Datang Intl H Regulatory News (DAT)

2 Apr 2007 07:00

Datang Intl Power Generation Co Ld02 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 of38.02% over 2005. • Consolidated net profit attributable to equity holders of the Company amounted to approximately RMB2,778million, representing an increase of 18.16% over 2005. • Basic earnings per Share amounted to approximately RMB0.54, representing an increase of approximatelyRMB0.08 per Share over 2005. • The Board has recommended the distribution of proposed dividend of RMB0.234 per Share# for the year of2006. I. COMPANY RESULTS The board of directors (the "Board") of Datang International Power GenerationCo., Ltd. (the "Company") hereby announces the audited consolidated operatingresults of the Company and its subsidiaries and a jointly controlled entity(hereinafter referred to as the "Company and its Subsidiaries") prepared inconformity with the International Financial Reporting Standards ("IFRS") for theyear ended 31 December 2006 (the "Year"), together with the audited consolidatedoperating results of the year of 2005 (the "Previous Year") for comparison. Suchoperating results have been reviewed and confirmed by the Company's auditcommittee (the "Audit Committee"). Consolidated operating revenue of the Company and its Subsidiaries for the Yearwas approximately RMB24,835 million, representing an increase of 38.02% ascompared to the Previous Year. The consolidated net profit attributable toequity holders of the Company was approximately RMB2,778 million, representingan increase of approximately 18.16% as compared to the Previous Year. Basicearnings per share of the Company (the "Share") for the Year amounted toapproximately RMB0.54, representing an increase of approximately RMB0.08 perShare as compared to the Previous Year. In view of the operating results of the Company during the Year, the Board ofthe Company has recommended the distribution of proposed dividend of RMB0.234per 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 fordetails of the consolidated operating results. A. FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS PREPARED UNDERIFRS CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Note 2006 2005 Rmb'000 Rmb'000Operating 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 40,051Finance costs 4 (1,358,713 ) (675,494 ) Profit before income tax 4,663,609 3,862,924Taxation 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 1,135,827Proposed 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'000ASSETSNon-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 LIABILITIESCapital 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 18,325,462Minority 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 preparedin accordance with IFRS. These financial statements have been prepared under thehistorical cost convention as modified by the revaluation of available-for-saleinvestments and financial liabilities (including derivative instruments) at fairvalue through profit or loss. A significant portion of the Company and its Subsidiaries' funding requirementsfor capital expenditure was satisfied by short-term borrowings. Consequently, asat 31 December 2006, the Company and its Subsidiaries had a negative workingcapital balance of approximately Rmb12.1 billion (31 December 2005 - Rmb9.43billion). The Company and its Subsidiaries have significant undrawn borrowingfacilities, subject to certain conditions, amounting to approximately Rmb65.79billion as at 31 December 2006 (31 December 2005 - Rmb63.13 billion) and mayrefinance and/or restructure certain short-term loans into long-term loans andwill also consider alternative sources of financing, where applicable. Thedirectors of the Company and its Subsidiaries are of the opinion that theCompany and its Subsidiaries will be able to meet its liabilities as and whenthey fall due within the next twelve months and have prepared these financialstatements on a going concern basis. 2 Accounting PolicIES The principle accounting policies adopted are consistent with those applied inthe annual financial statements for the year ended 31 December 2005. Thefollowing new interpretation and standard are mandatory for financial year withannual year period beginning on or after 1 January 2006 and relevant to theoperations 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 thedetermination of whether an arrangement is or contains a lease to be based onthe substance of the arrangement. It requires an assessment of whether: (i)fulfilment of the arrangement is dependent on the use of a specific asset orassets (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 adoptionof IFRIC Interpretation 4 to the financial statements of the Company and itsSubsidiaries. * IFRS 6, Exploration for and Evaluation of Mineral Resources (effective from1 January 2006): IFRS 6 introduces the recognition, measurement and disclosurerequirement of exploration for and evaluation of mineral resources. IFRS 6specifies the circumstances in which entities that recognise exploration andevaluation assets should test for impairment. Since the exploration andevaluation activities of coal mines currently undertaken by the Company and itsSubsidiaries are not significant, management considered no material impact fromimplementation of IFRS 6 on the financial statements of the Company and itsSubsidiaries. Prior year comparatives Certain comparative figures of 2005 have been reclassified to conform to thepresentation of financial statements for the year ended 31 December 2006. 3 OPERATING REVENUE 2006 2005 Rmb'000 Rmb'000 Electricity 24,685,461 17,892,565Heat 122,491 101,824Other 27,266 - 24,835,218 17,994,389 Pursuant to the Power Purchase Agreements entered into between the Company andits Subsidiaries and State Grid Corporation of China ("SGCC") and the regionalor provincial grid companies, the Company and its Subsidiaries are required tosell their entire net generation of electricity to these grid companies at anapproved tariff rate. For the year ended 31 December 2006 and 2005, all of theelectricity generated by the Company and its Subsidiaries was sold to SGCC andregional or provincial grid companies. 4 FINANCE COSTS 2006 2005 Rmb'000 Rmb'000 Interest expense 1,499,599 791,095Exchange 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 MongoliaDatang International Tuoketuo Power Generation Company Limited ("Tuoketuo PowerCompany") has entered into an interest rate swap, which is carried at fairvalue. However, since the swap does not qualify as an effective hedge under IAS39, the change in its fair value is included in the income statement. 5 TAXATION 2006 2005 Rmb'000 Rmb'000 Current income tax 1,119,547 859,880Deferred 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 oneach of results of operation of the Company and its Subsidiaries. Thecommencement dates of the tax holiday period of each power plant areindividually determinded. The income tax charges are based on assessable profitfor the year and after considering deferred taxation. On 16 March 2007, the National People's Congress approved the Enterprise IncomeTax 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 foreigninvestment enterprise will be unified at 25%, with certain grandfatheringprovisions and preferential provisions removed. Management is still in theprogress of assessing its impact on the Company and its Subsidiaries' taxationfor future years. 6 PROFIT APPROPRIATION Dividends On 30 March 2007, the Board proposed dividends totalling approximatelyRMB1,348,713,594.50. This proposed dividend is subject to the approval of theshareholders at the annual general meeting. These financial statements do notreflect this dividends payable, which will be accounted for in the shareholdersequity as an appropriation of retained earnings for the year ended 31 December2007. On 27 March 2006, the Board proposed a dividend of Rmb0.228 per share, totallingapproximately Rmb1,177.13 million for the year ended 31 December 2005. Theproposed dividends distribution was approved by the shareholders of the Companyat the general meeting dated 20 June 2006. Statutory surplus reserve In accordance with the relevant laws and regulations of the PRC and the Companyand its Subsidiaries' articles of association, the Company and its Subsidiariesare required to appropriate 10% of its net profit, after offsetting any prioryears' losses, to the statutory surplus reserve. When the balance of such areserve reaches 50% of the Company's share capital, any further appropriation isoptional. Approximately Rmb415.53 million (2005 - Rmb357.493 million) have beenappropriated 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 itsSubsidiaries transferred the balance of statutory public welfare fund ofapproximately 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 itsutilisation are made in accordance with the recommendation of the Board and issubject to shareholders' approval at the general meeting. On 30 March 2007, the Board proposed an appropriation of profit of approximatelyRmb1,020.774 million to the discretionary surplus reserve for the year ended 31December 2006 (2005 - Rmb759.91 million). The proposed profit appropriation issubject 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 2006was based on the profit attributable to equity holders of the Company ofapproximately Rmb2,777.781 million (2005 - Rmb2,351.056 million) and on theweighted average number of 5,187.507 million shares (2005 - 5,162.849 millionshares) in issue during the year. The diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. The convertible debt is assumed to have beenconverted into ordinary shares and the net profit is adjusted to eliminate theinterest expenses less the tax effect. 2006 2005 Profit attributable to equity holders of the Company (Rmb'000) 2,777,781 2,351,056Interest 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 5,162,849Adjustments 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 inthousand) 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 calculatedbased 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 asat 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 thereceivables from the respective regional or provincial grid companies for tariffrevenue. These receivables are unsecured and non-interest bearing. The tariffrevenue is settled on a monthly basis according to the payment provisions in thepower purchase agreements. As at 31 December 2006 and 2005, all tariff revenuesreceivables 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 bondat a nominal value of USD153,800,000. The bonds will mature in 5 years from theissue date at their nominal value of USD153,800,000 unless converted into theCompany's ordinary shares at the holder's option at the announced conversionprice, which initially was HKD5.558 per share. On 20 May 2005, the Companyadjusted the conversion price to HKD5.4 per share. The conversion price issubject to adjustment in certain circumstances with a fixed rate of exchangeapplicable on conversion of the convertible bonds of HKD7.799 per USD1. The fair value of the liability component and the equity conversion componentwere determined on the issue of the bonds. The fair value of the liabilitycomponent was calculated using a market interest rate for equivalentnon-convertible bonds. The residual amount, representing the value of the equityconversion component, is included in equity in other reserve, net of deferredincome tax. In subsequent periods, the liability component continues to be presented on theamortised 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 changedin subsequent periods. The convertible bonds recognised in the balance sheet as at 31 December 2006were as follows: 2006 2005 Rmb'000 Rmb'000Liability component at beginning of the year 1,098,758 1,078,027Interest expense 57,649 57,671Interest 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 theconvertible bonds approximated its fair value. Interest expense on the bonds is calculated on the effective interest basis of5.51% (2005 - 5.51%) per annum by applying the effective interest rate for anequivalent non-convertible bonds to the liability component of the convertiblebonds after considering the effect of issuance cost. 10 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities comprised: 2006 2005 Rmb'000 Rmb'000Construction costs and deposits payable to contractors 5,393,189 3,231,715Fuel and material costs payable 1,500,801 927,648Salary and welfare payable 147,078 93,669Interest rate swap liability 12,766 69,079Interest payable 137,480 62,780Assets 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 wereaged between two and three years, substantially all accounts payable were agedwithin one year. As at 31 December 2006, the notional principal amount of the outstandinginterest rate swap contract of Tuoketuo Power Company was USD200,615,486 (31December 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 offeredby 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'000Net current liabilities (12,103,849 ) (9,433,283 )Total assets less current liabilities 69,280,948 51,412,958b) Condensed consolidated income statement 2006 2005 Rmb'000 Rmb'000 Interest expense 2,513,976 1,684,453Less: amount capitalized in property, plant and equipment (1,014,377 ) (893,358 ) 1,499,599 791,095Exchange gain, net (144,489 ) (97,285 )Fair value loss/(gain) on an interest rate swap (23,647 ) (18,316 )other 27,250 - Finance costs 1,358,713 675,494Cost of inventories - Fuel 10,663,815 7,531,789 - Spare parts and consumable supplies 164,827 120,569Depreciation 4,126,842 2,782,471Dividend income (28,091 ) (45,298 )Donation 73,702 66,000Amortisation of deferred housing benefits 68,355 56,618Gain from sale of available-for-sale investment - (36,285) B. FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS PREPARED UNDER PRCACCOUNTING 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 38.02Profit before taxation and minority Rmb'000 4,605,104 3,895,167 18.23interestsNet profit Rmb'000 2,707,291 2,360,740 14.68Net 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 38.59Shareholders' equity (excluding minority Rmb'000 22,683,605 17,964,059 26.27interests)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 13.04Earnings per share (fully diluted) Rmb 0.48 0.46 4.35Return on net assets(fully diluted) % 11.94 13.14 -1.20Return on net assets calculated based onnet profit excluding non-recurring items (fully diluted) % 12.20 13.29 -1.09Net cash flow from operating activities Rmb 1.32 1.16 13.79per share 31 December 31 December 2006 2005 Variance (%)Net assets per share Rmb 4.01 3.48 15.23Adjusted 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 enddiluted)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 endAdjusted 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'0001. Revenues from principal 24,835,218 17,994,389operating activities Less: Cost of principal (17,480,567 ) (12,720,252 )operationTax and levies on (279,485 ) (205,439 )principal operation 2. Profit from principal 7,075,166 5,068,698operating activities Add: Profit from other 15,010 3,239operations Less: General and (1,007,094 ) (510,921 )administrative expensesFinancial expenses, net (1,426,042 ) (669,641 ) 3. Operating profit 4,657,040 3,891,375 Add: Income from 37,162 80,309investmentSubsidy income 2,865 2,919Non-operating income 11,724 42,160 Less: Non-operating (103,687 ) (121,596 )expenses 4. Profit before taxation 4,605,104 3,895,167and 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 beenprepared in accordance with the Accounting Standards for Business Enterprisesand Accounting System for Business Enterprises and related supplementaryregulations as promulgated by People's Republic of China ("PRC GAAP"). (2) Comparing with the annual report for the year ended 31 December2005, there is no material change to the Company and its Subsidiaries'accounting estimates, and there is no error correction on the accounting methodduring the reporting year. 4 RELATED PARTY TRANSACTIONS (1) Related parties that are controlled by the Company Registered Principal Relationship with Type of LegalName address activities the Company enterprise representativeTuoketuo Power Huhhot, Inner Power generation A subsidiary of Limited An Company Mongolia the Company liability Hongguang Autonomous Region companyTianjin 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 companyChongqing 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 serviceInner 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 relatedparties that are controlled by the Company 31 December Current year 31 DecemberName Currency 2005 additions 2006 Rmb'000 Rmb'000 Rmb'000Tuoketuo Power Company Rmb 1,614,020 100,000 1,714,020Panshan Power Company Rmb 831,253 - 831,253Huaze Hydropower Company Rmb 59,162 - 59,162Shentou Power Company Rmb 748,520 - 748,520Yungang Thermal Power Company Rmb 250,000 - 250,000Honghe Power Company Rmb 109,157 305,393 414,550Liancheng Power Company Rmb 98,000 - 98,000Tangshan Thermal Power Company Rmb 380,264 - 380,264Nalan Hydropower Company Rmb 28,477 - 28,477Lixianjiang Hydropower Company Rmb 60,000 200,000 260,000Yuncheng Power Company Rmb 10,000 89,625 99,625Pengshui Hydropower Company Rmb 125,000 - 125,000Lusigang Power Company Rmb 50,000 - 50,000Chaozhou Power Company Rmb 30,000 - 30,000Ningde Power Company Rmb 50,000 200,000 250,000Datang Hong Kong HKD 23,511 - 23,511Wulong Hydropower Company Rmb 50,000 - 50,000Wenshan Hydropower Company Rmb 60,000 - 60,000Wangtan Power Company Rmb - 450,000 450,000Shizhu Power Company Rmb - 10,000 10,000Duolun Hydropower Company Rmb - 28,520 28,520Ganzi Hydropower Company Rmb - 50,000 50,000Chemistry Technique Development Company Rmb - 50,000 50,000Fuel Company Rmb - 80,000 80,000Zhuozi Wind Power Company Rmb - 20,000 20,000 (3) Equity shares and changes in equity shares held by parties that arecontrolled by the Company Name 31 December 2005 Current Year Addition 31 December 2006 Amount % Amount % Amount % Rmb'000 Rmb'000Tuoketuo 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%CompanyFuel 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 relationshipChina Datang Group ("China Datang") Substantial ShareholderTianjin 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'000Ash disposal fee to China Datang (a) 57,892 57,892Rental fee to China Datang (b) 7,228 7,228Technical supervision, assistance and testing service fee to NCEPR (c) 53,626 49,174Heat revenue from Datang Texin (d) 43,767 34,833Fuel management fee to China Datang (e) 5,151 5,229Sales of a project to China Datang (f) - 210,615Acquisition of Tangshan Power Plant from China Datang (g) - 157,000Interest expense to Datang Finance (h) 49,915 263Interest expense to Tianjin Jinneng (i) 99 - (a) The ash disposal fee was determined based on ash disposal operatingcosts, taxes, depreciation of ash yards and a profit margin at 5% to 10% of thetotal costs incurred by China Datang. As at 31 December 2006, the balance due toChina Datang amounted to Rmb57.892 million (31 December 2005 - Nil), which wasincluded in other payable. (b) The Company has leased buildings of 141,671(2005 - 141,671) squaremetres from China Datang for an annual rental rate of approximately Rmb7.228million in 2006. As at 31 December 2006 the balance due to China Datang amountedRmb7.228 million (31 December 2005 - Nil), which was included in the otherpayable. (c) NCEPR provides technical supervision, assistance and testing services tothe Company and its Subsidiaries in relation to the power generation equipmentand facilities. Pursuant to the Technical Supervision Services Contract, suchservices are charged at a pre-determined rate based on the installed capacity ofthe Company and its Subsidiaries. As at 31 December 2006, the balance due toNCEPR amounted to Rmb7.542 million (31 December 2005 - Rmb799,000), which wasincluded in accounts payable. (d) Part of the Company's sales of heat for the year was made to DatangTexin. As at 31 December 2006, the balance due from Datang Texin amounted toRmb44.456 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 servicesto the Company. These services were charged at Rmb0.30 (2005 - Rmb0.30) per tonof coal purchased. As at 31 December 2006, there is no balance due to ChinaDatang (2005 - Nil). (f) Based on the agreement signed with China Datang on 24 August 2005, theCompany transferred an office project to China Datang. The transfer price wasapproximately Rmb210.615 million, which represented the costs incurred by theCompany in this project. (g) In 2004, Tangshan Thermal Power Company, a subsidiary of the Company andChina Datang entered into an agreement under which Tangshan Thermal PowerCompany agreed to acquire the net assets of Tangshan Power Plant from ChinaDatang. After obtaining all necessary government approvals on the transactionand the payment of the consideration of Rmb157 million, the above acquisitionbecame effective on 20 June 2005. (h) As at 31 December 2006, the Company and its Subsidiaries had ashort-term loan payable to Datang Finance amounted approximately Rmb761.2million (31 December 2005- Rmb187 million), and a long-term loan payable toDatang Finance amounted to approximately Rmb189.5 million (31 December 2005 -Nil). (i) As at 31 December 2006, Tianjin Jinneng provided entrusted lending toShentou Power Company, the Company's subsidiary, via Shenzhen Development BankTianjin Beichen Branch, amounted 50 million (31 December 2005 - Nil). (j) North China Grid Company ("NCG") and the minority shareholders of theCompany's subsidiaries and jointly controlled entities had provided guaranteesfor the Company and its Subsidiaries' loans totalling approximately Rmb3,930million as at 31 December 2006 (31 December 2005 - Rmb5,308 million). Pursuantto the Entities Transfer Agreement, China Datang will assume all of NCG'sobligations in relation to the guarantees provided for by the Company and itsSubsidiaries. The legal procedures of this arrangement were still in process asat 31 December 2006. (k) As at 31 December 2006, the Company had provided guarantees for loans toits associates, Datang Texin, Daba Power Company and Tashan Coal Mine, TashanPower Generation according to the Company's shareholding percentage in itsassociates totalling approximately Rmb1,085 million (31 December 2005 - Rmb905million). (6) Receivables from/payables to related parties 31 December 2006 31 December 2005 Amount % Amount % Rmb'000 Rmb'000Accounts 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 itsSubsidiaries in conformity with PRC GAAP, differ in certain respects from IFRS.Major differences between PRC GAAP and IFRS, which affect the net assets and netprofit of the Company and its Subsidiaries, are summarized as follows: Net assets 31 December 2006 31 December 2005 Rmb'000 Rmb'000Net assets under PRC GAAP 22,683,605 17,964,059Impact of IFRS adjustments: Minority interests* 3,282,691 2,470,093 Difference in the recognition policy on housing benefits to (1) 74,693 112,039employees 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 76,428benefits Difference in accounting treatment of performance payroll (8) - 100,000accrual Difference in accounting treatment of the investment of DaqinRailway 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'000Net profit under PRC GAAP 2,707,291 2,360,740Impact 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 ofFinancial Statements, minority interests in the consolidated net assets and netprofit under IFRS should be included as a portion of total equity and totalprofit 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 pricedifference between the selling price and the cost of housing is considered ahousing benefit and is borne by the Company. For PRC statutory reporting purposes, in accordance with the relevantregulations issued by the Ministry of Finance of the PRC, the total housingbenefits provided by the Company before 6 September 2000 should be directlydeducted from the statutory public welfare fund and those provided after 6September 2000 are charged to non-operating expenses as incurred. Under IFRS,the housing benefits provided by the Company are recognised on a straight-linebasis 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 becapitalised are accumulated in long-term deferred expenses and charged into theprofit and loss account upon the commencement of commercial operation of acompany. Under IFRS, such expenses are charged to profit and loss accounts whenincurred. (3) Difference in accounting treatment on interest rate swap To hedge the interest risk derived from the long-term borrowings denominated inUS dollar, an interest rate swap contract was entered into between TuoketuoPower Company, a subsidiary of the Company, and a financial institution.Pursuant to this interest rate swap contract, Tuoketuo Power Company swapped afloating-rate borrowing for a fixed-rate borrowing with the same notionalprincipal amount. Under PRC GAAP, interest rate swapped contract is disclosed asan off balance sheet item. Under IFRS, derivatives are recognised in the balancesheet at fair value as assets or liabilities, based on the market condition ateach balance sheet date. Due to the fact that the interest rate swap contractdoes not qualify for hedge accounting in accordance with IAS 39, the changes inits 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 borrowingsused for the purpose of obtaining a qualified fixed assets in addition to thecapitalisation of interest on specific borrowings. The GAAP difference of capitalised interests on general borrowings also causesthe 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 therelevant assets are completed and ready for its intended use. Under IFRS,depreciation commences immediately when the relevant assets are ready for itsintended use. (6) Difference in accounting treatment on convertible bonds Under PRC GAAP, convertible bonds are presented at principal together withinterest payable. Under IFRS, the proceeds received on the issue of convertible bonds areallocated into liability and equity components. Upon initial recognition, theliability component represented the present value, at the issuance date, of thecontractually determined stream of cash flows discounted at the market interestrate for instruments of comparable credit status providing substantially thesame cash flows, on the same terms but without the conversion option. The equitycomponent is then determined by deducting the liability component from theproceeds received on the issue of the bonds. Relating interest expenses arerecognised using effective interest rate. (7) Difference in accounting treatment on monetary housing benefits Under PRC GAAP, the monetary housing benefits provided to employees who startedwork before 31 December 1998 were directly deducted from the statutory publicwelfare fund after approval by the general shareholders' meeting of the Company. Under IFRS, these benefits are recorded as deferred assets and amortised on astraight-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 relevantgovernment policies, but not paid out at the end of the year does not meet allthe criteria of recognising liabilities under IFRS. Therefore these unpaidbalances 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 DaqinRailway is accounted for using cost method. The carrying amount of thislong-term investment remains unchanged except for additions or withdrawal ofinvestment. After Daqin Railway's shareholding structure reform during the year 2006, thelegal person shares held by the Company and its Subsidiaries were allowed totrade in the open market. In accordance with IAS 39, given that the shares heldby the Company and its Subsidiaries can now be freely traded, they have beenrevalued at the year end based on the closing market rate. A gain or loss on theavailable-for-sale investment shall be recognized directly in equity, except forimpairment losses and foreign exchange gains and losses, until the investment isderecognized, at which time the cumulative gain or loss previously recognized inequity 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 whereapplicable. 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-firedpower generation. Currently, the Company wholly owns 4 operating power plantsand manages 28 power generation companies (projects) and other power companies.As at 31 December 2006, the Company managed a total installed capacity of 19,430MW. The power generation businesses of the Company are primarily distributed inthe North China Power Grid (including the Beijing-Tianjin-Tangshan ("BTT") PowerGrid and the Shanxi Power Grid), the Zhejiang Power Grid, as well as the GansuPower Grid, the Yunnan Power Grid, the Fujian Power Grid and the Guangdong PowerGrid. During 2006, the PRC economy maintained a relatively fast growth under afavourable domestic macroeconomic environment, recording an impressive grossdomestic product ("GDP") growth rate of 10.7%. The continued upswing in thedomestic macroeconomic environment laid the development base for the powergeneration industry. During the Year, the country added generation units ofapproximately 100,000 MW, while the social power consumption increased by 14%over the Previous Year. Nationwide power generation increased by approximately13.5% over the Previous Year. The power generation of the main service areas forthe power generation businesses of the Company and its Subsidiaries alsomaintained rapid growth, with the respective power generation of the BTT PowerGrid, the Shanxi Power Grid and the Zhejiang Power Grid having increased byapproximately 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 furtheralleviated due to the commencement of substantial volume of operations of newgeneration units. Utilisation rates of operating generation units also reporteda significant decrease as compared to the Previous Year. Facing the operatingpressure in the power market, the Company and its Subsidiaries activelycapitalised on market opportunities, diligently carried out effective productionoperations and overcame difficulties, striving to complete the productionobjectives of the Year. In 2006, total power generation of the Company and itsSubsidiaries amounted to 93.459 billion kWh, an increase of 31.65% as comparedto the Previous Year. While power generation increased, the Company and itsSubsidiaries further refined their operating strategies to strive for higherproduction level and revenue. Accordingly, the overall economic efficiency ofthe Company and its Subsidiaries reported a relatively significant increase overthe Previous Year. During the Year, the Company and its Subsidiaries realised aconsolidated operating revenue of approximately RMB24,835 million, representingan increase of approximately 38.02% as compared to the Previous Year.Consolidated net profit was approximately RMB2,778 million, representing anincrease of approximately 18.16% as compared to the Previous Year. 1. Production As at 31 December 2006, total power generation of the Company and itsSubsidiaries 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 theCompany and its Subsidiaries amounted to 87.902 billion kWh, an increase of31.83% when compared to the Previous Year. The increases in total powergeneration and on-grid power generation were mainly attributable to thefollowing reasons: (1) Increased capacity of operating generation units: Compared to thecorresponding period of the Previous Year, the Company and its Subsidiaries hasincreased its installed capacity by 5,620 MW of the Year, thereby substantiallyincreasing the overall power generation capacity of the Company and itsSubsidiaries. (2) Increased demand in service areas: During the Year, the power demandwithin the service areas of the Company and its Subsidiaries - the BTT PowerGrid, the Shanxi Power Grid, the Gansu Power Grid, the Yunnan Power Grid, theZhejiang Power Grid and the Guangdong Power Grid - maintained rapid growth. (3) Improvement in operating reliability of generation units: During theYear, the operating generation units of the Company and its Subsidiariesachieved an equivalent availability factor of 94.71%, representing an increaseof 1.56 percentage points when compared to the Previous Year. 2. Environmental Protection While endeavouring to increase power generation, the Company also put strongemphasis on the implementation of environmental protection projects inaccordance with the State's environmental protection requirements. As at the endof 2006, the installed capacity of the Company and its Subsidiaries withdesulphurisation facilities in use accounted for 67.3% of the coal-fired unitsof the Company and its Subsidiaries. Meanwhile, desulphurisation upgradeprojects for units totalling 1,600 MW are currently in progress. As desulphurisation upgrade projects are under way, renovation works withrespect to flue-gas denitro-oxidisation facilities of the Company and itsSubsidiaries also commenced, of which the project at Gao Jing Thermal PowerPlant was classified as a State model project. During the Year, the Company hasalso invested in treatment programmes on pollution sources, such as the ashyards, the coal yards and noises from water towers, of relevant power plants.During the Year, the Company and its Subsidiaries invested the capital of atotal of approximately RMB780 million on relevant environmental protectionprojects. 3. Operational Management During the Year, the Company and its Subsidiaries achieved a consolidatedoperating revenue of approximatelyRMB24,835 million, representing an increase of approximately 38.02% as comparedto the Previous Year. Consolidated net profit amounted to approximately RMB2,778million for the Year, an increase of approximately 18.16% as compared to thePrevious Year. During the Year, the Company and its Subsidiaries faced operating pressuresbrought by a decline in utilisation hours in the power market, persistent highfuel prices, and continuous rises in charges for environmental protection andwater supply. However, the Company and its Subsidiaries achieved a continued andstable profit growth through efforts to increase revenues and reduce expensesand the implementation of various corresponding measures. (1) Through various efforts to implement the tariff policies, the on-gridpower tariff (tax included) increased by RMB13.49 per MWh as compared to thePrevious Year, leading to an increase of approximately RMB1,100 million in salesrevenue over the Previous Year. (2) The power generation structure was appropriately adjusted to fullyutilise the efficient and energy-conserving units so as to generate moreelectricity and maximise revenues. (3) More sophisticated energy conservation measures were implemented toincrease revenues and lower costs. Accordingly, coal consumption for powergeneration decreased by approximately 7.3g per kWh over the Previous Year, whilethe consolidated electricity consumption rate of the plants decreased byapproximately 0.14 percentage point as compared to the Previous Year. (4) Financing channels were expanded to reduce financing costs. In December2006, the Company issued 500 millionA Shares to raise net proceeds of approximately RMB3,279 million. During theYear, the Company also issued "short-term commercial papers" in the inter-bankbond market for RMB1,000 million with a composite financing cost ofapproximately 3.59%, resulting in savings in financing costs when compared tothe 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 powergeneration to the development of renewable energy including hydropower, nuclearpower, wind power, and the transformation of the business structure from simplya 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 generationcapacity commencing commercial operation successively during the Year.Remarkable breakthroughs were also made in the development of nuclear powergeneration as well as power-related upstream and downstream projects such ascoal mine-power plant-railway integration and railway construction. (1) Thermal projects: During the Year, coal-fired generation units of theCompany and its Subsidiaries, with a total capacity of approximately 5,400 MW,commenced commercial operation. These included four 600 MW power generationunits of Wushashan Power Project, two 600 MW power generation units of ChaozhouPower Company, two 600 MW power generation units of Ningde Power Company and two300 MW power generation units of Honghe Power Company. (2) Hydropower projects: During the Year, the Company and its Subsidiariesadded a capacity of 220 MW in hydropower units, including two 50 MW hydropowergeneration units at Nalan Hydropower Company and two 60 MW hydropower generationunits at Lixianjiang Hydropower's Yayangshan Project. (3) Nuclear power project: In 2005, the Company entered into an investmentagreement with Guangdong Nuclear Investment Company Limited to participate inthe construction of two nuclear power generation units of 1,000 MW each. Atpresent, the project is included in the electric power development scheme ofFujian Province's "Eleventh Five-Year Plan", and was already submitted to theNational 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 thecommencement of relevant preliminary works of the project. (4) Wind power project: The construction work of Bayin Wind Power PlantPhase I (40 MW) in Zhuozi, developed and constructed by the Company'swholly-owned subsidiary "Inner Mongolia Datang International Zhouzi Wind PowerCo., Ltd." ("Zhuozi Wind Power Company"), has officially commenced. The projectincludes 32 wind power generation units of 1.25 MW each, and it is expected thatall 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) withsix companies including the Beijing Railway Bureau, establishing "TanggangRailway Limited Liabilities Company" (Chinese Word) and "Hebei Yuzhou EnergyConsolidated Development Company Limited" (Chinese Word), to promote theconsolidated development of coal mining, railway and power plants. The Ta ShanCoal Mine in Shanxi, a project of which the Company invested and got thedevelopment right, has formed its production capacity in 2006. Meanwhile, Unit 2of 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 MongoliaHuineng Group to participate in the development of Changtan Coal Mine in OrdosCity of Inner Mongolia, which will further secure the coal supply for the powerplants of the Company and its Subsidiaries. (B) Major Financial Indicators and Analysis In 2006, the Company realised RMB24,835 million in revenue from principaloperations, representing a 38.02% increase over the Previous Year. A net profitof RMB2,778 million was realised, representing an 18.16% increase over thePrevious Year. Basic earnings per share was approximately RMB0.54, representingan increase of RMB0.08 per share over the Previous Year. 1. Operating Revenue The Company is principally engaged in power generation businesses. The Company'srevenue from principal operations comprises revenue from electricity sales andrevenue 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. Duringthe Year, the Company's installed capacity under management increased by 5,620MW as compared to the Previous Year while on-grid power generation increased by21.6 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 continuedimplementation of the fuel-tariff pass-through mechanism and the increase inon-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 RMB13.49per MWh. 2. Operating Costs In 2006, the total operating costs of the Company and its Subsidiaries amountedto RMB18,847 million, representing an increase of 39.66% over the PreviousYear's RMB13,495 million. The major reasons were increases in fuel costs anddepreciation. During the Year, fuel costs accounted for 56.58% of operating costs. Followingthe increases of the Company's newly commenced operating generation units andpower generation, as well as the continued rise in nationwide fuel prices, fuelcosts increased by RMB3,132 million or approximately 41.58% over the PreviousYear, an increase in magnitude exceeding that of power sales revenue. Of suchincreased amount, the increase in fuel costs as a result of a rise in on-gridelectricity volume amounted to approximately RMB1,887 million. The rise in fuelprices has pushed up the unit fuel cost, which has in turn led to an increase infuel costs of approximately RMB1,225 million. The increase in fuel costs due toincrease in heat supply amounted to RMB30 million. During the Year, fixed costs increased by RMB2,146 million as compared to thePrevious Year, which was mainly attributable to the increases in depreciationcharges for generation units, maintenance costs, water expenses and pollutiondischarge fees incurred by newly commenced generation units of the Companyduring the Year. Among these, the depreciation charges increased byapproximately 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 thePrevious Year. The relatively rapid increase was attributable to the increase ininterest expenses on short-term and long-term loans for the Company's newlycommenced operating companies during the Year. 4. Profit During the Year, the Company and its Subsidiaries reported a consolidated profitbefore tax amounting to RMB4,664 million in total, up 20.74% as compared to thePrevious Year. Consolidated net profit amounted to approximately RMB2,778million, up 18.16% as compared to the Previous Year. The increase in theCompany's profit was mainly attributable to the Company's further expansion inits operating scale, tariff adjustments and stringent and effective costcontrols by the Company. 5. Financial Position As at 31 December 2006, total consolidated assets of the Company and itsSubsidiaries amounted to approximately RMB90,711 million, representing anincrease 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 thePrevious Year. Minority interests amounted to approximately RMB3,305 million,representing an increase of approximately RMB902 million as compared to thePrevious Year. Total equity amounted to approximately RMB27,201 million,representing an increase of approximately RMB6,472 million as compared to thePrevious Year. The increase in total assets mainly resulted from theimplementation of the expansion strategy by the Company and its Subsidiarieswhich led to a corresponding increase in investments in construction-in-progressand new power generation units, as well as the Company's issue of 500 million Ashares by the end of the Year, raising approximately RMB3,279 million in netproceeds. 6. Liquidity As at 31 December 2006, the asset-to-liability ratio for the Company and itsSubsidiaries was approximately 70.01%. The net debt-to-equity ratio (i.e. (loans+ convertible bonds - cash and cash equivalents - bank deposits - marketablesecurities)/total equity) was approximately 180.79%. As at 31 December 2006, total cash and cash equivalents and bank deposits with amaturity of over 3 months of the Company and its Subsidiaries amounted toapproximately RMB4,451 million, of which an amount equivalent to approximatelyRMB54 million was in foreign currencies. The Company and its Subsidiaries had noentrusted deposits or overdue fixed deposits during the Year. As at 31 December 2006, short-term loans of the Company and its Subsidiariesamounted to approximately RMB9,300 million which bore annual interest ratesranging 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 1year amounted to approximately RMB2,943 million, at annual interest ratesranging from 3.60% to 6.39%, of which an amount equivalent to approximatelyRMB2,860 million was denominated in US dollar. The Company and its Subsidiariespay regular and active attention to foreign exchange market fluctuations andconstantly assess foreign currency risks. As at 31 December 2006, North China Grid Company Limited ("NCG", originallyNorth China Power (Group) Corp. and its subsidiaries) and some minorityshareholders of the Company's Subsidiaries provided guarantees for the loans ofthe Company and its Subsidiaries amounting to approximately RMB3,930 million.The Company had not provided any guarantee in whatever forms for any othercompany 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 resultsand maintaining a stable and healthy development in view of both opportunitiesand challenges lying ahead. According to forecasts, growth in the PRC economywould remain steady in 2007. GDP is expected to grow by about 8% while powerconsumption in the PRC is expected to grow at around 12.5%. Such a scenario willprovide new development opportunities to the Company and its Subsidiaries. Thefurther expansion of the Company's service areas has strengthened the Company'sability to weather risks and the ability to carry out sustainable development.With electricity demand-supply going from a tight condition to a basicallysteady condition, utilisation rates of power generation units are expected todecrease slightly with market competition intensifying. In addition, theuncertainties regarding coal prices and coal quality will increase thedifficulty for cost control and operation management. In 2007, the Company willfocus on the following tasks: 1. Continuing the implementation of the Company's diversified developmentstrategy, by actively pursuing the expansion of the Company in coal-fired power,renewable energy projects such as hydropower and wind power, nuclear power, coalmining, railway and development of power-related upstream and downstreamprojects. 2. Strengthening production safety management to ensure safety, stability andpower generation increase. 3. Strengthening the management of construction quality and schedule, so as toensure 2,300 MW of coal-fired units,1,150 MW of hydropower units and 44 MW of wind power units will commenceoperation in good order within 2007. 4. Reinforcing the management of energy conservation and consumption reductionand appropriately optimising the power generation structure, so as to maintainand enhance the overall efficiency level of the Company. 5. Enhancing the efficiency of capital utilisation by expanding financingchannels and reducing financing costs. 6. Exercising stringent cost controls and dedicating efforts to raise revenueand 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, dividedinto 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, thepersons below with interests or short positions in the shares or underlyingshares of the Company which are required to be disclosed to the Company undersection 336 of the Securities and Futures Ordinance (the "SFO") (Chapter 571 ofthe 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 SharesName 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 -CorporationBeijing Energy A Shares 671,792,400 11.86 18 -Investment Group CompanyLimitedHebei Construction A Shares 671,792,400 11.86 18 - Investment CompanyTianjin Jinneng A Shares 606,006,300 10.70 15 -Investment CompanyJPMorgan 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 LimitedUBS 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 - 0.00Halbis CapitalManagement (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 toapproximately RMB1,348,713,594.50 in total; Based on the total 5,753,555,774Shares as at 30 March 2007, the cash dividend to be distributed wasapproximately RMB0.234 per Share (subject to the then number of Shares as at theregister date for the purpose of dividends distribution). As there may be further conversion of the US dollar convertible bonds into HShares between 30 March 2007 and the register date for the Company'sdistribution of dividends for the Year, it is proposed that the cash dividendper share to be distributed be adjusted on the basis of the actual total numberof shares in the register of members as at the register date for the dividenddistribution, on the premise that the total amount of proposed cash dividend tobe distributed (approximately RMB1,348,713,594.50) remains unchanged. The Board also proposed to utilise the capital reserve fund to issue 10 bonusShares to the Company's shareholders for every 10 Shares held, in order toreciprocate our shareholders' long-term support and concern, as well asincreasing the liquidity of the Shares and expanding the share capital base ofthe Company. The aforementioned dividend distribution for the Year and capital reserve fundconversion proposals are subject to consideration and approval at theforthcoming general meeting of the Company. An announcement containing relevantdetails, including the register date(s) for the dividend distribution andcapital reserve fund conversion, will be published by the Company as and whenappropriate. (D) Shareholding by the Directors and Supervisors As at 31 December 2006, save and except Mr. Fang Qinghai, director of theCompany, who was interested in 1,000 A Shares of the Company, none of thedirectors, supervisors and chief executive of the Company nor their associateshad any interest and short positions in the shares, underlying shares anddebentures of the Company or any of its associated corporation (within themeaning of the SFO) that were required to be notified to the Company and TheStock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") under theprovisions of Divisions 7 and 8 of Part XV of the SFO, or required to berecorded in the register mentioned in the SFO pursuant to section 352 orotherwise required to be notified to the Company and the Hong Kong StockExchange pursuant to the Model Code for Securities Transactions by Directors ofListed Issuers in the Rules Governing the Listing of Securities on the Hong KongStock Exchange (the "Listing Rules"). IV. SIGNIFICANT EVENTS In December 2006, the Company completed the issue of 500 million A Shares andthe A Shares were listed on the Shanghai Stock Exchange of the PRC on 20December 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, soldor 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 codeprovisions in the Code on Corporate Governance Practices as set out in Appendix14 to the Listing Rules during the Year. VII. COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BYDIRECTORS OF LISTED ISSUERS Upon specific enquiries made to all the directors of the Company and inaccordance with the information provided, the Board confirmed that all directorsof the Company have complied with the provisions under the Model Code forSecurities Transactions by Directors of Listed Issuers as set out in Appendix 10to the Listing Rules during the Year. VIII. AUDIT COMMITTEE In accordance with the Listing Rules, the Company has set up an Audit Committeewhich comprises 3 independent non-executive directors and 2 non-executivedirectors of the Company. The Audit Committee is responsible for, among otherthings, reviewing the Company's financial reporting procedures and internalcontrols. The Audit Committee has reviewed the accounting principles and methods adoptedby the Company and its Subsidiaries with the management of the Company. Theyhave also discussed matters regarding internal controls and the annual financialstatements, including the review of the financial statements for year ended 31December 2006. The Audit Committee considers that the 2006 annual financial statements of theCompany and its Subsidiaries have compiled with the applicable accountingstandards, 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, GuanTiangang, 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 The company news service from the London Stock Exchange