FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August, 2005
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
----- -----
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
----- -----
(If "Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g3-2(b): 82-__________. )
N/A
Huaneng Power International, Inc.
West Wing, Building C, Tianyin Mansion
No. 2C Fuxingmennan Street
Xicheng District
Beijing, 100031 PRC
This Form 6-K consists of:
2005 Interim Report of Huaneng Power International, Inc. (the "Registrant"),
made by the Registrant in English on August 22, 2005.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
under-signed, thereunto duly authorized.
HUANENG POWER INTERNATIONAL, INC.
By /s/ Huang Long
--------------
Name: Huang Long
Title: Director
Date: August 22, 2005
CONTENTS 2005 Interim Report
2 Interim Results
2 Business Review for the First Half of the Year
4 Prospects for the Second Half of the Year
4 Operating Results
14 Share Capital Structure
14 Purchase, Sale or Redemption of Shares
15 Shareholding Structure
17 Directors' and Supervisors' Right to Purchase Shares
17 Dividends
17 Major Events
18 Corporate Governance
22 Legal Proceedings
23 Documents for Inspection
Prepared in accordance with International Financial Reporting Standards
24 Condensed Consolidated Interim Balance Sheet (Unaudited)
27 Condensed Consolidated Interim Statement of Income (Unaudited)
28 Condensed Consolidated Interim Statement of Changes in Shareholders' Equity
(Unaudited)
29 Condensed Consolidated Interim Statement of Cash Flows (Unaudited)
30 Notes to the Condensed Consolidated Interim Financial Statements
(Unaudited)
61 Supplemental Information for North American Shareholders (Unaudited)
Prepared in accordance with PRC Accounting Standards
68 Balance Sheet (Unaudited)
70 Profit and Loss Accounts (Unaudited)
72 Statement of Income Appropriation (Unaudited)
73 Cash Flow Statement (Unaudited)
76 Notes to the Financial Statements (Unaudited)
159 Supplemental Information (Unaudited)
INTERIM RESULTS
The Board of Directors of Huaneng Power International, Inc. (the "Company")
announces the unaudited operating results for the six months period ended 30th
June, 2005 (the "Accounting Period") and a comparison with the operating
results for the same period of 2004. For the six months period ended 30th June,
2005, the Company recorded a net operating revenue of Rmb18.800 billion and a
net profit attributable to the equity holders of the Company of Rmb1.679
billion, representing an increase of 45.02% and a decrease of 32.32%
respectively as compared to the same period of 2004. Earnings per share was
Rmb0.14 and net asset value per share (excluding minority interest) was
Rmb3.00.
In the first half year, the Company still achieved good performance on its safe
operation, and its generation and sales still maintained high growth. However,
since the unit fuel cost increased substantially as a result of continued rises
of coal prices and decline in coal quality, the Company's profit decreased
substantially. Please refer to the unaudited financial information below for
details of the operating results.
BUSINESS REVIEW FOR THE FIRST HALF OF THE YEAR
During the first half of 2005, the Company's management and all the staff
worked hard together in seizing the opportunities of rapid growth in power
consumption brought about by the rapid and steady growth of the national
economy. The challenges from the rise of coal prices and the decline of coal
quality were dealt with in a conscientious manner. Facing increasing
competition in the power market, the management and all staff of the Company
strived to do their utmost, thereby having overcome the difficulties and
completed the tasks set for the first half of 2005. The Company achieved good
progress in terms of safe generation, project construction, operation
management and preparation work of projects. The Company continued to expand,
and as at 30 June, 2005, the Company's power generation capacity on an equity
basis amounted to 21,653MW.
Power Generation
During the first half of this year, the power plants of the Company achieved
power generation totalling 71.843 billion kWh on a consolidated basis,
representing an increase of 47.1% over the same period last year. The growth of
power generation was mainly attributable to power generation contributed by
Luohuang Power Plant, Yueyang Power Plant, Yingkou Power Plant and Jinggangshan
Power Plant acquired in July, 2004 and Pingliang Power Plant and Sichuan Hydro
Power acquired in January, 2005, and by the stable generation capacity created
by the six new generating units of Yushe Power Plant, Qinbei Power Plant and
Huaiyin Power Plant. On the other hand, continued growth of power demand in the
regions where the Company's power plants are located and sound and stable
operation of its generating units also provided the conditions for the Company
to boost its power generation.
The overall performance of the Company's safe operation improved when compared
to the same period last year. Maintainence plans were conducted regularly and
various index parameters of the generating units remained at relatively good
levels, thus creating conditions for boosting power generation.
2
Cost Controls
During the first half of 2005, the previously tight supply of thermal coal has
been eased. However, continued high coal prices, declining coal quality and
increase in marine and railway transportation charges had brought about
significant impact on the generation and operation of the Company to various
degrees. Despite the relatively significant increase in power generation from
new generating units as compared to the same period last year and the Company's
implementation of various measures on cost controls, the increase in power
generation costs brought about by the rise in coal prices could not be relieved.
The unit fuel cost of the Company for the first half of the year increased by
22% when compared to the same period last year. Facing such unfavourable
conditions, the Company proactively undertook relevant measures to expand major
coal supply channels, to adjust the coal supply structure and to contain
purchase prices whilst enhancing the settlement rate of major coal contracts. To
a certain extent, the adverse effect brought about by the increase in coal
prices upon the Company was minimized, under the premises that safe generation
and coal consumption was ensured.
Project Development and Construction
The Company made smooth progress on its infrastructure construction and
preparation work of its power projects.
(1) 2 x 330MW coal-fired generating units of Huaiyin Power Plant and two
hydroelectric power stations of Jialingjiang Qingju and Fujiang Ziyili
under Sichuan Hydro Power commenced commercial operation during the first
half of the year, adding new power generation capacity on an equity basis
amounting to 539MW.
(2) The Shanghai Combined-Cycle-Gas-Turbine project has been confirmed by and
registered with the State.
(3) The projects-under-construction and other planned projects of the Company
progressed smoothly.
Asset Acquisition
On 26th May, 2005, the Company entered into a transfer agreement with Jiangsu
Yueda Investment Company Limited ("Jiangsu Yueda"). Pursuant to the transfer
agreement, the Company agreed to acquire 26.36% equity interest in Huaiyin Power
Plant Phase I (2 x 220MW coal-fired generating units) from Jiangsu Yueda for
RMB200.6 million (pursuant to the acquisition agreement, should there be any
appropriation or distribution of dividends declared before the effective
acquisition date, consideration should be deducted simultaneously. Hence,
dividends declared before effective acquisition date of RMB19.4 million was
deducted from the consideration of RMB220 million), and on 28th June 2005 the
Company paid the consideration by using cash. After completion of the
transaction, the Company owns 90% equity interest in Huaiyin Power Plant Phase I
which has increased the Company's power generation capacity on an equity basis
by 116MW. The remaining 10% equity interest is owned by Jiangsu Power
Development Company Limited.
3
PROSPECTS FOR THE SECOND HALF OF THE YEAR
In the second half of year 2005, the national economy will continue to maintain
steady and rapid development which will bring about stable and rapid growth in
power demand, thus providing favourable market conditions for the Company to
continue a steady increase in power generation; the "Coal-electricity price
linkage mechanism" adopted by the State brought about an increase in the
Company's settlement tariff levels, which could reduce the negative impact of
surges in coal prices on the generation and operation of the Company. Currently,
the problem of coal supply has aroused great concern of the relevant government
departments while a series of new policies and measures has been issued.
Gradually as a result of the State's macro-economic control measures, the
problem of coal shortage has been alleviated and the average inventory has
increased. The Company is confident that it will capitalize on the favourable
conditions in the coal market in the second half year to enhance the contract
settlement rate, improve the coal quality, proactively explore new sources of
coal supply, and reduce transportation costs. The Company will keep a close eye
on the international market and by ensuring an effective and timely supply of
fuel, it will endeavour to reduce fuel costs and to complete various tasks set
for the year.
The main tasks for the second half of the year include:
1. to ensure safe operation of all power plants and to strive to increase
power generation;
2. to strengthen fuel cost control and contain the range of increase of unit
fuel costs;
3. to reinforce sales and marketing and cost control efforts, to ensure an
increase in revenue and a reduction in expenses, and to strive to raise the
average settlement tariff level;
4. to ensure the high-quality commencement of 1 x 600MW coal-fired generating
unit at Shantou Power Plant Phase II and 1 x 600MW coal-fired generating
unit at Taicang Power Plant Phase II at the end of the year, and to
continue to actively carry out preparation work of other proposed projects.
OPERATING RESULTS
Comparison and Analysis of Operating Results
Comparison of operating results of the first half of 2005 vs those of the first
half of 2004:
SUMMARY
Compared to the same period last year, power generation and operating revenue
increased substantially because of the expansion of the Company's operating
scale as a result of newly acquired power plants and new generating units.
However, due to continuous increase in coal prices, gross profit of the Company
and its subsidiaries decreased significantly. The net profit decreased by 32.32%
when compared to the same period last year.
4
Net operating revenue
For the first half of 2005, consolidated net operating revenue of the Company
and its subsidiaries was RMB18.800 billion, representing an increase of 45.02%
from RMB12.964 billion in the same period last year.
The increase in net operating revenue was attributable to the newly acquired
power plants, new generating units and the increase in the average settlement
tariff rates of the remaining power plants that existed on or before 30th June,
2004 (the "existing power plants"). During the period from July, 2004 to June,
2005, the Company acquired Liaoning Yingkou Power Plant (100% equity interest),
Jiangxi Jinggangshan Power Plant (100% equity interest), Hunan Yueyang Power
Plant (55% equity interest), Chongqing Luohuang Power Plant and Jiangbei Power
Plant (both 60% equity interests), Hebei Hanfeng Power Plant (40% equity
interest), Gansu Pingliang Power Plant (65% equity interest) and Sichuan
Hydropower (60% equity interest). Furthermore, Henan Qinbei Power Plant (55%
equity interest), Shanxi Yushe Phase II (60% equity interest), Jiangsu Huaiyin
Phase II (63.64% equity interset) and the two hydro power stations (Fujiang
Ziyili Power Plant and Jialingjiang Qingju Power Station) owned by Sichuan
Hydropower (60% equity interest) came into commercial operation. The acquisition
of power plants, the commercial operation of new generating units and the
increase of the average settlement tariff rates of the existing power plants as
a result of the coal-electricity price linkage mechanism have led to increases
of consolidated net operating revenue by RMB3.908 billion, RMB1.557 billion and
RMB489 million respectively. The slight decrease in sale volume of existing
power plants led to a decrease of the consolidated net operating revenue by
RMB118 million.
Operating expenses
For the first half of 2005, total operating expenses of the Company and its
subsidiaries were approximately RMB16.132 billion, representing an increase of
approximately 65.10% from RMB9.771 billion in the same period last year.
The increase of operating expenses was attributable to the newly acquired power
plants, new generating units that came into operations and the increase in fuel
costs. The acquisition of power plants and the commercial operation of new
generating units led to increases of total operating expenses of RMB3.148
billion and RMB1.404 billion respectively. Without taking into account the
impact of acquisition and the new generating units, operating expenses increased
by RMB1.809 billion compared to the same period last year.
5
Fuel costs
Fuel costs constituted the major operating costs of the Company and its
subsidiaries. In the first half of 2005, fuel costs amounted to approximately
RMB10.354 billion, representing an increase of approximately 71.80% from
approximately RMB6.027 billion in the same period last year. The increase in
fuel costs was mainly due to the expansion of the Company's operating scale and
the rise of fuel prices. Newly acquired power plants and new generating units
caused increases of approximately RMB1.708 billion and RMB981 million of fuel
costs respectively. The rise of fuel price led to an increase of fuel costs for
existing power plants by approximately RMB1.693 billion. As power generation of
existing power plants decreased slightly, their fuel costs decreased by RMB55
million.
As the average unit price of natural coal was RMB339.43 per tonne, representing
an increase of 16.96% from approximately RMB290.22 in the same period last year,
the unit fuel costs reached RMB158.63MWh, representing an increase of 21.98%.
Depreciation
Depreciation expenses of the Company and its subsidiaries for the first half of
2005 amounted to RMB3.174 billion, representing an increase of approximately
49.42% from RMB2.124 billion in the same period last year. The increase of
depreciation expenses was mainly due to the newly acquired power plants and the
new generating units that came into commercial operations. The newly acquired
power plants and the new generating units brought about increases of
depreciation expenses by approximately RMB867 million and RMB232 million
respectively.
Labor costs
Labor costs of the Company and its subsidiaries amounted to approximately
RMB1.130 billion in the first half of 2005, representing an increase of
approximately RMB331 million from approximately RMB799 million in the same
period last year. Among the increase, the newly acquired power plants and the
new generating units caused increases of labour costs by approximately RMB208
million and RMB56 million respectively.
Other operating expenses
Other operating expenses of the Company and its subsidiaries amounted to
approximately RMB797 million in the first half of 2005, representing an increase
of approximately RMB492 million from approximately RMB305 million in the same
period last year. Among the increase, newly acquired power plants and the new
generating units caused increases of other operating expenses by approximately
RMB195 million and RMB95 million respectively.
6
Financial expenses, net
The net financial expenses of the Company and its subsidiaries totaled
approximately RMB605 million in the first half of 2005, representing an increase
of approximately 166.85% from approximately RMB227 million in the same period
last year. The financial expenses of the newly acquired power plants and the new
generating units amounted to approximately RMB179 million (among which, the
depreciation of Euro in the first half of 2005 brought about an exchange gain of
approximately RMB101 million to Luohuang Power Plant) and RMB134 million
respectively. The financing for acquisitions led to an increase of approximately
RMB120 million of financial expenses while the financial expenses for existing
power plants decreased by approximately RMB55 million.
Share of profit of associates
The share of profit of associates of the Company and its subsidiaries in the
first half of 2005 amounted to approximately RMB239 million, including
investment income from Shenzhen Energy Group ("SEG"), Hanfeng Power Company and
Rizhao Power Company of approximately RMB112 million, RMB100 million, RMB25
million respectively.
Income tax expenses
There was no change in the preferential income tax treatment applied to the
Company and its subsidiaries. During the first half of 2005, the income tax of
the Company and its subsidiaries amounted to RMB349 million, representing a
decrease of 30.62% from approximately RMB503 million in the first half year of
2004. The main reason for such a decrease was the decrease of the profitability
of the Company.
Net profit (excluding minority interest)
The consolidated net profit of the Company and its subsidiaries in the first
half of 2005 was RMB1.679 billion, representing a decrease of approximately
32.32% from RMB2.481 billion in the first half of 2004. The main reason for the
decrease of net profit was due to the substantial increase of the operating
costs of the Company and its subsidiaries in the first half of 2005. Although
the expansion of the Company's operating scale in the first half of 2005
contributed to a substantial increase in net operating revenue of the Company
and its subsidiaries compared with the same period last year, the increase in
net operating revenue could not offset the increases of the operating costs due
to the rise of fuel costs and depreciation expenses.
7
Comparison of financial positions
As at 30th June, 2005, total assets of the Company and its subsidiaries amounted
to approximately RMB92.426 billion, which represented an increase of
approximately 26.99% from approximately RMB72.780 billion last year. Non-current
assets increased by approximately 26.53% to approximately RMB79.871 billion
while current assets increased by approximately 30.06% to approximately
RMB12.555 billion. Acquisitions and capital expenditure on construction projects
primarily accounted for the increases in total assets and non-current assets
with the additional total assets being obtained through acquisitions in the
current period amounting to approximately RMB14.169 billion, including
non-current assets of RMB12.637 billion.
Total capital expenditure (primarily spending on construction and renovation
projects), amounted to approximately RMB5.731 billion, with its main source of
financing being from bank borrowings.
Comparison of key financial ratios
The Company and its subsidiaries
Item 30th June, 2005 31st December, 2004
---------------------------------------------
Debt to equity ratio 1.40 0.92
Current ratio 0.54 0.58
Quick ratio 0.43 0.49
For the
six months ended For the year ended
30th June, 2005 31st December, 2004
---------------------------------------------
Multiples of interest earned 3.18 7.23
Calculation formula of the financial ratios:
Debt to equity ratio = Balance of liabilities at the end of the period/balance of
shareholders' equity (excluding minority interest) at the end of the
period
Current ratio = Balance of current assets at the end of the period/balance of current
liabilities at the end of the period
Quick ratio = (balance of current assets at the end of the period - balance of
inventories at the end of the period)/balance of current liabilities at
the end of the period
Multiples of interest earned = (profit before tax + interest expenses)/interest expenditure (including
capitalized interest)
8
The current ratio and quick ratio of the Company and its subsidiaries decreased
compared to last year mainly due to increased capital expenditure and the cash
consideration paid during acquisitions. These factors contributed to an increase
in current liabilities.
The debt to equity ratio of the Company and its subsidiaries increased
significantly primarily because of the increase in current liabilities and
long-term loans.
The multiples of interest earned of the Company and its subsidiaries decreased
from that of the same period last year mainly due to an increase in interest
expenses (including capitalized interest) on loans borrowed to finance
construction as well as reduced profitability.
During the first half of 2005, a significant portion of funding requirements of
the Company and its subsidiaries for capital expenditure was met by short-term
borrowings. The Company and its subsidiaries have used low-interest short-term
borrowings to replace the high-interest long-term loans in order to minimize
interest expenses. Consequently, as at 30th June, 2005, the Company and its
subsidiaries had net current liabilities of approximately RMB10.552 billion.
Based on the successful financing history of the Company and its subsidiaries,
the significant amount of undrawn banking facilities available to the Company
and the support of operating results, the Company and its subsidiaries believe
that it is able to meet their liabilities as and when they fall due, and that
they will be able to obtain long-term loans so as to meet the capital required
for operations.
Liquidity and Cash Resources
Liquidity
For the six months ended
30th June,
2005 2004 Variance
RMB billion RMB billion %
-----------------------------------------
Net cash provided by operating activities 1.972 3.823 (48%)
Net cash used in investing activities (7.065) (3.883) 82%
Net cash provided by financing activities 5.522 2.452 125%
-------------------------------
Net increase in cash and cash equivalents 0.429 2.392 (82%)
Cash and cash equivalents, beginning of period 2.296 4.129 (44%)
-------------------------------
Cash and cash equivalents, end of period 2.725 6.521 (58%)
===============================
9
The net cash provided by operating activities amounted to RMB1.972 billion in
the first half of 2005 which was lower than that of last year. This was mainly
due to the significant increase in fuel costs which led to the cash generated
from operations less than the cash paid for the operations. It is anticipated
that the net cash provided by operating activities remains the main source of
cash for the Company and its subsidiaries.
Net cash used in investing activities mainly consisted of capital expenditure
for the construction projects and cash paid for acquisitions of power plants.
Net cash flows from financing activities consisted mainly of repayments of
loans, dividend payments and new financing projects. In the first half of 2005,
the Company repaid RMB8.852 billion of loans, paid off RMB3.184 billion of
dividends but took out new loans of RMB12.674 billion and issued short-term
bonds of RMB4.862 billion.
Capital expenditure and cash resources
Capital expenditure
Capital expenditure on acquisitions
In January, 2005, the Company paid a cash consideration of approximately
RMB2.025 billion to acquire a 65% equity interest in the Gansu Huaneng Pingliang
Power Generation Limited Liability Company ("Pingliang Power Company") and a 60%
equity interest in Sichuan Huaneng Hydropower Development Corporation, Ltd.
("Sichuan Hydropower"). The acquisitions enabled the Company to achieve the
marketing development strategy of "consolidating positions in the coastal
regions, expanding into Central China and entering West China". This is also one
of the milestones of the Company in realizing the development strategy of
"combining hydro and coal-fired power", and represents a continuation of the
established strategy of a balance between development and acquisitions.
In June, 2005, the Company paid a cash consideration of RMB200.6 million to
Jiangsu Yueda to acquire a 26.36% equity interest in Huaiyin Power Plant Phase
I. Upon the completion of the acquisition, the Company's interest in Huaiyin
Power Plant Phase I increased to 90%, with an increase of generation capacity of
116MW on an equity basis.
Capital expenditure on construction and renovation
The capital expenditure of the Company and its subsidiaries in the first half of
2005 amounted to approximately RMB5.731 billion, including RMB5.425 billion for
construction projects and RMB306 million for renovation projects.
10
Capital expenditure on construction mainly included RMB994 million for Yuhuan
project, RMB890 million for Taicang Phase II project, RMB678 million for Sichuan
Hydropower, RMB459 million for Shantou Coal-fired project, RMB388 million for
Shanghai Combined-Cycle project, RMB346 million for Luohuang expansion project,
RMB338 million for Huaiyin expansion project, RMB323 million for Yueyang
expansion project, RMB257 million for Xindian expansion project, RMB254 million
for Yingkou project, RMB167 million for Qinbei project, RMB151 million for Yushe
Phase II project and construction projects for other power plants.
Capital expenditure on renovation included RMB244 million for Shidongkou First
Power Plant, as well as RMB62 million of routine renovation expenditure for
other power plants.
The above capital expenditure items were mainly financed by long-term borrowings
and cash from operations.
The Company and its subsidiaries will continue to incur significant capital
expenditure in the forthcoming years. The Company will actively monitor the
progress of its projects in accordance with commercially viable principles. The
Company will also proactively develop its planned projects so as to lay
foundation for the Company's long-term development. The Company expects to
finance such projects through internal funding, bank borrowings and cash flows
provided by operating activities.
Cash resources and anticipated financing costs
The Company expects the cash resources for capital expenditure for construction
and acquisitions to be principally financed by internal funds, cash flows from
operating activities and future debt financing.
Through years of successful operations, the market image and "brand" of the
Company have continuously enhanced. Standard & Poor's upgraded the credit rating
on the Company to BBB+, outlook of the rating was stable in February, 2004. Good
operating results and good credit status grant the Company strong financing
capabilities. As at 30th June, 2005, the Company and its subsidiaries had
available unsecured borrowing facilities from banks of approximately RMB31
billion (included in the undrawn borrowing facilities are medium to long-term
loan facilities of RMB20 billion subject to application and approval
procedures). The Company and its subsidiaries has utilized approximately RMB2
billion up to 30th June, 2005. These unsecured borrowing facilities provide the
Company and its subsidiaries with a sufficient level of available cash and raise
the level of liquidity and repayment capabilities of the Company and its
subsidiaries effectively.
11
On 27th May, 2005, the Company completed the issue of RMB5 billion short-term
bonds successfully. The issued amount of the first stage of the bonds was RMB4.5
billion with a maturity period of 365 days. The nominal value of the bonds was
RMB100 and the issued price was RMB97.16. The effective interest rate was 3.40%.
The issued amount of the second stage of the bonds was RMB500 million with a
maturity period of nine months. The nominal value was RMB100 and the issued
price was RMB98. The effective interest rate was 3.31%. The issuances of
short-term bonds provided the Company with new channels to obtain short-term
financing, thus effectively lowering the overall cost of capital of the Company
and supporting the stability of the Company's production and expansion of the
Company's operating scale with sufficient and low cost of capital.
As at 30th June, 2005, the total interest bearing loans of the Company and its
subsidiaries amounted to RMB42.5 billion, including RMB15.923 billion borrowings
matured in one year. The interest bearing loans included foreign currency
borrowings amounting to RMB7 billion, including US dollar of 744 million, Euro
of 74 million and Japanese Yen of 1.429 billion. Approximately US$109 million
and Japanese Yen of 238 million of foreign currency borrowings will mature in
one year. Including in foreign currency borrowings, fixed rate and floating rate
loans accounted for RMB6.234 billion and RMB773 million or 89% and 11% of total
foreign currency borrowings respectively. The average fixed rate and floating
rate loans approximated 5.68% and LIBOR+0.17% per annum respectively.
The long-term borrowings of the Company and its subsidiaries were mainly fixed
rate loans (annual interest rates ranged from 2.28% to 6.12%). As at 30th June,
2005, pursuant to the relevant agreements, the balances of the floating rate
loans of the Company and its subsidiaries were approximately US$80 million
(annual interest rates ranged from LIBOR+0.075% to LIBOR+0.43%) and Japanese Yen
1.429 billion (annual interest rate of LIBOR+0.3%).
The repayment capability of the Company and its subsidiaries remains strong
after acquisitions of a 65% equity interest in Pingliang Power Company and a 60%
equity interest in Sichuan Hydropower in January, 2005 and a 26.36% equity
interest of Phase I of Huaiyin Power Plant in June, 2005.
Other financing requirements
The objective of the Company is to bring long-term, stable and growing returns
to the shareholders. In line with this objective, the Company follows a
proactive, stable and balanced dividend policy. In 2005, in accordance with the
dividend distribution plan approved by the shareholders, the Company paid a cash
dividend of approximately RMB3.014 billion for the year of 2004.
Performance of Significant Investments and their Prospects
On 22nd April, 2003, the Company acquired a 25% equity interest in SEG with a
cash consideration of approximately RMB2.39 billion. This investment brought to
the Company and its subsidiaries a net profit of approximately RMB112 million in
the first half of 2005 recorded under International Financial Reporting
Standards ("IFRS"). SEG is the largest power generation supplier in Shenzhen and
its power plants are located in one of the prosperous provinces - Guangdong
Province. With strong demand for electricity in that region, such an investment
is expected to bring stable returns to the Company in the future.
In July, 2004, the Company acquired a 40% equity interest in Hebei Hanfeng Power
Generation Limited Liability Company ("Hanfeng Power Company") with a cash
consideration of approximately RMB1.375 billion. This investment brought to the
Company and its subsidiaries a net profit of approximately RMB100 million in the
first half of 2005 recorded under IFRS. Hanfeng Power Company is located in
Hebei Province in Northern China and there is strong demand for electricity in
that region. Through this acquisition, the Company and its subsidiaries expect
this investment will contribute stable returns in the future.
12
Employee Benefits
As at 30th June, 2005, the Company and its subsidiaries had 22,883 employees.
For the first half of 2005, total staff costs incurred amounted to approximately
RMB1.130 billion. During the Accounting Period, there is no significant change
to the Company's remuneration policy and training plan.
Related Party Transactions
The Company and its subsidiaries entered into various transactions with China
Huaneng Group Corporation ("Huaneng Group"), Huaneng International Power
Development Corporation ("HIPDC") and their affiliates during daily operations,
including operating leases on land use rights and property, electricity
transmission and fuel purchases and transportation, etc. Such transactions were
for daily operations at prices no different from transactions conducted with
other third parties and did not have significant impact on the business and
operations of the Company and its subsidiaries. Huaneng Group, HIPDC and the
minority shareholders of subsidiaries of the Company have also committed or
agreed through contracts to provide guarantees on certain loans of the Company
and its subsidiaries.
In addition, pursuant to relevant agreements, the Company rendered management
services to those power plants owned by Huaneng Group and HIPDC at a standard
fee covering its costs and a reasonable profit. For the first half of 2005, such
transactions amounted to approximately RMB18.5652 million which was below 0.1%
of net operating revenue. Pursuant to another relevant agreement, Huaneng Group
rendered power plant management services (Sichuan Hydropower) to the Company at
an annual standard fee of approximately RMB2.2401 million covering its costs and
a reasonable profit.
In accordance with the transfer agreement entered into between the Company and
Huaneng Group in October, 2004, the Company acquired a 60% equity interest in
Sichuan Hydropower and a 65% equity interest in Pingliang Power Company, both
owned by Huaneng Group, at a total consideration of RMB2.025 billion in January,
2005. In addition, the Company acquired an additional 26.36% equity interest in
Huaiyin I Power Company from Jiangsu Yueda for a cash consideration of RMB200.6
million in June, 2005.
Please refer to Note 19 to the unaudited condensed consolidated interim
financial statements prepared under IFRS for details of related party
transactions.
Guarantees on Loans
As at 30th June, 2005, the Company provided guarantees on long-term bank
borrowings of certain subsidiaries and an associate totalling approximately
RMB1.735 billion. These included guarantees granted to Qinbei Power Company,
Yushe Power Company and Rizhao Power Company amounting to RMB740 million, RMB702
million and RMB293 million respectively. The Company and its subsidiaries had no
contingent liabilities other than those described above. The Company is of the
view that the above guarantees do not have any significant financial impact on
the operations of the Company and its subsidiaries.
13
Pledged Assets
As at 30th June, 2005, Sichuan Huaneng Dongxiguan Hydropower Limited Liability
Company, Sichuan Huaneng Kangding Hydropower Limited Liability Company and
Sichuan Huaneng Mingtai Hydropower Limited Liability Company which were held by
the Company's subsidiary, Sichuan Hydropower, pledged certain of their fixed
assets with net book values of RMB612 million, RMB28 million and RMB72 million
as at 30th June, 2005 respectively to obtain bank loans of RMB267 million, RMB20
million and RMB60 million respectively.
Impact of the Adjustment of Rmb Exchange Rate
On 21st July, 2005, The People's Bank of China adjusted the exchange rate of RMB
to US$ from 8.2765 to 8.1100. As the US dollar liabilities of the Company and
its subsidiaries outweighed their US dollar assets, the Company and its
subsidiaries expect the appreciation of RMB will bring positive effect to the
Company and its subsidiaries. In the event that the exchange rate of RMB to US$
is maintained at RMB8.11 to US$1.00 for the second half of 2005, this would
bring an exchange gain of approximately RMB123 million upon the translation of
US dollar liabilities of approximately US$758 million and US dollar deposits of
approximately US$20 million as at 30th June, 2005.
SHARE CAPITAL STRUCTURE
As at 30th June, 2005, the entire issued share capital of the Company amounted
to 12,055,383,440 shares, of which 9,000,000,000 shares were domestic shares,
representing 74.67% of the entire issued share capital, and 3,055,383,440 shares
were foreign shares, representing 25.34% of the entire issued share capital. In
respect of domestic shares, Huaneng International Power Development Corporation
owns a total of 5,197,680,000 shares, representing 43.12% of the entire issued
share capital of the Company. Other domestic shareholders hold a total of
3,802,320,000 shares, representing 31.55% of the entire issued share capital of
the Company.
PURCHASE, SALE OR REDEMPTION OF SHARES
The Company did not sell any other types of securities and did not purchase or
redeem its own shares or other securities in the first half of 2005.
14
SHAREHOLDING STRUCTURE
As at 30th June, 2005, the shareholding position of the Company was as follows:
Percentage of
Total total shares
Shareholdings outstanding
(in `000) (%)
--------------------------------------
Domestic Shares
Huaneng International Power Development Corporation 5,197,680 43.12
Hebei Provincial Construction Investment Company 904,500 7.50
Jiangsu Provincial International Trust & Investment Company 624,750 5.18
Fujian International Trust & Investment Company Limited* 561,700 4.66
Liaoning Energy Investment (Group) Limited Liability Company 459,370 3.81
Dalian Municipal Construction Investment Company 452,250 3.75
Nantong Investment Management Centre 135,750 1.13
Minxin Group Limited Company* 108,000 0.9
Shantou Electric Power Development Company 38,000 0.32
Dandong Energy Investment Development Centre 13,000 0.11
Guangdong Shantou City Power Development Company 5,000 0.04
Public Shares 500,000 4.15
--------------------------------------
Sub-total 9,000,000 74.67
Overseas Listed Foreign Shares 3,055,383.44 25.34
--------------------------------------
TOTAL 12,055,383.44 100
======================================
* Fujian International Trust & Investment Company Limited transferred its
108,000,000 legal person shares of the Company to Minxin Group Limited
Company on the date of completion, i.e. 15th June, 2005.
As at 30th June, 2005, so far as the Directors, chief executive officer and
Supervisors of the Company are aware, each of the following persons, not being a
Director, chief executive officer or Supervisor of the Company, had an interest
in the Company's shares which is required to be disclosed to the Company and The
Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") under the
provisions of Divisions 2 and 3 of Part XV of the Securities and Future
Ordinance ("SFO"):
15
Shares held/Approximate Shareholding Percentage
Interest
Approximate Approximate Approximate
percentage of percentage of percentage of
shareholding in shareholding in shareholding in
the Company's the Company's the Company's
Number of total issued total issued total issued Short
Name of shareholder Shares shares held share capital domestic shares H shares position
-----------------------------------------------------------------------------------------------------------------------------
Huaneng International Power domestic shares 5,197,680,000 43.12% 57.8% - -
Development Corporation
(Note 1)
Hebei Provincial Construction domestic shares 904,500,000 7.50% 10.1% - -
Investment Company
Jiangsu Provincial domestic shares 624,750,000 5.18% 6.9% - -
International Trust
& Investment Company
Fujian International Trust & domestic shares 561,700,000 4.66% 6.2% - -
Investment Company
Liaoning Energy Investment domestic shares 459,370,000 3.81% 5.1% - -
(Group) Limited
Liability Company
Dalian Municipal Construction domestic shares 452,250,000 3.75% 5% - -
Investment Company
The Hongkong and Shanghai H shares 753,634,908 6.25% - 24.67% -
Banking Corporation Ltd.
(Note 2) Standard Chartered Bank H shares 365,428,129 3.03% - 11.96% -
(Hong Kong) Limited (Note 2)
Citibank N.A. (Note 2) H shares 255,876,765 2.12% - 8.37% -
UBS Securities Hong Kong
Ltd. (Note 2) H shares 173,251,372 1.44% - 5.67% -
Note 1: As at 30th June, 2005, Huaneng Group holds 51.98% of the equity
interest in Huaneng International Power Development Corporation.
Note 2: Such H shares were held through HKSCC Nominees Limited.
16
Save as disclosed above and so far as the Directors, chief executive officer and
Supervisors of the Company are aware, as at 30th June, 2005, no other person had
an interest or short position in the Company's shares or underlying shares (as
the case may be) which are required to be disclosed to the Company and the Hong
Kong Stock Exchange under the provisions of Divisions 2 and 3 Part XV of the
SFO, or was otherwise a substantial shareholder (as such term is defined in the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the "Listing Rules")) of the Company.
DIRECTORS' AND SUPERVISORS' RIGHT TO PURCHASE SHARES
As at 30th June, 2005, none of the Directors, chief executive officer or
Supervisors of the Company had any interest or short position in the shares,
underlying shares and/or debentures (as the case may be) of the Company or any
of its associated corporations (within the meaning of Part XV of the SFO) which
was required to be notified to the Company and the Hong Kong Stock Exchange
pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest and
short position which any such Director, chief executive officer or Supervisor is
taken or deemed to have under such provisions of the SFO) or which was required
to be entered in the register required to be kept by the Company pursuant to
Section 352 of the SFO or which was otherwise required to be notified to the
Company and the Hong Kong Stock Exchange pursuant to the Model Code for
Securities Transactions by Directors of Listed Companies as contained in
Appendix 10 to the Listing Rules.
DIVIDENDS
It was resolved by the Board of Directors not to distribute interim dividends
for 2005.
MAJOR EVENTS
1. On 26th May, 2005, the Company entered into a transfer agreement with
Jiangsu Yueda, pursuant to which the Company agreed to acquire 26.36%
equity interest in Huaiyin Power Plant Phase I (1 x 220MW coal-fired
generating unit) at a consideration of RMB200.6 million which was paid by
the Company with cash on 28th June, 2005. Upon completion of the
acquisition, the Company holds 90% equity interest in Huaiyin Power Plant
Phase I. The remaining 10% equity interest of Huaiyin Power Plant Phase I
is held by Jiangsu Power Development Company Limited.
2. The term of the fourth session of the board of directors expired. As
approved at the meeting of the Supervisory Committee held on 14th March,
2005, the board meeting held on 15th March, 2005, and the annual general
meeting held on 11th May, 2005, the fifth session of the board of directors
includes 15 members, namely Mr. Li Xiaopeng, Mr. Huang Yongda, Mr. Wang
Xiaosong, Mr. Na Xizhi, Mr. Huang Long, Mr. Wu Dawei, Mr. Shan Qunying, Mr.
Yang Shengming, Mr. Xu Zujian, Mr. Liu Shuyuan, Mr. Qian Zhongwei, Mr. Xia
Donglin, Mr. Liu Jipeng, Mr. Wu Yusheng and Mr. Yu Ning. The fifth session
of the Supervisory Committee consists of 6 members, namely, Mr. Ye Daji,
Ms. Yu Ying, Mr. Shen Weibing, Mr. Shen Zongmin, Ms. Zou Cui and Mr. Wang
Zhaobin.
17
Five members of the fourth session of the Board of Directors, namely Mr. Ye
Daji, Mr. Huang Jinkai, Mr. Liu Jinlong, Mr. Gao Zongze and Mr. Zheng
Jianchao were not re-appointed as members of the new session of the Board
of Directors. Four members of the fourth session of the Supervisory
Committee, namely, Mr. Wei Yunpeng, Mr. Li Yonglin, Mr. Pan Jianmin and Mr.
Zhao Xisheng were not re-appointed as members of the new session of the
Supervisory Committee.
3. At the board meeting held on 15th March, 2005, it was resolved to approve
the appointment of Mr. Li Shiqi as Vice President of the Company, the
resignations of Mr. Wu Dawei from the position of Vice President and of Mr.
Li Shiqi from the position of Chief Economic Engineer.
CORPORATE GOVERNANCE
Pursuant to the relevant requirements of the Listing Rules of The Stock Exchange
of Hong Kong Limited and with reference to the provisions in Appendix 23 of the
Listing Rules, the following sets out the status of corporate governance of the
Company for this year:
Corporate Governance Practices
The Board is of the view that other than Article C.2.1 of the Code of Corporate
Governance Practices ("the Code") in Appendix 14 which has yet to be reinforced,
the Company has complied with the provisions of the Code in a comprehensive
manner. The Articles of Association of the Company have fully covered the
principles set out in the Code. Moreover, the Company has established a
regulated and highly effective governance system comprising the Board of
Directors, the Supervisory Committee and the President. Four special committees,
namely the Strategy Committee, the Audit Committee, the Nomination Committee,
and the Remuneration and Appraisal Committee have been established under the
Board of Directors assisting in handling various affairs of the Board of
Directors. The Company has also established the Board of Directors Office
responsible for day-to-day matters of the Board of Directors.
As regards the internal control matters contained in Article C.2.1 of the Code,
the Company has formulated a new overall internal control system and the same
has been approved at the Chairman's Working Meeting. The new system will be
implemented in the second half of this year and the corporate governance of the
Company will be further enhanced.
Securities Transactions by Directors
As the Company is listed in three places, the Company has strictly complied with
the relevant restrictive provisions imposed by the US, Hong Kong and PRC
regulatory organs in relation to securities transactions by directors and has
consistently upheld the principle of complying with the most stringent
provisions, that is performing according to the strictest restrictions of the
three places. At present, specific enquiries have been made on all the directors
of the Company and it has been confirmed that all of the directors do not hold
any shares of the Company.
The Company has adopted the required standards set out in Appendix 10 - Model
Code for Securities Transactions by Directors of Listing Companies of the
Listing Rules. The Directors have complied with such code of conduct throughout
the Accounting Period.
18
Board of Directors
The Board of Directors of the Company comprised 15 members. Mr. Li Xiaopeng acts
as Chairman of the Board of Directors, whereas Mr. Huang Yongda and Mr. Wang
Xiaosong act as Vice Chairmen of the Board of Directors. Mr. Li Xiaopeng, Mr.
Huang Yongda, Mr. Na Xizhi and Mr. Huang Long are executive directors of the
Company. Other non-executive directors are: Mr. Wang Xiaosong, Mr. Wu Dawei, Mr.
Shan Qunying, Mr. Yang Shengming (whose resignation took effect on 9th August,
2005), Mr. Xu Zujian and Mr. Liu Shuyuan. The Company has five independent
non-executive directors representing one-third of the members of the Board of
Directors, namely Mr. Qian Zhongwei, Mr. Xia Donglin, Mr. Liu Jipeng, Mr. Wu
Yusheng and Mr. Yu Ning.
The Company has convened three board meetings during the first half of the year
and all directors have attended the meetings.
The Articles of Association contain detailed descriptions of the
responsibilities and operation procedures of the Board of Directors (please
refer to the Articles of Association for details). The Board of Directors of the
Company holds meetings regularly, listens to the operating results reports of
the Company and makes decisions. Significant operating decisions of the Company
have to be discussed and passed at the Board of Directors meetings, whereas ad
hoc meetings may be convened. Board meetings include regular meetings and ad hoc
meetings. Regular board meetings include: the annual meeting, the half-yearly
meeting, first quarterly meeting and third quarterly meeting.
Besides regular and ad hoc meetings, the Board of Directors obtains adequate
information from the Chairman's Working Meetings in a timely manner in order to
monitor the objectives and strategies of the management, financial conditions
and operating results of the Company and the provisions of significant
agreements. The Chairman's Working Meetings carry out the responsibilities on
behalf of the Board of Directors as the Board of Directors' meetings are
adjourned.
The Chairman's Working Meetings are held irregularly, attended by the Chairman,
Vice Chairmen, Secretary to the Board of Directors, President, the relevant
senior management personnel and personnel of relevant departments who will
listen to the reports on the operation conditions of the Company and make
relevant decisions. The meetings would cover the following issues: (1) examining
proposals on establishing or cancelling development and construction projects;
(2) examining proposals of the President in relation to the appointment, removal
and transfer of managers of various departments of the Company and managers of
agencies; (3) examining plans on the use of substantial funds; (4) examining
proposals on the establishment or cancellation of branch companies or branch
organs; (5) examining other particularly important issues.
The Chairman of the Company, on behalf of the Board of Directors, enters into an
authorized management letter with the President of the Company specifying the
powers and responsibilities of the Board of Directors and the management. The
management of the Company makes a comprehensive report on the handling of
authorizations each year.
19
Chairman and President
At the Board of Directors, the Chairman and the President are separate
functions. Mr. Li Xiaopeng acts as the Chairman of the Board of Directors and
Mr. Huang Yongda acts as the President of the Company.
Non-executive Directors
Pursuant to the stipulations of the Articles of Association of the Company, each
term of office of the members of the Board of Directors of the Company shall not
exceed three years (inclusive) and members of the Board of Directors may be
eligible for re-election. However, according to the relevant requirements of the
China Securities Regulatory Commission, the term of office of independent
non-executive directors shall not exceed six years (inclusive).
Directors' Remunerations
Pursuant to the relevant stipulations of the relevant laws of the State and the
Articles of Association, the Board of Directors of the Company has established a
Remuneration and Appraisal Committee mainly responsible for reviewing the
appraisal standards for directors and senior management personnel of the
Company; conducting appraisals and making proposals; and reviewing and examining
the remuneration policies and plans for directors and senior management
personnel of the Company. The Remuneration and Appraisal Committee is
accountable to the Board of Directors.
The establishment of the fifth session of the Remuneration and Appraisal
Committee was approved at the first meeting of the fifth session of the Board of
Directors on 11th May, 2005. The Remuneration and Appraisal Committee comprises
seven directors, namely Mr. Liu Jipeng, Mr. Na Xizhi, Mr. Xu Zujian, Mr. Liu
Shuyuan, Mr. Qian Zhongwei, Mr. Xia Donglin and Mr. Wu Yusheng, among whom Mr.
Liu Jipeng, Mr. Qian Zhongwei, Mr. Xia Donglin and Mr. Wu Yusheng are
independent non-executive directors. Mr. Liu Jipeng acts as the Chief Member of
the Remuneration and Appraisal Committee.
Currently, the Company has formulated the Detailed Rules on the Work of the
Remuneration and Appraisal Committee which has been approved by the Board of
Directors for implementation. The fourth session of the Remuneration and
Appraisal Committee convened a meeting on 14th March, 2005, at which, with the
attendance of all committee members, the proposal for the total salary expenses
for 2005 was approved. A report was then made to the Company's Board of
Directors.
Nominations of Directors
Pursuant to the relevant stipulations of the relevant laws of the State and the
Articles of Association of the Company, the Board of Directors of the Company
has established a Nomination Committee mainly responsible for reviewing the
standards and procedures for selecting candidates for directors and senior
management personnel according to the operational management requirements of the
Company and putting forward proposals to the Board of Directors; selecting
qualified candidates for directors and senior management personnel; and
examining the candidates for directors and senior management personnel and
putting forward proposals.
20
The establishment of the Nomination Committee was approved at the first meeting
of the fifth session of the Board of Directors on 11th May, 2005. The Nomination
Committee comprises seven directors, namely Mr. Qian Zhongwei, Mr. Huang Long,
Mr. Shan Qunying, Mr. Yang Shengming, Mr. Xia Donglin, Mr. Liu Jipeng and Mr. Yu
Ning, among whom Mr. Qian Zhongwei, Mr. Xia Donglin, Mr. Liu Jipeng and Mr. Yu
Ning are independent non-executive directors. Mr. Qian Zhongwei acts as the
Chief Member of the Nomination Committee.
Currently, the Company has formulated the Detailed Rules on the Work of the
Nomination Committee which has been approved by the Board of Directors for
implementation. All members had attended the committee's meeting on 14th March,
2005, at which Mr. Qu Xiaojun, general manager of Human Resources Department
reported the details regarding the proposals on change of session of directors
and on change of senior management. The members unanimously agreed to the
proposals regarding the candidates for the fifth session of the Board of
Directors and the change of senior management. A report was then submitted to
the Board.
Auditors' Remuneration
The auditors' appointed by the Company for the year of 2005 were
PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian CPAs Limited
Company, as the international auditors and the PRC auditors of the Company,
respectively. Total auditors' remunerations for the six months ended 30th June,
2005 amounted to approximately RMB8.223 million.
Audit Committee
Pursuant to the requirements of the regulatory organs of the places where the
Company is listed and the relevant stipulations of the Articles of Association,
the Board of Directors of the Company has established the Audit Committee which
shall be mainly responsible for:
(1) making proposals to appoint or change external audit organs;
(2) examining and monitoring the internal audit system of the Company and its
implementation;
(3) communicating between internal and external audit parties;
(4) examining the financial information of the Company and its disclosures;
(5) other matters required by the Board of Directors of the Company.
The establishment of the Audit Committee of the fifth session of Board of
Directors was approved at the first meeting of the fifth session of the Board of
Directors held on 11th May 2005. Members of the Audit Committee comprises five
independent non-executive directors, namely Mr. Xia Donglin, Mr. Qian Zhongwei,
Mr. Liu Jipeng, Mr. Wu Yusheng and Mr. Yu Ning. Mr. Xia Donglin acts as the
Chief Member of the Audit Committee.
The Audit Committee has held two meetings in the first half of 2005 examining
the working report of 2004 and the working plan for audit in 2005, both prepared
by the Company's audit department, and the report regarding the audit work of
2004 made by the Company's auditors. The committee also considered and examined
the financial statements of 2004, the financial budgets for 2005, the profit
distribution plan for 2004, the proposal regarding appointment of auditors for
2005, the proposal regarding general matters of auditors in 2005, and the
financial statements for the first quarter of 2005, etc. Reports were submitted
to the Board of Directors.
21
On 8th August, 2005, the Audit Committee has conducted a meeting to review both
the interim announcement and interim report for the first half of 2005.
Currently, the Company has formulated the Detailed Rules on the Work of the
Audit Committee which have been approved by the Board of Directors for
implementation. The new internal control management system has recently been
approved by the Chairman's Working Meeting. Major amendments will be made to the
Detailed Rules on the Work of the Audit Committee. Accordingly, the Audit
Committee will launch a comprehensive examination on the internal control
management system of the Company in the second half of the year.
Shareholding Interests of Senior Management Personnel
The senior management personnel of the Company does not hold any shares of the
Company.
Investor Relations
Facing the operational pressure resulting from the rise of fuel costs in the
first half of 2005, the Company has made timely and accurate disclosures through
various communication channels. In order to let the investors be fully aware of
the Company's operations, financial status and strategies, the Company strived
to ensure an unimpeded communication channel for carrying out open and
transparent disclosure of information, with a view to building investor
confidence in the Company's future and also enhancing the Company's reputation
and image in the capital market.
Internal Control
The new internal control management system has been recently approved by the
Chairman's Working Meeting. The Company will undertake a stricter and more
regulated internal control management system in the second half of the year.
Management's Functions
The division of functions between the Board of Directors and the management are
set out in the Company's Articles of Association.
LEGAL PROCEEDINGS
As at 30th June, 2005, the Company was not involved in any material litigation
or arbitration and no material litigation or claim was pending or threatened or
made against the Company as far as the Company is aware of.
22
DOCUMENTS FOR INSPECTION
The interim report for the first half of 2005 of the Company containing all the
information required by the Listing Rules will be published on the Hong Kong
Stock Exchange's website. The Company will also file the interim report in Form
6-K with the US Securities and Exchange Commission. Copies of the interim report
for 2005 will be available at the following addresses and website:
PRC Huaneng Power International, Inc.
West Wing, Building C
Tianyin Mansion
2C Fuxingmennan Street
Xicheng District
Beijing
People's Republic of China
Telephone Number: (8610) 6649 1999
Fax Number: (8610) 6649 1860
Postal code: 100031
Hong Kong Rikes Communications Limited
Room 1312, Wing On Centre
111 Connaught Road Central
Hong Kong
Telephone No: (852) 2520 2201
Fax No: (852) 2520 2241
Website of the Company http://www.hpi.com.cn
By Order of the Board
Li Xiaopeng
Chairman
The directors of the Company are:
Li Xiaopeng (Executive director) Qian Zhongwei
Huang Yongda (Executive director) (Independent non-executive director)
Wang Xiaosong (Non-executive director) Xia Donglin
Na Xizhi (Executive director) (Independent non-executive director)
Huang Long (Executive director) Liu Jipeng
Wu Dawei (Non-executive director) (Independent non-executive director)
Shan Qunying (Non-executive director) Wu Yusheng
Xu Zujian (Non-executive director) (Independent non-executive director)
Liu Shuyuan (Non-executive director) Yu Ning
(Independent non-executive director)
Beijing, the PRC
9th August, 2005
23
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET (UNAUDITED)
AS AT 30TH JUNE, 2005
(Prepared in accordance with International Financial Reporting Standards)
(Amounts expressed in thousands of Rmb)
30th June, 31st December,
Note 2005 2004
----------------------------------------------
(Note 2)
ASSETS
Non-current assets
Property, plant and equipment, net 5 72,457,443 57,780,410
Investments in associates 4,297,427 4,328,307
Available-for-sale investment 254,990 254,990
Land use rights 1,698,673 1,546,026
Other non-current assets 357,750 225,890
Deferred income tax assets 133,298 97,539
Goodwill 2,3 671,293 376,726
Less: Negative goodwill 2 - (1,483,670)
----------------------------------------------
Total non-current assets 79,870,874 63,126,218
----------------------------------------------
Current assets
Inventories, net 2,538,944 1,431,404
Other receivables and assets, net 1,161,587 723,316
Accounts receivable, net 6 5,897,415 4,973,103
Due from Huaneng Group 19 8,461 -
Due from other related parties 19 16,357 14,970
Restricted cash 200,281 202,688
Temporary cash investments 7,641 12,641
Cash and cash equivalents 2,724,723 2,295,531
----------------------------------------------
Total current assets 12,555,409 9,653,653
----------------------------------------------
Total assets 92,426,283 72,779,871
==============================================
24
30th June, 31st December,
Note 2005 2004
----------------------------------------------
(Note 2)
EQUITY AND LIABILITIES
Capital and reserves attributable to the Company's
equity holders
8,500,000,000 (2004: 8,500,000,000) Domestic Shares,
par value of Rmb1.00 each, in form of legal person shares 8,500,000 8,500,000
500,000,000 (2004: 500,000,000) A shares,
par value of Rmb1.00 each 500,000 500,000
3,055,383,440 (2004: 3,055,383,440) Overseas Listed
Foreign Shares, par value of Rmb1.00 each 3,055,383 3,055,383
Additional paid-in capital 8,972,184 8,972,184
Dedicated capital 4,065,970 4,065,970
Retained earnings
Proposed dividend - 3,013,846
Others 11,098,508 8,158,136
----------------------------------------------
36,192,045 36,265,519
Minority interests 5,434,898 3,266,393
----------------------------------------------
Total equity 41,626,943 39,531,912
----------------------------------------------
Non-current liabilities
Long-term loans from a shareholder 11,19 800,000 800,000
Long-term bank loans 11 24,986,539 14,761,271
Other long-term loans 11,19 767,143 394,018
Deferred income tax liabilities 1,124,071 546,717
Other non-current liabilities 14,500 13,000
----------------------------------------------
Total non-current liabilities 27,692,253 16,515,006
----------------------------------------------
25
30th June, 31st December,
Note 2005 2004
----------------------------------------------
(Note 2)
Current liabilities
Accounts payable and other liabilities 8 6,028,188 4,551,158
Dividends payable to shareholders of the Company - 8,250
Taxes payables 748,430 999,792
Due to Huaneng Group 19 63,939 -
Due to HIPDC 19 51,044 1,258,799
Due to an associate 19 3,655 3,799
Due to other related parties 19 78,535 9,627
Staff welfare and bonus payables 210,613 259,291
Short-term bonds 9 4,856,433 -
Short-term loans 10 8,675,300 8,099,000
Current portion of long-term bank loans 11 1,964,677 1,225,476
Current portion of other long-term loans 11,19 426,273 317,761
----------------------------------------------
Total current liabilities 23,107,087 16,732,953
----------------------------------------------
Total equity and liabilities 92,426,283 72,779,871
==============================================
The notes on pages 30 to 60 are an integral part of these unaudited condensed
consolidated interim financial statements.
26
CONDENSED CONSOLIDATED INTERIM STATEMENT OF INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(Prepared in accordance with International Financial Reporting Standards)
(Amounts expressed in thousands of Rmb, except per share data)
For the six months ended 30th June,
Note 2005 2004
----------------------------------------------
Operating revenue, net 18,800,474 12,963,871
----------------------------------------------
Operating expenses:
Fuel (10,353,644) (6,026,598)
Maintenance (606,883) (410,573)
Depreciation (3,174,402) (2,124,463)
Labor (1,129,565) (799,292)
Service fees to HIPDC (70,493) (105,038)
Others (797,341) (305,036)
----------------------------------------------
Total operating expenses (16,132,328) (9,771,000)
----------------------------------------------
Profit from operations 2,668,146 3,192,871
----------------------------------------------
Interest income 25,196 27,893
Interest expenses (723,260) (244,085)
Bank charges and exchange losses, net 93,144 (10,500)
----------------------------------------------
Total financial expenses (604,920) (226,692)
----------------------------------------------
Share of profit of associates 238,741 81,080
Gain from disposal of investments - 4
Other income, net 13 38,311 28,577
----------------------------------------------
Profit before tax 14 2,340,278 3,075,840
Income tax expenses 15 (348,774) (502,686)
----------------------------------------------
Profit for the period 1,991,504 2,573,154
----------------------------------------------
Attributable to:
Equity holders of the Company 1,679,253 2,481,127
Minority interest 312,251 92,027
----------------------------------------------
1,991,504 2,573,154
==============================================
Earnings per share for profit attributable to the equity
holders of the Company during the period
(expressed in Rmb per share) 17
- basic 0.14 0.21
==============================================
- diluted N/A 0.21
==============================================
The notes on pages 30 to 60 are an integral part of these unaudited condensed
consolidated interim financial statements.
27
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(Prepared in accordance with International Financial Reporting Standards)
(Amounts expressed in thousands of Rmb)
Minority
interest Total
Attributable to equity holders of the Company (Note 2) equity
Equity
Additional component of
Share paid-in Dedicated convertible Retained
capital capital capital notes earnings
---------------------------------------------------------------------------------------
Balance as at 1st January, 2005,
as previously reported as equity 12,055,383 8,972,184 4,065,970 - 11,171,982 - 36,265,519
Balance as at 1st January, 2005,
as previously separately reported
as minority interest - - - - - 3,266,393 3,266,393
Effect of changes in accounting
policy (Note 2) - - - - 1,261,119 - 1,261,119
---------------------------------------------------------------------------------------
Balance as at 1st January, 2005,
as restated 12,055,383 8,972,184 4,065,970 - 12,433,101 3,266,393 40,793,031
Acquisitions (Note 3) - - - - - 1,993,416 1,993,416
Capital injection from minority
shareholders of subsidiaries - - - - - 59,830 59,830
Dividends relating to 2004 - - - - (3,013,846) (196,992) (3,210,838)
Net profit for the six months ended
30th June, 2005 - - - - 1,679,253 312,251 1,991,504
---------------------------------------------------------------------------------------
Balance as at 30th June, 2005 12,055,383 8,972,184 4,065,970 - 11,098,508 5,434,898 41,626,943
=======================================================================================
Balance as at 1st January, 2004 6,027,671 10,780,133 4,328,423 255 12,818,873 - 33,955,355
Balance as at 1st January, 2004,
as previously separately reported
as minority interest - - - - - 1,155,197 1,155,197
---------------------------------------------------------------------------------------
Balance as at 1st January, 2004,
as restated 6,027,671 10,780,133 4,328,423 255 12,818,873 1,155,197 35,110,552
Capital injection from minority
shareholders of subsidiaries - - - - - 253,356 253,356
Dividends relating to 2003 - - - - (3,013,836) (165,763) (3,179,599)
Ordinary shares split 6,027,671 (1,808,301) (1,205,534) - (3,013,836) - -
Net profit for the six months ended
30th June, 2004 - - - - 2,481,127 92,027 2,573,154
Conversion of convertible notes to
share capital and redemption of
convertible notes 21 359 - (255) - - 125
---------------------------------------------------------------------------------------
Balance as at 30th June, 2004 12,055,363 8,972,191 3,122,889 - 9,272,328 1,334,817 34,757,588
=======================================================================================
The notes on pages 30 to 60 are an integral part of these unaudited condensed
consolidated interim financial statements.
28
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(Prepared in accordance with International Financial Reporting Standards)
(Amounts expressed in thousands of Rmb)
For the six months ended 30th June,
--------------------------------------
Note 2005 2004
Net cash provided by operating activities 1,971,538 3,822,777
Net cash used in investing activities 18 (7,064,748) (3,883,018)
Net cash provided by financing activities 18 5,522,402 2,452,219
--------------------------------------
Net increase in cash and cash equivalents 429,192 2,391,978
Cash and cash equivalents, beginning of period 2,295,531 4,128,648
--------------------------------------
Cash and cash equivalents, end of period 2,724,723 6,520,626
======================================
The notes on pages 30 to 60 are an integral part of these unaudited condensed
consolidated interim financial statements.
29
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Prepared in accordance with International Financial Reporting Standards)
(Amounts expressed in thousands of Rmb unless otherwise stated)
1. Company Organization and Principal Activities
Huaneng Power International, Inc. (the "Company") was incorporated in the
People's Republic of China (the "PRC") as a Sino-foreign joint stock limited
company on 30th June, 1994. The Company and its subsidiaries are principally
engaged in the generation and sale of electric power to the respective regional
or provincial grid companies in the PRC.
The directors consider that 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. Neither Huaneng Group nor HIPDC produced
financial statements available for public use.
2. Principal Accounting Policies
The unaudited condensed consolidated interim financial statements have been
prepared in accordance with International Accounting Standard ("IAS") 34
"Interim Financial Reporting" promulgated by the International Accounting
Standards Board ("IASB") and Appendix 16 of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited.
The unaudited condensed consolidated interim financial statements should be read
in conjunction with the 2004 annual financial statements.
During 2005, a significant portion of the Company and its subsidiaries' funding
requirements for capital expenditures were satisfied by short-term borrowings.
Consequently, as at 30th June, 2005, the Company and its subsidiaries have a
negative working capital balance of approximately Rmb10.552 billion. The Company
and its subsidiaries have significant undrawn available banking facilities
amounting to approximately Rmb29 billion (31st December, 2004: approximately
Rmb28 billion) and may refinance and / or restructure certain short-term loans
into long-term loans and will also consider alternative sources of financing,
where applicable. The directors of the Company and its subsidiaries are of the
opinion that the Company and its subsidiaries will be able to meet its
liabilities as and when they fall due within the next twelve months and have
prepared these unaudited condensed consolidated interim financial statements on
a going concern basis.
The principal accounting policies applied in the preparation of these unaudited
condensed consolidated interim financial statements are consistent with those
applied in the preparation of the annual financial statements as at and for the
year ended 31st December, 2004 except that the Company and its subsidiaries have
adopted the revised and new IASs and International Financial Reporting Standards
("IFRSs") issued by IASB and International Financial Reporting Interpretations
Committee Interpretation ("IFRIC Interpretation") issued by International
Financial Reporting Interpretations Committee ("IFRIC") which are effective for
accounting period commencing on or after 1st January, 2005.
30
2. Principal Accounting Policies (Cont'd)
The list of the new / revised IASs, IFRSs and IFRIC Interpretation which are
relevant to the operation of the Company and its subsidiaries is as follows. The
2004 comparatives have been amended as required, in accordance with the relevant
requirements.
IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10 Events after the Balance Sheet Date
IAS 16 Property, Plant, and Equipment
IAS 17 Leases
IAS 21 The Effects of Changes in Foreign Exchange Rates
IAS 24 Related Party Disclosures
IAS 27 Consolidated and Separate Financial Statements
IAS 28 Investments in Associates
IAS 32 Financial Instruments: Disclosure and Presentation
IAS 33 Earnings per Share
IAS 36 Impairment of Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IFRS 3 Business Combinations
IFRIC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities
The adoption of IASs 1, 2, 8, 10, 16, 17, 21, 32, 33, 38 and 39 and IFRIC
Interpretation 1 did not result in substantial changes to the accounting
policies of the Company and its subsidiaries. In summary:
IAS 1 has affected the presentation of minority interest, share of profit of
associates and other disclosures.
IASs 2, 8, 10, 16, 17, 32, 33, 38 and 39 and IFRIC Interpretation 1 had no
material effect on the policies of the Company and its subsidiaries.
IAS 21 had no material effect on the policy of the Company and its subsidiaries.
The functional currency of each of the entities of the Company and its
subsidiaries has been re-evaluated based on the guidance to the revised
standard. All the entities used Renminbi ("Rmb") as their functional currency as
well as presentation currency.
31
2. Principal Accounting Policies (Cont'd)
IAS 24 has extended the identification and disclosure of related parties to
include state-owned enterprises. Related parties include Huaneng Group, HIPDC
and their related parties, other state-owned enterprises and their subsidiaries
directly or indirectly controlled by the PRC government, other entities and
corporations in which the Company is able to control, jointly control or
exercise significant influence and key management personnel of the Company,
HIPDC and Huaneng Group as well as their close family members.
The adoptions of IASs 27 and 28 have resulted in changes in accounting policies
for investments in subsidiaries and associates at company level. Until 31st
December, 2004, investments in subsidiaries and associates at company level are
accounted for using the equity method. Subsequent to that date, the Company and
its subsidiaries, at the entity level, restated such investments at cost less
any accumulated impairment losses.
The adoption of IFRS 3 and IAS 36 resulted in changes in the accounting policies
for goodwill and negative goodwill and the assessment by management of asset
impairment.
In accordance with the provisions of IFRS 3:
o the Company and its subsidiaries ceased amortization of goodwill and
negative goodwill from 1st January, 2005;
o accumulated amortization as at 31st December, 2004 has been eliminated with
a corresponding decrease in the costs of goodwill and negative goodwill;
and
o From 1st January, 2005 onwards, goodwill arising from all acquisitions is
tested annually for impairment, as well as when there are indications of
impairment while negative goodwill is derecognized as at 1st January, 2005
with a corresponding adjustment to the opening balance of retained
earnings.
In accordance with the provision of IAS 36:
o Assets that have indefinite useful lives are not subject to amortization
and are tested annually for impairment. Assets that are subject to
amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
o An impairment loss is recognized for the amount by which the asset's
carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an asset's fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows
(cash-generating units).
32
2. Principal Accounting Policies (Cont'd)
All changes in the accounting policies have been made in accordance with the
transition provisions in the respective standards. All of the new / revised
standards adopted by the Company and its subsidiaries require retrospective
application other than:
o IAS 16 -- the exchange of property, plant and equipment is accounted at
fair value prospectively; and
o IFRS 3 -- prospectively after 31st March, 2004.
The adoption of IAS 1 resulted in the changes of following:
For the six months ended 30th June,
2005 2004
-------------------------------------
Decrease in share of profit of associates (28,217) (27,473)
Decrease in income tax expenses 28,217 27,473
The adoption of IFRS 3 resulted in an increase in opening retained earnings at 1st January, 2005 by approximately
Rmb1,261 million. Details of which are as follows:
As at 30th June,
2005
-----------------
Decrease in negative goodwill 1,483,670
Increase in deferred income tax liability (204,005)
For the six
months ended
30th June, 2005
-----------------
Increase in operating expenses -- others (123,639)
Decrease in income tax expense 18,546
Decrease in basic earnings per share (Rmb) (0.01)
Comparatives
Due to an associate of approximately Rmb3.8 million has been reclassified from
due to other related parties while current portion of bank loans of
approximately Rmb32 million and long-term bank loans of approximately Rmb93.2
million have been reclassified into current portion of other long-term loans and
other long-term loans respectively in order to conform with the presentation in
the current period.
33
3. Acquisitions
In January, 2005, the Company acquired equity interests in a number of power
companies from Huaneng Group. In June, 2005, the Company also acquired
additional 26.36% equity interest in Jiangsu Huaneng Huaiyin Power Limited
Company ("Huaiyin Power Company") from Jiangsu Yueda Investment Co. Ltd.
("Jiangsu Yueda"). The Company previously held equity interest of 63.64% in this
entity. These acquisitions have been accounted for under the purchase method of
accounting.
The acquisition for the power companies acquired from the Huaneng Group became
effective when the Company obtained effective control over the acquired power
plants upon the Company's minority shareholders' approving the transaction, the
Company obtained all necessary government approvals and paying the purchase
consideration which was in the form of cash.
The acquisition of the additional interest in Huaiyin Power Company became
effective when amongst other things, Jiangsu Yueda obtained shareholders'
approval for the transaction, the Company obtained all necessary government
approvals and paid the purchase consideration which was in the form of cash.
Details of these acquisitions are shown in the table below:
For the six months ended 30th June, 2005
Acquisition of subsidiaries
60% equity 65% equity
interest in interest in the
Sichuan Huaneng Gansu Huaneng
Hydropower Pingliang Power
Development Generation Limited 26.36% equity
Corporation, Ltd. Liability Company interest in
("Sichuan ("Pingliang Huaiyin Power
Equity interest acquired Hydropower") Power Company") Company
------------------------------------------------------------
Original equity holder Huaneng Group Huaneng Group Jiangsu Yueda
Effective date of acquisition 5th January, 2005 5th January, 2005 30th June, 2005
Consideration paid Rmb1,219 million Rmb806 million Rmb200.6 million
Direct transaction costs of acquisitions paid Rmb10.05 million Rmb6.65 million -
Fair value of net assets acquired Rmb1,099.3 million Rmb704.9 million Rmb143.5 million
Goodwill Rmb129.75 million Rmb107.75 million Rmb57.1 million
===========================================================
34
3. Acquisitions (Cont'd)
The above acquisitions contributed unaudited net operating revenue of
approximately Rmb1,441 million and unaudited net profit of approximately Rmb402
million to the Company and its subsidiaries for the period from 1st January,
2005 to 30th June, 2005. If the acquisitions had occurred on 1st January, 2005,
there would have been no material impact on unaudited net operating revenue,
unaudited profit before allocations and unaudited profit attributable to equity
holders of the Company because the Sichuan Hydropower and the Pingliang Power
Company acquisitions took place in early January, 2005 and Huaiyin Power Company
was already a subsidiary of the Company prior to the acquisition of the
additional interest and therefore, its unaudited operating results were already
consolidated.
Goodwill arising from the acquisitions in 2005 is attributable to the high
profitability of the acquired businesses and the significant synergies expected
to arise after the Company's acquisitions of equity interests in the
subsidiaries stated above.
35
3. Acquisitions (Cont'd)
The aggregated assets and liabilities arising from these acquisitions in 2005 were as follows:
For the six months ended
30th June, 2005
Acquirees'
carrying
Fair value amounts
--------------------------------------
Property, plant and equipment, net 12,416,392 11,006,855
Deferred income tax assets 33,993 33,993
Other non-current assets 192,689 170,035
Inventories, net 363,408 363,408
Other current assets 460,850 460,850
Accounts receivable 654,267 654,267
Cash and cash equivalents 650,948 650,948
Minority interest (2,191,351) (1,583,811)
Long-term loans, unsecured (7,392,149) (7,392,149)
Long-term loans, secured (567,000) (567,000)
Deferred income tax liabilities (404,205) (25,416)
Other current liabilities (1,923,668) (1,923,668)
Less: Original equity interest of the Company
in Huaiyin Power Company (346,443) (346,443)
--------------------------------------
Net assets acquired 1,947,731 1,501,869
-----------------
Add: Goodwill 294,567
Less: Direct transaction costs of acquisitions (16,698)
--------------
Total consideration paid 2,225,600
Add: Direct transaction costs of acquisitions paid 16,698
Less: Cash inflow from the acquired power plants (566,704)
--------------
Net cash outflow for the acquisitions 1,675,594
==============
36
4. List of Subsidiaries
Details of the major subsidiaries of the Company as at 30th June, 2005 were as follow:
Country, date of Percentage Registered
incorporation and of equity and fully Principal
Name of subsidiary type of legal entity interest held paid capital activity
-----------------------------------------------------------------------------------------------------------------
Direct Indirect
Huaneng Weihai Power Limited PRC 60% - Rmb761,838,300 Power
Liability Company 22nd November, 1993 generation
("Weihai Power Company") Limited liability
company
Suzhou Industrial Park PRC 75% - Rmb632,840,000 Power
Huaneng Power Limited 19th June, 1997 generation
Liability Company Limited liability
("Taicang Power Company") company
Huaneng Taicang Power Co., Ltd. PRC 75% - Registered Power
18th June, 2004 capital of generation
Limited liability Rmb894,410,000
company and fully paid
capital of
Rmb447,210,000
Huaiyin Power Company PRC 90% - Rmb265,000,000 Power
26th January, 1995 generation
Limited liability
company
Jiangsu Huaneng Huaiyin II PRC 63.64% - Rmb474,000,000 Power
Power Limited Company 22nd June, 2004 generation
Limited liability
company
Henan Huaneng Qinbei PRC 55% - Rmb10,000,000 Power
Power Limited Company 12th July, 1995 generation
("Qinbei Power Company") Limited liability
company
37
4. List of Subsidiaries (Cont'd)
Country, date of Percentage Registered
incorporation and of equity and fully Principal
Name of subsidiary type of legal entity interest held paid capital activity
-----------------------------------------------------------------------------------------------------------------
Direct Indirect
Shanxi Huaneng Yushe Power PRC 60% - Rmb615,760,000 Power
Limited Liability Company 29th November, 1994 generation
("Yushe Power Company") Limited liability
company
Shanxi Huaneng Yushe PRC - 95% Rmb3,000,000 Logistic
Yuanheng Power Industry 17th September, 2002 services
Limited Liability Company Limited liability
company
Shandong Huaneng Xindian PRC 95% - Rmb100,000,000 Power
Power Co., Ltd. 14th March, 2004 generation
Limited liability
company
Huaneng Hunan Yueyang PRC 55% - Rmb560,000,000 Power
Power Generation Limited 16th December, 2003 generation
Liability Company Limited liability
("Yueyang Power Company") company
Huaneng Chongqing Luohuang PRC 60% - Rmb900,000,000 Power
Power Generation Limited 16th December, 2003 generation
Liability Company Limited liability
("Luohuang Power Company") company
Huaneng Shanghai Ranji PRC 70% - Rmb50,000,000 Power
Power Generation Limited 13th January , 2005 generation
Liability Company Limited liability
company
38
4. List of Subsidiaries (Cont'd)
Country, date of Percentage Registered
incorporation and of equity and fully Principal
Name of subsidiary type of legal entity interest held paid capital activity
-----------------------------------------------------------------------------------------------------------------
Direct Indirect
Sichuan Hydropower PRC 60% - Rmb800,000,000 Investments
12th July, 2004 holding
Limited liability
company
Sichuan Huaneng Baoxinghe PRC - 68% Rmb516,100,000 Power
Power Limited 19th June, 1994 generation
Liability Company Limited liability
("Baoxinghe Power") company
Sichuan Huaneng Taipingyi PRC - 60% Rmb100,000,000 Power
Hydropower Limited 23th April, 1994 generation
Liability Company Limited liability
("Taipingyi Hydropower") company
Sichuan Huaneng Dongxiguan PRC - 55.33% Rmb156,725,000 Power
Hydropower Limited 29th June, 1994 generation
Liability Company Limited liability
("Dongxiguan Hydropower") company
Sichuan Huaneng Fujiang PRC - 95% Rmb150,000,000 Power
Hydropower Limited 22nd March, 2002 generation
Liability Company Limited liability
company
Sichuan Huaneng Kangding PRC - 60% Rmb194,000,000 Power
Hydropower Limited 14th April, 1994 generation
Liability Company Limited liability
("Kangding Hydropower") company
39
4. List of Subsidiaries (Cont'd)
Country, date of Percentage Registered
incorporation and of equity and fully Principal
Name of subsidiary type of legal entity interest held paid capital activity
-----------------------------------------------------------------------------------------------------------------
Direct Indirect
Sichuan Huaneng Mingtai PRC - 52.20% Rmb97,700,000 Power
Hydropower Limited 22nd May, 2000 generation
Liability Company Limited liability
("Mingtai Hydropower") company
Sichuan Huaneng Jialingjiang PRC - 55% Registered Power
Hydropower Limited 30th September, 1998 capital of generation
Liability Company Limited liability Rmb193,080,000
company and fully paid
capital of
Rmb157,119,800
Pingliang Power Company PRC 65% - Rmb623,000,000 Power
6th November, 1996 generation
Limited liability company
5. Property, Plant and Equipment, net
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
Beginning of period 57,780,410 42,658,365
Acquisition (Note 3) 12,061,897 9,392,195
Additions 5,799,548 10,452,454
Depreciation (3,179,241) (4,617,842)
Disposals (5,171) (104,762)
-----------------------------------
End of period 72,457,443 57,780,410
===================================
40
6. Accounts Receivable, Net
The Company and its subsidiaries usually grant about one month's credit period
to local grid customers from the end of the month in which the sales are made.
The aging analysis of accounts receivable, net was as follows:
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
Within 1 year 5,356,263 4,510,368
Between 2 to 3 years 124,958 96,808
Over 3 years 416,194 365,927
-----------------------------------
5,897,415 4,973,103
===================================
As at 30th June, 2005, HIPDC had provided guarantees on certain accounts
receivable balances of the Company and its subsidiaries of approximately Rmb205
million (31st December, 2004: approximately Rmb209 million) (Note 19).
7. Appropriations of Profit
For the six months ended 30th June, 2005, the Company and its subsidiaries did
not make a provision for the statutory and discretionary surplus reserve funds
and the statutory public welfare fund.
41
8. Accounts Payable and Other Liabilities
Accounts payable and other liabilities comprised:
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
Accounts and notes payable 1,460,467 761,689
Other payables and accrued liabilities 4,567,721 3,789,469
-----------------------------------
6,028,188 4,551,158
===================================
The aging analysis of accounts and notes payable was as follows:
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
Within 1 year 1,438,882 754,406
Between 1 to 2 years 18,196 2,911
Over 2 years 3,389 4,372
-----------------------------------
1,460,467 761,689
===================================
9. Short-term Bonds
On 27th May, 2005, the Company and its subsidiaries issued Rmb4.5 billion and
Rmb0.5 billion short-term zero-coupon bonds with maturity of 1 year and nine
months respectively. These bonds were of face value at Rmb100 and were issued at
discounts of 97.16% and 98% with effective interest rates of 3.40% per annum and
3.31% per annum respectively.
10. Short-term Loans
Short-term loans are denominated in Rmb and bear interest at the prevailing
rates in the PRC, which ranged from 4.30% to 5.76% per annum for the six months
ended 30th June, 2005 (2004: 4.54% to 5.05% per annum).
42
11. Long-term Loans
As at 30th June, 2005 As at 31st December, 2004
Original Interest Original Interest
currency rate Amount currency rate Amount
-------------------------------------------------------------------------------------
Shareholder's loans
Unsecured 4.05% - 3.78% -
- Rmb 800,000 4.6% 800,000 800,000 4.60% 800,000
Bank loans
Secured 4.941% -
- Rmb 367,000 5.94% 367,000 - - -
Unsecured 2.88% - 3.60% -
- Rmb 19,825,088 6.12% 19,825,088 8,679,869 5.76% 8,679,869
2.155% - 1.225% -
- US dollars ("US$") 727,372 6.60% 6,020,097 778,474 6.97% 6,443,044
- Euro 73,936 2% 739,031 76,699 2% 863,834
-------------------------------------------------------------------------------------
26,951,216 15,986,747
-------------------------------------------------------------------------------------
Other loans
Unsecured 4.94% - 4.94% -
- Rmb 944,177 6.12% 944,177 434,726 5.76% 434,726
- US$ 17,143 2.9925% 141,883 18,571 2.9925% 153,706
- Japanese Yen 1,428,572 5.902% 107,356 1,547,619 5.902% 123,347
-------------------------------------------------------------------------------------
1,193,416 711,779
=====================================================================================
28,944,632 17,498,526
=====================================================================================
Certain loans are secured by various property, plant and equipment of the
Company and its subsidiaries totalling Rmb712 million (2004: Nil) (Note 20).
43
11. Long-term Loans (Cont'd)
As at 30th June, 2005, shareholder's loans, bank loans and other loans of the
Company and its subsidiaries were repayable as follows:
Shareholder's loans Bank loans Other loans
As at As at As at As at As at As at
30th June, 31st December, 30th June, 31st December, 30th June,
31st December,
2005 2004 2005 2004 2005 2004
-------------------------------------------------------------------------------------
Within 1 year - - 1,964,677 1,225,476 426,273 317,761
Between 1 to 2 years - - 3,305,591 1,269,497 288,782 202,212
Between 2 to 5 years - - 10,763,003 7,639,071 312,744 127,871
After the 5th year 800,000 800,000 10,917,945 5,852,703 165,617 63,935
-------------------------------------------------------------------------------------
800,000 800,000 26,951,216 15,986,747 1,193,416 711,779
=====================================================================================
12. Additional Financial Information on Unaudited Condensed Consolidated Interim
Balance Sheet
As at 30th June, 2005, the net current liabilities of the Company and its
subsidiaries amounted to approximately Rmb10,552 million (31st December, 2004:
approximately Rmb7,079 million). On the same date, the total assets less current
liabilities of the Company and its subsidiaries were approximately Rmb69,319
million (31st December, 2004: Rmb56,047 million).
13. Other Income, Net
The breakdown of other income, net is as follows:
For the six months ended 30th June,
2005 2004
-----------------------------------
Investment income 34,839 22,542
Others* 3,472 6,035
-----------------------------------
38,311 28,577
===================================
* Pursuant to a management service agreement entered into among Huaneng
Group, HIPDC and the Company, the Company provided management services to
certain power plants owned by Huaneng Group and HIPDC in return for a
service fee. Net other income represented the management service fee income
net of relevant expenses.
44
14. Profit Before Tax
Profit before tax in the unaudited condensed consolidated interim statement of
income was determined after charging and (crediting) the following items:
For the six months ended 30th June,
2005 2004
-----------------------------------
Interest expenses on
- loans 949,669 358,238
- short-term bonds 13,523 -
- convertible notes - 20
-----------------------------------
Total interest expenses on borrowings 963,192 358,258
Less: Amount capitalized in property, plant and equipment (239,932) (114,173)
-----------------------------------
Total interest expenses 723,260 244,085
Depreciation of property, plant and equipment 3,174,402 2,124,463
Amortization of goodwill - 21,001
Amortization of negative goodwill - (123,639)
Amortization of land use rights 18,162 9,824
Amortization of other non-current assets 30,089 17,197
Gain on interest rate swaps - (574)
Reversal of provision for doubtful debts (2,367) (11,464)
Loss / (Gain) on disposal of property, plant and equipment 555 (925)
Interest income (25,196) (27,893)
Auditors' remuneration 8,223 8,039
===================================
45
15. Taxation
No Hong Kong profits tax was provided for the six months ended 30th June, 2005
as the Company and its subsidiaries had no estimated assessable profit arising
in or deriving from Hong Kong (2004: Nil).
PRC income tax has been provided on the estimated assessable profit for the
period at their prevailing rates of taxation. Certain of the power plants, being
located in specially designated regions or cities, are subject to preferential
income tax rates. In addition, certain power plants are exempted from the PRC
income tax for two years starting from the first profit-making year (after
covering any accumulated deficits) followed by a 50% exemption of the applicable
tax rate for the next three years. For the six months ended 30th June, 2005, the
weighted average effective tax rate applicable to the Company is approximately
15% (for the six months ended 30th June, 2004: approximately 16%).
Share of taxation of associates amounting to approximately RMB28 million (for
the six months ended 30th June, 2004: approximately Rmb27 million) was included
in share of profit of associates in the unaudited condensed consolidated interim
statement of income.
16. Dividends Declared
On 11th May, 2005, the shareholders approved the declaration of cash dividends
of Rmb0.25 per ordinary share, totaling approximately Rmb3,014 million in their
general meeting. During the period ended 30th June, 2005, dividends of
approximately Rmb3,022 million were paid (2004: Rmb3,006 million), which
represents Rmb0.25 dividends paid per share (2004: Rmb0.25).
46
17. Earnings Per Share
Basic
The calculation of basic earnings per share is based on the net profit
attributable to the equity holders of the Company of approximately Rmb1,679
million (for the six months ended 30th June, 2004: approximately Rmb2,481
million) and the weighted average number of approximately 12,055 million (for
the six months ended 30th June, 2004: approximately 12,055 million) outstanding
ordinary shares during the period.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares at the beginning of the year. In 2005, the Company had
no potential ordinary shares (in 2004: the Company had one category of potential
ordinary shares: convertible notes). The convertible notes in 2004 are assumed
to have been converted into ordinary shares and the net profit in 2004 is
adjusted to eliminate the interest expense less the tax effect for the purpose
of the calculation of the diluted earnings per share in 2004.
47
18. Supplementary Information to Unaudited Condensed Consolidated Interim
Statement of Cash Flows
Cash flows (used in) / provided by investing and financing activities mainly
included the followings:
For the six months ended 30th June,
2005 2004
-----------------------------------
Investing activities:
Cash inflows from the acquired power companies 566,704 -
Cash dividend received 304,460 -
Cash outflow from disposal of Huaneng Nanjing Ranji Power
Generation Limited Liability Company ("Nanjing Ranji") (10,479) -
Proceeds from disposal of Nanjing Ranji 30,000 -
Prepayments of land use rights (97,971) (5,633)
Capital expenditures on power plant construction and improvements (5,619,518) (3,979,081)
Cash consideration paid for acquisitions (2,225,600) -
Direct transaction costs of acquisitions paid (16,698) -
Decrease in temporary cash investments 5,000 88,229
Others (646) 13,467
Financing activities:
Drawdown of:
- Short-term loans, unsecured 7,893,000 5,685,000
- Long-term loans from shareholders, unsecured - 800,000
- Long-term bank loans, unsecured 4,714,309 1,330,000
- Other long-term loans, unsecured 66,389 -
Repayments of:
- Short-term loans, unsecured (7,771,000) (790,000)
- Long-term loans from shareholders, unsecured - (194,500)
- Long-term bank loans, unsecured (940,953) (1,474,593)
- Other long-term loans, unsecured (140,097) (21,022)
Dividends paid to the shareholders of the Company (3,022,096) (3,005,586)
Capital injection from minority shareholders of the subsidiaries 44,830 247,419
Dividend paid to minority shareholders of the subsidiaries (161,680) (123,564)
Issuance of short-term bonds 4,862,200 -
Bonds issuance expense paid (22,500) -
48
19. Related Party Balances and Transactions
The related parties of the Company and its subsidiaries that had transactions
with the Company and its subsidiaries are as follows:
Name of related parties Nature of relationship
---------------------------------------------------------------------------------------------------------------
Huaneng Group Ultimate parent
HIPDC Parent
China Huaneng Finance Company A subsidiary of Huaneng Group
("Huaneng Finance")
Hebei Huaneng Jingyuan Coal A subsidiary of Huaneng Group
Company Limited ("Huaneng Jingyuan")
China Huaneng International Trade A subsidiary of Huaneng Group
Economics Corporation ("CHITEC")
Weihai Power Development Bureau ("WPDB") Minority shareholder of Weihai Power Company
Chongqing Construction and Investment Minority shareholder of Luohuang Power Company
Limited Liability Company ("CCI")
Henan Construction Investment Minority shareholder of Qinbei Power Company
Company ("Henan Investment")
Jiangsu Electric Power Development Minority shareholder of Huaiyin Power Company
Co., Ltd. ("JEPDC")
Jiangsu Yueda Minority shareholder of Huaiyin Power Company
Jiyuan Construction & Investment Minority shareholder of Qinbei Power Company
Company ("Jiyuan Investment")
Shanxi International Power (Group) Minority shareholder of Yushe Power Company
Company Limited ("Shanxi International")
Gansu Provincial Power Construction Minority shareholder of Pingliang Power Company
Investment Development Corporation ("GPPCI")
Sichuan Yongan Hydro Power Joint-Stock Minority shareholder of Mingtai Hydropower
Limited Company ("Sichuan Yongan")
Sichuan Province Power Development Minority shareholder of Baoxinghe Power
Company ("Sichuan Power")
Aba Hydro Power Development Minority shareholder of Taipingyi Hydropower
Co., Ltd. ("Aba Hydro Power")
Shanghai Time Shipping Company A jointly controlled entity of Huaneng Group
Ltd. ("Time Shipping")
49
19. Related Party Balances and Transactions (Cont'd)
Name of related parties Nature of relationship
--------------------------------------------------------------------------------------------------------------
Shandong Rizhao Power Company Ltd. An associate of the Company
("Rizhao Power Company")
Chongqing Huaneng Shifen Company An associate of Luohuang Power Company
Limited ("Shifen Company")
State-owned enterprises* Related parties of the Company
* Huaneng Group is a state-owned enterprise. In accordance with the revised
IAS 24, "Related Party Disclosures", state-owned enterprises and their
subsidiaries, other than entities under Huaneng Group, directly or
indirectly controlled by the PRC government are also defined as related
parties of the Company and its subsidiaries.
The majority of the business activities of the Company and its subsidiaries
are conducted with state-owned enterprises. For the purpose of the related
party transactions disclosure in accordance with IAS 24, the Company and
its subsidiaries have established procedures to determine, to the extent
possible, the identification of the ownership structure of its customers
and suppliers as to whether they are state-owned enterprises. However, many
state-owned enterprises have a multi-layered corporate structure and the
ownership structures change over time as a result of transfers and
privatization programs. Nevertheless, management believes that all material
related party balances and transactions have been adequately disclosed.
In addition to the related party information shown elsewhere in the unaudited
condensed consolidated interim financial statements, the following is a summary
of significant related party transactions entered into in the ordinary course of
business between the Company and its subsidiaries and their related parties
during the period and balances arising from related party transactions at the
end of the period.
50
19. Related Party Balances and Transactions (Cont'd)
(a) Related Party Balances
a. As at 30th June, 2005, current deposits of approximately Rmb1,371
million (31st December, 2004: approximately Rmb1,363 million) were
placed with a non-bank PRC financial institution, Huaneng Finance.
For the six months ended 30th June, 2005, the interest rates of the
current deposits placed with Huaneng Finance ranged from 0.72% to 1.44%
per annum (for the six months ended 30th June, 2004: 0.72% to 1.71% per
annum).
b. As at 30th June, 2005, the long-term loans from Huaneng Group amounted
to Rmb800 million (31st December, 2004: Rmb800 million) bearing
interest rates that ranged from 4.05% to 4.6% per annum (for the six
months ended 30th June, 2004: 3.78% to 4.6% per annum). These loans are
unsecured and payable in accordance with the repayment schedules agreed
with Huaneng Group.
c. As at 30th June, 2005, the long-term loans (including current portion)
from Huaneng Finance, WPDB, JEPDC, CCI, Shanxi International, Sichuan
Power, Sichuan Yongan, Aba Hydro Power and GPPCI amounted to Rmb80
million, Rmb66 million, Rmb19 million, Rmb183 million, Rmb125.2
million, Rmb40 million, Rmb6 million, Rmb212 million and Rmb11 million
(31st December, 2004: Nil, Rmb106 million, Rmb19.47 million and Rmb184
million, Rmb125.2 million, N/A, N/A, N/A and N/A) respectively, bearing
interest rates that ranged from 4.94% to 5.18%, 5.02%, 5.76%, 4.94%,
5.02% to 6.12%, 5.18%, 6.12%, 5.51% and 5.76% per annum (for the six
months ended 30th June, 2004: Nil, 5.76%, 5.76%, N/A, Nil, N/A, N/A,
N/A and N/A per annum) respectively. These loans are unsecured and
payable in accordance with the repayment schedules agreed with the
respective parties.
d. As at 30th June, 2005, short-term loans amounting to approximately
Rmb2,424 million (31st December, 2004: approximately Rmb3,694 million)
were due to Huaneng Finance, which bore interests at 4.54% to 5.02% per
annum (for the six months ended 30th June, 2004: 4.78% to 5.05% per
annum).
e. As at 30th June, 2005, notes receivable amounting to approximately
Rmb80.11 million (31st December, 2004: Nil) were discounted to Huaneng
Finance.
f. As at 30th June, 2005, the balances with Huaneng Group, HIPDC and other
related parties are unsecured, non-interest bearing and receivable or
repayable within one year. Except for an amount due from a related
party of approximately Rmb11 million which was fully provided for in
prior years, no provision has been made in the current period (for the
six months ended 30th June, 2004: Nil) for the receivable balances.
51
19. Related Party Balances and Transactions (Cont'd)
(a) Related Party Balances (Cont'd)
g. As at 30th June, 2005, HIPDC had provided guarantees on certain
accounts receivable balances of the Company and its subsidiaries
totalling approximately Rmb205 million (31st December, 2004:
approximately Rmb209 million).
h. Included in the unaudited condensed consolidated interim balance sheet,
the balances with state-owned enterprises are as follows:
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
Rmb million Rmb million
Non-current assets
Available-for-sale investment 255 255
Other non-current asset 127 -
Current assets
Other receivables and assets, net 981 569
Accounts receivable, net 5,894 4,958
Temporary cash investments 8 13
Cash at banks 1,370 939
Non-current liabilities
Long-term bank loans 19,179 8,413
Other long-term loans 130 -
Current liabilities
Accounts payable and other liabilities 3,250 1,848
Short-term bonds 4,856 -
Short-term loans 4,772 3,921
Current portion of long-term bank loans 1,067 321
Current portion of other long-term loans 70 -
Except for cash at banks, loans and available-for-sale investment
stated above, all the balances of assets and liabilities are unsecured,
non-interest bearing and receivable or repayable within one year. No
provision has been made in the current period (for the six months ended
30th June, 2004: Nil) for the receivable balances.
52
19. Related Party Balances and Transactions (Cont'd)
(b).Related Party Transactions
For the six months ended 30th June,
2005 2004
-----------------------------------
Huaneng Group
Management service fee income 16,921 16,647
Management service expense (605) -
Consideration paid for the acquisitions of Sichuan Hydropower
and Pingliang Power Company (Note 3) (2,025,000) -
HIPDC
Proceeds from disposal of Nanjing Ranji 30,000 -
Management service fee income 1,644 8,653
Service fees expenses on transmission and transformer facilities (70,493) (105,038)
Rental charge on land use rights of Huaneng Shanghai
Shidongkou Second Power Plant - (3,000)
Rental charge on land use rights of Huaneng Nanjing Power Plant (667) (667)
Rental charge on office building (13,000) (12,500)
Huaneng Finance
Discounting of notes receivable 119,664 -
Discounting charges (1,044) -
Drawdown of short-term loans 1,600,000 1,605,000
CHITEC
Coal purchased from CHITEC (276,310) (100,354)
Time Shipping
Coal purchased from Time Shipping and service
fee paid for transportation (274,000) (212,585)
Shifen Company
Lime purchased from Shifen Company (27,296) -
Huaneng Jingyuan
Coal purchased from Huaneng Jingyuan (122,661) -
Jiangsu Yueda
Consideration paid for the acquisition of additional equity
interest in Huaiyin Power Company (Note 3) (200,600) -
WPDB
Drawdown of other long-term loans 66,389 -
53
19. Related Party Balances and Transactions (Cont'd)
(b) Related Party Transactions (Cont'd)
For the six months ended 30th June,
2005 2004
-----------------------------------
Rmb million Rmb million
State-owned enterprises
Sales of electricity 18,794 12,954
Purchases of fuel
- Coal (7,927) (5,551)
- Oil (95) (92)
- Natural gas (19) (16)
Acquisition of property, plant and equipment (3,600) (425)
Acquisition of construction materials (438) (967)
Purchases of raw materials and spare parts (163) (154)
Water charges (34) (39)
Power purchases (20) (9)
Subcontracting labor for
- construction and renovation (381) (313)
- maintenance (207) (264)
Interest income 18 24
Dividend income 35 23
Drawdown of short-term loans 5,263 3,480
Drawdown of long-term bank loans 4,714 1,330
Other charges
- interest expenses of loans and bonds to banks and
other financial institutions (498) (444)
- insurance expenses (36) (40)
- transportation expenses (465) (466)
- rental expenses (16) (16)
- handling fee for disposing of residues (7) (6)
54
19. Related Party Balances and Transactions (Cont'd)
(c) Guaranteed Loans
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
a. Long-term bank loans guaranteed by
- Huaneng Group 7,516,000 3,798,074
- HIPDC 3,666,000 3,936,987
- WPDB 100,000 100,000
- Henan Investment 200,000 200,000
- Jiyuan Investment 125,000 125,000
- Shanxi International 448,000 420,000
- GPPCI 578,625 -
- Sichuan Yongan 15,000 -
b. Certain long-term bank loans of Rizhao Power Company
guaranteed by the Company 292,500 305,250
(d) Key Management Personnel Compensation
For the six months ended 30th June,
2005 2004
-----------------------------------
Salaries and other short-term employee benefits 4,223 3,867
Post-employment benefits 502 407
-----------------------------------
Total 4,725 4,274
===================================
55
20. Pledge of Assets
As mentioned in Note 11, the Company and its subsidiaries have pledged various
assets as collateral against certain loans. A summary of the pledged assets is
as follows:
As at 30th
June,
2005
-----------------
Dongxiguan Hydropower
- Dam 391,248
- Electric utility plant in service 206,251
- Buildings 1,966
- Others 12,168
Kangding Hydropower
- Electric utility plant in service 28,198
Mingtai Hydropower
- Electric utility plant in service 72,320
-----------------
Total 712,151
=================
As at 31st December, 2004, there were no assets pledged as collateral.
21. Capital Commitments
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
Contracted but not provided for 20,176,553 7,923,087
Authorized but not contracted for 566,245 236,501
-----------------------------------
Total 20,742,798 8,159,588
===================================
56
21. Capital Commitments (Cont'd)
During 2004, the Company entered into various long-term agreements subject to
termination only under certain limited circumstances for the procurement of coal
from 2005 to 2009 for use in power generation. In most cases, these contracts
contain provisions for price escalations and minimum purchase level clauses.
Purchases for the periods ended 30th June, 2005 and 2004 were approximately
Rmb2,412 million and Nil respectively. The future purchase commitments under
contracts are as follows:
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
2005 3,427,749 5,768,657
2006 9,110,989 5,941,717
2007 10,136,747 6,119,968
2008 7,553,349 2,801,770
2009 8,465,884 2,801,770
-----------------------------------
38,694,718 23,433,882
===================================
22. Contingent Liabilities
As at As at
30th June, 31st December,
2005 2004
-----------------------------------
Guarantees for loan facilities granted to an associate 292,500 305,250
===================================
57
23. New Accounting Pronouncements
The IASB issued a number of new and revised IASs, IFRSs and the IFRIC issued a
number of new IFRIC Interpretations which are effective for annual accounting
periods beginning on or after 1st March, 2005. The summary is as follows:
(a) IAS 19 Employee Benefits
Effective date: annual periods beginning on or after 1st January, 2006
The amendments introduced an additional recognition option for actuarial
gains and losses arising in post-employment defined benefit plans. They
also clarify (i) a contractual agreement between a multi-employer plan and
participating employers that determines how a surplus is to be distributed
or a deficit funded will give rise to an asset or liability; (ii)
accounting requirements for group defined benefit plans in the separate or
individual financial statements of entities within the group; and (iii)
additional disclosures that (1) provide information about trends in the
assets and liabilities in a defined benefit plan and the assumptions
underlying the components of the defined benefit cost; and (2) bring the
disclosure in IAS 19 closer to those required by the US standard SFAS 132
Employers' Disclosures about Pensions and Other Postretirement Benefits,
which was revised in December, 2003.
The Company and its subsidiaries consider that this revised standard will
not have any material impact on their financial statements.
(b) IAS 32 Financial Instruments: Disclosure and Presentation
Effective date: annual periods beginning on or after 1st January, 2006
The amendment reflects in simultaneous changes in disclosure requirements
of June 2005 amendment of IAS 39.
The Company and its subsidiaries have not completed the assessment of the
effects of adopting this revised standard.
58
23. New Accounting Pronouncements (Cont'd)
(c) IAS 39 Financial Instruments: Recognition and Measurement
Effective date: annual periods beginning on or after 1st January, 2006
The April 2005 amendment clarifies the foreign currency risk of a highly
probable forecast intragroup transaction may qualify as a hedged item in
consolidated financial statements provided that the transaction is
denominated in a currency other than the functional currency of the entity
entering into that transaction and the foreign currency risk will affect
consolidated profit or loss.
The June 2005 amendment refines the definition of financial assets or
financial liabilities at fair value through profit or loss and embedded
derivatives. It also further elaborates the application of valuation
techniques.
The Company and its subsidiaries have not completed the assessment of the
effects of adopting this revised standard.
(d) IFRS 1 First-time Adoption of International Financial Reporting Standards
Effective date: annual periods beginning on or after 1st January, 2006
The amendment reflects simultaneous changes of June 2005 amendment of IAS
39.
The Company and its subsidiaries have considered the effect of adopting
this new standard and do not expect material impact on their financial
statements.
(e) IFRS 6 Exploration for and Evaluation of Mineral Resources
Effective date: annual periods beginning on or after 1st January, 2006
This IFRS permits an entity to continue using accounting policies for
exploration and evaluation assets previously developed as part of the
accounting policies upon the adoption of IFRS 6 while requires the entity
recognizing exploration and evaluation assets to perform an impairment test
on those assets when facts and circumstances suggest that the carrying
amount of the assets may exceed their recoverable amount.
The Company and its subsidiaries have considered the effect of adopting
this new standard and do not expect material impact on the financial
statements.
59
23. New Accounting Pronouncements (Cont'd)
(f) IFRIC Interpretation 3 Emission Rights
Effective date: annual periods beginning on or after 1st March, 2005
This interpretation deals with accounting treatment on "cap and trade"
emission rights scheme. This interpretation requires that any allowance
should be treated as intangible assets and should be measured at fair value
while the obligation of emissions should be measured in accordance with IAS
37. In addition, as the existence or requirements of an emission rights
scheme may cause a reduction in the cash flows expected to be generated for
certain assets, this represented an indication that the related assets may
be impaired and should be tested in accordance with IAS 36.
This IFRIC Interpretation was subsequently withdrawn in July, 2005
(g) IFRIC Interpretation 4 Determining whether an Arrangement contains a Lease
Effective date: annual periods beginning on or after 1st January, 2006
This interpretation provides guidance for determining whether an
arrangement (comprising a transaction or a series of related transactions,
that does not take the legal form of a lease but conveys a right to use an
asset in return for a payment or series of payments) are leases that should
be accounted for in accordance with IAS 17.
The Company and its subsidiaries have not completed the assessment of the
effects of adopting this new interpretation.
(h) IFRIC Interpretation 5 Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds
Effective date: annual periods beginning on or after 1st January, 2006
This interpretation applies to accounting in the financial statements of a
contributor for interests arising from decommissioning funds that have both
the features of (i) the assets are administered separately; and (ii) a
contributor's right to access the assets is restricted.
The Company and its subsidiaries have considered the effect of adopting
this new interpretation and do not expect material impact on the financial
statements.
60
SUPPLEMENTAL INFORMATION FOR NORTH AMERICAN SHAREHOLDERS (UNAUDITED )
(Amounts expressed in thousands of Rmb unless otherwise stated)
The unaudited condensed consolidated interim 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
summarized below:
(a) Effect of the Acquisition of Entities under Common Control
Huaneng Group is the controlling parent company of HIPDC, which in turn is the
controlling parent of the Company.
Under IFRS, the Company and its subsidiaries adopted the acquisition method to
account for the acquisition of:
(i) 70% equity interest in Huaneng Shanghai Shidongkou I Power Plant
("Shidongkou I Power Plant"), 70% equity interest in Taicang Power Company
and all of the assets and liabilities of Huaneng Changxing Power Plant
("Changxing Power Plant") in July, 2002 from Huaneng Group;
(ii) 55% equity interest in Qinbei Power Company, 60% equity interest in Yushe
Power Company and all of the assets and liabilities of Huaneng Xindian
Power Plant ("Xindian Power Plant") in October, 2003 from Huaneng Group;
(iii) 60% equity interest in Luohuang Power Company, 55% equity interest in
Yueyang Power Company, 90% equity interest in Jinggangshan Power Plant and
all of the assets and liabilities of Huaneng Yingkou Power Plant ("Yingkou
Power Plant") in July, 2004 from HIPDC and/or from Huaneng Group; and
(iv) 60% equity interest in Sichuan Hydropower and 65% equity interest in
Pingliang Power Company in January, 2005 from Huaneng Group.
Under the acquisition method, the results of the acquired businesses are
included in the results of operations of the Company and its subsidiaries from
the date of the acquisition. The difference between the purchase consideration
and the fair value of the underlying net assets acquired is treated as goodwill.
In prior years, goodwill arising from the acquisitions in (i) and (ii) above is
amortized on a systematic basis to the income statement over its useful economic
life, being the remaining weighted average useful life of the acquired
depreciable or amortizable assets while goodwill arising from the acquisition in
(iii) above is tested annually for impairment and carried at cost less
accumulated impairment losses. In the current period, goodwill arising from all
the acquisitions above is not amortized and is tested annually for impairment
and carried at cost less accumulated impairment losses.
61
(a) Effect of the Acquisition of Entities under Common Control (cont'd)
As the power companies and power plants acquired were under the control of
Huaneng Group prior to their acquisitions by the Companies and its subsidiaries,
these acquisition transactions were considered common control transactions.
Under US GAAP, they are considered to be transfers of businesses under common
control and the acquired assets and liabilities are accounted for at historical
cost in a manner similar to the pooling of interests method. Accordingly, the
consolidated financial statements for all periods presented have been
retroactively restated as if the current structure and operations resulting from
the acquisition had been in existence since the beginning of the earliest period
presented, with financial data of previously separate entities combined. The
cash consideration paid by the Company is treated as an equity transaction in
the year of the acquisition for US GAAP purposes. Accordingly, the resulting
impact of depreciation and amortization expenses on income is also different.
(b) Effect of Acquisition of 44.16% Equity Interest in Huaiyin Power Company,
30% Additional Equity Interest in Shidongkou I Power Plant, 5% Additional
Equity Interest in Taicang Power Company and 40% Equity Interest in Hebei
Hanfeng Power Generation Limited Liability Company ("Hanfeng Power
Company")
The Company acquired from Huaneng Group:
(i) 44.16% equity interest of Huaiyin Power Company in July, 2002;
(ii) 30% additional equity interest of Shidongkou I Power Plant and 5%
additional equity interest of Taicang Power Company in December, 2002; and
(iii) 40% equity interest of Hanfeng Power Company in July, 2004.
Under IFRS, upon the completion of the above acquisitions, the relevant equity
interests of the net assets of the acquired companies and power plants are
recorded at fair value. The excess of the total cost of the acquisition over the
fair value of the relevant portion of net assets of power plant acquired is
recorded as goodwill. In prior years, goodwill arising from the acquisitions of
Shidongkou I Power Plant, the Taicang Power Company and the Huaiyin Power
Company was amortized on a systematic basis to the income statement over its
useful economic life, being the remaining weighted average useful life of the
acquired depreciable or amortizable assets, while goodwill arising from the
acquisition of Hanfeng Power Company was tested annually for impairment and
carried at cost less accumulated impairment losses. In the current period,
goodwill arising from the acquisition is not amortized and is tested annually
for impairment and carried at cost less accumulated impairment losses.
Under US GAAP, upon completion of the above acquisitions, Huaneng Group's
proportionate share in the net assets of Huaiyin Power Company, Shidongkou I
Power Plant, Taicang Power Company and Hanfeng Power Company being sold to the
Company was recorded at the historical carrying value. The excess of the total
cost of acquisition over the net assets acquired was recorded as a deemed
distribution. Accordingly, the resulting impact of depreciation and amortization
expenses on income is also different.
62
(c) Housing Benefits Provided by HIPDC
HIPDC sold to certain qualified employees of the Company living quarters owned
by HIPDC at preferential prices. The difference between the cost of living
quarters and the sales proceeds received from the employees is considered to be
housing benefits. Under IFRS, such housing benefits provided by HIPDC are not
reflected in the financial statements of the Company. Under US GAAP, the amount
of housing benefits provided by HIPDC to the employees of the Company are
recognized as the Company's operating expenses on a straight-line basis over the
estimated remaining average service life of the employees. The corresponding
amount is recorded as an addition of capital contribution from HIPDC.
(d) Acquisition of Shandong Huaneng Power Development Company Limited ("Shandong
Huaneng")
Huaneng Group used to be one of the substantial shareholders of Shandong
Huaneng, holding 33.09% equity interest in it before the Company's acquisition
of Shandong Huaneng. Under IFRS, upon the completion of the acquisition of
Shandong Huaneng, the entire net assets of Shandong Huaneng were recorded at
fair value. In prior years, the excess of the fair value of the entire net
assets acquired over the total cost of the acquisition was recorded as negative
goodwill. In the current period, the ending balance of negative goodwill brought
forward from prior year is offset against opening retained earnings according to
IFRS 3. 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 that was sold to the Company was recorded at the historical carrying
value. The excess of the proportionate share in the book value of the net assets
acquired over the relevant portion of the cash consideration was recorded as a
capital contribution to the Company. The book value of the remaining 66.91% of
the net assets continues to be part of the recoverable rate base under the cost
recovery formula of the tariff setting mechanism. Under US GAAP, the difference
between these net asset values and the cash consideration was recorded as a
reduction to the property, plant and equipment value of the respective power
plants.
As the amount of negative goodwill originally recognized under IFRS is different
from the amount of the reduction to property, plant and equipment under US GAAP
due to the 33.09% portion of the net assets previously owned by Huaneng Group as
described above and also that the negative goodwill under IFRS is offset against
opening retained earnings in the current period whereas, for US GAAP purposes,
the property, plant and equipment, after the reduction described above, are
depreciated over the respective assets' useful life, the net profit under IFRS
and US GAAP is different.
63
(e) Capitalization of Borrowing Costs
In accordance with IAS 23, the Company capitalized interest on general
borrowings used for the purpose of obtaining a qualifying asset in addition to
the capitalization of interest on specific borrowings.
Under US regulatory accounting requirements, interest on funds borrowed
generally and used for the purpose of obtaining qualifying assets are not
capitalized if such interests cannot be taken into consideration when
determining the recoverable rate base for tariff setting purposes. Consequently,
under US GAAP, the Company did not capitalize interest on general borrowings. An
adjustment is made to reverse the capitalized interest on general borrowings net
of the related depreciation on fixed assets.
(f) Reversal of Goodwill Amortization
In 2004, in accordance with IFRS 3, goodwill arising from acquisitions for which
the agreement date was before 31st March, 2004 is amortized using the
straight-line method over its estimated useful life and recognized in the income
statement as other operating expenses and subject to an impairment review
whenever events or changes in circumstances indicate their carrying value may
not be recoverable, and annually if the estimated useful life exceeds 20 years.
Under US GAAP, in accordance with Statement of Financial Accounting Standard
Number 142 "Goodwill and Other Intangible Assets", goodwill arising from
acquisition is not amortized but tested for impairment on an annual basis and
between annual tests in certain circumstances.
There is no such GAAP difference in the current period.
(g) Deferred Tax Impact
This represents the deferred tax effect on the above GAAP differences where
applicable.
64
Differences between IFRS and US GAAP which affect the net assets and net profit
of the Company and its subsidiaries are summarized below:
Net Assets
As at 30th As at 31st
Note June, 2005 December, 2004
-----------------------------------
Net assets under IFRS 41,626,943 36,265,519
Balance at 1st January, 2005, as previously separately
reported as minority interest ii - 3,266,393
-----------------------------------
Net assets under IFRS, as restated 41,626,943 39,531,912
Minority interest ii (5,434,898) (3,266,393)
Impact of US GAAP adjustments Note i:
Effect of acquisition of Sichuan Hydropower and
Pingliang Power Company (a) (1,043,392) 1,350,313
Effect of acquisition of Yingkou Power Plant,
Jinggangshan Power Plant, the Luohuang Power
Company and Yueyang Power Company (a) (1,926,068) (2,007,383)
Effect of acquisition of Qinbei Power Company,
Yushe Power Company and Xindian Power Plant (a) (355,448) (369,252)
Effect of acquisition of Shidongkou I Power Plant,
Taicang Power Company and Changxing Power Plant (a) (720,273) (775,592)
Effect of acquisition of 40% equity interests in
Hanfeng Power Company, 30% additional equity
interests in Shidongkou I Power Plant, 5% additional
equity interests in Taicang Power Company and 44.16%
equity interests in Huaiyin Power Company (b) (258,426) (271,167)
Recording of capital contribution arising from
acquisition of Shandong Huaneng (d) 862,922 862,922
Difference in accounting treatment for acquisition
of Shandong Huaneng (d) (1,751,541) (348,364)
Difference in capitalization of borrowing costs (e) (84,191) (87,424)
Reversal of goodwill amortization
- Reversal of goodwill amortization of equity investment
in Shenzhen Energy Group Co. Ltd. ("SEG") (f) 136,599 136,599
- Reversal of goodwill amortization of investment in
Huaiyin Power Company (f) 34,740 34,740
Applicable deferred tax impact on the above
GAAP differences (g) 1,137,706 595,569
-----------------------------------
Net assets under US GAAP Note i 32,224,673 35,386,480
===================================
65
Net profit
For the six months ended 30th June,
Note 2005 2004
-----------------------------------
Net profit under IFRS 1,991,504 2,481,127
Minority interest for the six months ended 30th June, 2004,
as previously separately reported as minority interest ii - 92,027
-----------------------------------
Net profit under IFRS, as restated 1,991,504 2,573,154
Profit attributable to Minority Interests ii (312,251) (92,027)
Impact of US GAAP adjustments Note i:
Effect of acquisition of Sichuan Hydropower and
Pingliang Power Company (a) 2,025 210,671
Effect of acquisition of Luohuang Power Company,
Yueyang Power Company, Yingkou Power Plant
and Jinggangshan Power Plant (a) 81,315 240,256
Effect of acquisition of Qinbei Power Company,
Yushe Power Company and Xindian Power Plant (a) 13,804 24,351
Effect of acquisition of Shidongkou I Power Plant,
Taicang Power Company and Changxing Power Plant (a) 55,319 56,403
Effect of acquisition of 40% equity interest in
Hanfeng Power Company, 30% additional equity
interest in Shidongkou I Power Plant, 5% additional
equity interest in Taicang Power Company and 44.16%
equity interest in Huaiyin Power Company (b) 12,741 9,875
Recording housing benefits provided by HIPDC (c) (13,076) (13,076)
Difference in accounting treatment for acquisition
of Shandong Huaneng (d) 80,493 (43,146)
Difference in capitalization of borrowing costs (e) 3,233 3,233
Reversal of goodwill amortization
- Reversal of goodwill amortization of equity
investment in SEG (f) - 40,980
- Reversal of goodwill amortization of investment in
Huaiyin Power Company (f) - 8,685
Applicable deferred tax impact on the GAAP differences (g) (51,146) (59,656)
Others - 8,653
-----------------------------------
Net profit under US GAAP Note i 1,863,961 2,968,356
===================================
66
(Note i) Consistent with applying the accounting treatment under US GAAP
as described in Note (a) above, the unaudited consolidated net
assets and net profit under US GAAP for prior periods presented
have been retroactively restated as if the current structure and
operations resulted from the acquisition of Sichuan Hydropower,
Pingliang Power Company, Luohuang Power Company, Yueyang Power
Company, Yingkou Power Plant and Jinggangshan Power Plant had been
in existence since the beginning of the earliest period presented.
(Note ii) Consistent with disclosure requirement of revised IAS 1 --
Presentation of Financial Statements, minority interest in the
unaudited consolidated net assets and net profit under IFRS for
prior periods should be included as a portion of total equity and
total profit attributable to shareholders respectively.
67
BALANCE SHEET (UNAUDITED)
AS AT 30TH JUNE, 2005
(Prepared in accordance with PRC Accounting Standards)
(All amounts are stated in Rmb Yuan unless otherwise stated)
Consolidated The Company
30th June, 31st December, 30th June, 1st December,
ASSETS Note 2005 2004 2005 2004
-----------------------------------------------------------------
CURRENT ASSETS
Cash 5(1) 2,932,644,401 2,510,859,390 1,181,977,987 1,381,509,573
Short-term investment 13,200 13,200 13,200 13,200
Notes receivable 5(2) 1,079,472,495 1,242,671,845 423,519,366 682,937,156
Dividends receivable - - 208,092,087 -
Interest receivable 1,822,634 1,734,452 1,822,634 1,734,452
Accounts receivable 5(3),6(1) 4,817,943,375 3,730,431,156 2,710,067,016 2,407,133,652
Other receivables 5(3),6(1) 477,372,022 292,845,939 146,389,144 126,090,716
Advance to suppliers 5(4) 660,896,479 441,370,775 212,215,636 233,095,644
Inventories 5(5) 2,538,944,427 1,431,403,605 1,543,327,873 822,343,887
Deferred expenses 46,296,934 2,319,162 35,595,969 2,155,328
Current portion of long-term debt
investments 5(6) 4,000 5,000 4,000 5,000
-----------------------------------------------------------------
Total current assets 12,555,409,967 9,653,654,524 6,463,024,912 5,657,018,608
-----------------------------------------------------------------
LONG-TERM INVESTMENTS
Long-term equity investments 5(6), 6(2) 6,397,216,325 5,886,238,518 12,743,255,437 10,382,796,256
Long-term debt investments 5(6) 53,700 53,700 53,700 53,700
-----------------------------------------------------------------
Total long-term investment 6,397,270,025 5,886,292,218 12,743,309,137 10,382,849,956
-----------------------------------------------------------------
Including: Consolidated difference
in value 5(6) 1,928,670,419 1,331,850,487 - -
FIXED ASSETS
Fixed assets, cost 5(7) 95,341,474,572 80,565,305,102 56,576,719,989 56,178,137,905
Less: Accumulated Depreciation 5(7) (39,419,221,578) (33,246,132,232) (24,341,840,464)(22,322,890,662)
-----------------------------------------------------------------
Fixed assets, net book value 5(7) 55,922,252,994 47,319,172,870 32,234,879,525 33,855,247,243
Construction materials 5(8) 5,161,554,766 3,876,065,407 1,716,238,060 1,367,377,823
Construction-in-progress 5(9) 8,626,971,400 5,128,225,240 3,409,346,971 1,928,434,464
-----------------------------------------------------------------
Total fixed assets 69,710,779,160 56,323,463,517 37,360,464,556 37,151,059,530
-----------------------------------------------------------------
INTANGIBLE AND OTHER ASSETS
Intangible assets 5(10) (294,337,932) (551,009,877) (487,682,906) (665,167,689)
Long-term deferred expenses 34,271,392 12,577,696 7,032,457 6,227,106
Other long-term assets 5(11) 126,633,493 - - -
-----------------------------------------------------------------
Total intangible and other assets (133,433,047) (538,432,181) (480,650,449) (658,940,583)
-----------------------------------------------------------------
TOTAL ASSETS 88,530,026,105 71,324,978,078 56,086,148,156 52,531,987,511
=================================================================
68
Consolidated The Company
30th June, 1st December, 30th June, 31st December,
LIABILITIES AND SHAREHOLDERS' EQUITY Note 2005 2004 2005 2004
-----------------------------------------------------------------
CURRENT LIABILITIES
Short-term loans 5(12) 8,675,300,000 8,099,000,000 4,600,000,000 4,330,000,000
Short-term bonds 5(13) 4,875,722,910 - 4,875,722,910 -
Notes payable 10,000,000 29,000,000 - -
Accounts payable 5(14) 1,450,466,809 738,762,443 699,539,217 523,267,513
Salary payable 31,194,551 39,736,104 1,199,489 19,024,218
Welfare payable 179,418,021 219,555,237 96,491,185 156,331,795
Interest payable 268,583,531 121,270,836 83,000,145 88,192,171
Dividends payable 80,764,356 21,668,696 - 8,250,000
Taxes payable 5(15) 748,430,349 999,792,185 293,924,051 547,544,918
Other levies payable 73,861,129 37,477,764 34,078,417 18,123,901
Other payables 5(16) 3,034,161,419 3,706,812,746 1,252,990,080 2,303,996,599
Accrued expenses 164,951,318 43,572,392 60,079,305 43,502,856
Current portion of long-term loans 5(17) 2,390,949,310 1,543,237,546 823,286,905 825,142,210
Provisions 4,416,483 - - -
-----------------------------------------------------------------
Total current liabilities 21,988,220,186 15,599,885,949 12,820,311,704 8,863,376,181
-----------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term loans 5(17) 26,553,681,844 15,955,289,378 7,475,887,678 6,485,208,795
Other non-current liability 14,500,000 13,000,000 - -
-----------------------------------------------------------------
Total long-term liabilities 26,568,181,844 15,968,289,378 7,475,887,678 6,485,208,795
-----------------------------------------------------------------
TOTAL LIABILITIES 48,556,402,030 31,568,175,327 20,296,199,382 15,348,584,976
-----------------------------------------------------------------
MINORITY INTERESTS 4,183,675,301 2,573,400,216 - -
-----------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 5(18) 12,055,383,440 12,055,383,440 12,055,383,440 12,055,383,440
Capital surplus 5(19) 8,616,086,160 8,615,982,210 8,616,086,160 8,615,982,210
Surplus reserves 5(20) 4,112,214,828 4,112,214,828 4,112,214,828 4,112,214,828
Including: Statutory public welfare fund5(20) 1,863,280,308 1,863,280,308 1,863,280,308 1,863,280,308
Undistributed profits 5(21) 11,006,264,346 12,399,822,057 11,006,264,346 12,399,822,057
-----------------------------------------------------------------
Total shareholders' equity 35,789,948,774 37,183,402,535 35,789,948,774 37,183,402,535
-----------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 88,530,026,105 71,324,978,078 56,086,148,156 52,531,987,511
=================================================================
The accompanying notes form an integral part of these financial statements.
Legal representative: Person in charge of Person in charge of
accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
69
PROFIT AND LOSS ACCOUNTS (UNAUDITED)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(Prepared in accordance with PRC Accounting Standards)
(All amounts are stated in Rmb Yuan unless otherwise stated)
For the six months ended 30th June,
Consolidated The Company
Note 2005 2004 2005 2004
-------------------------------------------------------------------
1. Revenue from principal operations 5(22), 6(3) 18,860,674,631 13,040,289,339 12,465,249,767 11,104,641,146
Less: Cost of principal
operations 5(22), 6(3)(15,381,295,296) (9,498,640,593) (10,583,594,083) (8,157,868,496)
Tax and levies on
principal operations (54,980,528) (25,297,711) (3,393,902) (3,139,092)
-------------------------------------------------------------------
2. Profit from principal operations 3,424,398,807 3,516,351,035 1,878,261,782 2,943,633,558
Add: Profit from other operations 30,598,625 13,054,772 24,682,764 12,316,201
Less: General and administrative
expenses (444,897,068) (210,090,841) (291,456,064) (156,908,707)
Financial expenses, net 5(23) (687,155,433) (255,383,895) (342,163,702) (186,597,160)
-------------------------------------------------------------------
3. Operating profit 2,322,944,931 3,063,931,071 1,269,324,780 2,612,443,892
Add: Investment income 5(24), 6(4) 98,672,174 79,858,472 560,728,153 281,650,229
Non-operating income 13,328,952 1,428,338 12,888,342 1,433,597
Less: Non-operating expenses (42,932,245) (4,544,990) (3,655,748) (3,194,339)
-------------------------------------------------------------------
4. Profit before taxation and
minority interests 2,392,013,812 3,140,672,891 1,839,285,527 2,892,333,379
Less: Income tax (400,460,328) (510,203,778) (218,997,378) (361,368,854)
Minority interests (371,265,335) (99,504,588) - -
-------------------------------------------------------------------
5. Net profit 1,620,288,149 2,530,964,525 1,620,288,149 2,530,964,525
-------------------------------------------------------------------
70
For the six months ended 30th June,
Consolidated The Company
Supplemental information: 2005 2004 2005 2004
--------------------------------------------------------------
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.
Legal representative: Person in charge of Person in charge of
accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
71
STATEMENT OF INCOME APPROPRIATION (UNAUDITED)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(Prepared in accordance with PRC Accounting Standards)
(All amounts are stated in Rmb Yuan unless otherwise stated)
For the six months ended 30th June,
Consolidated The Company
Note 2005 2004 2005 2004
--------------------------------------------------------------
1. Net profit 1,620,288,149 2,530,964,525 1,620,288,149 2,530,964,525
Add: Undistributed profit
brought forward 5(21) 12,399,822,057 13,981,531,454 12,399,822,057 13,981,531,454
--------------------------------------------------------------
2. Undistributed profit 14,020,110,206 16,512,495,979 14,020,110,206 16,512,495,979
Less: Transfer to statutory
surplus reserve fund - - - -
Transfer to statutory public welfare fund - - - -
--------------------------------------------------------------
3. Profit distributable to shareholders 14,020,110,206 16,512,495,979 14,020,110,206
16,512,495,979
Less: Dividends 5(21) (3,013,845,860) (3,013,835,600) (3,013,845,860)
(3,013,835,600 )
Bonus shares 5(21) - (3,013,835,600) - 3,013,835,600)
--------------------------------------------------------------
4. Undistributed profit carried forward 5(21) 11,006,264,346 10,484,824,779 11,006,264,346 10,484,824,779
--------------------------------------------------------------
The accompanying notes form an integral part of these financial statements.
Legal representative: Person in charge of Person in charge of
accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
72
CASH FLOW STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(Prepared in accordance with PRC Accounting Standards)
(All amounts are stated in Rmb Yuan unless otherwise stated)
Items Note Consolidated The Company
------------------------------------------------------------------------------------------------------------------
1. Cash flows from operating activities
Cash received from sale of goods and services 21,507,255,412 14,540,888,709
Other cash received relating to operating activities 50,515,039 28,400,718
-------------------------------------------
Sub-total of cash inflows 21,557,770,451 14,569,289,427
-------------------------------------------
Cash paid for goods and services (12,935,010,021) (9,129,515,837)
Cash paid to and on behalf of employees (1,238,152,560) (894,906,327)
Payment of all types of taxes (2,729,865,671) (1,696,708,576)
Other cash paid relating to operating activities 5(26) (1,779,078,559) (1,485,690,109)
-------------------------------------------
Sub-total of cash outflows (18,682,106,811) (13,206,820,849)
-------------------------------------------
Net cash flows from operating activities 2,875,663,640 1,362,468,578
-------------------------------------------
2. Cash flows from investing activities
Cash received on disposal of investments 37,490,834 35,084,044
Cash received on investment income 304,460,330 464,257,792
Net cash received from disposals of fixed assets 4,615,819 3,290,619
Other cash received relating to investing activities 25,328,394 13,351,386
-------------------------------------------
Sub-total of cash inflows 371,895,377 515,983,841
-------------------------------------------
Cash paid to acquire fixed assets, intangible assets and other
long-term assets (5,730,956,974) (2,306,924,936)
Capital injection to subsidiaries (200,600,000) (447,060,000)
Cash paid to acquire equity interest in subsidiaries 5(25) (1,458,296,346) (2,025,000,000)
Other cash paid relating to investing activities (10,479,471) (14,068,480)
-------------------------------------------
Sub-total of cash outflows (7,400,332,791) (4,793,053,416)
-------------------------------------------
Net cash flows used in investing activities (7,028,437,414) (4,277,069,575)
-------------------------------------------
73
Items Note Consolidated The Company
------------------------------------------------------------------------------------------------------------------
3. Cash flows from financing activities
Cash received from investments 44,830,000 -
Including: cash received from minority
shareholders' equity
investments in subsidiaries 44,830,000 -
Cash received from borrowings 12,673,697,492 6,771,439,300
Other cash received relating to financing activities 4,862,200,000 4,862,200,000
-------------------------------------------
Sub-total of cash inflows 17,580,727,492 11,633,639,300
-------------------------------------------
Cash paid on repayment of borrowings (8,852,049,685) (5,512,707,996)
Cash payments of interest expenses, dividends and
appropriation of profit (4,121,380,956) (3,378,671,994)
Including: dividends paid to minority
shareholders of subsidiaries (161,680,506) -
Other cash paid relating to financing activities (22,524,101) (22,524,101)
-------------------------------------------
Sub-total of cash outflows (12,995,954,742) (8,913,904,091)
-------------------------------------------
Net cash flows from financing activities 4,584,772,750 2,719,735,209
-------------------------------------------
4. Effect of foreign exchange rate changes on cash (2,807,175) (2,785,950)
-------------------------------------------
5. Net increase(decrease) in cash 5(1) 429,191,801 (197,651,738)
===========================================
74
Supplementary Information Consolidated The Company
------------------------------------------------------------------------------------------------------------------
1. Reconciliation of net profit to cash flows from operating activities
Net profit 1,620,288,149 1,620,288,149
Add: Minority interests 371,265,335 -
Reversal for asset impairment (2,278,382) (2,256,582)
Depreciation of fixed assets 3,010,679,419 2,017,852,446
Amortization of intangible assets (107,805,407) (110,340,539)
Amortization of long-term deferred expenses 754,581 1,315,133
Increase in deferred expenses (43,514,082) (33,440,641)
Increase in accrued expenses 93,502,534 6,653,215
Loss on disposal of fixed assets 555,426 622,393
Financial expenses 676,067,429 334,877,094
Gains arising from investments (98,672,174) (560,728,153)
Increase in inventories (1,052,893,770) (721,138,072)
Increase in operating receivables items (675,726,816) (1,249,613,035)
Increase (decrease) in operating payables items (916,558,602) 58,377,170
-------------------------------------------
Net cash flows from operating activities 2,875,663,640 1,362,468,578
===========================================
2. Investing and financing activities that do
not involve cash receipts or payments
Conversion of debt into capital - -
Reclassification of current portion of
convertible notes to current liabilities - -
Fixed assets capitalized under finance leases - -
3. Net increase(decrease) in cash
Cash at end of period 2,724,722,773 1,013,526,279
Less: cash at beginning of period (2,295,530,972) (1,211,178,017)
Cash equivalents at end of period - -
Less: cash equivalents at beginning of period - -
-------------------------------------------
Net increase(decrease) in cash 429,191,801 (197,651,738)
===========================================
The accompanying notes form an integral part of these financial statements.
Legal representative: Person in charge of Person in charge of
accounting function: accounting department:
Li Xiaopeng Huang Jian Zhou Hui
75
NOTES TO THE Financial STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(Prepared in accordance with PRC Accounting Standards)
(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 ultimate consumers through the respective provincial
or regional grid companies.
Five of the power plants had already been 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 branches of Huaneng International Power Development Corporation (the
"HIPDC"), which is a Sino-foreign equity joint venture established in the PRC.
In accordance with the Reorganization Agreement dated 30th June, 1994, the
Company acquired the assets, liabilities and businesses of the five original
operating plants from HIPDC which in return received an equity interest in the
Company (the "Reorganization"). The other operating plants were either
constructed or acquired by the Company after the Reorganization.
The Company's Overseas Listed Foreign Shares were listed on the New York Stock
Exchange and The Stock Exchange of Hong Kong Limited on 6th October, 1994 and
4th March, 1998, respectively. The A shares of the Company issued to the public
were listed on the Shanghai Stock Exchange on 6th December, 2001.
The Company's ultimate parent company is China Huaneng Group (the "Huaneng
Group").Huaneng Group is a state-owned enterprise registered in People Republic
of China. For details, please refer to Note 7(1).
On 26th October, 2004, the Company entered into an agreement with Huaneng Group
pursuant to which the Company acquired from Huaneng Group 60% equity interest in
Sichuan Huaneng Hydropower Development Corporation, Ltd (the "Sichuan
Hydropower") and 65% equity interest in the Gansu Huaneng Pingliang Power
Generation Limited Liability Company (the "Pingliang Power Company") at
considerations of Rmb1,219 million and Rmb806 million respectively. After
meeting all the necessary conditions, the payments of the purchase
considerations and the transfer of relevant ownership and control, the
acquisitions were effective on 5th January, 2005. Please refer to Note 5(25).
On 26th May, 2005, the Company entered into an agreement with Jiangsu Yueda
Investment Co. Ltd (the "Jiangsu Yueda" ) pursuant to which the Company acquired
from Jiangsu Yueda 26.36% equity interest in Jiangsu Huaneng Huaiyin Power
Limited Company (the "Huaiyin Power Company") at a consideration of Rmb200.6
million. After this acquisition, the Company's equity interest in Huaiyin Power
Company is up to 90%. After meeting all the necessary conditions, the payments
of the purchase considerations and the transfer of relevant ownership, the
Company obtained the aforementioned interest on 30th June, 2005.
76
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 as promulgated by the PRC.
(2) Accounting year
The financial year starts on 1st January and ends on 31st December.
(3) Reporting currency
The Company and its subsidiaries use the Renminbi as reporting currency.
(4) Basis of accounting and measurement bases
Accrual method is used as the basis of accounting. Assets are initially recorded
at their costs. Subsequently, if they are impaired, impairment provisions are
taken accordingly.
(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 those attributable to foreign currency borrowings that have been taken out
specifically for construction of fixed assets, in which case, the foreign
exchange differences 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 refer to short-term,
highly-liquid investments with original maturities of three months or less that
are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
For the purpose of the cash flow statement, restricted cash and time deposits
with maturity beyond three months are not considered as cash and cash
equivalents. Their movements are considered as cash flows from investing
activities.
77
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(7) Receivables and provision for bad debts
Receivables include accounts receivable and other receivables.
The Company and its subsidiaries make provision for bad debts using the
"allowance method". Receivables are netted with the provision for bad debts.
Provisions for bad debts are made based on an assessment of the collectibility
of the receivables. Based on the actual circumstances and experiences, the
Company and its subsidiaries made provisions against balances that have been
assessed to be uncollectible.
For balances where there are clear evidence that they cannot be recovered (e.g.
creditor has been deregistered, declared bankrupt, is unable to meet its
liabilities as they fall due or is having serious cash-flow issues), then bad
debts are recognized and the balances are written off against the provision.
(8) Inventories
Inventories include fuel for power generation, materials and supplies for
repairs and maintenance. Inventories are recorded at actual cost and are charged
to fuel costs or repairs and maintenance when used, or capitalized to fixed
assets when installed, as appropriate, using the weighted average cost basis.
Cost of inventories includes costs of purchase and transportation costs.
Inventories at balance sheet date are stated at the 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 replacement cost.
The company and its subsidiaries use a perpetual inventory system.
78
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(9) Long-term investments
Long-term investments comprise equity investments in companies that the Company
does not intend to dispose of within one year, bonds and other debt investments
that are not readily convertible into cash or the Company does not intend to
dispose.
(a) Equity investment
Subsidiaries are investees in which the Company has, directly or
indirectly, an interest of more than 50% of the voting rights, or
otherwise has the power to govern the investees' financial and
operating policies. Associates generally represent investees in which
the Company has an interest of between 20% to 50% of the voting rights
or otherwise has significant influence over the financial and operating
policies.
Long-term equity investments are recorded at the actual cost of
acquisition. The Company accounts for long-term equity investments in
subsidiaries and associates using the equity method of accounting.
Other equity investments, which the Company intends to hold for more
than one year, are accounted for using the cost method of accounting.
When long-term equity investments acquired prior to 17th March, 2003
are accounted for using the equity method of accounting, the difference
between the initial cost of investment and the proportionate share of
the net assets of the investee is amortized using the straight-line
method over ten years. When long-term equity investments acquired after
17th March, 2003 are accounted for using the equity method of
accounting, if the initial cost of investment is less than the
proportionate share of the net assets of the investee, the difference
is accounted for as capital surplus. If there is an excess of the
initial cost of investment over the proportionate share of net assets
of the investee, the excess is amortized using the straight-line method
over a certain period of not more than 10 years.
Under the equity method of accounting, the attributable share of the
investees' net profit or loss for the year is recognized as an
investment income or loss. When the investees declare dividends, the
carrying amount of the investment is reduced accordingly. Under the
cost method of accounting, investment income is recognized when the
investees declare dividends.
79
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(9) Long-term investments (Cont'd)
(b) Debt investment
Long-term debt investments are recorded at cost on acquisition, less
unpaid interest which has been accrued. The interest receivable
computed in the current period is recognized as interest income.
Entrusted loans refer to loans that the Company provides to related
parties via intermediary financial institutions with maturities over
one year. Interest income is accrued based on the interest rate agreed
in the contract and recorded as income in each period. Interest
receivable that has been accrued, but cannot be collected when due, is
written off.
(c) Impairment of long-term investment
If the recoverable amount of an investment is lower than the carrying
amount, as a result of a continuous decline in market value or adverse
changes in operating condition of the investee enterprise, the
difference between the recoverable amount and the carrying amount of
the investment is recognised as a provision for impairment loss.
If there are indications that the factors, based on which a provision
for impairment loss of a long-term investment was recognized in prior
years, have changed, resulting in the recoverable amount of the
long-term investment higher than its carrying amount, the provision for
impairment is reversed up to the amount of the impairment loss being
recognized in prior years.
(10) Fixed assets and depreciation
Fixed assets are tangible assets that are used in power production or
held for management purposes, which have useful lives over one year and
have relatively high unit price. Effective from 1st January, 2001, when
construction takes place on the Company's land and the construction is
for its own use, the carrying value of land use right is capitalized as
part of the cost of buildings within fixed assets.
Fixed assets purchased or constructed were initially recorded at cost.
Fixed assets obtained upon the 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.
80
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(10) Fixed assets and depreciation (Cont'd)
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
Water retaining structure 45-55 years 0% 1.82%-2.22%
Buildings 8-55 years 0%-11% 1.81%-12.50%
Electric utility plant in service 4-40 years 0%-11% 2.43%-25.00%
Transportation and
transmission facilities 5-27 years 5%-11% 3.30%-19.40%
Others 2.5-18 years 0%-11% 5.56%-40.00%
When fixed assets are sold, transferred, disposed of or destroyed, proceeds
reduced by the carrying amount of the assets, related taxes and expenses, are
included in non-operating income or expenses.
Repairs and maintenance of fixed assets are expensed as incurred. Subsequent
expenditures for major reconstruction, expansion, improvement and renovation are
capitalized when it is probable that future economic benefits in excess of the
original assessment of performance will flow to the Company. Capitalized
expenditures arising from major reconstruction, expansion and improvement are
depreciated using the straight-line method over the remaining useful lives of
the fixed assets. Capitalized expenditures arising from the renovation of fixed
assets are depreciated over the expected beneficial period.
Fixed assets at balance sheet date are stated at the lower of the recoverable
amount and the carrying amount. If there are indications that the carrying
amount of the fixed assets is higher than their recoverable amount, an
impairment test is carried out. If the carrying amount of the fixed assets
exceeds their recoverable amount, the excess is recognized as an impairment
loss.
If there are indications that the factors, based on which an impairment loss for
a fixed assets was recognized in prior years, have changed, resulting in the
recoverable amount of the fixed assets higher than their carrying amount, the
provision for fixed assets impairment is reversed up to the amount of the
impairment loss recognized in prior years.
81
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(11) Construction-in-progress
Construction-in-progress represents capital assets under construction or being
installed and is stated at cost. Cost comprises original cost of plant and
equipment, installation, construction and other direct costs which include
interest costs incurred on specific borrowings used to finance the capital
assets, prior to the date at which the asset reaches the expected usable
condition. Construction-in-progress is transferred to the fixed assets account
and depreciation commences when the assets have been substantially completed and
reaches the expected usable condition.
If there are indications showing that the carrying amount of an individual
construction-in-progress is higher than its recoverable amount, an impairment
test is carried out. If the carrying amount of the construction-in-progress
exceeds its recoverable amount, the excess is recognized as an impairment loss.
If there are indications that the factors, based on which an impairment loss for
a construction-in-progress was recognized in prior years, have changed,
resulting in the recoverable amount of the construction-in-progress higher than
its carrying amount, the provision for impairment loss is reversed up to the
amount of the impairment loss recognized in prior years.
(12) Intangible assets and amortization
Intangible assets include land use rights, goodwill and negative goodwill.
The land use rights acquired through payment of land use fees, are initially
recorded at cost. They are recorded as intangible assets and amortized, before
the construction takes place on land, using the straight-line method over the
land use rights period of 20 to 70 years. Effective from 1st January, 2001, when
construction takes place on the land and the construction is for the Company's
own use, then the carrying value of the land use rights is transferred into the
construction-in-progress account . Land use rights acquired prior to 1st
January, 2001 on which construction of fixed assets has already completed are
not reclassified.
Goodwill and negative goodwill arising from acquisitions are amortized over 10
years on a straight-line basis.
Intangible assets at balance sheet date are stated at lower of the recoverable
amount and the carrying amount. If there are indications that the carrying
amount of the intangible asset is higher than their recoverable amount, an
impairment test is carried out. If the carrying amount of the intangible asset
exceeds its recoverable amount, the excess is recognized as an impairment loss.
82
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(12) Intangible assets and amortization (Cont'd)
If there are indications that the factors, based on which an impairment loss for
an intangible asset was recognized in prior years, have changed, resulting in
the recoverable amount of the intangible asset higher than its carrying amount,
the impairment loss is reversed up to the amount of the impairment loss
recognized in prior years.
(13) Long-term deferred expenses
Long-term deferred expenses represent other deferred expenses with amortization
period more than one year (exclude one year). They are stated at cost and
amortized using the straight-line method over the expected beneficial period of
the asset.
(14) Borrowing costs
Interest, ancillary costs and exchange differences incurred in connection with
specific borrowings obtained for the acquisition or construction of fixed assets
are capitalized as costs of the assets when the capital expenditures and
borrowing costs are 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 on the specific borrowings during that period.
Exchange differences 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.
Interest on other borrowings is recognized as expenses in the period in which it
is incurred.
83
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(15) Short-term bonds
Proceeds received on issuance of short-term bonds are initially recorded as a
liability.
Interest on short-term bonds is accounted for on an accrual basis. Interest and
issuance costs that do not meet the capitalization requirements are expensed.
The difference (discount or premium) between the proceeds received and the face
value of the short-term bonds is amortized using the effective interest rate
method over the period of the bonds.
(16) Employee social security benefits
The Company and its subsidiaries participate in employee social security plans,
including pension, medical, housing and other welfare benefits, organised by the
local government authorities in accordance with relevant regulations. Except for
the above social security benefits, the Company and its subsidiaries have no
other material commitment for 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
certain percentages (47% to 62.5%) of the total salary of employees, subject to
specified ceilings. Contributions to the plans are charged to the profit and
loss account as incurred.
(17) Profit distribution
Cash dividend is transferred out of owners' equity in the period when the cash
dividend is approved by the shareholders at their annual general meeting, and
stock dividend is recognized as share capital in the period when the stock
dividend is approved by the shareholders.
84
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(18) Revenue recognition
Revenue is recognized under the following methods:
(a) Operating revenue
Operating revenue represents amounts earned for electricity generated
and transmitted to the ultimate consumers through respective provincial
or regional grid companies (net of Value Added Tax (the "VAT")). The
Company and its subsidiaries bill the respective grid companies and
recognize revenue based on the actual quantity of electricity
transmitted or sold to the power grid controlled and owned by the
respective grid companies at the end of each month.
(b) Management service income
As mentioned in Note 7(5)(h), the Company provides management service
to certain power plants owned by the Huaneng Group and HIPDC. The
Company recognizes a management service income as other income when
service is rendered in accordance with the management service
agreement.
(c) Other income
Interest income from deposits is recognized on a time proportion basis
that reflect the effective yield on the assets.
Subsidies are recognized when received.
Rental income under operating leases is recognized on a straight-line
basis over the relevant lease term.
(19) Lease
Leases where all the risks and rewards of ownership of the assets are in
substance transferred to the lessees are classified as finance leases. All other
leases are operating leases. Payments made under operating leases are expensed
on a straight-line basis over the period of the lease.
85
2. Principal Accounting Policies, Accounting Estimates and Basis of Preparation
of Consolidated Financial Statements (Cont'd)
(20) Accounting for income tax
The Company and its subsidiaries account for enterprise and local income taxes
using the tax payable method. Tax expense is recognized based on current period
taxable income and tax rates.
(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",
"Accounting System for Business Enterprises" and relevant regulations issued by
the Ministry of Finance of the PRC.
The revenue, costs and profit of a subsidiary is 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
adjusted to ensure consistency with the policies adopted by the Company.
86
3. Taxation
(1) Value added tax
The electricity sales of the Company and its subsidiaries are subjected to Value
Added Tax (the "VAT"). The applicable tax rate is 17%. Input VAT from purchase
of raw materials and other production materials are 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
(the "EIT") and 3% of local income tax). If these enterprises are located in
certain specified locations or cities, or are specifically approved by the State
Tax Bureau, a lower tax rate would be applied. 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) is applicable across the country. The Company applied this rule to all
of its directly owned operating power plants after obtaining the approval of the
State Tax Bureau.
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 Huaneng Dezhou Power Plant (the "Dezhou Power Plant"), Huaneng Jining Power
Plant (the "Jining Power Plant"), Huaneng Changxing Power Plant (the "Changxing
Power Plant"), Huaneng Shanghai Shidongkou Power Plant (the "Shidongkou I Power
Plant") and Huaneng Xindian Power Plant (the "Xindian Power Plant"))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.
In accordance with Guo Shui Han [1994] No.381, the head office, the Shandong
branch (the former headquarters of Shandong Huaneng Power Development Company
Limited (the "Shandong Huaneng")) and all the individual power plants make their
income tax payment to local tax bureau individually.
87
3. Taxation (Cont'd)
(2) Income tax (Cont'd)
The statutory income tax rates applicable to the head office, the Shandong
branch, the operating individual power plants and the Company's subsidiaries,
after the expiration of tax holiday are summarized as follows:
Income tax rate Tax holiday period
Head Office 15.0% None
Huaneng Dalian Power Plant
(the "Dalian Power Plant") 18.0% Till 31st December, 1994
Huaneng Dalian Power Plant Phase II
(the "Dalian Power Plant Phase II") 18.0% Till 31st December, 2008
Huaneng Shang'an Power Plant
(the "Shang'an Power Plant") 18.0% Till 31st December, 1996
Huaneng Shang'an Power Plant Phase II
(the "Shang'an Power Plant Phase II") 18.0% Till 31st December, 2003
Huaneng Nantong Power Plant
(the "Nantong Power Plant") 15.0% Till 31st December, 1996
Huaneng Nantong Power Plant Phase II
(the "Nantong Power Plant Phase II") 15.0% Till 31st December, 2004
Huaneng Fuzhou Power Plant
(the "Fuzhou Power Plant") 15.0% Till 31st December, 1995
Huaneng Fuzhou Power Plant Phase II
(the "Fuzhou Power Plant Phase II") 15.0% Till 31st December, 2004
Huaneng Shantou Oil-Fired Plant
(the "Shantou Oil-Fired Power Plant") 15.0% Till 31st December, 1994
Huaneng Shantou Coal-Fired Power Plant
(the "Shantou Power Plant") 15.0% Till 31st December, 2005
Huaneng Shanghai Shidongkou Second Power Plant
(the "Shidongkou II Power Plant") 16.5% Till 31st December, 1998
Huaneng Dandong Power Plant
(the "Dandong Power Plant") 18.0% Not commenced yet
Huaneng Nanjing Power Plant
(the "Nanjing Power Plant") 15.0% Till 31st December, 2004
Shandong Branch 17.0% None
88
3. Taxation (Cont'd)
(2) Income tax (Cont'd)
Income tax rate Tax holiday period
Dezhou Power Plant 17.0% None
Jining Power Plant 15.0% None
Changxing Power Plant 16.5% None
Shidongkou I Power Plant 18.0% None
Xindian Power Plant 15.0% None
Huaneng Yingkou Power Plant
(the " Yingkou Power Plant ") 18.0% Not commenced yet
Huaneng Jinggangshan Power Plant
(the "Jinggangshan Power Plant") 18.0% Till 31st December, 2008
Huaneng Weihai Power Company
(the "Weihai Power Company") 33.0% None
Suzhou Industrial Park Huaneng Power Limited
Liability Company (the "Taicang Power Company") 33.0% None
Huaiyin Power Company 33.0% None
Jiangsu Huaneng Huaiyin Second Power
Limited Company (the "Huaiyin II Power Company") 33.0% None
Shanxi Huaneng Yushe Power Company
(the"Yushe Power Company") 33.0% None
Hunan Huaneng Yueyang Power Company
(the"Yueyang Power Company") 33.0% None
Chongqing Huaneng Luohuang Power Company
(the"Luohuang Power Company") 15.0% Till 31st December, 2007
Henan Huaneng Qinbei Power Company
(the"Qinbei Power Company") 33.0% None
Pingliang Power Company 33.0% Till 31st December, 2010
Sichuan Huaneng Taipingyi Hydropower Limited
Liability Company (the "Taipingyi Hydropower") 33.0% Till 31st December, 2010
Sichuan Huaneng Baoxinghe Power Limited
Liability Company (the "Baoxinghe Power") 33.0% Till 31st December, 2010
Sichuan Huaneng Dongxiguan Hydropower Limited
Liability Company (the "Dongxiguan Hydropower") 33.0% Till 31st December, 2010
89
3. Taxation (Cont'd)
(2) Income tax (Cont'd)
Income tax rate Tax holiday period
Sichuan Huaneng Kangding Hydropower Limited
Liability Company (the "Kangding Hydropower") 33.0% Till 31st December, 2010
Sichuan Huaneng Mingtai Hydropower Limited
Liability Company (the "Mingtai Hydropower") 33.0% Till 31st December, 2010
Sichuan Huaneng Fujiang Hydropower Limited
Liability Company (the "Fujiang Hydropower") 33.0% Till 31st December, 2010
Sichuan Huaneng Jialingjiang Hydropower Limited
Liability Company (the "Jialingjiang Hydropower") 33.0% Till 31st December, 2010
Sichuan Hydropower 33.0% Till 31st December, 2010
The statutory income tax rates applicable to the head office, the Shandong
branch, the operating individual power plants and the Company's subsidiaries,
after taking the tax holiday into consideration, are summarized as follow:
For the six months ended 30th June,
Approved File No. 2005 2004
-------------------------------- -------------------------------------
Head Office Guo Shui Han [1997]368 15.0% 15.0%
Dalian Power Plant Guo Shui Han [1994]381 18.0% 18.0%
Dalian Power Plant Phase II (Note 1) Guo Shui Zhi Shui Han [2004]12 15.0% 15.0%
Shangan Power Plant Guo Shui Han [1994]381 & 18.0% 18.0%
Guo Shui Han [1999]604
Shangan Power Plant Phase II Guo Shui Han [1994]381 & 18.0% 18.0%
Guo Shui Han [2000]194
Nantong Power Plant Guo Shui Han [1994]381 15.0% 15.0%
Nantong Power Plant Phase II (Note 2) Guo Shui Han [1994]381 & 15.0% 7.5%
Su Guo Shui Han [2003]248&
Tong Guo Shui Wai Zi [2003] 1
Fuzhou Power Plant Guo Shui Han [1994]381 15.0% 15.0%
Fuzhou Power Plant Phase II (Note 3) Guo Shui Han [1994]381 & 15.0% 7.5%
Min Guo Shui Han [2003]37
Shantou Oil-Fired Plant Guo Shui Han [1994]381 15.0% 15.0%
90
3. Taxation (Cont'd)
(2) Income tax (Cont'd)
For the six months ended 30th June,
Approved File No. 2005 2004
-------------------------------- -------------------------------------
Shantou Power Plant (Note 4) Approved by Shantou State 10.0% 10.0%
Tax Bureau
Shidongkou II Power Plant Approved by Shanghai State 16.5% 16.5%
Tax Bureau
Dandong Power Plant (Note 5) Dan Guo Shui She Wai [1999]7 - -
Nanjing Power Plant (Note 6) Ning Guo Shui Wai Zi [1997]039 15.0% 10.0%
Shandong Branch Guo Shui Han [2001]866 17.0% 17.0%
Dezhou Power Plant Guo Shui Han [2001]866 17.0% 17.0%
Jining Power Plant Guo Shui Han [2002]1063 & 15.0% 15.0%
Ji Guo Shui Han [2003]1
Changxing Power Plant Guo Shui Han [2002]1030 16.5% 16.5%
Shidongkou I Power Plant Hu Guo Shui Ba Shui [2003]31 18.0% 18.0%
Xindian Power Plant (Note 7) Lin Guo Shui Han [2004]123 15.0% 15.0%
Yingkou Power Plant (Note 5,10) Approved by Yingkou State - N/A
Tax Bureau
Jinggangshan Power Plant (Note 8,10) Ji An Shi Guo Shui Zhong - N/A
Qi Fa 2004(20)
Weihai Power Company Not applicable 33.0% 33.0%
Taicang Power Company Not applicable 33.0% 33.0%
Huaiying Power Company Not applicable 33.0% 33.0%
Huaiying II Power Company Not applicable 33.0% 33.0%
Yushe Power Company Not applicable 33.0% 33.0%
Yueyang Power Company (Note 10) Not applicable 33.0% N/A
Luohuang Power Company (Note 9,10) Approved by Chongqing State
Tax Bureau 7.5% N/A
Qinbei Power Company (Note 11) Guo Shui Fa[2002]47 - N/A
Pingliang Power Company (Note 10,12) Guo Shui Fa[2002]47 & 15.0% N/A
Gan Guo Shui[2002]08
Taipingyi Hydropower (Note 10,12) Guo Shui Fa[2002]47 & 15.0% N/A
A Zhou Guo Shui Han[2004]28
91
3. Taxation (Cont'd)
(2) Income tax (Cont'd)
For the six months ended 30th June,
Approved File No. 2005 2004
-------------------------------- -------------------------------------
Baoxinghe Hydropower (Note 10,12) Guo Shui Fa[2002]47 & 15.0% N/A
Ya Guo Shui Han Zheng
Shou Han [2003]38
Dongxiguan Hydropower (Note 10,12) Guo Shui Fa [2002]47 & 15.0% N/A
Chuan Ti Gai [1994]333
Kangding Hydropower (Note 10,12) Guo Shui Fa[2002]47 7.5% N/A
Mingtai Hydropower (Note 10,12) Guo Shui Fa[2002]47 - N/A
Fujiang Hydropower (Note 10,12) Guo Shui Fa[2002]47 - N/A
Jialingjiang Hydropower (Note 10,12) Guo Shui Fa[2002]47 15.0% N/A
Note:
(1) In accordance with Guo Shui Zhi Shui Han [2004] No.12, the tax holiday of
the Dalian Power Plant Phase II is determined separately from the Dalian
Power Plant. The Dalian Power Plant Phase II is entitled to a 50% reduction
of the applicable tax rate from 1st January, 2001 to 31st December, 2003,
and a 3% reduction of the local applicable tax rate from 1st January, 1999
to 31st December, 2008.
(2) In accordance with Su Guo Shui Han [2003] No. 248 and Tong Guo Shui Wai Zi
[2003] No.1, the tax holiday of the Nantong Power Plant Phase II is
determined separately from the Nantong Power Plant. The Nantong Power Plant
Phase II is entitled to a 50% reduction of the applicable tax rate from 1st
January, 2002 to 31st December, 2004. Therefore, from 1st January, 2005,
the applicable income tax rate of the Nantong Power Plant Phase II is 15%.
(3) In accordance with Min Guo Shui Han [2003] No. 37, the tax holiday of the
Fuzhou Power Plant Phase II is determined separately from the Fuzhou Power
Plant. The Fuzhou Power Plant Phase II is entitled to a 50% reduction of
the applicable tax rate from 1st January 2002 to 31st December, 2004.
Therefore, from 1st January, 2005. the applicable income tax rate of the
Fuzhou Power Plant Phase II is 15%.
(4) In accordance with the approval from Shantou State Tax Bureau Shewai Branch
dated 16th January, 2003, the Shantou Power Plant is qualified as a foreign
invested advanced technology enterprise and is, therefore, entitled to
extend its tax holiday for three years from 1st January, 2003 to 31st
December, 2005. The applicable tax rate during the extension period is 10%.
(5) Dandong Power Plant and Yingkou Power Plant are still in the
tax-loss-offsetting period, so their tax holidays have not commenced yet.
92
3. Taxation (Cont'd)
(2) Income tax (Cont'd)
(6) In accordance with Ning Guo Shui Wai Zi [1997] No.39, the Nanjing Power
Plant is qualified as a foreign invested advanced technology enterprise and
is, therefore, entitled to extend its tax holiday for three years from 1st
January, 2002 to 31st December, 2004. The applicable tax rate during the
extension period is 10%. From 1st January, 2005, the applicable income tax
rate of the Nanjing Power Plant is 15%.
(7) The Company acquired all of the assets and liabilities of the Xindian Power
Plant on 27th October, 2003 and the Xindian Power Plant became a branch of
the Company. In accordance with Lin Guo Shui Han [2004] No.123, the Xindian
Power Plant is entitled to the preferential tax treatment applicable to
Sino-foreign enterprises investing in energy industry at a reduced income
tax rate of 15%.
(8) In accordance with Ji An Shi Guo Shui Zhong Qi Fa 2004 No. 20, the
Jinggangshan Power Plant is entitled to a tax holiday from 1st July, 2004
to 31st December, 2005. Therefore, the applicable tax rate is zero during
this period.
(9) In accordance with the approval from Chongqing State Tax Bureau Shewai
Branch, the Luohuang Power Company is entitled to a tax holiday from 1st
January, 2003 to 31st December, 2007. Therefore, the applicable income tax
rate of Luohuang is 7.5% in 2005.
(10) Not applicable in the first half of 2004 as they were not branches or
subsidiaries of the Company.
(11) Not applicable in the first half of 2004 as the Qinbei Power Company did
not commence its commercial operations until November 2004.
(12) In accordance with Guo Shui Fa [2002] No.47 "The announcement about the
opinion of carrying out specific taxation implementation according to West
Development Policy" issued by the State Tax Bureau, and the approval of the
relevant local tax bureaus, Pingliang Power Company, Taipingyi Hydropower,
Baoxinghe Hydropower, Dongxiguan Hydropower, Kangding Hydropower, Mingtai
Hydropower, Jialingjiang Hydropower and Fujiang Hydropower are entitled to
a 15% income tax rate from 1st January, 2001 to 31st December, 2010.
Kangding Hydropower is entitled to a tax holiday from 1st January, 2003 to
31st December, 2007. Therefore the applicable income tax rate is 7.5% in
2005. The tax rate was approved by the local tax bureau. Mingtai Hydropower
is still in the period of offsetting tax loss; therefore, the applicable
income tax rate is zero. Fujiang Hydropower is entitled to a tax holiday
from 1st January, 2005 to 31st December, 2009. Therefore the applicable
income tax rate is zero in 2005. Mingtai Hydropower and Fujiang
Hydropower's approval of the tax holiday are still in the application
process.
93
4. Subsidiaries
As at 30th June, 2005, the detailed information of the Company's subsidiaries is
as follows:
Total investment Percentage of
contributed by equity interest Included in
Place and the Company held by the Consolidated
date of Registered Principal and its Company and Financial
Name incorporation capital activities subsidiaries its subsidiaries Statements
-----------------------------------------------------------------------------------------------------------------------------------
Direct Indirect
Weihai Power Company No. 58 Haifu road, Rmb761,883,300 Power generation Rmb474,038,793 60% Yes
Economic Development
Zone, Weihai, Shandong
province 22nd November,
1993
Taicang Power Jinjihupan, Sanxing
Company Road, Suzhou, Jiangsu Rmb632,840,000 Power generation Rmb661,293,633 75% Yes
province
19th June, 1997
Huaneng Taicang Power Jinlanglanggang village, Rmb894,410,000 Power generation Rmb335,410,000 75% Yes
Limited Company Fuqiao town, Taicang,
(the "Taicang II Jiangsu province
Power Company") 18th June, 2004
Huaiyin Power No. 291 Huaihai West Rmb265,000,000 Power generation Rmb693,399,531 90% Yes
Company Road, Huai'an, Jiangsu
province
26th January, 1995
Huaiyin II Power No. 291 Huaihai West Rmb474,000,000 Power generation Rmb397,113,600 63.64% Yes
Company Road, Huai'an, Jiangsu
province
22nd June, 2004
Qinbei Power Company Wulongkou town, Jiyuan Rmb10,000,000 Power generation Rmb441,556,956 55% Yes
city, Henan province
12th July, 1995
Yushe Power Company Dengyu village, Yushe Rmb615,760,000 Power generation Rmb380,385,896 60% Yes
county, Shanxi
province
29th November, 1994
Shandong Huaneng Qilu Chemical Industrial Rmb100,000,000 Power generation Rmb151,100,000 95% Yes
Xindian Power Limited Park, Linzi district,
Company (the "Xindian Zibo, Shandong province
II Power Company") 14th March, 2004
94
4. Subsidiaries (Cont'd)
Total investment Percentage of
contributed by equity interest Included in
Place and the Company held by the Consolidated
date of Registered Principal and its Company and Financial
Name incorporation capital activities subsidiaries its subsidiaries Statements
-----------------------------------------------------------------------------------------------------------------------------------
Direct Indirect
Yueyang Power Cheng LingJi, Yueyang, Rmb560,000,000 Power generation Rmb710,451,197 55% Yes
Company Hunan province
16th December, 2003
Luohuang Power Luohuang County ,Jiang Rmb900,000,000 Power generation Rmb1,504,301,221 60% Yes
Company Jin city, Chong Qing
16th December, 2003
Huaneng Shanghai No.298 Shengshi Road, Rmb50,000,000 Power generation Rmb35,000,000 70% Yes
Power Ranji Baoshan district,
Generation Limited Shanghai
Liability Company 13th Janunary,2005
(the "Shanghai Ranji
Power Company")
Sichuan Hydropower No. 47 division 4 Rmb800,000,000 Investment Rmb1,219,000,000 60% Yes
Renmin South Road, Holding
Wuhou district, Chengdu,
Sichuan province
12th July,2004
Baoxinghe Hydropower No.18 Yanjiang North Rmb516,100,000 Power generation Rmb350,948,000 68% Yes
Road, Ya'an, Sichuan
province
19th June,1994
Dongxiguan Li'an town, Wusheng Rmb156,725,000 Power generation Rmb86,715,942 55.33% Yes
Hydropower county, Sichuan
province
29th June,1994
Taipingyi Hydropower Yingxiu town, Wenchuan Rmb100,000,000 Power generation Rmb60,000,000 60% Yes
county, Sichuan
province
23rd April,1994
Kangding Hydropower Yuanyang ba, Kangding Rmb194,000,000 Power generation Rmb163,600,000 60% Yes
county, Ganzi, Sichuan
province
14th April,1994
95
4. Subsidiaries (Cont'd)
Total investment Percentage of
contributed by equity interest Included in
Place and the Company held by the Consolidated
date of Registered Principal and its Company and Financial
Name incorporation capital activities subsidiaries its subsidiaries Statements
-----------------------------------------------------------------------------------------------------------------------------------
Direct Indirect
Mingtai Hydropower Donghe Road, Beiba Rmb97,700,000 Power generation Rmb50,999,400 52.2% Yes
Development Zone,
Santai county, Sichuan
province
22nd May,2000
Jialingjiang No.189 Liulin Road, Rmb193,080,000 Power generation Rmb87,220,000 55% Yes
Hydropower Shunqing district,
Nanchong, Sichuan
province
30th September,1998
Fujiang Hydropower Baima village, Pingwu Rmb150,000,000 Power generation Rmb133,630,000 95% Yes
county, Sichan province
22nd March,2002
Pingliang Power No.7 Binhe middle Road, Rmb623,000,000 Power generation Rmb806,000,000 65% Yes
Company Qilihe district,
Lanzhou, Gansu province
6th November, 1996
Shanxi Huaneng Yushe Dengyu village, Yushe Rmb3,000,000 Services Rmb2,850,000 95% No
County Yuanheng county, Shanxi province
Service Company (the 17th Septermber,2002
"Yuanheng Company")
As at 30th June, 2005, Yushe Power Company, one of the Company's subsidiaries,
had 95% equity interest in Yuanheng Company. The registered capital of Yuanheng
Company was Rmb3, 000,000, and Yushe Power Company's investment in Yuanheng
Company was Rmb2, 850,000. The principal operating activities of Yuanheng
Company are the provision of logistic services and other services to Yushe Power
Company. As at 30th June, 2005, the total assets of Yuanheng Company amounted to
Rmb35,774,646, and net liability amounted to Rmb617,757. For the six months
ended 30th June, 2005, the net profit of Yuanheng Company amounted to
Rmb733,615. Since the assets, liabilities and operating results of Yuanheng
Company are immaterial to the Company, they have not been included in these
consolidated financial statements.
96
5. Notes to the Consolidated Financial Statements
(1) Cash
30th June, 2005 31st December, 2004
Original Original
currency Exchange Rmb currency Exchange Rmb
amount rate equivalent amount rate equivalent
---------------------------------------------------------------------------------------
Cash on hand - RMB 837,863 620,687
Bank deposit - RMB 2,770,251,012 2,350,491,735
- USD 19,519,785 8.2765 161,555,502 19,301,268 8.2765 159,746,942
- Japanese Yen 325 0.0751 24 325 0.0797 26
---------------------------------------------------------------------------------------
Sub-total 2,931,806,538 2,510,238,703
---------------------------------------------------------------------------------------
Total cash 2,932,644,401 2,510,859,390
=======================================================================================
Cash as stated in the cash flow statement comprised the following:
30th June, 2005
-------------------------
Cash 2,932,644,401
Less: Time deposit with maturity beyond 3 months (7,640,652)
Restricted cash (200,280,976)
-------------------------
Cash as at 30th June, 2005 2,724,722,773
Less: Cash as at 31st December, 2004 (2,295,530,972)
-------------------------
Net increase in cash 429,191,801
-------------------------
Please refer to Note 7 for cash deposits in related parties.
97
5. Notes to the Consolidated Financial Statements (Cont'd)
(2) Notes receivable
30th June, 31st December,
2005 2004
-------------------------------------------
Banking notes receivable 569,142,495 430,181,845
Commercial notes receivable 510,330,000 812,490,000
-------------------------------------------
1,079,472,495 1,242,671,845
===========================================
As at 30th June, 2005 and 31st December, 2004, all the notes receivable were
unsecured notes receivable.
(3) Accounts receivable and other receivables
(i) Accounts receivable
30th June, 31st December,
2005 2004
-------------------------------------------
Accounts receivable 5,265,559,444 4,080,533,818
Less: Specific Bad Debt Provision (447,616,069) (350,102,662)
-------------------------------------------
4,817,943,375 3,730,431,156
===========================================
98
5. Notes to the Consolidated Financial Statements (Cont'd)
(3) Accounts receivable and other receivables (Cont'd)
(i) Accounts receivable (Cont'd)
Accounts receivable's aging and bad debt provision are as follows:
30th June, 2005 31st December, 2004
Percentage Bad debt Percentage Bad debt
Aging Amount (%) provision Amount (%) provision
-------------------------------------------------------------------------------------------------------------------
Within 1 year 4,276,790,143 81 - 3,267,696,332 80 -
1-2 years 111,815,777 2 - 96,807,620 2 -
2-3 years 14,754,095 - (1,611,249) - - -
Over 3 years* 862,199,429 17 (446,004,820) 716,029,866 18 (350,102,662)
----------------------------------------------------------------------------------------------------
5,265,559,444 100 (447,616,069) 4,080,533,818 100 (350,102,662)
====================================================================================================
* As at 30th June, 2005 and 31st December, 2004, the major portion of
the accounts receivable aged over 3 years but not provided for was
Yueyang Power Company and Luohuang Power Company's account
receivables due from local grid companies. According to the
acquisition agreement with HIPDC, HIPDC has agreed to compensate
the Company's equity portion in the above two subsidiaries on any
amount of these receivable that remains uncollected by 31st
December, 2006. Therefore, no bad debt provision has been made for
these accounts receivables by the Company and its subsidiaries.
All accounts receivable balances represent receivables from the
provincial or regional grid companies for the sales of electric
power.
As at 30th June, 2005, the five largest accounts receivables of the
Company and its subsidiaries amounted to Rmb2,849,264,010 (31st
December, 2004: Rmb2,315,793,777), representing 54.11% of the total
accounts receivable (31st December, 2004: 56.75%).
99
5. Notes to the Consolidated Financial Statements (Cont'd)
(3) Accounts receivable and other receivables (Cont'd)
(ii)Other receivables
30th June, 31st December,
2005 2004
-------------------------------------------
Other receivables 567,939,909 341,953,996
Less: bad debt provision (90,567,887) (49,108,057)
-------------------------------------------
477,372,022 292,845,939
===========================================
Other receivables' aging and bad debt provision are as follows:
30th June, 2005 31st December, 2004
Percentage Bad debt Percentage Bad debt
Aging Amount (%) provision Amount (%) provision
-------------------------------------------------------------------------------------------------------------------
Within 1 year 336,264,989 59 (1,239,505) 187,298,876 55 (5,618,966)
1-2 years 47,128,648 8 (26,232) 49,794,157 15 (1,493,825)
2-3 years 36,212,528 7 (6,240,708) 22,263,956 6 (667,919)
Over 3 years 148,333,744 26 (83,061,442) 82,597,007 24 (41,327,347)
----------------------------------------------------------------------------------------------------
567,939,909 100 (90,567,887) 341,953,996 100 (49,108,057)
====================================================================================================
100
5. Notes to the Consolidated Financial Statements (Cont'd)
(3) Accounts receivable and other receivables (Cont'd)
(ii)Other receivables (Cont'd)
Breakdown of other receivables is as follows:
30th June, 31st December,
2005 2004
-------------------------------------------
Receivable from employees for sales of staff quarters 72,586 11,142,227
Social insurance funds 26,964,224 31,859,569
Petty cash 19,832,992 9,571,945
Payment of steam on behalf of Jining Power Plant
Duojing Company 22,859,074 13,414,304
Payment on behalf of Huai'an Huaneng Shiye Company 19,931,226 20,064,009
Receivable from Huadong Power Grids Company 120,000,000 -
Prepayments for constructions 25,234,940 12,086,529
Others 333,044,867 243,815,413
-------------------------------------------
567,939,909 341,953,996
-------------------------------------------
As at 30th June, 2005, the five largest other receivables of the
Company and its subsidiaries amounted to Rmb244,005,336 (31st December,
2004: Rmb135,176,856), representing 42.96% of total other receivables
(31st December, 2004: 39.53%).
As at 30th June, 2005, there were no accounts receivable and other
receivables due from shareholders who held 5% or more of the equity
interest in the Company, except for an other receivable balance of
Rmb8,460,600 (31st December, 2004:Nil) due from Huaneng Group.
See Note 7 for the balances due from or due to related parties.
101
5. Notes to the Consolidated Financial Statements (Cont'd)
(4) Advance to suppliers
30th June, 31st December,
2005 2004
-------------------------------------------
Prepayments for coal 397,004,935 293,181,969
Prepayments for materials and spare parts 65,355,356 33,467,251
Prepayments for equipments 66,543,542 32,551,886
Prepayments to contractors 56,183,241 26,498,054
Others 75,809,405 55,671,615
-------------------------------------------
660,896,479 441,370,775
-------------------------------------------
Aging for advance to suppliers is as follows:
30th June, 2005 31st December, 2004
Percentage Percentage
Aging Amount (%) Amount (%)
------------------------------------------------------------------------------------------------------------------
Within 1 year 524,380,259 79 434,116,293 98
1-2 years 48,590,054 7 5,512,106 2
2-3 years 9,062,274 2 208,500 -
Over 3 years 78,863,892 12 1,533,876 -
-----------------------------------------------------------------------------------------
660,896,479 100 441,370,775 100
-----------------------------------------------------------------------------------------
As at 30th June, 2005, there was no advance paid to shareholders who held 5% or
more of the equity interest in the Company.
See Note 7 for the balances due from or due to related parties.
102
5. Notes to the Consolidated Financial Statements (Cont'd)
(5) Inventories
30th June, 31st December,
2005 2004
-------------------------------------------
Fuel (coal and oil) for power generation 1,765,323,722 732,834,080
Materials and spare parts 790,389,943 715,249,762
-------------------------------------------
2,555,713,665 1,448,083,842
Less: provision for inventory obsolescence-spare parts (16,769,238) (16,680,237)
-------------------------------------------
2,538,944,427 1,431,403,605
===========================================
Movement of provision for inventory obsolescence during the period is analyzed as follows:
Provision for
inventory
obsolescence-
spare parts
-------------------------
31st December, 2004 (16,680,237)
Current period addition (153,585)
Current period deduction 64,584
-------------------------
30th June, 2005 (16,769,238)
=========================
For the six months ended 30th June, 2005, the cost of inventories recognized as
expenses and included in cost of sales amounted to Rmb10,518,697,137(For the six
months ended at 30th June, 2004: Rmb6,125,255,044).
103
5. Notes to the Consolidated Financial Statements (Cont'd)
(6) Long-term investments
31st December, Current period Current period
2004 additions deductions 30th June, 2005
-------------------------------------------------------------------
Long-term equity investments -
Consolidated difference in value (i) 1,331,850,487 716,349,005 (119,529,073) 1,928,670,419
Associates (ii) 3,217,902,086 244,835,252 (269,621,332) 3,193,116,006
Equity investment difference (iii) 1,075,342,379 - (61,473,005) 1,013,869,374
Other long-term equity investments (iv) 261,143,566 500,000 (83,040) 261,560,526
-------------------------------------------------------------------
Long-term equity investments 5,886,238,518 961,684,257 (450,706,450) 6,397,216,325
-------------------------------------------------------------------
Long-term debt investments 58,700 - (1,000) 57,700
Less: current portion of long-term debt investments (5,000) - 1,000 (4,000)
-------------------------------------------------------------------
Long-term debt investments 53,700 - - 53,700
-------------------------------------------------------------------
Total long-term investments 5,886,292,218 961,684,257 (450,706,450) 6,397,270,025
-------------------------------------------------------------------
As at 30th June, 2005 and 31st December 2004, the Company and its subsidiaries'
total long-term investments accounted for 17.87 % and 15.83% of the Company and
its subsidiaries' net assets respectively.
As at 30th June, 2005 and 31st December 2004, there was no indication of
impairment of long-term investments of the Company and its subsidiaries and
therefore no provision for 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.
104
5. Notes to the Consolidated Financial Statements (Cont'd)
(6) Long-term investments (Cont'd)
(i) Equity investment difference that resulted in consolidated difference
in value
Consolidated difference in value mainly represents the difference
between the considerations paid for the acquisitions of Taicang Power
Company, Huaiyin Power Company, Qinbei Power Company, Yushe Power
Company, Yueyang Power Company, Luohuang Power Company, Sichuan
Hydropower and Pingliang Power Company, and the proportionate share of
the net assets of these eight companies. Details are summarized as
follows:
Balance at Balance at
Amortization 31st December Current period Current period Accumulated 30th June,
Name period Original cost 2004 additions amortization amortization 2005
---------------------------------------------------------------------------------------------------------------------------
Taicang Power
Company 10 years 191,587,073 144,655,775 - (9,579,354) (56,510,562) (135,076,421)
Huaiyin Power
Company 10 years 211,580,733 118,274,556 59,957,428 (7,581,165) (40,929,914) 170,650,819
Qinbei Power
Company 10 years 96,461,357 85,207,532 - (4,823,068) (16,076,893) 80,384,464
Yushe Power
Company 10 years 5,936,001 5,342,401 - (296,800) (890,400) 5,045,601
Yueyang Power
Company 7.5years 393,716,359 367,468,602 - (26,247,757) (52,495,514) 341,220,845
Luohuang Power
Company 8.5years 649,082,972 610,901,621 - (38,181,351) (76,362,702) 572,720,270
Sichuan
Hydropower 10 years 451,067,215 - 451,067,215 (22,553,360) (22,553,360) 428,513,855
Pingliang Power
Company 10 years 205,324,362 - 205,324,362 (10,266,218) (10,266,218) 195,058,144
-----------------------------------------------------------------------------------------------------------
2,204,756,072 1,331,850,487 716,349,005 (119,529,073) (276,085,653) 1,928,670,419
===========================================================================================================
105
5. Notes to the Consolidated Financial Statements (Cont'd)
(6) Long-term investments (Cont'd)
(ii) Investment in associates
Total investment
Places and contributed by the Percentage of
dates of Registered Principal Company and its equity interest
Name incorporation capital activities subsidiaries held
------------------------------------------------------------------------------------------------------------------------
Associates:
Shandong Rizhao Rizhao, Shandong US$150 million Power generation Rmb231.87 million 25.5%
Power Limited province
Liability Company 20th March, 1996
(the "Rizhao
Power Company")
Shenzhen Energy Shenzhen, Rmb955.56 million Development, Rmb2,390 million 25%
Group Co., Ltd. Guangdong province production and sale
(the "SEG") 16th July, 1997 of energy, and
energy construction
project
Hebei Hanfeng Yijing villiage, Rmb1,975 million Power generation 40%
Power Limited Fengfeng mine, RMB1,241.49 million
Liability Company Handan, Hebei
(the "Hanfeng province
Power Company") 28th October, 1996
Chongqing Huaneng Luohuang county, Rmb50 million Lime production Rmb12.5 million 25%
Lime Company Jiangjin city, and sale
Limited (the Chongqing
"Lime Company") 5th November,1996
106
5. Notes to the Consolidated Financial Statements (Cont'd)
(6) Long-term investments (Cont'd)
(ii)Investment in associates (Cont'd)
Percentage of equity
Investment interest held
Name period by the Company Investment cost movement Accumulated equity pick-up movement
--------------------------------------------------------------------------------------------------------------------
31st 30th 31st 30th 31st period 30th
December, June, December, June, December, additions June,
2004 2005 2004 2005 2004 (deductions) 2005
--------------------------------------------------------------------------------------------------------------------
Rizhao Power 20 years 25.5% 25.5% 231,868,800 231,868,800 (64,830,409) 26,289,185 (38,541,224)
Company
SEG No specific 25% 25% 1,595,902,576 1,595,902,576 362,700,789 112,085,000 474,785,789
terms
Hanfeng 25 years 40% 40% 940,103,488 806,121,370 133,167,724 (28,802,927) 104,364,797
Power Company
Lime Company No specific 25% 25% 18,028,710 18,028,710 960,408 (375,220) 585,188
terms
----------------------------------------------------------------------
2,785,903,574 2,651,921,456 431,998,512 109,196,038 541,194,550
======================================================================
[TABLE CONTINUED]
Name Net carrying value
----------------------------------------------
31st December, 30th June,
2004 2005
-----------------------------------------------
Rizhao Power 167,038,391 193,327,576
Company
SEG 1,958,603,365 2,070,688,365
Hanfeng 1,073,271,212 910,486,167
Power Company
Lime Company 18,989,118 18,613,898
-------------------------------
3,217,902,086 3,193,116,006
===============================
(iii) Equity investment difference
Equity investment difference on associates mainly represents the
differences between the considerations paid for the acquisitions of SEG
and Hanfeng Power Company, and the proportionate share of the net
assets of these two companies. Details are summarized as follows:
Balance at
Amortization 31st December, Current period Accumulated Balance at
Name period Original cost 2004 amortization amortization 30th June, 2005
---------------------------------------------------------------------------------------------------------------
SEG 10 years 794,097,424 661,747,854 (39,704,872) (172,054,442) 622,042,982
Hanfeng Power
Company 10 years 435,362,658 413,594,525 (21,768,133) (43,536,266) 391,826,392
------------------------------------------------------------------------------
1,229,460,082 1,075,342,379 (61,473,005) (215,590,708) 1,013,869,374
==============================================================================
107
5. Notes to the Consolidated Financial Statements (Cont'd)
(6) Long-term investments (Cont'd)
(iv) Other long-term equity investments
Other long-term equity investments mainly represent the 2.11% (2004: 2.11 %) equity investment in China
Yangtze Power Co., Ltd (the "Yangtze Company"), details are as follows:
Total investment
contributed by Stock Current period
Name Investment period the Company Stock category amount additions/deductions
-------------------------------------------------------------------------------------------------------------
Yangtze Starting from 22nd
Company August, 2002, with no Non-circulate
specific terms 254,989,551 stock 165,900,000 None
108
5. Notes to the Consolidated Financial Statements (Cont'd)
(7) Fixed assets and accumulated depreciation
The movement of cost of fixed assets and accumulated depreciation are as
follows:
Electric Transportation
utility and
Water retaining plant transmission
structure Buildings in service facilities Others Total
-------------------------------------------------------------------------------------------------------------------------------
Cost
31st December, 2004 - 2,554,360,403 75,380,590,710 540,248,325 2,090,105,664 80,565,305,102
Reclassification - (397,835,060) 508,510,433 (44,919,581) (65,755,792) -
Additions from acquisition 2,224,273,866 882,998,833 8,217,308,532 96,096,456 232,444,563 11,653,122,250
Transfer from construction -
in-progress - 639,502 3,053,195,682 - 17,925,311 3,071,760,495
Current period additions - 3,963,002 25,996,536 - 34,396,982 64,356,520
Current period disposals - (612,414) (6,681,660) - (5,775,721) (13,069,795)
---------------------------------------------------------------------------------------------------
30th June, 2005 2,224,273,866 3,043,514,266 87,178,920,233 591,425,200 2,303,341,007 95,341,474,572
---------------------------------------------------------------------------------------------------
Accumulated depreciation
31st December, 2004 - 562,520,489 31,359,289,541 240,598,360 1,083,723,842 33,246,132,232
Reclassification - 5,060,416 (41,991,744) 279,811 36,651,517 -
Additions from acquisition 414,013,496 67,604,623 2,520,981,910 12,240,890 150,820,620 3,165,661,539
Current period depreciation 18,224,592 57,807,254 2,811,058,692 9,736,449 118,499,370 3,015,326,357
Current period disposals - (142,320) (3,071,612) - (4,684,618) (7,898,550)
---------------------------------------------------------------------------------------------------
30th June, 2005 432,238,088 692,850,462 36,646,266,787 262,855,510 1,385,010,731 39,419,221,578
---------------------------------------------------------------------------------------------------
Net book value
30th June, 2005 1,792,035,778 2,350,663,804 50,532,653,446 328,569,690 918,330,276 55,922,252,994
===================================================================================================
31st December, 2004 - 1,991,839,914 44,021,301,169 299,649,965 1,006,381,822 47,319,172,870
===================================================================================================
109
5. Notes to the Consolidated Financial Statements (Cont'd)
(7) Fixed assets and accumulated depreciation (Cont'd)
As at 30th June, 2005 and 31st December, 2004, there was no indication of
impairment of fixed assets of the Company and its subsidiaries and therefore no
impairment provision of fixed assets was made.
As at 30th June, 2005, cost of the fixed assets which had been fully depreciated
but still in use amounted to Rmb1,873.28 million (31st December 2004: Rmb645.24
million), and the related net book value amounted to Rmb9.5 million (31st
December 2004: Rmb18.22 million).
As at 30th June, 2005, the Company and its subsidiaries have pledged various
assets as collateral against certain loans. The summary of the pledged assets is
as follows:
30th June, 2005
----------------------
Dongxiguan Hydropower
- Water retaining structure 391,247,773
- Electric utility plant in service 206,251,038
- Buildings 1,965,724
- Others 12,168,004
Kangding Hydropower
- Electric utility plant in service 28,198,000
Mingtai Hydropower
- Electricity utility plant in service 72,320,000
----------------------
Total 712,150,539
======================
As at 31st December, 2004, there were no assets pledged as collateral assets.
For the detailed information of the long-term loans against which the above
fixed assets are pledged, please refer to Note 5 17.
110
5. Notes to the Consolidated Financial Statements (Cont'd)
(8) Construction materials
30th June, 31st December,
2005 2004
----------------------------------------
Prepayment for major equipments 4,170,278,866 3,299,390,095
Materials purchased 544,966,979 427,856,456
Specific equipments 300,503,048 94,670,368
Specific materials 145,805,873 54,148,488
----------------------------------------
5,161,554,766 3,876,065,407
========================================
(9) Construction-in-progress
31st Additions Current
December, from period Transfer to Percent of
Projects Budget 2004 acquisition Additions fixed assets 30th June, 2005 completion
------------------------------------------------------------------------------------------------------------------------
Yuhuan Power 9,669,320,000 868,047,247 - 615,782,171 - 1,483,829,418 15.3%
Plant project
Huaiyin II Power 2,400,600,000 1,800,342,979 - 360,412,102 (2,069,072,728) 91,682,353 3.8%
Taicang II Power 4,638,590,000 655,869,433 - 980,755,629 - 1,636,625,062 35.3%
Company project
Shantou Power 2,263,055,204 592,197,112 - 786,746,967 - 1,378,944,079 60.9%
Plant Phase II
project
[TABLE CONTINUED]
Source of
Projects financing
--------------------------------------
Yuhuan Power Funds borrowed
Plant project from financial
institutions and
internal funds
Huaiyin II Power Funds borrowed
from financial
institutions and
internal funds
Taicang II Power Funds borrowed
Company project from financial
institutions and
internal funds
Shantou Power Funds borrowed
Plant Phase II from financial
project institutions and
internal funds
111
5. Notes to the Consolidated Financial Statements (Cont'd)
(9) Construction-in-progress (Cont'd)
31st Additions Current
December, from period Transfer to Percent of
Projects Budget 2004 acquisition Additions fixed assets 30th June, 2005 completion
------------------------------------------------------------------------------------------------------------------------
Xindian II Power 2,431,933,416 92,853,529 - 48,595,721 - 141,449,250 5.8%
Company project
Yushe Power 2,686,250,000 14,199,676 - 20,828,766 - 35,028,442 1.3%
Company Phase
II project
Qinbei Power 4,654,950,000 7,068,975 - 80,298,225 - 87,367,200 1.9%
Company project
Yueyang Power 2,473,600,000 343,706,646 - 182,590,607 - 526,297,253 21.3%
Company project
Luohuang Power 4,483,667,794 217,892,046 - 234,348,989 - 452,241,035 10.1%
Company project
Other projects - 536,047,597 1,980,979,263 1,279,168,215 (1,002,687,767) 2,793,507,308
-----------------------------------------------------------------------------
5,128,225,240 1,980,979,263 4,589,527,392 (3,071,760,495) 8,626,971,400
=============================================================================
Include: Capitalized
borrowing cost 190,746,909 77,411,735 176,985,883 (116,882,529) 328,261,998
[TABLE CONTINUED]
Source of
Projects financing
--------------------------------------
Xindian II Power Funds borrowed
Company project from financial
institutions and
internal funds
Yushe Power Funds borrowed
Company Phase from financial
II project institutions and
internal funds
Qinbei Power Funds borrowed
Company project from financial
institutionsand
internal funds
Yueyang Power Fundsborrowed
Company project from financial
institutions and
internal funds
Luohuang Power Fundsborrowed
Company project from financial
institutions and
internal funds
Other projects Funds borrowed
from financial
institutions and
internal funds
Include: Capitalized
borrowing cost
112
5. Notes to the Consolidated Financial Statements (Cont'd)
(9) Construction-in-progress (Cont'd)
For the six months ended 30th June, 2005, the interest capitalized for
construction-in-progress of the Company and its subsidiaries was Rmb176,985,883
and the capitalization rate was 4.71% per annum (For the six months ended 30th
June, 2004: Rmb83,048,832, at 4.87% per annum).
As at 30th June, 2005 and 31st December, 2004, there was no indication of
impairment of construction-in-progress of the Company and its subsidiaries.
Accordingly, no provision for impairment loss was made.
(10) Intangible assets
The movements of intangible assets, which comprised land-use rights, goodwill
and negative goodwill, were as follows:
31st Addition Current Current
December, from period period Accumulated 30th June,
Original cost 2004 acquisition additions amortization amortization 2005
----------------------------------------------------------------------------------------------------------------
Land use
rights 1,148,543,892 887,735,778 - 143,019,771 (11,659,486) (129,447,829) 1,019,096,063
Negative
goodwill (2,472,783,635) (1,483,670,180) - - 123,639,182 1,112,752,637 (1,360,030,998)
Goodwill 39,036,491 36,104,680 - - (2,376,075) (5,307,886) 33,728,605
Others 22,236,664 8,819,845 2,524,438 3,322,329 (1,798,214) (9,368,266) 12,868,398
------------------------------------------------------------------------------------------------------
(1,262,966,588) (551,009,877) 2,524,438 146,342,100 107,805,407 968,628,656 (294,337,932)
======================================================================================================
[TABLE CONTINUED]
Remaining
amortization Obtained
period through
--------------------------------------------
Land use
rights 15.5 to 69.5 years Purchase
Negative
goodwill 5.5 years Acquisition
Goodwill 6 to 9 years Acquisition
Others 0.5 to 16.5 years Purchase
As at 30th June, 2005 and 31st December, 2004, there was no indication that the
intangible assets of the Company and its subsidiaries were impaired and
therefore no provision for impairment loss was made. No intangible assets of the
Company and its subsidiaries were pledged or guaranteed.
113
5. Notes to the Consolidated Financial Statements (Cont'd)
(11) Other long-term assets
Other long-term assets represent the Company's subsidiaries' receivables due
from Sichuan Power Grid Company resulting from the transfer of transmission
facilities. Sichuan Power Grid Company entered into an agreement with Baoxinghe
Hydropower, Dongxiguan Hydropower and Taipingyi Hydropower each on the transfer
of transmission facilities from these plants to Sichuan Power Grid Company,
pursuant to which Sichuan Power Grid Company agreed to return the principal and
interest amount related to the construction of the transmission facilities over
12.5 years, 12.5 years and 9 years respectively. The interest rate should be
determined according to the prevailing bank loan's interest rate while the
principal is repaid.
(12) Short-term loans
30th June, 31st December,
2005 2004
---------------------------------------
Credit loans 8,675,300,000 8,099,000,000
=======================================
As at 30th June, 2005, all of the short-term loans of the Company and its
subsidiaries were dominated in Rmb, with interest rates ranging from 4.30% to
5.76% per annum (31st December 2004: 4.30% to 5.02% per annum).
As at 30th June, 2005, short-term loans of the Company and its subsidiaries
amounting to Rmb2,424 million were borrowed from China Huaneng Finance Company
(the "Huaneng Finance"), with interest rates ranging from 4.54% to 5.02% per
annum. (31st December, 2004: Rmb3,694 million with interest rates from 4.54% to
5.02% per annum), please refer to Note 7(5).
(13) Short-term bonds
On 27th May, 2005, the Company issued short-term bonds in two batches and the
face value were Rmb4.5 billion(due in 365 days) and Rmb0.5 billion(due in 9
months). These bonds were issued at a discount with an effective interest rates
of 2.92% per annum and 2.70% per annum respectively. The proceeds received by
the Company and its subsidiaries were Rmb4,372.2 million and Rmb490 million
respectively. As at 30th June, 2005, the accrued interest payable on the above
short-term bonds was approximately Rmb14 million.
114
5. Notes to the Consolidated Financial Statements (Cont'd)
(14) Accounts payable
Accounts payable represents mainly the amounts due to coal suppliers. As at 30th
June, 2005 and 31st December, 2004, except for the accounts payable due to
Huaneng Group of Rmb830,174(31st December, 2004: Nil), there was no other
accounts payable to any shareholder who held 5% or more of the equity interest
in the Company, and there were no significant accounts payable aged over three
years.
See Note 7 for balances due from or due to related parties.
(15) Taxes payable
Taxes payable comprised:
30th June, 31st December,
2005 2004
---------------------------------------
Income tax payable 281,194,368 407,449,828
VAT payable 392,056,392 527,292,394
Others 75,179,589 65,049,963
---------------------------------------
748,430,349 999,792,185
=======================================
115
5. Notes to the Consolidated Financial Statements (Cont'd)
(16) Other payables
Other payables comprised:
30th June, 31st December,
2005 2004
---------------------------------------
Payable to contractors 474,470,371 889,096,823
Payable for purchase of equipment 756,701,788 703,714,020
Other payable to contractors 835,481,667 237,912,047
Payable to HIPDC 51,043,976 1,258,799,490
Payable of housing maintenance fund 51,957,280 49,231,372
Accrual expenses 33,406,016 35,828,523
Social insurance funds payable 79,801,660 71,458,881
Environment protection-exhaust emission
fee payable 16,902,171 20,695,875
Others 734,396,490 440,075,715
---------------------------------------
3,034,161,419 3,706,812,746
=======================================
As at 30th June, 2005, there was no other payable due to any shareholder who
held 5% or more of the equity interest in the Company except for a payable due
to HIPDC of Rmb51,043,976 and a payable due to Huaneng Group of Rmb189,963 as
mentioned in Note 7. (31st December, 2004: Due to HIPDC: Rmb1,258,799,490; Due
to Huaneng Group: Rmb189,963). There was also no significant other payable aged
over three years.
See Note 7 for balances due from or due to related parties.
116
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans
Long-term loans comprised (all were credit loans unless otherwise stated):
30th June, 31st December,
2005 2004
---------------------------------------
Long-term loans from ultimate parent company (i) 800,000,000 800,000,000
Long-term bank loans (ii) 26,951,215,360 15,986,747,027
Other long-term loans (iii) 1,193,415,794 711,779,897
---------------------------------------
28,944,631,154 17,498,526,924
Less: current portion of long-term loans (2,390,949,310) (1,543,237,546)
---------------------------------------
26,553,681,844 15,955,289,378
=======================================
(i) Long-term loans from ultimate parent company
As at 30th June, 2005, detailed information of the long-term loans from
ultimate parent company was as follows:
30th June, Interest rate Current
Lender 2005 Loan period per annum portion Terms
-----------------------------------------------------------------------------------------------------
Renminbi loans
Entrusted loans from 600,000,000 2004-2013 4.60% - Nil
Huaneng Group through
Huaneng Finance*
Entrusted loans from 200,000,000 2004-2013 4.05% - Nil
Huaneng Group through
Huaneng Finance*
-------------- --------
800,000,000 -
============== ========
* As at 30th June, 2005, these loans were not repayable within one
year and therefore there was no current portion.
117
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans
Long-term bank loans (including current portion) comprised:
30th June, 2005
Original currency Exchange rate RMB
--------------------------------------------------------------
Renminbi bank loans 20,192,088,670
United States dollar bank loans 727,372,337 8.2765 6,020,097,150
Euro dollar bank loans 73,936,225 9.9955 739,029,540
--------------------
26,951,215,360
Less: current portion of
long-term bank loans (1,964,677,135)
--------------------
24,986,538,225
====================
As at 30th June, 2005, detailed information of the long-term bank loans
was as follows:
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
-----------------------------------------------------------------------------------------------------------------
Renminbi bank loans
China Construction Bank* 81,860,000 2005-2015 5.51% - Nil
China Construction Bank* 540,579,300 2005-2015 5.27% - Nil
China Development Bank* 215,000,000 2005-2008 5.18% - Nil
China Development Bank* 10,000,000 2005-2010 5.27% - Nil
China Construction Bank - 200,000,000 2004-2007 4.94% - Nil
Shantou branch*
China Construction Bank - 400,000,000 2004-2009 5.02% - Nil
Shantou branch*
China Construction Bank- 100,000,000 1999-2007 5.76% - Guaranteed by the
Weihai branch* Weihai Power Development
Bureau (the "WPDB")
118
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
Bank of China** 194,000,000 1998-2010 5.18% - Nil
Bank of China** 47,000,000 1999-2011 5.18% - Nil
Bank of China-Taicang Branch* 574,000,000 1998-2010 5.18% - Nil
Bank of China-Taicang Branch* 20,000,000 1999-2011 5.18% - Nil
Bank of China-Suzhou Branch 73,000,000 1999-2011 5.18% 33,000,000 Nil
Bank of China-Jiangsu Branch* 460,000,000 2005-2010 5.27% - Nil
Bank of China-Shanghai Branch* 460,000,000 2005-2010 5.27% - Nil
Bank of China-Suzhou Branch* 230,000,000 2005-2010 5.27% - Nil
Bank of China-Taicang Branch* 230,000,000 2005-2010 5.27% - Nil
China Development Bank* 243,000,000 2005-2021 5.51% - Nil
China Merchants Bank- 100,000,000 2003-2006 4.94% - Nil
Nanjing branch*
China Development Bank- 600,000,000 2003-2008 5.27% 20,000,000 Nil
Jiangsu branch
China Development Bank* 200,000,000 2004-2009 3.60% - Nil
China Construction Bank- 1,000,000,000 2004-2009 5.27% - Nil
Huai'an branch*
Bank of Communication- 200,000,000 2004-2007 5.18% - Nil
Nanjing branch*
China Construction Bank- 1,065,000,000 2004-2019 5.51% - 740,000,000
Jiyuan sub branch* Guaranteed by the
Company.
200,000,000
Guaranteed by Henan
Construction
Investment Company
(the "Henan
Investment").
125,000,000
Guaranteed by Jiyuan
Construction
Investment Company
(the "Jiyuan
Investment").
119
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
China Construction Bank- 1,030,500,000 2000-2010 5.60% 185,000,000 Nil
Ji'an branch
China Construction Bank- 100,000,000 2004-2014 5.18% - Nil
Yueyang Lingji sub branch*
China Construction Bank- 230,000,000 2004-2009 5.02% - Nil
Yueyang Lingji sub branch*
China Construction Bank- 80,000,000 2005-2013 5.51% - Nil
Yueyang Lingji sub branch*
China Construction Bank- 130,000,000 2005-2015 5.51% - Nil
Yueyang Lingji sub branch*
Bank of China-Yueyang branch* 215,000,000 2005-2013 5.51% - Sufficient insurance
required on equipment
purchased
Bank of China-Yueyang branch* 60,000,000 2005-2010 5.27% - Sufficient insurance
required on equipments
purchased
Bank of China-Yueyang branch* 60,000,000 2005-2015 5.51% - Nil
Bank of China-Yueyang branch* 225,000,000 2004-2009 5.27% - Nil
China Development Bank- 855,000,000 2004-2009 5.02% - Nil
Henan branch*
Bank of China-
Jinzhong branch** 1,120,000,000 2003-2019 5.51% - 60% Guaranteed by the
Company, 40%
Guaranteed by Shanxi
International Power
(Group) Company
Limited (the "Shanxi
International")
120
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
China Construction Bank- 30,000,000 2002-2005 5.18% 30,000,000 Guaranteed by the
Yushe sub branch Company
China Construction Bank- 1,000,000,000 2004-2014 5.18% - Nil
Yuhuan county sub branch*
China Construction Bank- 49,869,370 2005-2006 5.02% 49,869,370 Nil
Yushe sub branch
China Construction Bank- 13,000,000 2004-2007 5.18% - Nil
Yushe sub branch*
China Development Bank- 1,172,000,000 1998-2012 5.51% 140,000,000 Guaranteed by Huaneng
Gansu branch Group
China Construction Bank- 91,000,000 1998-2010 5.18% 40,000,000 Nil
Lanzhou electricity power
sub branch
China Construction Bank- 115,000,000 1998-2010 5.51% 27,500,000 Nil
Lanzhou electricity power
sub branch
Industrial and Commercial 380,000,000 1998-2011 5.18% 140,000,000 Guaranteed by Gansu
Bank of China- Provincial Power
Pingliang branch Construction
Investment
Development
Corporation
(the "GPPCI" )
Industrial and Commercial 200,000,000 1998-2011 5.18% - Nil
Bank of China-
Pingliang branch*
Bank of China- Gansu branch 467,500,000 1998-2010 5.51% 115,000,000 65% Guaranteed by
Huaneng Group, 35%
Guaranteed by GPPCI
121
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
Bank of China-Gansu branch- 100,000,000 1998-2015 5.51% - 65% Guaranteed by
Pingliang sub branch* Huaneng Group, 35%
Guaranteed by GPPCI
Bank of China-Chongqing 30,000,000 2005-2018 5.51% - Nil
branch *
Industrial and Commercial 150,000,000 2005-2018 5.18% - Nil
Bank of China-Chongqing
Jijiang sub branch*
China Construction Bank- 30,000,000 2005-2010 5.27% - Nil
Chongqing branch*
China Construction Bank- 30,000,000 2001-2014 5.76% - Guaranteed by Huaneng
Nanchong branch* Group
China Construction Bank- 50,000,000 2002-2014 5.76% - Guaranteed by Huaneng
Nanchong branch* Group
China Construction Bank- 30,000,000 2002-2015 5.76% - Guaranteed by Huaneng
Nanchong branch* Group
China Construction Bank- 20,000,000 2002-2015 5.18% - Guaranteed by Huaneng
Nanchong branch* Group
China Construction Bank- 190,000,000 2003-2016 5.18% - Guaranteed by Huaneng
Nanchong branch* Group
China Construction Bank- 40,000,000 2004-2014 5.18% - Guaranteed by Huaneng
Nanchong branch* Group
China Construction Bank- 120,000,000 2004-2017 5.18% - Guaranteed by Huaneng
Nanchong branch* Group
China Construction Bank- 40,000,000 2005-2018 5.51% - Guaranteed by Huaneng
Nanchong branch* Group
China Construction Bank- 228,500,000 2002-2010 5.18% 30,000,000 Nil
Ya'an branch
122
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
China Construction Bank- 84,000,000 1998-2006 5.18% 30,000,000 Nil
Chengdu Jincheng
sub branch
China Construction Bank- 60,000,000 1999-2007 5.18% - Nil
Chengdu Jincheng
sub branch *
China Construction Bank- 90,000,000 1999-2008 5.18% - Nil
Chengdu Jincheng
sub branch *
China Construction Bank- 100,000,000 2000-2009 5.18% - Nil
Chengdu Jincheng
sub branch *
China Construction Bank- 100,000,000 2000-2010 5.18% - Nil
Chengdu Jincheng
sub branch *
China Construction Bank- 91,830,000 2000-2010 5.18% - Nil
Chengdu Jincheng
sub branch *
China Construction Bank- 60,000,000 2003-2017 5.18% - Guaranteed by Huaneng
Ya'an branch * Group
China Construction Bank- 130,000,000 2003-2011 5.18% - Guaranteed by Huaneng
Chengdu Jincheng Group
sub branch *
China Construction Bank- 80,000,000 2003-2012 5.18% - Guaranteed by Huaneng
Chengdu Jincheng Group
sub branch *
123
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
China Construction Bank- 50,000,000 2004-2014 5.18% - Guaranteed by Huaneng
Chengdu Jincheng Group
sub branch *
China Construction Bank- 30,000,000 2004-2013 5.18% - Guaranteed by Huaneng
Chengdu Jincheng Group
sub branch *
China Construction Bank- 70,000,000 2004-2012 5.18% - Guaranteed by Huaneng
Ya'an branch * Group
China Construction Bank- 50,000,000 2004-2011 5.18% - Guaranteed by Huaneng
Chengdu Jincheng Group
sub branch *
China Construction Bank- 25,000,000 2004-2012 5.51% - Guaranteed by Huaneng
Ya'an branch * Group
China Construction Bank- 50,000,000 2004-2013 5.51% - Guaranteed by Huaneng
Chengdu Jincheng Group
sub branch *
China Construction Bank- 30,000,000 2004-2012 5.51% - Guaranteed by Huaneng
Ya'an branch * Group
China Construction Bank- 50,000,000 2005-2013 5.51% - Guaranteed by Huaneng
Chengdu Jincheng Group
sub branch *
China Construction Bank- 50,000,000 2005-2013 5.51% - Guaranteed by Huaneng
Ya'an branch * Group
China Construction Bank-
Chengdu Jincheng 50,000,000 2005-2014 5.51% - Guaranteed by Huaneng
sub branch * Group
China Development Bank- 382,650,000 1992-2012 5.76% 22,000,000 Guaranteed by Huaneng
Sichuan branch Group
124
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
China Construction Bank- 70,000,000 2003-2006 5.22% - Pledged with fixed
assets
Wusheng County
sub branch *
China Construction Bank- 20,000,000 2004-2006 4.94% - Pledged with fixed
assets
Wusheng County
sub branch *
China Construction Bank- 58,000,000 2004-2006 5.18% - Pledged with fixed
assets
Wusheng County
sub branch *
Agriculture Bank of China - 60,000,000 2002-2005 5.94% 60,000,000 Nil
Wusheng County
sub branch
Agriculture Bank of China - 30,000,000 2002-2005 5.94% 30,000,000 Pledged with fixed
assets
Wusheng County
sub branch
Agriculture Bank of China - 30,000,000 2003-2006 5.94% - Pledged with fixed
assets
Wusheng County
sub branch *
Agriculture Bank of China - 10,000,000 2004-2007 4.94% - Pledged with fixed
assets
Wusheng County
sub branch *
Industrial and Commercial 24,000,000 2003-2006 5.22% - Pledged with fixed
assets
Bank of China- Wusheng
County sub branch *
Industrial and Commercial 21,000,000 2003-2006 5.22% - Pledged with fixed
assets
Bank of China- Wusheng
County sub branch *
125
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
Industrial and Commercial 34,000,000 2003-2006 4.94% - Pledged with fixed
assets
Bank of China- Wusheng
County sub branch *
Industrial and Commercial 20,000,000 2004-2007 4.94% - Pledged with fixed
assets
Bank of China- Wusheng
County sub branch *
China Construction Bank- 40,000,000 2003-2006 4.94% - Nil
Chengdu Xinhua
sub branch*
China Construction Bank- 250,000,000 2003-2011 5.51% - Guaranteed by Huaneng
Chengdu Xinhua Group
sub branch*
China Development Bank- 83,260,000 1994-2006 5.51% 26,960,000 Guaranteed by Huaneng
Sichuan branch* Group
Agriculture Bank of China - 20,000,000 2003-2006 5.76% - Pledged with fixed
assets
Kangding County
sub branch*
China Construction Bank- 120,000,000 2001-2019 5.51% 5,000,000 Guaranteed by Huaneng
Ganzizhou sub branch Group
China Construction Bank- 212,000,000 1999-2017 5.51% 17,000,000 Guaranteed by Huaneng
Chengdu Xinhua Group
sub branch
China Construction Bank- 258,000,000 2000-2017 5.18% 20,000,000 Guaranteed by Huaneng
Chengdu Xinhua Group
sub branch
126
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii) Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
China Construction Bank- 280,000,000 2005-2023 5.51% - Nil
Chengdu Xinhua
sub branch *
Agriculture Bank of China- 130,000,000 2002-2017 5.76% - Guaranteed by Huaneng
Santai sub branch * Group
Agriculture Bank of China- 60,000,000 2001-2011 5.76% - Pledged with fixed
assets
Santai sub branch *
Agriculture Bank of China- 10,000,000 2002-2005 5.49% 10,000,000 Nil
Santai sub branch
Agriculture Bank of China - 25,000,000 2002-2020 6.12% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 10,000,000 2002-2020 2.88% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 55,000,000 2002-2020 5.18% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 60,000,000 2002-2020 3.00% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 30,000,000 2003-2021 6.12% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 120,000,000 2003-2021 5.18% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 50,000,000 2003-2021 5.51% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 100,000,000 2004-2022 6.12% - Guaranteed by Huaneng
Pingwu County sub branch* Group
127
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii)Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
Agriculture Bank of China - 31,440,000 2004-2022 2.88% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 150,000,000 2004-2014 5.18% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 101,100,000 2004-2014 5.51% - Guaranteed by Huaneng
Pingwu County sub branch* Group
Agriculture Bank of China - 60,000,000 2005-2015 5.51% - Guaranteed by Huaneng
Pingwu County sub branch* Group
-------------- -------------
Sub-total of Renminbi 20,192,088,670 1,031,329,370
-------------- -------------
bank loans
United States dollar bank loans
Banque Nationale de Paris 1,299,575,294 1995-2011 5.95% 199,625,730 Guaranteed by Huaneng
Group
Misubishi Corporation 47,972,274 1996-2010 6.97% 10,200,785 Nil
Bank of Communication- 1,817,212 2000-2005 LIBOR+1.1% 1,817,212 Nil
Shanghai branch
Bank of China-Taicang branch 51,314,300 1999-2011 2.85% 33,106,000 Nil
128
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(ii)Long-term bank loans (Cont'd)
30th June, Interest rate Current
Lenders 2005 Loan period per annum portion Terms
----------------------------------------------------------------------------------------------------------------
On-lent loans by Bank of China:
American I&E Bank 963,738,388 1997-2011 5.95% 148,268,001 Guaranteed by HIPDC
American I&E Bank 834,151,414 1995-2011 5.95% 128,330,983 Guaranteed by HIPDC
American I&E Bank 991,264,584 1997-2011 6.54% 141,609,227 Guaranteed by HIPDC
American I&E Bank 246,580,951 1997-2012 6.60% 32,877,461 Guaranteed by HIPDC
KFW Bank 630,661,881 1996-2012 6.60% 90,095,910 Guaranteed by HIPDC
On-lent loans by China Construction Bank:
KFW Bank 429,340,566 1999-2015 6.36% 42,870,731 Guaranteed by Huaneng
Group
Citibank 523,680,286 1999-2015 LIBOR+0.075% 52,417,833 Guaranteed by Huaneng
Group
Euro dollar bank loans
French bank 739,029,540 1994-2024 2.00% 52,127,892 Nil
-------------- -------------
Sub-total of foreign
bank loans 6,759,126,690 933,347,765
-------------- -------------
Total 26,951,215,360 1,964,677,135
-------------- -------------
* As at 30th June, 2005, these loans were not repayable within one
year and therefore there was no current portion.
** In accordance with the repayment schedules, these loans are not due
within one year and therefore there is no current portion.
129
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(iii) Other long-term loans
Other long-term loans (including current portion) comprised:
30th June, 2005
Original currency Exchange rate RMB
------------------------------------------------------------
Renminbi loans 944,177,222
United States dollar loans 17,142,857 8.2765 141,882,858
Japanese Yen loans 1,428,571,429 0.0751 107,355,714
------------------
1,193,415,794
Less: current portion of
other long-term loans (426,272,175)
------------------
767,143,619
==================
130
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(iii) Other long-term loans (Cont'd)
As at 30th June, 2005, detailed information of the other long-term loans was as follows:
30th June, Interest rate Current
Lender 2005 Loan period per annum portion Terms
---------------------------------------------------------------------------------------------------------------
Renminbi loans
Huaneng Finance* 30,000,000 2003-2006 4.94% - Nil
Huaneng Finance* 20,000,000 2004-2007 4.94% - Nil
Huaneng Finance* 20,000,000 2004-2007 4.94% - 15,000,000 guaranteed
by Sichuan Yong'an
Hydro Power
Joint-Stock Limited
Company (the "Sichuan
Yong'an")
Huaneng Finance* 10,000,000 2003-2006 5.18% - Nil
Loan by mandate of WPDB 40,000,000 2004-2006 5.02% 40,000,000 Nil
Loan by mandate of WPDB* 26,388,822 2004-2006 5.02% - Nil
Loan by mandate of 66,000,000 2003-2006 5.18% - Nil
Shanxi International*
Loan by mandate of 32,000,000 1991-2005 5.02% 32,000,000 Nil
Shanxi International
Loan by mandate of
Shanxi International 21,700,000 1991-2005 6.12% 21,700,000 Nil
Loan by mandate of
Shanxi International* 5,500,000 1994-2006 6.12% - Nil
Chongqing Construction 183,670,000 2004-2005 4.94% 183,670,000 Nil
and Investment Limited
Liability Company
(the "CCI")
131
5. Notes to the Consolidated Financial Statements (Cont'd)
(17) Long-term loans (Cont'd)
(iii) Other long-term loans (Cont'd)
30th June, Interest rate Current
Lender 2005 Loan period per annum portion Terms
---------------------------------------------------------------------------------------------------------------
Jiangsu Electric Power 19,467,862 1997-2005 5.76% 19,467,863 Nil
Development Co.,Ltd.
(the "JEPDC")
Sichuan Province Power 40,000,000 2004-infinite 5.18% - Nil
Development Company
(the "Sichuan Power") *
Sichuan Yong'an* 6,267,932 1997-2006 6.12% - Nil
Aba Hydro Power 212,307,606 1994-2011 5.51% 14,270,000 Nil
Development Co., Ltd.
(the "Aba Hydro Power")
GPPCI 10,875,000 1996-2007 5.76% 3,625,000 Nil
China Electric Power Finance 200,000,000 2003-2008 5.02% 70,000,000 Nil
Co., Ltd-Northwest branch
------------ ------------
Subtotal of RMB loans 944,177,222 384,732,863
------------ ------------
United States dollar loan:
On-lent foreign loans of 141,882,858 1996-2011 LIBOR+0.43% 23,647,143 Guaranteed by Huaneng
the Ministry of Finance Group
Japanese Yen loan:
On-lent foreign loans of 107,355,714 1996-2011 LIBOR+0.3% 17,892,169 Guaranteed by Huaneng
the Ministry of Finance Group
------------ ------------
Subtotal of foreign loans 249,238,572 41,539,312
------------ ------------
Total 1,193,415,794 426,272,175
============= ============
* As at 30th June, 2005, these loans were not repayable within one
year and therefore there was no current portion.
132
5. Notes to the Consolidated Financial Statements (Cont'd)
(18) Share capital
Current period
31st December, addition/ 30th June,
2004 (deduction) 2005
---------------------------------------------------------------
Unlisted shares
Promoters shares 8,500,000,000 - 8,500,000,000
Including: Domestic legal person shares 8,500,000,000 - 8,500,000,000
---------------------------------------------------------------
Sub-total of unlisted shares 8,500,000,000 - 8,500,000,000
---------------------------------------------------------------
Listed shares
Domestic shares listed in the PRC 500,000,000 - 500,000,000
Overseas listed shares 3,055,383,440 - 3,055,383,440
---------------------------------------------------------------
Sub-total of listed shares 3,555,383,440 - 3,555,383,440
---------------------------------------------------------------
Total shares 12,055,383,440 - 12,055,383,440
===============================================================
(19) Capital surplus
Movement of capital surplus was as follow:
31st December, Current period 30th June,
2004 addition 2005
---------------------------------------------------------------
Share premium 8,590,777,628 - 8,590,777,628
Equity investment provision 21,734,582 103,950 21,838,532
Transfer from grants 3,470,000 - 3,470,000
---------------------------------------------------------------
8,615,982,210 103,950 8,616,086,160
===============================================================
133
5. Notes to the Consolidated Financial Statements (Cont'd)
(20) Surplus reserves
Statuary Statuary Discretionary
capital surplus public welfare surplus reserve
reserve fund fund fund Total
------------------------------------------------------------------------
31st December, 2004 2,229,832,058 1,863,280,308 19,102,462 4,112,214,828
Current period addition/(deduction) - - - -
------------------------------------------------------------------------
30th June, 2005 2,229,832,058 1,863,280,308 19,102,462 4,112,214,828
========================================================================
For the six months ended 30th June, 2005, no provision was made to the surplus
reserve fund.
(21) Undistributed profit
For the six months ended 30th June,
2005 2004
-----------------------------------------
Undistributed profit brought forward 12,399,822,057 13,981,531,454
Add: Net profit for the year 1,620,288,149 2,530,964,525
Less: Dividends payable to ordinary shareholders-cash
dividends of prior year approved at the general
meeting of the shareholders (3,013,845,860) (3,013,835,600)
Ordinary share dividend - bonus shares - (3,013,835,600)
-----------------------------------------
Undistributed profit carried forward 11,006,264,346 10,484,824,779
=========================================
Pursuant to the resolution of the Board of Directors on 15th March, 2005, on
the basis of 12,055,383,440 ordinary shares outstanding as at 31st
December,2004, the directors proposed a cash dividend of Rmb2.5 (including tax)
of every 10 ordinary shares. On 11th May, 2005, the shareholders approved the
profit distribution plan and declared the cash dividend amounting to
3,013,845,860, on the basis of 12,055,383,440 ordinary shares outstanding as at
the distribution date.
The maximum amount available for distribution to the shareholders is the lowest
of the amounts (i.e. net profit in current year plus undistributed profit
brought forward from the beginning of the year, less any appropriations to the
statutory surplus reserve fund and the statutory public welfare fund)
determined under the PRC accounting standards and the International Financial
Reporting Standards (the "IFRS").
134
5. Notes to the Consolidated Financial Statements (Cont'd)
(22) Revenue from principal operations and costs of principal operations
For the six months ended For the six months ended
30th June, 2005 30th June, 2004
------------------------------------------------------------------------
Revenues from Costs of Revenue from Costs of
principal principal principal principal
operations operations operations operations
------------------------------------------------------------------------
Sales of electric power 18,860,674,631 15,381,295,296 13,040,289,339 9,498,640,593
========================================================================
The Company and its subsidiaries are principally engaged in the generation and
sale of electric power in China.
For the six months ended 30th June, 2005 and 2004, the revenue from the five
largest customers of the Company and its subsidiaries amounted to
Rmb11,860,159,760and Rmb10,419,558,242, representing 62.88% and 79.90% of the
total revenue, respectively.
(23) Financial expenses
For six months For six months
ended 30th ended 30th
June, 2005 June, 2004
-----------------------------------------
Interest expenses 784,070,806 271,142,138
Less: Interest income (25,195,552) (26,242,330)
Exchange losses 5,009,254 1,000,525
Less: Exchange gain (109,659,451) (191,465)
Others 32,930,376 9,675,027
-----------------------------------------
687,155,433 255,383,895
=========================================
135
5. Notes to the Consolidated Financial Statements (Cont'd)
(24) Investment income
For six months For six months
ended 30th ended 30th
June, 2005 June, 2004
-----------------------------------------
Investment income on bonds - 4,392
Share of profit of associates accounted for under the equity method 244,835,252 119,297,358
Dividends declared by investees accounted for under the cost method 34,839,000 22,541,980
Amortization of equity investment differences (181,002,078) (61,985,258)
-----------------------------------------
98,672,174 79,858,472
=========================================
There was no material restriction on the remittance of investment income to the
Company and its subsidiaries.
136
5. Notes to the Consolidated Financial Statements (Cont'd)
(25) Acquisition
As mentioned in Note 1, on 26th October, 2004, the Company acquired 60% equity
interest in Sichuan Hydropower, and 65% equity interest in the Pingliang Power
Company. After meeting all the necessary conditions, the payments of the
purchase considerations and the transfer of the relevant ownership and control,
the acquisitions were effective on 5th January, 2005 (the "effective date"). At
the effective date, assets, liabilities and cash flows related to the
acquisitions of these subsidiaries were as follows:
As at 5th
January, 2005
----------------
Current assets 1,328,999,525
Fixed assets 10,658,011,842
Intangible assets 2,524,438
Other long-term assets 154,162,257
Current liabilities 2,068,018,662
Long-term loan 7,190,341,383
Minority shareholders interest 681,333,676
----------------
Net assets 2,204,004,341
Net assets acquired 1,368,608,423
Add: premiums (equity investment difference) 656,391,577
----------------
Total consideration 2,025,000,000
Less: cash flow from acquisition (566,703,654)
----------------
Net cash outflow for acquisition 1,458,296,346
================
137
5. Notes to the Consolidated Financial Statements (Cont'd)
(25) Acquisition (Cont'd)
The condensed income statements of these subsidiaries for the six months from
the effective date of acquisition to 30th June, 2005 are as follows:
For the six
months ended
30th June, 2005
----------------
Revenue from principal operations 1,457,834,504
Cost and tax from principal operations (726,992,637)
----------------
Profit from principal operations 730,841,867
Net income before tax 511,094,827
Less: Income tax (74,655,849)
Minority shareholders interest (94,119,206)
----------------
Net profit 342,319,772
================
(26) Other cash paid relating to operating activities
For the six
months ended
30th June, 2005
----------------
Service fee paid to HIPDC 70,493,451
Payment of balance due to HIPDC 1,200,913,553
Others 507,671,555
----------------
1,779,078,559
================
138
6. Notes to the Company only Financial Statements
(1) Accounts receivable and other receivables
(i) Accounts receivable
30th June, 31st December,
2005 2004
-----------------------------------------
Accounts receivable 2,710,336,342 2,407,402,978
Less: Specific bad debt provision (269,326) (269,326)
-----------------------------------------
2,710,067,016 2,407,133,652
=========================================
Accounts receivable's aging and bad debt provision are as follows:
30th June, 2005 31st December,
Percentage Bad debt 2004 Percentage Bad debt
Aging Amount (%) provision Amount (%) provision
----------------------------------------------------------------------------------------------------------
Within 1 year 2,697,743,892 100 - 2,394,810,528 99 -
1-2 years - - - 6,203,191 - -
2-3 years 6,203,191 - - - - -
Over 3 years 6,389,259 - (269,326) 6,389,259 1 (269,326)
------------------------------------------------------------------------------------------
2,710,336,342 100 (269,326) 2,407,402,978 100 (269,326)
==========================================================================================
All accounts receivable represented receivables from the provincial or regional
grid companies for the sales of electric power.
As at 30th June, 2005, the five largest accounts receivable of the Company
amounted to Rmb2,039,589,727 (31st December, 2004: Rmb1,908,721,219),
representing 75.25% of total accounts receivable (31st December, 2004: 79.29%
).
139
6. Notes to the Company only Financial Statements (Cont'd)
(1) Accounts receivable and other receivables (Cont'd)
(ii) Other receivables
30th June, 31st December,
2005 2004
-----------------------------------------
Other receivables 171,600,922 153,647,924
Less: bad debt provision (25,211,778) (27,557,208)
-----------------------------------------
146,389,144 126,090,716
=========================================
Other receivables' aging and bad debt provision are as follows:
30th June, 2005 31st December,
Percentage Bad debt 2004 Percentage Bad debt
Aging Amount (%) provision Amount (%) provision
----------------------------------------------------------------------------------------------------------
Within 1 year 104,664,660 61 (1,120,211) 80,738,203 53 (1,814,463)
1-2 years 16,089,430 10 (16,031) 19,491,130 13 (584,734)
2-3 years 7,658,528 4 (6,235,440) 8,496,078 5 (254,882)
Over 3 years 43,188,304 25 (17,840,096) 44,922,513 29 (24,903,129)
-----------------------------------------------------------------------------------------
171,600,922 100 (25,211,778) 153,647,924 100 (27,557,208)
==========================================================================================
140
6. Notes to the Company only Financial Statements (Cont'd)
(1) Accounts receivable and other receivables (Cont'd)
(ii) Other receivables (Cont'd)
Breakdown of other receivables is as follows:
30th June, 31st December,
2005 2004
-------------------------------------------
Receivables from employees for sales of staff quarters 72,586 11,142,227
Petty cash 11,429,736 5,790,247
Prepayments for constructions 15,840,285 12,086,529
Due from management fee of subsidiaries 28,358,932 20,256,116
Due from sales of steam to Jining Duojing Company 22,859,074 13,414,304
Others 93,040,309 90,958,501
-------------------------------------------
171,600,922 153,647,924
===========================================
As at 30th June, 2005, the five largest other receivables of the
Company amounted to Rmb47,266,821 (31st December, 2004:
Rmb37,899,319), representing 27.54% of total other receivables (31st
December, 2004: 24.66% ).
As at 30th June, 2005, and 31st December, 2004, there was no balance
of accounts receivable and other receivables from shareholders who
held 5% or more of the equity interest in the Company, except for the
other receivable amounting to 8,460,600 (31st December, 2004:Nil) due
from Huaneng Group.
See Note 7 for balances due from or due to related parties.
141
6. Notes to the Company only Financial Statements (Cont'd)
(2) Long-term Investments
31st December, Current period Current period 30th June,
2004 additions deductions 2005
--------------------------------------------------------------------------
Long-term equity investments
Subsidiaries (i) 4,515,546,857 2,219,152,800 (369,546,645) 6,365,153,012
Associates* 3,198,912,967 243,553,376 (267,964,237) 3,174,502,106
Equity investment difference* 2,407,192,866 716,349,005 (181,002,078) 2,942,539,793
Other long-term equity investments* 261,143,566 - (83,040) 261,060,526
--------------------------------------------------------------------------
10,382,796,256 3,179,055,181 (818,596,000) 12,743,255,437
==========================================================================
* Please refer to Note 5(6) for details.
142
6. Notes to the Company only Financial Statements (Cont'd)
(2) Long-term Investments (Cont'd)
(i) Long-term equity investments in subsidiaries
Percentage of equity
Investment interest held
Name period by the Company Investment cost movement Accumulated equity pick-up movement
--------------------------------------------------------------------------------------------------------------------
Current
31st 30th 31st 30th 31st period 30th
December, June, December, June, December, additions June,
2004 2005 2004 2005 2004 (deductions) 2005
--------------------------------------------------------------------------------------------------------------------
Weihai Power No specific
Company terms 60% 60% 474,038,793 474,038,793 186,142,793 (51,335,046) 134,807,747
Taicang Power No specific
Company terms 75% 75% 469,706,560 469,706,560 251,715,687 (90,546,405) 161,169,282
Huaiyin Power No specific
Company terms 63.64% 90% 341,176,226 481,818,798 39,883,679 (41,519,846) (1,636,167)
Huaiyin II No specific
Power Company terms 63.64% 63.64% 301,653,600 397,113,600 - 9,846,005 9,846,005
Yushe Power No specific
Company terms 60% 60% 374,449,895 374,449,895 34,743,691 (27,659,677) 7,084,014
Qinbei Power
Company 50 years 55% 55% 325,095,599 345,095,599 (9,902,420) 6,565,975 (3,336,445)
Xindian II No specific
Power Company terms 95% 95% 140,100,000 151,100,000 - - -
Taicang II No specific
Power Company terms 75% 75% 335,410,000 335,410,000 - - -
Yueyang Power No specific
Company terms 55% 55% 266,734,838 316,734,838 44,633,685 (7,741,967) 36,891,718
Luohuang Power No specific
Company terms 60% 60% 820,218,249 855,218,249 119,745,982 81,661,162 201,407,144
Shanghai Ranji No specific
Power Company terms 75% 75% - 35,000,000 - - -
Sichuan No specific
Hydropower terms - 60% - 767,932,785 - 94,594,697 94,594,697
Pingliang No specific
Power Company terms - 65% - 600,675,638 - 120,030,262 120,030,262
----------------------------------------------------------------------
3,848,583,760 5,604,294,755 666,963,097 93,895,160 760,858,257
======================================================================
[TABLE CONTINUED]
Name Net carrying value
----------------------------------------------
31st 30th
December, June,
2004 2005
----------------------------------------------
Weihai Power
Company 660,181,586 608,846,540
Taicang Power
Company 721,422,247 630,875,842
Huaiyin Power
Company 381,059,905 480,182,631
Huaiyin II
Power Company 301,653,600 406,959,605
Yushe Power
Company 409,193,586 381,533,909
Qinbei Power
Company 315,193,179 341,759,154
Xindian II
Power Company 140,100,000 151,100,000
Taicang II
Power Company 335,410,000 335,410,000
Yueyang Power
Company 311,368,523 353,626,556
Luohuang Power
Company 939,964,231 1,056,625,393
Shanghai Ranji
Power Company - 35,000,000
Sichuan
Hydropower - 862,527,482
Pingliang
Power Company - 720,705,900
------------------------------
4,515,546,857 6,365,153,012
==============================
143
6. Notes to the Company only Financial Statements (Cont'd)
(3) Revenue from principal operations and costs of principal operations
For the six months ended For the six months ended
30th June, 2005 30th June, 2004
Revenues from Costs of Revenue from Costs of
principal principal principal principal
operations operations operations operations
---------------------------------------------------------------------------------
Sales of electric power 12,465,249,767 10,583,594,083 11,104,641,146 8,157,868,496
=================================================================================
The Company and its subsidiaries are principally engaged in the generation and
sale of electric power in China.
For the six months ended 30th June, 2005 and 2004, the revenue from the five
largest customers of the Company amounted to Rmb9,902,938,076 and
Rmb8,663,463,317, representing 79.44% and 78.02% of the total revenue of the
company respectively.
(4) Investment income
For the For the
six months six months
ended ended
30th June, 30th June,
2005 2004
-------------------------------------------
Investment income on bonds - 4,392
Investment income on entrusted loans - 9,410,230
Share of profit of subsidiaries and
associates accounted for under the equity method 706,891,231 311,678,885
Dividend declared by investees accounted for under the cost method 34,839,000 22,541,980
Amortization of equity investment differences (181,002,078) (61,985,258)
-------------------------------------------
560,728,153 281,650,229
===========================================
There was no material restriction on remittance of the investment income to the
Company.
144
7. Related Party Transactions
(1) Related parties that control/are controlled by the Company:
Relationship
Registered with Type of Legal
Name address Principal activities the Company enterprise representative
---------------------------------------------------------------------------------------------------------------------------------
Huaneng Group Jia 23 Fuxing Road, Investment in power stations, Ultimate parent State-owned Li Xiaopeng
Haidian district, coal, minerals, railways, company enterprise
Beijing transportation, petrochemical,
energy-saving facilities, steel,
timber, and related industries
HIPDC 40 Xueyuan South Investment in power plants, Parent company Sino-foreign Li Xiaopeng
Road, Haidian development and investment in equity limited
district, Beijing other export-oriented enterprises liability company
Weihai Power No. 58 Haifu Road, Power generation A subsidiary of Limited liability HuanJian
Company Economic the Company company
Development Zone,
Weihai, Shandong
province
Taicang Power Jinjihupan, Sanxing Power generation A subsidiary of Limited liability Na Xizhi
Company Road, Suzhou, the Company company
Jiangsu province
Taicang II Power Jinlanglanggang Power generation A subsidiary of Limited liability Na Xizhi
Company village, Fuqiao the Company company
town, Taicang,
Jiangsu province
Huaiyin Power No. 291 Huaihai West Power generation A subsidiary of Limited liability Na Xizhi
Company Road, Huai'an, the Company company
Jiangsu province
145
7. Related Party Transactions (Cont'd)
(1) Related parties that control/are controlled by the Company: (Cont'd)
Relationship
Registered with Type of Legal
Name address Principal activities the Company enterprise representative
---------------------------------------------------------------------------------------------------------------------------------
Huaiyin II Power No. 291 Huaihai West Power generation A subsidiary of Limited liability Na Xizhi
Company Road, Huai'an, the Company company
Jiangsu province
Qinbei Power Wulongkou town, Power generation A subsidiary of Limited liability ZhangHong
Company Jiyuan, Henan the Company company
province
Yushe Power Dengyu village, Yushe Power generation A subsidiary of Limited liability Liu Guoyue
Company county, Shanxi the Company company
province
Xindian II Power Qilu Chemical Power generation A subsidiary of Limited liability HuangJian
Company Industrial Park, the Company company
Linzi district, Zibo,
Shandong province
Yueyang Power Cheng Lingji, Power generation A subsidiary of Limited liability ZhangHong
Company Yueyang, Hunan the Company company
province
Luohuang Power Luohuang town, Power generation A subsidiary of Limited liability Li Shiqi
Company Jiangjin, Chongqing the Company company
province
Shanghai Ranji No.298 Sheng Shi Power generation A subsidiary of Limited liability Ye Daji
Power Road, Baoshan the Company company
Company district, Shanghai
146
7. Related Party Transactions (Cont'd)
(1) Related parties that control/are controlled by the Company: (Cont'd)
Relationship
Registered with Type of Legal
Name address Principal activities the Company enterprise representative
---------------------------------------------------------------------------------------------------------------------------------
Sichuan No.27 Fourth south Investment Holding A subsidiary of Limited liability ZhangWei
Hydropower Renmin Road, the Company company
Wuhou district,
Chengdu, Sichuan
province
Baoxinghe No.18 Yanjiang North Power generation A subsidiary of Limited liability Zhang Wei
Hydropower Road,Ya'an, Sichuan the subsidiary company
province of the Company
Dongxiguan Li'an Town, Wusheng Power generation A subsidiary of Limited liability ZhangWei
Hydropower county, Sichuan the subsidiary company
province of the Company
Taipingyi Yingxiu Town, Power generation A subsidiary of Limited liability ZhangWei
Hydropower Wenchuan the subsidiary company
county, Sichuan of the Company
province
Kangding Yuanyang Power generation A subsidiary of Limited liability ZhangWei
Hydropower ba, Kangding the subsidiary company
county, of the Company
Ganzhi state,
Sichuan province
Mingtai East river Road, Power generation A subsidiary of Limited liability Zhang Wei
Hydropower north dam district, the subsidiary company
Santai county, of the Company
Sichuan
province
147
7. Related Party Transactions (Cont'd)
(1) Related parties that control/are controlled by the Company: (Cont'd)
Relationship
Registered with Type of Legal
Name address Principal activities the Company enterprise representative
---------------------------------------------------------------------------------------------------------------------------------
Jialingjiang No.189 Liulin Road, Power generation A subsidiary of Limited liability ZhangWei
Hydropower Shunqing the subsidiary company
district, Nanchong of the Company
city, Sichuan
province
Fujiang Baima village, Power generation A subsidiary of Limited liability Zhang Wei
Hydropower Pingwu county, the subsidiary company
Sichuan province of the Company
Pingliang No.7 Middle Road Power generation A subsidiary of Limited liability Li Shiqi
Power Qilihe,Lanzhou city, the Company company
Company Gansu province
Yuanheng Dengyu village, Services A subsidiary of Limited liability Wu Jinqiang
Company Yushe county, the subsidiary company
Shanxi province of the Company
148
7. Related Party Transactions (Cont'd)
(2) Registered capital and changes in registered capital of related parties that
control/are controlled by the Company:
Current
31st December, period 30th June,
Name Currency 2004 additions 2005
------------------------------------------------------------------------------------------------------------------
Huaneng Group Rmb 20,000,000,000 - 20,000,000,000
HIPDC US$ 450,000,000 - 450,000,000
Weihai Power Company Rmb 761,838,300 - 761,838,300
Taicang Power Company Rmb 632,840,000 - 632,840,000
Taicang II Power Company Rmb 894,410,000 - 894,410,000
Huaiyin Power Company Rmb 265,000,000 - 265,000,000
Huaiyin II Power Company Rmb 474,000,000 - 474,000,000
Qinbei Power Company Rmb 10,000,000 - 10,000,000
Yushe Power Company Rmb 80,000,000 535,760,000 615,760,000
Xindian II Power Company Rmb 100,000,000 - 100,000,000
Yueyang Power Company Rmb 560,000,000 - 560,000,000
Luohuang Power Company Rmb 900,000,000 - 900,000,000
Shanghai Ranji Power Company Rmb - 50,000,000 50,000,000
Sichuan Hydropower Rmb 800,000,000 - 800,000,000
Baoxinghe Hydropower Rmb 516,100,000 - 516,100,000
Dongxiguan Hydropower Rmb 156,725,000 - 156,725,000
Taipingyi Hydropower Rmb 100,000,000 - 100,000,000
Kangding Hydropower Rmb 194,000,000 - 194,000,000
Mingtai Hydropower Rmb 97,700,000 - 97,700,000
Jialingjiang Hydropower Rmb 193,080,000 - 193,080,000
Fujiang Hydropower Rmb 150,000,000 - 150,000,000
Pingliang Power Company Rmb 623,000,000 - 623,000,000
Yuanheng Company Rmb 3,000,000 - 3,000,000
149
7. Related Party Transactions (Cont'd)
(3) Equity shares and changes in equity shares held by parties that control/are
controlled by the Company:
31st, December 30th June,
2004 Current period additions 2005
Name Amount % Amount % Amount %
------------------------------------------------------------------------------------------------------------------
Huaneng Group* 1,675,660,547 51.98 - - 1,675,660,547 51.98
HIPDC** 5,197,680,000 43.12 - - 5,197,680,000 43.12
Weihai Power Company 457,102,980 60 - - 457,102,980 60
Taicang Power Company 474,630,000 75 - - 474,630,000 75
Taicang II Powe Company 670,807,500 75 - - 670,807,500 75
Huaiyin Power Company 168,646,000 63.64 69,854,000 26.36 238,500,000 90
Huaiyin II Power Company 301,653,600 63.64 - - 301,653,600 63.64
Qinbei Power Company 5,500,000 55 - - 5,500,000 55
Yushe Power Company 48,000,000 60 321,456,000 - 369,456,000 60
Xindian II Power Company 95,000,000 95 - - 95,000,000 95
Yueyang Power Company 308,000,000 55 - - 308,000,000 55
Luohuang Power Company 540,000,000 60 - - 540,000,000 60
Shanghai Ranji Power Company - - 35,000,000 70 35,000,000 70
Sichuan Hydropower - - 480,000,000 60 480,000,000 60
Baoxinghe Hydropower*** - - 350,948,000 68 350,948,000 68
Dongxiguan Hydropower*** - - 86,715,943 55.33 86,715,943 55.33
Taipingyi Hydropower*** - - 60,000,000 60 60,000,000 60
Kangding Hydropower*** - - 116,400,000 60 116,400,000 60
Mingtai Hydropower*** - - 50,999,400 52.20 50,999,400 52.20
Jialingjiang Hydropower*** - - 106,194,000 55 106,194,000 55
Fujiang Hydropower*** - - 142,500,000 95 142,500,000 95
Pingliang Power Company - - 404,950,000 65 404,950,000 65
Yuanheng Company**** 2,850,000 95 - - 2,850,000 95
* Huaneng Group holds 51.98% equity interest in HIPDC.
** In accordance with a shareholders' agreement entered into by certain
founding shareholders, during the operating period of the Company, the
voting rights of seven founding shareholders are given to HIPDC. Thus,
HIPDC holds a 70.09% effective voting right at the shareholders' meetings.
*** Sichuan Hydropower directly holds 68%, 55.33%, 60%, 60%, 52.2%, 55% and
95% equity interest in Baoxinghe Hydropower, Dongxiguan Hydropower,
Taipingyi Hydropower, Kangding Hydropower, Mingtai Hydropower,
Jialingjiang Hydropower and Fujiang Hydropower respectively.
**** Yushe Power Company holds 95% equity interest in Yuanheng Company.
150
7. Related Party Transactions (Cont'd)
(4) Nature of related parties that do not control/are not controlled by the Company:
Name of related parties Relationship with the Company
------------------------------------------------------------------------------------------------------
Huaneng Finance A subsidiary of Huaneng Group
WPDB Minority shareholder of Weihai Power Company
Henan Investment Minority shareholder of Qinbei Power Company
Jiyuan Investment Minority shareholder of Qinbei Power Company
Shanxi International Minority shareholder of Yushe Power Company
CCI Minority shareholder of Luohuang Power Company
JEPDC Minority shareholder of Huaiyin Power Company and
Huaiyin II Power Company
China Huaneng International Trade A subsidiary of Huaneng Group
Economics Corporation (the "CHITEC")
Shanghai Time Shipping Company A joint venture company of Huaneng Group
(the "Time Shipping")
Rizhao Power Company An associate of the Company
SEG An associate of the Company
Hanfeng Power Company An associate of the Company
Hebei Huaneng Jingyuan Coal Company A subsidiary of Huaneng Group
Limited (the "Huaneng Jingyuan")
Lime Company An associate of Luohuang Power Company
Sichuan Power Investee of Baoxinghe Hydropower and
Dongxiguan Hydropower
Sichuan Yong'an Investee of Mingtai Hydropower
Aba Hydro Power Investee of Taipingyi Hydropower
GPPIC Investee of Pingliang Hydropower
151
7. Related Party Transactions (Cont'd)
(5) Related party transactions
a. On 30th June, 1994, the Company and HIPDC entered into a service
agreement pursuant to which HIPDC provides transmission service and
transformer facilities to some of the power plants of the Company and
receives service fees. The agreement covered a period of 10 years and
expired during 2004. However, the Company has not yet signed a new
agreement with HIPDC. The total amount of service fees paid to HIPDC
for the six months ended 30th June, 2005 was approximately Rmb70
million (for the six months ended 30th June, 2004: Rmb105 million).
b. Pursuant to a leasing agreement entered into amongst the Company,
HIPDC and Nanjing Investment Company, the land use right of Nanjing
Power Plant is leased to the Company for 50 years from 1st January,
1999 at an annual rental payment of Rmb1.334 million.
c. Pursuant to a leasing agreement entered into between the Company and
HIPDC, HIPDC agreed to lease its office building to the Company at an
annual rental of Rmb26 million for five years from 1st January, 2005.
d. As described in Note 5 (17) (i), certain bank loans were on-lent from
Huaneng Group through Huaneng Finance, and as described in Note 5 (17)
(iii), certain bank loans of the Company and its subsidiaries were
drawn from Huaneng Finance, WPDB, Shanxi International, CCI, JEPDC,
Sichuan Power, Sichuan Yong'an, Aba Hydro Power and GPPCI.
e. As at 30th June, 2005, Huaneng Finance had granted short-term loans of
Rmb2,424 million (31st December, 2004: Rmb3,694 million) to the
Company and its subsidiaries. The relevant interest rates range from
4.54% to 5.02% (2004: 4.54% to 5.02%) per annum. The interest rates
for such loans have no material difference with the prevailing market
interest rate (see Note 5(12)). For the six months ended 30th June,
2005, the interest paid by the Company and its subsidiaries to HIPDC
for these loans amounted to Rmb38,629,135 (For the six months ended
30th June, 2004: Rmb23,543,851).
f. As at 30th June, 2005, long-term bank loans of approximately Rmb3,666
million, Rmb7,516 million, Rmb100 million, Rmb200 million, Rmb448
million, Rmb125 million, Rmb579 million and Rmb15 million were
guaranteed by HIPDC, Huaneng Group, WPDB, Henan Investment, Shanxi
International, Jiyuan Investment, GPPCI and Sichuan Yong'an
respectively (31st December, 2004: Rmb3,937 million, Rmb3,798 million,
Rmb100 million, Rmb200 million, Rmb420 millon, Rmb125 million, Nil and
Nil) (see Note 5(17)).
g. As described in Note 8, certain bank loans of Rizhao Power Company were
guaranteed by the Company.
152
7. Related Party Transactions (Cont'd)
(5) Related party transactions (Cont'd)
h. On 6th November, 2002, the Company entered into a management service
agreement with Huaneng Group and HIPDC. Pursuant to which, the Company
provides management services to certain power plants owned by Huaneng
Group and HIPDC for five years. For the six months ended 30th June,
2005, the Company earned service fees amounted to Rmb16,921,200 from
Huaneng Group (for the six months ended 30th June, 2004:
Rmb16,647,600) and paid expenses on behalf of Huaneng Group's power
plants amounted to Rmb1,359,377 (As at 31st December, 2004:
2,317,194). In addition, the Company earned service fees amounted to
Rmb1,644,000 from HIPDC (For the six months ended 30th June, 2004:
Rmb8,652,600). For the six months ended 30th June, 2005, the related
costs incurred for the management services provided totaled
approximately Rmb14.16 million (For the six months ended 30th June,
2004: Rmb18 million).
i. For the six months ended 30th June, 2005, the Company and its
subsidiaries paid approximately Rmb276.31 million for coal purchased
from CHITEC (For the six months ended 30th June,2004: Rmb100.35
million).
j. For the six months ended 30th June, 2005, the Company and its
subsidiaries paid approximately Rmb274 million for the fuel purchased
and transportation services received from Time Shipping (For the six
months ended 30th June, 2004: Rmb213 million).
k. For the six months ended 30th June, 2005, the Company and its
subsidiaries paid approximately Rmb122.66 million for coal purchased
from Huaneng Jingyuan (For the six months ended 30th June, 2004: Nil).
l. For the six months ended 30th June, 2005, the Company and its
subsidiaries paid approximately Rmb27.3 million for lime products
purchased from Lime Company(For the six months ended 30th June, 2004:
N/A).
m. For the six months ended 30th June, 2005, HIPDC had provided
guarantees on the Company's equity portion of certain accounts
receivable balances of two subsidiaries totaling approximately Rmb205
million (31st December, 2004: Rmb209 million) (see Note 5(3)(i)).
153
7. Related Party Transactions (Cont'd)
(5) Related party transactions (Cont'd)
n. On 26th October, 2004, the Company entered into an agreement with
Huaneng Group pursuant to which the Company acquired from Huaneng
Group 60% equity interest in Sichuan Hydropower and 65% equity
interest in Pingliang Power Company at considerations of Rmb1,219
million and Rmb806 million respectively. After meeting all the
necessary conditions, the payments of the purchase considerations and
the transfer of relevant ownership and control, the acquisitions
became effective on 5th January, 2005.
o. On 11th April,2005, the Company entered into an agreement with Huaneng
Group, pursuant to which Huaneng Group provides management service to
Sichuan Hydropower. The total amount of service fees is Rmb2.42
million per annum. The Company pays for a portion of this amount
according to its equity interest in Sichuan Hydropower.
p. For the period ended 30th June, 2005, the Company and its subsidiaries
discounted approximately Rmb120 million, including the Rmb80.11
million as at 30th June, 2005 (31st December, 2004: Nil) of notes
receivables to this entity, the discounting charges of which were
approximately Rmb1.04 million (For the six months ended 30th June,
2004: Nil).
q. For the six months ended 30th June, 2005, the Company sold a company
at its net book value of Rmb30 million to HIPDC(For the six months
ended 30th June, 2004: Nil).
(6) Cash deposited with a related party
30th June, 31st December,
2005 2004
----------------------------------
Deposited at Huaneng Finance:
- Current deposit 1,371,334,367 1,362,960,901
==================================
As at 30th June, 2005, the interest rates per annum for the current deposits
placed with Huaneng Finance ranged from 0.72% to 1.44% (31st December, 2004:
0.72% to 1.44%).
154
7. Related Party Transactions (Cont'd)
(7) Receivables from / payables to related parties
30th June, 2005 31st December, 2004
Amount Percentage Amount Percentage
-----------------------------------------------------------------------------
Advance to suppliers
Prepayment to CHITEC - - 5,000,000 1.13%
Prepayment to
Huaneng Jingyuan 12,000,000 1.82% 6,000,000 1.36%
Prepayment to
Yuanheng Company 1,977,556 0.30% - -
Other receivables
Other receivables from
Huaneng Group 8,460,600 1.77% - -
Other receivables from
Huaneng Group's
subsidiaries 1,359,477 0.28% 2,317,194 0.79%
Other receivables from
Rizhao Power Company 1,020,000 0.21% 1,652,353 0.56%
Accounts payable
Accounts payable to
Huaneng Jingyuan (8,301,871) 0.57% - -
Accounts payable to
Huaneng Group (830,174) 0.06% - -
Accounts payable to
Time Shipping (8,148,077) 0.56% (6,959,110) 0.94%
Accounts payable to
Lime Company (3,655,549) 0.25% (3,799,628) 0.51%
155
7. Related Party Transactions (Cont'd)
(7) Receivables from/ payables to related parties (Cont'd)
30th June, 2005 31st December, 2004
Amount Percentage Amount Percentage
-----------------------------------------------------------------------------
Other Payable
Other payables to HIPDC (51,043,976) 1.68% (1,258,799,490) 33.96%
Other payable to CHITEC (409,205) 0.01% (399,060) 0.01%
Other payables to
Huaneng Finance (117,461) - (117,461) -
Other payables to
Huaneng Group (189,963) 0.01% (189,963) 0.01%
Other payables to Sichuan
Huaneng Shiye Company (1,292,217) 0.04% - -
Other payables to
Huaneng Jingyuan (268,016) 0.01% - -
Interest payables
Interest payables on loans
from Huaneng Finance (59,997,925) 22.34% (1,960,863) 1.62%
Interest payables on loans
from Huaneng Group (44,401,735) 16.53% - -
Dividends payables
Dividends payables to
Huaneng Group (18,516,923) 22.93% - -
The above balances with related parties were unsecured, non-interest bearing
and to be settled within one year.
156
8. Contingent Liability
30th June, 2005
The Company
and its
Item subsidiaries The Company
------------------------------------------------------------------------------------------------------------------
Guarantee on the long-term bank loans of
Rizhao Power Company 292,500,000 292,500,000
Guarantee on the long-term bank loans of
Qinbei Power Company - 740,000,000
Guarantee on the long-term bank loans of
Yushe Power Company - 702,000,000
---------------------------------------
292,500,000 1,734,500,000
=======================================
The directors are of the view that the guarantees on the long-term bank loans
of Rizhao Power Company, Qinbei Power Company and Yushe Power Company by the
Company had no significant financial impact on the Company's operation.
157
9. Obligation and Commitments
Commitments mainly relate to the construction of new power projects, certain
complementary facilities and renovation projects for existing power plants and
the purchase of coal. Expenditure which was contracted for but not incurred and
thus was not recognized in the financial statements as at 30th June, 2005
amounted to approximately Rmb24,177 million (31st December, 2004: Rmb11,483
million).
In addition, during 2004 and the first half of 2005, the Company entered into
various long-term agreements for the procurement of coal from year 2005 to 2009
for power generation. These agreements are subject to termination only under
certain limited circumstances. In most cases, these agreements contain
provisions for price escalation and minimum purchase level clauses. The future
commitments under these agreements are as follows:
Year 30th June, 2005
------------------------
2005 3,427,749,000
2006 9,110,989,000
2007 10,136,747,000
2008 7,553,349,000
2009 8,465,884,000
------------------------
38,694,718,000
========================
158
9. Obligation and Commitments (Cont'd)
The Company had various operating lease arrangements with HIPDC for land and
buildings. Total future minimum lease payments under non-cancelable operating
leases are as follows:
30th June, 31st December,
2005 2004
----------------------------------------
Land and buildings
- within 1 year 27,834,000 1,334,000
- 1-2 years 27,334,000 1,334,000
- 2-3 years 27,334,000 1,334,000
- after 3 years 92,307,000 54,694,000
----------------------------------------
174,809,000 58,696,000
========================================
In addition, in accordance with a 30-year operating lease agreement signed by
the Dezhou Power Plant and Shandong Land Bureau for the land occupied by Dezhou
Power Plant Phase I and Phase II in June 1994, annual rental is approximately
Rmb29,874,000 effective from June 1994 and is subject to revision at the end of
the fifth year from 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 six months ended 30th June, 2005, the rental was Rmb14,937,227 (For the six
months ended 30th June, 2004: Rmb14,975,227).
10. Net Profit after Deducting Non-recurring Items
For the six months ended 30th June,
2005 2004
-------------------------------------------
Net profit 1,620,288,149 2,530,964,525
Add (Less): non-recurring items
- Net loss (profit) from disposal of fixed assets 555,426 (1,076,961)
- Reversal of bad debit provision (3,208,923) (6,076,496)
- Reversal of Inventory impairment provision (64,584) -
- Non-operating income (13,081,152) (409,420)
- Non-operating expense 42,129,019 4,603,033
Add (Less): tax impact on non-recurring items (833,294) 464,949
-------------------------------------------
Net profit after deducting non-recurring items 1,645,784,641 2,528,469,630
===========================================
159
SUPPLEMENTAL INFORMATION (UNAUDITED)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(Prepared on consolidation basis; all amounts are stated in Rmb Yuan unless
otherwise stated)
Net Profit and Net Assets Reconciliation Between PRC GAAP and International
Financial Reporting Standards ("IFRS")
The financial statements, which are prepared by the Company and its
subsidiaries in conformity with the Accounting Standards for Business
Enterprises and Accounting Systems for Business Enterprises ("PRC GAAP"),
differ in certain respects from IFRS. Major differences between PRC GAAP and
IFRS, which affect the net income and net assets of the Company and its
subsidiaries, are summarized as follow:
Net Income
-------------------------------------------
For the six months ended 30th June
-------------------------------------------
2005 2004
-------------------------------------------
Note (i)
Net profit under PRC GAAP 1,620,288,149 2,530,964,525
Impact of IFRS adjustments:
Profit attributable to minority interests (Note i) 371,265,335 99,504,588
Effect of recording the amount received
in advance based on rate making process (a) (5,220,452) (52,844,749)
Difference in the recognition policy on housing
benefits to the employees of the Company (b) (20,041,371) (14,915,763)
Difference in capitalization of borrowing costs (c) 60,571,750 27,891,894
Effect of recording negative goodwill and amortization (d) (123,639,182) -
Difference in accounting treatment for
issuance cost of short-term bonds (e) 19,289,589 -
Difference in recognition of professional
fee incurred on acquisitions (f) 16,698,000 -
Applicable deferred tax impact of the above GAAP differences (h) 51,864,681 7,717,443
Others 427,222 (25,164,247)
-------------------------------------------
Net profit under IFRS 1,991,503,721 2,573,153,691
===========================================
160
Net Assets
-------------------------------------------
30th June 31st December
2005 2004
-------------------------------------------
Note (i)
Net assets under PRC GAAP 35,789,948,774 37,183,402,535
Impact of IFRS adjustments:
Minority interests (Note i) 4,183,675,301 2,573,400,216
Effect of recording the amount received in advance
based on rate making process (a) (1,134,818,232) (1,129,597,780)
Difference in the recognition policy on housing
benefits to the employees of the Company (b) 45,786,616 68,546,525
Difference in capitalization of borrowing costs (c) 198,629,013 156,286,117
Effect of recording negative goodwill and amortization (d) 1,360,030,998 -
Difference in accounting treatment for
issuance cost of short-term bonds (e) 19,289,589 -
Difference in recognition of professional fee
incurred on acquisitions (f) 59,510,756 42,812,756
Effect on minority interests of recording fair
value adjustments upon acquisitions (g) 1,643,384,932 843,853,614
Applicable deferred tax impact of the above GAAP differences (h) (431,480,882) (44,583,779)
Others (107,013,468) (162,208,460)
-------------------------------------------
Net assets under IFRS 41,626,943,397 39,531,911,744
===========================================
Note (i) Consistent with disclosure requirement of revised IAS 1-Presentation
of Financial Statements, minority interests in the consolidated net
assets and net profit under IFRS should be included as a portion of
total equity and total profit attributable to shareholders
respectively. Accordingly, the comparative figures have been restated
to meet the disclosure requirement for this period.
(a) RECORDING OF THE AMOUNT RECEIVED IN ADVANCE
In accordance with the tariff setting mechanism applicable to some of the
power plants, the Company and its subsidiaries receive an advance payment
(calculated at 1% of the book value of fixed assets) as the major repair
and maintenance cost requirements of the relevant power plants. This
payment received in advance is recognized as a liability under IFRS and is
recognized as revenue when the repair and maintenance is performed and the
liability extinguished. For PRC statutory financial reporting purposes,
this amount is not recorded as a liability and is recognized as revenue.
161
(b) DIFFERENCE IN THE RECOGNITION POLICY ON HOUSING BENEFITS TO THE EMPLOYEES
OF THE COMPANY
The Company and HIPDC provided housing benefits to certain qualified
employees of the Company whereby the living quarters owned by the Company
and HIPDC were sold to these employees at preferential prices. The housing
benefits represent the difference between the cost of the staff quarters
sold to and the net proceeds collected from the employees, which are borne
by the Company and HIPDC.
For PRC statutory reporting purposes, in accordance with the relevant
regulations issued by the Ministry of Finance, the total housing benefits
provided by the Company are charged to non-operating expenses as incurred.
Under IFRS, the housing benefits provided by the Company are recognized on
a straight-line basis over the estimated remaining average service lives
of the employees.
(c) 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 interest on general
borrowings used for the purpose of obtaining a qualifying asset in
addition to the capitalization of interest on specific borrowings. The
GAAP difference of capitalized interests on general borrowings also causes
the difference of depreciation expense of relevant fixed assets.
(d) EFFECT OF RECORDING NEGATIVE GOODWILL AND AMORTIZATION
Under PRC GAAP, the excess of the equity portion of the net assets
acquired over the total cost of the acquisition arising from the business
combinations in prior years was recorded as negative goodwill and
amortized over certain period on a straight-line basis.
In accordance with revised IFRS 3 -- Business Combination, negative
goodwill arising from the business combination in prior years is
derecognized in the beginning of this period and the effect is reflected
in the beginning retained earnings .And under IFRS, the amortization of
the above negative goodwill is reversed.
(e) DIFFERENCE IN ACCOUNTING TREATMENT FOR ISSUANCE COST OF SHORT-TERM BONDS
Under PRC GAAP, the issuance cost of short-term bonds is expensed when
occurs. In accordance with IAS 39, an entity generally amortizes issuance
cost included in the calculation of the effective interest rate over the
expected life of the short-term bonds.
162
(f) DIFFERENCE IN RECOGNITION OF PROFESSIONAL FEE INCURRED ON ACQUISITIONS
Under PRC GAAP, the professional fee directly attributable to the
acquisition of subsidiaries should be expensed when occurs. In accordance
with IFRS 3, such professional fee should be included in the cost of the
combination and therefore capitalized.
(g) EFFECT ON MINORITY INTERESTS OF RECORDING FAIR VALUE ADJUSTMENTS UPON
ACQUISITIONS
Under PRC GAAP, the acquired subsidiaries are recorded in the consolidated
financial statements of the Company and its subsidiaries at historical
cost. In accordance with revised IFRS 3, the acquiree's identified assets,
liabilities and contingent liabilities, except for non-current assets that
are classified as held for sale in accordance with IFRS 5, are recorded at
their fair value on the acquisition date. The differences between the fair
value and historical cost of the acquiree's such identifiable assets,
liabilities and contingent liabilities affect the acquiree's net assets on
the acquisition date and therefore, affect the minority interests (shown
as a portion of the net assets) in the consolidated financial statement of
the Company and its subsidiaries.
(h) DEFERRED TAX IMPACT
This represents deferred tax effect on the above GAAP differences where
applicable.
163