Annual Report and Accounts
Datang Intl Power Generation Co Ld
02 April 2007
DATANG INTERNATIONAL POWER GENERATION CO., LTD.
(a sino-foreign joint stock limited company incorporated in the People's
Republic of China)
(Stock Code: 991)
Announcement of 2006 Annual Results
OPERATING AND FINANCIAL HIGHLIGHTS:
• Consolidated operating revenue amounted to approximately RMB24,835 million, representing an increase of
38.02% over 2005.
• Consolidated net profit attributable to equity holders of the Company amounted to approximately RMB2,778
million, representing an increase of 18.16% over 2005.
• Basic earnings per Share amounted to approximately RMB0.54, representing an increase of approximately
RMB0.08 per Share over 2005.
• The Board has recommended the distribution of proposed dividend of RMB0.234 per Share# for the year of
2006.
I. COMPANY RESULTS
The board of directors (the 'Board') of Datang International Power Generation
Co., Ltd. (the 'Company') hereby announces the audited consolidated operating
results of the Company and its subsidiaries and a jointly controlled entity
(hereinafter referred to as the 'Company and its Subsidiaries') prepared in
conformity with the International Financial Reporting Standards ('IFRS') for the
year ended 31 December 2006 (the 'Year'), together with the audited consolidated
operating results of the year of 2005 (the 'Previous Year') for comparison. Such
operating results have been reviewed and confirmed by the Company's audit
committee (the 'Audit Committee').
Consolidated operating revenue of the Company and its Subsidiaries for the Year
was approximately RMB24,835 million, representing an increase of 38.02% as
compared to the Previous Year. The consolidated net profit attributable to
equity holders of the Company was approximately RMB2,778 million, representing
an increase of approximately 18.16% as compared to the Previous Year. Basic
earnings per share of the Company (the 'Share') for the Year amounted to
approximately RMB0.54, representing an increase of approximately RMB0.08 per
Share as compared to the Previous Year.
In view of the operating results of the Company during the Year, the Board of
the Company has recommended the distribution of proposed dividend of RMB0.234
per Share# for the Year.
# For indication purpose only, please refer to paragraph III(C) below.
Please refer to the audited financial statements set out in the Appendix for
details of the consolidated operating results.
A. FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS PREPARED UNDER
IFRS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2006
Note 2006 2005
Rmb'000 Rmb'000
Operating revenue 3 24,835,218 17,994,389
Operating costs
Local government surcharges (279,485 ) (205,439 )
Fuel (10,663,815 ) (7,531,789 )
Depreciation (4,107,630 ) (2,767,528 )
Repairs and maintenance (778,081 ) (574,362 )
Wages and staff welfare (1,236,480 ) (1,192,685 )
Others (1,781,537 ) (1,222,946 )
Total operating costs (18,847,028 ) (13,494,749 )
Operating profit 5,988,190 4,499,640
Share of results of associates 9,458 (1,273 )
Interest income 24,674 40,051
Finance costs 4 (1,358,713 ) (675,494 )
Profit before income tax 4,663,609 3,862,924
Taxation 5 (1,081,256 ) (813,294 )
Profit for the year 3,582,353 3,049,630
Attributable to:
- Equity holders of the Company 2,777,781 2,351,056
- Minority interests 804,572 698,574
3,582,353 3,049,630
Dividends paid 1,177,130 1,135,827
Proposed dividends 6 1,348,714 1,177,130
Proposed dividend per share (Rmb) 6 0.234 0.228
Earnings per share for profit attributable to the equity holders
of the Company during the year
- basic (Rmb) 7 0.54 0.46
- diluted (Rmb) 7 0.52 0.44
CONSOLIDATED BALANCE SHEETS
AS AT 31 DECEMBER 2006
Note 2006 2005
Rmb'000 Rmb'000
ASSETS
Non-current assets
Property, plant and equipment 77,505,966 58,948,110
Investments in associates 857,421 793,316
Available-for-sale investments 1,774,184 306,294
Land use right 632,599 428,447
Deferred housing benefits 300,232 188,467
Intangible assets 83,576 62,304
Other long-term assets 87,850 -
Deferred income tax assets 142,969 119,303
81,384,797 60,846,241
Current assets
Inventories 806,965 693,019
Other receivables 719,319 493,081
Accounts receivable 8 3,337,529 1,409,528
Notes receivable 11,132 64,829
Cash and cash equivalents 4,451,284 1,029,339
9,326,229 3,689,796
Total assets 90,711,026 64,536,037
EQUITY AND LIABILITIES
Capital and reserves attributable to the Company's equity holders
Share capital 5,662,849 5,162,849
Reserves 6 18,233,202 13,162,613
23,896,051 18,325,462
Minority interests 3,304,667 2,403,475
Total equity 27,200,718 20,728,937
Non-current liabilities
Long-term loans 40,273,581 29,215,217
Convertible bonds 9 1,111,810 1,098,758
Deferred income 273,157 217,548
Deferred income tax liabilities 421,682 152,498
42,080,230 30,684,021
Current liabilities
Accounts payable and accrued liabilities 10 7,648,449 4,558,556
Short-term loans 9,300,496 5,717,280
Current portion of long-term loans 2,942,804 2,488,884
Taxes payable 538,329 358,359
Other current liabilities 1,000,000 -
21,430,078 13,123,079
Total liabilities 63,510,308 43,807,100
Total equity and liabilities 90,711,026 64,536,037
Notes:
1 Basis of preparation
The financial statements of the Company and its Subsidiaries have been prepared
in accordance with IFRS. These financial statements have been prepared under the
historical cost convention as modified by the revaluation of available-for-sale
investments and financial liabilities (including derivative instruments) at fair
value through profit or loss.
A significant portion of the Company and its Subsidiaries' funding requirements
for capital expenditure was satisfied by short-term borrowings. Consequently, as
at 31 December 2006, the Company and its Subsidiaries had a negative working
capital balance of approximately Rmb12.1 billion (31 December 2005 - Rmb9.43
billion). The Company and its Subsidiaries have significant undrawn borrowing
facilities, subject to certain conditions, amounting to approximately Rmb65.79
billion as at 31 December 2006 (31 December 2005 - Rmb63.13 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 financial
statements on a going concern basis.
2 Accounting PolicIES
The principle accounting policies adopted are consistent with those applied in
the annual financial statements for the year ended 31 December 2005. The
following new interpretation and standard are mandatory for financial year with
annual year period beginning on or after 1 January 2006 and relevant to the
operations of the Company and its Subsidiaries.
* International Financial Reporting Interpretations Committee Interpretation
('IFRIC Interpretation') 4, Determining whether an Arrangement contains a Lease
(effective from 1 January 2006). IFRIC Interpretation 4 requires the
determination of whether an arrangement is or contains a lease to be based on
the substance of the arrangement. It requires an assessment of whether: (i)
fulfilment of the arrangement is dependent on the use of a specific asset or
assets (the 'asset'); and (ii) the arrangement conveys a right to use the asset.
Based on management's assessment, there was no material impact from the adoption
of IFRIC Interpretation 4 to the financial statements of the Company and its
Subsidiaries.
* IFRS 6, Exploration for and Evaluation of Mineral Resources (effective from
1 January 2006): IFRS 6 introduces the recognition, measurement and disclosure
requirement of exploration for and evaluation of mineral resources. IFRS 6
specifies the circumstances in which entities that recognise exploration and
evaluation assets should test for impairment. Since the exploration and
evaluation activities of coal mines currently undertaken by the Company and its
Subsidiaries are not significant, management considered no material impact from
implementation of IFRS 6 on the financial statements of the Company and its
Subsidiaries.
Prior year comparatives
Certain comparative figures of 2005 have been reclassified to conform to the
presentation of financial statements for the year ended 31 December 2006.
3 OPERATING REVENUE
2006 2005
Rmb'000 Rmb'000
Electricity 24,685,461 17,892,565
Heat 122,491 101,824
Other 27,266 -
24,835,218 17,994,389
Pursuant to the Power Purchase Agreements entered into between the Company and
its Subsidiaries and State Grid Corporation of China ('SGCC') and the regional
or provincial grid companies, the Company and its Subsidiaries are required to
sell their entire net generation of electricity to these grid companies at an
approved tariff rate. For the year ended 31 December 2006 and 2005, all of the
electricity generated by the Company and its Subsidiaries was sold to SGCC and
regional or provincial grid companies.
4 FINANCE COSTS
2006 2005
Rmb'000 Rmb'000
Interest expense 1,499,599 791,095
Exchange gain, net (144,489 ) (97,285 )
Fair value gain on an interest rate swap * (23,647 ) (18,316 )
Other 27,250 -
1,358,713 675,494
* To hedge against its interest rate risk on long-term loans, Inner Mongolia
Datang International Tuoketuo Power Generation Company Limited ('Tuoketuo Power
Company') has entered into an interest rate swap, which is carried at fair
value. However, since the swap does not qualify as an effective hedge under IAS
39, the change in its fair value is included in the income statement.
5 TAXATION
2006 2005
Rmb'000 Rmb'000
Current income tax 1,119,547 859,880
Deferred income tax (38,291 ) (46,586 )
Tax charge 1,081,256 813,294
The statutory income tax is assessed on an individual entity basis, based on
each of results of operation of the Company and its Subsidiaries. The
commencement dates of the tax holiday period of each power plant are
individually determinded. The income tax charges are based on assessable profit
for the year and after considering deferred taxation.
On 16 March 2007, the National People's Congress approved the Enterprise Income
Tax Law, which will come into effect on 1 January 2008. Pursuant to this law,
the rate for Enterprise Income Tax for both domestic enterprise and foreign
investment enterprise will be unified at 25%, with certain grandfathering
provisions and preferential provisions removed. Management is still in the
progress of assessing its impact on the Company and its Subsidiaries' taxation
for future years.
6 PROFIT APPROPRIATION
Dividends
On 30 March 2007, the Board proposed dividends totalling approximately
RMB1,348,713,594.50. This proposed dividend is subject to the approval of the
shareholders at the annual general meeting. These financial statements do not
reflect this dividends payable, which will be accounted for in the shareholders
equity as an appropriation of retained earnings for the year ended 31 December
2007.
On 27 March 2006, the Board proposed a dividend of Rmb0.228 per share, totalling
approximately Rmb1,177.13 million for the year ended 31 December 2005. The
proposed dividends distribution was approved by the shareholders of the Company
at the general meeting dated 20 June 2006.
Statutory surplus reserve
In accordance with the relevant laws and regulations of the PRC and the Company
and its Subsidiaries' articles of association, the Company and its Subsidiaries
are required to appropriate 10% of its net profit, after offsetting any prior
years' losses, to the statutory surplus reserve. When the balance of such a
reserve reaches 50% of the Company's share capital, any further appropriation is
optional. Approximately Rmb415.53 million (2005 - Rmb357.493 million) have been
appropriated to statutory surplus reserve for the year ended 31 December 2006.
Statutory public welfare fund
Pursuant to the revised Company Law of the PRC, effective since 1 January 2006,
statutory public welfare fund was abolished and accordingly, the Company and its
Subsidiaries transferred the balance of statutory public welfare fund of
approximately Rmb559.456 million to statutory surplus reserve.
Discretionary surplus reserve
In accordance with the Company and its Subsidiaries' articles of association,
the appropriation of profit to the discretionary surplus reserve and its
utilisation are made in accordance with the recommendation of the Board and is
subject to shareholders' approval at the general meeting.
On 30 March 2007, the Board proposed an appropriation of profit of approximately
Rmb1,020.774 million to the discretionary surplus reserve for the year ended 31
December 2006 (2005 - Rmb759.91 million). The proposed profit appropriation is
subject to the shareholders' approval at the next general meeting.
7 EARNINGS PER SHARE AND DIVIDEND PER SHARE
The calculation of basic earnings per share for the year ended 31 December 2006
was based on the profit attributable to equity holders of the Company of
approximately Rmb2,777.781 million (2005 - Rmb2,351.056 million) and on the
weighted average number of 5,187.507 million shares (2005 - 5,162.849 million
shares) in issue during the year.
The 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. The convertible debt is assumed to have been
converted into ordinary shares and the net profit is adjusted to eliminate the
interest expenses less the tax effect.
2006 2005
Profit attributable to equity holders of the Company (Rmb'000) 2,777,781 2,351,056
Interest expense on convertible bonds (net of tax) (Rmb'000) 38,625 38,639
Profit used to determine diluted earnings per share (Rmb'000) 2,816,406 2,389,695
Weighted average number of ordinary shares in issue (shares in thousand) 5,187,507 5,162,849
Adjustments for assumed conversion of convertible debt (shares in thousand)* 222,127 222,127
Weighted average number of ordinary shares for diluted earnings per share (shares in
thousand) 5,409,634 5,384,976
Diluted earnings per share (Rmb)* 0.52 0.44
* As at 31 December 2006 and 2005, the conversion price was HKD5.4 per share.
Proposed dividends per share for the year ended 31 December 2006 were calculated
based on the proposed dividends of approximately RMB1,348.714 million (2005 -
RMB1,177.13 million) dividend by the number of 5,753,555,774 shares in issue as
at 30 March 2007 (31 December 2006 - 5,662,849,000 shares, 31 December 2005 -
5,162,849,000 shares).
8 ACCOUNTS RECEIVABLE
Accounts receivable of the Company and its Subsidiaries mainly represent the
receivables from the respective regional or provincial grid companies for tariff
revenue. These receivables are unsecured and non-interest bearing. The tariff
revenue is settled on a monthly basis according to the payment provisions in the
power purchase agreements. As at 31 December 2006 and 2005, all tariff revenues
receivables from the respective grid companies were aged within three months,
and no doubtful debt provisions were considered necessary.
9 CONVERTIBLE BONDS
On 9 September 2003, the Company issued USD153,800,000, 0.75% convertible bond
at a nominal value of USD153,800,000. The bonds will mature in 5 years from the
issue date at their nominal value of USD153,800,000 unless converted into the
Company's ordinary shares at the holder's option at the announced conversion
price, which initially was HKD5.558 per share. On 20 May 2005, the Company
adjusted the conversion price to HKD5.4 per share. The conversion price is
subject to adjustment in certain circumstances with a fixed rate of exchange
applicable on conversion of the convertible bonds of HKD7.799 per USD1.
The fair value of the liability component and the equity conversion component
were determined on the issue of the bonds. The fair value of the liability
component was calculated using a market interest rate for equivalent
non-convertible bonds. The residual amount, representing the value of the equity
conversion component, is included in equity in other reserve, net of deferred
income tax.
In subsequent periods, the liability component continues to be presented on the
amortised cost basis, until extinguished on conversion or maturity of the bonds.
The equity component is determined on the issue of the bonds and is not changed
in subsequent periods.
The convertible bonds recognised in the balance sheet as at 31 December 2006
were as follows:
2006 2005
Rmb'000 Rmb'000
Liability component at beginning of the year 1,098,758 1,078,027
Interest expense 57,649 57,671
Interest payments (9,233 ) (9,443 )
Exchange rate adjustment (35,364 ) (27,497 )
Liability component at end of the year 1,111,810 1,098,758
The carrying amount of the liability component as at 31 December 2006 of the
convertible bonds approximated its fair value.
Interest expense on the bonds is calculated on the effective interest basis of
5.51% (2005 - 5.51%) per annum by applying the effective interest rate for an
equivalent non-convertible bonds to the liability component of the convertible
bonds after considering the effect of issuance cost.
10 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised:
2006 2005
Rmb'000 Rmb'000
Construction costs and deposits payable to contractors 5,393,189 3,231,715
Fuel and material costs payable 1,500,801 927,648
Salary and welfare payable 147,078 93,669
Interest rate swap liability 12,766 69,079
Interest payable 137,480 62,780
Assets acquisition payable 50,546 -
Others 406,589 173,665
7,648,449 4,558,556
As at 31 December 2006, other than certain deposits for construction which were
aged between two and three years, substantially all accounts payable were aged
within one year.
As at 31 December 2006, the notional principal amount of the outstanding
interest rate swap contract of Tuoketuo Power Company was USD200,615,486 (31
December 2005 - USD219,675,000), and the fixed rate and floating rate were 5.15%
(31 December 2005 - 5.15%) and 5.61% (31 December 2005 - 3.82%) (LIBOR offered
by British Bankers' Association on 13 July 2006), respectively.
11 SUPPLEMENTAL FINANCIAL INFORMATION
a) Condensed consolidated balance sheet
As at 31 December
2006 2005
Rmb'000 Rmb'000
Net current liabilities (12,103,849 ) (9,433,283 )
Total assets less current liabilities 69,280,948 51,412,958
b) Condensed consolidated income statement
2006 2005
Rmb'000 Rmb'000
Interest expense 2,513,976 1,684,453
Less: amount capitalized in property, plant and equipment (1,014,377 ) (893,358 )
1,499,599 791,095
Exchange gain, net (144,489 ) (97,285 )
Fair value loss/(gain) on an interest rate swap (23,647 ) (18,316 )
other 27,250 -
Finance costs 1,358,713 675,494
Cost of inventories
- Fuel 10,663,815 7,531,789
- Spare parts and consumable supplies 164,827 120,569
Depreciation 4,126,842 2,782,471
Dividend income (28,091 ) (45,298 )
Donation 73,702 66,000
Amortisation of deferred housing benefits 68,355 56,618
Gain from sale of available-for-sale investment - (36,285)
B. FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS PREPARED UNDER PRC
ACCOUNTING STANDARDS
1 FINANCIAL HIGHLIGHTS AND FINANCIAL RATIOS
For the year ended 31 December
Unit 2006 2005 Variance (%)
Revenue from principal operations Rmb'000 24,835,218 17,994,389 38.02
Profit before taxation and minority Rmb'000 4,605,104 3,895,167 18.23
interests
Net profit Rmb'000 2,707,291 2,360,740 14.68
Net profit (excluding non-recurring items) Rmb'000 2,766,987 2,385,769 13.78
31 December 31 December
2006 2005 Variance (%)
Total assets Rmb'000 89,074,543 64,273,309 38.59
Shareholders' equity (excluding minority Rmb'000 22,683,605 17,964,059 26.27
interests)
Net cash flow from operating activities Rmb'000 7,450,924 5,978,100 24.64
For the year ended 31 December
Unit 2006 2005 Variance (%)
Earnings per share(weighted average) Rmb 0.52 0.46 13.04
Earnings per share (fully diluted) Rmb 0.48 0.46 4.35
Return on net assets(fully diluted) % 11.94 13.14 -1.20
Return on net assets calculated based on
net profit excluding non-recurring items
(fully diluted) % 12.20 13.29 -1.09
Net cash flow from operating activities Rmb 1.32 1.16 13.79
per share
31 December 31 December
2006 2005 Variance (%)
Net assets per share Rmb 4.01 3.48 15.23
Adjusted net assets per share Rmb 3.99 3.44 15.99
Note:
Formulas of key financial ratios:
Earnings per share (fully = Net profit/Total numbers of ordinary shares at the year end
diluted)
Return on net assets (fully = Net profit/Shareholders' equity at year end X 100%
diluted)
Net assets per share = Shareholders' equity at year end/Total numbers of ordinary shares at the year
end
Adjusted net assets per share = (Shareholders' equity at year end - receivables above three years - prepaid
expense
- long-term deferred assets)/Total numbers of ordinary shares at the year end
2 PROFIT AND LOSS ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2006
2006 2005
Rmb'000 Rmb'000
1. Revenues from principal 24,835,218 17,994,389
operating activities
Less: Cost of principal (17,480,567 ) (12,720,252 )
operation
Tax and levies on (279,485 ) (205,439 )
principal operation
2. Profit from principal 7,075,166 5,068,698
operating activities
Add: Profit from other 15,010 3,239
operations
Less: General and (1,007,094 ) (510,921 )
administrative expenses
Financial expenses, net (1,426,042 ) (669,641 )
3. Operating profit 4,657,040 3,891,375
Add: Income from 37,162 80,309
investment
Subsidy income 2,865 2,919
Non-operating income 11,724 42,160
Less: Non-operating (103,687 ) (121,596 )
expenses
4. Profit before taxation 4,605,104 3,895,167
and minority interests
Less: Income tax (1,119,546 ) (859,880 )
Minority interests (778,267 ) (674,547 )
5. Net profit 2,707,291 2,360,740
3 NOTES
(1) Basis of presentation
The profit and loss accounts of the Company and its Subsidiaries have been
prepared in accordance with the Accounting Standards for Business Enterprises
and Accounting System for Business Enterprises and related supplementary
regulations as promulgated by People's Republic of China ('PRC GAAP').
(2) Comparing with the annual report for the year ended 31 December
2005, there is no material change to the Company and its Subsidiaries'
accounting estimates, and there is no error correction on the accounting method
during the reporting year.
4 RELATED PARTY TRANSACTIONS
(1) Related parties that are controlled by the Company
Registered Principal Relationship with Type of Legal
Name address activities the Company enterprise representative
Tuoketuo Power Huhhot, Inner Power generation A subsidiary of Limited An
Company Mongolia the Company liability Hongguang
Autonomous Region company
Tianjin Datang Jixian,Tianjin Power generation A subsidiary of Limited Yang
International the Company liability Hongming
Panshan Power company
Generation
Company
Limited ('Panshan
Power Company')
Hebei Datang Fengning, Hebei Hydropower A subsidiary of Limited Fang
International generation the Company liability Zhanling
Huaze Hydropower company
Development
Company
Limited
('Huaze
Hydropower
Company')
Shanxi Datang Shuozhou, Power generation A subsidiary of Limited Wang
International Shanxi Province the Company liability Xianzhou
Shentou Power company
Generation
Company Limited
('Shentou Power
Company')
Shanxi Datang Datong, Shanxi Power generation A subsidiary of Limited Yu Libin
International Yungang Province the Company liability
Thermal Power Company company
Limited ('Yungang
Thermal Power
Company')
Yunnan Datang Kaiyuan, Yunnan Power generation A subsidiary of Limited Qiu Ling
International Honghe Province the Company liability
Power Generation company
Company Limited
('Honghe Power
Company')
Gansu Datang Yongdeng, Gansu Power generation A subsidiary of Limited Qiu Ling
International Liancheng Province the Company liability
Power Generation company
Company Limited
('Liancheng Power
Company')
Hebei Datang Tangshan, Hebei Power generation A subsidiary of Limited Wang
International Province the Company liability Xianzhou
Tangshan company
Thermal Power
Company Limited
('Tangshan
Thermal Power
Company')
Yunnan Datang Jinping, Yunnan Hydropower A subsidiary of Limited Zhang Yi
International Nalan Province generation the Company liability
Hydropower (under company
Development construction)
Company Limited
('Nalan Hydropower
Company')
Yunnan Datang Simao, Yunnan Hydropower A subsidiary of Limited Zhang Yi
International Province generation the Company liability
Lixianjiang (under company
Hydropower construction)
Development
--Company Limited
('Lixianjiang
Hydropower
Company')
Shanxi Datang Yuncheng, Shanxi Power generation A subsidiary of Limited Qiu Ling
International province (under the Company liability
Yuncheng Power construction) company
Generation
Company Limited
('Yuncheng
Power Company')
Chongqing Datang Pengshui, Chongqing Hydropower A subsidiary of Limited Liu Lizhi
International generation the Company liability
Pengshui (under company
Hydropower construction)
Development Company Limited
('Pengshui
Hydropower
Company')
Jiangsu Datang Qidong, Jiangsu Power generation A subsidiary of Limited Liu Lizhi
International Province (under the Company liability
Lusigang Power construction) company
Generation
Company Limited
('Lusigang Power
Company')
Guangdong Datang Chaozhou, Power generation A subsidiary of Limited Wei Yuan
Internatinal Guangdong the Company liability
Chaozhou Power Province company
Generation
Company
Limited ('Chaozhou
Power Company')
Fujian Datang Ningde, Fujian Power generation A subsidiary of Limited Yang Hongming
International Province the Company liability
Ningde Power company
Generation Company
Limited ('Ningde
Power Company')
Datang International Hongkong Power related A subsidiary of Limited Wei Yuan
(Hong Kong) Limited consulting the Company liability
('Datang Hong Kong') services company
Chongqing Wulong, Hydropower A subsidiary of Limited Liu Lizhi
Datang Chongqing generation the Company liability
International (under company
Wulong Hydropower construction)
Development
Company Limited
('Wulong
Hydropower
Company')
Yunnan Datang Wenshan, Hydropower A subsidiary of Limited Qiu Ling
International Yunnan Province generation the Company liability
Wenshan (under company
Hydropower construction)
Development
Company
Limited ('Wenshan
Hydropower
Company')
Hebei Datang Tangshan, Power generation A subsidiary of Limited An Hongguang
International Hebei Province the Company liability
Wangtan company
Power Generation
Company Limited
(Wangtan Power
Company)
Chongqing Shizhu, Chongqing Power generation A subsidiary of Limited Liu Lizhi
Datang International (Pre-construction) the Company liability
Shizhu Power Generation company
Company Limited
(Shizhu Power Company)
Inner Mongolia Datang Duolun, Inner Hydropower A subsidiary of Limited Liu Lizhi
International Duolun Mongolia generation the Company liability
Hydropower Multiple Autonomous Region company
Development
Company Limited
(Duolun Hydropower
Company)
Sichuan Datang Ganzi, Sichuan Hydropower A subsidiary of Limited Liu Lizhi
International Ganzi Province generation the Company liability
Hydropower (pre-construction) company
Development Company
Limited ('Ganzi
Hydropower Company')
Datang International Fengtai District, Coal related A subsidiary of Limited Liu Lizhi
Chemistry Technique Beijing service the Company liability
Development Company company
Limited ('Chemistry
Technique Development
Company')
Beijing Datang Fuel Xicheng District, Coal sales, A subsidiary of Limited Yang Hongming
Company Limited Beijing investment the Company liability
('Fuel Company') management, company
technical
service
Inner Mongolia Datang Zuozi, Inner Wind Power A subsidiary of Limited Zhu Pingli
International Zhuozi Mongolia generation the Company liability
Wind Power Company Autonomous Region (pre-construction) company
Limited ('Zhuozi Wind
Power Company')
(2) Registered capital and changes in registered capital of related
parties that are controlled by the Company
31 December Current year 31 December
Name Currency 2005 additions 2006
Rmb'000 Rmb'000 Rmb'000
Tuoketuo Power Company Rmb 1,614,020 100,000 1,714,020
Panshan Power Company Rmb 831,253 - 831,253
Huaze Hydropower Company Rmb 59,162 - 59,162
Shentou Power Company Rmb 748,520 - 748,520
Yungang Thermal Power Company Rmb 250,000 - 250,000
Honghe Power Company Rmb 109,157 305,393 414,550
Liancheng Power Company Rmb 98,000 - 98,000
Tangshan Thermal Power Company Rmb 380,264 - 380,264
Nalan Hydropower Company Rmb 28,477 - 28,477
Lixianjiang Hydropower Company Rmb 60,000 200,000 260,000
Yuncheng Power Company Rmb 10,000 89,625 99,625
Pengshui Hydropower Company Rmb 125,000 - 125,000
Lusigang Power Company Rmb 50,000 - 50,000
Chaozhou Power Company Rmb 30,000 - 30,000
Ningde Power Company Rmb 50,000 200,000 250,000
Datang Hong Kong HKD 23,511 - 23,511
Wulong Hydropower Company Rmb 50,000 - 50,000
Wenshan Hydropower Company Rmb 60,000 - 60,000
Wangtan Power Company Rmb - 450,000 450,000
Shizhu Power Company Rmb - 10,000 10,000
Duolun Hydropower Company Rmb - 28,520 28,520
Ganzi Hydropower Company Rmb - 50,000 50,000
Chemistry Technique Development Company Rmb - 50,000 50,000
Fuel Company Rmb - 80,000 80,000
Zhuozi Wind Power Company Rmb - 20,000 20,000
(3) Equity shares and changes in equity shares held by parties that are
controlled by the Company
Name 31 December 2005 Current Year Addition 31 December 2006
Amount % Amount % Amount %
Rmb'000 Rmb'000
Tuoketuo Power Company 1,028,414 60% - - 1,028,414 60%
Panshan Power Company 623,440 75% - - 623,440 75%
Huaze Hydropower Company 53,500 90.43% - - 53,500 90.43%
Shentou Power Company 448,920 60% 480 - 449,400 60%
Yungang Thermal Power Company 200,000 80% - - 200,000 80%
Honghe Power Company 77,680 70% 212,510 - 290,190 70%
Liancheng Power Company 151,530 55% - - 151,530 55%
Tangshan Thermal Power Company 304,211 80% - - 304,211 80%
Nalan Hydropower Company 14,520 51% 29,730 - 44,250 51%
Lixianjiang Hydropower Company 70,000 70% 112,000 - 182,000 70%
Yuncheng Power Company 79,700 80% 50,000 - 129,700 80%
Pengshui Hydropower Company 150,000 40% 98,900 - 248,900 40%
Lusigang Power Company 119,000 90% - - 119,000 90%
Chaozhou Power Company 135,000 75% - - 135,000 75%
Ningde Power Company 127,500 51% 61,200 - 188,700 51%
Datang Hong Kong 23,511 100% - - 23,511 100%
Wulong Hydropower Company 25,500 51% - - 25,500 51%
Wenshan Hydropower Company 36,000 60% - - 36,000 60%
Wangtan Power Company - - 315,000 70% 315,000 70%
Shizhu Power Company - - 7,000 70% 7,000 70%
Duolun Hydropower Company - - 14,550 51% 14,550 51%
Ganzi Hydropower Company - - 40,000 80% 40,000 80%
Chemistry Technique Development - - 50,000 100% 50,000 100%
Company
Fuel Company - - 80,000 100% 80,000 100%
Zhuozi Wind Power Company - - 20,000 100% 20,000 100%
(4) Nature of related parties that are not controlled by the Company
Name of related parties Nature of relationship
China Datang Group ('China Datang') Substantial Shareholder
Tianjin Jinneng Investment Company Shareholder
('Tianjin Jinneng')
North China Electric Power Research An associate of the Company
Institute Company Limited ('NCEPR')
Beijing Texin Datang Heat An associate of the Company
Company Limited ('Datang Texin')
Ningxia Datang International Daba Power An associate of the Company
Generation Company Limited
('Daba Power Company')
Tongmei Datang Tashan Coal Mine An associate of the Company
Company Limited ('Tashan Coal Mine')
Datang Finance An associate of the Company
(5) Related party transactions
Note 2006 2005
Rmb'000 Rmb'000
Ash disposal fee to China Datang (a) 57,892 57,892
Rental fee to China Datang (b) 7,228 7,228
Technical supervision, assistance and testing service
fee to NCEPR (c) 53,626 49,174
Heat revenue from Datang Texin (d) 43,767 34,833
Fuel management fee to China Datang (e) 5,151 5,229
Sales of a project to China Datang (f) - 210,615
Acquisition of Tangshan Power Plant from China Datang (g) - 157,000
Interest expense to Datang Finance (h) 49,915 263
Interest expense to Tianjin Jinneng (i) 99 -
(a) The ash disposal fee was determined based on ash disposal operating
costs, taxes, depreciation of ash yards and a profit margin at 5% to 10% of the
total costs incurred by China Datang. As at 31 December 2006, the balance due to
China Datang amounted to Rmb57.892 million (31 December 2005 - Nil), which was
included in other payable.
(b) The Company has leased buildings of 141,671(2005 - 141,671) square
metres from China Datang for an annual rental rate of approximately Rmb7.228
million in 2006. As at 31 December 2006 the balance due to China Datang amounted
Rmb7.228 million (31 December 2005 - Nil), which was included in the other
payable.
(c) NCEPR provides technical supervision, assistance and testing services to
the Company and its Subsidiaries in relation to the power generation equipment
and facilities. Pursuant to the Technical Supervision Services Contract, such
services are charged at a pre-determined rate based on the installed capacity of
the Company and its Subsidiaries. As at 31 December 2006, the balance due to
NCEPR amounted to Rmb7.542 million (31 December 2005 - Rmb799,000), which was
included in accounts payable.
(d) Part of the Company's sales of heat for the year was made to Datang
Texin. As at 31 December 2006, the balance due from Datang Texin amounted to
Rmb44.456 million (31 December 2005 - Rmb10.117 million), and was unsecured,
non-interest bearing and included in accounts receivable.
(e) In 2006, China Datang provided fuel management and development services
to the Company. These services were charged at Rmb0.30 (2005 - Rmb0.30) per ton
of coal purchased. As at 31 December 2006, there is no balance due to China
Datang (2005 - Nil).
(f) Based on the agreement signed with China Datang on 24 August 2005, the
Company transferred an office project to China Datang. The transfer price was
approximately Rmb210.615 million, which represented the costs incurred by the
Company in this project.
(g) In 2004, Tangshan Thermal Power Company, a subsidiary of the Company and
China Datang entered into an agreement under which Tangshan Thermal Power
Company agreed to acquire the net assets of Tangshan Power Plant from China
Datang. After obtaining all necessary government approvals on the transaction
and the payment of the consideration of Rmb157 million, the above acquisition
became effective on 20 June 2005.
(h) As at 31 December 2006, the Company and its Subsidiaries had a
short-term loan payable to Datang Finance amounted approximately Rmb761.2
million (31 December 2005- Rmb187 million), and a long-term loan payable to
Datang Finance amounted to approximately Rmb189.5 million (31 December 2005 -
Nil).
(i) As at 31 December 2006, Tianjin Jinneng provided entrusted lending to
Shentou Power Company, the Company's subsidiary, via Shenzhen Development Bank
Tianjin Beichen Branch, amounted 50 million (31 December 2005 - Nil).
(j) North China Grid Company ('NCG') and the minority shareholders of the
Company's subsidiaries and jointly controlled entities had provided guarantees
for the Company and its Subsidiaries' loans totalling approximately Rmb3,930
million as at 31 December 2006 (31 December 2005 - Rmb5,308 million). Pursuant
to the Entities Transfer Agreement, China Datang will assume all of NCG's
obligations in relation to the guarantees provided for by the Company and its
Subsidiaries. The legal procedures of this arrangement were still in process as
at 31 December 2006.
(k) As at 31 December 2006, the Company had provided guarantees for loans to
its associates, Datang Texin, Daba Power Company and Tashan Coal Mine, Tashan
Power Generation according to the Company's shareholding percentage in its
associates totalling approximately Rmb1,085 million (31 December 2005 - Rmb905
million).
(6) Receivables from/payables to related parties
31 December 2006 31 December 2005
Amount % Amount %
Rmb'000 Rmb'000
Accounts Receivable
Datang Texin 44,456 1.33% 10,117 0.72%
Accounts Payable
NCEPR 7,542 0.11% 799 0.02%
Other Payable
China Datang 65,120 14.63% - -
5 NET ASSETS AND NET PROFIT RECONCILIATION BETWEEN PRC GAAP AND IFRS
The consolidated financial statements, which are prepared by the Company and its
Subsidiaries in conformity with PRC GAAP, differ in certain respects from IFRS.
Major differences between PRC GAAP and IFRS, which affect the net assets and net
profit of the Company and its Subsidiaries, are summarized as follows:
Net assets
31 December 2006 31 December 2005
Rmb'000 Rmb'000
Net assets under PRC GAAP 22,683,605 17,964,059
Impact of IFRS adjustments:
Minority interests* 3,282,691 2,470,093
Difference in the recognition policy on housing benefits to (1) 74,693 112,039
employees
Difference in accounting treatment on long-term deferred (2) (65,791) (177,080)
expenses
Difference in accounting treatment on interest rate swap (3) (77,828) (108,998)
Difference in capitalisation of borrowing costs (4) 428,171 304,338
Difference in the commencement of depreciation of fixed assets (5) (106,466) (106,466)
Difference in accounting treatment on convertible bonds (6) 91,742 145,341
Difference in accounting treatment on monetary housing (7) 225,539 76,428
benefits
Difference in accounting treatment of performance payroll (8) - 100,000
accrual
Difference in accounting treatment of the investment of Daqin
Railway Company Ltd ('Daqin Railway') (9) 974,317 -
Including: Such difference from associates 114,291 -
Others (31,241) (17,622)
Applicable deferred tax impact of the above GAAP differences (10) (278,714) (33,195)
Net assets under IFRS 27,200,718 20,728,937
Net profit
Year 2006 Year 2005
Rmb'000 Rmb'000
Net profit under PRC GAAP 2,707,291 2,360,740
Impact of IFRS adjustments:
Minority interests * 778,267 674,547
Difference in the recognition policy on housing benefits to employees (1) (37,346) (37,346)
Difference in accounting treatment on long-term deferred expenses (2) 111,289 (83,856)
Difference in accounting treatment on interest rate swap (3) 31,170 58,706
Difference in capitalisation of borrowing costs (4) 123,833 47,644
Difference in the commencement of depreciation of fixed assets (5) - (51,310)
Difference in accounting treatment on convertible bonds (6) (53,599) (52,544)
Difference in accounting treatment on monetary housing benefits (7) (31,009) (19,272)
Difference in accounting treatment of performance payroll accrual (8) (100,000) 100,000
Others 14,167 3,757
Applicable deferred tax impact of the above GAAP differences (10) 38,290 48,564
Net profit under IFRS 3,582,353 3,049,630
* Consistent with disclosure requirement of revised IAS1-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.
(1) Difference in the recognition policy on housing benefits to employees
The Company provided housing to its employees at a discount price. The price
difference between the selling price and the cost of housing is considered a
housing benefit and is borne by the Company.
For PRC statutory reporting purposes, in accordance with the relevant
regulations issued by the Ministry of Finance of the PRC, the total housing
benefits provided by the Company before 6 September 2000 should be directly
deducted from the statutory public welfare fund and those provided after 6
September 2000 are charged to non-operating expenses as incurred. Under IFRS,
the housing benefits provided by the Company are recognised on a straight-line
basis over the estimated remaining average service lives of the employee.
(2) Difference in accounting treatment on long-term deferred expenses
Under PRC GAAP, expenses incurred during construction stage but cannot be
capitalised are accumulated in long-term deferred expenses and charged into the
profit and loss account upon the commencement of commercial operation of a
company. Under IFRS, such expenses are charged to profit and loss accounts when
incurred.
(3) Difference in accounting treatment on interest rate swap
To hedge the interest risk derived from the long-term borrowings denominated in
US dollar, an interest rate swap contract was entered into between Tuoketuo
Power Company, a subsidiary of the Company, and a financial institution.
Pursuant to this interest rate swap contract, Tuoketuo Power Company swapped a
floating-rate borrowing for a fixed-rate borrowing with the same notional
principal amount. Under PRC GAAP, interest rate swapped contract is disclosed as
an off balance sheet item. Under IFRS, derivatives are recognised in the balance
sheet at fair value as assets or liabilities, based on the market condition at
each balance sheet date. Due to the fact that the interest rate swap contract
does not qualify for hedge accounting in accordance with IAS 39, the changes in
its value are included in the profit and loss accounts.
(4) Difference in capitalisation of borrowing costs
Under PRC GAAP, capitalisation of interests is limited to specific borrowings.
No interest can be capitalised on general borrowings.
In accordance with IAS 23, a company capitalises interest on general borrowings
used for the purpose of obtaining a qualified fixed assets in addition to the
capitalisation of interest on specific borrowings.
The GAAP difference of capitalised interests on general borrowings also causes
the difference of depreciation expense of relevant fixed assets.
(5) Difference in the commencement of depreciation of fixed assets
Under PRC GAAP, depreciation of fixed assets commences from one month after the
relevant assets are completed and ready for its intended use. Under IFRS,
depreciation commences immediately when the relevant assets are ready for its
intended use.
(6) Difference in accounting treatment on convertible bonds
Under PRC GAAP, convertible bonds are presented at principal together with
interest payable.
Under IFRS, the proceeds received on the issue of convertible bonds are
allocated into liability and equity components. Upon initial recognition, the
liability component represented the present value, at the issuance date, of the
contractually determined stream of cash flows discounted at the market interest
rate for instruments of comparable credit status providing substantially the
same cash flows, on the same terms but without the conversion option. The equity
component is then determined by deducting the liability component from the
proceeds received on the issue of the bonds. Relating interest expenses are
recognised using effective interest rate.
(7) Difference in accounting treatment on monetary housing benefits
Under PRC GAAP, the monetary housing benefits provided to employees who started
work before 31 December 1998 were directly deducted from the statutory public
welfare fund after approval by the general shareholders' meeting of the Company.
Under IFRS, these benefits are recorded as deferred assets and amortised on a
straight-line basis over the estimated service lives of relevant employee.
(8) Difference in accounting treatment of performance payroll accrual
Performance payroll accrued under PRC GAAP, in accordance with relevant
government policies, but not paid out at the end of the year does not meet all
the criteria of recognising liabilities under IFRS. Therefore these unpaid
balances were reversed under IFRS.
(9) Difference in accounting treatment of the investment of Daqin Railway
Under PRC GAAP, the Company and its Subsidiaries' long-term investment in Daqin
Railway is accounted for using cost method. The carrying amount of this
long-term investment remains unchanged except for additions or withdrawal of
investment.
After Daqin Railway's shareholding structure reform during the year 2006, the
legal person shares held by the Company and its Subsidiaries were allowed to
trade in the open market. In accordance with IAS 39, given that the shares held
by the Company and its Subsidiaries can now be freely traded, they have been
revalued at the year end based on the closing market rate. A gain or loss on the
available-for-sale investment shall be recognized directly in equity, except for
impairment losses and foreign exchange gains and losses, until the investment is
derecognized, at which time the cumulative gain or loss previously recognized in
equity shall be recognized in profit or loss.
(10) Applicable deferred tax impact on the above GAAP differences
This represents deferred tax effect on the above GAAP differences where
applicable.
II. MANAGEMENT DISCUSSION AND ANALYSIS
The Company is one of the largest independent power companies in the PRC,
primarily engaged in power generation businesses mainly focusing on coal-fired
power generation. Currently, the Company wholly owns 4 operating power plants
and manages 28 power generation companies (projects) and other power companies.
As at 31 December 2006, the Company managed a total installed capacity of 19,430
MW. The power generation businesses of the Company are primarily distributed in
the North China Power Grid (including the Beijing-Tianjin-Tangshan ('BTT') Power
Grid and the Shanxi Power Grid), the Zhejiang Power Grid, as well as the Gansu
Power Grid, the Yunnan Power Grid, the Fujian Power Grid and the Guangdong Power
Grid.
During 2006, the PRC economy maintained a relatively fast growth under a
favourable domestic macroeconomic environment, recording an impressive gross
domestic product ('GDP') growth rate of 10.7%. The continued upswing in the
domestic macroeconomic environment laid the development base for the power
generation industry. During the Year, the country added generation units of
approximately 100,000 MW, while the social power consumption increased by 14%
over the Previous Year. Nationwide power generation increased by approximately
13.5% over the Previous Year. The power generation of the main service areas for
the power generation businesses of the Company and its Subsidiaries also
maintained rapid growth, with the respective power generation of the BTT Power
Grid, the Shanxi Power Grid and the Zhejiang Power Grid having increased by
approximately 14.36%, 16.96% and 30.74%, respectively, over the Previous Year.
(A) Business Review
During the Year, the nationwide shortage of supply of electricity was further
alleviated due to the commencement of substantial volume of operations of new
generation units. Utilisation rates of operating generation units also reported
a significant decrease as compared to the Previous Year. Facing the operating
pressure in the power market, the Company and its Subsidiaries actively
capitalised on market opportunities, diligently carried out effective production
operations and overcame difficulties, striving to complete the production
objectives of the Year. In 2006, total power generation of the Company and its
Subsidiaries amounted to 93.459 billion kWh, an increase of 31.65% as compared
to the Previous Year. While power generation increased, the Company and its
Subsidiaries further refined their operating strategies to strive for higher
production level and revenue. Accordingly, the overall economic efficiency of
the Company and its Subsidiaries reported a relatively significant increase over
the Previous Year. During the Year, the Company and its Subsidiaries realised a
consolidated operating revenue of approximately RMB24,835 million, representing
an increase of approximately 38.02% as compared to the Previous Year.
Consolidated net profit was approximately RMB2,778 million, representing an
increase of approximately 18.16% as compared to the Previous Year.
1. Production
As at 31 December 2006, total power generation of the Company and its
Subsidiaries for the Year amounted to 93.459 billion kWh, an increase of 31.65%
when compared to the Previous Year. Total on-grid power generation of the
Company and its Subsidiaries amounted to 87.902 billion kWh, an increase of
31.83% when compared to the Previous Year. The increases in total power
generation and on-grid power generation were mainly attributable to the
following reasons:
(1) Increased capacity of operating generation units: Compared to the
corresponding period of the Previous Year, the Company and its Subsidiaries has
increased its installed capacity by 5,620 MW of the Year, thereby substantially
increasing the overall power generation capacity of the Company and its
Subsidiaries.
(2) Increased demand in service areas: During the Year, the power demand
within the service areas of the Company and its Subsidiaries - the BTT Power
Grid, the Shanxi Power Grid, the Gansu Power Grid, the Yunnan Power Grid, the
Zhejiang Power Grid and the Guangdong Power Grid - maintained rapid growth.
(3) Improvement in operating reliability of generation units: During the
Year, the operating generation units of the Company and its Subsidiaries
achieved an equivalent availability factor of 94.71%, representing an increase
of 1.56 percentage points when compared to the Previous Year.
2. Environmental Protection
While endeavouring to increase power generation, the Company also put strong
emphasis on the implementation of environmental protection projects in
accordance with the State's environmental protection requirements. As at the end
of 2006, the installed capacity of the Company and its Subsidiaries with
desulphurisation facilities in use accounted for 67.3% of the coal-fired units
of the Company and its Subsidiaries. Meanwhile, desulphurisation upgrade
projects for units totalling 1,600 MW are currently in progress.
As desulphurisation upgrade projects are under way, renovation works with
respect to flue-gas denitro-oxidisation facilities of the Company and its
Subsidiaries also commenced, of which the project at Gao Jing Thermal Power
Plant was classified as a State model project. During the Year, the Company has
also invested in treatment programmes on pollution sources, such as the ash
yards, the coal yards and noises from water towers, of relevant power plants.
During the Year, the Company and its Subsidiaries invested the capital of a
total of approximately RMB780 million on relevant environmental protection
projects.
3. Operational Management
During the Year, the Company and its Subsidiaries achieved a consolidated
operating revenue of approximately
RMB24,835 million, representing an increase of approximately 38.02% as compared
to the Previous Year. Consolidated net profit amounted to approximately RMB2,778
million for the Year, an increase of approximately 18.16% as compared to the
Previous Year.
During the Year, the Company and its Subsidiaries faced operating pressures
brought by a decline in utilisation hours in the power market, persistent high
fuel prices, and continuous rises in charges for environmental protection and
water supply. However, the Company and its Subsidiaries achieved a continued and
stable profit growth through efforts to increase revenues and reduce expenses
and the implementation of various corresponding measures.
(1) Through various efforts to implement the tariff policies, the on-grid
power tariff (tax included) increased by RMB13.49 per MWh as compared to the
Previous Year, leading to an increase of approximately RMB1,100 million in sales
revenue over the Previous Year.
(2) The power generation structure was appropriately adjusted to fully
utilise the efficient and energy-conserving units so as to generate more
electricity and maximise revenues.
(3) More sophisticated energy conservation measures were implemented to
increase revenues and lower costs. Accordingly, coal consumption for power
generation decreased by approximately 7.3g per kWh over the Previous Year, while
the consolidated electricity consumption rate of the plants decreased by
approximately 0.14 percentage point as compared to the Previous Year.
(4) Financing channels were expanded to reduce financing costs. In December
2006, the Company issued 500 million
A Shares to raise net proceeds of approximately RMB3,279 million. During the
Year, the Company also issued 'short-term commercial papers' in the inter-bank
bond market for RMB1,000 million with a composite financing cost of
approximately 3.59%, resulting in savings in financing costs when compared to
the bank loan rate (6.12%) for an equivalent term.
4. Business Expansion
During the Year, the Company continued to implement its development strategies,
which include the transformation from a single mode of coal-fired power
generation to the development of renewable energy including hydropower, nuclear
power, wind power, and the transformation of the business structure from simply
a power generator into an integrated industry chain of power-related businesses.
As a result of the implementation of the above-mentioned development strategies,
the Company and its Subsidiaries had an aggregate of 5,620 MW of new generation
capacity commencing commercial operation successively during the Year.
Remarkable breakthroughs were also made in the development of nuclear power
generation as well as power-related upstream and downstream projects such as
coal mine-power plant-railway integration and railway construction.
(1) Thermal projects: During the Year, coal-fired generation units of the
Company and its Subsidiaries, with a total capacity of approximately 5,400 MW,
commenced commercial operation. These included four 600 MW power generation
units of Wushashan Power Project, two 600 MW power generation units of Chaozhou
Power Company, two 600 MW power generation units of Ningde Power Company and two
300 MW power generation units of Honghe Power Company.
(2) Hydropower projects: During the Year, the Company and its Subsidiaries
added a capacity of 220 MW in hydropower units, including two 50 MW hydropower
generation units at Nalan Hydropower Company and two 60 MW hydropower generation
units at Lixianjiang Hydropower's Yayangshan Project.
(3) Nuclear power project: In 2005, the Company entered into an investment
agreement with Guangdong Nuclear Investment Company Limited to participate in
the construction of two nuclear power generation units of 1,000 MW each. At
present, the project is included in the electric power development scheme of
Fujian Province's 'Eleventh Five-Year Plan', and was already submitted to the
National Development and Reform Commission for including the same in the State's
'Eleventh Five-Year Plan'. During the Year, the State has given consent for the
commencement of relevant preliminary works of the project.
(4) Wind power project: The construction work of Bayin Wind Power Plant
Phase I (40 MW) in Zhuozi, developed and constructed by the Company's
wholly-owned subsidiary 'Inner Mongolia Datang International Zhouzi Wind Power
Co., Ltd.' ('Zhuozi Wind Power Company'), has officially commenced. The project
includes 32 wind power generation units of 1.25 MW each, and it is expected that
all units of the project will commence operation in 2007.
(5) Other energy projects: As at the end of 2006, the Company had signed the
'Qiancao Railway Construction Project Investment Agreement' (Chinese Word) with
six companies including the Beijing Railway Bureau, establishing 'Tanggang
Railway Limited Liabilities Company' (Chinese Word) and 'Hebei Yuzhou Energy
Consolidated Development Company Limited' (Chinese Word), to promote the
consolidated development of coal mining, railway and power plants. The Ta Shan
Coal Mine in Shanxi, a project of which the Company invested and got the
development right, has formed its production capacity in 2006. Meanwhile, Unit 2
of the open-cut coal mine located east of Shengli Coal Mine in Xilinhaote City,
Inner Mongolia, has completed the mining site border adjustment. In March 2007,
the Company entered into an equity transfer agreement with Inner Mongolia
Huineng Group to participate in the development of Changtan Coal Mine in Ordos
City of Inner Mongolia, which will further secure the coal supply for the power
plants of the Company and its Subsidiaries.
(B) Major Financial Indicators and Analysis
In 2006, the Company realised RMB24,835 million in revenue from principal
operations, representing a 38.02% increase over the Previous Year. A net profit
of RMB2,778 million was realised, representing an 18.16% increase over the
Previous Year. Basic earnings per share was approximately RMB0.54, representing
an increase of RMB0.08 per share over the Previous Year.
1. Operating Revenue
The Company is principally engaged in power generation businesses. The Company's
revenue from principal operations comprises revenue from electricity sales and
revenue from heat sales.
In 2006, the Company realised an operating revenue of RMB24,835 million,
representing an increase of RMB6,841 million or 38.02% over the Previous Year,
owing to the following reasons:
• Increase in installed capacity and on-grid power generation. During
the Year, the Company's installed capacity under management increased by 5,620
MW as compared to the Previous Year while on-grid power generation increased by
21.6 billion kWh, as a result of commencement of new generation units. As such,
revenue increased by approximately RMB5,700 million accordingly.
• Increase in average power tariff. As a result of the continued
implementation of the fuel-tariff pass-through mechanism and the increase in
on-grid power generation for desulphurised units with upward-adjusted tariffs,
the Company's average on-grid tariff increased. Compared to the Previous Year,
the average on-grid tariff (tax included) increased by approximately RMB13.49
per MWh.
2. Operating Costs
In 2006, the total operating costs of the Company and its Subsidiaries amounted
to RMB18,847 million, representing an increase of 39.66% over the Previous
Year's RMB13,495 million. The major reasons were increases in fuel costs and
depreciation.
During the Year, fuel costs accounted for 56.58% of operating costs. Following
the increases of the Company's newly commenced operating generation units and
power generation, as well as the continued rise in nationwide fuel prices, fuel
costs increased by RMB3,132 million or approximately 41.58% over the Previous
Year, an increase in magnitude exceeding that of power sales revenue. Of such
increased amount, the increase in fuel costs as a result of a rise in on-grid
electricity volume amounted to approximately RMB1,887 million. The rise in fuel
prices has pushed up the unit fuel cost, which has in turn led to an increase in
fuel costs of approximately RMB1,225 million. The increase in fuel costs due to
increase in heat supply amounted to RMB30 million.
During the Year, fixed costs increased by RMB2,146 million as compared to the
Previous Year, which was mainly attributable to the increases in depreciation
charges for generation units, maintenance costs, water expenses and pollution
discharge fees incurred by newly commenced generation units of the Company
during the Year. Among these, the depreciation charges increased by
approximately 48.41% over the Previous Year.
3. Financing Costs
In 2006, financing costs of the Company amounted to RMB1,359 million,
representing an increase of approximately RMB684 million as compared to the
Previous Year. The relatively rapid increase was attributable to the increase in
interest expenses on short-term and long-term loans for the Company's newly
commenced operating companies during the Year.
4. Profit
During the Year, the Company and its Subsidiaries reported a consolidated profit
before tax amounting to RMB4,664 million in total, up 20.74% as compared to the
Previous Year. Consolidated net profit amounted to approximately RMB2,778
million, up 18.16% as compared to the Previous Year. The increase in the
Company's profit was mainly attributable to the Company's further expansion in
its operating scale, tariff adjustments and stringent and effective cost
controls by the Company.
5. Financial Position
As at 31 December 2006, total consolidated assets of the Company and its
Subsidiaries amounted to approximately RMB90,711 million, representing an
increase of approximately RMB26,175 million as compared to the Previous Year.
Total consolidated liabilities amounted to approximately RMB63,510 million,
representing an increase of approximately RMB19,703 million as compared to the
Previous Year. Minority interests amounted to approximately RMB3,305 million,
representing an increase of approximately RMB902 million as compared to the
Previous Year. Total equity amounted to approximately RMB27,201 million,
representing an increase of approximately RMB6,472 million as compared to the
Previous Year. The increase in total assets mainly resulted from the
implementation of the expansion strategy by the Company and its Subsidiaries
which led to a corresponding increase in investments in construction-in-progress
and new power generation units, as well as the Company's issue of 500 million A
shares by the end of the Year, raising approximately RMB3,279 million in net
proceeds.
6. Liquidity
As at 31 December 2006, the asset-to-liability ratio for the Company and its
Subsidiaries was approximately 70.01%. The net debt-to-equity ratio (i.e. (loans
+ convertible bonds - cash and cash equivalents - bank deposits - marketable
securities)/total equity) was approximately 180.79%.
As at 31 December 2006, total cash and cash equivalents and bank deposits with a
maturity of over 3 months of the Company and its Subsidiaries amounted to
approximately RMB4,451 million, of which an amount equivalent to approximately
RMB54 million was in foreign currencies. The Company and its Subsidiaries had no
entrusted deposits or overdue fixed deposits during the Year.
As at 31 December 2006, short-term loans of the Company and its Subsidiaries
amounted to approximately RMB9,300 million which bore annual interest rates
ranging from 4.70% to 5.67%. Long-term loans (excluding those due within 1 year)
amounted to approximately RMB40,274 million and long-term loans due within 1
year amounted to approximately RMB2,943 million, at annual interest rates
ranging from 3.60% to 6.39%, of which an amount equivalent to approximately
RMB2,860 million was denominated in US dollar. The Company and its Subsidiaries
pay regular and active attention to foreign exchange market fluctuations and
constantly assess foreign currency risks.
As at 31 December 2006, North China Grid Company Limited ('NCG', originally
North China Power (Group) Corp. and its subsidiaries) and some minority
shareholders of the Company's Subsidiaries provided guarantees for the loans of
the Company and its Subsidiaries amounting to approximately RMB3,930 million.
The Company had not provided any guarantee in whatever forms for any other
company apart from its Subsidiaries, jointly controlled entity and associates.
(C) Outlook for 2007
In 2007, the Company is faced with a daunting task of achieving solid results
and maintaining a stable and healthy development in view of both opportunities
and challenges lying ahead. According to forecasts, growth in the PRC economy
would remain steady in 2007. GDP is expected to grow by about 8% while power
consumption in the PRC is expected to grow at around 12.5%. Such a scenario will
provide new development opportunities to the Company and its Subsidiaries. The
further expansion of the Company's service areas has strengthened the Company's
ability to weather risks and the ability to carry out sustainable development.
With electricity demand-supply going from a tight condition to a basically
steady condition, utilisation rates of power generation units are expected to
decrease slightly with market competition intensifying. In addition, the
uncertainties regarding coal prices and coal quality will increase the
difficulty for cost control and operation management. In 2007, the Company will
focus on the following tasks:
1. Continuing the implementation of the Company's diversified development
strategy, by actively pursuing the expansion of the Company in coal-fired power,
renewable energy projects such as hydropower and wind power, nuclear power, coal
mining, railway and development of power-related upstream and downstream
projects.
2. Strengthening production safety management to ensure safety, stability and
power generation increase.
3. Strengthening the management of construction quality and schedule, so as to
ensure 2,300 MW of coal-fired units,
1,150 MW of hydropower units and 44 MW of wind power units will commence
operation in good order within 2007.
4. Reinforcing the management of energy conservation and consumption reduction
and appropriately optimising the power generation structure, so as to maintain
and enhance the overall efficiency level of the Company.
5. Enhancing the efficiency of capital utilisation by expanding financing
channels and reducing financing costs.
6. Exercising stringent cost controls and dedicating efforts to raise revenue
and reduce costs.
III. SHARE CAPITAL AND DIVIDENDS
(A) Share Capital
The Company issued 500,000,000 A Shares during the Year. As at 31 December 2006,
the total share capital of the Company amounted to 5,662,849,000 Shares, divided
into 5,662,849,000 Shares carrying a nominal value of RMB1.00 each.
(B) Shareholding of Substantial Shareholders
As far as the directors of the Company are aware, as at 31 December 2006, the
persons below with interests or short positions in the shares or underlying
shares of the Company which are required to be disclosed to the Company under
section 336 of the Securities and Futures Ordinance (the 'SFO') (Chapter 571 of
the Law of Hong Kong) were as follows:
Approximate Approximate Approximate
percentage percentage percentage
to total issued to total issued to total issued
Class of Number of share capital A Shares H Shares
Name of Shareholder Shares shares held of the Company of the Company of the Company
(%) (%) (%)
China Datang A Shares 1,979,620,580 34.96 49 -
Corporation
Beijing Energy A Shares 671,792,400 11.86 18 -
Investment
Group Company
Limited
Hebei Construction A Shares 671,792,400 11.86 18 -
Investment Company
Tianjin Jinneng A Shares 606,006,300 10.70 15 -
Investment
Company
JPMorgan Chase & Co. H Shares 170,568,692(L) 3.01 - 11.92(L)
126,370,000(P) 2.23 8.83(P)
Templeton Asset H Shares 127,528,320(L) 2.25 - 8.91(L)
Management Limited
UBS AG H Shares 92,316,088(L) 1.63 - 6.45(L)
17,568,000(S) 0.31 - 1.23(S)
Allianz SE H Shares 87,618,000(L) 1.55 - 6.12(L)
60,000(S) 0.00 - 0.00
Halbis Capital
Management
(Hong Kong) H Shares 85,176,000(L) 1.54 - 5.95(L)
Morgan Stanley H Shares 72,071,442(L) 1.27 - 5.04(L)
41,363,855(S) 0.73 - 2.89(S)
(L) means long position (S) means short position (P) means lending pool
(C) Dividends
The Board recommended the proposed cash dividend to be distributed amounting to
approximately RMB1,348,713,594.50 in total; Based on the total 5,753,555,774
Shares as at 30 March 2007, the cash dividend to be distributed was
approximately RMB0.234 per Share (subject to the then number of Shares as at the
register date for the purpose of dividends distribution).
As there may be further conversion of the US dollar convertible bonds into H
Shares between 30 March 2007 and the register date for the Company's
distribution of dividends for the Year, it is proposed that the cash dividend
per share to be distributed be adjusted on the basis of the actual total number
of shares in the register of members as at the register date for the dividend
distribution, on the premise that the total amount of proposed cash dividend to
be distributed (approximately RMB1,348,713,594.50) remains unchanged.
The Board also proposed to utilise the capital reserve fund to issue 10 bonus
Shares to the Company's shareholders for every 10 Shares held, in order to
reciprocate our shareholders' long-term support and concern, as well as
increasing the liquidity of the Shares and expanding the share capital base of
the Company.
The aforementioned dividend distribution for the Year and capital reserve fund
conversion proposals are subject to consideration and approval at the
forthcoming general meeting of the Company. An announcement containing relevant
details, including the register date(s) for the dividend distribution and
capital reserve fund conversion, will be published by the Company as and when
appropriate.
(D) Shareholding by the Directors and Supervisors
As at 31 December 2006, save and except Mr. Fang Qinghai, director of the
Company, who was interested in 1,000 A Shares of the Company, none of the
directors, supervisors and chief executive of the Company nor their associates
had any interest and short positions in the shares, underlying shares and
debentures of the Company or any of its associated corporation (within the
meaning of the SFO) that were required to be notified to the Company and The
Stock Exchange of Hong Kong Limited (the 'Hong Kong Stock Exchange') under the
provisions of Divisions 7 and 8 of Part XV of the SFO, or required to be
recorded in the register mentioned in the SFO pursuant to section 352 or
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 Issuers in the Rules Governing the Listing of Securities on the Hong Kong
Stock Exchange (the 'Listing Rules').
IV. SIGNIFICANT EVENTS
In December 2006, the Company completed the issue of 500 million A Shares and
the A Shares were listed on the Shanghai Stock Exchange of the PRC on 20
December 2006.
V. PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S LISTED SECURITIES
During the Year, the Company or any of its subsidiaries has not purchased, sold
or redeemed any of its listed securities.
VI. COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
To the knowledge of the Board, the Company has complied with all of the code
provisions in the Code on Corporate Governance Practices as set out in Appendix
14 to the Listing Rules during the Year.
VII. COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY
DIRECTORS OF LISTED ISSUERS
Upon specific enquiries made to all the directors of the Company and in
accordance with the information provided, the Board confirmed that all directors
of the Company have complied with the provisions under the Model Code for
Securities Transactions by Directors of Listed Issuers as set out in Appendix 10
to the Listing Rules during the Year.
VIII. AUDIT COMMITTEE
In accordance with the Listing Rules, the Company has set up an Audit Committee
which comprises 3 independent non-executive directors and 2 non-executive
directors of the Company. The Audit Committee is responsible for, among other
things, reviewing the Company's financial reporting procedures and internal
controls.
The Audit Committee has reviewed the accounting principles and methods adopted
by the Company and its Subsidiaries with the management of the Company. They
have also discussed matters regarding internal controls and the annual financial
statements, including the review of the financial statements for year ended 31
December 2006.
The Audit Committee considers that the 2006 annual financial statements of the
Company and its Subsidiaries have compiled with the applicable accounting
standards, and that the Company has made appropriate disclosure thereof.
By Order of the Board
Zhai Ruoyu
Chairman
Beijing, the PRC, 30 March 2007
As at the date of this announcement, the directors of the Company are:
Zhai Ruoyu, Zhang Yi, Hu Shengmu, Fang Qinghai, Yang Hongming, Liu Haixia, Guan
Tiangang, Su Tiegang, Ye Yonghui, Tong Yunshang, Xie Songlin*, Xu Daping*,
Liu Chaoan*, Yu Changchun* and Xia Qing*
* independent non-executive Directors
This information is provided by RNS
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