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
April, 2003
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:
2002 annual report in English of Huaneng Power International, Inc.
Since its listing in 1994, Huaneng Power has been consistently taking
maximising shareholders' value as its corporate mission and business goals.
Throughout the years, the Company has been striving to expand its geographic
coverage and market shares so as to enhance its competitive strength.
Currently, the Company is one of the largest independent power producers in
the PRC, with a total generation capacity of 14,363 MW on an equity basis. As
China's power sector reform plan rolls out its implementation, the Company
will continue to adhere to its strategies of "placing equal emphasis on
development and acquisition; on greenfield and expansion; on coal and other
feasible fuel sources; and on domestic and foreign funds". Such strategies are
aimed to ensure the Company's development in a sustainable, stable and healthy
manner, and to achieve stable long-term growth of shareholder return.
Contents
Company Profile
Corporate Structure
Major Corporate Events in 2002
Financial Highlights
Chairman's Statement
Report of the President
Management's Discussion and Analysis
Corporate Governance
Questions Frequently Asked by Investors
Report of the Board of Directors
Report of the Supervisory Committee
Profiles of Directors, Supervisors and Senior Management
Corporate Information
Prepared in accordance with International Financial Reporting Standards
Auditors' Report
Consolidated Income Statement
Balance Sheets
Consolidated Statement of Changes in Shareholders' Equity
Statement of Changes in Shareholders' Equity
Consolidated Cash flow Statement
Notes to the Financial Statements
Supplemental Information for North American Shareholders
Prepared in accordance with PRC Accounting Standards
Report of the Auditors
Balance Sheets
Profit and Loss Accounts
Statement of Income Appropriation
Cash Flow Statement
Notes to the Financial Statements
Supplemental Information
A Solid Operation
Huaneng Power currently owns a total generation capacity of 14,363 MW on an
equity basis, with another 10,629 MW on an equity basis under the Company's
entrusted management. The Company wholly owns thirteen power plants, and has
controlling interests in three power plants and minority interests in one
power plant. To date, it is one of the largest independent power producers in
the PRC.
Superior Competitive Advantages
Throughout the years, Huaneng Power has accumulated extensive experience in
both the capital markets and the power market. The Company has also been
leveraging on its competitive advantages with respect to its operating scale,
the strategic locations of its power plants, high quality staff, an
experienced management team, its state-of-the-art technology and its astute
capital operation. With such experience and competitive advantages, the
Company seeks incessant improvements for itself with an aim to achieve
continued growth in shareholder value for its shareholders.
High Operating Efficiency
Huaneng Power is equipped with advanced and highly efficient power generating
facilities. Together with experienced technical staff and the use of modern
management systems, this has ensured the Company's operating efficiency and
profitability. During all these years, the Company's power plants have always
been in the forefront of China's power industry in terms of achieving various
techno-economic benchmarks.
Efficient Funding Channels
With concurrent listings in New York, Hong Kong and Shanghai, Huaneng Power is
opened to efficient funding channels both domestically and overseas. It also
benefits from substantial credit facilities successively granted by major
domestic financial institutions such as the Bank of China and the China
Construction Bank. As a result, the Company is armed with strong capital
resources to ensure the success of its long-term development.
Company Profile
Huaneng Power International, Inc. ("Huaneng" or the "Company") and its
subsidiaries develop, construct, operate and manage large-scale coal-fired
power plants throughout China. The Company is one of the largest independent
power producers in China with an owned equity generation capacity of 14,363 MW
and a total capacity under construction and planning of 5,070 MW.
The Company was incorporated on 30th June 1994 and completed its initial
public offering of 1,250,000,000 overseas listed foreign shares ("foreign
shares") in October, 1994 and such shares (represented by 31,250,000 American
Depositary Shares) were listed on the New York Stock Exchange (NYSE: HNP). In
January, 1998, the foreign shares of the Company were listed on The Stock
Exchange of Hong Kong Limited ("Hong Kong Stock Exchange") by way of
introduction (Stock Code: 902). Subsequently, in March 1998, the Company
successfully completed the global placement of 250,000,000 foreign shares
along with a private placement of 400,000,000 domestic shares. In November,
2001, the Company successfully completed the issue of 350,000,000 A shares in
the PRC, of which 250,000,000 shares were domestic public shares. Currently,
the total share capital of the Company amounts to approximately 6 billion
shares, approximately 1.75 billion shares of which are tradable listed shares.
Currently, the Company and its subsidiaries wholly own 13 power plants and
have controlling interests in 3 power plants and minority interests in 1 power
plant. Its power plants have advanced equipment and their operations were
widely located in seven provinces on the coastal area, namely, Liaoning,
Hebei, Shandong, Jiangsu, Zhejiang, Fujian and Guangdong and the largest
financial and business centre of China, Shanghai. The core business of the
Company is to develop, construct, and operate large-scale coal-fired power
plants by making use of modern technology and equipment and financial
resources available domestically and internationally. The technical and
economic indices of the Company's power plants have been maintained the
forefont in China's power industry. In 2000, the Company was awarded the
honour of "First Class Power Company in China" by the former State Power
Corporation.
During these years, with its best efforts to seek expansion and operate the
business in a prudent manner, the Company has expanded gradually through
project developments and asset acquisitions with steady profit growth and
increasing competitive strengths. The successful achievements of the Company
are attributable to the following merits of the Company: (1) advanced
equipment, highly efficient generating units and stable operation of the power
plants; (2) high-quality staff and experienced management; (3) a regulated
corporate governance structure and rationalised decision making mechanisms;
(4) geographical advantages of the locations of the power plants which present
promising prospects in the power market; and (5) good credit standing and
respectability inside and outside China and rich experience in capital market.
As regards future development, the Company will continue to explore
development opportunities according to the principle of "emphasising both
development and acquisition, emphasising both greenfield and expansion,
emphasising both coal-fuel and other types of fuels, and emphasising both
domestic and overseas funds". At the same time, the Company will continue to
focus on the improvement of management, cost control and enhancement of
efficiency, so as to increase shareholders' value and maintain long term
stable growth.
Huaneng International Power Development Corporation ("HIPDC"), the Company's
parent company and controlling shareholder, was incorporated as a Sino-foreign
joint venture enterprise in 1985. The Company was incorporated by way of joint
promotion by HIPDC and local government investment companies in the regions
where the power plants are located.
Corporate Structure
Huaneng International Power Development Corporation
42.58%
Hebei Provincial Construction Investment Company
7.54%
Fujian International Trust & Investment Company
5.58%
Jiangsu Province International Trust & Investment Company
5.20%
Liaoning Energy Corporation
3.83%
Dalian Municipal Construction Investment Company
3.77%
Nantong Investment Management Centre
1.13%
Shantou Electric Power Development Company
0.77%
Shantou Power Development Joint Stock Company Limited
0.32%
Dandong Energy Investment Development Centre
0.11%
Domestic Public Shares
4.17%
Foreign Shares
25.00%
Major Corporate Events in 2002
o 4th March The Company obtained a credit facility of Rmb5 billion from China
Construction Bank.
o 13th March The Company convened a press conference in Hong Kong on the annual results
of 2001, announcing an increase of 37.16% of its net profit.
o 18th March The Company obtained a credit facility of Rmb7 billion from Bank of China.
o 20th March The Company entered into an agreement in principle with Zhejiang
Provincial Development and Planning Committee and Zhejiang Provincial
Power Corporation relating to the joint establishment of Zhejiang Yuhuan
Power Plant.
o 21st April The State Power Corporation appraised the power plants on whether they met
the safety target in 2001. The Company and all of its subsidiaries passed
the appraisal.
o 26th April The Company announced its first quarter operating results of year 2002,
with a net profit of RMB 794 million.
o 26th April The Board of Directors decided to invest in China Chang Jiang Power Co.
Ltd. by taking up 3% of its equity. It was a major step forward for the
Company in the development of hydro power generation.
o 9th May The Board of Directors of the Company approved the resolution for
acquiring equity interests and assets of four power plants owned by China
Huaneng Group ("Huaneng Group").
o 12th May In an article entitled "Asia's Best Companies 2002" published by Finance
Asia (Issue No. 7), the top 10 listed companies were listed according to
the results of the survey conducted by the magazine on major countries and
regions in Asia. The Company ranked 6th, 7th, 4th, 4th and 6th in terms of
"Best Managed Company", "Best Investor Relations", "Best Financial
Management", "Strongest Commitment to Enhancing Shareholders' Value" and
"Company Most Committed to Corporate Governance".
o 21st May The Company redeemed an aggregate amount of US$209,685,000 convertible notes.
o 22nd June In the Listed Companies magazine published by Huadong Branch of People's
Daily, and Shanghai Stock Exchange, a table showing the ranking of the top
50 listed companies in year 2001 has been compiled according to the
statistical data analysis of the operating results of 1,173 listed
companies announced in year 2001 at Shanghai and Shenzhen, and according
to consolidated assessments on these companies, revenues from principal
businesses, net profits, total assets and capitalisation. The Company
ranked 3rd in the above table.
o 29th June Generating unit No. 5 of Dezhou Power Plant of the Company completed the trial
operation.
o 1st July The Company announced that the acquisition of 70% equity interest in the
registered capital in Shanghai Shidongkou First Power Plant, 70% equity
interest in the registered capital in Taicang Power Plant, 44.16% equity
interest in the registered capital in Huaiyin Power Plant and the net
asset of Changxing Power Plant from Huaneng Group took effect. The
Company's generation capacity on an equity basis increased by 1,687 MW.
o 7th August The Company announced its interim results of 2002 that net profit
increased by 14.05%.
o 13th October Generating Unit No. 6 of Dezhou Power Plant of the Company completed the
trial operation.
o 24th October The Company announced its first three quarters operating results of 2002,
with a net profit of Rmb 3.042 billion.
o 6th November The Company entered into an entrusted management agreement with Huaneng
Group and HIPDC, pursuant to which the generation capacity on an equity
basis managed by the Company was 10,629 MW.
o 15th November The Board of Directors of the Company approved the acquisition of the
remaining 30% equity interest in the registered capital of Shanghai
Shidongkou First Power Plant and the remaining 5% equity interest in the
registered capital of Taicang Power Plant.
o 23rd December The Company convened an extraordinary general meeting, at which the
resolutions for setting up four special committees by the Board of
Directors were approved. The four special committees are the Strategy
Committee, the Audit Committee, the Nomination Committee, and the
Remuneration and Appraisal Committee.
o 23rd December The first meeting of the fourth session of the board of directors of the
Company was held and the resolution for electing the Chairman and Vice
Chairman to the fourth session of the Board of Directors was approved. Mr.
Li Xiaopeng and Mr. Wang Xiaosong were elected as Chairman and Vice
Chairman of the fourth session of the Board of Directors.
o 23rd December The resolution regarding the appointment of Vice President, Chief Economic
Engineer and Chief Accountant was considered and approved. Mr. Na Xizhi,
Mr. Li Shiqi and Mr. Huang Jian were appointed the Company's Vice
President, Chief Economic Engineer and Chief Accountant of the Company
respectively.
o 29th December Huaneng Group, after its restructuring, indicated that it would fully
support the development of the Company.
o 31st December The Company acquired 19.48% equity interest of Huaiyin Power Plant from
Jiangsu Huaiyin Investment Company which means the Company gained the
controlling right of Huaiyin Power Plant and the development right of
Huaiyin Power Plant Phase II.
Financial Highlights
(Amounts expressed in thousands of Rmb, except per share data)
Income Statement (Note 1)
Year ended 31st December,
1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------------------------
Net operating revenue 8,082,496 10,488,158 12,553,254 15,791,362 18,474,469
----------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 2,209,506 2,252,730 2,927,032 4,237,109 5,057,892
Taxation (370,995) (384,555) (411,202) (715,220) (980,854)
----------------------------------------------------------------------------------------------------------------------------------
Profit after taxation 1,838,511 1,868,175 2,515,830 3,521,889 4,077,038
Minority interests -- -- -- (71,231) (156,034)
----------------------------------------------------------------------------------------------------------------------------------
Net profit 1,838,511 1,868,175 2,515,830 3,450,658 3,921,004
==================================================================================================================================
Basic earnings per share (Rmb/share) 0.33 0.33 0.45 0.61 0.65
==================================================================================================================================
Fully diluted earnings per share
(Rmb/share) 0.33 N/A 0.44 0.60 0.65
==================================================================================================================================
Balance Sheet (Note 2)
As at 31st December,
1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------------------------
Total assets 38,141,711 40,582,730 42,466,948 47,292,775 48,461,030
Total liabilities (17,785,481) (18,810,325) (18,687,213) (18,512,984) (17,134,266)
Minority interests -- -- -- (486,261) (910,704)
----------------------------------------------------------------------------------------------------------------------------------
Equity 20,356,230 21,772,405 23,779,735 28,293,530 30,416,060
==================================================================================================================================
Notes:
1. The results for the years ended 31st December 1998,1999 and 2000 are derived from the
historical financial statements of the Company. The results for the years ended 31st December
2001 and 2002 are set out on page 60.
2. The balance sheets as at 31st December 1998,1999 and 2000 are derived from the historical
financial statements of the Company. The balance sheets as at 31st December 2001 and 2002 are
set out on pages 61 to 62.
Chairman's Statement
Dear Shareholders,
2002 was another year of challenge for the Company. The national economy of
the PRC continued to show a stable growth trend. The power industry of the PRC
entered into a new historic period. The operation and development of the
Company reached a new high. In the past year, the Company remarkably completed
all the work objectives set for the year as a result of the joint efforts of
the management of the Company and all the staff and presented a satisfactory
report to the shareholders. On behalf of the Board of Directors, I would like
to take this opportunity to thank the management of the Company and all the
staff for their hard work and all the shareholders for their unfailing support
throughout the years.
The Company achieved satisfactory operating results for the year. For the
twelve months ended 31st December 2002, the Company realised a net profit of
Rmb3.921 billion and a net operating revenue of Rmb18.474 billion,
representing increases of 13.63% and 16.99% respectively, over the
corresponding period in 2001. The weighted average earnings per share was
Rmb0.65, an increase of 6.56% over the same period of the preceding year. The
Board of Directors is very satisfied with the operating results of the Company
in 2002. The Board of Directors proposed to distribute a dividend of Rmb0.34
per share for year 2002.
The steady growth in operating results was attributable to the increased power
generation volume of the original power plants and the successful acquisition
of the equity interests and assets of Shanghai Shidongkou First Power Plant,
Taicang Power Plant, Huaiyin Power Plant and Changxing Power Plant owned by
Huaneng Group, thereby enlarging the operating scale of the Company and
enhancing the strength and competitiveness of the Company as well as making
significant contributions to the remarkable growth in the operating results of
the Company for year 2002. At the same time, stringent management also ensures
the operational effectiveness and efficiency. In the past year, the Company
continued to adopt effective cost control and power plant management measures
so that the range of increase in unit fuel cost for power sold was controlled
within the scope forecasted at the beginning of the year. Moreover, the
Company continued to endeavour to perfect its corporate governance structure
in 2002. The compositions of the Board of Directors and Supervisory Committee
were adjusted to reduce the number of internal directors and to increase the
number of independent directors so that the number of independent directors
accounted for one-third of the members of the Board of Directors. Adjustment
was made to the special committees of the Board of Directors to include four
special committees, namely, the Strategy Committee, the Audit Committee, the
Nomination Committee, the Remuneration and Appraisal Committee, thus further
strengthening the decision-making power of the Board of Directors over
important matters of the Company and the supervision power of the Supervisory
Committee.
With the announcement in Beijing of the 11 newly formed (restructured)
companies in the PRC's power sector, the reform and development of the PRC's
power industry entered into a new historic period. As the parent company of
the Company, Huaneng Group reiterated, after the restructuring, that it would
fully support the development of the Company and would continue to give
pre-emptive right to the Company in terms of project development and assets
transfer. With the rapid growth of the PRC's economy, the PRC power industry
also entered into a new and stable growth period. It is anticipated that power
demand will increase at a rate of 6 - 8% in the several years ahead. It will
provide the Company with good market prospects and development space for
enlargement of its market share and development of new projects. The
restructuring of the power industry also provided us with new development
opportunities. The Company will continue to actively and steadily expand its
assets scale, including acquiring assets from the parent company and selecting
suitable opportunities to acquire assets outside the parent company.
At the same time, the Company is also aware that it will face challenges in
various areas during the course of development, for example, market
competition will become keener; pressure of rising coal prices will increase
the difficulty of controlling power generating costs of the Company. Also, the
pressure of reduction in electricity tariffs will affect the profitability of
the Company. As long as the Company brings its advantages into full play, it
will certainly seize opportunities to overcome various adverse factors and
will succeed amidst competition. We have accumulated extensive experience in
the capital market and power market and the Company will continue to maintain
and enhance its advantages in terms of operating scale, location, qualified
personnel, management, technology and capital operations in the years ahead.
As regards future development, the Company will continue to uphold the
development strategy of "emphasising both development and acquisition,
emphasising both greenfield and expansion, emphasising both coal-fuel and
other types of fuel; and emphasising both domestic and overseas funds". We
believe that the Company will certainly maintain continuous, steady and sound
development under the leadership of an efficient and experienced management
team and will bring long-term, stable and increasing return to shareholders as
a result of the continued growth of the PRC economy, good opportunities
provided by the power sector reforms, strong government support at various
levels and effective support of our parent company (cent)w and particularly
the support and confidence shown by the investment sector and shareholders.
Report of the President
Dear Shareholders,
It is my pleasure to report to the shareholders the operating results and the
status of the Company's operations for 2002 and its plan for 2003. Year 2002
is a landmark year in the development history of the Company. During the Year,
the Company continued to strengthen management, enlarge market shares, control
costs and enhance efficiency by focusing on economic benefits and on the basis
of safe operation, with a view to optimising shareholders' interests. The
management and all staff of the Company and its subsidiaries have seized the
favourable opportunity of the market upturn and accomplished various tasks
exceeding the annual target.
Business Review
1. Steady growth of operating results
For the twelve months ended 31st December 2002, the Company recorded net
operating revenues of Rmb18.474 billion and net profit of Rmb3.921 billion,
representing increases of 16.99% and 13.63%, respectively, as compared to the
same period of 2001. Earnings per share was Rmb0.65, representing an increase
of Rmb0.04 over the same period of 2001.
The steady growth in the operating results of the Company was, on the one
hand, attributable to the contribution from increased power generation of the
power plants originally owned by the Company. On the other hand, the
successful acquisition of equity interests in Shanghai Shidongkou Power
Limited Company ("Shidongkou First Power Plant"), Suzhou Industrial Park
Huaneng Power Limited Liability Company ("Taicang Power Plant") and Jiangsu
Huaneng Huaiyin Power Limited Company ("Huaiyin Power Plant") and the net
assets of China Huaneng Group Zhejiang Changxing Power Plant ("Changxing Power
Plant") formerly owned by Huaneng Group has enlarged the Company's operating
scale as well as enhanced its strength and competitiveness, thereby also
making significant contribution to the remarkable growth of the Company's
operating results for the year 2002. At the same time, facing an increasingly
competitive power market, and in view of the twofold pressure of escalating
fuel price and decreasing power tariffs, the Company and its subsidiaries
enlarged market shares, reinforced the sales strength of the power market,
enhanced internal management and strengthened cost control. As a result, the
unit fuel cost has been controlled efficiently. Despite the increase of coal
price, the average unit fuel cost for output, excluding the power plants
acquired in 2002, increased only 6.41% over the last year.
As at the end of 2002, net asset per share of the Company was Rmb5.07,
representing an increase of 7.42% when compared to 2001.
2. Safe and stable power generation
In 2002, the operating power plants of the Company and its subsidiaries
achieved power generation totalling 71.43 billion kWh on a consolidated basis
(including the power generation of Shidongkou First Power Plant, Taicang Power
Plant and Changxing Power Plant from July to December), representing an
increase of 25.34% over the same period of the preceding year. If the power
generation of the three power plants referred to above is not included, the
Company has achieved power generation of 64.27 billion kWh, exceeding the
annual plan by 12.75% and representing an increase of 12.77% over the same
period of the preceding year on the same basis.
On the one hand, the increase in power generation was attributable to the
contribution of power generation from the acquired Shidongkou First Power
Plant, Taicang Power Plant and Changxing Power Plant and commencement of
operation of generating Unit 5 and Unit 6 of Dezhou Power Plant ahead of
planned schedule, thus significantly increasing the power generation capacity
of the Company. On the other hand, economic growth of the regions where the
power plants of the Company are located boosted local power demand, thus
leading to a general increase in power generation of the Company's power
plants. At the same time, the rational scheduling of the planned maintenance
of the generating units also created favourable conditions for the increased
power generation of the Company.
In 2002, the average availability factor of the power plants of the Company
and its subsidiaries was 92.51% and the average capacity factor was 61.95%;
the average coal consumption rates for power sold and power generated were
335.36 gram/kWh and 318.41 gram/kWh, respectively; and the average house
consumption rate was 4.90%. The Company's technical and economic indices
remained to be in the forefront among all other power companies in the PRC.
3. New breakthrough in asset operation In 2002:
(1) The Company acquired 70% of the equity interest in the registered
capital of Shidongkou First Power Plant, 70% of the equity interest in
the registered capital of Taicang Power Plant, 44.16% of the interest in
the registered capital of Huaiyin Power Plant and the net assets of
Changxing Power Plant formerly owned by China Huaneng Group ("Huaneng
Group"). The acquisition was effective on 1st July 2002, thereby
increasing the generation capacity of the Company by 1,687 MW and
contributing to the growth of the annual results of the Company.
(2) On 31st December, the Company has acquired the remaining 30% equity
interest in the registered capital of Shidongkou First Power Plant and
the remaining 5% equity interest in the registered capital of Taicang
Power Plant formerly owned by Huaneng Group. The acquisition has made
Shidongkou First Power Plant a wholly-owned power plant of the Company
and has enhanced the competitiveness of the Company in East China.
(3) The transfer of 19.48% equity interest in Huaiyin Power Plant from
Jiangsu Huaiyin Investment Company to the Company has enabled the
Company to obtain the controlling right of Huaiyin Power Plant and the
development right of Huaiyin Power Plant Phase Two. This acquisition was
effective on 31st December 2002.
(4) The Company acquired 3% of the shareholding in China Chang Jiang Power
Co. Ltd., taking the first step in the development of hydro-power
generation.
(5) The Company entered into an Entrusted Management Agreement with Huaneng
Group and Huaneng International Power Development Corporation ("HIPDC")
in relation to the management of their thermal power plants. By entering
into the Entrusted Management Agreement, the Company will further
accumulate management experience as a result of the expansion of the
Company's operation scale and set a precedent for large-scale and
multi-entities entrusted management in the PRC.
In 2003:
(6) The Company entered into an agreement with Shenzhen Municipal Investment
Management Corporation and Shenzhen Energy Group Co., Ltd. to acquire
25% interest of the enlarged share capital of Shenzhen Energy Group Co.,
Ltd. by way of international tendering. After the transaction has
obtained the relevant government approvals, the Company will be able to
enlarge its market shares in Guangdong area, a fast growing market for
power demand.
4. Adding new achievements to project construction
(1) Owing to the Company's careful organisation and various parties'
efforts, generating Units 5 and 6 of Dezhou Power Plant completed trial
operation of 168 hours on 29th June and 13th October respectively, which
was one year ahead of the project's original planned schedule, thereby
making contribution to the power generation growth of the Company.
(2) Construction works of the expansion project of Jining Power Plant Phase
Two (using Cycled Fluidized Bed Combustion Boilers) has been progressing
smoothly. The quality of the works and investment were under effective
control and the works are being conducted according to schedule.
5. Opening a new chapter in sustainable development
Project proposals in relation to the proposed projects of Huaneng Shanghai
Gas-fired Power Plant (3x300 MW-class Combined-Cycle-Gas-Turbine generating
units), Huaneng Jinling Gas-fired Power Plant (3x300 MW-class
Combined-Cycle-Gas-Turbine generating units), Huaneng Shantou Coal-fired Power
Plant Phase Two (1x600 MW Coal-fired generating unit), and Huaneng Yuhuan
Power Plant (2x1,000 MW-class Coal-fired generating units) have been approved
by the State Development and Planning Committee. The feasibility study report
of Huaneng Huaiyin Power Plant Phase Two (2x300 MW-class Coal-fired generating
units) has also been approved by the State Development and Planning Committee.
The aggregate planned capacity of these planned projects is estimated to be
approximately 4,800 MW. The Company will actively push forward the progress of
the proposed projects according to commercially viable principles.
PROSPECTS FOR 2003
Year 2003 is the first year that the power industry enters into a new era of
stable development and is also the first year after the implementation of the
State's power sector reform scheme. A stable growth trend prevails in the
national economy of the PRC and it is expected that growth in power demand
will be greater than that of last year. With the deepening of the power sector
reform, a new power market and a new set of regulatory mechanisms will be
established. A sound operating environment will be conducive to the Company,
allowing it to bring its advantages into full play amidst competition and to
seize opportunities to expand its operation scale. However, at the same time,
the Company is also aware of challenges in various aspects. For instance, the
market competition will become more severe; the pressure of the rising coal
price will increase difficulties for the Company to control power generation
costs. Moreover, the pressure of downward power tariffs will affect the
profitability of the Company. The Company is fully aware of the co-existence
of opportunities and challenges in 2003. The Company has full confidence and
strength to seize opportunities and deal with challenges, and will endeavour
to fulfill the following objectives in 2003:
(1) to ensure the safety and operating stability of the power plants and the
achievement of their annual plans of power generation;
(2) to reinforce sales and marketing efforts, and to enhance the research on
the power market competition mode for the regions in which power plants
of the Company are located in order to analyse and formulate effective
market strategies, thus bringing economies of scale and integrative
advantages of the Company into full play and continuing to enlarge its
market shares;
(3) to undertake stringent control of operating costs, in particular to
enhance fuel management in order to realise management efficiency;
(4) to actively push forward the preparatory work for the planned projects;
(5) to prepare itself well for asset operation with a view to seizing
opportunities to expand the Company's operating scale and enhance its
business strength; and
(6) to establish an information management system and implement
all-inclusive budget management under comprehensive planning guidance.
The Company is fully confident of its future development. Following the
principles of "emphasising both development and acquisition, emphasising both
greenfield and expansion, emphasising both coal-fuel and other types of fuel;
and emphasising both domestic and overseas funds", the Company will continue
to endeavour to enhance operating efficiency, and maintain a continuous,
stable and healthy development of the Company, so as to provide a long-term
and stable growth of return to the shareholders.
Management's Discussion and Analysis
OPERATING RESULTS
Comparison of operating results between the years ended 31st December 2002 and
2001.
Summary
During the year ended 31st December 2002, the Company successfully carried out
a number of acquisitions. On 1st July 2002, the Company completed the
acquisition of all the assets and liabilities of Changxing Power Plant, 70%
equity interest in Shidongkou First Power Plant, 70% equity interest in
Taicang Power Plant and 44.16% equity interest in Huaiyin Power Plant.
Subsequently on 31st December 2002, the Company further acquired the remaining
30% equity interest in Shidongkou First Power Plant, 5% equity interest in
Taicang Power Plant and 19.48% equity interest in Huaiyin Power Plant. In
addition, on 18th June 2002, the Company acquired the remaining 25% minority
interest of Jining Power Plant, which then became a 100% owned power plant of
the Company. Furthermore, Dezhou Power Plant Phase III, the expansion project
with a capacity of 2x660 MW, was put into commercial operation in 2002. These
acquisitions and the expansion project enabled the Company to expand its scale
of operation, increase its market share and enhance its geographical coverage
and competitiveness.
The total assets and liabilities of the four new power plants were included in
the consolidated balance sheet as at 31st December 2002, the operating revenue
and operating expenses of Huaiyin Power Plant were not included in the
consolidated income statement of the Company and its subsidiaries, but equity
accounting was applied for the original 44.16% equity interest purchased from
1st July 2002 through 31st December 2002. All of the revenue and expenses of
Changxing Power Plant, Shidongkou First Power Plant and Taicang Power Plant
have been consolidated in the consolidated income statement of the Company and
its subsidiaries since a controlling stake of more than 50% was acquired.
In 2002, the power output of the Company and its subsidiaries increased by
24.45% to 67.3316 billion kWh from 54.1053 billion kWh in 2001. Accordingly,
net operating revenues and net profit were increased significantly when
compared to 2001. In addition, because of the Company's consistent effort on
cost control measure, the Company achieved its cost control target on fuel
costs and other costs.
Net Operating Revenues
Net operating revenues represent operating revenues net of value-added tax and
deferred revenue. For the year ended 31st December 2002, the consolidated net
operating revenues of the Company and its subsidiaries were Rmb18.4745
billion, representing an increase of 16.99% over the net operating revenues of
Rmb15.7914 billion of last year. When compared to the net operating revenues
before deferred revenue, it had increased 18.34% over last year. Deferred
revenue represents the excess of the major repair and maintenance expenses
determined on the basis of 1% of the fixed asset cost recoverable through the
tariff setting process over the major repair and maintenance expenses actually
incurred. Because the excess of repair and maintenance expenses had been
recovered through the tariff but not yet incurred, the Company had recorded
such excess as deferred revenue since 2002 and deducted the same amount from
the major repair and maintenance expenses (i.e. the major repair and
maintenance expenses were recorded as operating expenses based on the amount
actually incurred).
The significant increase of net operating revenues was primarily caused by
increase of power output over last year. Before considering the four power
plants acquired in 2002, the power output of the original twelve power plants
of the Company and its subsidiaries increased by 11.94% over last year.
The lower growth rate of operating revenue, when compared with that of power
output, was due to the decrease of the average tariff rate. The average tariff
rate decreased from Rmb342.03 per MWh to Rmb325.38 per MWh in 2002. The
decrease of the average tariff rate was due to the adjustment of approved
tariff rates and the increase of percentage of excess generation portion as
the total power output increased. In addition, the tariff rates of the newly
acquired power plants were lower than that of the original power plants of the
Company, which also affected the average tariff rate.
Dalian Power Plant
Dalian Power Plant's net operating revenues increased by 5.35% to Rmb1.5870
billion in 2002 from Rmb1.5065 billion of last year. The average tariff rate
was Rmb280.53 per MWh in 2002, which was decreased by 3.72% from Rmb291.38 per
MWh in 2001. The output of Dalian Power Plant increased by 11.81% to 6.7632
billion kWh in 2002 when compared to 2001.
Fuzhou Power Plant
Fuzhou Power Plant's net operating revenues increased by 15.61% to Rmb1.8890
billion in 2002 from Rmb1.6340 billion of last year. The average tariff rate
was Rmb327.80 per MWh in 2002, which was decreased by 7.34% from Rmb353.77 per
MWh in 2001. The output of Fuzhou Power Plant was increased by 27.21% to
6.8742 billion kWh in 2002 when compared to 2001.
Shangan Power Plant
Shangan Power Plant's net operating revenues decreased by 1.64% to Rmb1.9241
billion in 2002 from Rmb1.9561 billion of last year. The average tariff rate
was Rmb315.65 per MWh in 2002, which was decreased by 4.04% from Rmb328.95 per
MWh in 2001. The decrease of average tariff rate was mainly caused by the
adjustment of the approved tariff rate. However, the power output of Shangan
Power Plant increased by 3.53% to 7.2030 billion MWh in 2002, which partially
offset the impact of tariff adjustment.
Nantong Power Plant
Nantong Power Plant's net operating revenues increased by 5.10% to Rmb1.9546
billion in 2002 from Rmb1.8598 billion of last year. The average tariff rate
was Rmb309.54 per MWh in 2002, which was decreased by 2.78% from Rmb318.38 per
MWh in 2001. The output of Nantong Power Plant was increased by 9.70% to
7.5042 billion kWh in 2002 when compared to 2001.
Shantou Oil-fired Power Plant
Shantou Oil-fired Power Plant's net operating revenues increased by 14.45% to
Rmb113.9 million in 2002 from Rmb99.5 million of last year. The average tariff
rate was Rmb621.02 per MWh in 2002, which was increased by 0.45% from
Rmb618.24 per MWh in 2001. The output of Shantou Oil-fired Power Plant was
increased by 8.13% to 0.2037 billion kWh when compared to 2001.
Shantou Coal-fired Power Plant
Shantou Coal-fired Power Plant's net operating revenues increased by 3.28% to
Rmb1.4870 billion in 2002 from Rmb1.4397 billion of last year. The average
tariff rate was Rmb455.95 per MWh in 2002, which was decreased by 3.78% from
Rmb473.85 per MWh in 2001. The output of Shantou Coal-fired Power Plant was
increased by 9.02% to 3.8714 billion kWh when compared to 2001.
Shidongkou Second Power Plant
Shidongkou Second Power Plant's net operating revenues decreased by 2.57% to
Rmb2.1056 billion in 2002 from Rmb2.1612 billion of last year. The average
tariff rate was Rmb345.90 per MWh in 2002, which was decreased by 1.95% from
Rmb352.78 MWh in 2001. The decrease of average tariff rate was mainly caused
by the adjustment of the approved tariff. However, the power output of
Shidongkou Second Power Plant increased by 2.54% to 7.2681 billion kWh in
2002, which partially offset the impact of tariff adjustment.
Dandong Power Plant
Dandong Power Plant's net operating revenues increased by 11.20% to Rmb754.3
million in 2002 from Rmb678.3 million of last year. The average tariff rate
was Rmb273.70 per MWh in 2002, which was decreased by 8.45% from Rmb298.96 per
MWh in 2001. The output of Dandong Power Plant increased by 26.77% to 3.365
billion kWh when compared to 2001.
Nanjing Power Plant
Nanjing Power Plant's net operating revenues increased by 13.32% to Rmb934.3
million in 2002 from Rmb823.7 million of last year. The average tariff rate
was Rmb304.07 per MWh in 2002, which was decreased by 4.56% from Rmb318.60 per
MWh in 2001. The output of Nanjing Power Plant increased by 19.20% to 3.6083
billion kWh when compared to 2001.
Dezhou Power Plant
Dezhou Power Plant achieved net operating revenues of Rmb2.2855 billion in
2002, which was increased by 21.30% from Rmb1.8842 billion of last year. The
average tariff rate was Rmb339.64 per MWh, which decreased by 0.20% from
Rmb340.33 per MWh in 2001. The output of Dezhou Power Plant increased by
21.45% to 7.8733 billion kWh when compared to 2001. Dezhou Power Plant Phase
III, the expansion project, was put into commercial operation in 2002, with
power output of 1.7650 billion kWh.
Jining Power Plant
The net operating revenues of Jining Power Plant increased by 5.58% to Rmb422
million in 2002. The average tariff rate was Rmb275.15 per MWh, which was
increased by 2.93% from Rmb267.31 per MWh of last year. The output of Jining
Power Plant increased by 2.08% to 1.8052 billion kWh when compared to 2001.
Changxing Power Plant
Changxing Power Plant had become a wholly owned plant of the Company effective
from 1st July 2002. The net operating revenues of Changxing Power Plant from
July to December were Rmb233.5 million. The power output and average tariff
rate of Changxing Power Plant were 0.8635 billion kWh and Rmb316.93 per MWh,
respectively.
Shidongkou First Power Plant
The Company acquired 70% equity interest in Shidongkou First Power Plant on
1st July 2002 and the remaining equity interest of 30% on 31st December 2002.
Hence, it became a wholly owned power plant of the Company as at the same
date. The net operating revenues of Shidongkou I Power Plant from July to
December were Rmb813.0 million. The power output and average tariff rate of
Shidongkou First Power Plant were 3.7930 billion kWh and Rmb252.97 per MWh,
respectively.
Taicang Power Plant
The Company acquired 70% equity interest in Taicang Power Plant on 1st July
2002 and additional 5% of equity interest on 31st December 2002. The net
operating revenues of Taicang Power Plant from July to December were Rmb566.4
million. The power output and average tariff rate of Taicang Power Plant were
2.1095 billion kWh and Rmb317.52 per MWh, respectively.
Weihai Power Plant
The Company owns 60% equity interest in Weihai Power Plant. The net operating
revenues of Weihai Power Plant was Rmb1.4051 billion, which was increased by
4.18% from Rmb1.3486 billion of last year. The average tariff rate was
Rmb393.74 per MWh, which was increased by 0.77% from Rmb390.72 per MWh in
2001. The output of Weihai Power Plant was increased by 3.38% to 4.2255
billion kWh when compared to 2001.
Operating Expenses
The total operating expenses of the Company and its subsidiaries increased by
19.66% to Rmb12.8965 billion in 2002, over the Rmb10.7773 billion of last year
(when comparing the operating costs with the repair and maintenance expenses
determined on the basis of 1% the fixed assets cost, the operating expenses
would have been increased by 21.64%). As a result of the effective cost
control measure implemented by the Company, the rate of increase of operating
expenses was lower than that of power output.
The primary operating expenses of the Company and its subsidiaries was fuel
cost. The fuel cost increased by 34.36% to Rmb6.9160 billion in 2002, when
compared to Rmb5.1474 billion in last year. Before considering the four power
plants acquired in 2002, the weighted average unit price of natural coal of
the original twelve power plants increased by 5.29% to Rmb232.34 per ton in
2002 from Rmb220.66 per ton of last year. The unit fuel cost per MWh increased
by 6.41% to Rmb101.20 per MWh. The higher unit fuel cost per MWh of the four
power plants acquired than that of the original twelve power plants resulted
in the increase of unit fuel cost of the Company and its subsidiaries to
Rmb102.71 per MWh in 2002.
Maintenance Expense
The maintenance expenses incurred by the Company and its subsidiaries was
Rmb608.0 million in 2002 (if the repair and maintenance expenses were
determined on the basis of 1% the fixed assets cost, the maintenance expenses
would have been increased by 7.2% from Rmb765.7 million of last year). The
maintenance expenses of the original twelve power plants and the four power
plants acquired in current year amounted to Rmb535.3 million and Rmb72.7
million, respectively.
Depreciation and Amortization
The depreciation and amortization of the Company and its subsidiaries was
Rmb3.5336 billion in 2002. The depreciation and amortization of the original
twelve power plants and the headquarter of the Company was Rmb3.3133 billion,
which was increased by 1.60% from Rmb3.2610 billion of last year. The
depreciation and amortization of the four power plants acquired in current
year was Rmb220.3 million.
Labor Cost
The labor cost of the Company and its subsidiaries was Rmb1.0357 billion in
2002, which increased by 28.32% from Rmb 807.1 million of last year mainly due
to the increase in the number of employees for the four power plants acquired.
Transmission Fees
Transimission service fees paid to Shandong Electric Power Group Corporation
by Dezhou Power Plant, Weihai Power Plant and Jining Power Plant were Rmb35.8
million in 2002, which decreased by 3.17% from Rmb36.9 million of last year.
Service Fee to HIPDC
The service fee paid to HIPDC refers to a fee for the use of its grid
connection and transmission facilities based on reimbursement of cost plus a
profit.
In 2002, the Company incurred the service fee in relation to the grid
connection and transmission facilities for Fuzhou Power Plant Phase I,
Shidongkou Second Power Plant, Shangan Power Plant, Shantou Coal-fired Plant
(HIPDC had transferred the ownership of transmission and transformation
facilities of Fuzhou Power Plant Phase I and Shanghai Shidongkou Second Power
Plant to Fujian Electric Power Company and Shanghai Power Corporation,
respectively, on 1st July 2002. The Company was not required to pay the
service fee for these two plants since the transfer). The service fee to HIPDC
decreased by 14.19% to Rmb263.7 million in 2002, when compared to Rmb307.3
million of last year.
Other Expenses
Other expenses of the Company and its subsidiaries was Rmb503.6 million in
2002, which was increased by 11.46% from Rmb451.9 million of last year. Other
expenses mainly comprised environmental protection fee, general and
administrative expenses and other miscellaneous expenses. The increase of
other expenses was mainly due to the inclusion of other expenses of four power
plants acquired in current year. Before considering the four power plants
acquired in current year, the other expenses of original twelve power plants
was decreased by 12.68% to Rmb394.5 million, despite the increase of total
power output. This indicated the effectiveness of the cost control measures.
Profit from Operation
The profit from operation of the Company and its subsidiaries increased by
11.25% to Rmb5.5780 billion in 2002 from Rmb5.0140 billion of last year.
Financial Expenses
The financial expenses of the Company and its subsidiaries was decreased by
35.91% to Rmb510.3 million in 2002 from Rmb796.2 million of last year. The
financial expense of the original twelve power plants was Rmb492.0 million
which decreased by 43.29% from Rmb867.5 million of last year. The overall
reduction of financial expenses was mainly due to the significant decrease of
debt balances of the Company and its subsidiaries in 2002. In addition, in
order to reduce the interest expenses, the Company grasped the opportunity of
declining market interest rate and borrowed loans with lower interest rate to
refinance the high interest rate loans. As a result, the financial expense of
the relevant loans was decreased by USD9.5 million in 2002.
Income Tax Expenses
Pursuant to the relevant tax regulations, the Company is a sino-foreign joint
venture and enjoys the relevant tax holiday. Each of the power plants of the
Company is exempted from PRC income tax for two years starting from the first
profit-making year after covering any accumulated deficits followed by a 50%
reduction of the applicable tax rate for the next three years. In addition, as
confirmed by the State Tax Bureau, the Company's wholly owned power plants pay
their respective income tax to local tax authorities, although they are not
separate legal entities. The consolidated income tax expenses of the Company
and its subsidiaries were Rmb980.9 million in 2002. The income tax expenses
for the original twelve power plants and the four power plants acquired in
current year amounted to Rmb873.5 million and Rmb107.4 million, respectively.
Jining Power Plant and Changxing Power Plant became wholly owned power plants
of the Company in 2002. As approved by the relevant tax authorities, the
income tax rate of Jining Power Plant was decreased from 33% to 15% effective
from 1st September 2002, and the income tax rate of Changxing Power Plant was
decreased from 33% to 16.5% effective from 1st July 2002.
Net Profit
The consolidated net profit of the Company and its subsidiaries increased by
13.63% to Rmb3.9210 billion from Rmb3.4507 billion of last year. The increase
was primarily due to the increase of power output, the decrease of the
financial expenses and the profit contributed by the four power plants
acquired in current year.
The net loss of Dangdong Power Plant was Rmb104.4 million in 2002, which was
decreased by 48.20% when compared to last year as the power output was
substantially increased in 2002. The net loss of Shantou Oil-fired Power Plant
was Rmb16.1 million in 2002, which was decreased by Rmb12.9 million.
Comparison of Key Financial Ratios
The Company and
its subsidiaries
-------------------------------------------------------------------------------
2002 2001
-------------------------------------------------------------------------------
Current ratio 1.00 1.21
Quick ratio 0.88 1.13
Ratio of liabilities and shareholders' equity 0.56 0.65
Multiples of interest earned 8.28 5.35
-------------------------------------------------------------------------------
After the acquisition of Shidongkou First Power Plant, Taicang Power Plant,
Huaiyin Power Plant and Changxing Power Plant, the Company still maintained
its strong debt repayment ability.
As at 31st December 2002, the loans denominated in foreign currencies of the
Company and its subsidiaries amounted to approximately USD1.122 billion
(including USD20 million liability component of convertible notes), of which
USD262 million was repayable within one year. The Company and its subsidiaries
will closely monitor the fluctuation in the foreign exchange market and
cautiously assess the exchange rate risk.
Most of the long-term loans of the Company and its subsidiaries were
fixed-rate loans. As at 31st December 2002, the balance of the floating-rate
loans of the Company and its subsidiaries amounted to approximately USD433
million according to the loan agreements. The Company and its subsidiaries
made use of interest rate swap contracts, when appropriate, to manage the risk
of interest rate fluctuations.
Calculation formula of the financial ratio:
Ratio of liabilities to = balance of liabilities at the end
shareholders' equity of the year/balance of shareholders'
equity at the end of the year
Current ratio = balance of current assets at the end
of the year/balance of current
liabilities at the end of the year
Quick ratio = (balance of current assets at the end
of the year - net amount of inventory
at the end of the year)/balance of
current liabilities at the end of
the year
Multiples of interest earned = (profit before taxation + interest
expenses)/interest expenditure
(including capitalised interest)
Dividend Payable
On 12th March 2003, the Board of Directors proposed a dividend of Rmb0.34 per
ordinary share, totaling approximately Rmb2.040 billion for the year ended
31st December 2002. The proposed dividend distribution is subject to
shareholders' approval in their next general meeting.
Corporate Governance
In 2002, the Company continues to make efforts to perfect its corporate
governance. The Company made structural modification of its Board of Directors
and Supervisory Committee by reducing internal directors and increasing
independent directors, thus resulting in one third of the members of the Board
of Directors being independent directors.
At the end of 2002, the Company, in accordance with the resolutions passed at
a shareholders' general meeting, set up four special committees, namely, the
Strategy Committee, the Audit Committee, the Nomination Committee, and the
Remuneration and Appraisal Committee, and formulated the working regulations
for such committees in accordance with the relevant rules and regulations. All
committees will operate in accordance with the working rules and utilise their
members' specific background, experience and industry expertise to provide
advice to the Company, so as to enhance the operation efficiency of the
Company and to make the decision-making process more rationalised.
The main duties of the Strategy Committee are to advise the Company on, and
conduct research in relation to, its long term development strategies and
decisions regarding significant investments.
The main duties of the Audit Committee are to provide proposal in relation to
the appointment or change of external auditors, to oversee the Company's
internal audit system and its implementation, to co-ordinate the communication
between the internal audit department and external auditors, to examine the
Company's financial information and its disclosure; and to oversee the
Company's internal control system.
The main duties of the Nomination Committee are to conduct study and provide
advice in relation to the requirements for selection of directors and managers
and the relevant procedures; to search for the qualified candidates of
directors and managers, and to examine the candidates of directors and
managers and advise matters in relation thereto.
The main duties of the Remuneration and Appraisal Committee are to conduct
research on the appraisal guidelines for directors and managers, to carry out
performance appraisals and provide advice accordingly, and to conduct research
on the remuneration policy and proposal regarding the directors and senior
management.
The members of the special committees are as follows:
Strategy Committee:
Chairman: Mr Li Xiaopeng
Vice-chairman: Mr Zheng Jianchao
Members: Mr Wang Xiaosong, Mr Ye Daji, Mr Huang Jinkai,
Mr Liu Jinlong, Mr Qian Zhongwei
Audit Committee:
Chairman: Mr Xia Donglin
Members: Mr Wang Xiaosong, Mr Shan Qunying, Mr Zheng Jianchao,
Mr Qian Zhongwei
Nomination Committee:
Chairman: Mr Qian Zhongwei
Members: Mr Huang Jinkai, Mr Yang Shengming, Mr Gao Zongze and
Mr Zheng Jianchao
Remuneration and Appraisal Committee:
Chairman: Mr Gao Zongze
Members: Mr. Liu Jinlong, Mr Xu Zujian, Mr Zheng Jianchao and
Mr. Xia Donglin
Questions Frequently Asked by Investors
1. What are the situations with Huaneng Group's assets? How is the scope of
assets for acquisition by the Company in the future? What will be the
sources of fund for such future acquisitions?
The Company, on the one hand, will continue to acquire assets from the
parent company, and, on the other hand, will select suitable
opportunities to acquire assets outside the parent company.
After the power reforms, taking into account of the projects under
construction, the power generation capacity controlled by Huaneng Group
will increase from 25,662 MW to 37,970 MW; if excluding the generation
capacity related to the projects under construction and equity
participation, the wholly-owned or controlled generation capacity totals
30,132 MW; generation capacity on an equity basis is 19,380 MW. The
recent objective of Huaneng Group is: by 2010, the power generation
capacity will reach 60,000 MW, an increase of approximately 30,000 MW
when compared with the present figure; and will reach 120,000 MW by 2020.
As the ultimate parent company, Huaneng Group, after its restructuring,
reiterated that it will coutinue to fully support the development of the
Company and give right of first refusal to the Company in terms of
project development and sale of assets.
Sources of funds for future acquisitions include internal surplus cash
and funds obtain through financing. Regarding the financing, equity
financing and debt financing or a combination of various methods will be
considered.
2. Why did the Company acquire Shenzhen Energy at a relatively high price?
Firstly, through the acquisition, we may share the good assets portfolio
and profitability of Shenzhen Energy at a reasonable price. In view of
its more than 10 years' development experience and the full support of
the Shenzhen Municipal Government, Shenzhen Energy has become the largest
independent power generation group of Shenzhen and is also one of the
leading independent power producers in the power grids of Guangdong
province.
Secondly, through the transaction, we have strategically entered into the
Shenzhen power market and enlarged our market share in Guangdong. The
sound economic foundation and development of Shenzhen will bring the
continued and strong growth in power consumption. Also, Shenzhen Energy
controls more than 75% of the aggregate generation capacity of Shenzhen.
Thirdly, we may benefit from more development opportunities by way of
Shenzhen Energy's market position and its new project development
capabilities. Investing in Shenzhen Energy does not only immediately
increase our market share in such market, but also provides opportunities
for development of new projects in such region in the future.
Fourthly, through the transaction, our earnings per share will be
increased.
This acquisition is the Company's first acquisition outside Huaneng Group
after the announcement of the power sector reform and is also the
Company's first acquisition obtained through international bidding, thus
it have a significant meaning to the Company. Currently, the transaction
is pending approvals from the relevant governmental authorities.
3. Please give an account on the progress of the Three Gorges project and its
effect on the Company
The Three Gorges Power Station is currently the largest hydro-power
station in the world with an aggregate generation capacity of 18,200 MW.
From 2003 to 2009, 26 generating units will commence operation
successively. On the basis of design, the average annual power generation
volume of the power station is 84.7 billion kWh. Recently the State
Council has approved the proposal on the power energy consumption of the
Three Gorges Hydro-power Station taking into account of issues including
balancing, consumption and pricing of the power receiving regions. Eight
provinces and one city including Hubei, Henan, Hunan, Jiangxi, Shanghai,
Jiangsu, Zhejiang, Guangdong and Anhui have been confirmed as the power
consumption regions of the Three Gorges Hydro-power Station. Hence,
3,000,000kW and 7,200,000kW will be transmitted to Guangdong and Eastern
China respectively, with the remainder being transmitted to Central China.
New projects proposed to be developed by the Company in East China and
government approval for new projects in such region have taken into
account of factors including growth in local power demand and
transmission of electricity from the Three Gorges.
4. What will be the impact of "West-East Power Transmission" on the Company?
Both the development of hydro-power in the southwestern region and the
Three Gorges project are major project for the nation's economic
development during the Tenth Five-year Plan period. Their development and
construction not only takes into account of the energy structure and
environmental protection factors, but also serves to satisfy the
ever-increasing power demand in the PRC. Although the successive
commencement of operating such projects will increase power supply and
will occupy some market shares, it will not have a significant impact on
the Company because of the great potential in power demand in the
economically vibrant southeastern coastal region.
Also, the development of hydro-power requires the coordination of thermal
power plants. Long distance power transmission requires the support of a
power source centre. This will be an advantage for our power plants,
ensuring stable power generation at these plants.
5. How does the Company control the increase in fuel costs?
The Company controls the price in fuel costs mainly by the following
measures:
(1) to control coal procurement costs and to reduce transportation costs
and storage loss;
(2) to continue to promote coal blending and burning work in order to
off-set the price increase of the originally designed major burning
coal types;
(3) to further reduce the oil consumption of certain power plants
through enhancing the operating efficiency of the generating units;
(4) to reduce unit coal consumption through optimising the operational
mode of the generating units;
(5) economies of scale of centralized coal procurement of the Company is
instrumental in reducing procurement costs.
Report of the Board of Directors
The Board presents the report and the audited financial statements of the
Company and its subsidiaries for the year ended 31st December 2002.
BUSINESS OF THE COMPANY AND OPERATING RESULTS
In 2002, the Company achieved remarkable results by overcoming various
unfavourable external conditions as a result of the joint efforts of all the
staff and management of the Company. In terms of electricity production, the
Company's annual generation exceeded its target for the year. Regarding the
operation management, the Company continued to effectively control and manage
costs. During the year, the Company acquired from Huaneng Group 100% equity
interest in Shanghai Shidongkou First Power Plant, 75% equity interest in
Taicang Power Plant, 63.64% equity interest in Huaiyin Power Plant and all net
assets of Changxing Power Plant. These acquisitions will increase the
Company's market shares in East China, a region undergoing high economic
growth and faced with strong demand for electricity. They have also enabled
the Company to enter the market of Zhejiang Province, one of the fastest
growing power markets in the PRC, for the first time.The Board of Directors is
satisfied with the operating results of 2002.
Please refer to pages 60 to 114 of the financial statements for the operating
results of the Company and its subsidiaries for the year ended 31st December
2002.
Summary of Financial Information
Please refer to the Financial Highlights on page 16 for summary of the
operating results and assets and liabilities of the Company and its
subsidiaries for the year ended 31st December 2002.
Dividends
The Board of Directors proposed to distribute a dividend of Rmb0.34 per share
for year 2002 to all the shareholders.
Dividends will be denominated and declared in Renminbi. Dividends on domestic
shares will be paid in Renminbi. Save and except for the dividends on foreign
shares traded on the Hong Kong Stock Exchange which will be paid in Hong Kong
dollars, 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 Rmb8.2725 and HK$1 to Rmb1.06095 respectively.
All the dividends will be paid before 30th June 2003, subject to the approval
of the Annual General Meeting of the Company's shareholders.
Bank Loans and Other Borrowings
Please refer to Notes 23 to 25 of the financial statements for details of bank
loans and other borrowings of the Company and its subsidiaries as at 31st
December 2002.
Capitalized Interest
Please refer to Note 10 of the financial statements for details of the Company
and its subsidiaries' capitalized borrowing costs during the year.
Fixed Assets
Please refer to Note 10 of the financial statements for changes in the fixed
assets of the Company and its subsidiaries during the year.
Reserves
Please refer to Note 20 of the financial statements for the reserves of the
Company, including allocation of statutory fund during the year ended 31st
December, 2002.
Subsidiaries and Associated Companies
As regards the subsidiaries and associate companies of the Company, please
refer to Notes 11 and 12 of the financial statements.
Changes in Shareholders' Equity
Please refer to the Statement of Changes in Shareholders' Equity of the
financial statements.
Staff Retirement Scheme
Please refer to Note 8 of the financial statements for the Staff Retirement
Scheme.
Pre-emptive Rights
According to the Articles of Association of the Company and the laws of the
PRC, there are no provisions for pre-emptive rights requiring the Company to
offer new shares to the existing shareholders of the Company in proportion to
their shareholdings.
Major Suppliers and Customers
The five major suppliers of the Company for year 2002 were coal suppliers,
namely Shenhua Coal Transportation Company, Datong Mineral Bureau, Yangquan
Mineral Bureau, Shanxi Coking Coal Group and Zhun Ge Er Company. The amount of
coal supplied by the five major suppliers was about 31.7% of the total coal
consumption of the Company in 2002.
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 2002.
Connected Transactions
The Independent Directors of the Company confirmed that all connected
transactions in 2002 to which the Company and/or any of its subsidiaries was a
party:
1. had been entered into by the Company and/or any of its subsidiaries in
the ordinary and usual course of its business;
2. had been entered into either (a) on normal commercial terms (which
expression will be applied by reference to transactions of a similar
nature made by similar entities within the PRC), or (b) where there is
no available comparison, on terms that are fair and reasonable so far as
the shareholders of the Company are concerned; and
3. had been entered into either (a) in accordance with the terms of the
agreements governing such transactions, or (b) where there is no such
agreement, on terms no less favourable than terms available to third
parties.
The auditors of the Company have reviewed the connected transactions of
the Company and confirmed to the Directors that:
(a) the transactions had been approved by the Directors; and
(b) the transactions were made in accordance with the terms of the
related agreements governing such transactions.
Please refer to Note 7 of the financial statements for a brief description of
the connected transactions.
Share Capital Structure
As at 31st December 2002, the total issued share capital of the Company,
excluding the shares which might be converted from the convertible notes, was
6,000,273,960 shares, of which 4,500,000,000 shares were domestic shares,
representing approximately 75% of the total issued share capital, and
1,500,273,960 shares were foreign shares, representing approximately 25% of
the total issued share capital. For domestic shares, HIPDC owns a total of
2,554,840,000 shares, representing 42.58% of the total issued share capital of
the Company. Other domestic shareholders hold a total of 1,945,160,000 shares,
representing 32.42% of the total issued share capital.
The USD230 million convertible notes issued by the Company are convertible
into foreign shares of the Company at a price of USD29.2 for each American
Depositary Share on or before 21st May 2004. According to the terms as
stipulated in the convertible notes and at the request of a noteholder, the
Company redeemed an aggregate amount of USD209,685,000 convertible notes on
21st May 2002 and issued 273,960 overseas listed shares to holders of
convertible notes as a conversion of USD200,000 convertible notes on 21st
August 2002. As at 31st December 2002, there was an aggregate amount of
USD20,115,000 convertible notes which had not been redeemed. Assuming the
convertible notes were fully converted into foreign shares of the Company, the
total issued share capital of the Company would be increased by 27,554,760
foreign shares at most.
Purchase, Sale or Redemption of Shares
According to the terms as stipulated in the convertible notes issued by the
Company and at the request of a noteholder, the Company redeemed an aggregate
amount of USD209,685,000 convertible notes on 21st May 2002 and issued 273,960
overseas listed shares to a holder of convertible notes as a conversion of
USD200,000 convertible notes on 21st August 2002. Save and except for the
above, the Company and its subsidiaries did not sell any other types of
securities and did not purchase or redeem its own shares or other securities
in 2002.
Directors' and Supervisors' Right to Purchase Shares
For the year ended 31st December 2002, 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 29 of the Securities (Disclosure
of Interests) Ordinance 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
2002 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 Major Shareholders
The following table sets forth the shareholding position of the Company's
shares as at 31st December 2002:
------------------------------------------------------------------------------------------------
No. of Shares Percentage of
outstanding Shareholding
(in thousands) (%)
------------------------------------------------------------------------------------------------
Domestic Shares
Huaneng International Power Development Corporation 2,554,840 42.58
Hebei Provincial Construction Investment Company 452,250 7.54
Fujian International Trust & Investment Company 334,850 5.58
Jiangsu Province International Trust & Investment Company 312,375 5.20
Liaoning Energy Corporation 229,685 3.83
Dalian Municipal Construction Investment Company 226,125 3.77
Nantong Investment Management Centre 67,875 1.13
Shantou Electric Power Development Company 46,500 0.77
Shantou Power Development Joint Stock Company Limited 19,000 0.32
Dandong Energy Investment Development Centre 6,500 0.11
Domestic public shares 250,000 4.17
Sub-total 4,500,000 75.00
Foreign Shares 1,500,274 25.00
TOTAL 6,000,274 100.00
------------------------------------------------------------------------------------------------
Save as aforesaid, the Company had no notice of any interest required to be
recorded under section 16(1) of the Securities (Disclosure of Interests)
Ordinance.
Directors' and Supervisors' Interest in Contracts and Service Contracts
Save for the service contracts mentioned below, as at the end of 2002, 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.
On 23rd December 2002, the Company commenced an extraordinary general meeting
to approve the resolutions relating to the change of session of directors and
supervisors. The appointment of the new session of directors took effect on
the date of the passing of the relevant resolutions and the term of services
was three years commencing from such appointment date.
Staff Housing
The Company made allocation to the housing common reserve fund for its
employees in accordance with the relevant PRC regulations.
Staff Medical Insurance Scheme
During year 2002, the Company and its subsidiaries have fulfilled their
obligations regarding staff medical insurance in accordance with the relevant
rules and regulations imposed by the local governments of the places where
they are located. The Directors of the Company are of the view that the
performance of such obligations by the Company did not and will not have
significant impact on the Company's financial position.
Major Events
In 2002,
1. The Company acquired from Huaneng Group 70% of the equity interest in
the registered capital of Shidongkou First Power Plant, 70% of the
equity interest in the registered capital of Taicang Power Plant, 44.16%
of the interest in the registered capital of Huaiyin Power Plant and all
net assets of Changxing Power Plant. The acquisition was effective on
1st July 2002, thereby increasing the generation capacity of the Company
by 1,687 MW.
2. After formal announcement of the power sector reform scheme, the Company
acquired the remaining 30% equity interest in the registered capital of
Shidongkou First Power Plant and the remaining 5% equity interest in the
registered capital of Taicang Power Plant formerly owned by Huaneng
Group. This acquisition has made Shidongkou First Power Plant a
wholly-owned power plant of the Company and has enhanced the
competitiveness of the Company in East China.
3. The transfer of 19.48% equity interest in Huaiyin Power Plant from
Jiangsu Huaiyin Investment Company to the Company has enabled the
Company to get the controlling right of Huaiyin Power Plant and obtain
the development right of Huaiyin Power Plant Phase Two. This acquisition
was effective on 31st December 2002.
4. The Company has acquired 3% of the shareholding in China Chang Jiang
Power Co. Ltd., taking the first step in the development of hydro-power.
5. The Company entered into an Entrusted Management Agreement with Huaneng
Group and HIPDC in relation to the management of their thermal power
plants. By entering into the Entrusted Management Agreement, the Company
will further accumulate management experience as a result of the
expansion of the Company's operation scale and set a precedent for
large-scale and multi-entities entrusted management in the PRC.
6. On 23rd December 2002, the Company convened an extraordinary general
meeting to approve the resolutions relating to change of session of the
board of directors. Messrs. Li Xiaopeng, Wang Xiaosong, Ye Daji, Huang
Jinkai, Liu Jinlong, Shan Qunying, Yang Shengming and Xu Zujian were
elected directors of the fourth session of the board of directors of the
Company. Messrs. Gao Zongze, Zheng Jianchao, Qian Zhongwei and Xia
Donglin were elected independent directors of the fourth session of the
board of directors of the Company.
7. On 23rd December 2002, the Company convened an extraordinary general
meeting to approve the resolutions relating to the change of session of
supervisors. Messrs. Wei Yunpeng, Liu Shuyuan, Pan Jianmin, Li Yonglin,
Shen Weibing and Shen Zongmin were elected supervisors of the fourth
session of supervisors of the Company.
8. On 23rd December 2002, the Company convened an extraordinary general
meeting to approve the resolution relating to the establishment of the
Strategy Committee, Audit Committee, Nomination Committee, and
Remuneration and Appraisal Committee.
9. On 23rd December 2002, the Company convened the first meeting of the
fourth session of the board of directors. The meeting has approved the
resolution in relation to the proposal regarding the election of the
Chairman and Vice Chairman of the fourth session of the board of
directors. Mr Li Xiaopeng was elected the Chairman and Mr Wang Xiaosong
was elected Vice Chairman of the fourth session of the board of
directors of the Company.
10. The proposal regarding the appointments of the Vice President, Chief
Economic Engineer, Chief Accountant was considered and approved in the
first meeting of the fourth session of the board of directors. Messrs.
Na Xizhi, Li Shiqi and Huang Jian were appointed Vice President, Chief
Economic Engineer and Chief Accountant of the Company respectively.
In 2003,
11. The Company entered into an agreement with Shenzhen Municipal Investment
Management Corporation and Shenzhen Energy Group Co., Ltd. to acquire
25% interest of the enlarged share capital of Shenzhen Energy Group Co.,
Ltd. by way of international tendering. After the transaction has
obtained the relevant government approvals, the Company will be able to
enlarge its market shares in Guangdong area, a fast growing market for
power demand.
Code of Best Practice
During the year, the Company has complied with the Code of Best Practice as
set out in Appendix 14 of the Rules Governing the Listing of Securities on the
Stock Exchange.
The Company established an audit committee on 23rd December 2002 with written
terms of reference. The primary duties of the audit committee are to review
and supervise the financial reporting process and internal control system of
the Company.
The audit committee comprises five members, among whom two are non-executive
Directors, namely, Messrs. Wang Xiaosong and Shan Qunying, and three are
independent directors, namely, Messrs. Xia Donglin, Zheng Jianchao and Qian
Zhongwei.
The audit committee has reviewed the Company's financial report for the year
ended 31st December 2002 and was of the view that the report has complied with
all applicable accounting standards and relevant regulations and laws, and has
made sufficient disclosure.
Designated Deposit
As at 31st December 2002, the Company and its subsidiaries did not have any
designated deposit with any financial institutions within the PRC nor any
overdue fixed deposits which could not be recovered.
Legal Proceedings
As at 31st December 2002, 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
The annual general meeting for 2002 will be held on 28th May 2003. The H share
register of the Company will be closed from 28th April 2003 to 27th May 2003
(both dates inclusive). Shareholders on the H share register as at 8th May
2003 will be entitled to attend the annual general meeting of the Company and
to receive the dividends for 2002.
By Order of the Board
Li Xiaopeng
Chairman
Beijing, the PRC
12th March 2003
Report of the Supervisory Committee
To: All Shareholders
During this reporting period, all members of the Supervisory Committee, aiming
at protecting the interest of the shareholders and the benefit of the Company,
have performed their supervisory functions in accordance with the Company Law
of the People's Republic of China ("Company Law"), the relevant provisions in
the Articles of Association of the Company and relevant laws and regulations.
By following the principle of acting honestly and in good faith, the
Supervisory Committee has carried out its work diligently. The Supervisory
Committee has also conducted review on the operational situation and financial
position of the Company for 2002 and the performance of duties of the senior
management of the Company. On behalf of the Supervisory Committee of the
Company, I am pleased to submit the working report as follows:
I. Working Report of the Supervisory Committee for 2002
During the reporting period, the Supervisory Committee has held four
meetings. Details of the time, venue, attendance and contents of the
meeting are as follows:
1. On 12th March 2002, the fourth meeting of the third session of the
Supervisory Committee was held in Beijing. All three members of
the Supervisory Committee attended the meeting. At the meeting,
the Working Report of the Company's Supervisory Committee for
2001, the audited financial statement of the Company for 2001, the
Company's budget for 2002, the Company's profit distribution plan
for 2001, the Company's profit distribution policy for 2002 and
the annual report of the Company of 2001, together with its
extract were discussed and approved.
2. On 7th August 2002, the fifth meeting of the third session of the
Supervisory Committee was convened in Beijing. All three members
of the Supervisory Committee attended the meeting. The Company's
interim report of 2002 and its extract were discussed and approved
at the meeting.
3. On 5th November 2002, the sixth meeting of the session of the
Supervisory Committee was held in Beijing. All three members of
the Supervisory Committee attended the meeting. The resolutions in
relation to the amendments to the Articles of Association of the
Company and change of session of Company's Supervisory Committee
were discussed and approved.
4. On 23rd December 2002, the first meeting of the fourth session of
the Supervisory Committee was held in Beijing. All seven members
of the Supervisory Committee attended the meeting. The resolution
regarding the election of the chairman and vice-chairman of the
fourth session of the Supervisory Committee of the Company was
discussed and approved.
During the reporting period, the Supervisors of the Company attended all
meetings of the Company's board of directors, the annual general meeting
of 2001 and those three extraordinary general meetings in 2002. At such
meetings, all members of the Supervisory Committee conducted careful
review and supervision on the lawful operation of the Company.
II. Independent Opinions of the Supervisory Committee on the Relevant Matters
of the Company in 2002
1. Lawful Operation of the Company
The Supervisory Committee performed effective supervision on the
procedures for convening the shareholders' meeting and board
meetings, adoption of resolutions, implementation of the
resolutions of the shareholders' meeting by the Board of
Directors, performance of duties of the senior management of the
Company and internal management system of the Company according to
the relevant laws and regulations.
The Supervisory Committee is of the view that the Board of
Directors is capable of conducting standardised operation in
strict compliance with the Company Law, the Securities Law, the
Articles of Association of the Company and the relevant
regulations and systems and members of the Board of Directors have
performed dutifully and diligently and their decisions are
scientific and reasonable. The management systems of the Company
are effective and the business activities of the Company are
lawful. When examining the financial conditions of the Company and
supervising the performance of duties by the directors and senior
management personnel of the Company, it was found that their
behaviour has not contravened any relevant laws and regulations
and has not caused any damage to the interests of the
shareholders.
2. Examining the Financial Conditions of the Company
The Supervisory Committee has carefully examined and verified
various materials to be submitted by the Board of Directors to the
annual general meeting for consideration, including the working
report of the board of directors for 2002, financial reports of
the Company for 2002, profit distribution proposal of the Company
for 2002 and the 2002 financial statements audited by the auditors
inside and outside the PRC for which unqualified opinions are
issued.
The Supervisory Committee is of the view that the financial
reports of the Company for 2002 are true and reliable and
objectively reflect the financial positions and operating results
of the Company. The Supervisory Committee agreed to the auditors'
report issued by the Company's auditors and the profit
distribution proposal of the Company for 2002.
3. Use of the Funds Raised by the Company
The recent fund raising by the Company was the issue of A Shares
in November, 2001 raising a total of Rmb2.7825 billion. The
Company is strictly complying with the undertaking in the A Share
prospectus and the proceeds from the A Share issue will be used to
repay the Company's borrowings. At at 1st January 2002, the unused
proceeds were Rmb1.165 billion and all of them were applied to
repay the due debt in the first half of 2002. The Supervisory
Committee is of the view that the proceeds from the recent fund
raising of the Company are used in the same items as those
undertaken in the prospectus.
4. Transactions relating to Acquisition and Disposal of Assets
During this reporting period, the Company has not conducted any
transaction relating to acquisition or disposal of assets. No
insider transactions have been found and there are no conditions
damaging the interests of shareholders or causing asset loss of
the Company.
In order to strengthen its competitiveness, the Company has
completed a number of acquisitions of good quality generation
assets during the reporting period. The Supervisory Committee is
of the view that during the reporting period, the consideration
paid by the Company for the acquisitions was reasonable, and was
in the interest of the Company and all of its shareholders.
5. Fairness of the Connected Transactions
During the reporting period, the connected transactions of the
Company are fair and reasonable and there are no conditions
detrimental to the interests of the Company.
6. Implementation of the Resolutions of the Shareholders' Meeting
During this reporting period, all members of the Supervisory
Committee participated in all board meetings of the Company and
attended four shareholders' meetings. The Supervisory Committee
does not have any objection to the reports and proposals submitted
by the Board of Directors to the shareholders' meetings. The
Supervisory Committee conducted careful supervision on the
implementation of the resolutions adopted at the shareholders'
meetings. The Supervisory Committee is of the view that the Board
of Directors is capable of seriously performing the resolutions
adopted at the shareholders' meetings.
The Supervisory Committee will continue to live up to the shareholders'
expectations in the forthcoming year and as usual will work hard to
safeguard the interests of the Company and its shareholders and act in
strict compliance with the Company Law and the relevant provisions of
the Articles of Association of the Company for the purpose of regulating
its operation. The Supervisory Committee will perform its supervisory
functions according to law, act on the basis of honesty and credibility,
enhance its supervision strength and continue to work hard.
I hereby report as above.
By Order of the Supervisory Committee
Wei Yunpeng
Chairman of the Supervisory Committee
11th March 2003
Profiles of Directors, Supervisors and Senior Management
Directors
Li Xiaopeng Mr. Li is Vice President of State Power Corporation, Chairman of
the Company, Chairman and President of HIPDC, as well as President of China
Huaneng Group. From June 1994 to December 2002, Mr. Li was Vice President,
President and Vice Chairman of the Company as well as Vice President,
President and Vice Chairman of HIPDC and Chairman of Huaneng Group. Before
joining HIPDC, he had successively served as Engineer of the Power System
Research Division, as Deputy Division Chief of the Planning and Operations
Division, and as General Manager of the Power Technology and Economic Research
Division, Electric Power Research Institute. Mr. Li is a senior engineer and
graduated from the North China Institute of Electric Power specializing in
power plants and power systems.
Wang Xiaosong Mr. Wang is Vice Chairman of the Company, Director and Vice
President of HIPDC, and Vice President of Huaneng Group. From June 1994 to
December 2002, he was General Manager of the Capital Market Department of the
Company, Vice President of the Company, Vice President of HIPDC and Director
of Huaneng Group. Before joining the Company, he had served as Deputy General
Manager of Fushun Power Plant, General Manager of Yuanbaoshan Power Plant and
Chief of the Labour and Wages Division of Northeast Power Administration. Mr.
Wang is a senior engineer and graduated from Beijing Institute of Electric
Power specializing in thermal power engineering.
Ye Daji Mr. Ye is Director and President of the Company. After joining the
Company, he has been Deputy General Manager of Huaneng Shanghai Branch and
General Manager of Huaneng Shanghai Shidongkou Second Power Plant. From
December 1995, he was Vice President of the Company, Vice President of HIPDC
and Director of Huaneng Group. Before joining the Company, he had served as
Deputy Chief Engineer of Shanghai Shidongkou Power Plant. Mr. Ye is a senior
engineer and graduated from Shanghai Jiaotong University specializing in
mechanical engineering.
Huang Jinkai Mr. Huang is the Director of the Company. He served as Director
(General Manager) of the Northeast Power Administration, Chairman of the
Company, Chairman of HIPDC, General Manager (Director) of North China Power
Group Corporation (Power Administration) and Vice Chairman of Huaneng Group.
He is a senior engineer and graduated from Shenyang Agricultural Institute,
specialising in agricultural electrization.
Liu Jinlong Mr. Liu is the Director of the Company. He served as General
Manager of Central China Power Group Corporation and Director of Central China
Power Administration, Chairman, General Manager, Vice Chairman of Huaneng
Group. Mr. Liu is a senior engineer and graduated from Wuhan Hydroelectric
Institute, specialising in power generation.
Shan Qunying Mr. Shan is Director of the Company and Vice President of Hebei
Provincial Construction Investment Company. He had been the Division Chief of
Hebei Provincial Construction Investment Company. Mr. Shan is a senior
engineer and graduated from the former Beijing Steel Institute specializing in
automation.
Yang Shengming Mr. Yang is Director of the Company, Vice President of Fujian
International Trust and Investment Company Limited and Chairman of Fujian
International Leasing Company. Mr. Yang is a senior economist and graduated
from Beijing Light Industries Institute.
Xu Zujian Mr. Xu is Director of the Company and Chairman of Jiangsu Investment
Management Co. Ltd. He was Vice President of Jiangsu International Trust and
Investment Company Limited, President of Jiangsu Province Investment
Management Co. Ltd., Director and Vice President of Jiangsu Province Guoxin
Asset Management Group Limited Company. Mr. Xu is a senior economist. He
graduated from Liaoning Finance Institute majoring in infrastructure finance.
Gao Zongze Mr. Gao is an independent Director of the Company and Senior
Partner at C&I Partners. He is an approved arbitrator of China International
Economic and Trade Arbitration Commission and China Marine Affairs Arbitration
Commission and President of All China Lawyers Association. Mr. Gao graduated
from Dalian Marine Institute and received a master's degree in law from the
Law Department of the Graduate School of the Institute of China Academy of
Social Sciences.
Zheng Jianchao Mr. Zheng is an independent Director of the Company and
Honorary President of Electric Power Research Institute in China and Vice
Chairman of its Academic Committee. He was elected Fellow of Chinese Academy
of Engineering in 1995. He is Vice President of China Electrical Engineering
Institute, editor-in-chief of the Journal of Chinese Electrical Engineering
and chief of the Science and Technology Committee of China Guangdong Nuclear
Power Group Corporation. Mr. Zheng graduated from Qinghua University majoring
in electrical engineering and graduated from its Graduate School.
Qian Zhongwei Mr. Qian is an independent Director of the Company and Vice
President of the United Association of China Electric Enterprises. He has been
the Deputy Chief Engineer, Chief Engineer and Deputy Chief of the Eastern
China Power Industry Management Bureau, Director of Shanghai Electricity
Bureau and President of Eastern China Power Group Company. Mr. Qian is a
senior engineer and graduated from the electrical engineering department of
Qinghua University.
Xia Donglin Mr. Xia is an independent Director of the Company, a professor and
Ph.D. tutor of the Economic and Management School of Qinghua University. He is
also the Advisory Specialist of the Accounting Standard Committee of the PRC
Ministry of Finance, committee member of the China Accounting Society, and
independent director of Zhejiang Zhongda companies and other companies. He was
the head of Accounting Department of Economic and Management School of Qinghua
University. Mr. Xia is a certified public accountant (non-practising member).
He graduated from the Finance and Administration Science Research Institute of
Ministry of Finance, specialising in accounting and was awarded a Ph.D. degree
of Economics.
Supervisors
Wei Yunpeng Mr. Wei is Chairman of the Supervisory Committee of the Company,
Chief Accountant of Huaneng Group, Chief Accountant of HIPDC and Chairman of
China Huaneng Finance Limited Liability Company. He served as Chief Accountant
of the Company. He is a senior accountant. He graduated from Hunan Institute
of Electric Power, specialising in Finance and Accounting.
Liu Shuyuan Mr. Liu is Vice Chairman of the Supervisory Committee, President
of Liaoning Enterprises Group Company and Liaoning Energy Corporation. He has
been the General Manager of Liaoning Tieling Steel Plant, Director of Tieling
Municipal Construction Commission and Assistant to the Mayor. Mr. Liu is a
senior economist and a postgraduate specializing in economic management.
Pan Jianmin Mr. Pan is a member of the Supervisory Committee of the Company
and General Manager of the Finance Department of China Huaneng Group. He has
served as Deputy Division Chief of the Finance Department and Deputy General
Manager of the Supervising and Auditing Department of China Huaneng Group and
Deputy General Manager of Beijing Huaneng Real Estate Development Company. Mr.
Pan is a senior accountant and graduated from Liaoning Economic and Finance
Institute specializing in infrastructure finance and credit.
Li Yonglin Mr. Li is a member of the Supervisory Committee and Director of the
Power Department of Dalian Municipal Construction Investment Company. He was a
departmental grade researcher of the Energy and Transportation Department of
Dalian Municipal Planning Committee. Mr. Li graduated from Changchun
Hydro-electric School of Ministry of Water Resources and Electric Power,
specializing in power plants and power system.
Shen Weibing Mr. Shen is Supervisor of the Company and Chief Officer of
Nantong Investment Management Center. He was the Vice President and President
of Nantong Municipal Oil Company, Vice President and legal representative of
Nantong Municipal Construction Investment Company, and Deputy Chief Officer of
Nantong Investment Management Centre. Mr. Shen graduated from the Department
of Materials Management of Beijing Materials Management Institute. In 2002, he
studied the MBA course in Nanjing University and obtained a master degree in
busines administration. Mr. Shen is a senior economist.
Shen Zongmin Mr. Shen is Supervisor of the Company and President of Shantou
Electric Power Development Company and Chairman of Shantou Power Development
Joint Stock Company Limited. Previously, he was the President of Shantou Light
Industry Mechanical (Group) Company.
Zhao Xisheng Mr. Zhao is Supervisor and Senior Consultant of the Company. He
has served as Deputy General Manager of the Finance Department, General
Manager of the Management Department of the Company and the General Manager of
the Company's Supervising and Auditing Department. Before joining the Company,
he served as Section Chief, Deputy Chief Accountant and Deputy General Manager
of Beijing Shijingshan Power Plant. Mr. Zhao is a senior accountant and
graduated from the People's University of China specializing in industrial
economics.
Senior Management
Ye Daji (Mr), aged 57, is Director and President of the Company. After joining
the Company, he has been Deputy General Manager of Huaneng Shanghai Branch,
General Manager of Huaneng Shanghai Shidongkou Second Power Plant, Vice
President of the Company, Vice President of HIPDC and Director of Huaneng
Group. Before joining the Company, he had served as Deputy Chief Engineer of
Shanghai Shidogkou Power Plant. Mr. Ye is a senior engineer and graduated from
Shanghai Jiaotong University specializing in mechanical engineering.
Na Xizhi (Mr), aged 49, is Vice President of the Company and Adjunct Deputy
Chief Engineer of Huaneng Group. Before he joined the Company, he served in
Huaneng Group as Deputy Manager of the Power Generation Department, General
Manager of the Operation Department, the Power Safety and Production
Department, and Deputy Chief Engineer of Huaneng Group. Previously, Mr Na was
the Vice General Manager of Fuxin Power Plant, Deputy Officer of the Planning
Departmnet of Suizhong Power Plant, Deputy Chief and Chief of the
Bio-technology Department of Northeast Power Administration Bureau, and
General Manager of Shenyang Zhenhai Thermal Power Plant. Mr Na is a senior
engineer. He graduated from Wuhan Hydro-electric University, specializing in
thermal power with a master of science degree.
Chen Baoliang (Mr), aged 48, is Vice President of the Company. He joined the
Company in 1996 and has worked as General Manager of Huaneng Dalian Branch and
Superintendent of Dalian Power Plant. Before joining the Company, he had been
Deputy Chief Engineer of Liaoning Qinghe Power Plant, Deputy Chief of the
Preparation Department and Deputy General Manager of the Construction of
Tieling Power Plant and Superintendent of Yuan Bao Shan Power Plant. Mr. Chen
is a senior engineer and graduated with an M.S. degree from North China
Electric Power University specializing in thermal power engineering.
Huang Long (Mr), aged 49, is Vice President of the Company as well as
Secretary of the Board of Directors. After joining the Company, he has served
as Deputy General Manager and General Manager of the International
Co-operation Department of the Company. Mr. Huang is a senior engineer and
graduated with an M.S. degree from North Carolina State University in the U.S.
specializing in communications and control.
Hu Jianmin (Mr), aged 48, is Vice President of the Company. From April 1998 to
January 2001, he worked as Chief Engineer of Shandong Electric Power Group
Corp. Before joining the Company, he had been Chairman of Shandong Rizhao
Power Company Limited, General Manager of Shandong Liaocheng Power Plant,
Shiheng Power Plant and Zouxian Power Plant respectively. Mr. Hu is a senior
engineer and graduated from Shandong Industrial Institute specializing in
relay protection.
Wu Dawei (Mr), aged 49, is Vice President of the Company. He joined the
Company in 1988 and has served as Deputy General Manager of Huaneng Shanghai
Shidongkou Second Power Plant, Deputy Manager of Shanghai branch of the
Company, and the General Manager of Huaneng Shanghai Shidongkou Second Power
Plant. Mr. Wu is a senior engineer. He has obtained a Master of Business
Administration degree from the Central Europe International Business School.
Liu Guoyue (Mr), aged 39, is Vice President of the Company. He joined the
Company in 1987 and has served as the Deputy General Manager, Vice President
and President of Shijiazhuang as well as the President of Huaneng Dezhou Power
Plant. Mr. Liu is a senior engineer, graduated from Northern China Electric
Power University with a bachelor degree in science and a bachelor degree in
business management.
Li Shiqi (Mr), aged 46, is the Chief Economic Engineer of the Company. During
the period from 1996 to 2002, he served as Chief Accountant of Beijing Branch
Company of HIPDC, Deputy General Manager and General Manager of the Finance
Department of the Company, and General Manager of the Marketing Department of
China Huaneng Group. Before these, Mr. Li worked in Power Science Institute as
Vice Supervisor, Deputy Chief, Chief and Deputy Chief Accountant and in
Beijing Power Research and Hi-Tech Business Corporation as Chief Accountant.
Mr. Li is a senior accountant and graduated from Renmin University of China,
specializing in finance.
Huang Jian (Mr), aged 40, is the Chief Accountant of the Company. He
previously served as Deputy Chief, Chief of the Finance Department of the
Company, Chief Accountant of the Beijing Branch Company of HIPDC, Deputy
General Manager of the Finance Department of the Company, Deputy Chief
Accountant of the Company. Mr. Huang is a senior accountant and graduated from
Finance and Administration Research Institute of the Ministry of Finance,
specializing in accounting, with a master degree.
Corporate Information
Legal Address of the Company West Wing, Building C
Tianyin Mansion
2C Fuxingmennan Street
Xicheng District
Beijing
The People's Republic of China
Company Secretary Huang Long
58, Xizhimenbei Street
Haidian District
Beijing
The People's Republic of China
Authorised Representatives Wang Xiaosong
Huang Long
Hong Kong Share Registrar Hong Kong Registrars Limited
1901-5
19/F, Hopewell Centre
183 Queen's Road East
Hong Kong
Depository Morgan Guaranty Trust Company
60 Wall Street
New York
USA
Legal Advisers to the Company
As to Hong Kong law: Herbert Smith
23rd Floor, Gloucester Tower
11 Pedder Street, Central
Hong Kong
As to PRC law: Haiwen & Partners
Room 1016, Beijing Silver Tower
No.2, Dong San Huan North Road
Chaoyang District
Beijing
The People's Republic of China
As to US law: Skadden, Arps, Slate, Meagher & Flom LLP
30th Floor, Peregrine Tower
Lippo Centre
89 Queensway
Hong Kong
Auditors PricewaterhouseCoopers
22nd Floor
Prince's Building
Central, Hong Kong
Listing Information
H Shares: The Stock Exchange of Hong Kong Limited
Stock Code: 902
ADSs: The New York Stock Exchange, Inc.
Ticker Symbol: HNP
A Shares: Shanghai Stock Exchange
Stock Code: 600011
Publications
The Company's interim and annual reports were published in August and April
respectively. As required by the United States securities laws, the Company
will file an annual report in Form 20-F with the Securities and Exchange
Commission of the U.S. before 30th June. As the Company's A shares have
already been issued and listed, the Company shall, in compliance of the
relevant regulations of the China Securities Regulatory Commission and the
Shanghai Stock Exchange, prepare quarterly reports. Copies of the interim and
annual reports as well as the Form 20-F, once filed, will be available at:
Beijing: Huaneng Power International, Inc.
West Wing, Building C
Tianyin Mansion
2C Fuxingmennan Street
Xicheng District
Beijing
The People's Republic of China
Tel: (8610) 6649 1999
Fax: (8610) 6649 1860
Website: http://www.hpi.com.cn
Hong Kong: Rikes Communications Limited
Room 701, Wanchai Central Building
89 Lockhart Road
Wanchai
Hong Kong
Tel: (852) 2520 2201
Fax: (852) 2520 2241
Auditors' Report
TO THE SHAREHOLDERS OF HUANENG POWER INTERNATIONAL, INC.
(Incorporated in the People's Republic of China with limited liability)
We have audited the accompanying balance sheet of Huaneng Power International,
Inc. (the "Company") and consolidated balance sheet of the Company and its
subsidiaries as at 31st December, 2002 and the related consolidated statements
of income and cash flows for the year then ended. These financial statements
set out on pages 60 to 114 are the responsibility of the management of the
Company and its subsidiaries. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing.
Those Standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements give a true and fair view of the
Company's financial position and the financial position of the Company and its
subsidiaries as at 31st December, 2002, and of the results of their operations
and cash flows for the year then ended in accordance with International
Financial Reporting Standards and have been properly prepared in accordance
with the disclosure requirements of the Hong Kong Companies Ordinance.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong,
12th March, 2003
Consolidated Income Statement
(Prepared in accordance with International Financial Reporting Standards) FOR
THE YEAR ENDED 31ST DECEMBER, 2002
(Amounts expressed in thousands of Rmb, except per share data)
For the year ended 31st December,
---------------------------------------------------------------------------------------------------------------------
Note 2002 2001
---------------------------------------------------------------------------------------------------------------------
Operating revenue, net 5 18,474,469 15,791,362
---------------------------------------------------------------------------------------------------------------------
Operating expenses
Fuel (6,916,038) (5,147,364)
Maintenance (607,951) (765,712)
Depreciation (3,533,609) (3,261,001)
Labor (1,035,740) (807,136)
Transmission fees (35,754) (36,925)
Service fees to HIPDC 7(a) (263,716) (307,322)
Others 14 (503,647) (451,868)
---------------------------------------------------------------------------------------------------------------------
Total operating expenses (12,896,455) (10,777,328)
---------------------------------------------------------------------------------------------------------------------
Profit from operations 5,578,014 5,014,034
---------------------------------------------------------------------------------------------------------------------
Interest income 83,015 113,081
Interest expense (561,875) (867,538)
Bank charges and exchange losses, net (31,405) (41,758)
---------------------------------------------------------------------------------------------------------------------
Total financial expenses (510,265) (796,215)
---------------------------------------------------------------------------------------------------------------------
Gain from disposal of investments 1,288 24,671
Share of loss of associates 11 (11,145) (5,381)
---------------------------------------------------------------------------------------------------------------------
Profit before tax 6 5,057,892 4,237,109
Income tax expense 32 (980,854) (715,220)
---------------------------------------------------------------------------------------------------------------------
Profit before minority interests 4,077,038 3,521,889
Minority interests 33 (156,034) (71,231)
---------------------------------------------------------------------------------------------------------------------
Net profit attributable to shareholders 3,921,004 3,450,658
---------------------------------------------------------------------------------------------------------------------
Proposed dividend 21 2,040,093 1,800,000
---------------------------------------------------------------------------------------------------------------------
Proposed dividend per share (Rmb) 21 0.34 0.30
---------------------------------------------------------------------------------------------------------------------
Basic earnings per share (Rmb) 34 0.65 0.61
---------------------------------------------------------------------------------------------------------------------
Diluted earnings per share (Rmb) 34 0.65 0.60
---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Balance Sheets
(Prepared in accordance with International Financial Reporting Standards)
AS AT 31ST DECEMBER, 2002
(Amounts expressed in thousands of Rmb)
The Company and
its subsidiaries The Company
As at 31st December, As at 31st December,
---------------------------------------------------------------------------------------------------------------------------
Notes 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------------
ASSETS
Non-current assets
Property, plant and equipment, net 10 41,103,468 37,557,114 35,952,425 34,868,277
Investment in an associate 11 200,960 226,488 200,960 226,488
Investment in subsidiaries 12 -- -- 1,864,996 860,967
Available-for-sale investments 13 254,990 -- 254,990 --
Other long-term assets 1,067,838 970,759 1,330,449 1,611,755
Goodwill 14 126,560 -- 45,612 --
Less: Negative goodwill 14 (1,978,227) (2,225,505) (1,978,227) (2,225,505)
---------------------------------------------------------------------------------------------------------------------------
Total non-current assets 40,775,589 36,528,856 37,671,205 35,341,982
---------------------------------------------------------------------------------------------------------------------------
Current assets
Inventories, net 15 923,341 718,997 748,267 638,108
Due from a subsidiary -- -- -- 18,266
Other receivables and
assets, net 16 242,905 240,545 460,037 230,707
Accounts receivable 17 2,361,833 1,407,171 1,985,374 1,331,720
Restricted cash 13,259 -- 13,008 --
Temporary cash
investments 18 1,141,502 6,224,070 1,136,356 5,995,752
Cash and cash equivalents 35(a) 3,002,601 2,173,136 2,703,918 2,129,332
---------------------------------------------------------------------------------------------------------------------------
Total current assets 7,685,441 10,763,919 7,046,960 10,343,885
---------------------------------------------------------------------------------------------------------------------------
Total assets 48,461,030 47,292,775 44,718,165 45,685,867
---------------------------------------------------------------------------------------------------------------------------
EQUITY AND LIABILITIES
Shareholders' equity
4,250,000,000 PRC Domestic Shares,
par value Rmb1.00 each,
in form of legal person shares 19 4,250,000 4,250,000 4,250,000 4,250,000
250,000,000 A shares,
par value Rmb1.00 each 19 250,000 250,000 250,000 250,000
1,500,273,960 Overseas
Listed Foreign Shares,
par value Rmb1.00 each 19 1,500,274 1,500,000 1,500,274 1,500,000
Additional paid-in capital 10,604,843 10,137,732 10,604,843 10,137,732
Dedicated capital 20 3,373,423 2,659,012 3,373,423 2,659,012
Equity component of
convertible notes 22 44,647 510,506 44,647 510,506
Retained earnings 10,392,873 8,986,280 10,392,873 8,986,280
---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 30,416,060 28,293,530 30,416,060 28,293,530
---------------------------------------------------------------------------------------------------------------------------
Minority interests 33 910,704 486,261 -- --
---------------------------------------------------------------------------------------------------------------------------
The Company and
its subsidiaries The Company
As at 31st December, As at 31st December,
---------------------------------------------------------------------------------------------------------------------------
Notes 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------------
Non-current liabilities
Liability component of
convertible notes 22 155,999 -- 155,999 --
Long-term loans
from shareholders 23 388,891 777,717 388,891 777,717
Long-term bank loans 24 8,464,521 8,691,246 6,463,815 8,081,033
Other long-term loans 25 331,389 106,799 225,000 --
Other financial liabilities 38 19,397 14,875 19,397 14,875
Deferred tax liabilities 29 121,853 -- 15,030 --
---------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 9,482,050 9,590,637 7,268,132 8,873,625
---------------------------------------------------------------------------------------------------------------------------
Current liabilities
Accounts payable and
other liabilities 26 3,734,350 2,657,223 3,583,488 2,496,379
Taxes payable 27 620,189 521,193 395,661 441,190
Due to HIPDC 7i 100,475 36,584 100,475 36,584
Due to other related parties -- 3,225 -- 3,225
Staff welfare and bonus payable 233,566 376,193 231,726 362,310
Short-term loans 28 550,000 40,000 550,000 --
Current portion of
long-term loans
from shareholders 23 388,891 15,565 388,891 15,565
Current portion of
long-term bank loans 24 1,928,732 2,630,008 1,783,732 2,630,008
Current portion of
other long-term loans 25 96,013 283,273 -- 174,368
Liability component of
convertible notes 22 -- 1,703,443 -- 1,703,443
Put option of
convertible notes 22 -- 655,640 -- 655,640
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,652,216 8,922,347 7,033,973 8,518,712
---------------------------------------------------------------------------------------------------------------------------
Total equity and liabilities 48,461,030 47,292,775 44,718,165 45,685,867
---------------------------------------------------------------------------------------------------------------------------
These financial statements have been approved for issue by the Board of
Directors on 12th March, 2003.
Wang Xiaosong Ye Daji
Vice Chairman Director
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Changes
in Shareholders' Equity
(Prepared in accordance with International Financial Reporting Standards) FOR
THE YEAR ENDED 31ST DECEMBER, 2002
(Amounts expressed in thousands of Rmb)
-----------------------------------------------------------------------------------------------------------------------------
The Company and its subsidiaries
-----------------------------------------------------------------------------------------------------------------------------
Equity
Component
Additional of
Share Paid-in Convertible
Capital Capital Notes Retained
(Note19) (Note19) Dedicated Capital (Note 20) (Note 22) Earnings Total
-----------------------------------------------------------------------------------------------------------------------------
Statutory and
discretionary Statutory
surplus public
reserve welfare
fund fund Sub-total
-------------------------------------------------------------------------------------------------------------------------------
Balance at 1st January, 2001 5,650,000 7,717,674 1,532,664 490,037 2,022,701 510,506 7,878,854 23,779,735
Effect of adoption of IAS 39
(Note 22) -- -- -- -- -- -- (463,921) (463,921)
Dividend relating to 2000 -- -- -- -- -- -- (1,243,000) (1,243,000)
Net profit for the year ended
31st December, 2001 -- -- -- -- -- -- 3,450,658 3,450,658
Transfer to dedicated capital -- -- 363,606 272,705 636,311 -- (636,311) --
Issuance and sale of
350,000,000 new
Domestic Shares, net of
direct issuance costs
(Note 19) 350,000 2,420,058 -- -- -- -- -- 2,770,058
-------------------------------------------------------------------------------------------------------------------------------
Balance at 31st December, 2001 6,000,000 10,137,732 1,896,270 762,742 2,659,012 510,506 8,986,280 28,293,530
Dividend relating to 2001 -- -- -- -- -- -- (1,800,000) (1,800,000)
Net profit for the year ended
31st December, 2002 -- -- -- -- -- -- 3,921,004 3,921,004
Conversion of convertible notes
to share capital (Note 22) 274 1,696 -- -- -- (444) -- 1,526
Redemption of convertible notes
(Note 22) -- 465,415 -- -- -- (465,415) -- --
Transfer from statutory public
welfare fund to discretionary
surplus reserve fund -- -- 15,398 (15,398) -- -- -- --
Transfer to dedicated capital -- -- 408,235 306,176 714,411 -- (714,411) --
-------------------------------------------------------------------------------------------------------------------------------
Balance at 31st December, 2002 6,000,274 10,604,843 2,319,903 1,053,520 3,373,423 44,647 10,392,873 30,416,060
-------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in
Shareholders' Equity
(Prepared in accordance with International Financial Reporting Standards)
FOR THE YEAR ENDED 31ST DECEMBER, 2002
(Amounts expressed in thousands of Rmb)
-------------------------------------------------------------------------------------------------------------------------------
The Company
-------------------------------------------------------------------------------------------------------------------------------
Equity
Component
Additional of
Share Paid-in Convertible
Capital Capital Notes Retained
(Note19) (Note19) Dedicated Capital (Note 20) (Note 22) Earnings Total
-------------------------------------------------------------------------------------------------------------------------------
Statutory and
discretionary Statutory
surplus public
reserve welfare
fund fund Sub-total
-------------------------------------------------------------------------------------------------------------------------------
Balance at 1st January, 2001 5,650,000 7,717,674 1,532,664 490,037 2,022,701 510,506 7,878,854 23,779,735
Effect of adoption of IAS 39
(Note 22) -- -- -- -- -- -- (463,921) (463,921)
Dividend relating to 2000 -- -- -- -- -- -- (1,243,000) (1,243,000)
Net profit for the year ended
31st December, 2001 -- -- -- -- -- -- 3,450,658 3,450,658
Transfer to dedicated capital -- -- 363,606 272,705 636,311 -- (636,311) --
Issuance and sale of 350,000,000
new Domestic Shares,
net of direct issuance
costs (Note 19) 350,000 2,420,058 -- -- -- -- -- 2,770,058
-------------------------------------------------------------------------------------------------------------------------------
Balance at 31st December, 2001 6,000,000 10,137,732 1,896,270 762,742 2,659,012 510,506 8,986,280 28,293,530
Dividend relating to 2001 -- -- -- -- -- -- (1,800,000) (1,800,000)
Net profit for the year ended
31st December, 2002 -- -- -- -- -- -- 3,921,004 3,921,004
Conversion of convertible notes
to share capital (Note 22) 274 1,696 -- -- -- (444) -- 1,526
Redemption of convertible notes
(Note 22) -- 465,415 -- -- -- (465,415) -- --
Transfer from statutory public
welfare fund to discretionary
surplus reserve fund -- -- 15,398 (15,398) -- -- -- --
Transfer to dedicated capital -- -- 408,235 306,176 714,411 -- (714,411) --
-------------------------------------------------------------------------------------------------------------------------------
Balance at 31st December, 2002 6,000,274 10,604,843 2,319,903 1,053,520 3,373,423 44,647 10,392,873 30,416,060
-------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Consolidated Cash Flow Statement
(Prepared in accordance with International Financial Reporting Standards)
FOR THE YEAR ENDED 31ST DECEMBER, 2002
(Amounts expressed in thousands of Rmb)
For the year ended 31st December,
-----------------------------------------------------------------------------------------------------------------------------
Note 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 5,057,892 4,237,109
Adjustments to reconcile profit
before tax to net cash provided
by operating activities:
Depreciation 3,533,609 3,261,001
Amortization of prepaid land use rights 16,847 14,359
Amortization of goodwill and
negative goodwill (246,128) (247,279)
Amortization of other long-term assets 24,112 19,600
Provision for bad debts 15,826 1,030
(Reversal of provision)/provision for inventory obsolescence (945) 2,576
Gain from disposal of available-for-sale investments (1,288) (24,671)
Loss on disposals of fixed assets 31,980 36,592
Unrealised exchange gain 4,846 (1,429)
Unrealised loss on put option of convertible notes 22 -- 46,562
Unrealised (gain)/loss on interest rate swaps (2,179) 14,875
Share of loss of associates 11,145 5,381
Interest income (83,015) (113,081)
Interest expense 561,875 867,538
Changes in working capital:
Restricted cash (13,259) --
Accounts receivable (496,559) (28,510)
Inventories (39,272) (62,063)
Other receivables and assets 92,579 20,228
Accounts payable and other liabilities 279,019 (370,300)
Taxes payable 44,070 (57,289)
Due to HIPDC 65,891 (93,574)
Due to other related parties (3,225) (49,118)
Staff welfare and bonus payable (152,033) (199,973)
Interest paid (733,600) (715,846)
Income tax paid (984,047) (799,669)
Interest received 95,577 154,847
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,079,718 5,918,896
-----------------------------------------------------------------------------------------------------------------------------
For the year ended 31st December,
-----------------------------------------------------------------------------------------------------------------------------
Notes 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,594,210) (2,870,858)
Proceeds from disposals of fixed assets 41,567 32,904
Decrease in other long-term assets 3,412 81,646
Decrease (increase) in temporary cash investments 5,082,568 (4,665,290)
Proceeds from disposal of investments 2,390 384,569
Cash consideration paid for
available-for-sale investment 13 (254,990) --
Repayment of payable to Nanjing Investment -- (141,641)
Cash consideration paid for the
Acquisition of Four Power Plants 3(b) (2,050,000) --
Direct costs of the Acquisition of
Four Power Plants paid 3(b) (17,042) --
Cash consideration paid for the acquisition of
minority interest of the Jining Power Plant 3(c) (109,435) --
Cash consideration paid for the Acquisition of
additional interest of three power plants 3(d) (600,000) --
Cash inflow from the acquired power plants 569,841 --
Net cash inflow from the Acquisition of
Shandong Huaneng 3(a) -- 2,635,695
Expenditures for Shandong Huaneng acquisition 3(a) -- (21,561)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,074,101 (4,564,536)
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of short-term loans 120,000 1,300,000
Repayment of short-term loans (190,000) (2,560,000)
Repayment of long-term loans from shareholders (15,565) (208,538)
Drawdown of long-term bank loans 173,379 1,604,100
Repayment of long-term bank loans (2,954,748) (2,233,721)
Repayment of other long-term loans (283,683) (575,179)
Dividend paid to shareholders of the Company (1,800,000) (1,266,317)
Dividend paid to minority shareholders of the subsidiaries (138,947) --
Redemption of convertible notes (2,234,790) --
Net proceeds from issuance of Domestic Shares 19 -- 2,770,058
-----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (7,324,354) (1,169,597)
-----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 829,465 184,763
Cash and cash equivalents, beginning of year 2,173,136 1,988,373
-----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 35(a) 3,002,601 2,173,136
-----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
(Prepared in accordance with International Financial Reporting Standards)
(Amounts expressed in Rmb unless otherwise stated)
1. COMPANY ORGANIZATION AND PRINCIPAL ACTIVITIES
Huaneng Power International, Inc. (the "Company") was incorporated in the
People's Republic of China (the "PRC") as a Sino-foreign joint stock limited
company on 30th June, 1994. As at 31st December, 2002, the Company and its
subsidiaries had 15,222 employees (2001: 9,350 employees).
The Company and its subsidiaries are principally engaged in the generation and
sale of electric power to the respective regional or provincial power
companies.
Particulars of the Company's, its subsidiaries' and its associate's power
plants are as follows:
-----------------------------------------------------------------------------------------------------------------------
Total installed Equity
capacity of portion
the Company, of total
its subsidiaries capacity of Province/
and associate the Company Municipality
Operating Plants (MW) (MW) located
-----------------------------------------------------------------------------------------------------------------------
Wholly owned power plants Five original operating plants:
Huaneng Dalian Power Plant (the "Dalian Power Plant") 700 700 Liaoning
Huaneng Shangan Power Plant (the "Shangan Power Plant") 700 700 Hebei
Huaneng Nantong Power Plant (the "Nantong Power Plant") 700 700 Jiangsu
Huaneng Fuzhou Power Plant (the "Fuzhou Power Plant") 700 700 Fujian
Huaneng Shantou Oil-Fired Plant
(the "Shantou Oil-Fired Power Plant") 100 100 Guangdong
New operating plants:
Huaneng Shantou Coal-Fired Power Plant
(the "Shantou Power Plant") 600 600 Guangdong
Huaneng Shangan Power Plant Phase II (the "Shangan Phase II") 600 600 Hebei
Huaneng Shanghai Shidongkou Second Power Plant
(the "Shanghai Power Plant") 1,200 1,200 Shanghai
Huaneng Dalian Power Plant Phase II (the "Dalian Phase II") 700 700 Liaoning
Huaneng Dandong Power Plant (the "Dandong Power Plant") 700 700 Liaoning
Huaneng Nantong Power Plant Phase II (the "Nantong Phase II") 700 700 Jiangsu
Huaneng Fuzhou Power Plant Phase II (the "Fuzhou Phase II") 700 700 Fujian
Huaneng Nanjing Power Plant (the "Nanjing Power Plant") 600 600 Jiangsu
Huaneng Dezhou Power Plant (the "Dezhou Power Plant") 2,520 2,520 Shandong
Huaneng Jining Power Plant (the "Jining Power Plant") (Note 3(c)) 300 300 Shandong
Huaneng Changxing Power Plant
(the "Changxing Power Plant) (Note 3(b)) 250 250 Zhejiang
Shanghai Shidongkou Power Limited Company
(the "Shidongkou First Power Plant") (Note 3(b)(d)) 1,200 1,200 Shanghai
Subsidiaries:
Huaneng Weihai Power Plant (the "Weihai Power Plant") 850 510 Shandong
Suzhou Industrial Park Huaneng Power Limited Liability Company
(the "Taicang Power Company") (Note 3(b)(d)) 600 450 Jiangsu
Jiangsu Huaneng Huaiyin Power Limited Company
(the "Huaiyin Power Company") (Note 3(b)(d)) 400 255 Jiangsu
Associate:
Shandong Rizhao Power Company Ltd. (the "Rizhao Power Company") 700 178 Shandong
-----------------------------------------------------------------------------------------------------------------------
Total 15,520 14,363
-----------------------------------------------------------------------------------------------------------------------
The parent company and ultimate parent company of the Company are Huaneng
International Power Development Corporation ("HIPDC") and China Huaneng Group
Corporation ("Huaneng Group") respectively. Both companies are incorporated in
the PRC.
2. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below:
(a) Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") effective as at 31st
December 2002. The consolidated financial statements have been prepared under
the historical cost convention.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management's best knowledge of current
events and actions, actual results ultimately may differ from those estimates.
The Company and its subsidiaries adopted IAS 39 Financial Instruments:
Recognition and Measurement in 2001 (see Note 2(u) and Note 22). The financial
effects of adopting these standards were reported in the 2001 year's
consolidated financial statements.
(b) Principles of consolidation
(i) Subsidiaries
Subsidiaries, which are those entities in which the Company has an
interest of more than one half of the voting rights or otherwise
has power to govern the financial and operating policies are
consolidated.
Subsidiaries are consolidated from the date on which control is
transferred to the Company and are no longer consolidated from the
date that control ceases. The purchase method of accounting is
used to account for the acquisition of subsidiaries. The cost of
an acquisition is measured as the fair value of the assets given
up, shares issued or liabilities undertaken at the date of
acquisition plus costs directly attributable to the acquisition.
The excess of the cost of acquisition over the fair value of the
net assets of the subsidiary acquired is recorded as goodwill. See
Note 2(f) for the accounting policy on goodwill. Intercompany
transactions, balances and unrealised gains on transactions
between group companies are eliminated; unrealised losses are also
eliminated unless cost cannot be recovered. Where necessary,
accounting policies of subsidiaries have been changed to ensure
consistency with the policies adopted by the Company.
(ii) Associates
Associates are entities over which the Company generally has
between 20% and 50% of the voting rights, or over which the
Company has significant influence, but which it does not control.
Investments in associates are accounted for by the equity method
of accounting. Under this method, the company's share of the
post-acquisition profits or losses of associates is recognised in
the income statement and its share of post-acquisition movements
in reserves is recognised in reserves. The cumulative
post-acquisition movements are adjusted against the cost of the
investment. Unrealised gains on transactions between the Company
and its associates are eliminated to the extent of the Company's
interest in the associates; unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the
asset transferred. When the Company's share of losses in an
associates equals or exceeds its interest in the associates, the
Company does not recognise further losses, unless the Company has
incurred obligations or made payments on behalf of the associates.
(c) Foreign currency translation
(i) Measurement currency
Items included in the financial statements of each entity in the
Company and its subsidiaries are measured using the currency that
best reflects the economic substance of the underlying events and
circumstances relevant to that entity (the "measurement
currency"). The consolidated financial statements are presented in
Renminbi ("Rmb"), which is the measurement currency of the Company
and its subsidiaries.
(ii) Transactions and balances
Foreign currency transactions are translated into the measurement
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies,
are recognised in the income statement.
Translation differences on debt securities and other monetary
financial assets measured at fair value are included in foreign
exchange gains and losses.
(d) Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated
depreciation and accumulated impairment loss. When assets are sold or retired,
their cost and accumulated depreciation and accumulated impairment loss are
eliminated from the accounts and any gain or loss resulting from their
disposal is included in the income statement.
The initial cost of property, plant and equipment comprises its purchase
price, including import duties and non-refundable purchase taxes and any
directly attributable costs of bringing the asset to its working condition and
location for its intended use.
Expenditures incurred after the property, plant and equipment have been put
into operation, such as repairs and maintenance and overhaul costs, are
normally charged to income statement in the period the costs are incurred. In
situations where it can be clearly demonstrated that the expenditures have
resulted in an increase in the future economic benefits expected to be
obtained from the use of an item of property, plant and equipment beyond its
originally assessed standard of performance, the expenditures are capitalised
as an additional cost of property, plant and equipment.
Depreciation is calculated on a straight-line basis to write off the cost,
after taking into account the estimated residual value, of each asset over its
estimated useful life. The estimated useful lives are as follows:
Buildings 22 years
Electric utility plant in service 8-27 years
Transportation facilities 13-27 years
Others 6-13 years
The useful life and depreciation method are reviewed periodically to ensure
that the method and period of depreciation are consistent with the expected
pattern of economic benefits from items of property, plant and equipment.
Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its recoverable amount.
Construction-in-progress represents plant and properties under construction
and is stated at cost. This includes the costs of construction, plant and
machinery and other direct costs. Construction-in-progress is not depreciated
until such time as the relevant asset is completed and ready for its intended
use.
(e) Investments
The Company and its subsidiaries adopted IAS 39, Financial instruments:
Recognition and Measement on 1st January, 2001. Accordingly, investments in
debt and equity securities are classified into the following categories:
trading, held-to-maturity and available-for-sale. The classification is
dependent on the purpose for which the investments were acquired. Management
determines the classification of its investments at the time of the purchase
and re-evaluates such designation on a regular basis. Investments that are
acquired principally for the purpose of generating a profit from short-term
fluctuations in price are classified as trading investments and included in
current assets; for the purpose of these financial statements short term is
defined as 3 months. Investments with a fixed maturity that management has the
intent and ability to hold to maturity are classified as held-to-maturity and
are included in non-current assets, except for maturities within 12 months
from the balance sheet date which are classified as current assets.
Investments intended to be held for an indefinite period of time, which may be
sold in response to needs for liquidity or changes in interest rates, are
classified as available-for-sale; and are included in non-current assets
unless management has the express intention of holding the investment for less
than 12 months from the balance sheet date or unless they will need to be sold
to raise operating capital, in which case they are included in current assets.
Purchases and sales of investments are recognised on the trade date, which is
the date that the Company and its subsidiaries commits to purchase or sell the
asset. Cost of purchase includes transaction costs. Trading and
available-for-sale investments are subsequently carried at fair value.
Held-to-maturity investments are carried at amortised cost, which is the
amount at which the investment was measured at initial recognition less
principal repayments, plus or minus the amortisation of any difference between
that initial amount and maturity amount by using the effective yield method.
Realised and unrealised gains and losses arising from changes in the fair
value of trading investments are included in the income statement in the
period in which they arise. Unrealised gains and losses arising from changes
in the fair value of securities classified as available-for-sale are
recognised in equity. The fair values of investments are based on quoted bid
prices or amounts derived from cash flow models. Fair values for unlisted
equity securities are estimated using applicable price/earnings or price/cash
flow ratios refined to reflect the specific circumstances of the issuer.
Equity securities for which fair values cannot be measured reliably are
recognised at cost less impairment. When securities classified as
available-for-sale are sold or impaired, the accumulated fair value
adjustments are included in the income statement as gains and losses from
investment securities.
(f) Goodwill and negative goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Company's share of the net assets of the acquired
subsidiary/associate at the date of acquisition, and negative goodwill
represents the excess of the fair value of the Company's share of the net
assets of the acquired subsidiary/associate over the cost of an acquisition at
the date of acquisition.
Goodwill and negative goodwill are amortised using the straight-line method
over its estimated useful life and recognized in the income statement as other
operating expenses. Management determines the estimated useful life of
goodwill and negative goodwill based on the remaining weighted average useful
life of the identifiable acquired depreciable/amortizable assets of the
respective power plant at the time of the acquisition.
At each balance sheet date the Company assesses whether there is any
indication of impairment. If such indications exist, an analysis is performed
to assess whether the carrying amount of goodwill is fully recoverable. A
write down is made if the carrying amount exceeds the recoverable amount.
(g) Impairment of long-lived assets
Property, plant and equipment and other non-current assets, including goodwill
and intangible assets are reviewed for impairment losses whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
carrying amount of the asset exceeds its recoverable amount which is the
higher of an asset's net selling price and value in use. The net selling price
is the amount obtainable from the sale of an asset in an arm's length
transaction less the cost of disposal while value in use is the present value
of estimated future cash flow expected arise from the continuing use of an
asset and from its disposal at the end of its useful life. For the purposes of
assessing impairment, assets are grouped at the lowest level for which there
are separately identifiable cash flows.
(h) Inventories
Inventories consist of fuel, materials and supplies. They are stated at the
lower of weighted average costs or net realisable values after provision for
obsolete items, and are expensed to fuel costs or repairs and maintenance when
used, or capitalised to fixed assets when installed, as appropriate. Cost of
inventories includes direct material cost and transportation expenses incurred
in bringing the inventories to the working locations.
(i) Receivables
Receivables are carried at original invoice amount less provision made for
impairment of these receivables. A provision for impairment of receivables is
established when there is an objective evidence that the Company and its
subsidiaries will not be able to collect all amounts due according to the
original terms of receivables. The amount of the provision is the difference
between the carrying amount and the recoverable amount, being the present
value of expected cash flows, discounted at the market rate of interest for
similar borrowers.
(j) Temporary cash investments
Temporary cash investments are cash invested in fixed-term deposits with
original maturities ranging from more than 3 months to one year. Temporary
cash investments are classified as held-to-maturity investments and are
carried at amortised cost (see Note 2(e)).
(k) Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the
purposes of the cash flow statement, cash and cash equivalents comprise cash
on hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of 3 months or less.
(l) Borrowings and convertible notes
Borrowings are recognised initially at the proceeds received, net of
transaction costs incurred. Borrowings are subsequently stated at amortised
cost using the effective yield method; any difference between proceeds (net of
transaction costs) and the redemption value is recognised in the income
statement over the period of the borrowings.
The proceeds received on the issue of the convertible notes were allocated
into liability and equity components. Upon initial recognition, the liability
component represents the present value, at the issuance date, of the
contractually determined stream of cash flows discounted at the market
interest rate for instruments of comparable credit status providing
substantially the same cash flows, on the same terms, but without the
conversion option. The equity component is then determined by deducting the
liability component from the proceeds received on the issue of the notes.
After the initial recognition, the liability component is measured at
amortised cost.
As further discussed in Note 22, the convertible notes were issued at par with
a put option allowing the investors to redeem the notes at a premium for cash
at 128.575% of the par value on 21st May, 2002. The put option is accounted
for as an embedded derivative and separated from the host contract. This
embedded derivative is carried at fair value, with changes in fair value
included in the income statement (see Note 2(u)).
The accounting treatments of the convertible notes prior to the adoption of
IAS 39 on 1st January, 2001 is set out in Note 22.
(m) Provisions
Provisions are recognised when the Company and its subsidiaries have a present
legal or constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount can be made. Where the Company and its
subsidiaries expect a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognised as a separate asset but
only when the reimbursement is virtually certain.
(n) Equity transaction costs
Incremental external costs directly attributable to the issue of new shares,
other than in connection with business combinations, are shown in equity as a
deduction, net of tax, from the proceeds. Share issue costs incurred, if any,
directly in connection with a business combination are included in the cost of
acquisition.
(o) Revenue and income recognition
Revenue and income are recognised when it is probable that the economic
benefits associated with the transaction will flow to the Company and its
subsidiaries and the amount of the revenue and income can be measured
reliably.
(i) Operating revenue, net
Net operating revenue represents amounts earned for electricity
generated and transmitted to the respective regional or provincial
power companies (net of value added tax ("VAT") and deferred
revenue). Revenues are earned and recognised upon transmission of
electricity to the power grid controlled and owned by the
respective power companies.
Under the tariff setting mechanism applicable to the Company and
its subsidiaries (except for the power plants acquired in 2001 and
2002 (Note3)), major repairs and maintenance determined on the
basis of 1% of the fixed asset cost is recovered through the
current power rates. The Company estimates that, over the useful
life of its power plants, this basis would approximate the total
expenses for major repair and maintenance actually incurred. In a
particular year, to the extent that the actual repair and
maintenance expenses incurred are less than the amount determined
on the above basis, the difference represents revenue collected in
excess of actual expenses incurred. Such difference is recorded as
deferred revenue (Note 26). For the power plants acquired in 2001
and 2002, as there is no similar provision in their tariff setting
formula, no deferred revenue is recorded.
(ii) Interest income
Interest income from deposits in banks or other financial
institutions is recognised on a time proportion basis that
reflects the effective yield on the assets.
(p) Borrowing costs
Borrowing costs generally are expensed as incurred. Borrowing costs are
capitalised as part of the cost of property, plant and equipment, if they are
directly attributable to the acquisition, construction or production of a
qualifying asset. Capitalisation of borrowing costs commences when the
activities to prepare the asset are in progress and expenditures and borrowing
costs are being incurred. Borrowing costs are capitalised until the assets are
substantially ready for their intended use. Borrowing costs include interest
charges and other costs incurred in connection with the borrowing of funds,
including exchange differences arising from foreign currency borrowings used
to finance these projects to the extent that they are regarded as an
adjustment to interest costs.
(q) Operating leases
Leases where a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged
to the income statement on a straight-line basis over the period of the lease.
(r) Taxation
(i) VAT
Under the relevant PRC tax laws, the Company and its subsidiaries
are subject to VAT. The Company and its subsidiaries are subject
to output VAT levied at 17% of the Company's and its subsidiaries'
operating revenue. The input VAT can be used to offset the output
VAT levied on operating revenue to determine the net VAT payable.
Because the VAT is a tax on the customer and the Company and its
subsidiaries collect such tax from the customers and pay such tax
to the suppliers on behalf of the tax authority, the VAT has not
been included in operating revenues or operating expenses.
(ii) Income tax
Effective from 1st January, 1999, in accordance with the practice
notes on the PRC income tax laws applicable to Sino-foreign
enterprises investing in energy and transportation infrastructure
businesses, the reduced income tax rate of 15% (after the approval
of State Tax Bureau) are applicable across the country.
Except for power plants acquired in 2001 and 2002 and Shangan
Phase II project, all the other power plants of the Company are
exempted from PRC income tax for two years starting from the first
profit-making year (after covering any accumulated deficits)
followed by a 50% reduction of the applicable tax rate for the
next three years ("tax holiday").
The tax holiday of the five original operating plants, the Shantou
Coal-Fired Plant, the Shanghai Power Plant and the Nanjing Power
Plant had already expired prior to 2002. The tax holiday of the
remaining operating plants will expire in 2003.
The statutory income tax is assessed on an individual power plant
basis, based on each of their results of operations. The
commencement dates of tax holiday of each power plant are
individually determined. The statutory income tax rates applicable
to the head office and the individual power plants, after taking
the effect of tax holidays into consideration, are summarized
below:
---------------------------------------------------------------------------------------
2002 001
---------------------------------------------------------------------------------------
Head Office 15.0% 5.0%
Dalian Power Plant (including Dalian Phase II) 18.0% 5.0%
Shangan Power Plant 18.0% 6.5%
Shangan Phase II* 9.0% .0%
Nantong Power Plant (including Nantong Phase II) 15.0% 5.0%
Fuzhou Power Plant (including Fuzhou Phase II) 15.0% 5.0%
Shantou Oil-Fired Plant 15.0% 5.0%
Shantou Power Plant 7.5% .5%
Shanghai Power Plant 16.5% 6.5%
Nanjing Power Plant 15.0% 7.5%
Dandong Power Plant -- --
Shandong Branch 17.0% 7.0%
Dezhou Power Plant 17.0% 7.0%
Jining Power Plant 15.0% 3.0%
Changxing Power Plant** 16.5% ot applicable
Shidongkou First Power Plant** 33.0% ot applicable
Weihai Power Plant 33.0% 3.0%
Taicang Power Company** 33.0% ot applicable
HuaiyinHuaiyin Power Company** 33.0% ot applicable
* In accordance with Guo Shui Han [2000] No. 194, the tax
holiday of the Shangan Phase II is determined separately from
the Shangan Power Plant. The Shangan Phase II is entitled to
a tax holiday starting from the first profit making year
(after covering any accumulated deficits).
** Not applicable as they were not subsidiaries or branches of the
Company in 2001.
The income tax charge is based on profit for the year and after
considering deferred taxation.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the financial
statements. Currently enacted tax rates are used in the
determination of deferred income tax. Deferred tax assets are
recognised to the extent that it is probable that future taxable
profit will be available against which the temporary differences
can be utilised. Deferred income tax is provided on temporary
differences arising on investments in subsidiaries and associates,
except where the timing of the reversal of the temporary
difference can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
(s) Employe benefits
Pension obligations
The Company and its subsidiaries have various defined contribution plans in
accordance with the local conditions and practices in the provinces in which
they operate. A defined contribution plan is a pension plan under which the
Company and its subsidiaries pay fixed contributions into a separate entity (a
fund) and will have no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all employees
benefits relating to employee service in the current and prior periods.
For defined contribution plans, the Company and its subsidiaries pay
contributions to publicly administered pension insurance plans on a mandatory,
contractual or voluntary basis. Once the contributions have been paid, the
Company and subsidiaries have no further payment obligations. The regular
contributions constitute net periodic costs for the year in which they are due
and as such are included in staff costs.
(t) Related parties
Parties are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence.
Financial instruments are classified as liabilities or equity in accordance
with the substance of the contractual arrangement. Interest, dividends, gains
and losses relating to a financial instrument classified as a liability, are
reported as expense or income. Distributions to holders of financial
instruments classified as equity are charged directly to equity. When the
rights and obligations regarding the manner of settlement of financial
instruments depend on the occurrence or non-occurrence of uncertain future
events or on the outcome of uncertain circumstances that are beyond the
control of both the issuer and the holder, the financial instrument is
classified as a liability unless the possibility of the issuer being required
to settle in cash or another financial asset is remote at the time of
issuance, in which case the instrument is classified as equity.
Financial instruments are reviewed for impairment at each balance sheet date.
For financial assets carried at amortised cost, whenever it is probable that
the Company and its subsidiaries will not collect all amounts due according to
the contractual terms of loans, receivables or held-to-maturity investments,
an impairment or bad debt loss is recognised in the income statement. Reversal
of impairment losses previously recognised is recorded when the decrease in
impairment loss can be objectively related to an event occurring after the
write-down. Such reversal is recorded in income. However, the increased
carrying amount is only recognised to the extent it does not exceed what
amortised cost would have been had the impairment not been recognised.
(v) Contingencies
Contingent liabilities are not recognised in the financial statements. They
are disclosed unless the possibility of an outflow of resources embodying
economic benefits is remote. A contingent asset is not recognised in the
financial statements but disclosed when an inflow of economic benefits is
probable.
(w) Dividends
Dividends are recorded in the financial statements of the Company and its
subsidiaries in the period in which they are approved by the shareholders of
the Company.
(x) Comparatives
When necessary, comparative figures have been reclassified to conform with
changes in the presentation in the current year.
3. ACQUISITIONS
(a) Acquisition of Shandong Huaneng
On 18th July, 2000, the Company and Shandong Huaneng Power Development Co.,
Ltd ("Shandong Huaneng") entered into an agreement under which the Company
acquired the net assets of Shandong Huaneng. The shareholders of Shandong
Huaneng were entitled to Rmb1.34 per ordinary A share or US$0.1618 per
ordinary N share (the "Acquisition of Shandong Huaneng"). The total
consideration of the acquisition was approximately Rmb5,768 million paid in
cash. Direct costs relating to the acquisition amounted to approximately Rmb32
million.
Before the Acquisition of Shandong Huaneng, Shandong Huaneng owned and
operated the net assets of Dezhou Power Plant and held 60%, 75% and 25.5%
equity interests in Weihai Power Plant, Jining Power Plant and Rizhao Power
Company, respectively. These power plants own coal-fired power generating
facilities in the Shandong province and sell all the power generated to
Shandong Electricity Power Group Corporation ("SEPCO"). After obtaining all
the necessary government approvals on the Acquisition of Shandong Huaneng, the
Company took over the control of the net assets and operation of Shandong
Huaneng from 1st January, 2001.
The purchase method of accounting is used for the Acquisition of Shandong
Huaneng. The acquired identifiable assets and liabilities are recorded based
on their respective fair values on 1st January, 2001. The Company estimated
that the fair value of the net identifiable assets and liabilities of Shandong
Huaneng on that date was approximately Rmb8,272 million. Such estimation was
made by the Company based on the recoverability and realizability of each
asset and liability. On the above basis, the resulting negative goodwill
amounted to approximately Rmb2,473 million (Note 14), which is amortised over
the remaining weighted average useful life of the identifiable acquired
depreciable/amortisable assets (ie.10 years) on the straight-line basis,
starting from 1st January, 2001.
------------------------------------------------------------------------------------------
Rmb'000
------------------------------------------------------------------------------------------
Property, plant and equipment, net 6,427,841
Land use rights 170,807
Investment in an associate 231,869
Other long-term assets 99,210
Inventories 95,769
Other current assets 238,414
Short-term investments 301,000
Accounts receivable 182,589
Temporary cash investment 1,263,855
Cash and cash equivalents 2,635,695
Minority Interest (240,083)
Long-term loans (1,808,458)
Current liabilities (1,326,169)
------------------------------------------------------------------------------------------
8,272,339
Less: Negative goodwill (2,472,784)
Less: Direct costs of acquisition (31,657)
------------------------------------------------------------------------------------------
Total consideration 5,767,898
------------------------------------------------------------------------------------------
Net cash inflow in 2001 from the acquisition of Shandong Huaneng 2,635,695
------------------------------------------------------------------------------------------
(b) Acquisition of the Four Power Plants
On 9th May, 2002, the Company entered into an agreement with Huaneng Group
under which the Company agreed to acquire from Huaneng Group 70% equity
interest in Shidongkou First Power Plant, 70% equity interest in Taicang Power
Company, 44.16% equity interest in Huaiyin Power Company and all of the assets
and liabilities of Changxing Power Plant (the "Acquisition of the Four Power
Plants"). The total consideration for the Acquisition of the Four Power Plants
was Rmb2,050 million paid in cash. Direct costs relating to the acquisition
amounted to approximately Rmb18 million.
The Acquisition of the Four Power Plants became effective on 1st July, 2002
when the Company obtained the ownership and control over the relevant assets,
after obtaining the necessary government approvals on the acquisition and
making payment of the purchase consideration on that date.
The purchase method of accounting is used for the Acquisition of the Four
Power Plants. The acquired identifiable assets and liabilities are recorded
based on their respective fair values on 1st July, 2002. The proportionate
share of the fair value of the net identifiable assets and liabilities of the
Four Power Plants on that date, before the subsequent acquisition of
additional interests of some of the power plants as described in Note 3(d),
was approximately Rmb2,047 million. The resulting goodwill on acquisition
amounts to approximately Rmb21 million, which is amortised over the remaining
weighted average useful life of the identifiable acquired
depreciable/amortisable assets on the straight-line basis, starting from 1st
July, 2002.
----------------------------------------------------------------------------------------
Rmb'000
----------------------------------------------------------------------------------------
Property, plant and equipment, net 4,295,712
Investment in an associate 271,598
Other long-term assets 109,504
Inventories 115,944
Other current assets 22,166
Accounts receivable 386,721
Cash and cash equivalents 431,257
Minority Interest (582,731)
Long-term loans (2,009,735)
Deferred tax liabilities (81,107)
Current liabilities (911,835)
----------------------------------------------------------------------------------------
2,047,494
Add: Goodwill 20,916
Less: Direct costs of acquisition (18,410)
----------------------------------------------------------------------------------------
Total Consideration paid in 2002 2,050,000
Add: Direct costs of acquisition paid in 2002 17,042
Less: Cash inflow from the acquired power plants (431,257)
----------------------------------------------------------------------------------------
Net cash outflow in 2002 from the acquisition of Four Power Plants 1,635,785
----------------------------------------------------------------------------------------
(c) Acquisition of minority interest of the Jining Power Plant
After obtaining all necessary approvals from relevant authorities, on 18th
June, 2002, the Company acquired 25% equity interest from the third-party
minority shareholder in Jining Power Plant for a consideration of
approximately Rmb109 million in cash. Purchase method of accounting is used
for this acquisition. As at the acquisition date, the proportionate share of
the fair value of the net identifiable assets and liabilities of Jining Power
Plant acquired was approximately Rmb106 million. The resulting goodwill
amounted to approximately Rmb3 million.
(d) Acquisition of additional interests of the Three Power Plants
On 15th November, 2002, the Company entered into an agreement with Huaneng
Group under which the Company agreed to acquire from Huaneng Group the
remaining 30% equity interest in Shidongkou First Power Plant and additional
5% equity interest in Taicang Power Company. Purchase method of accounting is
used for this acquisition. The total consideration and direct cost of the
acquisition was Rmb419 million paid in cash. The proportionate share of the
fair value of the net identifiable assets and liabilities of Shidongkou First
Power Plant and Taicang Power Company as at acquisition date was approximately
Rmb376 million. The resulting goodwill amounted to approximately Rmb43
million.
On 26th December, 2002, the Company entered into an agreement with a third
party, Jiangsu Huaiyin Investment Company ("JHIC"), under which the Company
agreed to acquire 19.48% equity interest in Huaiyin Power Company from JHIC.
Purchase method of accounting is used for this acquisition. The total
consideration was Rmb185 million paid in cash. The proportionate share of the
fair value of the net identifiable assets and liabilities of Huaiyin Power
Company as at acquisition date was approximately Rmb124 million. The resulting
goodwill amounted to approximately Rmb61 million. Together with the goodwill
arising from the previous acquisition of 44.16% equity interests of Huaiyin
Power Company, the total goodwill arising from the acquisitions of Huaiyin
Power Company amounted to Rmb82 million.
The acquisitions became effective on 31st December, 2002 when the Company
obtained all necessary government approvals on the transaction and paid the
purchase consideration on that date.
After the completion of the Acquisition of the Four Power Plants and the
acquisition of additional interests of the three power plants, the Company
fully owns and operates the assets of Changxing Power Plant and Shidongkou
First Power Plant, and holds 75% equity interests in Taicang Power Company and
63.64% equity interests in Huaiyin Power Company.
4. FINANCIAL RISK MANAGEMENT
(1) Financial risk factors
The Company and its subsidiaries' activities expose them to a variety of
financial risks, including the effects of changes in debt and equity market
prices, foreign currency exchange rates and interest rates. The Company and
its subsidiaries' overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse
effects on the financial performance of the Company and its subsidiaries. The
Company and its subsidiaries use derivative financial instruments such as
interest rate swaps to hedge certain exposures.
(a) Interest rate risk
The Company's floating rate bank loans expose the Company to
interest rate risk. The Company uses derivative instruments when
considered appropriate, to manage exposures arising from changes
in interest rates by entering into interest rate swap agreements
with local banks to convert certain floating rate bank loans into
fixed rate debts of the same principal amounts and for the same
maturities to hedge against cash flow interest rate risk.
The interest rates and terms of repayment of the convertible
notes, shareholders loans, bank loans and other loans of the
Company and its subsidiaries are disclosed in Notes 22, 23, 24, 25
and 28.
(b) Foreign currency risk
The Company and its subsidiaries have foreign currency risk as the
convertible notes and a significant portion of its long-term bank
loans and shareholder loans are denominated in foreign currencies,
principally US dollars, as described in Note 23 and 24(b).
Fluctuation of exchange rates of Renminbi against foreign
currencies could affect the Company and its subsidiaries' results
of operation.
(c) Credit risks
Significant portion of the Company and its subsidiaries' cash and
cash equivalents and temporary cash investments maturing over 3
months are deposited with the four largest state-owned banks of
the PRC and a non-bank financial institution in the PRC, which is
a related party of the Company.
Each power plant of the Company and its subsidiaries sells the
electricity generated to its sole customer (the provincial or
regional power company) in the province or region where the power
plant is situated.
(2) Fair value estimation
The fair value of publicly traded derivatives and trading and
available-for-sale securities is based on quoted market prices at the balance
sheet date.
In assessing the fair value of non-traded derivatives and other financial
instruments, the Company and its subsidiaries use a variety of methods and
make assumptions that are based on market conditions existing at each balance
sheet date. Quoted market prices or dealer quotes for the specific or similar
instruments are used for long-term debt. Other techniques, such as option
pricing models and estimated discounted value of future cash flows, are used
to determine fair value for the remaining financial instruments.
The face values less any estimated credit adjustments for financial assets and
liabilities with a maturity of less than one year are assumed to approximate
their fair values. The fair value of financial liabilities for disclosure
purposes is estimated by discounting the future contractual cash flows at the
current market interest rate available to the Company and its subsidiaries for
similar financial instruments.
5. SALES OF ELECTRIC POWER
The Company and its subsidiaries have contractual arrangements for the sale of
electric power with the regional or provincial power companies. The majority
portion of the power output is sold at rates designed to cover all operating
and debt service costs, taxes and any exchange losses incurred, plus a
reasonable return on the Company's and its subsidiaries' rate base.
For the years ended 31st December, 2002 and 2001, all operating revenues were
billed at the on-grid wholesale rates to the local power companies, except for
the Shantou Oil-Fired Power Plant, the operating revenues of which were billed
at the retail rate and charged to the ultimate consumers before 1st June, 2001.
Upon the approval from local authorities, operating revenues of Shantou
Oil-Fired Power Plant have been billed at the on-grid wholesale rates to the
local power companies since 1st June, 2001.
Before 1st June, 2001, under the retail rate arrangement, the local power
company collected revenue from the ultimate consumers and remitted it to the
Shantou Oil-Fired Power Plant after deducting the cost of transmission and an
agreed amount of handling fees. The Shantou Oil-Fired Power Plant recognised
the gross amount received as revenue with the reimbursement of transmission
costs and payment of handling fees to the local power company being separately
recorded as transmission fees under operating expense. For Shantou Oil-Fired
Power Plant after 1st June, 2001 and other power plants subject to on-grid
wholesale rates, since such rates excluded the transmission costs incurred by
the local power companies, no transmission fees were recorded.
6. PROFIT BEFORE TAXATION
Profit before taxation was determined after charging and (crediting) the
following:
----------------------------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
----------------------------------------------------------------------------------------------------------------------------
Interest expenses on convertible notes 47,904 108,581
Interest expenses on:
-- bank loans repayable within 5 years 155,987 236,832
-- bank loans repayable beyond 5 years 415,181 492,079
Interest expenses on:
-- shareholders loans wholly repayable within 5 years 29,622 73,524
Interest expenses on other long-term loans wholly repayable within 5 years 29,619 43,726
----------------------------------------------------------------------------------------------------------------------------
678,313 954,742
Less: Amount capitalised in property, plant and equipment (116,438) (87,204)
----------------------------------------------------------------------------------------------------------------------------
Total interest expenses 561,875 867,538
Interest income (83,015) (113,081)
Bank charges and exchange losses, net 31,405 41,758
Change in fair value on financial instruments:
-- (Gain)/loss of interest rate swaps (2,179) 14,875
-- Fair value change of put option -- 46,562
Auditors' remuneration 10,750 12,747
Loss on disposals of fixed assets 31,980 36,592
Operating leases
-- Buildings 27,566 25,000
-- Land use rights 59,140 51,567
Depreciation of property, plant and equipment 3,533,609 3,261,001
Amortization of prepaid land use rights 16,847 14,359
Amortisation of goodwill 1,150 --
Amortization of other long-term assets 24,112 19,600
Amortization of negative goodwill (247,278) (247,279)
Cost of inventories 7,100,336 5,337,630
Provision for doubtful accounts 15,826 1,030
Provision for inventory obsolescence -- 2,576
Gain from disposal of available for-sale investments (1,288) (24,671)
Staff cost
-- Wages and staff welfare 698,862 588,552
-- Retirement benefits 142,734 107,301
-- Staff housing benefits 78,612 56,406
-- Other staff costs 115,532 54,877
----------------------------------------------------------------------------------------------------------------------------
7. RELATED PARTY TRANSACTIONS
The related parties of the Company and its subsidiaries are as follows:
----------------------------------------------------------------------------------------------------------------------------
Name of related parties Nature of relationship
----------------------------------------------------------------------------------------------------------------------------
HIPDC Parent
Huaneng Group Ultimate parent
China Huaneng Finance Company A subsidiary of Huaneng Group
("Huaneng Finance")
Weihai Power Development Bureau ("WPDB") Minority shareholder of Weihai Power Plant
China Huaneng International A subsidiary of Huaneng Group
Trade Economics Corporation ("CHITEC")
-----------------------------------------------------------------------------------------------------------------------------
a. Pursuant to the relevant service agreements, HIPDC provides transmission
and transformer facilities to some of the power plants of the Company
and receives service fees. Such service fees represent recoverable costs
for rate setting purposes. The total service fees paid to HIPDC for the
year ended 31st December, 2002 was approximately Rmb264 million (2001:
Rmb307 million).
b. At the time of the formation of the Company, HIPDC transferred the land
use rights pertaining to existing sites occupied by the five original
operating plants for a period of 50 years in return for an amount of
approximately Rmb148 million. Payments to HIPDC for the land use rights
are being made in 10 equal, non-interest bearing, annual installments
starting in 1994.
c. In accordance with the leasing agreement entered into between the
Company and HIPDC, the land use rights of the Shanghai Power Plant is
leased to the Company for a period of 50 years at an annual rental
payment of Rmb6 million.
d. Pursuant to a leasing agreement entered into amongst the Company, HIPDC
and Nanjing Investment Company ("Nanjing Investment"), the land use
right of the Nanjing Power Plant is leased to the Company for 50 years
with an annual rental payment of approximately Rmb1.3 million, starting
from the year ended 31st December, 1999.
e. As at 31st December, 2002, current deposits of approximately Rmb2,376
million (2001: Rmb64 million) and fixed deposits of approximately Rmb570
million (2001: Rmb3,689 million) were placed with a non-bank PRC
financial institution, Huaneng Finance, which is a subsidiary of Huaneng
Group (see Note 18).
f. Pursuant to the leasing agreement between the Company and HIPDC signed
on 13th February, 2000, HIPDC agreed to lease its building to the
Company as office for 5 years at an annual rental of Rmb25 million
effective from 1st January, 2000.
g. As described in Note 23 and Note 25, certain loans of the Company and
its subsidiaries were on-lent from HIPDC or borrowed from WPDB and
Huaneng Finance.
h. As at 31st December, 2002, short-term loans amounting to Rmb200 million
were borrowed from Huaneng Finance (2001: Rmb40 million) (see Note 28).
i. As of 31st December, 2002, the balances with HIPDC amounted to Rmb100
million (2001: Rmb37 million) are unsecured, non-interest bearing and
repayable within one year.
j. As at 31st December, 2002, long-term bank loans of approximately
Rmb5,544 million, Rmb1,140 million and Rmb280 million (2001: Rmb8,868
million, 1,666 million and Rmb300 million) were guaranteed by HIPDC,
Huaneng Group and WPDB, respectively.
k. On 18th July, 2000, the Company and Shandong Huaneng entered into an
agreement under which the Company acquired the net assets of Shandong
Huaneng in which Huaneng Group held 33.09% equity interest. The
shareholders of Shandong Huaneng were entitled to Rmb1.34 per ordinary A
share or US$0.1618 per ordinary N share. The total consideration of the
acquisition is approximately Rmb5,768 million, among which,
approximately Rmb1,909 million was paid to Huaneng Group (see Note
3(a)).
l. On 9th May, 2002, the Company entered into an agreement with Huaneng
Group under which the Company agreed to acquire from Huaneng Group 70%
equity interest in Shidongkou First Power Plant, 70% equity interest in
Taicang Power Company, 44.16% equity interest in Huaiyin Power Company
and all of the assets and liabilities of Changxing Power Plant . The
total consideration for the Acquisition of the Four Power Plants was
Rmb2,050 million paid in cash (see Note 3(b)).
m. On 15th November, 2002, the Company entered into an agreement with
Huaneng Group under which the Company agreed to acquire from Huaneng
Group the remaining 30% equity interest in Shidongkou First Power Plant
and an additional 5% equity interest in Taicang Power Company. The total
consideration for the acquisition of additional interest of two power
plants was Rmb415 million paid in cash (see Note 3(d)).
n. In accordance with an equipment import agency service agreement entered
into between Shandong Huaneng and CHITEC, the Company is required to pay
an agency fee at 0.5% of the value of imported equipment in return for
the agency service provided by CHITEC. For the year ended 31st December,
2002, the Company paid an agency fee to CHITEC amounted to Rmb3 million
(2001: Rmb32 million) for equipment transportation and insurance service
received.
o. On 6th November, 2002, the Company has entered into a management service
agreement with Huaneng Group and HIPDC. Under the management service
agreement, the Company will assist in managing certain power plants
owned by Huaneng Group and HIPDC for a service fee. As at 31st December,
2002, the Company had not yet commenced its management service and
therefore no management service income was recognised for the year.
8. RETIREMENT PLAN AND POST-RETIREMENT BENEFITS
All PRC employees of the Company and its subsidiaries are entitled to a
monthly pension at their retirement dates. The PRC government is responsible
for the pension liability to these retired employees. The Company and its
subsidiaries are required to make contributions to the state-sponsored
retirement plan at a specified rate, currently set at 18% to 20%, of the basic
salary of the PRC employees. The retirement plan contributions paid by the
Company and its subsidiaries for the year ended 31st December, 2002 was
approximately Rmb89 million (2001: Rmb66 million).
In addition, the Company and its subsidiaries have implemented a supplementary
defined contribution retirement scheme. Under this scheme, the employees are
required to make a specified contribution based on the number of years of
service with the Company and its subsidiaries, and the Company and its
subsidiaries are required to make a contribution equal to two to three times
the employees' contributions. The employees will receive the total
contributions upon their retirement. The contributions paid by the Company and
its subsidiaries for the year ended 31st December, 2002 was approximately
Rmb80 million (2001: Rmb60 million).
The Company and its subsidiaries have no further obligation for
post-retirement benefits beyond the above annual contributions made.
9. DIRECTORS', SENIOR EXECUTIVES' AND SUPERVISORS' EMOLUMENTS
-----------------------------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
-----------------------------------------------------------------------------------------------------------------------------
Fees for executive directors -- --
Fees for non-executive directors -- --
Fees for supervisors -- --
Other emoluments for executive directors
-- basic salaries and allowances 445 522
-- bonus 1,027 1,128
-- retirement benefits 263 148
Other emoluments for non-executive directors 1,118 --
Other emoluments for supervisors 576 589
-----------------------------------------------------------------------------------------------------------------------------
No director had waived or agreed to waive any emoluments during the year.
The annual emoluments paid during the year to each of the directors and
supervisors (including the five highest paid employees) fell within the band
from Rmb nil to Rmb1 million.
Details of emoluments paid to the five highest paid employees were:
-----------------------------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
-----------------------------------------------------------------------------------------------------------------------------
Basic salaries and allowances 477 404
Bonus 1,034 815
Retirement benefits 282 112
-----------------------------------------------------------------------------------------------------------------------------
During the year, no emolument was paid to the five highest paid individuals as
an inducement to join or upon joining the Company or as compensation for loss
of office.
10. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net comprised:
The Company and its subsidiaries
----------------------------------------------------------------------------------------------------------------------------
2002 2001
Electric
Utility
Plant in Transportation Construction-
Buildings Service Facilities Others in-progress Total Total
'000 '000 '000 '000 '000 '000 '000
----------------------------------------------------------------------------------------------------------------------------
Cost
Beginning of year 1,712,190 42,729,399 580,791 858,872 4,133,597 50,014,849 40,912,177
Acquisition (Note 3) 265,873 4,441,536 8,079 91,608 116,394 4,923,490 6,427,841
Addition 86,943 8,831 113 43,931 2,117,565 2,257,383 2,816,240
Transfer from CIP 71,288 5,455,581 48,237 106,692 (5,681,798) -- --
Disposals (39,063) (67,689) (2,350) (33,886) -- (142,988) (141,409)
----------------------------------------------------------------------------------------------------------------------------
End of year 2,097,231 52,567,658 634,870 1,067,217 685,758 57,052,734 50,014,849
----------------------------------------------------------------------------------------------------------------------------
Accumulated Depreciation
Beginning of year 362,284 11,716,664 103,914 274,873 -- 12,457,735 9,268,647
Charge for the year 58,564 3,218,755 23,218 233,072 -- 3,533,609 3,261,001
Written back on disposals (1,800) (22,023) -- (18,255) -- (42,078) (71,913)
----------------------------------------------------------------------------------------------------------------------------
End of year 419,048 14,913,396 127,132 489,690 -- 15,949,266 12,457,735
----------------------------------------------------------------------------------------------------------------------------
Net Book Value
End of year 1,678,183 37,654,262 507,738 577,527 685,758 41,103,468 37,557,114
----------------------------------------------------------------------------------------------------------------------------
Beginning of year 1,349,906 31,012,735 476,877 583,999 4,133,597 37,557,114 31,643,530
----------------------------------------------------------------------------------------------------------------------------
The Company
----------------------------------------------------------------------------------------------------------------------------
2002 2001
----------------------------------------------------------------------------------------------------------------------------
Electric
Utility
Plant Transportation Construction-
Buildings in Service Facilities Others in-progress Total Total
'000 '000 '000 '000 '000 '000 '000
----------------------------------------------------------------------------------------------------------------------------
Cost
Beginning of year 1,629,409 39,871,243 474,653 857,241 4,133,599 46,966,145 40,912,177
Acquisition (Note 3) 121,486 1,831,221 5,425 46,345 54,249 2,058,726 3,469,361
Addition 57,440 8,192 113 36,246 2,095,108 2,197,099 2,715,804
Transfer from CIP 70,043 5,434,156 48,237 104,294 (5,656,730) -- --
Disposals (24,632) (45,735) -- (33,092) -- (103,459) (131,197)
----------------------------------------------------------------------------------------------------------------------------
End of year 1,853,746 47,099,077 528,428 1,011,034 626,226 51,118,511 46,966,145
----------------------------------------------------------------------------------------------------------------------------
Accumulated Depreciation
----------------------------------------------------------------------------------------------------------------------------
Beginning of year 358,144 11,313,108 93,707 332,909 -- 12,097,868 9,268,647
Charge for the year 33,290 2,918,133 21,984 132,406 -- 3,105,813 2,896,298
Written back on disposals (1,081) (19,583) -- (16,931) -- (37,595) (67,077)
----------------------------------------------------------------------------------------------------------------------------
End of year 390,353 14,211,658 115,691 448,384 -- 15,166,086 12,097,868
----------------------------------------------------------------------------------------------------------------------------
Net Book Value
End of year 1,463,393 32,887,419 412,737 562,650 626,226 35,952,425 34,868,277
----------------------------------------------------------------------------------------------------------------------------
Beginning of year 1,271,265 28,558,135 380,946 524,332 4,133,599 34,868,277 31,643,530
----------------------------------------------------------------------------------------------------------------------------
The generator units number 5 and 6 of the expansion project of Dezhou Phase
III were put into commercial operation on 29th June, 2002 and 13th October,
2002, respectively.
Borrowing costs capitalised to construction-in-progress for the year ended
31st December, 2002 was approximately Rmb116 million (2001: Rmb87 million).
The capitalisation rate used to determine the amount of borrowing costs
eligible for capitalisation was 5.25% per annum for the year ended 31st
December, 2002 (2001: 5.75%).
There was no write-down of any property, plant and equipment during the year.
11. INVESTMENT IN AN ASSOCIATE
----------------------------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
----------------------------------------------------------------------------------------------------------------------------
Beginning of year 226,488 --
Acquisition of 25.5% equity interest of Rizhao Power Company -- 231,869
Acquisition of 44.16% equity interest of Huaiyin Power Company (Note 3(b)) 271,598 --
Share of results before tax (11,145) (5,381)
Share of tax (Note 32) (5,059) --
Transfer to investment in subsidiary as a result
of acquisition of additional interest (Note 3(d)) (280,922) --
----------------------------------------------------------------------------------------------------------------------------
End of year 200,960 226,488
----------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2002, the following are details of the Company's
investment in an associate:
----------------------------------------------------------------------------------------------------------------------------
Percentage Issued
Country and date of equity and fully
Name of incorporation interest held paid capital Principal activities
----------------------------------------------------------------------------------------------------------------------------
Rizhao Power Company PRC 25.5% US$150,000,000 Power generation
20th March, 1996
----------------------------------------------------------------------------------------------------------------------------
12. INVESTMENT IN SUBSIDIARIES
As at 31st December, 2002, the Company had equity interests in the following
subsidiaries:
----------------------------------------------------------------------------------------------------------------------------
Percentage
Country and date of equity Issued and fully
Name of subsidiaries of incorporation interest held paid capital Principal activities
----------------------------------------------------------------------------------------------------------------------------
Weihai Power Plant PRC 60% Rmb761,832,800 Power generation
22nd November, 1993
Taicang Power Company PRC 75% Rmb632,840,000 Power generation
19th June, 1997
Huaiyin Power Company PRC 63.64% Rmb265,000,000 Power generation
26th January, 1995
----------------------------------------------------------------------------------------------------------------------------
Summarized financial information of the two subsidiaries acquired in 2002,
including Taicang Power Company and Huaiyin Power Company, was as follows:
----------------------------------------------------------------------------------------------------------------------------
As at
31st December,
2002
'000
----------------------------------------------------------------------------------------------------------------------------
Balance sheet
Current assets 576,600
Long-term assets 2,993,917
-----------------------------------------------------------------------------------------------------------------------------
Total assets 3,570,517
-----------------------------------------------------------------------------------------------------------------------------
Current liabilities 462,326
Long-term liabilities 1,497,529
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,959,855
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
For the
year ended
31st December,
2002
'000
-----------------------------------------------------------------------------------------------------------------------------
Income statement
Revenue 1,559,287
Expenses (1,334,383)
-----------------------------------------------------------------------------------------------------------------------------
Net profit 224,904
-----------------------------------------------------------------------------------------------------------------------------
13. Available-for-sale investment
Available-for-sale investment represents a 3% equity interest (unlisted) in a
newly established power generation company in the PRC.
The investment does not have a quoted market price in an active market. There
is no appropriate method to reliably measure its fair values. Accordingly, the
investment is stated at cost and subject to review for impairment loss.
14. GOODWILL AND NEGATIVE GOODWILL
Goodwill and negative goodwill arose from acquisitions. Goodwill and negative
goodwill are recognised in the income statement as other operating expenses
and other operating income respectively on a systematic basis over the
remaining weighted average useful lives of the identifiable acquired
depreciable/ amortisable assets (see Note 3). The movement of the carrying
amount of goodwill and negative goodwill during the year was as follows:
-----------------------------------------------------------------------------------------------------------------------------
Negative
Goodwill goodwill Total
'000 '000 '000
-----------------------------------------------------------------------------------------------------------------------------
Year ended 31st December, 2001:
Beginning of year -- -- --
Addition from acquisitions (Note 3) -- (2,472,784) (2,472,784)
Amortisation for the year -- 247,279 247,279
-----------------------------------------------------------------------------------------------------------------------------
End of year -- (2,225,505) (2,225,505)
-----------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2001
Cost -- (2,472,784) (2,472,784)
Accumulated amortisation -- 247,279 247,279
-----------------------------------------------------------------------------------------------------------------------------
Net book value -- (2,225,505) (2,225,505)
-----------------------------------------------------------------------------------------------------------------------------
Year ended 31st December, 2002:
Beginning of year -- (2,225,505) (2,225,505)
Addition from acquisitions (Note 3) 127,710 -- 127,710
Amortisation for the year (1,150) 247,278 246,128
-----------------------------------------------------------------------------------------------------------------------------
End of year 126,560 (1,978,227) (1,851,667)
-----------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2002
Cost 127,710 (2,472,784) (2,345,074)
Accumulated amortisation (1,150) 494,557 493,407
-----------------------------------------------------------------------------------------------------------------------------
Net book value 126,560 (1,978,227) (1,851,667)
-----------------------------------------------------------------------------------------------------------------------------
15. INVENTORIES, NET
Inventories comprised:
The Company and
its subsidiaries The Company
-----------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
-----------------------------------------------------------------------------------------------------------------------------
Fuel (coal and oil) for power generation 434,726 224,131 341,446 206,190
Material and other supplies 500,854 508,050 417,221 443,387
-----------------------------------------------------------------------------------------------------------------------------
935,580 732,181 758,667 649,577
Less: Provision for inventory
obsolescence (12,239) (13,184) (10,400) (11,469)
-----------------------------------------------------------------------------------------------------------------------------
923,341 718,997 748,267 638,108
-----------------------------------------------------------------------------------------------------------------------------
As at 31st December 2002, approximately Rmb396 million of the total carrying
amount of inventories are carried at net realisable value (2001: Rmb439 million)
16. OTHER RECEIVABLES AND ASSETS, NET
Other receivables and assets comprised:
The Company and
its subsidiaries The Company
---------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
---------------------------------------------------------------------------------------------------------------------------
Prepayments for inventories 6,113 94,954 4,813 94,072
Prepayments for contractors 20,356 16,900 19,721 16,900
Interest receivable on
temporary cash investments 3,792 16,355 3,792 13,642
Current portion of long-term entrusted
loan to Weihai Power Plant -- -- 256,300 --
Receivable from Shantou Coal Port
Group Company 70,000 -- 70,000 --
Others 164,088 117,954 126,515 111,218
---------------------------------------------------------------------------------------------------------------------------
264,349 246,163 481,141 235,832
Less: Provision for doubtful accounts (21,444) (5,618) (21,104) (5,125)
---------------------------------------------------------------------------------------------------------------------------
242,905 240,545 460,037 230,707
---------------------------------------------------------------------------------------------------------------------------
17. ACCOUNTS RECEIVABLE Accounts receivable comprised:
The Company and
its subsidiaries The Company
---------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
---------------------------------------------------------------------------------------------------------------------------
Accounts receivable (i) 1,889,083 1,254,941 1,545,294 1,179,490
Notes receivable (ii) 472,750 152,230 440,080 152,230
---------------------------------------------------------------------------------------------------------------------------
2,361,833 1,407,171 1,985,374 1,331,720
---------------------------------------------------------------------------------------------------------------------------
(i) The Company and its subsidiaries usually grant one month credit period
to all the local power companies from the end of the month in which the
sales are made.
As at 31st December, 2002 the aging analysis of accounts receivable was
as follows:
The Company and
its subsidiaries The Company
------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
------------------------------------------------------------------------------------------------------------------
Within one year 2,357,213 1,407,171 1,980,754 1,331,720
Between one to two years 4,620 -- 4,620 --
------------------------------------------------------------------------------------------------------------------
2,361,833 1,407,171 1,985,374 1,331,720
------------------------------------------------------------------------------------------------------------------
(ii) As at 31st December, 2002, the maturity period of the notes receivable
ranged from one month to six months.
18. TEMPORARY CASH INVESTMENTS
Temporary cash investments consist of fixed-term deposits denominated in
Renminbi and US dollars with original maturities ranging from more than three
months to one year.
As at 31st December, 2002, temporary cash investment included deposits of
approximately Rmb570 million (2001: Rmb3,689 million) placed with a non-bank
financial institution, Huaneng Finance, which is a subsidiary of Huaneng Group
(see Note 7(e)). The annual interest rate and interest earned from Huaneng
Finance were as follows:
--------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------
Interest rate 1.71% 1.43%-2.44%
Interest earned 52 million 20 million
--------------------------------------------------------------------------------
19. CAPITALISATION
Authorized share capital
As at 31st December, 2002, the authorized share capital of the Company was
Rmb6,000,273,960, divided into 6,000,273,960 shares of Rmb1.00 each. In
addition, the issued and fully paid share capital of the Company as at 31st
December, 2002 was Rmb6,000,273,960 (2001: Rmb6,000,000,000) comprising of
4,500,000,000 Domestic Shares and 1,500,273,960 Overseas Listed Foreign
Shares. The holders of Overseas Listed Foreign Shares and Domestic Shares,
with minor exceptions, are entitled to the same economic and voting rights.
Public offering in the PRC
On 15th and 16th November, 2001, 250,000,000 new ordinary shares par value
Rmb1.00 each, in the form of A shares, were issued to the public in a public
offering on the Shanghai Stock Exchange at Rmb7.95 per A share. The
250,000,000 A shares were listed on the Shanghai Stock Exchange on 6th
December, 2001. Net issuance cost of Rmb12.4 million were incurred to sell the
A shares and reduced the net proceeds. In addition, on 15th November, 2001,
100,000,000 new Domestic Shares of Rmb1.00 each were issued to HIPDC at
Rmb7.95 each.
Conversion of Convertible Notes to Share Capital
The noteholders converted the convertible notes with principal of US$200,000
to 6,849 American Depositary Shares ("ADS") (273,960 H shares equivalent)
during the year ended 31st Decmber, 2002 (see Note 22).
20. APPROPRIATION AND DISTRIBUTION OF PROFIT
The Board of Directors decides on an annual basis the percentages of the
profit after tax, as determined under the PRC accounting standards and
regulations, to be appropriated to the statutory surplus reserve fund, the
statutory public welfare fund and, on an optional basis, the discretionary
surplus reserve fund. When the balance of the statutory surplus reserve fund
reaches 50% of the Company's share capital, any further appropriation will be
optional. The statutory surplus reserve fund can be used to offset prior
years' losses, if any, and may be converted into share capital by the issue of
new shares to shareholders in proportion to their existing shareholding or by
increasing the par value of the shares currently held by them, provided that
the balance after such issue is not less than 25% of registered capital. The
statutory public welfare fund can only be utilised on capital items for the
collective benefits of the Company's employees. Titles of these capital items
will remain with the Company. This fund is non-distributable other than in
liquidation. The discretionary surplus reserve fund can be provided and used
in accordance with the resolutions of the shareholders.
For the year ended 31st December, 2002, the Board of Directors resolved the
following on 12th March, 2003:
(i) to appropriate 10% and 7.5% (2001: 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, amounting to approximately Rmb714 million (2001:
Rmb636 million) in total;
(ii) to make no appropriation to the discretionary surplus reserve fund.
In accordance with the Articles of Association, earnings available for
distribution by the Company will be based on the lowest of the amounts
determined in accordance with (a) the PRC accounting standards and
regulations, (b) IFRS and (c) US GAAP. The amounts of distributable profit
resulting from the current year operation after appropriation to dedicated
capital for the year ended 31st December, 2002 was approximately Rmb3.18
billion (2001: Rmb2.70 billion). The cumulative balance of distributable
profit as at 31st December, 2002 was approximately Rmb9.13 (billion (2001:
Rmb9.31 billion).
21. DIVIDENDS
On 12th March, 2003, the Board of Directors proposed a dividend of Rmb0.34
(2001: Rmb0.30) per share, totaling approximately Rmb2,040 million (2001:
Rmb1,800 million) for the year ended 31st December, 2002. The proposed
dividend distribution is subject to shareholders' approval in their next
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, 2003.
22. CONVERTIBLE NOTES
In May 1997, the Company issued at par value convertible notes with an
aggregate principal amount of US$230 million at 1.75% due 2004. These notes
are listed on the New York Stock Exchange and the Luxemburg Stock Exchange.
The notes mature on 21st May, 2004, unless previously redeemed or converted.
The notes are convertible, at the option of the noteholders, at any time from
and including 21st August, 1997 up to and including the date of maturity,
unless previously redeemed, at an initial conversion price of US$29.20 per
ADS, each of which represents 40 Overseas Listed Foreign Shares, subject to
adjustment in certain circumstances.
The notes were redeemable, at the option of the noteholders, in whole or in
part, on 21st May, 2002 at 128.575% of the principal amount of the notes
together with accrued interest, if any.
The notes may be redeemed, at the option of the Company, at any time on or
after 21st May, 2000, but prior to maturity, in whole or in part, at a
redemption price equal to 100% of the principal amount of the notes, together
with accrued interest, if any, if the closing price of the ADSs for a period
of 30 consecutive trading days is at least 130% of the conversion price in
effect on each such trading day.
The proceeds received were allocated for accounting purposes into a liability
component of approximately US$168 million (equivalent to Rmb1,393 million) and
an equity component of approximately US$62 million (equivalent to Rmb511
million) at the issuance date.
Before 21st May, 2002, the put option for the noteholders to redeem the notes
at 128.575% of the principal amount of the notes was accounted for as an
embedded derivative. It is separated from the host contract of the convertible
notes and measured at its fair value with changes in fair value included in
net profit or loss. The liability component is measured at amortised cost.
The fair value of the put option was determined on the following basis:
(i) No fair value was attributed to the share conversion option. Management
believes that the probability of the noteholders exercising the
conversion option is very low because the prevailing share price of the
Company was significantly below 128.575% of the principal amount of the
notes.
(ii) The fair value of the liability component was determined by discounting
the stream of future payments of interest and principal at the
prevailing market rate for a similar liability (instrument of comparable
credit status and providing substantially the same cash flows, on the
same terms, but without the conversion option).
(iii) Given (i) and (ii) above, the fair value of the put option was then
determined by deducting the fair value of the liability component from
the prevailing market price of the convertible notes.
22. CONVERTIBLE NOTES (Cont'd)
At the beginning of 2001 in which IAS 39 was initially applied, the Company
recognised the put option of the convertible notes, which allows the
noteholders to redeem the convertible notes at a premium, as an embedded
derivative and measured it at fair value. The difference between the previous
carrying amount and the current fair value amounted to approximately Rmb229
million, which was recognised as an adjustment to the opening retained
earnings as at 1st January, 2001.
In addition, in accordance with IAS 39, the liability component is measured at
amortised cost. The difference of approximately Rmb235 million compared with
the previous carrying amount was recognised as an adjustment to the opening
retained earnings as at 1st January, 2001.
During the year ended 31st December, 2001, the Company recorded a loss
amounting to approximately Rmb47 million arising from the changes in the fair
value of the put option during the year.
On 21st May, 2002, the noteholders, by exercising their put option rights,
redeemed a substantial portion of the convertible notes with an aggregate
principal amount of US$209,685,000,at 128.575% of the principal amount
together with accrued interest. Upon the redemption, the equity component
attributable to the redeemed portion of the convertible notes amounting to
approximately Rmb465 million was transferred to additional paid-in capital as
at 21st May, 2002. The net shortfall of approximately Rmb42 million between
(a) the sum of the relevant principal amount plus accrued interest and the
28.575% put premium settled upon redemption and (b) the sum of the amortised
cost of the liability component attributable to the redeemed portion of the
convertible notes and the total carrying amount of the put option value as at
21st May, 2002, was charged to the income statement as interest expense.
The noteholders converted the convertible notes with principal of US$200,000
to 6,849 ADS (273,960 H shares equivalent) during the year ended 31st Decmber,
2002 (2001: nil). Upon the conversion, the equity component attributable to
the converted portion of the convertible notes amounting to Rmb0.44 million
was transferred to additional paid-in capital.
23. LONG-TERM LOANS FROM SHAREHOLDERS
Long-term loans from shareholders comprised:
--------------------------------------------------------------------------------
2002 2001
'000 '000
--------------------------------------------------------------------------------
Foreign currency bank loans on-lent by HIPDC 777,782 793,282
--------------------------------------------------------------------------------
The foreign currency bank loans on lent by HIPDC bear interest at the
prevailing lending rates (both fixed and floating) prescribed by the
contracts, which ranged from 4.01% to 7.40% per annum for the year ended 31st
December, 2002 (2001: 4.25% to 7.40%), and are repayable in accordance with
the repayment schedules set by the banks. The amounts outstanding comprised:
-----------------------------------------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------------------------------------
Original
Currency
'000 Rmb'000 Rmb'000
-----------------------------------------------------------------------------------------------------------
Amounts denominated in United States Dollar ("US$") 93,966 777,782 778,429
Amounts denominated in Swiss Francs ("SFRC") -- -- 14,853
-----------------------------------------------------------------------------------------------------------
777,782 793,282
-----------------------------------------------------------------------------------------------------------
The shareholders' loans are repayable as follows:
-----------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
-----------------------------------------------------------------------------------------------------------
Within one year 388,891 15,565
Between one to two years 388,891 388,835
Between two to five years -- 388,882
-----------------------------------------------------------------------------------------------------------
777,782 793,282
-----------------------------------------------------------------------------------------------------------
Less: Amount due within one year included under
current liabilities (388,891) (15,565)
-----------------------------------------------------------------------------------------------------------
388,891 777,717
-----------------------------------------------------------------------------------------------------------
24. LONG-TERM BANK LOANS Long-term bank loans comprised:
The Company andits subsidiaries The Company
---------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------
US$'000 Rmb'000 Rmb'000 US$'000 Rmb'000 Rmb'000
---------------------------------------------------------------------------------------------------------------
Renminbi bank loans (a) -- 2,053,000 1,430,213 -- -- 820,000
United States dollar
bank loans (b) 1,007,606 8,340,253 9,891,041 996,402 8,247,547 9,891,041
---------------------------------------------------------------------------------------------------------------
10,393,253 11,321,254 8,247,547 10,711,041
---------------------------------------------------------------------------------------------------------------
a. Renminbi bank loans were borrowed from local banks to finance the
construction of the power plants of the Company and its subsidiaries.
These loans bore fixed interest rates from 5.76% to 6.21% per annum for
the year ended 31st December, 2002 (2001: 6.21%) and are repayable in
accordance with the agreed repayment schedules set by the banks.
b. United States dollar bank loans were borrowed to finance the
construction of the power plants of the Company and its subsidiaries.
These loans bore interest at lending rates (both fixed and floating)
ranging from 2.00% to 6.60% per annum for the year ended 31st December,
2002 (2001: 5.89% to 6.60%), and are repayable in accordance with the
agreed repayment schedules set by the banks. The Company had entered
into interest rate swap agreements with local banks to convert certain
floating rate bank loans into fixed rate debts to hedge against the
interest rate risk (see Note 38).
The long-term bank loans are repayable as follows:
The Company and
its subsidiaries The Company
---------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
---------------------------------------------------------------------------------------------------------------------------
Within one year 1,928,732 2,630,008 1,783,732 2,630,008
Between one to two years 2,179,281 1,777,844 1,532,726 1,777,844
Between two to five years 2,490,335 3,215,678 1,924,184 2,705,465
Over five years 3,794,905 3,697,724 3,006,905 3,597,724
---------------------------------------------------------------------------------------------------------------------------
10,393,253 11,321,254 8,247,547 10,711,041
Less: Amount due within one year
included under current liabilities (1,928,732) (2,630,008) (1,783,732) (2,630,008)
---------------------------------------------------------------------------------------------------------------------------
8,464,521 8,691,246 6,463,815 8,081,033
---------------------------------------------------------------------------------------------------------------------------
25. OTHER LONG-TERM LOANS
The Company and
its subsidiaries The Company
----------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
----------------------------------------------------------------------------------------------------------------------------
Long-term loan from Nanjing Investment -- 174,368 -- 174,368
Long-term loan from WPDB (Note 7(g)) 106,389 215,704 -- --
Long-term loan from Huaneng Finance
(Note 7(g)) 225,000 -- 225,000 --
Long-term loan from Jiangsu
International Trust and
Investment Corporation 43,245 -- -- --
Long-term loan from Jiangsu Huaiyin
Investment Company 25,050 -- -- --
Long-term loan from Jiangsu Electric
Power Development Co., Ltd. 27,718 -- -- --
----------------------------------------------------------------------------------------------------------------------------
427,402 390,072 225,000 174,368
----------------------------------------------------------------------------------------------------------------------------
The other long-term loans bear fixed interest rates prescribed by the
contracts, which ranged from 5.64% to 6.21% per annum for the year ended 31st
December, 2002 (2001: 6.21%), and are repayable in accordance with the
repayment schedules set by the contracts.
Other long-term loans are repayable as follows:
The Company and
its subsidiaries The Company
----------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
----------------------------------------------------------------------------------------------------------------------------
Within one year 96,013 283,273 -- 174,368
Between one to two years 106,389 -- -- --
Between two to five years 225,000 106,799 225,000 --
----------------------------------------------------------------------------------------------------------------------------
427,402 390,072 225,000 174,368
----------------------------------------------------------------------------------------------------------------------------
Less: Amounts due within
one year included under
current liabilities (96,013) (283,273) -- (174,368)
----------------------------------------------------------------------------------------------------------------------------
331,389 106,799 225,000 --
----------------------------------------------------------------------------------------------------------------------------
26. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities comprised:
The Company and
its subsidiaries The Company
----------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
----------------------------------------------------------------------------------------------------------------------------
Accounts payable 471,609 387,814 409,500 342,011
Deferred revenue (see Note 2(o)) 939,564 726,808 939,564 726,808
Payable to contractors for construction 1,333,448 716,956 1,319,830 699,719
Other payable to contractors 140,328 120,559 131,129 103,133
Accrued interest 115,861 200,978 113,371 200,978
Others 733,540 504,108 670,094 423,730
----------------------------------------------------------------------------------------------------------------------------
3,734,350 2,657,223 3,583,488 2,496,379
----------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2002, the aging analysis of accounts payable was as follows:
The Company and
its subsidiaries The Company
----------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
----------------------------------------------------------------------------------------------------------------------------
Within one year 465,624 373,270 406,265 327,467
Between one to two year 3,395 9,494 856 9,494
Over two years 2,590 5,050 2,379 5,050
----------------------------------------------------------------------------------------------------------------------------
471,609 387,814 409,500 342,011
----------------------------------------------------------------------------------------------------------------------------
27. TAXES PAYABLE Taxes payable comprised:
The Company and
its subsidiaries The Company
----------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
----------------------------------------------------------------------------------------------------------------------------
VAT payable 291,456 209,020 184,992 172,010
Income tax payable 311,436 292,615 198,256 255,405
Others 17,297 19,558 12,413 13,775
----------------------------------------------------------------------------------------------------------------------------
620,189 521,193 395,661 441,190
----------------------------------------------------------------------------------------------------------------------------
28. SHORT-TERM LOANS
Short-term loans are denominated in Renminbi and bear interest at the
prevailing interest rates in the PRC, which ranged from 4.7790% to 5.5575% per
annum for the year ended 31st December, 2002 (2001: 5.30%), and are repayable
within one year.
As at 31st December, 2002, short-term loans amounting to Rmb200 million were
drawn from Huaneng Finance, which bore interest at 5.5575% per annum for the
year ended 31st December, 2002 (2001: 5.30%) (see Note 7(h)).
29. DEFERRED INCOME TAXES
Deferred income taxes are calculated in full on temporary differences under
the liability method using the applicable tax rates for the respective
operating units.
The movement in deferred tax liabilities, which arose mainly from the
temporary differences of property, plant and equipment, during the year ended
31st December, 2002 is as follows:
-----------------------------------------------------------------------------------------------------------
The Company
and its
subsidiaries The Company
'000 '000
-----------------------------------------------------------------------------------------------------------
As at 1st January, 2002 -- --
Acquisitions (Note 3) 109,568 --
Income statement charge (Note 32) 12,285 15,030
-----------------------------------------------------------------------------------------------------------
As at 31st December, 2002 121,853 15,030
-----------------------------------------------------------------------------------------------------------
The Company and its subsidiary recognized deferred tax liabilities arising
from the acquisitions of the Shidongkou First Power Plant, Changxing Power
Plant, Taicang Power Company and Huaiyin Power Company in 2002. The initial
recognition of the identifiable assets and liabilities acquired was based on
valuations performed by valuers. The result of the valuation surplus is not a
tax deductible credit. Deferred tax liability of approximately Rmb107 million
relating to this temporary difference was recorded in 2002.
30. ADDITIONAL FINANCIAL INFORMATION ON BALANCE SHEET
As at 31st December, 2002, the net current assets of the Company and its
subsidiaries amounted to approximately Rmb33 million (2001: Rmb1,842 million).
On the same date, the total assets less current liabilities was approximately
Rmb40,809 million (2001: Rmb38,370 million).
31. HOUSING SCHEME
In accordance with the PRC housing reform regulations, the Company and its
subsidiaries are required to make contributions to the State-sponsored housing
fund at 7%-11% of the specified salary amount of the PRC employees. At the
same time, the employees are required to make a contribution equal to the
Company's and its subsidiaries' contribution out of their payroll. The
employees are entitled to claim the entire sum of the fund under certain
specified withdrawal circumstances. For the year ended 31st December, 2002,
the Company and its subsidiaries contributed approximately Rmb71 million
(2001: Rmb31 million) to the fund.
In addition, the Company and its subsidiaries provided housing benefits to
certain employees to enable them to purchase living quarters from the Company
and its subsidiaries at a substantial discount. Such housing benefits
represent the difference between the cost of the staff quarters sold to and
the net proceeds collected from the employees. The provision of housing
benefits is expected to benefit the Company and its subsidiaries over the
estimated remaining average service life of the relevant employees.
For the year ended 31st December, 2002, the housing benefits provided by the
Company and its subsidiaries to the employees amounted to approximately Rmb18
million (2001: Rmb16 million) which is recorded as a long-term deferred asset
and amortised over the remaining average service life of the relevant
employees which is estimated to be 10 years.
The Company and its subsidiaries have no further obligation for housing
benefits.
32. INCOME TAX EXPENSE Income tax expense comprised:
-------------------------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
-------------------------------------------------------------------------------------------------------------------------
Current tax expense 963,510 715,220
Deferred tax 12,285 --
Share of tax of associates (Note 11) 5,059 --
-------------------------------------------------------------------------------------------------------------------------
980,854 715,220
-------------------------------------------------------------------------------------------------------------------------
The reconciliation of the effective income tax rate to the statutory income
tax rate in the PRC is as follows:
-------------------------------------------------------------------------------------------------------------------------
2002 2001
-------------------------------------------------------------------------------------------------------------------------
Average statutory tax rate 18% 17%
Effect of tax holiday (1%) (2%)
Others 2% 2%
-------------------------------------------------------------------------------------------------------------------------
Effective tax rate 19% 17%
-------------------------------------------------------------------------------------------------------------------------
The aggregate effect of the tax holiday was approximately Rmb58 million for
the year ended 31st December, 2002 (2001: Rmb79 million).
The average statutory tax rate for the year ended 31st December, 2002
represented the weighted average tax rate of the head office and the
individual power plants calculated on the basis of the relative amounts of net
profit before tax and the applicable statutory tax rates.
33. MINORITY INTERESTS
-------------------------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
-------------------------------------------------------------------------------------------------------------------------
As at 1st January 486,261 --
Acquisitions (Note 3) 330,993 415,030
Minority shares of net profit of subsidiaries 156,034 71,231
Dividend paid (62,584) --
-------------------------------------------------------------------------------------------------------------------------
As at 31st December 910,704 486,261
-------------------------------------------------------------------------------------------------------------------------
34. EARNINGS PER SHARE
-------------------------------------------------------------------------------------------------------------------------
2002 2001
-------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Per Share Average Per Share
Net Profit Shares Amount Net Profit Shares Amount
'000 '000 '000 '000
-------------------------------------------------------------------------------------------------------------------------
Earnings per Share
Net profit attributable
to shareholders 3,921,004 6,000,099 0.65 3,450,658 5,693,750 0.61
Finance costs in relation to
convertible notes and
the relevant put option
(net off tax effect) 41,368 -- 128,955 --
Effect of assumed conversion -- 139,754 -- 315,068
---------------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Share
Net profit attributable to
shareholders plus effect of
assumed conversion 3,962,372 6,139,853 0.65 3,579,613 6,008,818 0.60
---------------------------------------------------------------------------------------------------------------------------
Basic earnings per share was computed by dividing the net profit for the year
by the weighted average number of ordinary shares outstanding during the year.
On a diluted basis, both net profit and the weighted average number of
ordinary shares outstanding were adjusted on the assumption that the
convertible notes (see Note 22) had been fully converted at the beginning of
the year.
35. NOTES TO CASH FLOW STATEMENT
a. Analysis of cash and cash equivalents
As at 31st December, 2002, cash and cash equivalents consisted of:
The Company and
its subsidiaries The Company
--------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
--------------------------------------------------------------------------------------------------------------------
Cash in Rmb 266 381 253 362
Current deposits
Rmb 2,815,473 2,123,393 2,516,803 2,079,608
US$ denominated 186,862 49,362 186,862 49,362
--------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 3,002,601 2,173,136 2,703,918 2,129,332
--------------------------------------------------------------------------------------------------------------------
b. Undrawn borrowing facilities
As at 31st December, 2002, the undrawn borrowing facilities authorized by Bank
of China and Citibank available to finance the Company's and its subsidiaries'
capital commitments for its various power plant construction projects amounted
to approximately Rmb211 million (2001: Rmb483 million). Such borrowing
facilities would be drawn down in accordance with the financial requirements
of the projects. Based on current plans, such borrowing facilities will be
utilized as follows:
---------------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
---------------------------------------------------------------------------------------------------------------
Amount to be drawn down:
Within one year 107,496 197,347
Between two to five years 103,466 285,802
---------------------------------------------------------------------------------------------------------------
210,962 483,149
---------------------------------------------------------------------------------------------------------------
In addition, the Company has also obtained other unsecured borrowing
facilities from banks amounted to Rmb12 billion (2001: nil) to finance its
funding requirements for a period of three years. As at 31st December, 2002,
the unutilized borrowing facilities amounted to Rmb11,993 million. Such
borrowing facilities would be drawn down in accordance with the level of
working capital and planned capital expenditure of the Company and its
subsidiaries.
36. Obligations and Commitments
a. Capital Commitments
Commitments mainly relate to the construction of the Dezhou Phase III, Jining
Phase III, some complementary facilities and renovation projects for existing
power plants and the purchase of coal. Commitments outstanding as at 31st
December, 2002 not provided for in the balance sheets were as follows:
The Company and
its subsidiaries The Company
------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
------------------------------------------------------------------------------------------------------------
Authorized and contracted for 2,655,514 7,633,206 2,654,514 6,690,261
------------------------------------------------------------------------------------------------------------
b. Operating lease commitments
The Company has various operating lease arrangements with HIPDC for land and
buildings (see Note 7). Some of the leases contain renewal options. Most of
the leases contain escalation clauses. Lease terms do not contain restriction
on the Company's activities concerning dividends, ad ditional debts or further
leasing.
Total future minimum lease payments under non-cancelable operating leases in
respect of land and buildings of the Head Office, the Nanjing Power Plant and
the Shanghai Power Plant are as follows:
------------------------------------------------------------------------------------------------------------
2002 2001
'000 '000
------------------------------------------------------------------------------------------------------------
Land and buildings
-- not later than one year 32,334 32,334
-- later than one year and not later than two years 32,334 32,334
-- later than two years and not later than five years 7,334 47,002
-- later than five years 306,362 299,028
------------------------------------------------------------------------------------------------------------
378,364 410,698
------------------------------------------------------------------------------------------------------------
In accordance with the land use operating lease agreement signed by the Dezhou
Power Plant and the relevant land management authorities for the land occupied
by Dezhou Phase I and Phase II, annual rental is approximately Rmb30 million
effective June 1994 and is subject to revision five years after the said date.
Thereafter, the annual rental is subject to revision once every three years.
The increment for each rental revision is restricted to no more than 30
percent of the previous annual rental amount. For the year ended 31st
December, 2002, the annual rental is approximately Rmb30 million.
37. CONTINGENT LIABILITIES
The Company and
its subsidiaries The Company
---------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
'000 '000 '000 '000
---------------------------------------------------------------------------------------------------------------
Guarantee for loan facilities
granted to an associate
and subsidiaries 399,250 399,250 2,244,956 749,463
Notes receivable discounted
with recourse -- 110,000 -- 110,000
Notes receivable endorsed to
coal suppliers -- 30,628 -- 30,628
---------------------------------------------------------------------------------------------------------------
399,250 539,878 2,244,956 890,091
---------------------------------------------------------------------------------------------------------------
38. INTEREST RATE SWAPS
As at 31st December, 2002, the notional amount of the outstanding interest
rate swap agreements was approximately US$52 million (2001: US$83 million).
Such agreements will mature between 20th May, 2003 and 18th September 2004.
For the year ended 31st December, 2002, there was a gain amounting to
approximately Rmb2.2 million arising from changes in the fair value of the
interest rate swaps subsequent to initial recognition. Since the hedging
relationship does not meet all of the conditions required for special hedge
accounting as set out in IAS 39, the gain was credited to earnings in current
year.
39. FAIR VALUE OF FINANCIAL INSTRUMENT
The Company and its subsidiaries' financial instruments not carried at fair
value are cash and cash equivalents, temporary cash investments, accounts
receivables, other current assets, other non-current assets, accounts and
other payables, short-term borrowings, long-term borrowings and
available-for-sale investments.
The carrying amounts of the Company and its subsidiaries' cash and cash
equivalents, temporary cash investments, short-term borrowings and other
current financial assets and liabilities approximated their fair value due to
the short-term maturity of these instruments.
Similarly, the historical cost carrying amounts of receivables and payables
which are all subject to normal trade credit terms approximate their fair
values.
Available-for-sale investments are measured at cost as there is no quoted
market price in an active market and whose fair value cannot be reliably
measured.
The estimated fair value of long-term debt including current maturities was
Rmb11.93 billion as at 31st December, 2002 (2001: Rmb12.67 billion). The fair
value of long-term debt is determined by discounting the stream of future
payments of interest and principal at the prevailing market interest rates for
comparable instruments. The book value of these liabilities was Rmb11.75
billion as at 31st December, 2002 (2001: Rmb12.50 billion).
40. BUSINESS RISK
The Company and its subsidiaries conduct their operations in the PRC and
accordingly investing in the shares of the Company and its subsidiaries are
subject to the risks of, among others, the PRC's political, economic and legal
environment, restructuring of the PRC electric power industry and regulatory
reform, new regulation pertaining to setting of power tariff and availability
of fuel supply at stable price.
Six largest customers represented approximately 90% (2001: 90%) of the
operating revenue of the Company and its subsidiaries for the year ended 31st
December, 2002.
41. SUBSEQUENT EVENT
On 28th January 2003, the Company entered into an Investment Agreement with
Shenzhen Investment Holding Corporation ("SIH") and Shenzhen Energy Group Co.,
Ltd. ("SEG") pursuant to which the Company agreed to acquire 25% equity
interest of SEG's enlarged share capital at a total consideration of RMB2,390
million.
Supplemental Information for
North American Shareholders
The consolidated financial statements of the Company and its subsidiaries
prepared under IFRS differ in certain respects from those prepared under
generally accepted accounting principles in the United States of America ("US
GAAP"). Significant differences between IFRS and US GAAP, which affect the
equity and net profit of the Company and its subsidiaries, are summarised
below:
(a) Effect of the Acquisition of Entities under Common Control
Under IFRS, the Company and its subsidiaries adopted the acquisition method to
account for the acquisition of 70% equity interest in Shanghai Shidongkou
First Power Plant, 70% equity interest in Taicang Power Company and all of the
assets and liabilities of Changxing Power Plant in July, 2002. Under the
acquisition method, the acquired results are included in the results of
operations of the Company and its subsidiaries from the date of the
acquisition. The difference between the purchase consideration and the fair
value of the underlying net assets acquired is treated as goodwill and
amortized on a systematic basis to the income statement over the remaining
weighted average useful life of the acquired depreciable or amortizable
assets.
As the Company and its subsidiaries, Shanghai Shidongkou First Power Plant,
Taicang Power Company, and Changxing Power Plant were under common control of
Huaneng Group prior to the acquisition, under US GAAP, the acquisition is
considered to be a transfer of businesses under common control and the
acquired assets and liabilities are accounted 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 had been in existence
since inception. The cash consideration paid by the Company is treated as an
equity transaction in the year of the acquisition for US GAAP purposes.
(b) Effect of Acquisition of 30% Additional Equity Interests in Shanghai
Shidongkou First Power Plant, 5% Additional Equity Interests in Taicang
Power Company and 44.16% Equity Interests in Huaiyin Power Company
On 1st July, 2002, the Company acquired 44.16% equity interests of Huaiyin
Power Company from Huaneng Group. On 31st December, 2002, the Company acquired
30% additional equity interests of Shanghai Shidongkou First Power Plant and
5% equity interests of Taicang Power Company from Huaneng Group.
Under IFRS, upon the completion of the above acquisitions, the relevant equity
interests of the net assets of Shanghai Shidongkou First Power Plant, Taicang
Power Company and Huaiyin Power Company are recorded at fair value. The excess
of the total cost of the acquisition over the fair value of the relevant
portion of the net assets of the power plants acquired is recorded as
goodwill. Such goodwill is amortized on a systematic basis to the income
statement over the remaining weighted average useful life of the acquired
depreciable or amortizable assets. Under US GAAP, upon completion of the above
acquisitions, Huaneng Group's proportionate share in the net assets of
Shanghai Shidongkou First Power Plant, Taicang Power Company and Huaiyin Power
Company being sold to the Company was recorded at the historical carrying
value. The excess of the total cost of acquisition over the net assets
acquired was recorded as a reduction of capital contribution to the Company.
Accordingly, the resulting impact of depreciation and amortization expenses on
income is also different.
(c) Housing Benefits Provided by HIPDC
HIPDC sold to certain qualified employees of the Company living quarters owned
by HIPDC at preferential prices. The difference between the cost of living
quarters and the sales proceeds received from the employees is considered to
be a housing benefit. Under IFRS, such housing benefits provided by HIPDC are
not reflected in the financial statements of the Company. Under US GAAP, the
amount of housing benefits provided by HIPDC to the employees of the Company
are recognized as the Company's operating expenses on a straight-line basis
over the estimated remaining average service life of the employees. The
corresponding amount is recorded as an addition of capital contribution from
HIPDC.
(d) Amount of Negative Goodwill Upon Acquisition of Shandong Huaneng
Huaneng Group is the controlling parent company of HIPDC, which in turn is the
controlling parent of the Company. Huaneng Group used to be one of the
substantial shareholders of Shandong Huaneng, holding 33.09% equity interest
in it before the Company's acquisition of Shandong Huaneng ("Acquisition of
Shandong Huaneng"). Under IFRS, upon the completion of the acquisition of
Shandong Huaneng, the entire net assets of Shandong Huaneng are recorded at
fair value. The excess of the fair value of the entire net assets acquired
over the total cost of the acquisition is recorded as negative goodwill. Under
US GAAP, upon completion of the acquisition of Shandong Huaneng, Huaneng
Group's proportionate share of 33.09% in the net assets of Shandong Huaneng
being transferred to the Company was recorded at the historical carrying
value. The excess of the proportionate share in the book value of the net
assets acquired over the relevant portion of the cash consideration was
recorded as a capital contribution to the Company. The book value of the
remaining 66.91% of the net assets continues to be part of the recoverable
rate base under the cost recovery formula of the tariff setting mechanism. The
difference between these net asset values and the cash consideration is
recorded as a negative goodwill.
The amount of negative goodwill determined under IFRS was recognized as income
on a systematic basis over the remaining weighted average useful life of the
acquired depreciable or amortizable assets. The amount of negative goodwill
under US GAAP determined on the basis as described above was offset against
the fixed assets of the respective power plants as a purchase allocation
adjustment. As the amount of negative goodwill under IFRS is different from
the amount of the purchase allocation adjustment determined under US GAAP due
to the 33.09% portion of the net assets previously owned by Huaneng Group as
described above, the net impact on income is also different.
(e) Accounting Treatment of Convertible Notes
Under IFRS, the proceeds received on the issue of the convertible notes were
allocated into liability and equity components. Upon initial recognition, the
liability component represented the present value, at the issuance date, of
the contractually determined stream of cash flows discounted at the market
interest rate for instruments of comparable credit status providing
substantially the same cash flows, on the same terms, but without the
conversion option. The equity component was then determined by deducting the
liability component from the proceeds received on the issue of the notes.
Under US GAAP, the entire proceeds of the issue of convertible notes were
recorded as long-term liabilities without distinguishing between the equity
and liability components.
In accordance with IAS 39, which was effective on 1st January, 2001, the put
option of the convertible notes, which allowed the noteholders to redeem the
convertible notes at a premium, was separated from the host contract and
accounted for as an embedded derivative. This put option was recorded as a
liability and measured at its fair value. When IAS 39 was initially applied in
2001, the difference between the previous carrying amount and the fair value
of the put option was recognised as an adjustment to the opening retained
earnings as at 1st January, 2001. In addition, the liability component was
measured at amortized cost and the resulting difference with the previous
carrying amount was recognized as an adjustment to the opening retained
earnings as at 1st January, 2001. After initial recognition, subsequent
changes in the value of the put option and the amortized cost of the liability
component were charged or credited to income statements.
Under US GAAP, it is permitted not to measure the put option separately at its
fair value, as it represents a derivative embedded in pre-1998 hybrid
instrument. The Company continued to accrue for the put premium liability
together with the interest payable on the notes using effective interest rate
of 6.66% up to the redemption date of 21st May, 2002. On 21st May, 2002, a
portion of the convertible notes was not redeemed by the noteholders. Under US
GAAP, the relevant portion of the accrued put premium attributable to the
remaining convertible notes not redeemed was amortized as a yield adjustment
over the remaining term of the convertible notes because the put price
exceeded the market value of the ordinary shares of the Company at the time of
the redemption.
(f) Capitalization of Borrowing Costs
In accordance with IAS 23, the Company capitalized interests on general
borrowings used for the purpose of obtaining a qualifying asset in addition to
the capitalization of interests on specific borrowings.
Under US regulatory accounting requirements, interests on funds borrowed
generally and used for the purpose of obtaining a qualifying asset were not
capitalized if such interests were not taken into consideration when
determining the recoverable rate base for tariff setting purposes.
(g) Deferred Tax Impact
This represents the deferred tax effect on the above GAAP differences where
applicable.
(h) US Regulatory Accounting
Under US GAAP, Statement of Financial Accounting Standard Number 71
"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71") is
applicable to utilities in the United States whose regulators have the power
to approve and/or regulate rates that may be charged to customers. SFAS 71
recognizes that the regulatory process produces economic effects which should
be reflected in the financial statements. Because revenues are based on costs,
SFAS 71 governs the period in which various costs are included in the income
statements with the objective of matching costs with revenues. Provided that,
through the rate setting process, the utility is substantially assured of
recovering its allowable costs by the collection of revenue from its
customers, such costs not yet recovered are deferred as regulatory assets. The
regulatory process may also impose a liability on a rate-regulated enterprise,
usually representing obligations to the enterprise's customers, which should
be recognized as regulatory liability.
In order to apply SFAS 71, three criteria must be met. These criteria require
that a) the power rates for regulated services or products provided to
customers be established by or are subject to approval by an independent,
third-party regulator or by an entity's own governing board empowered by
statute or contract to establish power rates that bind customers; b) the
regulated power rates are designed to recover the costs of providing the
regulated services or products; and c) in view of the demand for the regulated
services or products and the level of competition, direct and indirect, it is
reasonable to assume that power rates set at levels that will recover costs
can be charged to and collected from customers; this criterion requires
consideration of anticipated changes in levels of demand or competition during
the recovery period for any capitalized costs.
The Company and its subsidiaries believe that all of their power plants meet
these specific criteria of SFAS 71 with the exception of the Shidongkou First
Power Plant, the Taicang Power Company, the Huaiyin Power Company and the
Changxing Power Plant ("Four New Power Plants") acquired during the year ended
31st December, 2002. Firstly, the power rates are established by an
independent regulator, the provincial or local price bureau. Further, the
pricing policy applicable to the power plants (with the exception of the Four
New Power Plants) provides for rate-setting based on the specific costs of the
power plants. This process has operated historically and will continue under
the pricing policy. Finally, based on the significant demand for electricity
in its service territory, it is reasonable to assume that the authorized power
rates will be collected from customers.
With respect to the Four New Power Plants acquired during the year, the
criteria mentioned above are not met and, therefore, SFAS71 cannot be applied.
Consequently, the Four New Power Plants have adopted US GAAP without specific
reference to the regulatory basis of accounting provided for under SFAS71.
Under IFRS, as there is no equivalent regulatory accounting standard, the
Company's and its subsidiaries' policy is to recognize regulatory assets
established under SFAS 71 only when they comprise rights or other access to
future economic benefits as a result of past events; or to recognize
regulatory liabilities only when they comprise a present obligation the
settlement of which is expected to result in an outflow of resources embodying
economic benefits.
For the year ended 31st December, 2002, there was no material difference in
the recognition of both regulatory and non-regulatory assets and liabilities
between IFRS and US GAAP.
(i) Impairment of Long-lived Assets
The carrying amount of fixed assets under IFRS is reviewed periodically in
order to assess whether the recoverable amount has declined below the carrying
amount. When such a decline occurs, the carrying amount is reduced to the
recoverable amount based on the expected future cash flows generated by the
asset discounted to their present value or the asset's net selling price. A
subsequent increase in the recoverable amount is written back to the income
statement when circumstances and events that led to the write-down cease to
exist.
Under US GAAP, long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is evaluated
by a comparison of the carrying amount of assets to future undiscounted net
cash flows expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amounts of the assets exceed the fair value of
the assets. Subsequent reversal of impairment is not permitted. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less cost to sell.
For the year ended 31st December, 2002, no differences arose in respect of the
timing and the amount of impairment in long-lived assets recognized.
Differences between IFRS and US GAAP which affect the equity and net income of
the Company and its subsidiaries are summarized below:
Equity
---------------------------------------------------------------------------------------------------------------------------
As at As at
December 31, December 31,
Note 2002 2001
Rmb'000 Rmb'000
---------------------------------------------------------------------------------------------------------------------------
Equity under IFRS 30,416,060 28,293,530
Impact of US GAAP adjustments Note i:
Effect of acquisition of Shanghai Shidongkou First
Power Plant, Taicang Power Company and
Changxing Power Plant (a) (998,752) 740,065
Effect of acquisition of 30% additional equity
interests in Shanghai Shidongkou First Power Plant,
5% additional equity interests in Taicang Power
Company and 44.16% equity interests in
Huaiyin Power Company (b) (313,859) --
Recording of capital contribution arising from
acquisition of Shandong Huaneng (d) 862,922 862,922
Difference in amortization of negative goodwill (d) (174,182) (87,091)
Adjustments on convertible notes
- Reversal of equity component of the
convertible notes (e) (510,506) (510,506)
- Reversal of adjustment relating to the
convertible notes arising form the initial
adoption of IAS 39 (e) 463,921 463,921
- Difference in accounting treatment of
convertible notes (e) 5,246 --
Difference in capitalization of borrowing costs (f) (88,412) --
Applicable deferred tax impact of the above
GAAP differences (g) 252,124 62,943
---------------------------------------------------------------------------------------------------------------------------
Equity under US GAAP Note i 29,914,562 29,825,784
---------------------------------------------------------------------------------------------------------------------------
Net income
For the year ended December 31,
---------------------------------------------------------------------------------------------------------------------------
Note 2002 2001 2000
Rmb'000 Rmb'000 Rmb'000
---------------------------------------------------------------------------------------------------------------------------
Net income under IFRS 3,921,004 3,450,658 2,515,830
Impact of US GAAP adjustments Note i:
Effect of acquisition of Shanghai
Shidongkou First Power Plant,
Taicang Power Company and
Changxing Power Plant (a) 126,498 234,127 149,711
Effect of acquisition of 30%
additional equity interests in Shanghai
Shidongkou First Power Plant, 5%
additional equity interests in Taicang Power
Company and 44.16% equity interests
in Huaiyin Power Company (b) 10,556 -- --
Recording housing benefits provided by HIPDC (c) (26,152) (26,152) (26,152)
Difference in amortization of negative goodwill (d) (87,091) (87,091) --
Difference in accounting treatment of
convertible notes (e) 5,116 -- --
Difference in capitalization of borrowing costs (f) (88,412) -- --
Applicable deferred tax impact of the above
GAAP differences (g) 33,674 -- --
----------------------------------------------------------------------------------------------------------------------------
Net income under US GAAP Note i 3,895,193 3,571,542 2,639,389
----------------------------------------------------------------------------------------------------------------------------
Basic earnings per ordinary share under
US GAAP (Rmb) Note ii 0.65 0.63 0.47
----------------------------------------------------------------------------------------------------------------------------
Basic earnings per ADS under
US GAAP (Rmb) Note ii 25.97 25.09 18.69
----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per ordinary share under
US GAAP (Rmb) Note ii 0.64 0.62 0.46
----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per ADS under
US GAAP (Rmb) Note ii 25.62 24.63 18.52
----------------------------------------------------------------------------------------------------------------------------
(Note i) Consistent with applying the accounting treatment under US GAAP as
described in Note (a) above, the consolidated financial statements
under US GAAP for prior periods presented have been retroactively
restated as if the current structure and operations resulted from the
acquisition of the three new power plants had been in existence since
the beginning of the earliest period presented.
(Note ii) Earnings per ordinary shares and per equivalent ADS were
calculated by dividing the net income for the financial year under US
GAAP by the weighted average number of ordinary shares and ADS in
issue during the financial year. On a diluted basis, both net income
for the financial year and the weighted average number of ordinary
shares and ADS outstanding for the financial year were adjusted on the
assumption that the convertible notes had been fully converted at the
beginning of the year.
In preparing the summary of difference between IFRS and US GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Accounting estimates have been employed in these financial statements to
determine reported amounts, including realizability, useful lives of assets
and other areas. Actual results could differ from those estimates.
The following are condensed consolidated balance sheets of the Company and its
subsidiaries as at 31st December, 2001 and 2002, and the related condensed
consolidated statements of income, change in shareholders' equity and cash
flows for each of the years in the three-year period ended 31st December,
2002, restated to reflect the effect of the acquisition of entities under
common control which is accounted for at historical cost in a manner similar
to the pooling of interests method under US GAAP and other differences between
IFRS and US GAAP.
Condensed Consolidated Balance Sheets
As at 31st December,
---------------------------------------------------------------------------------------------------------------------------
2002 2001
Rmb'000 Rmb'000
---------------------------------------------------------------------------------------------------------------------------
ASSETS
Non-current assets
Property, plant and equipment, net 38,434,682 39,270,064
Investment in an associate 200,960 226,488
Deferred tax assets 240,781 62,943
Goodwill 63,754 --
Other long-term assets 1,322,828 1,043,748
---------------------------------------------------------------------------------------------------------------------------
Total non-current assets 40,263,005 40,603,243
---------------------------------------------------------------------------------------------------------------------------
Current assets
Inventories, net 923,341 789,731
Other receivables and assets, net 242,905 313,165
Accounts receivable 2,361,833 1,780,694
Restricted cash 13,259 --
Temporary cash investments 1,141,502 6,224,070
Cash and cash equivalents 3,002,601 2,414,448
---------------------------------------------------------------------------------------------------------------------------
Total current assets 7,685,441 11,522,108
---------------------------------------------------------------------------------------------------------------------------
Total assets 47,948,446 52,125,351
---------------------------------------------------------------------------------------------------------------------------
EQUITY AND LIABILITIES
Shareholders' equity 29,914,562 29,825,784
---------------------------------------------------------------------------------------------------------------------------
Minority interests 869,621 815,179
---------------------------------------------------------------------------------------------------------------------------
Non-current liabilities
Convertible notes 166,498 --
Accrued put premium on convertible notes 30,841 --
Long-term loans from shareholders 388,891 940,931
Long-term bank loans 8,464,521 10,213,298
Other long-term loans 331,389 106,799
Other financial liabilities 19,397 14,875
Deferred tax liabilities 110,510 --
---------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 9,512,047 11,275,903
---------------------------------------------------------------------------------------------------------------------------
Current liabilities
Accounts payable and accrued liabilities 3,734,350 2,840,125
Taxes payable 620,189 549,880
Due to HIPDC 100,475 36,584
Due to other related parties -- 26,123
Staff welfare and bonus payable 233,566 381,402
Short-term loans 550,000 440,000
Current portion of long-term loans from shareholders 388,891 36,635
Current portion of long-term bank loans 1,928,732 3,208,795
Current portion of other long-term loans 96,013 283,273
Convertible notes -- 1,903,618
Accrued put premium for convertible notes -- 502,050
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,652,216 10,208,485
---------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity 47,948,446 52,125,351
---------------------------------------------------------------------------------------------------------------------------
Condensed Consolidated Statements of Income
Year ended 31st December,
---------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
Rmb'000 Rmb'000 Rmb'000
---------------------------------------------------------------------------------------------------------------------------
Operating revenue, net 19,845,599 18,692,529 15,073,428
---------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Fuel (7,583,013) (6,434,453) (4,956,405)
Maintenance (698,598) (934,612) (829,961)
Depreciation (3,501,363) (3,466,411) (3,013,962)
Labor (1,162,506) (1,043,248) (912,737)
Transmission fees (35,754) (36,925) (17,094)
Service fees to HIPDC (263,716) (307,322) (310,742)
Income tax (1,001,683) (888,916) (542,805)
Others (822,900) (820,446) (652,703)
---------------------------------------------------------------------------------------------------------------------------
Total operating expenses (15,069,533) (13,932,333) (11,236,409)
---------------------------------------------------------------------------------------------------------------------------
Income before financial expenses 4,776,066 4,760,196 3,837,019
---------------------------------------------------------------------------------------------------------------------------
Interest income 84,735 115,918 82,047
Interest expense (724,397) (1,087,443) (1,204,619)
Exchange losses, net (31,418) (41,794) (34,932)
---------------------------------------------------------------------------------------------------------------------------
Total financial expenses (671,080) (1,013,319) (1,157,504)
---------------------------------------------------------------------------------------------------------------------------
Share of loss of associates (1,634) (5,381) --
Minority interests (208,159) (169,954) (40,126)
---------------------------------------------------------------------------------------------------------------------------
Net income attributable to the shareholders 3,895,193 3,571,542 2,639,389
---------------------------------------------------------------------------------------------------------------------------
Condensed Consolidated Statements of Changes in Shareholders' Equity
---------------------------------------------------------------------------------------------------------------------------
Rmb'000
---------------------------------------------------------------------------------------------------------------------------
Balance as at 1st January, 2000 21,885,465
Dividend relating to 1999 (508,500)
Net profit attributable to shareholders for the year
ended 31st December, 2000 2,639,389
Capital contribution from HIPDC on housing benefits 26,152
Distribution to Huaneng Group (58,734)
---------------------------------------------------------------------------------------------------------------------------
Balance as at 31st December, 2000 23,983,772
Dividends relating to 2000 (1,243,000)
Net profit attributable to shareholders for the year
ended 31st December, 2001 3,571,542
Capital contribution arising from acquisition of Shandong Huaneng 862,922
Capital contribution from HIPDC on housing benefits 26,152
Issuance and sale of 350,000,000 new Domestic Shares,
net of direct issuance cost 2,770,058
Distribution to Huaneng Group (145,662)
---------------------------------------------------------------------------------------------------------------------------
Balance as at 31st December, 2001 29,825,784
Dividends relating to 2001 (1,800,000)
Net profit attributable to shareholders for the year
ended 31st December, 2002 3,895,193
Conversion of convertible notes to new ordinary shares 1,655
Netdeemed capital distribution to Huaneng Group arising from the acquisition
of the equity interests of the four power plants and additional interests
in Shanghai Shidongkou First Power Plant and Taicang
Power Company (2,034,222)
Capital contribution from HIPDC on housing benefits 26,152
---------------------------------------------------------------------------------------------------------------------------
Balance as at 31st December, 2002 29,914,562
---------------------------------------------------------------------------------------------------------------------------
Condensed Consolidated Statements of Cash Flows
Year ended 31st December,
----------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
Rmb'000 Rmb'000 Rmb'000
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,469,213 6,598,191 6,093,354
Net cash provided by (used in) investing activities 2,620,931 (4,720,026) (5,880,521)
Net cash used in financing activities (9,501,991) (1,567,272) (820,433)
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 588,153 310,893 (607,600)
Cash and cash equivalents, beginning of year 2,414,448 2,103,555 2,711,155
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 3,002,601 2,414,448 2,103,555
----------------------------------------------------------------------------------------------------------------------------
Statement of Comprehensive Income
Under US GAAP, certain items shown as components of common equity must be more
prominently reported in a separate statement as components of comprehensive
income. However, for each of the year in the three-year period ended 31st
December, 2002, apart from the net income, there was no other comprehensive
income which should be included in the statement of comprehensive income.
New Accounting Pronouncement
The Financial Accounting Standards Board ("FSAB") issued Statement of
Financial Accounting Standards No. 143, Accounting for Assets Retirement
Obligations ("SFAS 143"), Statement of Financial Accounting Standards No. 145,
Recession of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13 and Technical Corrections ("SFAS 145"), Statement of Financial Accounting
Standards No. 146, Accounting for Costs Associated With Exit or Disposal
Activities ("SFAS 146"), Statement of Financial Accounting Standards No. 147,
Acquisitions of Certain Financial Institutions ("SFAS 147"), Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure ("SFAS 148"), FASB Interpretation
No.45, Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, An Interpretation of
FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No.
34 ("FIN 45") and FASB Interpretation No. 46, Consolidation of Variable
Interest Entities ("FIN 46").
SFAS 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated assets retirement costs.
SFAS 145 rescinds Statement of Financial Accounting Standards No. 4, Reporting
Gains and Losses from Extinguishment of Debt ("SFAS 4"), and an amendment of
SFAS 4, Statement of Financial Accounting Standards No. 64, Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements. It also rescinds Statement of
Financial Accounting Standards No. 44, Accounting for Intangible Assets of
Motor Carriers. It amends Statement of Financial Accounting Standards No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. It also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions.
SFAS 146 addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force
Issue No. 94-3 "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)."
SFAS 147 removes acquisitions of financial institutions from the scope of both
Statement of Financial Accounting Standards No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions and Financial Accounting
Standards Board Interpretation No. 9, Applying APB Opinions No. 16 and 17 When
a Savings and Loan Association or a Similar Institution Is Acquired in a
Business Combination Accounted for by the Purchase Method and requires that
those transactions be accounted for in accordance with Statement of Financial
Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and
Other Intangible Assets. In addition, it amends Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer-relationship
intangible assets of financial institutions such as depositor and borrower
relationship intangible assets and credit cardholder intangible assets.
SFAS 148 amends Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, it amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results.
FIN 45 elaborates on the disclosures to be made by a guarantor about its
obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions under
FIN 45 are applicable prospectively to guarantees issued or modified after
31st December, 2002. The adoption of disclosure requirements that are
effective for the year ended 31st December, 2002, did not have a material
effect on the consolidated financial statements of the Company and its
subsidiaries.
FIN 46 provides guidance on the identification of and financial reporting for
entities over which control is achieved through means other than voting
rights. This interpretation requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among parties involved.
SFAS 143, SFAS 145, SFAS 146, SFAS 147, SFAS 148, FIN 45 and FIN 46 are
effective for fiscal years beginning after 15th December, 2002 or later. The
Company has not completed its assessment of the effects of adoption these new
accounting pronouncements.
Report of the Auditors
PwC ShenZi (2003) No. 976
To the Shareholders of Huaneng Power International, Inc.
We have accepted the appointment to audit the consolidated balance sheet of
Huaneng Power International, Inc. ("the Company") and its subsidiaries as at
31st December, 2002 and the consolidated profit and loss account and statement
of income appropriation and cash flow statement for the year then ended, and
the balance sheet of the Company as at 31st December, 2002 and its profit and
loss accounts and statement of income appropriation and cash flow statement
for the year then ended. The Company is responsible for the financial
statements. Our responsibility is to express an audit opinion on the financial
statements. Our audit was conducted in accordance with China Certified Public
Accountants' Independent Auditing Standards and consequently included such
auditing procedures as were considered necessary and appropriate to the
Company and its subsidiaries' circumstances, including examination, on a test
basis, of the Company and its subsidiaries' transactions and accounting
records.
In our opinion, the financial statements mentioned above present fairly, in
all material respects, the consolidated financial position of the Company and
its subsidiaries at 31st December, 2002 and the consolidated results of their
operations and their cash flows for the year then ended, and the financial
position of the Company as at 31st December, 2002 and its results of
operations and cash flows for the year then ended in accordance with the
Accounting Standards for Business Enterprises and the Accounting System for
Business Enterprises of the People's Republic of China. The accounting
policies used in the preparation of the financial statements for the year are
consistent with those used in the preceding year.
PRICEWATERHOUSECOOPERS ZHONG TIAN Certified Public Accountant
CPAS CO., LTD.
Li Dan
Certified Public Accountant
He Yingfan
12th March, 2003
Balance Sheets
(Prepared in accordance with PRC Accounting Standards)
AS AT 31ST DECEMBER, 2002
Amounts: In Rmb Yuan
Consolidated The Company
----------------------------------------------------------------------------------------------------------------------------
ASSETS 31st December, 31st December, 31st December, 31st December,
Notes 2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash 5(1) 4,157,362,535 8,397,206,331 3,853,281,582 8,125,084,855
Short-term investments -- 1,101,700 -- --
Notes receivable 5(2) 472,750,000 152,230,000 440,080,000 152,230,000
Dividend receivable -- -- -- 18,266,173
Interest receivable 3,792,434 16,354,768 3,792,434 13,642,318
Accounts receivable 5(3), 6(1) 1,889,082,774 1,254,941,073 1,545,294,232 1,179,490,289
Other receivables 5(3), 6(1) 102,595,147 115,537,645 81,195,078 113,397,926
Advance to suppliers 54,040,826 94,953,798 39,068,231 94,072,219
Inventories 5(4) 940,723,848 739,458,212 765,649,739 658,569,823
Deferred expenses 12,451,202 12,596,842 9,659,052 9,594,544
Current portion of long-term
investments 5(5), 6(2,3) 25,160 -- 256,325,160 31,735,090
Other current assets 5(9) 70,000,000 -- 70,000,000 --
----------------------------------------------------------------------------------------------------------------------------
Total current assets 7,702,823,926 10,784,380,369 7,064,345,508 10,396,083,237
----------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS
Long-term equity investments 5(5), 6(2) 776,151,596 238,093,644 2,324,449,270 1,096,268,191
Including: Equity
investment difference 5(5), 6(2) 313,862,886 -- 313,862,886 --
Long-term debt investments 5(5), 6(3) 10,137,770 9,734,610 450,800,726 697,190,066
----------------------------------------------------------------------------------------------------------------------------
Total long-term investment 786,289,366 247,828,254 2,775,249,996 1,793,458,257
FIXED ASSETS
Fixed assets, cost 5(6) 58,940,239,645 47,796,160,041 51,331,689,101 42,832,545,656
Less: Accumulated depreciation 5(6) (18,725,078,726) (14,372,645,114) (15,884,329,113) (12,097,867,795)
----------------------------------------------------------------------------------------------------------------------------
Fixed assets, net book value 5(6) 40,215,160,919 33,423,514,927 35,447,359,988 30,734,677,861
----------------------------------------------------------------------------------------------------------------------------
Construction-in-progress 5(7) 685,761,557 4,248,680,894 626,225,572 4,248,680,894
----------------------------------------------------------------------------------------------------------------------------
Total fixed assets 40,900,922,476 37,672,195,821 36,073,585,560 34,983,358,755
----------------------------------------------------------------------------------------------------------------------------
INTANGIBLE AND OTHER ASSETS
Intangible assets 5(8) (1,306,167,496) (1,553,456,114) (1,373,182,297) (1,628,857,856)
Long-term deferred expenses 14,886,880 8,760,388 14,886,880 8,760,388
Other long-term assets 5(9) -- 70,000,000 -- 70,000,000
----------------------------------------------------------------------------------------------------------------------------
Total intangible and other assets (1,291,280,616) (1,474,695,726) (1,358,295,417) (1,550,097,468)
----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 48,098,755,152 47,229,708,718 44,554,885,647 45,622,802,781
----------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
Consolidated The Company
----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' 31st December, 31st December, 31st December, 31st December,
EQUITY Notes 2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term loans 5(10) 550,000,000 40,000,000 550,000,000 --
Notes payable -- 22,770,473 -- 22,770,473
Accounts payable 471,608,936 365,043,809 409,500,258 319,240,988
Salary payable 9,276,290 -- 9,077,965 --
Staff welfare payable 224,289,622 376,192,419 222,648,524 362,310,666
Dividends payable 5(11) 2,040,093,146 1,800,000,000 2,040,093,146 1,800,000,000
Interest payable 115,860,824 200,977,985 113,370,824 200,977,985
Taxes payable 5(12) 620,188,900 521,192,667 395,661,112 441,189,903
Other levies payable 7,805,368 31,030,111 2,713,031 31,030,111
Other payables 5(13) 2,280,414,185 1,337,091,359 2,199,243,434 1,222,050,536
Accrued expenses 26,273,238 13,309,372 26,273,238 13,309,372
Current portion of
long-term loans 5(14) 2,413,636,557 2,928,846,440 2,172,623,070 2,819,941,273
Convertible notes 5(15) -- 2,405,667,641 -- 2,405,667,641
----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,759,447,066 10,042,122,276 8,141,204,602 9,638,488,948
----------------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term loans 5(14) 9,184,800,869 9,575,761,625 7,077,706,287 8,858,749,828
Convertible notes 5(15) 166,497,890 -- 166,497,890 --
-----------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 9,351,298,759 9,575,761,625 7,244,204,177 8,858,749,828
-----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 18,110,745,825 19,617,883,901 15,385,408,779 18,497,238,776
-----------------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 818,532,459 486,260,812 -- --
-----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 5(16) 6,000,273,960 6,000,000,000 6,000,273,960 6,000,000,000
Capital surplus 5(17) 10,260,830,755 10,259,449,295 10,260,830,755 10,259,449,295
Surplus reserves 5(18) 3,419,668,242 2,705,256,889 3,419,668,242 2,705,256,889
Including: Statutory public
welfare fund 5(18) 1,053,519,606 762,741,506 1,053,519,606 762,741,506
Undistributed profits 5(19) 9,488,703,911 8,160,857,821 9,488,703,911 8,160,857,821
-----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 29,169,476,868 27,125,564,005 29,169,476,868 27,125,564,005
-----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 48,098,755,152 47,229,708,718 44,554,885,647 45,622,802,781
-----------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
Profit and Loss Accounts
(Prepared in accordance with PRC Accounting Standards)
FOR THE YEAR ENDED 31ST DECEMBER, 2002
Amounts: In Rmb Yuan
Consolidated The Company
-------------------------------------------------------------------------------------------------------------------------
31st December, 31st December, 31st December, 31st December,
Notes 2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------------------------
1. Revenues from principal 5(20),
operations 6(4) 18,725,340,857 15,816,656,338 15,720,550,997 14,047,671,476
Less: Cost of principal 5(20),
operations 6(4) (12,528,622,594) (10,333,929,258) (10,480,868,719) (9,032,497,748)
Tax and levies on
principal operations (38,116,331) (25,294,665) (5,839,726) (4,618,868)
-------------------------------------------------------------------------------------------------------------------------
2. Profit from principal operations 6,158,601,932 5,457,432,415 5,233,842,552 5,010,554,860
Add: Profit/(loss) from
other operations 16,821,913 (529,020) 14,421,931 (749,903)
Less: General and administrative
expenses (327,188,932) (175,836,006) (229,565,700) (125,305,716)
Financial expenses, net 5(21) (562,719,815) (842,777,611) (450,065,716) (778,765,740)
-------------------------------------------------------------------------------------------------------------------------
3. Operating profit 5,285,515,098 4,438,289,778 4,568,633,067 4,105,733,501
Add: (Loss)/income from 5(22),
investment 6(5) (46,138,983) 19,290,314 288,673,388 183,277,931
Non-operating income 50,717,819 30,799,078 19,264,890 30,698,092
Less: Non-operating expenses 5(23) (78,014,523) (65,863,415) (71,346,712) (65,328,999)
-------------------------------------------------------------------------------------------------------------------------
4. Profit before taxation and
minority interests 5,212,079,411 4,422,515,755 4,805,224,633 4,254,380,525
Less: Income tax (963,510,283) (715,220,304) (722,874,044) (618,316,281)
Minority interests (166,218,539) (71,231,207) -- --
-------------------------------------------------------------------------------------------------------------------------
5. Net profit 4,082,350,589 3,636,064,244 4,082,350,589 3,636,064,244
-------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
Supplementary information:
Consolidated The Company
----------------------------------------------------------------------------------------------------------------------------
31st December, 31st December, 31st December, 31st December,
2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------------------
1. Profit from sale or disposal of a
business unit or investments -- -- -- --
2. Loss due to natural disaster -- -- -- --
3. Increase / (decrease) in profit
before taxation and minority
interests as a result of changes
in accounting policies -- -- -- --
4. Increase / (decrease) in profit
before taxation and minority
interests as a result of changes
in accounting estimates -- -- -- --
5. Loss on debt restructuring -- -- -- --
6. Others -- -- -- --
----------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
Statement of Income Appropriation
(Prepared in accordance with PRC Accounting Standards)
FOR THE YEAR ENDED 31ST DECEMBER, 2002
Amounts: In Rmb Yuan
Consolidated The Company
--------------------------------------------------------------------------------------------------------------------------
31st December, 31st December, 31st December, 31st December,
2002 2001 2002 2001
--------------------------------------------------------------------------------------------------------------------------
1. Net profit 4,082,350,589 3,636,064,244 4,082,350,589 3,636,064,244
Add:Unappropriated profit
brought forward 8,160,857,821 6,961,104,819 8,160,857,821 6,961,104,819
--------------------------------------------------------------------------------------------------------------------------
2. Unappropriated profit 12,243,208,410 10,597,169,063 12,243,208,410 10,597,169,063
Less: Transfer to statutory
surplus reserve fund (408,235,059) (363,606,424) (408,235,059) (363,606,424)
Transfer to statutory
public welfare fund (306,176,294) (272,704,818) (306,176,294) (272,704,818)
--------------------------------------------------------------------------------------------------------------------------
3. Profit distributable to
shareholders 11,528,797,057 9,960,857,821 11,528,797,057 9,960,857,821
Less: Dividends (2,040,093,146) (1,800,000,000) (2,040,093,146) (1,800,000,000)
--------------------------------------------------------------------------------------------------------------------------
4. Unappropriated profit carried
forward 9,488,703,911 8,160,857,821 9,488,703,911 8,160,857,821
--------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
Cash Flow Statement
(Prepared in accordance with PRC Accounting Standards)
FOR THE YEAR ENDED 31ST DECEMBER, 2002
Amounts: In Rmb Yuan
----------------------------------------------------------------------------------------------------------------------------
Item Note Consolidated The Company
----------------------------------------------------------------------------------------------------------------------------
1. Cash flows from operating activities
Cash received from sale of goods and services 21,400,956,470 17,975,897,542
Cash received on tax refund -- --
Other cash received relating to operating activities 252,898,651 164,325,784
----------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 21,653,855,121 18,140,223,326
----------------------------------------------------------------------------------------------------------------------------
Cash paid for goods and services (7,892,634,937) (6,350,144,894)
Cash paid to and on behalf of employees (931,012,762) (761,732,687)
Payment of all types of taxes (3,326,977,909) (2,818,658,943)
Other cash paid relating to operating activities 5(25) (1,698,368,871) (1,382,217,147)
----------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (13,848,994,479) (11,312,753,671)
----------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 7,804,860,642 6,827,469,655
----------------------------------------------------------------------------------------------------------------------------
2. Cash flows from investing activities
Cash received on disposal of investments 5,087,082,019 4,969,510,766
Cash received on investments income 1,748,359 135,876,972
Net cash received from disposals of fixed assets,
intangible assets and other long-term assets 70,028,636 32,476,940
Other cash received relating to investing activities 569,842,526 478,246,292
----------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 5,728,701,540 5,616,110,970
----------------------------------------------------------------------------------------------------------------------------
Cash paid to acquire fixed assets,
intangible assets and other long-term assets (1,598,350,078) (1,433,239,084)
Cash paid to acquire investments (3,031,468,798) (3,031,468,797)
----------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (4,629,818,876) (4,464,707,881)
---------------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities 1,098,882,664 1,151,403,089
---------------------------------------------------------------------------------------------------------------------------
3. Cash flows from financing activities
Cash received from borrowings 173,378,886 173,308,884
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflow 173,378,886 173,308,884
---------------------------------------------------------------------------------------------------------------------------
Cash paid on repayment of borrowings (5,558,785,165) (5,284,632,737)
Cash payments of interest expenses
and appropriation of dividends or profit (2,688,871,802) (2,336,407,193)
Including: Dividends paid to minority shareholders of subsidiaries (62,583,272 )--
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (8,247,656,967) (7,621,039,930)
---------------------------------------------------------------------------------------------------------------------------
Net cash flows used in financing activities (8,074,278,081) (7,447,731,046)
---------------------------------------------------------------------------------------------------------------------------
4. Effect of foreign exchange rate changes on cash -- --
---------------------------------------------------------------------------------------------------------------------------
5. Net increase in cash and cash equivalents 829,465,225 531,141,698
---------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting funcction: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
Supplementary InformationItem Consolidated The Company
---------------------------------------------------------------------------------------------------------------------------
1. Reconciliation of net profit to cash flows from operating activities
Net profit 4,082,350,589 4,082,350,589
Add: Minority interests 166,218,539 --
Provision for asset impairment 7,464,599 7,259,394
Depreciation of fixed assets 3,490,607,838 3,107,933,731
Amortization of intangible assets (230,669,048) (232,306,548)
Amortization of long-term deferred expenses 5,246,533 5,246,533
Decrease in deferred expenses 145,640 167,888
Increase in accrued expenses (or deduct: decrease) 9,980,414 (199,157,063)
Losses on disposal of fixed assets, intangible assets
and other long-term assets 30,882,300 30,321,841
Financial expenses 647,755,142 530,315,861
Losses arising from investments
(or deduct: gains) 46,138,983 (288,673,388)
Increase in operating receivables items (427,457,284) (329,203,186)
Increase in operating payables items
(or deduct: decrease) (23,803,603) 113,214,003
Others -- --
---------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 7,804,860,642 6,827,469,655
---------------------------------------------------------------------------------------------------------------------------
2. Investing and financing activities that do not involve cash receipts
and payments
Conversion of debt into capital 1,655,420 1,655,420
Convertible notes maturing within one year -- --
Fixed assets acquired under finance leases -- --
3. Net increase in cash and cash equivalents
Cash at end of year 3,002,601,470 2,660,474,096
Less: cash at beginning of year 2,173,136,245 2,129,332,398
Cash equivalents at end of year -- --
Less: cash equivalents at beginning of year -- --
---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 829,465,225 531,141,698
---------------------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Person in charge of Person in charge of
Legal representative: accounting funcction: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
Notes to the Financial Statements
(Prepared in accordance with PRC Accounting Standards)
FOR THE YEAR ENDED 31ST DECEMBER, 2002
(All amounts are stated in Rmb Yuan unless otherwise stated)
1. COMPANY BACKGROUND
Huaneng Power International, Inc. (the "Company") was incorporated in the
People's Republic of China (the "PRC") as a Sino-foreign joint stock company
on 30th June, 1994.
The Company and its subsidiaries are principally engaged in the generation and
sale of electric power to the respective regional or provincial power
companies.
Five of the power plants were already in commercial operations at time of
incorporation of the Company in 1994 (hereinafter collectively referred to as
the "five original operating plants"). The five original operating plants were
previously divisions of Huaneng International Power Development Corporation
("HIPDC"), which is a Sino-foreign equity joint venture established in the
PRC. In accordance with the Reorganization Agreement dated 30th June, 1994,
the Company acquired the assets, liabilities and businesses of the five
original operating plants from HIPDC which in return received an equity
interest in the Company (the "Reorganization"). The new operating plants were
either constructed or acquired by the Company after the Reorganization.
The Company's Overseas Listed Foreign Shares were listed on the New York Stock
Exchange and The Stock Exchange of Hong Kong Limited on 6th October, 1994 and
4th March, 1998, respectively.
Pursuant to the resolution at the special shareholders' meeting held on 25th
February, 2001 and the approval by China Securities Regulatory Committee
(Zheng Jian Fa Xing Zi[2001]67), on 15th November, 2001 and 16th November,
2001, 250,000,000 new ordinary shares of the Company with par value of Rmb1.00
each, in the form of A Shares, were issued to the public in a public offering
at Rmb7.95 per A share. At the same time, 100,000,000 new ordinary shares with
par value of Rmb1.00 each were issued to HPIDC, through a private placement,
at Rmb7.95 each. The 250,000,000 A shares issued to the public were listed on
the Shanghai Stock Exchange on 6th December, 2001.
Particulars of operating power plants of the Company, its subsidiaries and
associate are as follows:
------------------------------------------------------------------------------------------------------------------------
Total installed Equity portion
capacity of the of total
Company, its capacity of the Province/
subsidiaries and Company Municipality
Operating plants associate (MW) (MW) located
------------------------------------------------------------------------------------------------------------------------
Wholly-owned power plants:
Huaneng Dalian Power Plant (the "Dalian Power Plant") 700 700 Liaoning
Huaneng Shangan Power Plant (the "Shangan Power Plant") 700 700 Hebei
Huaneng Nantong Power Plant (the "Nantong Power Plant") 700 700 Jiangsu
Huaneng Fuzhou Power Plant (the "Fuzhou Power Plant") 700 700 Fujian
Huaneng Shantou Oil-Fired Plant (the "Shantou Oil-Fired Power Plant") 100 100 Guangdong
Huaneng Shantou Coal-Fired Power Plant (the "Shantou Power Plant") 600 600 Guangdong
Huaneng Shangan Power Plant Phase II ( the "Shangan Phase II") 600 600 Hebei
Huaneng Shanghai Shidongkou Second Power Plant
(the "Shanghai Power Plant") 1,200 1,200 Shanghai
Huaneng Dalian Power Plant Phase II (the "Dalian Phase II") 700 700 Liaoning
Huaneng Dandong Power Plant (the "Dandong Power Plant") 700 700 Liaoning
Huaneng Nantong Power Plant Phase II (the "Nantong Phase II") 700 700 Jiangsu
Huaneng Fuzhou Power Plant Phase II (the "Fuzhou Phase II") 700 700 Fujian
Huaneng Nanjing Power Plant (the "Nanjing Power Plant") 600 600 Jiangsu
Huaneng Dezhou Power Plant (the "Dezhou Power Plant") 2,520 2,520 Shandong
Huaneng Jining Power Plant (the "Jining Power Plant")* 300 300 Shandong
Huaneng Changxing Power Plant (the "Changxing Power Plant)** 250 250 Zhejiang
Shanghai Shidongkou Power Limited Company
(the "Shanghai Shidongkou First Power Plant")** 1,200 1,200 Shanghai
Subsidiaries:
Huaneng Weihai Power Plant (the "Weihai Power Plant") 850 510 Shandong
Suzhou Industrial Park Huaneng Power Limited Liability Company
(the "Taicang Power Company")** 600 450 Jiangsu
Jiangsu Huaneng Huaiyin Power Limited Company
(the "Huaiyin Power Company")** 400 255 Jiangsu
Associate:
Shandong Rizhao Power Company Ltd. (the "Rizhao Power Company") 700 178 Shandong
------------------------------------------------------------------------------------------------------------------------
15,520 14,363
------------------------------------------------------------------------------------------------------------------------
* Jining Power Plant was incorporated in the PRC on 19th February, 1990.
It was formerly a 75%-owned subsidiary of the Company. Shandong
Electricity Power Group Corporation ("SEPCO") owned the remaining 25%
equity interest of the Jining Power Plant.
The Company entered into an agreement with SEPCO to acquire the
remaining 25% equity interest of the Jining Power Plant owned by SEPCO.
After obtaining the necessary government approvals on the acquisition,
the Company paid a cash consideration of Rmb109.43 million on 18th June,
2002, and acquired 25% equity interest originally owned by SEPCO. After
the completion of the acquisition, Jining Power Plant was deregistered
and became a branch of the Company.
** On 9th May, 2002, the Company entered into an agreement with China
Huaneng Group Corporation ("Huaneng Group"), under which the Company
agreed to acquire from Huaneng Group, 70% equity interest in Shanghai
Shidongkou First Power Plant, 70% equity interest in Taicang Power
Company, 44.16% equity interest in Huaiyin Power Company and all of the
assets and liabilities of Changxing Power Plant. The total consideration
for the acquisition was Rmb2,050 million paid in cash using internal
surplus cash resources. The acquisition became effective on 1 July, 2002
after obtaining all the necessary government approvals on the
acquisition and the payment of the purchase consideration on that date.
The Company obtained the legal title and control over the relevant
assets on that date.
On 15th November, 2002, the Company entered into an agreement with
Huaneng Group, under which the Company agreed to acquire the 30% equity
interest in Shanghai Shidongkou First Power Plant and 5% equity interest
in Taicang Power Company for a total consideration of Rmb415 million.
This acquisition became effective on 31st December, 2002 after obtaining
all the necessary government approvals on the acquisition and the
payment of the purchase consideration on that date.
On 26th December, 2002, the Company entered into an agreement with
Jiangsu Huaiyin Investment Company to acquire an additional equity
interest of 19.48% in Huaiyin Power Company, for a total consideration
of Rmb185 million. This acquisition became effective on 31st December,
2002 after the payment of the purchase consideration on that date
After the completion of above acquisitions, Changxing Power Plant and
Shanghai Shidongkou First Power Plant became branches of the Company and
the Company owns 75% and 63.64% equity interests in Taicang Power
Company and Huaiyin Power Company, respectively.
2. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of preparation
The financial statements have been prepared in accordance with the Accounting
Standards for Business Enterprises and Accounting Systems for Business
Enterprises and the relevant regulations as promulgated by the Ministry of
Finance of the PRC.
(2) Accounting year
The financial year starts on 1 January and ends on 31st December.
(3) Reporting currency
The Company and its subsidiaries use the Renminbi (Rmb) as reporting currency.
All amounts in the financial statements are stated in Rmb Yuan.
(4) Basis of accounting and measurement bases
Accrual method is used as the basis of accounting. Assets are initially
recorded at their acquired costs. Subsequently, if they are impaired, then
impairment provisions are taken accordingly.
(5) Foreign currency translation
Transactions denominated in foreign currencies are translated into Rmb at the
exchange rates stipulated by the People's Bank of China (the "PBOC")
prevailing at the transaction dates. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated
into Rmb at the exchange rates stipulated by the PBOC at the balance sheet
date. Exchange differences arising from these translations are taken to the
profit and loss account, except for when they are attributable to foreign
currency borrowings that have been taken out specifically for construction of
fixed assets, which are capitalized as part of the fixed asset costs
accordingly.
(6) Cash and cash equivalents
For the purpose of the cash flow statement, cash refers to all cash on hand
and deposits held at call with banks. Cash equivalents refers to short-term,
highly-liquid investments with original maturities of three months or less
that are readily convertible to known amounts of cash and which are subject to
an insignificant risk of changes in value.
For the purpose of the cash flow statement, cash with restricted usage and
time deposits with maturity in excess of three months are not considered as
cash and cash equivalents. Their movements are considered as cash flow from
investing activities.
(7) Short-term investments
Short-term investments, comprising securities, bonds and fund investments, are
those investments that the Company does not have the intention to hold for
more than 1 year and can be readily convertible into known amounts of cash.
Short-term investments are stated at the cost of investment when acquired,
after deducting the cash dividends which have been declared but unpaid at the
time of acquisition or unpaid interest on bonds which has been accrued.
Interest on short-term investments, other than those recorded as receivable
items, should be offset against the carrying amount of the investments upon
receipt. Short-term investments are carried at the lower of cost or market
value as at the end of the year. Where market value is lower than cost, an
impairment provision is provided against diminution in short-term investment
values.
(8) Receivables and provision for bad debts
Receivables include accounts receivable and other receivables.
The Company and its subsidiaries make provision for bad debts using the
"allowance method".
Provisions for bad debts are made based on the assessment of the
collectibility of the receivables. Based on the actual circumstances and
experiences, the Company and its subsidiaries made specific provisions against
balances that have been assessed to be uncollectible. A general provision of
3% of other receivables outstanding at the balance sheet date is then set
against the remaining balance of other receivables.
For balances where there is evidence that they cannot be recovered (e.g.
debtor has been deregistered, declared bankruptcy, unable to meet its
liabilities as they fall due or having significant cash shortage), then bad
debt is recognized and the balances are written off against the provision.
(9) Inventories
Inventories include fuel for power generation, materials and supplies for
repairs and maintenence. Inventories are recorded at actual cost and are
charged to fuel costs or repairs and maintenance when used, or capitalized to
fixed assets when installed, as appropriate, using weighted average cost
basis. Cost of inventories includes costs of purchase and transportation
costs.
Inventories at balance sheet date are stated at lower of cost and net
realizable values. When their costs exceed their net realizable value, the
excess of their original cost over their net realizable value is taken as a
"provision for loss on realization of inventories". Net realizable value is
the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to conclude
the sale.
(10) Long-term investments
Long-term investments comprise equity investments in companies that the
Company does not intend to dispose of within one year, bonds and other debt
investments that are not readily convertible into cash or the Company does not
intend to dispose.
Long-term equity investments are recorded at the initial cost of acquisition.
When the Company owns an interest of 20% or more of the voting rights or
otherwise has the ability to exercise significant influence over the financial
and operational decisions, then these investments are accounted for using the
equity method of accounting. When the Company owns an interest of less than
20% of the voting rights or otherwise does not have the ability to exercise
significant influence over the financial and operational decisions although
the Company owns an interest of 20% or more, then these investments are
accounted for using the cost method of accounting.
When long-term equity investments are accounted for using the equity method,
the difference between the initial costs on acquisition and the proportionate
share of the net assets of the invested is accounted for as an "equity
investment difference" and are amortized on a straight-line basis over 10
years.
Long-term debt investments are recorded at cost of acquisition, less unpaid
interest which has been accrued. The premium or discount is amortized using
the straight-line method over the period between the purchase date and the
maturity date over which the relevant interest income is recognized. Interest
receivable from investments is computed for each period.
Investments in subsidiaries and associates are accounted for using the equity
method. Subsidiaries are those companies in which the Company has an interest
of more than 50% of the voting rights or an interest less than 50% of the
voting rights but has the power to govern the financial and operating
policies, and so as to obtain benefit from their operating activities.
Associates are companies over which the Company has the ability to exercise
significant influence.
Entrusted loans refers to loans that the Company provides to other companies
via intermediary financial institutions with maturities over one year.
Interest income is accrued and recorded as income in each period. Interest
receivable that has been accrued, but cannot be collected when due, should be
written off. At the balance sheet date, when events indicate that the
principal amount is higher than the recoverable amount of the entrusted loans,
provision for impairment loss will be made.
Fixed assets and depreciation
Fixed assets refer to buildings, plant and other equipment related to the
production and operation of the Company and its subsidiaries with useful lives
of over one year and unit cost of more than Rmb2,000.
Fixed assets purchased or constructed were initially recorded at cost. Fixed
assets obtained upon Reorganization were initially recorded at their appraised
value approved by relevant government authorities.
Depreciation of fixed assets is calculated on the straight-line method to
write off the cost of each asset, net of estimated residual values, over their
estimated useful lives. When a provision for impairment loss has been made for
a fixed asset, the depreciation rate and depreciation charge for the fixed
asset should be recalculated based on the asset's carrying amount and its
remaining useful life.
Major modification, expansion or improvement of fixed assets are capitalized
as costs of the asset. Expenditure on repairs or maintenance of fixed assets
is recognized as an expense when incurred.
The estimated useful lives, estimated residual value and depreciation rates of
the fixed assets of the Company and its subsidiaries are as follows:
----------------------------------------------------------------------------------------------------------
Estimated Estimated Depreciation
Categories useful lives residual value rate
----------------------------------------------------------------------------------------------------------
Buildings 22 years 0%-11% 4.05%-4.55%
Electric utility plant in service 8-27 years 0%-11% 3.3%-12.5%
Transportation and transmission facilities 13-27 years 5%-11% 3.52%-6.85%
Others 6-13 years 0%-11% 6.85%-16.67%
----------------------------------------------------------------------------------------------------------
(12) Construction-in-progress
Construction-in-progress represents capital assets under construction or being
installed and is stated at cost. Cost comprises original cost of plant and
equipment, installation, construction and other direct costs which includes
interest costs incurred on specific borrowings used to finance the capital
assets, prior to the date at which the asset reaches the expected usable
condition. Construction-in-progress is transferred to the fixed assets account
when the assets has been substantially completed and reaches the expected
usable condition.
(13) Borrowing costs
Interest, ancillary costs incurred, and exchange differences incurred in
connection with specific borrowings obtained for the acquisition or
construction of fixed assets are capitalized as costs of the assets beginning
when the capital expenditures and borrowing costs have been incurred and the
activities to enable the assets to reach their expected usable condition have
commenced. The capitalization of borrowing costs ceases when the
construction-in-progress has reached the asset's expected usable condition.
Borrowing costs incurred thereafter are recognized as expenses in the period
in which they are incurred.
The capitalization amount of interest for each accounting period is determined
by using the weighted average amount of accumulated expenditures incurred for
the acquisition or construction of a fixed asset up to the end of the current
period and the relevant capitalization rate of the relevant borrowings. The
amount of interest for each capitalization period shall not exceed the actual
amount of interest incurred of the specific borrowings during that period.
Exchange difference for specific borrowings denominated in foreign currency
and ancillary costs incurred in connection with the arrangement of specific
borrowings are capitalized in the period in which they are incurred.
Interests incurred in connection with other borrowings are recognized as
expenses in the period in which they are incurred.
(14) Intangible assets
Intangible assets include land use rights, goodwill and negative goodwill.
The land use rights acquired directly from the land bureau, through payment of
land use fees, are initially recorded at cost. They are amortized using the
straight-line method over the land use rights period. Effective 1st January,
2001, when construction is taking place on land for which will eventually be
utilized by the Company, then the carrying value of the land use right is
transferred into the construction-in-progress account. Land use rights
acquired prior to 1st January, 2001 that have already been constructed and
utilized by the Company are not reclassified.
Goodwill and negative goodwill arose from acquisitions are amortized over 10
years on a straight-line basis.
(15) Long-term deferred expenses
Long-term deferred expenses represent other deferred expenses with
amortization period over one year. They are stated at cost and amortized using
the straight-line method over the expected beneficial period of the asset.
If the long-term deferred expenses cannot provide future benefit to the
Company, the remaining balance is charged to expense in the current period.
(16) Asset impairment
The recognition of impairment provisions against short-term investments,
entrusted loans, receivables and loss on realization of inventories are
described in the respective accounting policies. When events or changes in
circumstances indicate that the carrying value of other individual assets are
higher than their recoverable amounts, then tests for impairment are
undertaken. If the carrying amount is higher than the recoverable amount, then
the excess is recognized as an impairment provision and taken into the profit
and loss.
The recoverable amount of an individual asset item is the higher of its net
selling price and its value in use. Net selling price is the amount obtainable
from the sale of an asset in an arm's length transaction between
knowledgeable, willing parties, after deducting any direct incremental
disposal costs. Value in use is the present value of estimated future cash
flows expected to be derived from continuing use of an asset and from its
disposal at the end of its useful life.
If there are indications that the impairment loss recognized for an asset in
prior years no longer exist or have decreased, then the recoverable amount of
the asset will be assessed. If the carrying value of the asset is lower than
the reassessed recoverable amount, then the provision for asset impairment is
reversed to the extent of impairment loss being recognized in the previous
years.
(17) Convertible notes
Convertible notes are stated at principal plus interest receivable.
As mentioned in Note 5(15), the convertible notes are issued at par value with
redemption rights. The notes might be redeemed, at the option of the
noteholders, on 21st May, 2002 at 128.575% of the principal amount of the
notes together with accrued interest. Such premium is accrued together with
the interest payable on the notes from date of issuance to date of redemption.
The accounting treatment of accrued interest of the convertible notes is the
same as that of borrowing costs.
(18) Employee social security benefits
The Company and its subsidiaries participate in employee social security
plans, including pension, medical, housing and other welfare benefits,
organised by the local government authorities in accordance with relevant
regulations. Except for the above socical security benefits, the Company and
its subsidiaries have no additional material commitment to other employee
welfare benefits.
According to the relevant regulations, premium and welfare benefit
contributions are remitted to the social welfare authorities and are
calculated based on percentages (27% to 43%) of the total salary of employees,
subject to certain ceilings. Contributions to the plans are charged to the
profit and loss as incurred.
(19) Revenue recognition
Revenue is recognized under the following methods:
(i) Operating revenue
Operating revenue represents amounts earned for electricity
generated and transmitted to the respective regional or provincial
power companies (net of Value Added Tax ("VAT")). The Company and
its subsidiaries bill the respective power companies based on the
actual quantity of electricity transmitted or sold to the power
grid controlled and owned by the respective power companies and
recognize revenue at the end of each month.
(ii) Interest income
Interest income is recognized on a time proportion basis on the
amounts deposited/entrusted lending and the effective yield.
(20) Accounting for income tax
The Company and its subsidiaries account for enterprise and local income taxes
using the tax payable method.
(21) Consolidation of financial statements
The consolidated financial statements, including the financial statements of
the Company and its subsidiaries, are prepared in accordance with the
CaiKuaiZi(1995)11 "Tentative Regulations for Consolidated Financial
Statements" and relevant regulations issued by the Ministry of Finance of the
PRC.
Subsidiaries are consolidated from the date on which control is obtained by
the Company. Major intercompany balances, transactions and unrealized gains
between the Company and its subsidiaries are eliminated upon consolidation.
Minority interests in the consolidated financial statements represent the
portion of the shareholders equity of the subsidiaries that are not owned by
the Company.
When the accounting policies adopted by subsidiaries are not consistent with
those adopted by the Company and such inconsistency created a material impact
to the consolidated financial statements, accounting policies of subsidiaries
are changed to ensure consistency with the policies adopted by the Company.
3. TAXATION
(1) Value added tax ("VAT")
The electricity sales of the Company and its subsidiaries is subjected to
Value Added Tax ("VAT"). The applicable tax rate is 17%. Input VAT from
purchase of raw materials and other production materials can be netted off
against output VAT from sales.
(2) Income tax
According to the relevant income tax law, Sino-foreign enterprises are, in
general, subject to statutory income tax of 33% (30% of Enterprise Income Tax
("EIT") and 3% of local income tax). If these enterprises are located in
specified location or city, or specifically approved by the State Tax Bureau,
a lower tax rate can be enjoyed. Effective from 1st January, 1999, in
accordance with the practice notes on the PRC income tax laws applicable to
Sino-foreign enterprises investing in energy and transportation infrastructure
businesses, a reduced income tax rate of 15% (after the approval of State Tax
Bureau) are applicable across the country. The Company applied this rule in
all operating power plants after the approval of State Tax Bureau since 1st
January, 1999.
Pursuant to "Income Tax Law of the People's Republic of China for Enterprises
with Foreign Investment and Foreign Enterprises", all power plants (except for
the Dezhou Power Plant, Jining Power Plant, Shanghai Shidongkou First Power
Plant and all expansion projects other than Shangan Power Plant Phase II) are
exempted from income tax for two years starting from the first profit-making
year, after offsetting all tax losses carried forward from the previous years
(at most five years), followed by a 50% reduction of the applicable tax rate
for the next three years ("tax holiday").
In accordance with Guo Shui Han [1994] No.381, the head office, the Shandong
branch (the former headquarter of Shandong Huaneng) and all the individual
power plants make their income tax payment to local tax bureau individually.
The statutory income tax rates applicable to the head office, the Shandong
branch and the individual power plants after the expiration of tax holiday are
summarized as follow:
-------------------------------------------------------------------------------------------------------------
EIT rate Tax holiday period
-------------------------------------------------------------------------------------------------------------
Head Office 15.0% None
Dalian Power Plant (including Dalian Phase II) 18.0% Till 31st December, 1994
Shangan Power Plant 18.0% Till 31st December, 1996
Shangan Phase II 16.5% Till 31st December, 2003
Nantong Power Plant (including Nantong Phase II) 15.0% Till 31st December, 1996
Fuzhou Power Plant (including Fuzhou Phase II) 15.0% Till 31st December, 1995
Shantou Oil-Fired Plant 15.0% Till 31st December, 1994
Shantou Power Plant 15.0% Till 31st December, 2002
Shanghai Power Plant 16.5% Till 31st December, 1998
Dandong Power Plant 15.0% Not commence yet
Nanjing Power Plant 15.0% Till 31st December, 2001
Shandong Branch 17.0% None
Dezhou Power Plant 17.0% None
Jining Power Plant * 15.0% None
(Effective from 1st September, 2002)
Changxing Power Plant* 16.5% None
(Effective from 1st July, 2002)
Shanghai Shidongkou First Power Plant** 33.0% None
Weihai Power Plant 33.0% None
Taicang Power Company 33.0% None
Huaiyin Power Company 33.0% None
* As stated in Note 1, the Company acquired the remaining 25% equity
interest in the Jining Power Plant on 18th June, 2002 and the net assets
of Changxing Power Plant on 1st July, 2002. As such, Jining Power Plant
and Changxing Power Plant are entitled to preferential tax treatment
applicable to Sino-foreign enterprises and have been granted such
preferential tax treatment by the relevant tax bureaus.
** As stated in Note 1, the Company acquired all the assets and liabilities
of Shanghai Shidongkou First Power Plant in 2002. As such, Shanghai
Shidongkou First Power Plant is entitled to preferential tax treatment
applicable to Sino-foreign enterprises and it is in the process of
applying to the relevant tax bureau for such preferential tax treatment.
The statutory income tax rates applicable to the head office, the Shandong
branch and the individual power plants, after taking the effect of tax holiday
into consideration are summarized as follow:
------------------------------------------------------------------------------------------------------------------------
Approved File No. 2002 2001
------------------------------------------------------------------------------------------------------------------------
Head Office Guo Shui Han [1997]368 15.0% 15.0%
Dalian Power Plant
(including Dalian Phase II) Guo Shui Han [1994]381 18.0% 15.0%
Shangan Power Plant Guo Shui Han [1994]381 &
Guo Shui Han [1999]604 18.0% 16.5%
Shangan Phase II Guo Shui Han [1994]381 &
Guo Shui Han [2000]194 9.0% 9.0%
Nantong Power Plant
(including Nantong Phase II) Guo Shui Han [1994]381 15.0% 15.0%
Fuzhou Power Plant
(including Fuzhou Phase II) Guo Shui Han [1994]381 15.0% 15.0%
Shantou Oil-Fired Plant Guo Shui Han [1994]381 15.0% 15.0%
Shantou Power Plant Approved by Shantou State Tax Bureau 7.5% 7.5%
Shanghai Power Plant Approved by Shanghai State Tax Bureau 16.5% 16.5%
Dandong Power Plant Dan Guo Shui She Wai [1999]7 Not applicable Not applicable
Nanjing Power Plant Ning Guo Shui Wai Zi[1997]039 15.0% 7.5%
Shandong Branch Guo Shui Han [2001]866 17.0% 17.0%
Dezhou Power Plant Guo Shui Han [2001]866 17.0% 17.0%
Jining Power Plant* Guo Shui Han [2002]1063
and Ji Guo Shui Han[2003]1 15.0% 33.0%
Changxing Power Plant** Guo Shui Han[2002]1030 16.5% Not applicable
Shanghai Shidongkou
First Power Plant Not applicable 33.0% Not applicable
Weihai Power Plant Not applicable 33.0% 33.0%
Taicang Power Company Not applicable 33.0% Not applicable
Huaiying Power Company Not applicable 33.0% Not applicable
------------------------------------------------------------------------------------------------------------------------
* Effective from 1st September, 2002, Jining Power Plant enjoyed income tax rate of 15%.
** Effective from 1st July, 2002, Changxing Power Plant enjoyed income tax rate of 16.5%.
4. Subsidiaries
As at 31st December, 2002, the Company had equity interests in the following
subsidiaries:
---------------------------------------------------------------------------------------------------------------------------
Issued and Total investment Percentage of
Country and date of fully paid Principal contributed by theequity interest
Name incorporation capital activities Company held
---------------------------------------------------------------------------------------------------------------------------
Weihai Power Plant Weihai, Shandong Rmb761,832,800 Power Rmb457,103,040 60%
22nd November, 1993 generation
Taicang Power Suzhou Industrial Rmb632,840,000 Power Rmb474,630,000 75%
Company** Park, Jiangsu generation
19th June, 1997
Huaiyin Power Huaiyin, Jiangsu Rmb265,000,000 Power Rmb168,646,000 63.64%
Company** 26th January, 1995 generation
---------------------------------------------------------------------------------------------------------------------------
** Please refer to Note 1.
5. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Cash and cash equivalents
---------------------------------------------------------------------------------------------------------------------------
31st December, 2002 31st December, 2001
Original Original
currency Exchange Rmb currency Exchange Rmb
amount rate equivalent amount rate equivalent
---------------------------------------------------------------------------------------------------------------------------
Cash - RMB 266,342 381,485
---------------------------------------------------------------------------------------------------------------------------
Bank deposit - RMB 3,610,632,507 7,301,710,215
- USD 66,019,558 8.2773 546,463,686 132,314,533 8.2766 1,095,114,631
---------------------------------------------------------------------------------------------------------------------------
Sub-total 4,157,096,193 8,396,824,846
---------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 4,157,362,535 8,397,206,331
---------------------------------------------------------------------------------------------------------------------------
The cash and cash equivalents as stated in the cash flow statement comprised
the following:
--------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
--------------------------------------------------------------------------------------------
Cash 4,157,362,535 8,397,206,331
Less: Time deposit with maturity
of more than 3 months (1,141,502,257) (6,224,070,086)
Restricted cash (13,258,808) --
--------------------------------------------------------------------------------------------
3,002,601,470 2,173,136,245
--------------------------------------------------------------------------------------------
(2) Notes receivable
--------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
--------------------------------------------------------------------------------------------
Commercial notes receivable 472,750,000 152,230,000
============================================================================================
As at 31st December, 2002 and 2001, notes receivable represented unsecured commercial notes receivable.
(3) Accounts receivable and other receivables
(i) Accounts receivable
--------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
--------------------------------------------------------------------------------------------------------
Accounts receivable 1,889,082,774 1,254,941,073
--------------------------------------------------------------------------------------------------------
Aging of the accounts receivable was as follows:
--------------------------------------------------------------------------------------------------------
31st December, 2002 31st December, 2001
Aging Amount Percentage Amount Percentage
(%) (%)
--------------------------------------------------------------------------------------------------------
Within 1 year 1,884,462,774 100 1,254,941,073 100
1 - 2 years 4,620,000 -- -- --
--------------------------------------------------------------------------------------------------------
1,889,082,774 100 1,254,941,073 100
--------------------------------------------------------------------------------------------------------
All accounts receivable represented receivable from the local
power companies or provincial power companies for the sale of
electric power. Since these accounts receivable are collectible,
no bad debt was provided by the Company and its subsidiaries.
As at 31st December, 2002, the five largest accounts receivable of
the Company and its subsidiaries amounted to Rmb1,607,995,057
(31st December, 2001: Rmb1,080,467,303), representing 85.12% of
total accounts receivable (31st December, 2001: 86.10%).
(ii) Other receivables
----------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
----------------------------------------------------------------------------------------------------
Other receivables 124,038,553 121,155,283
Less: bad debt provision (21,443,406) (5,617,638)
----------------------------------------------------------------------------------------------------
102,595,147 115,537,645
----------------------------------------------------------------------------------------------------
Aging and bad debt provision for other receivables were as follows:
---------------------------------------------------------------------------------------------------------------
31st December, 2002 31st December, 2001
Bad debt Bad debt
Aging Amount Percentage provision Amount Percentage provision
(%) (%)
---------------------------------------------------------------------------------------------------------------
Within 1 year 51,988,624 41 (1,559,659) 77,873,879 64 (2,336,216)
1 - 2 years 28,088,594 23 (842,658) 29,520,207 25 (885,606)
2 - 3 years 22,129,117 18 (663,874) 1,240,515 1 (37,215)
More than 3 years 21,832,218 18 (18,377,215) 12,520,682 10 (2,358,601)
---------------------------------------------------------------------------------------------------------------
124,038,553 100 (21,443,406) 121,155,283 100 (5,617,638)
---------------------------------------------------------------------------------------------------------------
Breakdown of other receivables was as follows:
---------------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
---------------------------------------------------------------------------------------------------------------
Prepayments for materials 26,468,978 35,214,155
Receivable from employees for sales of staff quarters 10,086,707 8,200,000
Others 87,482,868 77,741,128
---------------------------------------------------------------------------------------------------------------
124,038,553 121,155,283
---------------------------------------------------------------------------------------------------------------
As at 31st December, 2002, the five largest other receivables of
the Company and its subsidiaries amounted to Rmb54,172,387 (31st
December, 2001: Rmb41,121,147), representing 44% of total other
receivables (31st December, 2001: 34%).
See Note 7 for related party transactions.
As at 31st December, 2002 and 2001, there were no accounts
receivable and other receivables from shareholders who hold 5% or
more of the equity interest in the Company.
(4) Inventories
---------------------------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
---------------------------------------------------------------------------------------------------------------------------
Fuel (coal and oil) for power generation 434,725,588 224,131,185
Material and spare parts 518,237,161 528,511,277
---------------------------------------------------------------------------------------------------------------------------
952,962,749 752,642,462
---------------------------------------------------------------------------------------------------------------------------
Less: provision for inventory
obsolescence - spare parts (12,238,901) (13,184,250)
---------------------------------------------------------------------------------------------------------------------------
940,723,848 739,458,212
---------------------------------------------------------------------------------------------------------------------------
(5) Long-term investments
---------------------------------------------------------------------------------------------------------------------------
31st December, Current year Current year 31st December,
2001 additions disposals 2002
---------------------------------------------------------------------------------------------------------------------------
Long-term equity investments -
Equity investment difference (i) -- 843,555,690 (529,692,804) 313,862,886
Associates (ii) 226,488,077 -- (25,528,034) 200,960,043
Other long-term equity investments (iii) -- 254,989,551 -- 254,989,551
Others 11,605,567 -- (5,241,291) 6,364,276
---------------------------------------------------------------------------------------------------------------------------
238,093,644 1,098,545,241 (560,462,129) 776,176,756
---------------------------------------------------------------------------------------------------------------------------
Less: current portion of
other long-term
investments -- (25,160) -- (25,160)
---------------------------------------------------------------------------------------------------------------------------
Long-term equity investment 238,093,644 1,098,520,081 (560,462,129) 776,151,596
Long-term bond investment 9,734,610 574,360 (171,200) 10,137,770
---------------------------------------------------------------------------------------------------------------------------
Total long-term investment 247,828,254 1,099,094,441 (560,633,329) 786,289,366
---------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2002 and 2001, there was no indication of impairment of
long-term investments of the Company and its subsidiaries and therefore no
provision of impairment of long-term investments was made.
The long-term investments of the Company and its subsidiaries are not subject
to restriction on conversion into cash or restriction on remittance of
investment income.
(i) Equity investment difference
Equity investment difference represents the difference between the
considerations paid for the acquisitions of Taicang Power Company
and Huaiyin Power Company and the proportionate share of the net
assets of these two power companies. Details are summarized as
follows:
------------------------------------------------------------------------------------------------------------
Amortization Original Current year Accumulated Transfer to Remaining
Name period cost amortization amortization goodwill carrying value
------------------------------------------------------------------------------------------------------------
Shanghai Shidongkou
First Power Plant 10 years 517,834,475 (25,891,724) (25,891,724) (491,942,751) --
Taicang Power Company 10 years 189,383,490 (8,834,242) (8,834,242) -- 180,549,248
Huaiyin Power Company 10 years 136,337,725 (3,024,087) (3,024,087) -- 133,313,638
------------------------------------------------------------------------------------------------------------
843,555,690 (37,750,053) (37,750,053) (491,942,751) 313,862,886
------------------------------------------------------------------------------------------------------------
(ii) Investment in an associate
------------------------------------------------------------------------------------------------------------
Total investment Percentage of
Country and date of Registered Principal contributed by the equity interest
Name incorporation capital activities Company held
------------------------------------------------------------------------------------------------------------
Associate:
Rizhao Power Rizhao, Shandong US$150 million Power Rmb317,497,785 25.5%
Company 20th March, 1996 generation
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Investment cost Accumulated equity pick-up Net carrying value
Current year
------------------------------------------------------------------------------------------------------------------------
1st 31st 1st 31st 1st 31st
Investment January, December, January, Additions/ December, January, December,
Name period 2002 2002 2002 (deductions) 2002 2002 2002
------------------------------------------------------------------------------------------------------------------------
Rizhao
Power
Company 20 years 231,868,800 231,868,800 (5,380,723) (25,528,034) (30,908,757) 226,488,077 200,960,043
------------------------------------------------------------------------------------------------------------------------
Rizhao Power Company was in a loss position in 2002. The Company
adopted the equity method to recognize its share of losses of
Rizhao Power Company amounting to Rmb25,528,034.
(iii) Other long-term equity investment
Other long-term equity investment represents investment in China
Changjiang Power Company Limited (the "Changjiang Power Company"),
details is as follows:
-----------------------------------------------------------------------------------------------------------------
Total investment contributed Percentage of
Name Investment period by the Company equity interest held
-----------------------------------------------------------------------------------------------------------------
Changjiang Power Starting from 22nd August, 2002, Rmb254,989,551 3%
Company with indefinite period
-----------------------------------------------------------------------------------------------------------------
(6) Fixed assets
The movement of cost of fixed assets and related accumulated depreciation were as follows:
-----------------------------------------------------------------------------------------------------------------------------
Transportation and
Electric utility transmission
Buildings plant in service facilities Others Total
-----------------------------------------------------------------------------------------------------------------------------
Cost
1st January, 2002 1,732,485,624 44,379,628,068 680,343,529 1,003,702,820 47,796,160,041
Additions from acquisition 270,965,456 4,965,405,960 16,789,415 146,965,585 5,400,126,416
Transfer from construction
in progress 189,029,983 5,372,367,820 46,389,169 106,665,812 5,714,452,784
Current year additions 119,614,084 8,830,756 113,000 43,930,810 172,488,650
Current year disposals (39,062,765) (67,689,079) (2,350,000) (33,886,402) (142,988,246)
-----------------------------------------------------------------------------------------------------------------------------
31st December, 2002 2,273,032,382 54,658,543,525 741,285,113 1,267,378,625 58,940,239,645
-----------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation
1st January, 2002 382,581,410 13,366,892,531 203,466,363 419,704,810 14,372,645,114
Additions from acquisition 11,695,267 837,734,805 5,427,773 49,045,238 903,903,083
Current year depreciation 43,296,327 3,327,328,683 26,467,676 93,515,152 3,490,607,838
Current year disposals (1,800,278) (22,022,878) -- (18,254,153) (42,077,309)
-----------------------------------------------------------------------------------------------------------------------------
31st December, 2002 435,772,726 17,509,933,141 235,361,812 544,011,047 18,725,078,726
-----------------------------------------------------------------------------------------------------------------------------
Net book value
31st December, 2002 1,837,259,656 37,148,610,384 505,923,301 723,367,578 40,215,160,919
-----------------------------------------------------------------------------------------------------------------------------
1st January, 2002 1,349,904,214 31,012,735,537 476,877,166 583,998,010 33,423,514,927
-----------------------------------------------------------------------------------------------------------------------------
As at 31st December, 2002 and 2001, there was no indication of impairment of
fixed assets of the Company and its subsidiaries and therefore no impairment
loss of fixed assets was made.
As at 31st December, 2002, the original costs of fully depreciated fixed
assets that still in use was amounted to Rmb83.77 million.
(7) Construction-in-progress
----------------------------------------------------------------------------------------------------------------------------
Additions Transfer
1st January, from Current year to fixed 31st December, Source of
Name of the project 2002 acquisition additions assets 2002 financing
----------------------------------------------------------------------------------------------------------------------------
Dezhou Power
Plant Phase III
expansion project 3,984,124,899 -- 1,408,047,301 (5,392,172,200) -- Bank loans
Jining Power
Plant Phase III
expansion project 10,306,450 -- 306,634,105 -- 316,940,555 Internal fund
Other projects 254,249,545 116,393,776 320,458,265 (322,280,584) 368,821,002 Internal fund
----------------------------------------------------------------------------------------------------------------------------
4,248,680,894 116,393,776 2,035,139,671 (5,714,452,784) 685,761,557
----------------------------------------------------------------------------------------------------------------------------
Including: capitalized
interest 123,293,586 -- 28,026,381 (151,319,967) --
----------------------------------------------------------------------------------------------------------------------------
The construction of No.5 generator and No. 6 generator of Dezhou Power Plant
Phase III have been completed and put into commercial operation on 29th June,
2002 and 13th October, 2002, respectively.
The total budgeted investment of Jining Power Plant Phase III is approximately
Rmb850.9 million. The percentage of completion of this project was about 37%
as at 31st December, 2002.
For the year ended 31st December, 2002, the applicable capitalization rate of
the Company and its subsidiaries was 4.24% (for the year ended 31st December,
2001: 5.75%).
As at 31st December, 2002 and 2001, there was no indication that the
construction-in-progress of the Company and its subsidiaries were impaired and
therefore no provision for impairment loss was made.
(8) Intangible assets
The movement of intangible assets, which comprised land-use rights, goodwill
and negative goodwill, was as follows:
------------------------------------------------------------------------------------------------
Additions
Original Accumulated 1st January, from Current year
cost amortization 2002 acquisition addition
------------------------------------------------------------------------------------------------
Land use rights 745,113,218 (82,350,760) 672,049,157 3,072,634 2,974,440
Negative goodwill (2,472,783,635) 494,556,728 (2,225,505,271) -- --
Goodwill 2,778,712 (103,736) -- 2,778,712 --
Others 9,232,538 (2,610,561) -- 3,165,254 4,628,530
------------------------------------------------------------------------------------------------
(1,715,659,167) 409,491,671 (1,553,456,114) 9,016,600 7,602,970
------------------------------------------------------------------------------------------------
[TABLE CONTINUED]
---------------------------------------------------------------------------------------------
Remaining
Current year 31st December, amortization Obtained
amortization 2002 period through
---------------------------------------------------------------------------------------------
Land use rights (15,333,773) 662,762,458 41-66 years Purchase
Negative goodwill 247,278,364 (1,978,226,907) 8-9.5 years Acquisition
Goodwill (103,736) 2,674,976 9.5 years Acquisition
Others (1,171,807) 6,621,977 3-5 years Purchase
---------------------------------------------------------------------------------------------
230,669,048 (1,306,167,496)
---------------------------------------------------------------------------------------------
As at 31st December, 2002 and 2001, there was no indication that the
intangible assets were impaired and therefore no provision for impairment loss
was made.
(9) Other current assets
Other current assets represented receivable from Shantou Harbor Group Company
Limited for coal-port construction. Such amount was recorded as other
long-term assets as at 31st December, 2001. On 28th January, 2003, Shantou
Harbor Group Company Limited has repaid the amount to the Company.
(10) Short-term loans
-----------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001 Remarks
-----------------------------------------------------------------------------------------------------------
Guaranteed loans -- 40,000,000 Borrowed by
Weihai Power
Plant and
guaranteed
by the
Company
Credit loans 550,000,000 --
-----------------------------------------------------------------------------------------------------------
550,000,000 40,000,000
-----------------------------------------------------------------------------------------------------------
The short-term loans bore interest at the rate of 4.7790% to 5.5575% per annum
(2001: 5.301%).
As at 31st December, 2002, short-term loans amounted to Rmb200 million was
borrowed from China Huaneng Finance Company ("Huaneng Finance"). Such loan
bore interest at the rate of 5.5575% per annum and is due on 8th February,
2003 (31st December, 2001: 5.301%).
(11) Dividend payable
On 12th March, 2002, the Board of Directors proposed and declared a dividend
of Rmb0.30 per share, totaling Rmb1,800 million for the year ended 31st
December, 2001. As at 31st December, 2002, all of the relevant dividends had
been paid by cash.
On 12th March, 2003, the Board of Directors proposed a dividend of Rmb 0.34
per share, totaling Rmb 2,040 million for the year ended 31st December, 2002.
(12) Taxes payable
Taxes payable comprised:
-----------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
-----------------------------------------------------------------------------------------------------
Income tax payable 311,436,416 292,615,418
VAT payable 291,456,338 209,020,304
Others 17,296,146 19,556,945
-----------------------------------------------------------------------------------------------------
Total 620,188,900 521,192,667
-----------------------------------------------------------------------------------------------------
(13) Other payables Other payables comprised:
-----------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
-----------------------------------------------------------------------------------------------------
Payable to contractors 1,333,447,550 716,955,977
Other payable to contractors 140,328,419 120,559,122
Payable to HIPDC 100,475,344 36,584,373
Technical service fee payable 28,124,210 28,124,210
Project saving bonus 62,110,406 26,043,378
Payable of housing maintenance fund 47,488,793 6,043,992
Others 568,439,463 402,780,307
-----------------------------------------------------------------------------------------------------
2,280,414,185 1,337,091,359
-----------------------------------------------------------------------------------------------------
As at 31st December, 2002 and 2001, there was no other payables to the
shareholders who were holding 5% or more of the equity interest in the
Company, except for the payable to HIPDC which amounted to Rmb100,475,344 as
mentioned in Note 7(7) (31st December, 2001: Rmb36,584,373), and there was no
other payable aged over three years.
(14) Long-term loans
Long-term loans comprised (all are credit loans unless otherwise stated):
-----------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
-----------------------------------------------------------------------------------------------------------
Long-term loan from shareholders (i) 777,782,754 793,281,815
Long-term bank loans (ii) 10,393,252,361 11,321,254,221
Other long-term loans (iii) 427,402,311 390,072,029
-----------------------------------------------------------------------------------------------------------
11,598,437,426 12,504,608,065
Less: current portion of long-term loans (2,413,636,557) (2,928,846,440)
-----------------------------------------------------------------------------------------------------------
9,184,800,869 9,575,761,625
-----------------------------------------------------------------------------------------------------------
(i) Long-term loans from shareholders
Long-term loans from shareholders (including current portion) comprised:
-------------------------------------------------------------------------------------------------------------
31st December, 2002
-------------------------------------------------------------------------------------------------------------
Currency Original Exchange rate Amounts in Rmb
-------------------------------------------------------------------------------------------------------------
Foreign currency bank loans
on-lent by HIPDC USD 93,965,756 8.2773 777,782,754
Less: current portion of
long-term loans USD (46,982,876) 8.2773 (388,891,359)
-------------------------------------------------------------------------------------------------------------
46,982,880 388,891,395
-------------------------------------------------------------------------------------------------------------
As at 31st December, 2002, detailed information of the long-term
loans from shareholders was as follows:
-------------------------------------------------------------------------------------------------------------
31st December, Repayment Annual Current
Lender 2002 period interest rate portion
-------------------------------------------------------------------------------------------------------------
Bank loans on-lent by HIPDC
Bank of China 777,782,754 1997 - 2004 LIBOR+0.9% 388,891,359
-------------------------------------------------------------------------------------------------------------
The foreign currency bank loans bore interest at the prevailing
lending rates (both fixed and floating), prescribed by the loan
contracts, which range from 4.01% to 7.40% per annum for the year
ended 31st December, 2002 (2001: 4.25% to 7.40%), and are
repayable in accordance with the repayment schedules set by the
banks.
The foreign-currency bank loans were previously borrowed by HIPDC
for financing the construction of power plants. Upon the
restructuring of the Company in 1994 or on the acquisition of the
relevant power plants from HIPDC, all these outstanding long-term
bank loans were restructured. HIPDC continued to borrow the loans
from the banks and then on-lent the proceeds to the Company as
shareholders loans. The existing terms of the loans including
interest rates and repayment schedules remained intact after the
restructuring.
(ii) Long-term bank loans
Long-term bank loans (including current portion) comprised:
-------------------------------------------------------------------------------------------------------------
31st December,
2002
-------------------------------------------------------------------------------------------------------------
Renminbi bank loans (a) 2,053,000,000
United States dollar bank loans (b) 8,340,252,361
-------------------------------------------------------------------------------------------------------------
10,393,252,361
Less: current portion of long-term bank loans (1,928,731,710)
-------------------------------------------------------------------------------------------------------------
8,464,520,651
-------------------------------------------------------------------------------------------------------------
As at 31st December, 2002, detailed information of the long-term bank loans was as follows:
-------------------------------------------------------------------------------------------------------------
31st December, Annual
Lenders 2002 Loan period Interest rate Current portion Terms
-------------------------------------------------------------------------------------------------------------
Renminbi bank loans
China Construction 480,000,000 1998-2004 6.21% -- Guaranteed by the Company
Bank-Weihai branch* and Weihai Power
Development Bureau
("WPDB")
China Construction 30,000,000 1999-2005 6.21% -- Guaranteed by the Company
Bank-Weihai branch*
China Construction 100,000,000 1999-2007 6.21% -- Guaranteed by the WPDB
Bank-Weihai branch*
Bank of China 610,000,000 1999-2009 5.76% 104,000,000 Guaranteed by the Company
Bank of China-Taicang 664,000,000 1999-2014 5.76% -- Guaranteed by the Company
branch*
Bank of China-Suzhou 114,000,000 1999-2009 5.76% 16,000,000 Guaranteed by the Company
branch
China Construction 35,000,000 1994-2004 6.21% 25,000,000 Guaranteed by the Company
Bank-Huaian
City Yangzhuang
sub branch
China Construction 10,000,000 1994-2004 6.21% -- Guaranteed by Jiangsu
Bank-Huaian City International Trust
Yangzhuang-sub Investment Company
branch*
China Construction 10,000,000 1994-2004 6.21% -- Guaranteed by Jiangsu
Bank-Huaian City Huaiyin Investment
Yangzhuang sub Company
branch*
-------------------------------------------------------------------------------------------------------------
Sub-total 2,053,000,000 145,000,000
-------------------------------------------------------------------------------------------------------------
As at 31st December, 2002, detailed information of the long-term
bank loans was as follows:
-------------------------------------------------------------------------------------------------------------
31st December, Annual
Lenders 2002 Loan period Interest rate Current portion Terms
-------------------------------------------------------------------------------------------------------------
United States dollar
bank loans
Mizuko Corporate Bank, 44,145,589 1996-2003 LIBOR+0.45% 44,145,589 Nil
Ltd., Hong Kong
Sumi Tomo Mistsui 44,145,599 1996-2003 LIBOR+0.4% 44,145,599 Nil
Banking Corporation,
Shanghai Branch
Bank of China 1,464,038,871 2002-2004 LIBOR+0.6% 744,957,000 Nil
Bank of Communication 11,349,769 2000-2005 LIBOR+1.1% 3,808,800 Nil
Bank of China - Taicang 92,705,760 1999-2006 Interest rate of -- Guaranteed by the Company
Branch* foreign loan
prescribed by
Bank of China
-0.5%
-------------------------------------------------------------------------------------------------------------
1,656,385,588 837,056,988
-------------------------------------------------------------------------------------------------------------
On-lent loans by
Bank of China
American I&E Bank 1,345,417,693 1997-2011 6.54% 145,242,308 Guaranteed by HIPDC
American I&E Bank 1,155,090,512 1995-2011 5.95% 128,343,388 Guaranteed by HIPDC
American I&E Bank 1,334,536,910 1997-2011 5.95% 148,281,879 Guaranteed by HIPDC
American I&E Bank 328,806,383 1997-2012 6.60% 32,880,639 Guaranteed by HIPDC
JapanTokyo Bank 185,121,814 1995-2003 LIBOR+0.3% 185,121,814 Guaranteed by HIPDC
KFW Bank 855,981,034 1996-2011 6.60% 90,104,618 Guaranteed by HIPDC
Japan Fuji Bank 339,369,299 1996-2004 LIBOR+0.38% 169,684,650 Guaranteed by HIPDC
KFW Bank 514,498,351 1999-2014 6.36% 20,803,976 Guaranteed by Huaneng Group
Citibank** 625,044,777 1999-2015 LIBOR 26,211,450 Guaranteed by Huaneng Group
-------------------------------------------------------------------------------------------------------------
6,683,866,773 946,674,722
-------------------------------------------------------------------------------------------------------------
Sub-total 8,340,252,361 1,783,731,710
-------------------------------------------------------------------------------------------------------------
Total 10,393,252,361 1,928,731,710
-------------------------------------------------------------------------------------------------------------
* As at 31st December, 2002, the loan was not repayable within
one year and therefore there was no current portion for the
loan.
** The interest rate of the loan from Citibank is LIBOR prior to
the last drawdown date and LIBOR plus 0.075% thereafter. The
last drawdown date will be 20th July, 2003 or the date of
loan cancellation, whichever earlier.
(iii) Other long-term loans
-------------------------------------------------------------------------------------------------------------
31st December,
2002
-------------------------------------------------------------------------------------------------------------
Other long-term loans 427,402,311
Less: current portion (96,013,488)
-------------------------------------------------------------------------------------------------------------
331,388,823
-------------------------------------------------------------------------------------------------------------
As at 31st December, 2002, other long-term loans consisted of:
-------------------------------------------------------------------------------------------------------------
31st December, Annual Current
Lender 2002 Loan period interest rate portion Terms
-------------------------------------------------------------------------------------------------------------
WPDB 106,388,823 1994 - 2004 6.21% -- Nil
Huaneng Finance 225,000,000 2002 - 2005 5.64% -- Nil
Jiangsu International Trust and
Investment Company 43,245,374 1997 - 2003 6.21% 43,245,374 Nil
Jiangsu Huaiyin
Investment Company 25,050,252 1997 - 2003 6.21% 25,050,252 Nil
Jiangsu Power Development
Company Limited 27,717,862 1999 -2003 6.21% 27,717,862 Nil
-------------------------------------------------------------------------------------------------------------
427,402,311 96,013,488
-------------------------------------------------------------------------------------------------------------
(15) Convertible notes Details of convertible notes comprised:
-----------------------------------------------------------------------------------------------------------------------------
Interest reversal
1st January, Interest Interest of unredeemed 31st December,
2002 Redemption Conversion accrual payment portion 2002
-----------------------------------------------------------------------------------------------------------------------------
Principal 1,903,618,000 (1,735,464,690) (1,655,420) -- -- -- 166,497,890
Interest 502,049,641 (495,910,092) -- 56,358,679 (18,086,639) (44,411,589) --
-----------------------------------------------------------------------------------------------------------------------------
Total 2,405,667,641 (2,231,374,782) (1,655,420) 56,358,679 (18,086,639) (44,411,589) 166,497,890
-----------------------------------------------------------------------------------------------------------------------------
In May, 1997, the Company issued at par value convertible notes with an
aggregate principal amount of US$230 million (Rmb1.904 billion) at 1.75% due
2004. These notes are listed on the New York Stock Exchange and the Luxemburg
Stock Exchange. The notes will mature on 21st May, 2004, unless previously
redeemed or converted.
The notes are convertible, at the option of the noteholders, at any time from
and including 21 August, 1997 up to and including the date of maturity
(including the first and last day), unless previously redeemed, at an initial
conversion price of US$29.20 per ADS, each of which represents 40 Overseas
Listed Foreign Shares, subject to adjustment in certain circumstances. As at
31st December, 2002, noteholders converted notes with principal amount of
US$200,000 into 6,849 ADSs (equivalent to 273,960 Overseas Listed Foreign
Shares).
According to the agreement, the notes might be redeemed, at the option of the
noteholders, in whole or in part, on 21st May, 2002 at 128.575% of the
principal amount of the notes together with accrued interest, if any. The
Company had accrued for the put premium liability together with the interest
payable on the notes using the effective interest rate of 6.66%. On 21 May,
2002, notes amounting to US$209,685,000 were redeemed by the noteholders. The
accrued put premium and interests in connection of the unredeemed portion were
charged to the profit and loss in 2002.
The notes may be redeemed, at the option of the Company, at any time on or
after 21 May, 2000, but prior to maturity, in whole or in part, at a
redemption price equal to 100% of the principal amount of the notes, together
with accrued interest, if any, if the closing price of the ADSs for a period
of 30 consecutive trading days is at least 130% of the conversion price in
effect on each such trading day.
(16) Share capital
---------------------------------------------------------------------------------------------------------
1st January, Current year 31st December,
2002 addition 2002
---------------------------------------------------------------------------------------------------------
Unlisted shares
Promoters shares 4,250,000,000 -- 4,250,000,000
Including: Domestic legal person shares 4,250,000,000 -- 4,250,000,000
---------------------------------------------------------------------------------------------------------
Sub-total of unlisted shares 4,250,000,000 -- 4,250,000,000
---------------------------------------------------------------------------------------------------------
Listed shares
Domestic shares listed in the PRC 250,000,000 -- 250,000,000
Overseas listed shares 1,500,000,000 273,960 1,500,273,960
---------------------------------------------------------------------------------------------------------
Sub-total of listed shares 1,750,000,000 273,960 1,750,273,960
---------------------------------------------------------------------------------------------------------
Total 6,000,000,000 273,960 6,000,273,960
---------------------------------------------------------------------------------------------------------
As mentioned in Note 5(15), the increase of share capital in 2002 is due to
exercise of conversion rights by noteholders with principal amount of
US$200,000 into 6,849 ADSs (equivalent to 273,960 Overseas Listed Foreign
shares).
(17) Capital surplus
Movement of capital surplus was as follows:
---------------------------------------------------------------------------------------------------------------------
1st January, Current year Current year 31st December,
2002 addition deduction 2002
---------------------------------------------------------------------------------------------------------------------
Share premium 10,259,449,295 1,381,460 -- 10,260,830,755
---------------------------------------------------------------------------------------------------------------------
As mentioned in Note 5(15), the increase of capital surplus in 2002 is due to
exercise of conversion rights by noteholders with principal amount of
US$200,000 into 6,849 ADSs at a premium.
(18) Surplus reserves
Movement of surplus reserve was as follows:
----------------------------------------------------------------------------------------------------------------------
1st January, Current year Current year 31st December,
2002 addition deduction 2002
----------------------------------------------------------------------------------------------------------------------
Statutory surplus reserve fund 1,942,515,383 408,235,059 -- 2,350,750,442
Statutory public welfare fund 762,741,506 306,176,294 (15,398,194) 1,053,519,606
Discretionary surplus reserve fund -- 15,398,194 -- 15,398,194
----------------------------------------------------------------------------------------------------------------------
Total 2,705,256,889 729,809,547 (15,398,194) 3,419,668,242
----------------------------------------------------------------------------------------------------------------------
According to the Company Law of the PRC, the Company's articles of association
and resolutions of the Board of Directors, the Company appropriates 10% of
each year's net profit to the statutory surplus reserve fund until the fund
balance reaches 50% of the registered share capital. After obtaining the
approval from the relevant authorities, this reserve can be used to make up
any losses incurred or to increase share capital. Except for setting off
against losses incurred, any other usage may not result in this reserve
balance falling below 25% of the registered share capital.
Each year, the Company appropriates 5% to 10% of net profits to the statutory
public welfare fund. The use of this reserve is restricted to the provision of
employees' collective welfare benefits. The statutory public welfare fund is
not available for distribution to shareholders. When utilizing the statutory
public welfare fund, the amount is transferred from this account to the
discretionary surplus reserve funds account. Any amounts utilized are
capitalized in the Company's balance sheet or expensed in the Company's profit
and loss. For the year ended 31st December, 2002, 7.5% of net profit was
provided for as statutory public welfare funds (2001: 7.5%).
The Board of Directors, after obtaining approval from the shareholders, has
the discretion to provide for discretionary surplus reserve fund. This reserve
can be used to make up any losses incurred or to increase the share capital
after approval is obtained from the Board of Directors. For the year ended
31st December, 2002, no discretionary surplus reserve fund is provided (2001:
nil).
(19) Unappropriated profit
Balance as at 31st December, 2001 8,160,857,821
Add: Net profit for the year ended 31st December, 2002 4,082,350,589
Less: Appropriation of statutory surplus reserve fund (408,235,059)
Appropriation of statutory public welfare fund (306,176,294)
Dividends payable to ordinary shareholders (2,040,093,146)
------------------------------------------------------------------------------------------------------------
Balance as at 31st December, 2002 9,488,703,911
------------------------------------------------------------------------------------------------------------
The maximum amount available for distribution to the shareholders is the
lowest of the amount (i.e. net profit in current year plus undistributed
profit brought forward from the beginning of the year, deducting the
appropriations to the statutory surplus reserve fund and the statutory public
welfare fund) determined under the PRC accounting standards, the amount
determined under the International Financial Reporting Standards ("IFRS") and
generally accepted accounting principles in the United States of America ("US
GAAP").
(20) Revenues from principal operations and costs of principal operations
-------------------------------------------------------------------------------------------------------------------------
For the year ended For the year ended
31st December, 2002 31st December, 2001
-------------------------------------------------------------------------------------------------------------------------
Revenues from Costs of Revenue from Costs of
principal principal principal principal
operations operations operations operations
-------------------------------------------------------------------------------------------------------------------------
Power sales 18,725,340,857 12,528,622,594 15,816,656,338 10,333,929,258
-------------------------------------------------------------------------------------------------------------------------
The Company and its subsidiaries have contractual arrangements for the sale of
electric power with the local power companies or provincial power companies.
For the year ended 31st December, 2002 and 2001, the revenue from the five
largest customers of the Company and its subsidiaries amounted to
Rmb14,948,671,962 and Rmb12,643,398,080, representing 79.83% and 79.94% of the
total revenue, respectively.
(21) Financial expenses Financial expenses comprised:
-------------------------------------------------------------------------------------------------------------------------
For the year For the year
ended ended
31st December, 31st December,
2002 2001
------------------------------------------------------------------------------------------------------------------------
Interest expenses 614,329,847 914,100,350
Less: Interest income (83,014,926) (113,081,032)
Exchange losses 2,893,186 392,289
Less: Exchange gain (66,116) (4,126,593)
Others 28,577,824 45,492,597
------------------------------------------------------------------------------------------------------------------------
562,719,815 842,777,611
------------------------------------------------------------------------------------------------------------------------
(22) Investment (loss) income
------------------------------------------------------------------------------------------------------------------------
For the year For the year
ended ended
31st December, 31st December,
2002 2001
------------------------------------------------------------------------------------------------------------------------
Investment income on bonds 1,327,073 634,697
Investment income on other debt investments 421,285 24,036,340
Equity pick-up of associate (10,137,288) (5,380,723)
Amortization of equity investment differences (37,750,053) --
------------------------------------------------------------------------------------------------------------------------
(46,138,983) 19,290,314
------------------------------------------------------------------------------------------------------------------------
There was no material restriction on the Company and its subsidiaries to
obtain the remittance of investment income.
(23) Non-operating expense
-----------------------------------------------------------------------------------------------------------------------
For the year For the year
ended ended
31st December, 31st December,
2002 2001
-----------------------------------------------------------------------------------------------------------------------
Loss on disposal of fixed assets 31,000,935 36,742,025
Housing benefits to the employees* 17,856,026 15,518,512
Donations 4,469,616 2,822,300
Others 24,687,946 10,780,578
-----------------------------------------------------------------------------------------------------------------------
78,014,523 65,863,415
-----------------------------------------------------------------------------------------------------------------------
* Pursuant to Cai Qi [2000] 295 and Cai Qi [2000] 878 issued by the
Ministry of Finance of the PRC, the Company ceased to provide housing
welfare fund and housing turnover fund after the issuance date of Cai Qi
[2000] 295. When staff quarters were sold to employees, the Company and
its subsidiaries recognized the difference between (i) the carrying
amount of the staff quarters sold plus accrual for housing maintenance
funds and actual settlement expenses incurred and (ii) the net proceeds
collected from the employees as non-operating expense.
(24) Net cash outflow on the acquisition of subsidiaries
As disclosed in Note1, on 1st July, 2002, the Company acquired from Huaneng
Group, 70% equity interest in Shanghai Shidongkou First Power Plant, 70%
equity interest in Taicang Power Company, 44.16% equity interest in Huaiyin
Power Company and all of the assets and liabilities of Changxing Power Plant.
At the acquisition date, the assets, liabilities and acquisition costs
comprised:
--------------------------------------------------------------------------------------------------------------------------
Shanghai Shidongkou Taicang Power Huaiyin Power Changxing
First Power Plant Company Company Power Plant Total
--------------------------------------------------------------------------------------------------------------------------
Current assets 399,824,412 291,905,470 362,609,475 80,240,162 1,134,579,519
Long-term investments 573,360 -- -- -- 573,360
Total fixed assets 778,334,776 2,096,913,040 547,902,493 450,779,210 3,873,929,519
Intangible assets -- 3,165,254 2,984,657 -- 6,149,911
Other long-term assets -- -- -- 2,172,375 2,172,375
Current liabilities (608,864,994) (172,629,389) (235,547,859) (130,345,177) (1,147,387,419)
Long-term loans (238,256,308) (1,600,697,920) (152,513,487) (170,781,058) (2,162,248,773)
--------------------------------------------------------------------------------------------------------------------------
Net assets 331,611,246 618,656,455 525,435,279 232,065,512 1,707,768,492
Equity interest acquired 70% 70% 44.16% 100%
--------------------------------------------------------------------------------------------------------------------------
Net assets acquired 232,127,872 433,059,517 232,032,219 232,065,512 1,129,285,120
Add: Equity investment difference 755,001,041
Add: Dividend declared by
the subsidiaries before the acquisition 184,123,839
Less: Direct cost of acquisition (18,410,000)
--------------------------------------------------------------------------------------------------------------------------
Total consideration 2,050,000,000
Add: Direct cost of acquisition
paid in 2002 17,042,492
Less: Cash inflow from the
acquired power plants (431,258,315)
-------------------------------------------------------------------------------------------------------------------------
Net cash outflow in 2002
on the acquisition 1,635,784,177
-------------------------------------------------------------------------------------------------------------------------
As disclosed in Note 1, on 15th November, 2002, the Company entered into an
agreement with Huaneng Group, pursuant which the Company agreed to pay Rmb415
million to acquire the 30% equity interest in Shanghai Shidongkou First Power
Plant and 5% equity interest in Taicang Power Company. The acquisition took
effect on 31st December, 2002. At the acquisition date, the assets,
liabilities and acquisition costs comprised:
-------------------------------------------------------------------------------------------------------------------------
Shanghai Shidongkou Taicang Power
First Power Plant Company Total
-------------------------------------------------------------------------------------------------------------------------
Total assets 2,052,742,969 2,311,273,470 4,364,016,439
Total liabilities (819,486,125) (1,578,332,610) (2,397,818,735)
-------------------------------------------------------------------------------------------------------------------------
Total net assets 1,233,256,844 732,940,860 1,966,197,704
Equity interest acquired 30% 5%
-------------------------------------------------------------------------------------------------------------------------
Net assets acquired 369,977,053 36,647,043 406,624,096
Add: Equity investment difference 12,698,656
Less: Direct costs of acquisition (4,322,752)
-------------------------------------------------------------------------------------------------------------------------
Total consideration 415,000,000
-------------------------------------------------------------------------------------------------------------------------
Net cash outflow in 2002 on the acquisition 415,000,000
-------------------------------------------------------------------------------------------------------------------------
(25) Other cash paid relating to operating activities
-------------------------------------------------------------------------------------------------------------------------
For the year ended
31st December, 2002
-------------------------------------------------------------------------------------------------------------------------
Cash paid for repair and maintenance expenses 608,390,504
Service fee paid to HIPDC 263,715,816
Others 826,262,551
-------------------------------------------------------------------------------------------------------------------------
1,698,368,871
-------------------------------------------------------------------------------------------------------------------------
6. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS
(1) Accounts receivable and other receivables
(i) Accounts receivable
------------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
------------------------------------------------------------------------------------------------------------
Accounts receivable 1,545,294,232 1,179,490,289
------------------------------------------------------------------------------------------------------------
Aging of the accounts receivable was as follows:
------------------------------------------------------------------------------------------------------------
31st December, 2002 31st December, 2001
------------------------------------------------------------------------------------------------------------
Aging Amount Percentage Amount Percentage
(%) (%)
------------------------------------------------------------------------------------------------------------
Within 1 year 1,540,674,232 100 1,179,490,289 100
1-2 years 4,620,000 -- -- --
------------------------------------------------------------------------------------------------------------
1,545,294,232 100 1,179,490,289 100
------------------------------------------------------------------------------------------------------------
All accounts receivable represented receivable from the local
power companies or provincial power companies for the sale of
electric power. Since these accounts receivable are collectible,
no bad debt was provided by the Company.
As at 31st December, 2002, the five largest accounts receivable of
the Company amounted to Rmb1,264,206,514 (31st December, 2001:
Rmb1,005,016,519), representing 81.81% of total accounts
receivable (31st December, 2001: 85.21%).
(ii) Other receivables
------------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
------------------------------------------------------------------------------------------------------------
Other receivables 102,299,280 118,522,520
Less: bad debt provision (21,104,202) (5,124,594)
------------------------------------------------------------------------------------------------------------
81,195,078 113,397,926
------------------------------------------------------------------------------------------------------------
Aging and bad debt provision for other receivables were as follows:
------------------------------------------------------------------------------------------------------------
31st December, 2002 31st December, 2001
------------------------------------------------------------------------------------------------------------
Bad debt Bad debt
Aging Amount Percentage provision Amount Percentage provision
(%) (%)
------------------------------------------------------------------------------------------------------------
Within 1 year 43,906,321 43 (1,317,190) 75,479,077 63 (2,264,372)
1-2 years 27,725,976 27 (831,779) 29,414,646 25 (882,439)
2-3 years 9,122,225 9 (273,667) 1,108,115 1 (33,243)
More than 3 years 21,544,758 21 (18,681,566) 12,520,682 11 (1,944,540)
------------------------------------------------------------------------------------------------------------
102,299,280 100 (21,104,202) 118,522,520 100 (5,124,594)
------------------------------------------------------------------------------------------------------------
Breakdown of other receivables was as follows:
------------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
------------------------------------------------------------------------------------------------------------
Prepayments for materials 24,534,432 35,214,155
Receivables from employees for sales of staff quarters 9,744,849 8,200,000
Others 68,019,999 75,108,365
------------------------------------------------------------------------------------------------------------
102,299,280 118,522,520
------------------------------------------------------------------------------------------------------------
As at 31st December, 2002, the five largest other receivables of
the Company amounted to Rmb45,783,552 (31st December, 2001:
Rmb41,121,147), representing 45% of total other receivables (31st
December, 2001: 35%).
See Note 7 for related party transactions.
As at 31st December, 2002 and 2001, there were no accounts
receivable and other receivables from shareholders who hold 5% or
more of the equity interest in the Company.
(2) Long-term investments
------------------------------------------------------------------------------------------------------------------------
1st January, Current year Current year 31st December,
2002 additions deductions 2002
------------------------------------------------------------------------------------------------------------------------
Long-term equity investments -
Equity investment difference* -- 843,555,690 (529,692,804) 313,862,886
Subsidiaries and associates (i) 1,087,454,774 1,462,395,823 (800,592,882) 1,749,257,715
Other long-term equity investment -- 254,989,551 -- 254,989,551
Others 8,813,417 -- (2,449,139) 6,364,278
------------------------------------------------------------------------------------------------------------------------
1,096,268,191 2,560,941,064 (1,332,734,825) 2,324,474,430
------------------------------------------------------------------------------------------------------------------------
Less: Current portion of other
long-term equity investments -- (25,160) -- (25,160)
------------------------------------------------------------------------------------------------------------------------
1,096,268,191 2,560,915,904 (1,332,734,825) 2,324,449,270
------------------------------------------------------------------------------------------------------------------------
* Please refer to Note 5(5) for details.
(i) Long-term equity investments in subsidiaries and an associate
------------------------------------------------------------------------------------------------------------
Investment cost
Investment 1st January, Current year Current year 31st December,
Name period 2002 additions deductions 2002
------------------------------------------------------------------------------------------------------------
Weihai Power Plant Indefinite 474,038,793 -- -- 474,038,793
Jining Power Plant* Indefinite 283,706,227 109,435,753 (393,141,980) --
Shanghai Shidongkou
First Power Plant** Indefinite -- 232,127,872 (232,127,872) --
Taicang Power
Company** Indefinite -- 469,706,560 -- 469,706,560
Rizhao Power Company 20 years 231,868,800 -- -- 231,868,800
Huaiyin Power Company** Indefinite -- 341,176,226 -- 341,176,226
------------------------------------------------------------------------------------------------------------
989,613,820 1,152,446,411 (625,269,852) 1,516,790,379
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Accumulated equity pick-up
1st January, Current year Income Current year 31st December,
Name 2002 profit/(loss) appropriation transfer out 2002
------------------------------------------------------------------------------------------------------------
Weihai Power Plant 73,939,602 169,655,397 (75,608,736) -- 167,986,263
Jining Power Plant* 29,282,075 4,357,821 -- (33,639,896) --
Shanghai Shidongkou
First Power Plant** -- 40,546,364 -- (40,546,364) --
Taicang Power Company** -- 79,999,084 -- -- 79,999,084
Rizhao Power Company (5,380,723) (25,528,034) -- -- (30,908,757)
Huaiyin Power Company** -- 15,390,746 -- -- 15,390,746
------------------------------------------------------------------------------------------------------------
97,840,954 284,421,378 (75,608,736) (74,186,260) 232,467,336
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Net carrying amount
1st January, 31st December,
Name 2002 2002
------------------------------------------------------------------------------------------------------------
Weihai Power Plant 547,978,395 642,025,056
Jining Power Plant* 312,988,302 --
Shanghai Shidongkou
First Power Plant** -- --
Taicang Power Company** -- 549,705,644
Rizhao Power Company 226,488,077 200,960,043
Huaiyin Power Company** -- 356,566,972
------------------------------------------------------------------------------------------------------------
1,087,454,774 1,749,257,715
------------------------------------------------------------------------------------------------------------
There was no significant difference in accounting policies used by
the investees and the Company. There was no significant
restriction on the realisability of the investments or the
remittance of investment income.
* As disclosed in Note 1, the Company acquired 25% interest of
Jining Power Plant on 18th June, 2002. Upon completion of the
acquisition, Jining Power Plant became a branch of the
Company.
** As disclosed in Note 1, the Company acquired 100% interest of
Shanghai Shidongkou First Power Plant, 75% equity interest of
Taicang Power Company and 63.64% equity interest of Huaiyin
Power Company in 2002.
(3) Long-term debt investments
------------------------------------------------------------------------------------------------------------------
1st January, Current year Current year 31st December,
2002 additions deductions 2002
------------------------------------------------------------------------------------------------------------------
Long-term entrusted loans
to a subsidiary* 728,698,046 -- (31,735,090) 696,962,956
Others 227,110 10,081,860 (171,200) 10,137,770
------------------------------------------------------------------------------------------------------------------
728,925,156 10,081,860 (31,906,290) 707,100,726
Less: Current portion of
entrusted loan (31,735,090) (256,300,000) 31,735,090 (256,300,000)
697,190,066 (246,218,140) (171,200) 450,800,726
------------------------------------------------------------------------------------------------------------------
* Long-term entrusted loan to a subsidiary
In order to finance the construction of Weihai Power Plant Phase II, the
Company had granted entrusted loans to Weihai Power Plant through financial
institutions on September, 1995. These loans were not secured nor guaranteed
and bore interests at 6.21% per annum. As at 31st December, 2002, these loans
were repayable in accordance with the following agreed schedules:
-----------------------------------------------------------------------------------------------------------------
Financial year Rmb
-----------------------------------------------------------------------------------------------------------------
2003 256,300,000
2004 440,662,956
-----------------------------------------------------------------------------------------------------------------
Total 696,962,956
-----------------------------------------------------------------------------------------------------------------
For the year ended 31st December, 2002, the Company received interest income
of approximately Rmb41.10 million (for the year ended 31st December, 2001:
Rmb43.13 million) from Weihai Power Plant. As at 31st December, 2002, the
outstanding entrusted loans, the related interest income and interest expense
were eliminated in the consolidated financial statements.
(4) Revenues from principal operations and costs of principal operations
-----------------------------------------------------------------------------------------------------------------------------
For the year ended For the year ended
31st December, 2002 31st December, 2001
-----------------------------------------------------------------------------------------------------------------------------
Revenues from Costs of Revenues from Costs of
principal operations principal operations principal operations principal operations
-----------------------------------------------------------------------------------------------------------------------------
Power sales 15,720,550,997 10,480,868,719 14,047,671,476 9,032,497,748
-----------------------------------------------------------------------------------------------------------------------------
The Company has contractual arrangements for the sale of electric power with
the local power companies or provincial power companies.
For the year ended 31st December, 2002 and 2001, the revenue from the five
largest customers of the Company amounted to Rmb11,939,005,458 and
Rmb10,874,413,218, representing 75.95% and 77.41% of the total revenue,
respectively.
(5) Investment income
-----------------------------------------------------------------------------------------------------------
For the year For the year
ended ended
31st December, 31st December,
2002 2001
-----------------------------------------------------------------------------------------------------------
Investment income on bonds 482,857 --
Investment income on entrusted loans 41,097,920 43,134,464
Investment income on other debt investments 421,286 24,036,340
Equity pick-up of subsidiaries and associate 284,421,378 116,107,127
Amortization of equity investment differences (37,750,053) --
-----------------------------------------------------------------------------------------------------------
288,673,388 183,277,931
-----------------------------------------------------------------------------------------------------------
There was no material restriction for the Company to obtain the remittance of
investment income.
7. RELATED PARTY TRANSACTIONS
(1) Related parties that can control/are controlled by the Company
-------------------------------------------------------------------------------------------------------------------------------
Type of Legal Registered Relationship with Principal
Name enterprise representative address the Company activities
-------------------------------------------------------------------------------------------------------------------------------
HIPDC Sino-foreign Li Xiaopeng No.2 Fuxingmen Parent Investment in power plants,
equity limited South Street, company development and investment in
liability company Xi Cheng District, other export-oriented
Beijing enterprises
Huaneng Group State-owned Li Xiaopeng A23 Fuxin Road, Ultimate Investment in power stations,
enterprise Haidian District, parent coal, minerals, railways,
Beijing company transportation, petrochemical,
energy-saving facilities, steel,
timber, cement and related
industries and others
Weihai Power Limited Wu Dawei No. 58 Haifu road, Subsidiary Power generation
Plant liability Economic
company Development Zone,
Weihai
Taicang Power Company Limited Yu Xinyang Jinjihupan, Subsidiary Power generation
liability Sanxing Road,
company Suzhou
Huaiyin Power Company Limited Liu Guoyue No. 291 Huaihai Subsidiary Power generation
liability West Road,
company Huaian
--------------------------------------------------------------------------------------------------------------------------------
(2) Registered capital and changes in registered capital of related parties
that can control/are controlled by the Company
-----------------------------------------------------------------------------------------------------------------------------
Name 31st December, 2002 and 2001
-----------------------------------------------------------------------------------------------------------------------------
HIPDC US$450,000,000
Huaneng Group Rmb1,900,000,000
Weihai Power Plant Rmb761,832,800
Taicang Power Company Rmb632,840,000
Huaiyin Power Company Rmb265,000,000
-----------------------------------------------------------------------------------------------------------------------------
(3) Equity shares and changes in equity shares held by parties that can
control/are controlled by the Company
-----------------------------------------------------------------------------------------------------------------------------
Name 1st January, 2002 Current year addition Current year deduction 31st December, 2002
Amount % Amount % Amount % Amount %
-----------------------------------------------------------------------------------------------------------------------------
HIPDC* 2,554,840,000 42.58 -- -- -- -- 2,554,840,000 42.58
Huaneng Group** 1,675,660,547 51.98 -- -- -- -- 1,675,660,547 51.98
Weihai Power Plant 457,103,040 60 -- -- -- -- 457,103,040 60
Taicang Power Company -- -- 632,840,000 75 -- -- 632,840,000 75
Huaiyin Power Company -- -- 168,646,000 63.64 -- -- 168,646,000 63.64
* In accordance with a shareholders' agreement entered into by certain
shareholders, during the operating period of the Company, the voting
rights of seven shareholders are given to HIPDC. Thus, HIPDC holds 70.4%
voting rights in shareholders' meetings.
** Huaneng Group holds 51.98% equity interest in HIPDC.
(4) Nature of related parties that does not control/are not controlled by the Company
------------------------------------------------------------------------------------------------------------
Name of related parties Relationship with the Company
------------------------------------------------------------------------------------------------------------
Huaneng Finance A subsidiary of Huaneng Group
WPDB Minority shareholder of Weihai Power Plant
China Huaneng International Trade
Economics Corporation ("CHITEC") A subsidiary of Huaneng Group
Rizhao Power Company An associate of the Company
------------------------------------------------------------------------------------------------------------
(5) Related party transactions
a. Pursuant to the relevant service agreements, HIPDC provides
transmission and transformer facilities to some of the power
plants of the Company and receives service fees. Such service fees
represent recoverable costs for rate setting purposes. The total
service fee paid to HIPDC for the year ended 31st December, 2002
was approximately Rmb264 million (2001: RMB307 million).
b. At the time of the formation of the Company, HIPDC paid
approximately Rmb148 million to obtain land use rights pertaining
to existing sites occupied by the five original operating plants
and transferred such land use rights to the Company at the same
amount. Payments to HIPDC for the land use rights are being made
in 10 equal, non-interest bearing, annual installments starting
from 1994. Such land use rights are recorded as intangible assets
in the balance sheets and amortised over 50 years according to the
land use rights terms.
c. In accordance with the leasing agreement entered into between the
Company and HIPDC, the land use rights of Shanghai Power Plant is
leased to the Company for a period of 50 years at an annual rental
payment of Rmb6 million. During the year ended 31st December,
2002, the Company paid rental amounting to Rmb6 million to HIPDC
(2001: RMB6 million).
d. Pursuant to a leasing agreement entered into amongst the Company,
HIPDC and Nanjing Investment, the land use right of Nanjing Power
Plant is leased to the Company for 50 years with an annual rental
payment of Rmb1.334 million.
e. Pursuant to a leasing agreement between the Company and HIPDC,
HIPDC agreed to lease its building to the Company as office for 5
years at an annual rental of Rmb25 million effective from 1st
January, 2000.
f. As described in Note 5(14)(i) and Note 5(14)(iii), certain bank
loans were on-lent from HIPDC and drawn from WPDB and Huaneng
Finance to the company and its subsidiaries.
g. As at 31st December, 2002, Huaneng Finance had granted short-term
loans amounting to Rmb200 million (2001: Rmb40 million) to the
Company and its subsidiaries. The interest rates of such loans are
not materially different from the prevailing market interest rate
(see Note 5(10)).
h. As at 31st December, 2002, long-term bank loans of approximately
Rmb5,544 million, Rmb1,140 million and Rmb280 million were
guaranteed by HIPDC, Huaneng Group and WPDB, respectively (2001:
Rmb8,868 million, Rmb1,666 million and Rmb300 million
respectively) (see Note 5(14)).
i. As described in Note 8, certain long-term bank loans of Rizhao
Power Company, Weihai Power Plant, Taicang Power Company and
Huaiyin Power Company were guaranteed by the Company.
j. In accordance with an equipment import agency service agreement
entered into between Shandong Huaneng Power Development Co., Ltd
("Shandong Huaneng") and CHITEC, the Company is required to pay an
agency fee at 0.5% of the value of imported equipment in return
for the agency service provided by CHITEC. For the year ended 31st
December, 2002, the Company paid an agency fee to CHITEC amounted
to Rmb3 million for equipment transportation and insurance service
received (2001: Rmb32 million)
k. As at 21st June, 2002, Weihai Power Plant, the subsidiary of the
Company, proposed dividend for the year ended 31st December, 2001
after the approval of the shareholders at the general meeting. The
dividend to be distributed to WPDB, the minority interest of the
Weihai Power Plant, amounted to Rmb50,405,824.
l. On 18th July, 2000, the Company and Shandong Huaneng entered into
an agreement under which the Company acquired the net assets of
Shandong Huaneng in which Huaneng Group held 33.09% equity
interest. The shareholders of Shandong Huaneng were entitled to
Rmb1.34 per ordinary A share or US$0.1618 per ordinary N share.
The total consideration of the acquisition paid was approximately
Rmb5,768 million, among which, approximately Rmb1,909 million was
paid to Huaneng Group.
m. On 9th May, 2002, the Company entered into an agreement with
Huaneng Group under which the Company agreed to acquire from
Huaneng Group 70% equity interest in Shidongkou First Power Plant,
70% equity interest in Taicang Power Company, 44.16% equity
interest in Huaiyin Power Company and all of the assets and
liabilities of Changxing Power Plant. The total consideration for
the acquisition of the four power plants was Rmb2,050 million. The
Company used internal fund to pay for the acquisition.
n. On 15th November, 2002, the Company entered into an agreement with
Huaneng Group under which the Company agreed to acquire from
Huaneng Group the remaining 30% equity interest in Shidongkou
First Power Plant and additional 5% equity interest in Taicang
Power Company. The total consideration for the acquisition of
additional interest of two power plants was Rmb415 million. The
company used cash to pay for the acquisition.
o. On 6th November, 2002, the Company has entered into a management
service agreement with Huaneng Group and HIPDC. Under the
management service agreement, the Company will assist in managing
certain power plants owned by Huaneng Group and HIPDC for a
service fee. As at 31st December, 2002, the Company had not yet
commenced its management service and therefore no management
service income was recognised for the year.
(6) Cash deposited in the related parties
----------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
----------------------------------------------------------------------------------------------------------
Deposited in Huaneng Finance:
- Current deposit 2,376,197,356 64,155,874
- Fixed deposit 570,000,000 3,689,384,421
----------------------------------------------------------------------------------------------------------
2,946,197,356 3,753,540,295
----------------------------------------------------------------------------------------------------------
The interest of the current deposit and fixed deposits placed with Huaneng
Finance were from 0.72% to 1.44% and 1.71%, respectively.
(7) Account receivable from/account payable to related parties
-------------------------------------------------------------------------------------------------------------
31st December, 2002 31st December, 2001
Amount Percentage Amount Percentage
-------------------------------------------------------------------------------------------------------------
Interest receivable:
Deposit interest receivable
from Huaneng Finance 1,630,137 42.98% 3,523,282 21.54%
-------------------------------------------------------------------------------------------------------------
Other payable:
Due to HIPDC 100,475,344 4.41% 36,584,373 2.67%
-------------------------------------------------------------------------------------------------------------
The balance with HIPDC was unsecured, non-interest bearing and repayable
within one year.
8. CONTINGENT LIABILITY
-------------------------------------------------------------------------------------------------------------
31st December, 2002
The Company
and
Item its subsidiaries The Company
-------------------------------------------------------------------------------------------------------------
Guarantee for loan facilities granted to Rizhao Power Company 399,250,000 399,250,000
Guarantee for loan facilities granted to Weihai Power Plant -- 330,000,000
Guarantee for loan facilities granted to Taicang Power Company -- 1,480,705,760
Guarantee for loan facilities granted to Huaiyin Power Company -- 35,000,000
-------------------------------------------------------------------------------------------------------------
399,250,000 2,244,955,760
-------------------------------------------------------------------------------------------------------------
Guarantee for loan facilities granted to Rizhao Power Company, Weihai Power
Plant, Taicang Power Company and Huaiyin Power Company by the Company had no
significant financial impact on the Company's operation.
9. OBLIGATION AND COMMITMENTS
Commitments mainly relate to the construction of electric generation
facilities, renovation projects for existing power plants and the purchase of
coal. Capital commitment and coal purchase commitment amounting to Rmb2.66
billion was not included in the consolidated balance sheet of the Company and
its subsidiaries as at 31st December, 2002.
The Company had various operating lease arrangements with HIPDC for land and
buildings. Total future minimum lease payments under non-cancelable operating
leases were as follows:
-----------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
-----------------------------------------------------------------------------------------------
Land and buildings
- within one year 32,334,000 32,334,000
- between one year and two years 32,334,000 32,334,000
- between two years and three years 7,334,000 32,334,000
- after three years 306,362,000 313,696,000
-----------------------------------------------------------------------------------------------
378,364,000 410,698,000
-----------------------------------------------------------------------------------------------
In accordance with a 30-year operating lease agreement signed by the Dezhou
Power Plant and Shandong Land Bureau for the land occupied by Dezhou Phase I
and Phase II in June, 1994, annual rental is approximately Rmb29.874 million
effective from June, 1994 and is subject to revision at the fifth year since
the contract date. Thereafter, the annual rental is subject to revision once
every three years. The increment for each rental revision is restricted to no
more than 30 percent of the previous annual rental amount. For the year ended
31st December, 2002, the rental was Rmb29,884,933.
10. INTEREST RATE SWAP CONTRACT
The Company entered into interest rate swap agreements with Bank of China to
convert certain floating rate bank loans into fixed rate debts of the same
principal amounts and for the same maturities to hedge against interest rate
risk. As at 31st December, 2002, the notional amount of the outstanding
interest swap agreements were approximately US$51.66 million.
11. SUBSEQUENT EVENT
On 28th January, 2003, the Company entered into an investment agreement with
Shenzhen Investment Holding Corporation and Shenzhen Energy Group Co., Ltd.
("SEG"), pursuant to which the Company agreed to subscribe equity interest
representing 25% of SEG's share capital for a total consideration of Rmb2,390
million.
12. RECLASSIFICATION OF COMPARATIVE FIGURES
Certain prior year comparative figures have been reclassified to conform to
the current year presentation.
Supplemental Information
For the year ended 31st december, 2002
(prepared on consolidation basis;
all amounts are stated in Rmb Yuan unless otherwise stated)
NET PROFIT AND NET ASSETS RECONCILIATION BETWEEN PRC GAAP AND IFRS
The financial statements, which are prepared by the Company and its
subsidiaries in conformity with PRC GAAP, differ in certain respects from IFRS
(audited by PricewaterhouseCoopers Certified Public Accountants). Major
differences between PRC GAAP and IFRS which affect the net income and net
assets of the Company and its subsidiaries are summarized as follows:
Net Income
------------------------------------------------------------------------------------------------------------------------
For the year ended For the year ended
31st December 31st December,
2002 2001
------------------------------------------------------------------------------------------------------------------------
Net income under PRC GAAP 4,082,350,589 3,636,064,244
Impact of IFRS adjustments:
Effect of recording deferred revenue based on rate
making process (a) (212,755,386) (177,982,374)
Difference in the basis of determining the
amount of materials and supplies (b) 3,078,998 2,180,035
Difference in the recognition policy on
housing benefits to the employees of the Company (c) 6,457,886 5,271,603
Difference in accounting treatment of
amortized cost of the liability component
and put option relating to the convertible notes (d) (35,957,003) --
Difference in capitalization of borrowing costs (e) 88,411,906 --
Difference in the recognition of financial liabilities (f) 2,179,464 (14,875,452)
Applicable deferred tax impact of the above GAAP differences (h) (10,457,892) --
Others (2,305,261) --
------------------------------------------------------------------------------------------------------------------------
Net income under IFRS 3,921,003,301 3,450,658,056
------------------------------------------------------------------------------------------------------------------------
Net Assets
------------------------------------------------------------------------------------------------------------------------
31st December, 31st December,
2002 2001
------------------------------------------------------------------------------------------------------------------------
Net assets under PRC GAAP 29,169,476,868 27,125,564,005
------------------------------------------------------------------------------------------------------------------------
Impact of IFRS adjustments:
Effect of recording deferred revenue based
on rate making process (a) (939,563,594) (726,808,208)
Difference in the basis of determining the
amount of materials and supplies (b) (17,382,687) (20,461,684)
Difference in the recognition policy on housing
benefits to the employees of the Company (c) 89,985,012 83,527,126
Difference in accounting treatment of
convertible notes (d) 510,506,379 510,506,379
Adjustment relating to convertible notes arising
from initial adoption of IAS 39 (d) (463,920,605) (463,920,605)
Difference in accounting treatment of amortized
cost of the liability component and put option
relating to the convertible notes (d) (36,086,925) --
Difference in capitalization of borrowing costs (e) 88,411,906 --
Difference in the recognition of financial liabilities (f) (12,695,988) (14,875,452)
Dividend in respect of the year but declared
after the end of the year (g) 2,040,093,146 1,800,000,000
Applicable deferred tax impact of the above
GAAP differences (h) (10,457,892) --
Others (2,305,261) --
------------------------------------------------------------------------------------------------------------------------
Net assets under IFRS 30,416,060,359 28,293,531,561
------------------------------------------------------------------------------------------------------------------------
(a) Recording deferred revenue based on rate making process
Under the rate making process applicable to the Company and its subsidiaries
(except for power plants acquired in 2001 and 2002), major repair and
maintenance expenses determined on the basis of 1% of the fixed asset cost is
recovered through the current power rates. The Company estimates that, over
the useful life of its power plants, this basis would approximate the total
expenses for major repair and maintenance expenses actually incurred. In a
particular year, to the extent that the actual repair and maintenance expenses
incurred is less than the amount determined on the above basis, the difference
represents revenue collected in excess of actual expenses incurred. Such
difference is recorded as deferred revenue under IFRS. For PRC statutory
financial reporting purposes, in accordance with the requirement of PRC GAAP,
no such amount is recorded and revenue is determined and recognized based on
the actual amount of electricity transmitted to the grid and the prevailing
approved power rates.
(b) Difference in the basis of determining the amount of material and supplies
Under PRC GAAP, materials and supplies have been restated to the appraised
value determined by independent valuer during the reorganization of the five
original operating plants in 1994 and the appraised value has been used as the
basis in determining the amount charged to operating expenses upon actual
utilization. Under IFRS, materials and supplies are charged to operating
expenses at cost based on actual utilization.
(c) Difference in the recognition policy on housing benefits to the employees
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. Under IFRS, the
housing benefits provided by the Company are recognized on a straight-line
basis over the estimated remaining average service lives of the employees.
(d) Accounting treatment of convertible notes
Under PRC GAAP, the Company had accrued for the put premium liability together
with the interest payable on the notes using the effective interest rate of
6.66% as at 21st May, 2002. As at 21st May, 2002, all accrued put premium of
unredeemed notes was charged to the income statement as reversal of interest
expense.
Under IFRS, the proceeds received on the issue of the convertible notes were
allocated into liability and equity components. Upon initial recognition, the
liability component represented the present value, at the issuance date, of
the contractually determined stream of cash flows discounted at the market
interest rate for instruments of comparable credit status providing
substantially the same cash flows, on the same terms, but without the
conversion option. The equity component was then determined by deducting the
liability component from the proceeds received on the issue of the notes.
Under PRC GAAP, the entire proceeds of the issue of convertible notes were
recorded as long-term liabilities without distinguishing between the equity
and liability components.
In accordance with IAS 39, which was effective on 1st January, 2001, the put
option of the convertible notes, which allowed the noteholders to redeem the
convertible notes at a premium, was separated from the host contract and
accounted for as an embedded derivative. This put option was recorded as a
liability and measured at its fair value. When IAS 39 was initially applied in
2001, the difference between the previous carrying amount and the fair value
of the put option was recognised as an adjustment to the opening retained
earnings as at 1st January, 2001. In addition, the liability component was
measured at amortized cost and the resulting difference with the previous
carrying amount was recognised as an adjustment to the opening retained
earnings as at 1st January, 2001. After initial recognition, subsequent
changes in the value of the put option and the amortised cost of the liability
component were charged or credited to the income statements.
(e) Capitalization of borrowing costs
Under PRC GAAP, the capitalization of interests is limited to specific
borrowings. No interest can be capitalized on general borrowings.
In accordance with IAS 23, the Company capitalized interests on general
borrowings used for the purpose of obtaining a qualifying asset in addition to
the capitalization of interests on specific borrowings.
(f) Accounting treatment of financial liability
The Company enters into interest rate swap agreements with local banks to
convert certain floating rate debts of the same principal amounts and for the
same maturities to hedge against interest rate risk. As at 31st December,
2002, the notional amount of the outstanding interest rate swap agreement was
approximately US$52 million. For the year ended 31st December, 2002, there was
a gain amounted to approximately Rmb2.2 million arising from changes in the
fair value of the interest rate swaps. Under PRC GAAP, such interest swap
contracts are considered and disclosed as off balance sheet items. Under IFRS,
derivative instruments are recorded as either assets or liabilities in the
balance sheet at fair value, which is determined based on market conditions at
each balance sheet date. Changes in the fair value of derivatives are recorded
each period in current earnings or recognized directly in equity through the
statement of changes in shareholder's equity, depending on whether a
derivative is designated as part of a hedge transaction and the type of hedge
transaction. Since the hedging relationship does not meet all of the
conditions required for special hedge accounting as set out in IFRS 39, such
gain was credited to the income statement in current period.
(g) Dividend appropriation
Under PRC GAAP, dividends proposed or declared after the balance sheet date
but before the date when the financial statements are authorized for issue are
deducted from the undistributed profit and recognize as a liability as at the
balance sheet date. Under IFRS, the dividends are recorded in the year in
which the dividends are declared.
(h) Deferred tax impact
This represents deferred tax effect on the above GAAP differences where
applicable.
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
undersigned, thereunto duly authorized.
HUANENG POWER INTERNATIONAL, INC.
By /s/ Wang Xiaosong
--------------------------------
Name: Wang Xiaosong
Title: Vice Chairman
Date: April 14, 2003