsidiaries a net
profit of approximately Rmb126 million in 2004 under IFRS. The Hanfeng
Power Company is located in Hebei Province in Northern China and there
is strong demand for electricity in that region. Through this
acquisition, the Company and its subsidiaries increased the equity share
of production capacity in Hebei Province from 1,300MW to 1,828MW or
approximately 40.6%. The Company and its subsidiaries expect this
investment will contribute stable returns in the future.
E. Employee benefits
As at 31st December, 2004, the Company and its subsidiaries had 22,129
employees. For the year ended 31st December, 2004, total staff costs
incurred amounted to approximately Rmb1.88 billion. The Company and its
subsidiaries provided the employees competitive remuneration and pegged
such remuneration with operating results as working incentives for the
employees. Currently, the Company and its subsidiaries do not have any
non-cash remuneration packages.
Based on the development plans of the Company and its subsidiaries and
the requirements of individual positions, together with consideration of
specific characteristic of individual employees, the Company and its
subsidiaries tailor made various training programmes on management
skills, technical skills and promotion skills. These programmes enhanced
both the knowledge of the employees and the standard of operations.
F. Related party transactions
The Company and its subsidiaries entered into various transactions with
Huaneng Group, HIPDC and their group companies during daily operations,
including operating leases on land use rights and property, electricity
transmission and fuel purchases. Such transactions were for daily
operations at prices no different from transactions conducted with other
third parties and did not have any significant impact on the operations
of the Company and its subsidiaries. Huaneng Group and HIPDC and the
minority shareholders of subsidiaries of the Company are also governed
by contracts or agreed to provide guarantees on loans of the Company and
its subsidiaries. In addition, pursuant to relevant agreements, the
Company rendered management services to those power plants owned by
Huaneng Group and HIPDC at a standard fee covering its costs and a
reasonable profit. For the year ended 31st December, 2004, such
transactions amounted to approximately Rmb57.54 million which was below
1% of net operating revenue.
Please refer to Note 4 in the notes to financial information extracted
from the financial statements prepared under PRC accounting standards
for details of related party transactions.
G. Guarantees on loans
As at 31st December, 2004, the Company provided guarantees on long-term
bank borrowings of certain subsidiaries and an associated company
totalling approximately Rmb1.735 billion. Within these were guarantees
granted to the Waihai Power Company, the Qinbei Power Company, the Yushe
Power Company and the Rizhao Power Company amounting to Rmb30 million,
Rmb740 million, Rmb660 million and Rmb305 million respectively. The
Company had no contingent liabilities other than these described above.
As at 31st December, 2003, the Company succeeded the original loan
guarantee granted by Shandong Huaneng Power Development Company Limited
("Shandong Huaneng") on the Weihai Power Company and the Rizhao Power
Company and the original guarantee granted by Huaneng Group on the
Taicang Power Company amounting to approximately Rmb330 million, Rmb339
million and Rmb1.114 billion respectively. The Company also provided
guarantees on long-term borrowings of the Huaiyin Power Company, the
Qinbei Power Company and the Yushe Power Company amounting to
approximately Rmb10 million, Rmb905 million, Rmb101 million
respectively. The Company had no contingent liabilities other than those
described above.
SHARE CAPITAL STRUCTURE
As at 31st December 2003, the total issued share capital of the Company was
12,055,383,440 shares, of which 9,000,000,000 shares were domestic shares,
representing approximately 74.66% of the total issued share capital, and
3,055,383,440 shares were foreign shares, representing approximately 25.34% of
the total issued share capital. For domestic shares, HIPDC owns a total of
5,197,680,000 shares, representing 43.12% of the total issued share capital of
the Company. Other domestic shareholders hold a total of 3,802,320,000 shares,
representing 31.55% of the total issued share capital.
DIVIDENDS AND OTHER DISTRIBUTION
The Board of Directors resolved to propose for the year ended 31st December
2004 a cash dividend of Rmb0.25 per ordinary share.
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 Rmb8.2765 and HK$1 to Rmb1.0608 respectively.
All the cash dividends will be paid to shareholders on or before 30th June
2005, subject to approval at the annual general meeting of the Company.
SUBSIDIARIES AND ASSOCIATED COMPANIES
Please refer to Note B4 of the financial information extracted from financial
statements prepared under PRC accounting standards for details of subsidiaries
and associated companies.
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.
MAJOR SUPPLIERS AND CUSTOMERS
The five major suppliers of the Company for year 2004 were coal suppliers,
namely Shenhua Coal Transportation Company, Shanxi Coking Coal Group, Yangquan
Coal Group, Datong Coal Group and Luan Environmental Corporation. The amount
of coal supplied by the five major suppliers was about 23.1% of the total coal
consumption of the Company in 2004.
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 2004.
CONNECTED TRANSACTIONS
The independent Directors of the Company confirmed that all connected
transactions in 2004 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 its subsidiaries and confirmed to the Director 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 B4 of the financial information extracted from financial
statements prepared under PRC accounting standards for a brief description of
the connected transactions.
PURCHASE, SALE OR REDEMPTION OF SHARES
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 2004.
DIRECTORS' AND SUPERVISORS' RIGHT TO PURCHASE SHARES
For the year ended 31st December 2004, none of the directors, senior
executives, supervisors or other associates had any beneficial interests in
the securities or debt instruments of the Company which were required to be
recorded in the register pursuant to Section 352 of the Securities and Futures
Ordinance ("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. The Company did not have any arrangement during
2003 whereby the above persons would acquire benefits by means of the
acquisition of shares in, or debentures of the Company or other corporate
body.
SHAREHOLDING of the company
As at 31st December, 2004, so far as the Directors, chief executive officer
and Supervisors of the Company are aware, each of the following persons, not
being a Director, chief executive officer or Supervisor of the Company, had an
interest in the Company's shares which is required to be disclosed to the
Company and The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock
Exchange") under the provisions of Divisions 2 and 3 of Part XV of the
Securities and Future Ordinance ("SFO"):
The following table sets forth the shareholding position of the Company's
shares as at 31st December 2004:
No. of Shares Percentage of
outstanding Shareholding
(in thousands) (%)
Domestic Shares
Huaneng International Power Development Corporation 5,197,680 43.12
Hebei Provincial Construction Investment Company 904,500 7.50
Fujian International Trust & Investment Company 669,700 5.56
Jiangsu Province International Trust & Investment Company 624,750 5.18
Liaoning Energy Investment (Group) Co. Ltd 459,370 3.81
Dalian Municipal Construction Investment Company 452,250 3.75
Nantong Investment Management Centre 135,750 1.13
Shantou Power Development Joint Stock Company Limited 38,000 0.32
Dandong Energy Investment Development Centre 13,000 0.11
Shantou Electric Power Development Company* 5,000 0.04
Domestic public shares 500,000 4.15
Sub-total 9,000,000 74.67
Foreign Shares 3,055,383.44 25.34
TOTAL 12,055,383.44 100
Note: Owing to the dispute arising out of a loan agreement with Shantou Branch
of The Bank of Communications, the 33,000,000 State-owned legal shares
of the Company held by Guangdong Shantou Municipal Power Development
Company were ordered to be frozen by the Intermediate People's Court of
Shantou Municipal, Guangdong Province. As HIPDC has repaid the debt for
Guangdong Shantou Municipal Power Development Company, the shares were
defrozen by the court on 21st December 2004. However as Guangdong
Shantou Municipal Power Development Company has not repaid the debt to
HIPDC, the court ordered to transfer 28,000,000 shares of the Company
held by Guangdong Shantou City Power Development Company to HIPDC.
Currently, Guangdong Shantou Municipal Power Development Company to
HIPDC holds 5,000,000 state-owned shares of the Company.
Save as disclosed above and so far as the Directors, chief executive officer
and Supervisors of the Company are aware, as at 31st December, 2004, no other
person had an interest or short position in the Company's shares or underlying
shares (as the case may be) which are required to be disclosed to the Company
and the Hong Kong Stock Exchange under the provisions of Divisions 2 and 3
Part XV of the SFO, or was otherwise a substantial shareholder (as such term
is defined in the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the "Listing Rules")) of the Company.
DIRECTORS' AND SUPERVISORS' INTEREST IN CONTRACTS AND SERVICE CONTRACTS
Save for the service contracts mentioned below, as at the end of 2004, 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.
In 2004, the Company and its subsidiaries have not sold quarters to its staff,
nor did they have such plan.
MAJOR EVENTS
1. In 2004, the Company acquired the following power assets at an aggregate
consideration of RMB4.575 billion: (i) 90% equity interest in
Jinggangshan Huaneng Power Generation Limited Liability Company and 40%
equity interest in Heibei Hanfeng Power Generation Limited Liability
Company, both held by Huaneng Group; (ii) all assets and liabilities of
HIPDC Yingkou Power Plant, 60% equity interest in Huaneng Hunan Yueyang
Power Generation Limited Liability Company and 55% equity interest in
Jinggangshan Huaneng Power Generation Limited Liability Company, all
owned by HIPDC; (iii) 10% equity interest in Jinggangshan Huaneng Power
Generation Limited Liability Company held by Jiangxi Province Investment
Corporation.
This acquisition took effect on 1st July 2004 whereby the Company's
generation capacity on an equity basis increased by 3,096 MW and the
total generation capacity under construction on an equity basis increased
by 1,050 MW. This has ensured the Company's future growth in generation
capacity and made contribution to the continuing growth of the Company's
earnings.
At a consideration of RMB 2.025 billion, the Company acquired the
following assets owned by Huaneng Group: (i) 60% equity interest in
Sichuan Huaneng Hydro Power Development Limited Liability Company ("
Sichuan Hydro Power"), and (ii) 65% equity interest in Gansu Huaneng
Pingliang Power Generation Limited Liability Company ("Pingliang Power
Plant"). This acquisition took effect in January 2005 whereby the
Company's generation capacity on an equity basis increased by 1,146 MW
and the total generation capacity under construction on an equity basis
increased by 389 MW.
This acquisition not only is a step forward of realising the Company's
strategy of placing emphasis on both coal fuel and other types of fuel,
but also a continuity of the Company strategy of placing equal emphasis
on acquisition of existing power plants and development of new power
plants. In light of the strong increase of power demand and shortage of
coal fuel in China, the acquisition of hydro power assets will
rationalise the Company's fuel structure. The acquisition of mine-mouth
power plant (such as Pingliang Power Plant) will bring about a decrease
in the average fuel costs of the Company and as a result, will enhance
the Company's profitability and effectively contain the increase in fuel
costs.
2. At the 7th meeting of the 4th session of the board of directors of the
Company held on 20th May 2004, it was resolved to approve the appointment
of Mr Huang Yongda as the Company's President, the resignation of Mr. Ye
Daji from the position of President, the resignation of Mr. Hu Jianmin
from the position of Vice President and the appointment of Mr. Ye Daji as
the Vice Chairman of the Board of Directors of the Company.
The Board of the Directors of the Company was satisfied with the
performance of Mr Ye Daji and Mr Hu Jianmin and expressed its
commentations and gratitude towards their contribution to the development
of the Company.
3. At the 8th meeting of the 4th session of the board of directors of the
Company held on 20th May 2004, it was resolved to approve the nomination
of Mr Huang Yongda and Mr. Liu Shuyuan as candidates for directors and
the nomination of Mr Liu Jipeng as a candidate for independent director.
Such appointments were approved at the extraordinary shareholders'
meeting on 28th September 2004.
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 Listing Rules.
DESIGNATED DEPOSIT
As at 31st December 2004, the Company and its subsidiaries did not have any
designated deposit with any financial institutions within the PRC nor any
overdue fixed deposit which could not be recovered.
LEGAL PROCEEDINGS
As at 31st December 2004, 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.
ANNUAL GENERAL MEETING AND CLOSURE OF REGISTER
Details regarding the book closure period of H Share register, record date and
date for convening annual general meeting will be set out in the notice of
general meeting to be issued by the Company in due course.
INSPECTION OF DOCUMENTS
The Company's annual report for the year 2004 will be published in April, 2005
in Hong Kong and Beijing respectively. The Company will file an annual report
in Form 20-F with the Securities and Exchange Commission of the United States.
Copies of annual reports as well as the Form 20-F, once filed, will be
available at:
Beijing: Huaneng Power International, Inc.
Tianyin Mansion
2C Fuxingmennan Street
Xicheng District
Beijing
The People's Republic of China
Tel: (8610) 6649 1999
Fax: (8610) 6649 1888
Hong Kong: Rikes Communications Limited
Room 1312, Wing On Centre
111 Connaught Road Central
Hong Kong
Tel: (852) 2520 2201
Fax: (852) 2520 2241
By Order of the Board
Li Xiaopeng
Chairman
As at the date of this announcement, the Board comprises:
Li Xiaopeng (Non-exective director) Gao Zongze (Independent director)
Wang Xiaosong(Non-executive director) Zheng Jianchao (Independent director)
Huang Yongda (Executive director) Qian Zhongwei (Independent director)
Ye Daji (Non-executive director) Xia Donglin (Independent director)
Huang Jinkai (Non-executive director) Liu Jipeng (Independent director)
Liu Jinlong (Non-executive director)
Shan Qunying (Non-executive director)
Yang Shengming (Non-executive director)
Xu Zujian (Non-executive director)
Liu Shuyuan (Non-executive director)
Beijing, the PRC
15th March 2005
A. FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS PREPARED UNDER
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31ST DECEMBER, 2004
(Amounts expressed in thousands of Rmb, except per share data)
For the year ended
31st December,
Note 2004 2003
Operating revenue, net 3 30,118,278 23,388,237
Operating expenses
Fuel (15,068,188) (9,025,013)
Maintenance (807,689) (921,561)
Depreciation (4,706,992) (4,117,478)
Labor (1,877,264) (1,439,673)
Service fees to HIPDC (133,609) (214,723)
Others (606,346) (596,627)
Total operating expenses (23,200,088) (16,315,075)
Profit from operations 6,918,190 7,073,162
Interest income 43,092 53,044
Interest expense (663,424) (569,148)
Bank charges and exchange losses, net (119,452) (28,181)
Total financial expenses (739,784) (544,285)
Share of profit of associates 377,565 212,091
Investment income 22,542 -
(Loss) / Gain from disposal of investments (1,988) 10,705
Other income, net 4 18,666 12,070
Profit before tax 6,595,191 6,763,743
Income tax expense 5 (1,014,262) (1,149,441)
Profit before minority interests 5,580,929 5,614,302
Minority interests (257,053) (183,894)
Net profit attributable to shareholders 5,323,876 5,430,408
Dividends paid and proposed 6 6,019,432 5,063,244
Proposed dividend 6 3,013,846 3,013,836
Proposed dividend per share (Rmb) 6 0.25 0.25
Basic earnings per share (Rmb) 7 0.44 0.45
Diluted earnings per share (Rmb) 7 0.44 0.45
Notes
1. Principal Accounting Policies
The Company and its subsidiaries adopted International Financial
Reporting Standards as promulgated by the International Accounting
Standards Board, in preparing the above consolidated income statement.
2. Acquisition
For the year ended 31st December, 2004, the Company acquired a number of
power plants from the China Huaneng Group Corporation ("Huaneng Group"),
HIPDC 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, 2004
Acquisition of Acquisition of Acquisition of
subsidiaries and net assets subsidiaries and net an associate
assets
Equity interest acquired 55% equity interest in All of the assets and 40% equity interest in
Huaneng Hunan Yueyang liabilities of Huaneng Hebei Hanfeng Power
Power Generation Limited Jinggangshan Power Plant Generation Limited
Liability Company (the (the "Jinggangshan Power Liability Company (the
"Yueyang Power Company"), Plant") "Hanfeng Power Company")
60% equity interest in
Huaneng Chongqing Luohuang
Power Generation Limited
Liability Company (the
"Luohuang Power Company")
and all of the assets and
liabilities of Huaneng
Yingkou Power Plant (the
"Yingkou Power Plant")
Original equity holder HIPDC 90% equity interest from Huaneng Group
Huaneng Group and 10%
equity interest from
Jiangxi Province
Investment Company
Effective date of 1st July, 2004 1st July, 2004 1st July, 2004
acquisition
Consideration paid Rmb2,564 million Rmb636 million Rmb1,375 million
Direct transaction costs of Rmb12 million Rmb3 million Rmb7 million
acquisitions paid
Fair value of net assets Rmb2,475 million Rmb628 million Rmb1,089 million
acquired
Goodwill Rmb101 million Rmb11 million Rmb293 million
3. 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 received in advance).
Revenue is earned and recognized upon transmission of electricity to the
power grid controlled and owned by the respective grid companies.
4. Other Income, Net
Pursuant to a management service agreement entered into with Huaneng
Group and HIPDC, the Company has provided management services to certain
power plants owned by Huaneng Group and HIPDC in return for a service
fee. Net other income represented the management service fee income net
of relevant expenses.
5. Taxation
For the year ended 31st December, 2004, the weighted average effective
tax rate applicable to the Company is 15% (2003: 17%).
Income tax expense comprised:
2004 2003
'000 '000
Income tax expense of the Company and its subsidiaries 948,734 1,097,859
Share of income tax expense of associates 65,528 51,582
1,014,262 1,149,441
6. Profit Appropriation
(a) Dividends Declared
On 15th March, 2005, the Board of Directors proposed a cash dividend of
Rmb0.25 per share, totaling approximately Rmb3,014 million. 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,
2005.
(b) Statutory surplus reserve fund and statutory public welfare fund
For the year ended 31st December, 2004, the Board of Directors resolved
the following on 15th March, 2005:
(i) to appropriate 10% and 7.5% (2003: 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
appropriations is approximately Rmb943 million (2003:
approximately Rmb955 million);
(ii) to make no appropriation to the discretionary surplus reserve fund
(2003: nil).
7. Earnings per Share
As the number of ordinary shares outstanding increased as a result of a
stock split in 2004, the computation of basic and diluted earnings per
share have been adjusted retroactively for the proportional change in
the number of ordinary shares outstanding for all the periods presented
to reflect the stock split.
The calculation of basic earnings per share is based on the net profit
attributable to shareholders of approximately Rmb5,324 million (2003:
approximately Rmb5,430 million) and the weighted average number of
approximately 12,055 million (2003: approximately 12,038 million)
ordinary shares in issue during the year.
The calculation of diluted earnings per share is based on the adjusted
net profit attributable to shareholders of approximately Rmb5,324
million (2003: approximately Rmb5,433 million) and the adjusted weighted
average number of approximately 12,055 million (2003: approximately
12,056 million) ordinary shares in issue during the year. The
calculation assumes that the convertible notes had been fully converted
at the beginning of the year.
B. FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS PREPARED UNDER
PRC ACCOUNTING STANDARDS
1. FINANCIAL HIGHLIGHTS AND FINANCIAL RATIOS
(Amounts Expressed in Rmb)
For the year ended
31st December,
Unit 2004 2003 Variance 2002
(%)
Revenues from principal operations 30,292,698,696 23,479,646,958 29.02 18,725,340,857
Profit before taxation and minority 6,691,841,407 6,774,080,587 (1.21) 5,212,079,411
interests
Net profit 5,389,057,047 5,457,142,551 (1.25) 4,082,350,589
Net profit (excluding non-recurring items) 5,314,641,252 5,563,916,542 (4.48) 4,111,128,754
31st 31st Variance 31st
December, December, 2003 (%) December, 2002
2004
Total assets 71,324,978,078 53,276,965,016 33.88 48,098,755,152
Shareholders' equity (excluding minority interests) 37,183,402,535 34,787,100,203 6.89 31,209,570,014
Net cash flows from operating activities 9,071,556,217 10,156,974,707 (10.69) 7,804,860,642
For the year ended
31st December,
Unit 2004 2003 Variance (%) 2002
Earnings per share (weighted average) 0.45 0.91 (50.55) 0.68
Earnings per share (fully diluted) 0.45 0.91 (50.55) 0.68
Return on net assets (fully diluted) % 14.49 15.69 (1.20) 13.08
Return on net assets calculated based on net profit % 14.29 15.99 (1.70) 13.17
excluding non-recurring items (fully diluted)
Net cash inflow from operating activities per share 0.75 1.69 (55.62) 1.30
31st 31st Variance (%) 31st
December, December, December,
2004 2003 2002
Net assets per share 3.08 5.77 (46.62) 5.20
Adjusted net assets per share 3.02 5.76 (47.57) 5.19
Note:
Formula of key financial ratios:
Earnings per share (fully diluted) = Net profit/Total number of ordinary
shares as at year end
Return on net assets (fully diluted) = Net profit/Shareholders' equity as
at year end x100%
Net assets per share = Shareholders' equity as at year
end/Total number of ordinary shares
as at year end
2. PROFIT AND LOSS ACCOUNTS
FOR THE YEAR ENDED 31st December, 2004
(Amounts Expressed in Rmb)
For the year ended 31st December,
Consolidated The Company
2004 2003 2004 2003
1. Revenues from principal operations 30,292,698,696 23,479,646,958 24,812,849,816 20,287,987,380
Less: Cost of principal operations (22,548,970,713) (15,690,199,491) (18,669,183,184) (13,698,115,361)
Tax and levies on principal operations (32,323,702) (45,334,549) (6,439,058) (7,542,002)
2. Profit from principal operations 7,711,404,281 7,744,112,918 6,137,227,574 6,582,330,017
Add: Profit from other operations 65,310,314 30,574,635 61,068,713 31,991,798
Less: General and administrative expenses (543,097,354) (441,548,979) (403,851,618) (327,750,541)
Financial expenses, net (799,170,559) (559,636,467) (500,109,803) (430,705,990)
3. Operating profit 6,434,446,682 6,773,502,107 5,294,334,866 5,855,865,284
Add: Income from investment 195,959,152 133,885,686 754,656,514 567,970,021
Subsidy income 8,000,000 - 8,000,000 -
Non-operating income 64,266,564 20,485,605 49,097,324 2,108,848
Less: Non-operating expenses (10,830,991) (153,792,811) (7,770,192) (143,297,291)
4. Profit before taxation and minority 6,691,841,407 6,774,080,587 6,098,318,512 6,282,646,862
interests
Less: Income tax (996,457,462) (1,116,100,498) (709,261,465) (825,504,311)
Minority interests (306,326,898) (200,837,538) - -
5. Net profit 5,389,057,047 5,457,142,551 5,389,057,047 5,457,142,551
3. NOTES TO THE REPORT
(1) Basis of presentation
The Company and its subsidiaries' financial statements have been
prepared in accordance with the Accounting Standards for Business
Enterprises and Accounting System for Business Enterprises and related
supplementary regulations as promulgated by the People's Republic of
China ("PRC GAAP").
(2) Comparing with the annual report for the year ended 31st December, 2003,
there is no change to the Company and its subsidiaries' accounting
estimates, and there is no error correction on accounting method during
the reporting year.
(3) The financial statements of Yueyang Power Company, Luohuang Power
Company, Yingkou Power Plant and Jinggangshan Power Plant were
consolidated into the consolidated financial statements of the Company
and its subsidiaries at 31st December, 2004.
4. RELATED PARTY TRANSACTIONS
(1) Related parties that control/are controlled by the Company:
Name Registered Principal Relationship Type of Legal
address activities with the enterprise representative
Company
Huaneng Group Jia 23 Fuxing Investment in Ultimate State-owned Li Xiaopeng
Road, Haidian power parent enterprise
District, stations, company
Beijing coal,
minerals,
railways,
transportation,
petrochemical,
energy-saving
facilities,
steel, timber,
and related
industries
HIPDC 40 Xueyuan Investment in Parent Sino-foreign Li Xiaopeng
South Road, power plants, company equity
Haidian development limited
District, and investment liability
Beijing in other company
export-oriented
enterprises
Huaneng Weihai Power Limited Liability No. 58 Haifu Power A subsidiary Limited Wu Dawei
Company ("Weihai Power Company") Road, Economic generation of the liability
Development Company company
Zone, Weihai,
Shandong
Province
Suzhou Industrial Park Huaneng Power Jinjihupan, Power A subsidiary Limited Na Xizhi
Limited Liability Company ("Taicang Power Sanxing Road, generation of the liability
Company") Suzhou, Company company
Jiangsu
Province
Huaneng Taicang Power Co. Ltd. ("Taicang II Fuqiao Town , Power A subsidiary Limited Na Xizhi
Power Company") Jinlanglanggang generation of the liability
Village, Company company
Taicang,
Jiangsu
Province
Jiangsu Huaneng Huaiyin Power Limited No. 291 Power A subsidiary Limited Liu Guoyue
Company ("Huaiyin Power Company") Huaihai West generation of the liability
Road, Huai'an, Company company
Jiangsu
Province
Jiangsu Huaneng Huaiyin II Power Limited No. 291 Power A subsidiary Limited Liu Guoyue
Company ("Huaiyin II Power Company") Huaihai West generation of the liability
Road, Huai'an, Company company
Jiangsu
Province
Henan Huaneng Qinbei Power Limited Company Wulongkou Power A subsidiary Limited Ye Daji
("Qinbei Power Company") Town, Jiyuan generation of the liability
City, Henan Company company
Province
Shanxi Huaneng Yushe Power Limited Dengyu Power A subsidiary Limited Na Xizhi
Liability Company ("Yushe Power Company") Village, Yushe generation of the liability
County, Shanxi Company company
Province
Shandong Huaneng Xindian Power Co., Ltd. Qilu Chemical Power A subsidiary Limited Wu Dawei
("Xindian II Power Company") Industrial generation of the liability
Park, Linzi Company company
District,
Zibo, Shandong
Province
Yueyang Power Company Cheng Lingji, Power A subsidiary Limited Zhang Hong
Yueyang City, generation of the liability
Hunan Province Company company
Luohuang Power Company Luohuang Town, Power A subsidiary Limited Li Shiqi
Jiangjin City, generation of the liability
Chongqing Company company
Shanxi Huaneng Yushe Yuanheng Power Dengyu Services An indirect Limited Wu Jinqiang
Industry Limited Liability Company Village, Yushe subsidiary liability
("Yuanheng Company") County, Shanxi of the company
Province Company
(2) Registered capital and changes in registered capital of related parties that control/are controlled by the
Company:
Name Currency 31st December, 2003 Current year 31st December,
additions 2004
Huaneng Group RMB 20,000,000,000 - 20,000,000,000
HIPDC US$ 450,000,000 - 450,000,000
Weihai Power Company RMB 761,838,300 - 761,838,300
Taicang Power Company RMB 632,840,000 - 632,840,000
Taicang II Power Company RMB - 894,410,000 894,410,000
Huaiyin Power Company RMB 265,000,000 - 265,000,000
Huaiyin II Power Company RMB - 474,000,000 474,000,000
Qinbei Power Company RMB 10,000,000 - 10,000,000
Yushe Power Company RMB 80,000,000 - 80,000,000
Xindian II Power Company RMB - 100,000,000 100,000,000
Yueyang Power Company RMB 560,000,000 - 560,000,000
Luohuang Power Company RMB 900,000,000 - 900,000,000
Yuanheng Company RMB 3,000,000 - 3,000,000
(3) Equity shares and changes in equity shares held by parties that control/are controlled by the Company:
Name 31st December, 2003 Current year additions 31st December, 2004
Amount % Amount % Amount %
Huaneng Group* 1,675,660,547 51.98 - - 1,675,660,547 51.98
HIPDC** 2,554,840,000 42.39 2,642,840,000 0.73 5,197,680,000 43.12
Weihai Power Company 457,102,980 60 - - 457,102,980 60
Taicang Power Company 474,630,000 75 - - 474,630,000 75
Taicang II Power Company - - 670,807,500 75 670,807,500 75
Huaiyin Power Company 168,646,000 63.64 - - 168,646,000 63.64
Huaiyin II Power Company - - 301,653,600 63.64 301,653,600 63.64
Qinbei Power Company 5,500,000 55 - - 5,500,000 55
Yushe Power Company 48,000,000 60 - - 48,000,000 60
Xindian II Power Company - - 95,000,000 95 95,000,000 95
Yueyang Power Company 308,000,000 55 - - 308,000,000 55
Luohuang Power Company 540,000,000 60 - - 540,000,000 60
Yuanheng Company*** 2,850,000 95 - - 2,850,000 95
* 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 an effective 70.09% voting rights in the shareholders'
meetings.
*** Yushe Power Company holds 95% equity interest in Yuanheng Company.
(4) Nature of related parties that do not control/are not controlled by the
Company:
Name of related parties Relationship with the Company
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 ("Henan Investment") Minority shareholder of Qinbei Power Company
Jiyuan Construction and Investment Company (the "Jiyuan Minority shareholder of Qinbei Power Company
Investment")
Shanxi International Power (Group) Company Limited (the Minority shareholder of Yushe Power Company
"Shanxi International")
Chongqing Construction and Investment Limited Liability Minority shareholder of Luohuang Power Company
Company ("CCI")
Jiangsu Electric Power Development Co., Ltd. ("JEPDC") Minority shareholder of Huaiyin Power Company
China Huaneng International Trade Economics Corporation A subsidiary of Huaneng Group
("CHITEC")
Shanghai Time Shipping Company Ltd. ("Time Shipping") A joint venture company of Huaneng Group
Shandong Rizhao Power Company Ltd. ("Rizhao Power Company") An associate of the Company
Shenzhen Energy Group Co. Ltd. ("SEG") An associate of the Company
Hanfeng Power Company An associate of the Company
Hebei Huaneng Jingyuan Coal Company Limited ("Huaneng A subsidiary of Huaneng Group
Jingyuan")
Chongqing Huaneng Lime Company Limited ("Lime Company") An associate of Luohuang Power Company
(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 agreement covers a period of 10 years. The
total amount of service fees paid to HIPDC for the year ended 31st
December, 2004 was approximately Rmb134 million (2003: Rmb215 million).
b. Pursuant to a leasing agreement entered into amongst the Company, HIPDC
and Nanjing Investment Company, the land use right of Huaneng Nanjing
Power Plant is leased to the Company for 50 years from 1st January, 1999
at an annual rental payment of Rmb1.334 million.
c. Pursuant to a leasing agreement between the Company and HIPDC, HIPDC
agreed to lease its office building to the Company at an annual rental
of Rmb25 million for five years from 1st January, 2000.
d. As at 31st December, 2004, long-term loans from Huaneng Group amounted
to Rmb800 million bearing interest rates that ranged from 3.78% to 4.60%
per annum (2003: nil). These loans are unsecured and are payable in
accordance with the repayment schedule agreed with Huaneng Group.
e. As at 31st December, 2004, long-term loan from WPDB amounted to
approximately Rmb106 million (2003: approximately Rmb106 million). The
loan was borrowed by the Weihai Power Company from WPDB with interest
rate at 5.02% (2003: 5.76%) per annum. This loan is unsecured and
payable in accordance with the repayment schedule agreed with WPDB.
f. As at 31st December, 2004, long-term loan from JEPDC amounted to
approximately Rmb19.47 million (2003: approximately Rmb19.47 million),
which was borrowed by the Huaiyin Power Company with interest rate at
5.76% (2003: 5.76%) per annum. This loan is unsecured and payable in
accordance with the repayment schedule agreed with JEPDC.
g. As at 31st December, 2004, long-term loan from CCI amounted to
approximately Rmb184 million (2003: N/A), which was borrowed by Luohuang
Power Company with interest rate at 4.94% per annum (2003: N/A). This
loan is unsecured and payable in accordance with the repayment schedule
agreed with CCI.
h. As at 31st December, 2004, Huaneng Finance had granted short-term loans
amounted to Rmb3,694million (2003: Rmb1,130 million) with interest rates
that ranged from 4.54% to 5.02% (2003: 4.78% to 5.05%) per annum to the
Company and its subsidiaries. The interest rates for such loans are not
materially different from the prevailing market interest rates. In 2004,
the interest paid by the Company and its subsidiaries to HIPDC for these
loans amounted to Rmb87,739,224 (2003: Rmb20,578,391).
i. As at 31st December, 2004, long-term bank loans of approximately
Rmb3,937 million, Rmb3,798million, Rmb100 million, Rmb200 million,
Rmb545 million and Rmb125 million were guaranteed by HIPDC, Huaneng
Group, WPDB, Henan Investment, Shanxi International and Jiyuan
Investment respectively (31st December, 2003: Rmb4,648 million, Rmb1,096
million, Rmb280 million, Rmb34.49 million, nil and nil, respectively).
j. Guarantees for loan facilities granted to Rizhao Power Company, Weihai
Power Company, Qinbei Power Company and Yushe Power Company by the
Company are as follows:
31st December, 2004
Item The Company and The Company
its subsidiaries
Guarantee on the long-term bank loans of Rizhao Power Company 305,250,000 305,250,000
Guarantee on the long-term bank loans of Weihai Power Company - 30,000,000
Guarantee on the long-term bank loans of Qinbei Power Company - 740,000,000
Guarantee on the long-term bank loans of Yushe Power Company - 660,000,000
305,250,000 1,735,250,000
The above guarantees for various loan facilities had no significant
financial impact on the Company's operation.
k. 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 five years. For the year ended 31st December, 2004,
the Company earned service fees amounted to Rmb45,864,600 from Huaneng
Group (2003: Rmb33,294,800) and paid expenses on behalf of Huaneng
Group's power plants amounted to Rmb2,317,194 (2003: Rmb6,839,017). In
addition, the Company earned service fees amounted to Rmb11,678,300 from
HIPDC (2003: Rmb17,305,200). For the year ended 31st December, 2004, the
related cost incurred for the management service provided was
approximately Rmb38.88 million (2003: Rmb38 million).
l. For the year ended 31st December, 2004, the Company and its subsidiaries
paid approximately Rmb214.94 million for coal purchased from CHITEC
(2003: Rmb145.06 million).
m. For the year ended 31st December, 2004, the Company and its subsidiaries
paid approximately Rmb563 million for the fuel purchased and
transportation services received from Time Shipping (2003: Rmb457
million).
n. For the year ended 31st December, 2004, the Company and its subsidiaries
paid approximately Rmb16.35 million for coal purchased from Huaneng
Jingyuan (2003: nil)
o. For the year ended 31st December, 2004, the Company and its subsidiaries
paid approximately Rmb25.56 million for lime purchased from Lime Company
(2003: N/A).
p. As at 31st December, 2004, HIPDC had provided guarantees on its equity
portion of certain accounts receivable balances of the Company and its
subsidiaries totaling approximately Rmb360 million (2003: nil).
q. As at 16th April, 2004, the Company entered into an agreement with
Huaneng Group. According to the agreement, the Company agreed to acquire
40% equity interest in Hanfeng Power Company and 90% equity interest in
Huaneng Jinggangshan Power Company from Huaneng Group. The total
consideration for the acquisition above was Rmb1,949 million.
On the same date, the Company also entered into an agreement with HIPDC.
According to the agreement, the Company agreed to acquire 55% equity
interest in Yueyang Power Company, 60% equity interest in Luohuang Power
Company and all the equity interest in Yingkou Power Plant from HIPDC.
The total consideration for the acquisition above was Rmb2,564 million.
After obtaining all the necessary government approvals on the
acquisitions and the payment of the purchase considerations, the
acquisitions became effective on 1st July, 2004.
(6) Cash deposited with a related party
31st 31st
December, December, 2003
2004
Current deposit at Huaneng Finance 1,362,960,901 2,791,770,168
As at 31st December, 2004, the interest rates per annum for the current
deposits placed with Huaneng Finance ranged from 0.72% to 1.44% (2003:
0.72% to 1.44%). The interests earned from these deposits amounted to
approximately Rmb9 million (2003: approximately Rmb14 million) in 2004.
(7) Receivables from / payables to related parties
31st December, 2004 31st December, 2003
Amount Percentage Amount Percentage
Advance to suppliers
Prepayment to CHITEC 5,000,000 1.13% - -
Prepayment to Huaneng Jingyuan 6,000,000 1.36% - -
Other receivables
Other receivables from Huaneng Group's subsidiaries 2,317,194 0.79% 5,286,705 3.29%
Other receivables from HIPDC's subsidiaries - - 575,120 0.36%
Other receivables from Rizhao Power Company 1,652,353 0.56% - -
Accounts payable
Accounts payable to CHITEC - - (14,484,416) 2.22%
Accounts payable to Time Shipping (6,959,110) 0.94% (11,434,522) 1.75%
Accounts payable to Lime Company (3,799,628) 0.51% - -
Other payables
Other payables to HIPDC (1,258,799,490) 33.96% (87,507,580) 5.24%
Other payable to CHITEC (399,060) 0.01% - -
Other payables to Huaneng Finance (117,461) - - -
Other payables to Huaneng Group (189,963) 0.01% - -
Interest payables
Interest payables on loans from Huaneng Finance (1,960,863) 1.62% (1,418,954) 1.51%
The above balances with the related parties stated are unsecured,
non-interest bearing and to be settled within one year.
5. NET INCOME RECONCILIATION AMONG PRC GAAP, IFRS AND US GAAP
The financial statements, which are prepared by the Company and its
subsidiaries in conformity with PRC GAAP, differ in certain respects
from IFRS and generally accepted accounting principles in the United
States of America ("US GAAP"). Major differences among PRC GAAP, IFRS
and US GAAP, which affect the net income of the Company and its
subsidiaries, are summarized as follows:
For the year ended
31st December,
2004 2003
Rmb'000 Rmb'000
Net income under PRC GAAP 5,389,057 5,457,143
Impact of IFRS adjustments:
Recording the amounts received in advance (a) (142,097) (47,937)
Difference in the recognition policy on housing benefits to the employees of (29,530) (26,259)
the Company (b)
Difference in capitalization of borrowing costs (c) 51,809 12,682
Reversal of goodwill amortization (g) 21,921 -
Applicable deferred tax impact of the above GAAP differences (h) 24,629 18,363
Others 8,087 16,416
Net income under IFRS 5,323,876 5,430,408
Impact of US GAAP adjustments (Note 1):
Effect of acquisitions of entities under common control (d) 436,667 460,850
Effect of acquisitions of 40% equity interests in the Hanfeng Power Company, 25,550 19,347
30% additional equity interests in Huaneng Shanghai Shidongkou I Power Plant
(the "Shidongkou I Power Plant"), 5% additional equity interests in the Taicang
Power Company and 44.16% equity interests in the Huaiyin Power Company (e)
Recording housing benefits provided by HIPDC (b) (26,152) (26,152)
Difference in accounting treatment for acquisition of Shandong Huaneng (f) (87,091) (87,091)
Difference in capitalization of borrowing costs (c) 6,466 (5,478)
Reversal of goodwill amortization (g) 99,330 72,009
Applicable deferred tax impact of the GAAP differences (h) (46,978) (153,218)
Others 8,652 25,434
Net income under US GAAP (Note 1) 5,740,320 5,736,109
Note 1: Consistent with applying the accounting treatment under US GAAP as
described in Note (d) below, 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 acquisitions
of the new power plants had been in existence since the beginning of the
earliest period presented.
(a) Recording the amounts received in advance
In accordance with the tariff setting mechanism applicable to some of
the power plants, the Company and its subsidiaries receive an advance
payment (calculated at 1% of the book value of fixed assets) as the
major repair and maintenance cost requirements of the relevant power
plants. This payment received in advance is recognized as a liability
under IFRS and US GAAP and is recognized as revenue when the repair and
maintenance is performed and the liability extinguished. For PRC
statutory financial reporting purposes, this amount is not recorded as a
liability and is recognized as revenue.
(b) 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
as 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.
Under US GAAP, in addition to the recognition of the housing benefits
provided by the Company on the above basis, the amount of housing
benefits provided by HIPDC to the employees of the Company are also
reflected as the Company's operating expenses using the same
amortization policy. The corresponding amount is recorded as a capital
contribution from HIPDC.
(c) Capitalization of borrowing costs
Under PRC GAAP, the capitalization of interest is limited to specific
borrowings. No interest can be capitalized on general borrowings. In
accordance with IAS 23, the Company capitalized interest 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, interests on funds borrowed
generally and used for the purpose of obtaining qualifying assets were
not capitalized if such interests were not 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. An adjustment is made to reverse the capitalized
interest on general borrowings net of the related depreciation on fixed
assets.
(d) Effect of acquisitions of entities under common control
Huaneng Group is the controlling parent company of HIPDC, which in turn
is the controlling parent of the Company.
Under PRC GAAP, acquisitions of less than 100% owned power plants or
companies are accounted for at cost. The excess of consideration over
the book value of the net assets acquired is recorded as an Equity
Investment Difference and is being amortized on a straight-line basis
over a period of not more than 10 years. Acquisitions of wholly owned
companies or 100% of all the assets and liabilities of a company or
power plant are accounted for in a manner similar to the purchase method
of accounting. Goodwill arising from these latter acquisitions is
amortized on a straight-line basis over its estimated useful lives.
Under IFRS, the Company and its subsidiaries adopted the acquisition
method to account for the acquisition of:
(i) 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 from the
Huaneng Group;
(ii) 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 from the Huaneng Group; and
(iii) 60% equity interest in Luohuang Power Company, 55% equity interest
in Yueyang Power Company, 90% equity interest in Jinggangshan
Power Plant and all of the assets and liabilities of Yingkou Power
Plant in July, 2004 from HIPDC and/or from the Huaneng Group.
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. Goodwill arising from the
acquisitions in (i) and (ii) above 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. Goodwill arising from the acquisition in (iii) above is tested
annually for impairment and carried at cost less accumulated impairment
losses.
As the companies and power plants acquired were under the control of the
Huaneng Group prior to their acquisitions by the Company and its
subsidiaries, these acquisition transactions were considered common
control transactions. Under US GAAP, they are considered to be transfers
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.
(e) Effect of acquisitions of 40% equity interests in the Hanfeng Power
Company, 30% additional equity interests in the Shidongkou I Power
Plant, 5% additional equity interests in the Taicang Power Company and
44.16% equity interests in the Huaiyin Power Company
On 1st July, 2002, the Company acquired 44.16% equity interests of the
Huaiyin Power Company from the Huaneng Group. The Company also acquired
30% equity interests of the Shidongkou I Power Plant and 5% equity
interests of the Taicang Power Company from the Huaneng Group on 31st
December, 2002. On 1st July, 2004, the Company acquired 40% equity
interests of the Hanfeng Power Company from the Huaneng Group.
Under PRC GAAP, the excess of the total cost of the acquisition over the
book value of the Taicang Power Company, the Huaiyin Power Company and
the Hanfeng Power Company is recorded as an Equity Investment
Difference. This Equity Investment Difference is amortized on a
straight-line basis over 10 years. As the Company has acquired all the
equity interest in the Shidongkou I Power Plant, the assets and
liabilities of the Shidongkou I Power Plant are recorded at their fair
values.
Under IFRS, upon the completion of the above acquisitions, the relevant
equity interests of the net assets of (i) the Shidongkou I Power Plant,
the Taicang Power Company, the Huaiyin Power Company and (ii) the
Hanfeng 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 plants acquired is recorded as goodwill.
Goodwill arising from the acquisition in (i) above is amortized on a
systematic basis to income statement over its useful economic life,
being the remaining weighted average useful life of the acquired
depreciable or amortizable assets, while goodwill arising from the
acquisition in (ii) above is tested annually for impairment and carried
at cost less accumulated impairment losses.
Under US GAAP, upon completion of the above acquisitions, Huaneng
Groupi|s proportionate share in the net assets of the Shidongkou I Power
Plant, the Taicang Power Company, the Huaiyin Power Company and the
Hanfeng 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 deemed distribution.
Accordingly, the resulting impact of depreciation and amortization
expenses on income is also different.
(f) Acquisition of Shandong Huaneng
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 ("Acquisition of Shandong Huaneng").
Under PRC GAAP and 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 sold 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 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 the
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 the 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.
(g) Reversal of Goodwill Amortization
Under PRC GAAP goodwill is amortized using the straight-line method over
its estimated useful life and recognized in the income statement as
other operating expenses.
Under IFRS, in accordance with IFRS 3, the accounting treatment of
goodwill arising from acquisition for which the agreement date was
before 31st March, 2004 is the same as that of PRC GAAP and subject to
an impairment review whenever events or changes in circumstances
indicated their carrying value may not be recoverable and annually if
the estimated useful life exceed 20 years. Goodwill arising from an
acquisition for which the agreement date is on or after 31st March, 2004
is not amortized and is subject to an impairment review annually and
whenever an indication of impairment exists and carried at cost less
accumulated impairment losses.
Under US GAAP, in accordance with SFAS No.142 "Goodwill and Other
Intangible Assets", goodwill arsing from acquisition is not amortized
but tested for impairment on an annual basis and between annual tests in
certain circumstances.
(h) Deferred Tax Impact
This represents deferred tax effect on the GAAP differences where
applicable.
The 2004 annual report of the Company and its subsidiaries containing all the
information required by paragraphs 45(1) to 45(3) of Appendix 16 of the
Listing Rules will be published on the Stock Exchange of Hong Kong Limited's
website in due course.