粤电力Ａ(000539)粤电力Ｂ2001年年度报告（英文版）

GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. ANNUAL REPORT 2001 Important Notice The Board of Directors of the Company assures that there is no omission of material facts, or untrue presentations, or seriously misleading statements contained in the information hereinto. The Board of Directors severally and jointly accepts responsibility for the correctness, accuracy and completeness of the information contained in this annual report. CONTENTS I. GENERAL INFORMATION OF THE COMPANY II. SUMMARY OF ACCOUNTING AND OPERATING DATA III. CHANGES IN SHARE CAPITAL AND DETAILS OF SHAREHOLDING STRUCTURE IV. INFORMATION OF DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES V. CORPORATION GOVERNANCE STRUCTURE VI. GENERAL SHAREHOLDERS MEETING VII. REPORT OF THE DIRECTORS VIII. REPORT OF THE SUPERVISORY COMMITTEE IX. SIGNIFICANT EVENTS X. FINANCIAL STATEMENTS Consolidated Financial Statements Together with Auditors’Report Issued by Arthur Andersen & Co. XI. DOCUMENTS AVAILABLE FOR INSPECTION The reader is advised that this report has been prepared originally in Chinese. In the event of a conflict between this report and the original Chinese version or difference in interpretation between the versions of the report, the Chinese language report shall prevail. 2 I. CORPORATE INFORMATION 1. Official Chinese name of the Company: 广东电力发展股份有限公司 Official English name of the Company: GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. (Abbreviation: GED) 2. Legal representative: Mr. Pan Li 3. General manager: Mr. Liu Qian 4. Secretary to the Board of Directors: Mr. Zhang De Wei Telephone: (8620)87609276 Facsimile: (8620)87609909 Representatives on security issues: Mr. Chen Jin Liang Telephone: (8620) 87604922 Facsimile: (8620) 87609909 Company’s correspondence address: 10/F., Boli Commercial Center, Guang Fa Garden, 498 Huan Shi Dong Road, Guangzhou, Guangdong Province Postal code: 510075 5. Company’s registered address: 21/F., 75 Mei Hua Road, Guangzhou, Guangdong Postal code: 510600 Company’s office address: 10/F., Boli Commercial Center, Guang Fa Garden, 498 Huan Shi Dong Road, Guangzhou, Guangdong Province Postal code: 510075 Company’s E-mail address: gpedco@public.guangzhou.gd.cn Company’s Web site: http://www.ged.com.cn/ 6. Newspapers selected by Company for disclosure of information: China Securities, Securities Times, Shanghai Securities, Hongkong Commercial (overseas), and The Asian Wall Street Journal (overseas, English) Website for publishing the Company’s annual report: http://www.cninfo.com.cn http://www.china-stock.net Place where Company’s annual report is kept: Office of Board Affairs 3 7. Other information 1) Company’s first registration date: November 3, 1992 Registered address: 21/F., 75 Mei Hua Road, Guangzhou, Guangdong Correspondence address: 10/F., Boli Commercial Centre, Guang Fa Garden, 498 Huan Shi Dong Road, Guangzhou, Guangdong Province 2) Business Registration No. “Qi He Yue Zong Zi”No. 002753 3) Tax registration No. “Guo Shui Sui Wai Zi 440101617419493” “Di Shui Sui Wai Zi 440100617419493” 4) Custodian of the Company’s non-listed shares: China Securities Registration and Settlement Co., Ltd. Shenzhen Branch 5) Names of the Company’s Auditors: (1) Pan-China Certified Public Accountants Office address: 17/F, Bldg. A, Investment Plaza, 27 Financial Street, West District, Beijing (2) Arthur Andersen & Co (Certified Public Accountants registered in Hong Kong) Office address: 21st Floor Edingburgh Tower, The Landmark 15 Queen's Road Central, Hong Kong. 6) Legal Consultant: Guangdong Xin Yang Lawyers Firm Office address: 31/F, Peace World Plaza, Huan Shi Dong Road, Guangzhou 8. Place of listing, Abbreviation and code the Company’s shares : Place of listing of Company’s shares : Shenzhen Stock Exchange Abbreviation of Company’s shares: Yue Dian Li A and Yue Dian Li B Code of Company’s shares: 000539 and 200539 4 II. SUMMARY OF ACCOUNTING AND OPERATING DATA Major accounting and operating data of the Group prepared in accordance with International Financial Reporting Standards (“IFRS”) and audited by Arthur Andersen & Co. are as follows: 1. Major accounting data for current year: RMB’000 Income from sales of electricity 5,386,785 Cost of sale of electricity 3,159,010 Operating profit 2,227,775 Other income (expenses), net 27,144 Profit before taxation 2,116,183 Net profit 1,051,805 Net cash flows from operating activities 1,569,850 2. Three-year major accounting and financial data (amounts expressed in thousands of Reminbi, unless otherwise stated): Yardstick item Year 2001 Year 2000 Year 1999 (1) Income from sales of electricity 5,386,785 4,243,010 3,402,793 (2) Net profit 1,051,805 971,104 846,885 (3) Total assets 12,416,341 11,304,692 8,504,866 (4) Shareholders’equity 6,802,793 5,156,032 4,622,746 (5) Earnings per share (RMB) - Earnings per share, basic 0.40 0.38 0.33 - Earnings per share, diluted N/A N/A N/A - Earnings per share after exceptional items 0.40 0.38 0.33 (6) Net assets per share, (RMB) 2.56 2.00 1.79 (7) Return on equity (%) 17.59 18.83 19.80 (8) Net cash flow per share from operating activities 0.59 0.80 0.88 5 Schedule Extracted from the Consolidated Income Statement Return on net assets (%) Earnings per share (RMB) Yardstick item Basic Diluted Basic Diluted Operating profit 37% N/A 0.84 N/A Profit before tax 35% N/A 0.80 N/A Net profit 18% N/A 0.40 N/A Note: Calculation methods of financial yardstick (1) Return on equity = Profit for the year / Average net assets (2) Earnings per share, basic = Net profit / Weighted average number of shares EPS = P/ (So + S1 + Si x Mi ÷Mo –Sj x Mj ÷Mo) Among which, P = profit for the report period, So = total number of shares at the beginning of the period, S1 = increase in number of shares due to shares converted from capital reserve or share dividend distributed in the period, Si = increase in number of shares due to issuance of additional shares or shares converted from debt in the period, Sj = decrease in number of shares due to repurchase or stock split-up in the period, Mo = number of months of the period, Mi = number of months from the next month since the increase in number of shares incurred to the end of the period, Mj = number of months from the next month since the decrease in number of shares incurred to the end of the period 6 II. SUMMARY OF ACCOUNTING AND OPERATING DATA (Cont’d) 3. Reconciliation of Company’s profit for the year as reported in statutory accounts and under IFRS: The adjustments made by the Company in accordance with IFRS on the Group’s profit for the years are as follows: 2001 2000 RMB’000 RMB’000 As reported in statutory accounts (audited by certified public accountants in the PRC) 1,057,769 970,292 Impact of IFRS adjustments: Write-off of pre-operating expenses - 19,651 Additional provision for doubtful debts - (10,900) Amortization of deferred staff costs (12,945) (9,746) Amortization of goodwill - (1,587) Reversal of over-amortization of land use right 2,358 8,450 Deferred tax (725) (2,683) Others 5,348 (1,373) As restated for the Group 1,051,805 971,104 7 4. Changes of shareholders’equity during the reporting period and respectively explanations are as follows: Reserves Statutory Capital Statutory public welfare Discretionary Retained Note Share capital reserve surplus reserve fund surplus reserve earnings Total Balances at January 1, 2000 1,287,702 1,503,482 378,999 156,160 448,891 847,513 4,622,747 Transfer of capital reserve to share capital 1,030,162 (1,030,162) - - - - - Stock dividends 257,540 - - - - (257,540) - Net profit for the year - - - - - 971,104 971,104 Appropriation from retained earnings 16 - - 97,029 48,515 327,781 (473,325) - Dividends 24 - - - - - (437,819) (437,819) Balances at January 1, 2001 2,575,404 473,320 476,028 204,675 776,672 649,933 5,156,032 Issue of new shares 15 84,000 940,800 - - - - 1,024,800 Issuance expenses 15 - (31,280) - - - - (31,280) Donation of fixed assets - 347 - - - - 347 Transfer 16 - - 30,658 (30,658) - - - Dividends 24 - - - - - (398,911) (398,911) Net profit for the year - - - - - 1,051,805 1,051,805 Appropriation from retained earnings 16 - - 105,777 52,888 123,443 (282,108) - Balances at December 31, 2001 2,659,404 1,383,187 612,463 226,905 900,115 1,020,719 6,802,793 8 III. CHANGES IN SHARE CAPITAL AND DETAILS OF SHAREHOLDING STRUCTURE 1. Changes in share capital (1) Summary of changes in share capital Unit: Shares Changes during year Balance at Converted beginning of from capital Additional Balance at Type of shares year Rights issue Bonus issue reserve issuance Others Sub-total end of year I. Non-listed shares 1. Promoters’ shares 1,533,175,000 1,533,175,000 Including: - State-owned shares 1,333,800,000 41,207,400 41,207,400 1,375,007,400 - Domestic legal person shares 219,375,000 (41,207,400) (41,207,400) 178,167,600 - Foreign legal person shares - Others 2. Subscriber legal person 49,413,000 49,413,000 shares 3. Employee shares 4. Preferred shares or others, including: Converted rights issue Total 1,602,588,000 1,602,588,000 II. Listed shares 1. Domestic listed RMB ordinary shares 307,476,000 84,000,000 84,000,000 391,476,000 2. Domestic listed 665,340,000 665,340,000 foreign shares 3. Overseas listed foreign shares 4. Others Total 972,816,000 1,056,816,000 III. Total shares 2,575,404,000 84,000,000 2,659,404,000 9 Notes: a) The Company issued 84,000,000 new A shares in 2001. b) On January 16, 1999, GITIC was declared bankruptcy by Guangdong People’s High Court. On July 28, 2000, according to the “Reply to Issues in Transfer of State-owned Shares of Guangdong Electric Power Development Co., Ltd.”(Document Cai Qi [2001] No.234), 41,207,400 of the total shares it held in the Company was auctioned to Guangdong Electric Power Development Company by Panlong Enterprise Co., Ltd. Southern China Branch as authorized by the Liquidation Committee of GITIC. Such shares are considered as legal person shares. (2) Issuance and listing of shares a) The Company issued 84,000,000 new A shares in 2001. b) The Company has no employees’shares during the reporting period. 2. Information about shareholders (1) As at December 31, 2001, the Company has 139,634 shareholders, including 88,859 A share shareholders, 50,775 B share shareholders. (2) Top 10 major shareholders (as at December 31, 2001) Proportion to Number of shares total share Name of shareholders held capital (%) Guangdong Yuedian Assets Management Co., Ltd. 1,333,800,000 50.15 (“Yuedian”) Guangdong Trust and Investment Company of Construction Bank of China 87,750,000 3.30 Guangdong Electric Power Development Company 85,082,400 3.20 Templeton World Fund, Inc. 64,681,530 2.43 Guangdong Development Bank 43,875,000 1.65 Northwest Securities Co. Ltd., 14,308,523 0.54 Xiangcai Securities Co. Ltd., 8,686,481 0.33 Intl Nederlanden Bank (ING Bank) Global Custody NY 8,424,000 0.32 Huang Xian You 7,583,420 0.29 Best Reliance Investments Ltd. 6,705,948 0.25 10 Note: Pursuant to the Approval on the Implementation Plan of Guangdong Province’s Reform of Power Industry Structure Relating to Separation of Generation and Transmission Assets, a document issued by Guangdong Provincial Government and referred to as Yue Fu Han [2001] No.252, the shares of the Company formerly held by Guangdong Electric Power Holding Co. was transferred to Guangdong Yuedian Assets Management Co., Ltd. (“Yuedian”). The formality of registration of equity interest transfer is still in progress. Its holding stock can not be impawned. (3) Information of shareholders who hold more than 10% ( inclusive) of the Company’s shares: Yuedian holds 50.15% shares of the Company. Its legal representative is Mr. Panli. It is mainly engaged in management of power plants and power generation assets, construction of power plants, and sales of electricity. Its registered capital is RMB3 billion. (4) Change of majority shareholder during the reporting period. Pursuant to the Approval on the Implementation Plan of Guangdong Province’s Reform of Power Industry Structure Relating to Separation of Generation and Transmission Assets, a document issued by Guangdong Provincial Government and referred to as Yue Fu Han [2000]No.252, the shares of the Company formerly held by Guangdong Electric Power Holding Co. was transferred to Yuedian. Hence, Yuedian became the major shareholder of the Company. 11 IV. INFORMATION OF DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES 1. Information about the Company’s current Directors, Supervisors and senior management: Shares held Shares held at end of at end of Name Gender Age Position Period of service year year Pan Li Male 47 Chairman 2001.9-2002.5 0 0 Deng An Male 51 Vice-chairman 2001.9-2002.5 0 0 Liu Qian Male 47 Director, General 1999.5-2002.5 0 0 Manager Zheng Lin Fu Male 58 Director,Factory Director 1999.5-2002.5 1,560 1,560 Yu Fu Min Male 59 Director 2001.9-2002.5 0 0 Yuan Su Jie Male 41 Director, Deputy General 1999.5-2002.5 0 0 Manager Cao Te Chao Male 35 Director 2001.9-2002.5 0 0 Lao Qiong Juan Female 47 Director 1999.5-2002.5 0 0 Zou Xiao Ping Male 37 Director 1999.5-2002.5 0 0 Zhang Zhi Yue Male 35 Independent Director 2001.5-2002.5 0 0 Wei Jie Male 49 Independent Director 2001.5-2002.5 0 0 Yang Xuan Xing Male 36 Chairman of Supervisory 2001.5-2002.5 0 0 Committee Liang Jin Shan Male 47 Supervisor 1999.5-2002.5 0 0 Wan Jian Ming Male 32 Supervisor 2001.9-2002.5 0 0 Cai Fan Female 32 Supervisor 2001.9-2002.5 0 0 Li Chang Chun Male 39 Supervisor 1999.5-2002.5 286 286 He Wei De Male 35 Supervisor 1999.5-2002.5 0 0 Luo Zhi Heng Male 34 Deputy General Manager 2001.9-2002.5 0 0 Zhang De Wei Male 40 Secretary to the Board of 1999.5-2002.5 12,480 12,480 Directors, head of the General Manager office Liu Xue Mao Female 46 Financial Manager 1999.5-2002.5 0 0 Total 14,326 14,326 12 2. Remunerations of directors, supervisors and senior management of the Company Principle of remuneration: the Company has not set up its own principle of remuneration of senior management, the salary and welfare of senior management are based on the principle of that of Yuedian. Remuneration of directors and supervisors who are not paid by the Company are paid by respective shareholders. The Company does not provide additional salary, allowance or welfare to Directors and Supervisor. There are ten directors and supervisors whose remunerations are not paid by the Company. They are: Pan Li, Deng An, Yu Fu Min, Cao Te Chao, Lao Qiong Juan, Zou Xiao Ping, Yang Xuan Xing, Wan Jian Ming, Liang Jin Shan, Cai Fan. Remuneration of eight directors, supervisors and senior management personnel are paid by the Company, they are: Liu Qian, Yuan Su Jie, Zheng Lin Fu, Li Chang Chun, He Wei De, Luo Zhi Heng, Zhang De Wei and Liu Xue Mao. They are paid according to the Company’ s principle on staff payroll and welfare. No additional salary or welfare were paid to them. The Company has not set up detail payment scheme for Independent Directors, Mr. Zhang Zhi Yue and Wei Jie (Wei Jie dis not assume his post). The Company only paid transportation fee, fee for reviewing documents and accommodation fee for Independent Director based on attendance of Board meeting and Supervisory Committee meeting. Mr. Zhang Zhi Yue obtained RMB 19,000 as his remuneration. Total remuneration paid to current Directors, Supervisors and Senior management was RMB705,000. Total amount for the top three directors was 378,000, including two that were paid RMB100,000, one that was between RMB80,000 and RMB100,000. 3. Directors, Supervisors and Senior Management Personnel who resigned in reporting period: Due to change of job assignment or retirement, former directors of the Company, Mr. Wu Xi Rong, Wu Ting An and Huang Guoqiang resigned as directors, and former supervisors, Mr. Chen Rui and Liu Guan Shi resigned as supervisors. In 2001 , Mr. Luo Zhi Heng was elected as Deputy General Manager of the Company. For details, please refer to Announcement of General Shareholders Meetings, Report of the Director and Report of the Supervisory Committee respectively. 4. Particulars of employees: At end of 2001, the Company had 1,592 employees, including 1,358 on-job employees and 234 retired employees. On-job employees consisted of 912 production workers (including 397 technicians, who accounted for 43.5% of total production workers), 12 finance and accounting staffs and 90 administrative and management staffs, which accounted for 67.2%, 1.3% and 9.9% of the total on-job employees respectively. 333 or 24.5% of the on-job employees are college graduates or above. Over 98.2% of the staff work in Shajiao A Power Plant and others work at the headquarters of the Company. 13 IV. CORPORATION GOVERNANCE STRUCTURE Since its incorporation in 1993 and listing of its shares , the Company continuously improves its infrastructure in line with the improvement of external legal environment. The Company set up its own administrative organization in accordance with the Company Law, the Securities Law of the PRC as well as principles set forth by CSRC and the Listing Rules of Shenzhen Stock Exchange, though there are still areas for further improvement. The Articles of Association of the Company is base on the Guidance on Articles of Association for Listed companies and its content are in line with the requirement in the Company Law, the Securities Law, principles set forth by the CSRC and the Listing Rules of Shenzhen Stock Exchange. However, due to new requirements as outlined in the Guidance for Management of Listed Companies, the Company has decided to make amendments to its Articles of Association in the Annual General Shareholders Meeting of 2001. 1. Information about shareholder and the general shareholders meeting The Company ensures interests for all shareholders, especially minority shareholders in its operation and in its Articles of Association. The majority shareholders have never impaired the interests of minority shareholders. To ensure efficient and effective communications with shareholders, the Company has set up a hotline for investors since 1993 and set up its own website in early 2000. This has enabled the investors to know operations of the Company on a timely basis. All of the Company’s general shareholders meeting have been held in accordance with the procedures set out in the Articles of Association. The Company has invited lawyers or notary to witness voting procedures in all the shareholders meetings. For related party transactions, all the related shareholders are excluded in voting. As such, there have never been any cases that the interests of minority shareholders are impaired. However, since the Company has not had its own written Rules for General Shareholders Meetings, the interests of minority shareholders have not been fully guaranteed. Therefore, the Company planned to set up its own Rules for General Shareholders Meetings in written according to the Guidance on Shareholders Meeting issued by CSRC. The draft rules are proposed for discussion in the Annual General Shareholders Meeting of 2001. 2. Separation of operation with the holding company (1) Separation of human resource: the General Manager and all his subordinates receive salaries from the Company. Except for the General Manager who is a director in the holding company, no other employees of the Company takes any position in the holding company. (2) Separation of assets: the Company has independent production system, supporting system to production and ancillary facilities. The Company independently owns its intangible assets such as intellectual property rights, trademarks and non-patent technology, except that the land use right certificate of Shajiao A Power Plant which is still in progress. (3) Financial independence: the Company has an independent financial department and has established independent accounting system and financial management system. It opened independent bank accounts for its own operation. 14 (4) Separation of organization: the Company has established integrated operating institution of its own. (5) Separation of operation: due to historical reasons and in order to fully utilize of the management experience and human resources of the holding company, the Company signed management contracts and entrusted the holding company, GPHC, to manage the Company’s operation before August 2001. After the reform of the power industry in Guangdong to separate power generation assets and power grid, the Company has established its own power sales channels, though relevant sales contracts are still in the progress. For fuel purchase, centralized purchase is a better way of purchase for the Company in view of the shortage of coal supply. The Company signs contracts with a wholly owned subsidiary of Yuedian, Guangdong Electric Power Fuel Supply Co., Ltd., for its purchase of fuel. The purchase price is based on market price. 3. Information about Directors and Board of Directors The Board of Directors has set out Rules for Board of Directors Meetings and carried it out strictly in practice. The director is appointed according to the procedures of Rules for Board of Directors Meetings; the number and composition of Board of Directors comply to relevant laws and regulations as well as the Articles of Association of the Company. The Company’s directors attended board meetings and shareholders meetings responsibly and diligently. They are familiar with relevant laws and regulations and understand rights and obligations as a director. In 2001, the Company appointed two Independent Directors (only one of them assumed the position). The Independent Director presents independent opinion on shares purchases and profit distribution. He assumed his rights, obligations and duties diligently and honestly. In March 2001, the Board of Director passed a resolution to establish three special committees. They are Qualification and Salary Committee, Budget and Audit Committee and Investment and Risk Control Committee. However, these committees have not yet established due to newly issued regulations. The Board of Director has decided to enforce rules of Guangdong Provincial Government in order to standardize management of the Company. They will finish to appoint one third of the independent directors before June 2002, to make proper adjustment to the abovementioned three committees and to establish five special committees, namely Strategy and Development Committee, Budget Committee, Audit Committee, Nomination Committee and Salary and Performance Review Committee. Amendment shall be made to the Articles of Association for the above changes and shall be proposed to the discussion in the Annual General Shareholders Meeting of 2001. 15 4. Supervisors and the Supervisory Committee The number and composition of Supervisors comply to laws, regulations and Articles of Association of the Company. The supervisors are appointed according to the procedures as set out in the Articles of Association. All supervisors attend the board meetings. In order to standardize operation of the Supervisory Committee and expand its supervisory function, the Supervisory Committee will enforce the rules set out by Guangdong Provincial Government. They will finish to appoint two Independent Supervisors before June 2002. Rules for Supervisory Committee Meetings shall be re-drafted. 5. Performance evaluation scheme and encouragement principles The Company is in the process of establishing fair, visible performance evaluation scheme and encouragement principles for director, supervisor and management personnel of the Company. Management personnel is appointed openly and fairly to comply with laws and regulations. 6. Stakeholders The Company fully respects and protects legal rights of banks, creditors, employees, consumers and other stakeholders of the Company for the continuous and sound development of the Company. 7. Information disclosure and openness The Company assigns Secretary of Board for disclosure of information, receipt of visitor and for enhancing communication with shareholders. The Company is able to deliver relevant information truly, accurately, completely and timely according to law and regulation and Articles of Association of the company to ensure that all shareholders have equal opportunities for information. The Company can disclose detailed information about the majority shareholders and the change in the shareholding positions. The Company was elected one of the thirty best companies in Shenzhen Stock Exchanges in respect of information disclosure. VI. GENERAL SHAREHOLDERS MEETING 1. 2000 Annual General Shareholders Meeting The Company convened its 2000 Annual General Shareholders Meeting on April 23, 2001 at the Conference Room on the Second Floor of Training Center of Guangdong Electric Power Holdings Company. 42 shareholders (or proxy of shareholders) attended the meeting, representing 1,649,369,933 shares, which is equivalent to 62.02% of the total shares of 2,659,404,000 shares . Among the shareholders, there were 16 A share shareholders, representing 1,558,274,351 shares and 26 B share shareholders, representing 91,095,582 shares. Convening of the meeting comply with the Company Law and Articles of Association of the Company. Following resolutions were passed at the meeting: (1) Reviewed and approved the 2000 Report of the Board of Directors; (2) Reviewed and approved the 2000 Report of the Supervisory Committee; 16 (3) Reviewed and approved the 2000 Report of the General Manager; (4) Reviewed and approved the 2000 Report of the Final Accounts of Financial; (5) Reviewed and approved the 2000 Proposal of profit distribution: In accordance with the operating result audited by Guangdong Kangyuan Certified Public Accountants Co., Ltd. under Accounting Principals Generally Accepted in the PRC and that audited by Arthur Andersen & Co under International Financial Reporting Standards, the distributable profits of the Company were RMB1,189,959,000 and RMB1,818,617,000 (including net profit of 2000 of RMB970,292,000 and RMB971,104,000) respectively. According to relevant laws and regulations, distributable profit should be determined at lower of the two audited results. Therefore the Company used the result audited by Guangdong Kangyuan Certified Public Accountants Co., Ltd. of RMB1,189,559,000 as distributable profits. As the Company had made profit distribution once in 2000 totaling RMB499,656,000 (for details, please see 2000 interim report of the Company), the final distributable net profit for 2000 was RMB493,772,000. The profit appropriation plan was as follows: the Company set aside 10% of the distributable net profit to statutory reserve funds, totaling RMB49,377,000; 25% to discretionary reserve funds totaling RMB123,443,000; 5% to statutory public welfare funds totaling RMB24,689,000. The profit available for distribution to shareholders was RMB296,263,000 plus the retained earnings at first half of 2000 of RMB196,531,000. Therefore, the total distributable profit to shareholders was RMB492,794,000. The proposed dividends were RMB0.15 per share for A shareholders (tax inclusive) and RMB0.15 per share for B shareholders based on the total share capital of 2,659,404 shares. (6) Reviewed and approved the 2000 Annual Report; (7) Agreed to make 50% bad debt provision for the time deposit of RMB10,000,000 in Hainan Development Bank, totaling RMB5,000,000; (8) Agreed that the Company will change its accounting policy on rotary housing fund whereby the deficit in the balance of housing fund shall be covered by appropriation from statutory staff welfare reserve since 2001. The amount of such balance shall be determined by certified public accountants after due review and assurance; (9) Agreed to appoint Guangdong Kangyuan Certified Public Accountants Co., Ltd. and Arthur Andersen & Co as the domestic and international reporting accountants respectively; (10) Agreed the Proposal for the Appointment of Two Independent Directors to the Board of Directors; (11) Agreed to make amendment to the Articles of Association regarding the increase of independent directors and other matters; (12) Agreed to appoint Mr. Wei Jie and Mr. Zhang Zhiyue as independent directors to the third Board of Directors of the Company. 2. The First Extraordinary General Shareholders Meeting The Company convened its first Extraordinary General Shareholders Meeting for 2001 on September 24, 2001 at the Conference Room on the Ninth Floor of the Company. 23 shareholders (or proxy of shareholders) attended the meeting, representing 1,557,105,788 shares, which is equivalent to 58.55% of total shares of 2,659,404,000 shares. Among them, there were 5 A share shareholders, representing 1,550,527,800 shares and 18 B share shareholders, representing 6,577,988 shares. Convening of the 17 meeting comply with the Company Law and Articles of Association of the Company. The following resolutions were passed during the meeting: (1) Discussed and approved the Proposal for Change of Certain Directors: a) Approved that Mr. Wu Xirong, Wu Ting’an and Huang Guoqiang to resign as Directors of the Company; b) Approved that Mr. Pan Li, Liu Qian, Zheng Linfu and Yuan Sujie to continue to be the Directors of the Company; c) Approved to appoint Mr. Deng An, Yu Fumin, Cao Techao new Directors of the Company. (2) Discussed and approved the Proposal for Change of Certain Members of the Supervisory Committee: a) Approved Mr. Chen Rui and Liu Guanshi to resign as Supervisors of the Company; b) Approved that Mr. Yang Xuanxing continues to be the Supervisor of the Company; c) Approved that Mr. Wan Jianming and Ms. Cai Fan be elected as new supervisors of the Company. 3. The Second Extraordinary General Shareholders Meeting The Company convened its second extraordinary General Shareholders Meeting for 2001 on December 27, 2001 at the Conference Room on the fifth Floor of the Jianying Building, Guangzhou. 21 shareholders (or proxy of shareholders) attended the meeting, representing 1,556,455,580 shares, which is equivalent to 58.5% of total issued shares of 2,659,404,000 shares . Among them, there were 10 A share shareholders with 1,550,924,550 shares and 11 B share shareholders with 5,531,030 shares. Convening of the meeting comply with the Company Law and Articles of Association of the Company. Following resolutions were passed during the meeting: (1) Discussed and approved Proposal on Acquisition of 9% and 16% Equity Interests in Zhanjiang Electric Power Co. Ltd. respectively held by Guangdong Yuedian Assets Management Co. Ltd. and Guangdong Electric Power Development Company. a) Agreed the acquisition of 9% equity interests in Zhanjiang Electric Power Co. Ltd. (“Zhanjiang Electric”) from Guangdong Yuedian Assets management Co. Ltd. (“Yuedian”). The acquisition price is based on the valuation performed by Zhonglian Assets Valuation Co. Ltd. on the evaluation date, totaling RMB 316,455,500. b) Agreed the acquisition of 16% equity interests in Zhanjiang Electric from Guangdong Electric Power Development Company (“GEPD”). The acquisition price is based on the valuation performed by Zhonglian Assets Valuation Co. Ltd. on the evaluation date, totaling RMB562,587,600. (2) Discussed and approved Proposal on Acquisition of 17% equity interests in Guangdong Yuejia Electric Power Co. Ltd. held by Guangdong Electric Power Development Company. 18 Approved the acquisition of 17% equity share of Guangdong Yuejia Electric Power Co. Ltd. (“Yuejia”) from GEPD. The acquisition price is based on the valuation performed by Guangzhou Zhong Tian Heng Assets Valuation Co. Ltd. on the evaluation date, totaling RMB 193,524,400. . 3. Discussed and approved Proposal on Guarantee for the Bank Loans of Zhanjiang Electric Power Co., Ltd. It is agreed that after the acquisition of its 9% equity interests from Yuedian, the Company will guarantee for the bank loans borrowed by Zhanjiang Electric from China Construction Bank totaling RMB1.5 billion during the period from August 1998 to June 2000 for the construction of phase two of Zhanjiang Electric Power. The first two proposals are all related party transactions. Relative related party shareholders obviated voting of agreement according to relevant regulations. The proposals were passed by the voting by the General Shareholders Meeting. The above acquisition price is approved by relevant government authorities. As to the increase and decrease in net assets between the evaluation date and the transaction date, the transaction price should be adjusted according to the actual amount agreed by the two parities. The consideration shall be paid in cash by the Company’s own capital in installment. The resolutions for 2000 annual general shareholders meeting, the first extraordinary general shareholders meeting and the second extraordinary general shareholders meeting were published in “China Securities”, “Securities Times”, “Shanghai Securities”, “Hong Kong Commercial (Chinese)” and “The Asian Wall Street Journal (English)”respectively. VII. REPORT OF THE DIRECTORS 1. The scope and review of the Company’s operations The Company is a large power generation company principally engaged in operation and construction of power plants and electric power transmission project. At the end of 2001, the Group’s installed generation capacity and electricity generation volume was 2,950MW, 9% of the total installed generation capacity of Guangdong Province. The Group’s installed generation capacity increased 900MW, or 43.89%, as compared to last year. The total generation volume of the Group amounted to 15.123 billion KWH, and on-grid volume totaled 14.066 billion KWH, increased 35.69% and 35.59% respectively as compared to those of last year’s respectively. The total generation volume of the Group accounted for 10.58% of that in Guangdong Province. The Group has achieved total revenue of approximately RMB5,387 million, and operation profit of approximately RMB2,228 million, the net profit, after deduction of minority interests, is approximately RMB1,052 million, 8.3% more than that of last year. In 2001, Shajiao A Power Plant, a branch of the Company, achieved electricity generation volume of 7.365 billion KWH and on-grid electricity generation volume of 6.861 KWH, with a net profit of approximately RMB735 million. Phase I of Shajiao A Power Plant achieved electricity generation volume 4.213 billion KWH and on-grid electricity volume of 3.89 billion KWH, an increase of 3.24% and 3.19% respectively as compared to last year. Net profit of Phase I of Shajiao A Power Plant totaled approximately RMB507 million. Phase II of the Shajiao A power plant achieved electricity generation volume of 3.152 billion KWH and on-grid electricity volume of 2.971 billion KWH, with a net profit of approximately RMB228 million. Zhengjiang Electric Power Co., Ltd. (“Zhanjiang 19 Electric”), a 51% held subsidiary with a registered capital of RMB2.875 billion, is mainly engaged in power generation and construction of power plant and it has contributed a net profit of RMB696 million. Zhanjiang Power Plant, which is managed by Zhanjiang Electric, achieved power generation volume of 5.442 billion KWH and on-grid electricity volume of 5.107 billion KWH, decreasing by 0.14% and 0.83% as compared with those of last year.Guangdong Yuejia Electric Power Co., Ltd. (“Yuejia Electric”), a 51% held subsidiary of the Company with a registered capital of RMB1 billion, is mainly engaged in power generation. It contributed a net profit of approximately RMB247 million. The Meixian B Power Plant, which is managed by Yuejia Electric, achieved power generation volume of 1.511 billion KWH and on-grid electricity volume of 1.385 KWH, decreasing by 5.86% and 4.81% respectively as compared to those of last year. Shaoguan Yunjiang Electric Power Co., Ltd.(“Yuejiang Electric”), a 65% held subsidiary with a registered capital of RMB450 million, was mainly engaged in power generation. It contributed a net profit of approximately RMB32 million. The No.10 generator managed by Yuejiang Electric was already put into operation, achieving electricity generation volume of 795 million KWH and on-grid electricity volume of 713 million KWH. The Group did not accomplish the total planned 15.8 billion KWH power generation volume as planed. This is mainly due to the following reasons: (1) Increase of electricity demands for 2001 slowed down. The total demand for electric power increased only by 9%, lower than the increase rate of 12.3% of last year; (2) Increased standby time for the generators to reserve for peak period for electricity power usage; (3) Increase of transmission of electric power from the West provinces and the generation volume of other power plants; (4) Yuejiang Electric only achieved 58.8% of the planning power generation volume due to the limitation of power transmission facilities. 2. Major suppliers and customer In 2001, all the electricity of the Group were sold to Guangdong Guangdian Group Co., Ltd. (GPHC before its restructuring in August 2001). Fuel were purchased from Guangdong Electric Power Fuel Supply Co., Ltd. and Shaoguan Electric Power Plant, both being subsidiaries of the Yuedian. Total purchase of fuel for 2001 amounted to RMB1.566 billion. 3. Investments (1) Usage and results of the funds raised: Method of Investment Promised Total Estimated Actual Practical Practical fund project operating Investment income investment investment investment raising promised date project amount date (RMB’000) (RMB’000) (RMB’000) New A Shajiao A January 1, 1,525,499 144,858.8 Shajiao A 1,525,499 December 29, shares Power Plant 2001 Power Plant 2000 offering (Phase II) (Phase II) (2) There is no funds raised but not used; (3) All funds raised have been invested into specific project for the fund-raising. There is no change in investment project; 20 (4) Progress and income of the project: Shajiao A Power Plant (Phase II) has become a fully owned plant of the Company since January 1, 2001. In 2001, its power generation volume totaled 3.152 billion KWH and profit before tax of RMB228 million. (5) Progress and income of other investment: Yuejiang Electric, a 65% held subsidiary, began trial running on March 15, 2001. However, because the relevant electric ity transmission grid was not completed at that time and abundant rains of the first half-year in Guangdong Province, Yuejiang generated little electricity during the first half year. With the fixed costs of the generators, Yuejiang Electric incurred loss in first half of the year totaling approximately RMB18,666,000 Yuan. The second half of 2001, with the decreased impact of the two factors mentioned above, electric power generated by Yuejiang increased significantly. Yuejiang has achieved a net profit of approximately RMB32 million. Guangdong Maoming Ruineng Thermoelectric Power Co., Ltd. (“Maoming Ruineng”), a 51% held subsidiary of the Company began construction on September 8, 2001 for its generator No. 5 (200MW). The generator was expected to be put into operation in the second half of 2003. Registered capital of Maoming Ruineng is RMB217,157,500 and the total investment of the project is expected at RMB 870,000,000. 3. Financial highlights of the Group Items 31 December 2001 31 December 2000 Increase / decrease +/(-) RMB’000 RMB’000 RMB’000 Total Asset 12,416,341 11,304,692 1,111,649 Long-term Liability 2,082,480 2,720,000 (637,520) Shareholder Equity 6,802,793 5,156,032 1,646,761 Profit of Selling Power 2,227,775 1,999,584 228,191 Net Profit 1,051,805 971,104 80,701 Explanations of the movements of the above and other outstanding items: (1) Total asset increased by 9.8% mainly due to the increase of net profit for 2001 and raising funds from issuance of new shares ; (2) Long-term liability decreased by 23% mainly because of repayment of long-term bank loans; (3) Shareholder equity increased by 32% mainly because of the increase of net profit and raising funds from issuance of new shares; (4) Operation profit increased by 11% mainly due to the contribution from Shajiao A Power Plant (Phase II); 21 (5) Net profit increased by 8% mainly due to the contribution from Shajiao A Power Plant (Phase II); 4. Impacts of the significant changes in external environment, government policies and regulations With the reform of electric power industry, Guangdong Province completed “separation of power generation assets and the transmission grid”. As the reform went smoothly, the Company can now sell electric power independently. Meanwhile, the reform also enabled the Company to expand operation through acquisition of the existing power plants. Acquisitions completed include acquisition of equity interest in Zhanjiang Electric and Yuejia Electric. The Company has started to prepare for acquisition of other power plants current held by Yuedian. At the same time, bidding for on grid electric power is going to be implemented in 2002 which posed new challenges and opportunities for the Company. 5. Work plan for 2002 2002 is the year that the Company will face significant changes from both internal and external. The Company will try every effort to increase the competitiveness under the leadership of the Board of Directors. The Company will increase its profit earning ability though strengthening internal management power and expanding operation scale. (1) Electricity generation plan The planned electricity generation volume of the Group’s power plants in 2002 is 15.816 billion KWH, including 3,330 million KWH by Shajiao A Power Plant (Phase I), 3,666 million KWH by Shajiao A Power Plant (Phase II), 6,132 million KWH by Zhanjiang Power Plant, 1,170 million KWH by Meixian Power Plant B, 1,518 million KWH by Generator No. 10 of Yuejiang Electric. (2) Investment plans a) In 2002, the Company will try to complete the acquisition of seven hydropower plants in the first half of the year. If the transaction can be completed on July 1, 2002, the acquisition can increase the generation volume of the Group by 1.52 billion KWH, and increase the power generation capacity of 860MW. The estimated amount of the acquisition is approximately RMB2 billion (according to the current valuation). The Company shall also prepare for the acquisition for other power plants. b) Capital expenditure of the technology improvement for Shajiao A Power Plant. c) Construction for No. 5 generator in Maoming Power Plant. The estimated amount of the construction is approximately RMB30 million. (3) Other works (1) To be well prepared for “bidding for on-grid power”especially basic work in the subordinate power plants such as a thorough understanding of the costs and components of such costs in the power plants; sensitive analysis of the profit on change of power price; improvement of abilities for information collection, proceeding and analysis, especially in the power industry and for other power plants in Guangdong Province; accelerating information sharing within the Company to enhance its ability to adept to the changing environment. 22 (2) To strictly implement budget management, control the costs and expenditures of the Company and its power plants; to strengthen management and auditing of the major projects; to examine and analyze costs and expenditures of the power plants and to find out ways for cutting cost and improving profit-earning ability of the Company. (3) To further perfect the management structure of the Company; to focus on the election of new Board of Directors and Supervisory Committee; to elect independent directors and supervisors; to establish committees for strategic management, budget and auditing, nomination, salary and assessment; to introduce more creative motivation system step by step. 6. Work performed by the Board of Directors (1) Meetings of the Board of Directors and Shareholders Five meetings of the Board of Directors were held on March 13, August9, September 24, November 1 and November 24, 2001 respectively. They were the 6th to 10th of the Third Board of Directors. Three General Shareholders Meetings were held on April 23, September 24, and December 27, 2001. The Directors make decisions for major issues of the Company through review and discussion of relevant proposals. (2) Major resolutions passed by the Board of Directors a) Reviewed and approved Report of the General Manager, Operation Report of the General Manager, Report on the final Financial Accounts, Proposal for Profit Appropriation, Extracts of the Annual Report for 2000 and interim report for 2001. 2) Other resolutions Other resolutions approved by the Board of Directors included resolution for establishing Shajiao A Power Plant, resolution for appointment of independent directors, resolution for change of directors and election of new directors, resolution for amendment to Articles of Association. They also made the decisions for construction of the 135MW generator in Meixian power plant, for acquisition of 25% equity interests in Zhanjiang Electric and 17% equity interests in Yuejia. They also approved the Company’s policy for assets impairment and provision, salary reform implementation and the organization and structure of the Company; re-elected Pan Li and Deng and an as Chairman and Vice-Chairman of the Board and the deputy General Manager of the Company. 3) Implement the resolution of the general Shareholder’s meeting, to better disclose the Company’s information 23 In 2001, the Board of Directors disclosed the major related party transactions of the Company timely true and fully, according to the principles of “Fairness, Justice, Openness”according to the Company Law and Articles of Association of the Company. As a result, it enabled all investors to better understand of the Company’s operations. The Company has built up a good reputation in the market. 4) Self-development of the Board of Directors Through the perfection of the Company’s Articles of Association and Rules on Meeting of the Board of Directors, the operation procedures for the Board of Directors and its rights and obligations became clearer. The Board incorporated independent directors and set up executive committees in order to improve its management and administrative abilities. The directors and senior management personnel also learnt about the new regulations for listed companies and listing rules and held specific discussions about case studies of non- abiding listed companies so as to help them better understand the importance of regulated operations of the Company. 7. Proposed Profit Appropriation and Dividends Distribution Plan of 2001 and Dividend distribution commitment for 2002 According to the operation result of 2001, the Board of Directors proposed the Profit Appropriation and Dividends Distribution Plan of 2001, which is as follows: (1) The Company will set aside 10% of the net profit audited by Pan-China Certified Public Accountants of approximately RMB1,057,768,800 to statutory surplus reserve totaling approximately RMB105,776,900; 25% totaling approximately RMB264,442,200 to discretionary surplus reserve and 5% totaling approximately RMB52,888,400 to statutory public welfare fund. (2) Profit available for distribution to shareholders totals approximately RMB634,661,300. In addition, the retained profit brought forward of approximately RMB58,178,700 added the total distributable profit for 2001 to approximately RMB692,840,000. Directors of the Company proposed the following plan for dividends: RMB0.22 (tax inclusive) per share for A shares and RMB0.22 per share for B shares. The Company’s objective is to make effective use of the capital raised, benefit all investors of the Company and maximize the shareholders’value. If the operation environment has not changed significantly in 2002 and taking into consideration of its short-term and long-term development requirements, the Company has developed the dividend distribution policy for the year 2002 as follows: (1) The Company will distribute dividends to shareholders if it has distributable profits; (2) The Company will distribute dividends at least once in 2002. (3) The Company will distribute no less than 60% of its total distributable profit after its profit appropriation to the reserves. (4) The Company will distribute no less than 50% of the retained earnings in next year’s dividend distribution. (5) The cash dividends shall not be less than 50% of total dividends. 24 The actual and detailed dividends distribution plan shall be proposed by the Board on the basis of the profit for 2002 and in accordance with the Company’s capital requirements and is subject to the approval by the Company’s General Shareholders Meeting. Chairman of the Company: Pan Li VIII. REPORT OF THE SUPERVISORY COMMITTEE In accordance with the Company Laws and the Articles of Association of the Company, the Supervisory Committee of the Company carried out supervisory work for the Company’s daily operation and its senior management personnel. I shall summarize the work of the Supervisory Committee here on behalf of the all the Supervisors. 1. Summary of work of the Supervisory Committee In 2001, the Supervisors attended five meetings of the Board of Directors and the annual and two extraordinary general shareholders meetings in 2001. In addition, four meetings were held in 2001 for the Supervisory Committee. They are as follows: The first Supervisory Committee meeting was held on March 13, 2001 in Guangzhou. The 2000 annual report for the Supervisory Committee and the final financial report were passed in the meeting. The Supervisors considered that the provision of RMB5 million for doubtful debts receivable from Hainan Development Bank Guangzhou Branch totaling RMB10 million is reasonable and well supported. The second meeting was held on August 9, 2001 in Guangzhou. During the meeting, the Supervisors approved the Proposal for Changes in Members of the Supervisory Committee. It was approved that Chen Rui and Liu Guanshi resign from the Supervisory Committee due to change of their work assignment. The Supervisors recommended Wan Jianming and Cai Fan to be the candidates for Supervisors. The proposal was submitted to the first extraordinary general shareholders meeting for approval. The third meeting was held on September 24, 2001 in Guangzhou. During the meeting, the Supervisors elected Yang Xuanxing as the Chairman of the Supervisory Committee and He Dewei as the Secretary to the Supervisory Committee. The fourth meeting was held on November 23, 2001 in Guangzhou. During the meeting, the Supervisors discussed about the Company’s proposed acquisition of 9% and 16% of equity 25 interest from Yuedian and Guangdong Electric Power Development Company respectively and the proposed acquisition of 17% equity interest in Yuejia Electric from Guangdong Electric Power Development Company. The Supervisors have discussed and monitored the operation of the Company during all the above meetings and considered the operation of the Company is sound and comply with laws and regulations. 2. Review of work of the Directors and senior management personnel In attending the Board Meetings and the general shareholders meetings, the Supervisors are of the opinion that the Company continues to operate prudently in 2001 and have achieved good operation result. The Supervisors have not noted any illegal or improper activities by the Directors or senior management personnel. 3. Assessment of the Company’s operation and financial position In 2001, the Group’s total power generation volume amounted to 15.123 billion KWH, 95.71% of the planned power generation 15.8 billion KWH, an increase of 35.7% as compared to 2000. As the increase in power consumption was not significant and purchase of electric power from Western provinces increased greatly, the standby time for the Group’s generators increased. The Company did not achieve its planned power generation volume consequently. The Supervisory Committee approved the audited financial statements and the auditors report issued by Pan-China Certified Public Accountants. According to the financial statements, the Group’s total assets amounted to RMB12,186 million and net assets RMB6,638 million, which increased 7.85% and 40.16% as compared with those of 2000. The total revenue was RMB5,441 million and net profit 1,058 million which increased 9.07% as compared to 2000’s net profit of 971 million. Earnings per share was RMB0.4. Moreover, management of the Company has made great effort in chasing for long outstanding receivables, but with little progress. 4. Work Planning for 2002 1) In 2002, election of new members of the Supervisory Committee shall be held. According to the requirement as set out in government document Yue Fu Han (2001) No. 448, two Independent Supervisors will be admitted to the Supervisory Committee while the total number of Supervisors will keep unchanged. The Supervisors will cooperate on the election to ensure proper supervisory work of the Company. 2) The Supervisors will attend the general shareholders meetings, Board meetings and take part in the supervisory work for the Company’s operation in order to protect the interests of the shareholders. 3) The Supervisors will perform field inspection to the power plants of the Group. Chairman of the Supervisory Committee Yang Xuanxing 26 IX. SIGNIFICANT EVENTS 1. Significant litigation or arbitration In May 2000, the Company appealed to Foshan Middle People’s Court for execution of the two civil judgement referred to as “(1999 )Foshan Zhong Fa Jing Chu Zi No.687 and No.688”. Foshan Middle People’s Court has put the case to file for investigation. The case is still in process. A fixed-date deposit amount to RMB 10 million in Guangdong Huaqiao Trust and Investment Company Fenjiang Office was involved in the case. In September 1999, the Company submitted dissension letters to the Liquidation Committee of Guangdong International Trust and Investment Company, Ltd. (“GITIC”) and Guangdong High People’s Court, stating that the RMB60 million remitted by the Company to GITIC shall be defined as deposit from client for purchase of government bond. The fact that GITIC has used the money for other purposes cannot change its specific nature as deposit for government bond, so it should be fully refunded to the Company according to relevant rules and regulations. The above case was closed in November 2001. Guangdong High People’s Count has rejected the fully refund application from the Company and affirmed the Company had the bankruptcy creditor’s right for RMB60 million and related interests due from GITIC. The Company has already provided short-term investment impairment loss amount to RMB60 million for the above investment. The Liquidator Committee of GITIC confirmed that the Company could refund about 34% of the total confirmed credits. The Company has already got the first refund amount to RMB 2.07 million( about 3.38% of the total amount). 2. Acquisition, merger or asset reorganization in the reporting period (1) The Company acquired 9% of the share capital of Zhanjiang Power, which was held by Yuedian. The purchase price was the valuation amount of the 9% share capital up to the valuation date and confirmed in the valuation report signed by the Zhonglian Revaluation Company amounting to RMB 316,455,500. The transaction date was January 1, 2002. (2) The Company acquired 16% of the share capital of Zhanjiang Power, which was held by Guangdong Electric Power Development Company. The purchase price was the valuation amount of the 16% share capital up to the valuation date and confirmed in the valuation report signed by Zhonglian Revaluation Company amounting to RMB 562,587.6 thousand. The transaction date was January 1, 2002. (3) The Company acquired 17% share capital of Yuejia Power, which was held by Guangdong Electric Power Development Company. The purchase price was the valuation amount of the 16% share capital up to the valuation date and confirmed in the valuation report signed by Zhongtianheng Revaluation Company amounting to RMB193,524,400. The transaction date was January 1, 2002. The above acquisitions would further improve the profitability of the Company. 27 3. Significant related party transactions Refer to Note 3 “Related Party Transactions”in the notes to financial statements for details. 4. Neither the Company nor its shareholders with 5% or above shares have commitment in the reporting period. According to the resolution passed in the Second Extraordinary Broad Meeting in 2001 (“Proposal about loan guarantee for Zhanjiang Electric”), when transfer about the 9% share capital of Zhanjiang Electric with Yuedian completes (the Company will hold 76% equity interest of Zhanjiang Electric ), the Company will provide guarantee for Zhanjiang Electric’s loan borrowed from China Construction Bank (“CCB”) Zhanjiang Branch from August 1998 to June 2001 for construction of Zhanjiang Electric (Phase II) with a total loan amount of RMB 1.5 billion (the loan was former guaranteed by Yuedian). This change has already approved by CCB. The relevant agreement about this change is in progress. 5. Trustee, Sub-contract or Lease Events The Company was not involved in trustee, sub-contract or lease with other companies in the reporting period. The Company and its subsidiaries’total sales for electricity to the former GPHC was RMB 3.007 billion during January to July in 2001. According to the agreement, the Company paid 32 million as contract labor management fee and reconstruction fee for the electricity network. It’s only 3% of the total profit of the Company. 6. During the reporting period, the Company appointed Pan-China Certified Public Accountants and Arthur Andersen & Co as its auditors. At the same time, the Company dismissed Guangdong Kangyuan Certified Public Accountants, which no longer suit to be the auditor of the Company due to its own reasons. The Company paid RMB400,000 and RMB 1.2 million to Pan-China Certified Public Accountants and Arthur Andersen & Co respectively in 2001. 7. The Company did not change its name or abbreviation of shares in the year. X. FINANCIAL STATEMENTS 1. Auditors’Report Issued by Arthur Andersen & Co (Please see appendix) Note: There might be certain changes in the format and page numbers of the audited financial statements when changed to the PDF format, but the financial statements are published in its entirety in this annual report. 28 XI. DOCUMENTS AVAILABLE FOR INSPECTION 1. Financial statements manually signed and chopped by Authorized Representative and Accounting Manager. 2. Originals of the Auditors’Report and financial statements manually signed and chopped by the Certified Public Accountants. 3. Originals of documents and announcement of the Company as disclosed in Securities Times, China Securities, Shanghai Securities, Hong Kong Commercial (for overseas investors), The Asian Wall Street Journal (English version for overseas investors) in the reporting period. 4. Originals of the English version of the Annual Report. The above documents are kept in the Company’s office and can be reviewed anytime (except public holiday, Saturday and Sunday) by the shareholders. The Board of Directors Guangdong Electric Power Development Co., Ltd. April 10, 2002 29 Appendix GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 TOGETHER WITH AUDITORS’REPORT The reader is advised that this report has been prepared originally in Chinese. In the event of a conflict between this report and the original Chinese version or difference in interpretation between the versions of the report, the Chinese language report shall prevail. AUDITORS’REPORT TO THE SHAREHOLDERS OF GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. We have audited the accompanying consolidated balance sheet of Guangdong Electric Power Development Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2001, and the related consolidated statements of income, changes in equity, and cash flows for the year then ended. These financial statements set out on pages 2 to 35 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of December 31, 2001 and of the results of its operations and its cash flows for the years then ended in accordance with International Financial Reporting Standards, as published by the International Accounting Standards Board. ARTHUR ANDERSEN & CO Certified Public Accountants Hong Kong, April 3, 2002 -1- GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001 (Expressed in thousands of Renminbi) Note 2001 2000 ASSETS (Note 33) Non-current assets Property, plant and equipment, net 4 7,427,123 6,421,998 Land use rights 5 283,539 271,597 Long-term deposit for coal purchase 3(d) 120,000 120,000 Investments in associates 6 24,719 16,841 Loans to associates 7 14,359 18,859 Long-term investments 8 70,160 90,004 Intangible assets, net 9 344,418 366,611 Deferred staff costs, net 10 107,531 110,807 Goodwill, net 11 64,057 71,198 Deferred tax assets 12 11,990 12,715 Other non-current assets 7,355 5,900 8,475,251 7,506,530 Current assets Materials and supplies 13 229,377 107,898 Accounts receivable 929,967 518,927 Prepayment for acquisition of subsidiaries 14 550,000 1,525,499 Prepayments and other assets 43,366 72,333 Short-term bank deposits 580,000 280,000 Cash and cash equivalents 26(b) 1,608,380 1,293,505 3,941,090 3,798,162 Total assets 12,416,341 11,304,692 EQUITY AND LIABILITIES Capital and reserves Share capital 15 2,659,404 2,575,404 Reserves 16 4,143,389 2,580,628 6,802,793 5,156,032 Minority interests 2,609,022 2,515,449 Non-current liabilities Long-term bank loans 17 1,806,500 2,460,000 Current liabilities Accounts payable 26,973 14,467 Other payables and accruals 203,466 325,693 Dividends payable - 33,703 Coal price adjustment payable 20 12,620 53,668 Short-term borrowings from Guangdong Electric Power Holdings Co. - 200,000 Current portion of long-term bank loans 17 275,980 260,000 Due to fellow subsidiaries 3(c) 249,551 - Taxes payable 429,436 285,680 1,198,026 1,173,211 Total equity and liabilities 12,416,341 11,304,692 -2- The accompanying notes are an integral part of these financial statements. -3- GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 (Expressed in thousands of Renminbi, except for earnings per share data) Note 2001 2000 (Note 33) Operating revenue, net 3(a) 5,386,785 4,243,010 Operating costs: Fuel (1,684,955) (1,207,692) Repair and maintenance (243,035) (168,998) Depreciation (635,694) (428,920) Labor (169,654) (106,957) General and administration (269,561) (216,529) Others (156,111) (114,330) Total operating costs 3(b), (c), (g) (3,159,010) (2,243,426) Operating profit 2,227,775 1,999,584 Finance cost 21 (147,313) (85,973) Share of profit of associates 6 8,577 5,500 Other income, net 3(f) 27,144 23,915 Profit before tax 22 2,116,183 1,941,472 Taxation 6, 23 (591,071) (457,755) Profit after tax 1,525,112 1,483,717 Minority interest (473,307) (512,613) Net profit for the year 1,051,805 971,104 Earnings per share -Basic 25 RMB0.40 RMB0.38 -Diluted 25 N/A N/A The accompanying notes are an integral part of these financial statements. -4- GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2001 (Expressed in thousands of Renminbi) Reserves Statutory Statutory Capital surplus public welfare Discretionary Retained Note Share capital reserve reserve fund surplus reserve earnings Total Balances at January 1, 2000 1,287,702 1,503,482 378,999 156,160 448,891 847,513 4,622,747 Transfer of capital reserve to share capital 1,030,162 (1,030,162) - - - - - Stock dividends 257,540 - - - - (257,540) - Net profit for the year - - - - - 971,104 971,104 Appropriation from retained earnings 16 - - 97,029 48,515 327,781 (473,325) - Dividends 24 - - - - - (437,819) (437,819) Balances at January 1, 2001 2,575,404 473,320 476,028 204,675 776,672 649,933 5,156,032 Issue of new shares 15 84,000 940,800 - - - - 1,024,800 Issuance expenses 15 - (31,280) - - - - (31,280) Donation of fixed assets - 347 - - - - 347 Transfer 16 - - 30,658 (30,658) - - - Dividends 24 - - - - - (398,911) (398,911) Net profit for the year - - - - - 1,051,805 1,051,805 Appropriation from retained earnings 16 - - 105,777 52,888 123,443 (282,108) - Balances at December 31, 2001 2,659,404 1,383,187 612,463 226,905 900,115 1,020,7 19 6,802,793 The accompanying notes are an integral part of these financial statements. -5- GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 (Expressed in thousands of Renminbi) Note 2001 2000 CASH FLOWS FROM OPERATING (Note 33) ACTIVITIES: Cash generated from operations 26(a) 2,289,684 2,521,190 Interest paid (166,674) (127,449) Income taxes paid (553,160) (337,677) Net cash from operating activities 1,569,850 2,056,064 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiary, net of cash acquired 26(c) - (270,244) Proceeds from disposal of a subsidiary, net of cash disposed - 277 Prepayment for acquisition of a subsidiary (550,000) (1,525,499) Purchases of property, plant and equipment (293,956) (916,818) Proceeds from disposal of property, plant and equipment - 18,597 Increase in investment in associates (3,600) - Increase in long-term investments - (56,976) Receipt of loan to associates 4,500 - Interest received 37,162 29,657 Dividends received from associates 2,692 1,840 Increase in deferred staff costs - (110,807) Decrease in other non-current assets 1,455 32,974 Net cash used in investing activities (801,747) (2,796,999) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of new shares 1,024,800 - Issuance expenses (31,280) - (Decrease) increase in bank loans (637,520) 985,000 Contribution from minority interests 30,000 - Decrease in loans from minority shareholders - (207,492) Distribution to minority shareholders (406,614) (333,284) Dividends paid (432,614) (404,116) Net cash (used in) from financing activities (453,228) 40,108 Net increase (decrease) in cash and cash equivalents 314,875 (700,827) Cash and cash equivalents at beginning of year 1,293,505 1,994,332 Cash and cash equivalents at end of year 26(b) 1,608,380 1,293,505 The accompanying notes are an integral part of these financial statements. -6- GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in Renminbi unless otherwise stated) 1. ORGANIZATION AND OPERATIONS Guangdong Electric Power Development Co., Ltd. (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (the “PRC”) on November 3, 1992. On September 8, 1993, the China Securities Regulatory Commission approved the reorganization of the Company into a public joint stock limited company. On November 10, 1995, the Ministry of Foreign Trade & Economic Co-operation approved the reorganization of the Company into a foreign investment joint stock limited company. The Company’s Renminbi (“RMB”) Denominated Domestic Shares (“A Shares”) and Domestically Listed Foreign Shares (“B Shares”) were listed on the Shenzhen Stock Exchange on November 26, 1993 and June 28, 1995 respectively. In 2001, pursuant to the Approval on the Implementation Plan of Guangdong Province’s Reform of Power Industry Structure Relating to Restructuring of Generation and Transmission Assets, a document issued by Guangdong Provincial Government and referred to as Yue Fu Han [2001] No. 252, Guangdong Electric Power Holding Co. (“GPHC”), the former major shareholder of the Company, was split into two separate companies, namely, Guangdong Guangdian Group Co. Ltd. (“Guangdian”) and Guangdong Yuedian Assets Management Co. Ltd. (“Yuedian”). According to the Reply to Issues in the Restructuring of Provincial Power Companies Assets with a document number of Yue Cai Qi [2001] No. 247, the Company’s 50.15% equity interest formerly held by GPHC was transferred to Yuedian on August 1, 2001. As such, the directors of the Company considered Yuedian as the immediate and ultimate parent company. The Company and its subsidiaries (the “Group”) are principally engaged in the business of developing electric power plants in Guangdong Province, PRC. The Company’s registered address is 10th Floor, Boli Commercial Center, Guangfa Garden, 498 Huanshi Dong Road, Guangzhou. Electricity generated by the Group was solely sold to GPHC prior to August 2001 and to Guangdian thereafter. The number of employees in the Group as of December 31, 2001 was 4,965 (2000: 3,942). On January 1, 2001, the Company acquired 100% equity interest of Phase II of Shajiao Power Plant (“Shajiao Power Plant II”) from GPHC, the former major shareholder, at a cash consideration of RMB1,525,499,000, which was equivalent to the fair value of the net assets of Shajiao Power Plant II as verified by independent valuers as of the acquisition date. The acquisition was funded by a public offering of A shares in 2001 (See Note 15). Shajiao Power Plant II owns two 300MW generators and management believes that the acquisition will benefit the overall operation of the Group in the future. In 2001, the revenue contribution from Shajiao Power Plant II was approximately RMB934,231,000 and profit before tax contribution was approximately RMB227,922,000. -7- 1. ORGANIZATION AND OPERATIONS (Cont’d) As of December 31, 2001, the Company had the following subsidiaries, which are incorporated/established in the PRC: Date of Attributable equity incorporation/ interest directly Principal Type of Name of entity establishment held Paid-in capital activities registration RMB Zhanjiang Electric Power Co., Ltd. November 21, 51% 2,875,440,000 Electricity Limited liability (“Zhanjiang Electric”) 1995 generation company Guangdong Yuejia Electric Power January 25, 51% 1,000,000,000 Electricity Limited liability Co., Ltd. (“Yuejia Electric”) 1996 generation company Guangdong Shaoguan Yuejiang September 16, 65% 450,000,000 Electricity Limited liability Electric Power Co., Ltd. 1997 generation company (“Yuejiang Electric”) Maoming Ruineng Thermal Power January 1, 51% 84,423,400 Electricity Limited liability Co. Ltd. (“Maoming Ruineng”) 2001 generation company (under construction) 2. PRINCIPAL ACCOUNTING POLICIES The principal accounting policies adopted in preparing the financial statements of the Group are as follows: (a) Basis of preparation The accompanying financial statements of the Group are prepared in accordance with International Financial Reporting Standards (“IFRS”) published by the International Accounting Standards Board (“IASB”), effective as of December 31, 2001. This basis of accounting differs from that used in the preparation of the Group’s statutory accounts which are prepared in accordance with PRC Accounting Standards for Business Enterprises and the Accounting Regulations for Business Enterprises (“Statutory Accounts”). The adjustments made to conform the Statutory Accounts of the Group to IFRS are shown in Note 31. The financial statements are prepared under the historical cost convention. (b) Principles of consolidation The consolidated financial statements of the Group include those of the Company and its subsidiaries and also incorporate the Group’s interest in associates on the basis as set out in Note 2(d) below. The equity and net income attributable to minority shareholders’interests are shown separately in the balance sheet and income statement, respectively. The purchase method of accounting is used for acquired businesses. Results of subsidiaries and associates acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition or to the date of disposal. All intercompany balances and transactions, including intercompany profits and unrealized profits and losses are eliminated on consolidation. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. -8- 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (c) Subsidiaries A subsidiary is a company, which the Company controls. Control exists when the Company has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. (d) Associates An associate is a company, not being a subsidiary or a joint venture, in which the Company has significant influence. Significant influence exists when the Company has the power to participate in, but not control, the financial and operating decisions of the associate. Investments in associates are accounted for using the equity method. An assessment of investments in associates is performed when there is an indication that the assets have been impaired or the impairment losses recognized in prior years no longer exist. When the Group’s share of losses exceeds the carrying amount of the investment, the investment is reported at nil value and recognition of losses is discontinued except to the extent of the Group’s commitment. (e) Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are recognized as expense in the period in which they are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of the asset. Depreciation is calculated using the straight-line method to write off the cost, after taking into account the estimated residual value, of each asset over its expected useful life. The useful lives are as follows: Buildings 30 to 50 years Electric utility plant 8 to 20 years Motor vehicles and other non-generation equipment 8 to 20 years When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposals is included in the income statement. The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. -9- 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (e) Property, plant and equipment and depreciation (Cont’d) Construction-in-progress represents plant and properties under construction and machinery pending installation and is stated at cost. This includes cost of construction, site restoration costs, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment to interest costs. Construction-in-progress is not depreciated until such time as the assets are completed and put into operational use. (f) Land use rights Land use rights are stated at cost less accumulated amortization. Cost is determined at purchase price of the land use right paid to a government authority. Land use rights are amortized over their respective lease terms. (g) Long-term investments The Company adopted IAS 39, Financial Instruments: Recognition and Measurement on 1 January 2001. Accordingly, investments are classified into the following categories: held-to- maturity, trading and available-for-sale. Investments with fixed or determinable payments and fixed maturity that the Company has the positive intent and ability to hold to maturity other than loans and receivables originated by the Company are classified as held-to-maturity investments. Investments acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading. All other investments, other than loans and receivables originated by the Company, are classified as available-for-sale. Held-to-maturity investments are included in non-current assets unless they mature within twelve months of the balance sheet date. Investments held for trading are included in current assets. Available-for-sale investments are classified as current assets if management intends to realise them within twelve months of the balance sheet date. All purchases and sales of investments are recognized on the trade date. Investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs. Available for sale and trading investments are subsequently carried at fair value without any deduction for transaction cost. Available for sale financial assets that do not have a quoted market price in an active market and whose fair value cannot be reliably measured by alternative valuation methods are measured at cost. Carrying amounts of such investments are reviewed at each balance sheet date for impairment. Held-to-maturity investments are carried at amortized cost using the effective interest rate method. - 10 - 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (h) Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives of 5-18 years. The amortization period and the amortization method are reviewed annually at each financial year-end. (i) Deferred staff costs The Company and its subsidiaries have finalized a scheme for selling staff quarters to its staff in 2001. Under the scheme, the Company and its subsidiaries sold certain staff quarters to their employees at preferential prices as housing benefits to the employees. The total housing benefits, which represented the difference between the net book value of the staff quarters sold and the proceeds collected from the employees, are expected to benefit the Company and its subsidiaries over 10 years, which are the minimum contractual service lives of the employees participated in the scheme. Upon the sales of staff quarters to the employees, the housing benefits incurred are recorded as deferred staff costs and amortized over the remaining average service lives of the employees participated in the scheme. (j) Goodwill The excess of the cost of an acquisition over the Company’s interest in the fair value of the identifiable assets acquired and liabilities assumed as at the date of the exchange transaction is recorded as goodwill and recognized as an asset in the balance sheet. Goodwill is carried at cost less accumulated amortization and accumulated impairment losses. Goodwill is amortized on a straight-line basis over its estimated useful life of 10 years. The amortization period and the amortization method are reviewed annually at each financial year-end. If there is an indication that goodwill may be impaired, the recoverable amount is determined for the cash-generating unit to which the goodwill belongs. If the carrying amount is more than the recoverable amount, an impairment loss is recognized. (k) Materials and supplies Materials and supplies are stated at the lower of cost and net realizable value. Cost, calculated on weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the materials and supplies to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Materials and supplies are expensed when used. The amount of any write-down of materials and supplies to net realizable value and all losses of materials and supplies are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of materials and supplies, arising from an increase in net realizable value, is recognized as a reduction in the amount of materials and supplies recognized as an expense in the period in which the reversal occurs. - 11 - 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (l) Receivables Receivables are stated at the fair value of the consideration given and are carried at amortised cost after provision for impairment. (m) Cash and cash equivalents Cash represents cash on hand and deposits with banks which are repayable on demand. Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. (n) Revenue recognition Provided it is probable that the economic benefits associated with a transaction will flow to the company and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following bases: (i) Operating revenue Operating revenue represents amounts billed for electricity supplied and transmitted to GPHC prior to August 1, 2001 and to Guangdian thereafter, net of value added tax. It is recognized upon transmission of electricity. (ii) Interest income Interest income from bank deposits is recognized on a time proportion basis that takes into account the effective yield on the assets. (o) Fuel cost Fuel cost is charged to operating costs based on actual usage. (p) Repair and maintenance costs The Group operates a planned overhaul scheme for each of its generators. The repair and maintenance expenses are charged to income statement as and when incurred. (q) Pension scheme Pursuant to PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are to be made monthly to a government agency based on 19% to 25% of the standard salary set by the provincial government, of which 17% to 20% is borne by the Group and the remainder is borne by the staff. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these contributions on an accrual basis. - 12 - 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (r) Borrowing costs Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, including amortization of discounts or premiums relating to borrowings, amortization of ancillary costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction or production of the plant, property or equipment that necessarily takes a substantial period of time to get ready for its intended use in which case they are capitalized as part of the cost of that asset. Capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalized at the weighted average cost of the related borrowings until the asset is ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. (s) Income taxes The Company and its subsidiaries provide for income tax on the basis of their profits for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes. Taxation of the Company and its subsidiaries is based on the relevant tax laws and regulations applicable to enterprises established in the PRC. Deferred taxation is provided under the balance sheet liability method in respect of significant temporary differences between the tax base of an asset or liability and its carrying amount in the balance sheet. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which the deductible temporary difference can be utilized. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at the balance sheet date. (t) Foreign currencies The Company and its subsidiaries maintain their books and records in RMB. Transactions in other currencies are translated into the reporting currency at exchange rates prevailing at the time of the transactions. Monetary assets and liabilities denominated in other currencies at the balance sheet date are translated at exchange rates prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences, other than those capitalized as a component of borrowing costs, are recognized in the income statement in the period in which they arise. - 13 - 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (u) Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, short-term bank deposits, accounts receivable, other receivables, accounts payable, other payables, investment in associates, long-term deposits, bank loans and long-term investments. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement on initial recognition. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Company has a legally enforceable right to offset and intends to settle either on a net basis or to realize the asset and settle the liability simultaneously. (v) Impairment of assets (i) Financial instruments Financial instruments are reviewed for impairment at each balance sheet date. For financial assets carried at amortized cost, whenever it is probable that the Group will not collect all amounts due according to the contractual terms of loans, receivables, an impairment or bad debt loss is recognized in the consolidated income statement. Reversal of impairment losses previously recognized is recorded when the decrease in impairment loss can be objectively related to an event occurring after the write-down. Such reversal is recorded in consolidated income statement. However, the increased carrying amount is only recognized to the extent it does not exceed what amortized cost would have been had the impairment not been recognized. (ii) Other assets Other assets such as property, plant and equipment, land use rights, intangible assets, deferred staff costs, goodwill and investment in associates are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in the consolidated income statement or treated as a revaluation decrease for property, plant and equipment that are carried at revalued amount to the extent that the impairment loss does not exceed the amount held in the revaluation reserve for the same asset. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the costs of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The reversal is recorded in the consolidated income statement or as a revaluation increase. However, the increased carrying amount of an asset due to a reversal of an impairment loss is recognized to the extent it does not exceed the carrying amount that would - 14 - have been determined (net of amortization or depreciation) had no impairment loss been recognized for that asset in prior years. - 15 - 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (w) Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. (x) Subsequent events Post-year-end events that provide additional information about a company’s position at the balance sheet date (adjusting events) are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material. (y) Minority interests Minority interests include their proportion of the fair values of identifiable assets and liabilities recognized upon acquisition of a subsidiary. The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are charged against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, the majority interest is allocated all such profits until the minority’s share of losses previously absorbed by the majority has been recovered. If a subsidiary or an associate has outstanding cumulative preferred shares which are held outside the group, the company computes its share of profit or losses after adjusting for the preferred dividends, whether or not the dividends have been declared. (z) Provisions A provision is recognized when, and only when, the company has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. When discounting is used, the increase in provision reflecting the passage of time is recognized as interest expense. Gains from the expected disposal of assets are not taken into account in measuring the provision. Property, plant and equipment that is retired from active use is carried at the lower of the carrying amount or estimated net selling price less costs of disposal. When some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is not recognized until it is virtually certain that reimbursement will be received. - 16 - 3. RELATED PARTY TRANSACTIONS Details of the related party transactions at different power plants of the Group are as follows: (a) Power purchase contracts with GPHC The electricity transmission and distribution facilities of Guangdong Province, the PRC, are controlled and managed by GPHC before August 2001. They were transferred to Guangdian after the restructuring of GPHC as described in Note 1. Guangdian (formerly GPHC) has a monopoly over the supply and distribution of electricity to end users in Guangdong Province. As such, Guangdian (formerly GPHC) is the sole customer of electricity produced by the Group. Phase I and II of Shajiao Power Plant A (collectively “Shajiao Power Plant A”) The Company entered into a power purchase agreement and a supplementary agreement for the Shajiao Power Plant A with GPHC on November 28, 1994 and June 18, 1998 respectively covering a period of fifteen years from January 1, 1995. After the restructuring of GPHC in August 2001, Guangdian has continued to execute the agreements under their present terms. The Company is expected to enter into a new agreement with Guangdian to replace the existing agreements in the near future. Key provisions, amongst others, of the existing agreements are as follows: (1) GPHC has agreed to purchase not less than 3,100 million KWH of electricity generated by the Shajiao Power Plant A per annum from January 1, 2001 to December 31, 2009. For the year ended December 31, 2001, the actual amount of electricity purchased by GPHC/Guangdian was approximately 6,861 million KWH (2000: 3,769 million KWH for Phase I). (2) The price of electricity is determined based on a cost recovery basis and subject to the approval of the Bureau of Prices of Guangdong Province (“BPGP”). For the year ended December 31, 2001, the unit selling prices for Phase I and Phase II of Shajiao Power Plant A were RMB0.331 and RMB0.305 per KWH respectively (2000: RMB0.330 per KWH for Phase I), which were approved by BPGP on January 9, 2002. (3) Electricity fees are to be paid before the 20th of the following month. A penalty of 0.05% per day of the amount overdue will be charged for late payments. During the year ended December 31, 2001 and 2000, there was no late payment of electricity fees. Zhanjiang Electric Zhanjiang Electric entered into a power purchase agreement with GPHC on December 3, 1999 covering a period of one year starting from January 1, 1999. Zhanjiang Electric did not renew its power purchase agreement with GPHC/Guangdian in 2001. However, the existing terms of the agreement continues to be in force with mutual consent until a new agreement is signed. Under the terms of the power purchase agreement with GPHC, GPHC is to purchase all the electricity transmitted by Zhanjiang Electric. Electricity fees are to be paid before the 25th of the following month. After the restructuring of GPHC in August 2001, Guangdian has agreed to continue to execute the existing agreement under the present terms until a new agreement is reached between Zhanjiang Electric and Guangdian in the near future. - 17 - For the year ended December 31, 2001, the actual amount of electricity purchased by GPHC/ Guangdian was approximately 5,107 million KWH (2000: 5,150 million KWH). - 18 - 3. RELATED PARTY TRANSACTIONS (Cont’d) The price of electricity is determined based on a cost recovery basis and is subject to the approval of BPGP. For the year ended December 31, 2001, the unit selling price of electricity was RMB0.446 per KWH (2000: RMB0.468 per KWH), which was approved by BPGP on January 9, 2002. Yuejia Electric Yuejia Electric entered into a power purchase agreement with GPHC on April 15, 1996, covering a period from the commencement date of operation of Generator Unit I to twenty years after the commencement date of operation of Generator Unit II. After the restructuring of GPHC in August 2001, Guangdian has continued to execute the agreement under its present terms. Yuejia Electric is expected to enter into a new agreement with Guangdian to replace the existing agreement in the near future. In the existing agreement, GPHC has agreed to purchase, for each generator unit, not less than 567 million KWH of electricity in the first year of operation and not less than 618 million KWH per annum in the subsequent years. Electricity fees are to be paid within 15 working days after receipt of electricity invoices and relevant bills. For the year ended December 31, 2001, the actual amount of electricity purchased by GPHC/ Guangdian was approximately 1,379 million KWH (2000: 1,455 million KWH). The price of electricity is determined based on a cost recovery basis and is subject to the approval of BPGP. For the year ended December 31, 2001, the unit selling price of electricity was RMB0.415 per KWH (2000: RMB0.431 per KWH), which was approved by BPGP on January 9, 2002. Yuejiang Electric Yuejiang Electric entered into a power purchase agreement with GPHC in October 2000, covering a period of one year starting from the signing date of the agreement. The agreement continues to be in force after its expiration with mutual consent until a new agreement is signed. Under the terms of the power purchase agreement with GPHC, GPHC is to purchase all the electricity transmitted by Yuejiang Electric. Electricity fees are to be paid in 25 days after issuance of invoices. After the restructuring of GPHC in August 2001, Guangdian has agreed to continue to execute the existing agreement under the present terms until a new agreement is reached between Yuejiang Electric and Guangdian in the near future. For the year ended December 31, 2001, the actual amount of electricity purchased by GPHC/ Guangdian was approximately 713 million KWH (2000: nil). The price of electricity is determined based on a cost recovery basis and is subject to the approval of BPGP. For the year ended December 31, 2001, the unit selling price of electricity was RMB0.26 per KWH during the trial period. In the first three months of commercial operation, 95% of the price approved by BPGP was charged, subsequent to which the selling price was RMB0.460 per KWH (2000: nil), which was approved by BPGP on January 9, 2002. - 19 - 3. RELATED PARTY TRANSACTIONS (Cont’d) (b) Management agreements with GPHC Shajiao Power Plant A The Company entered into an agreement with GPHC on November 28, 1994 regarding the provision of management and administrative services by GPHC to the Company for the operation of the Shajiao Power Plant A. The agreement covers a period of fifteen years starting from January 1, 1995. The key provisions of the agreement are as follows: (1) GPHC will provide management and administrative services for the operation of the Shajiao Power Plant during the period covered by the agreement. (2) The Company will pay GPHC a management fee of RMB0.006 per KWH of electricity sold, of which RMB0.002 per KWH is the labor management fee and RMB0.004 per KWH is the management fee for electricity transmission and distribution facilities. The labor management fee can be increased by 6% annually subject to the approval of BPGP. (3) The Shajiao Power Plant A purchases substantially all of its required fossil fuel from Guangdong Electric Materials Supply Co., Ltd. (“GEMS”), a related company, at prices which, in the opinion of GPHC’s and the Company’s management, are on an arm’s length basis. According to document Yue Jia [2002] No. 6 issued by BPGP on January 9, 2002, the agreement was cancelled effective August 1, 2001 and the Company was no longer required to pay any management fee from August 1, 2001 onwards, after the restructuring of GPHC. For the year ended December 31, 2001, the Company paid management fees of approximately RMB23,808,000 to GPHC (2000: RMB 22,616,000) and purchased fossil fuel of approximately RMB909,832,000 from GEMS (2000: RMB404,691,000). Zhanjiang Electric Zhanjiang Electric signed an agreement with GPHC in 2000 regarding the provision of management and administrative services by GPHC to Zhanjiang Electric. The agreement signed continued to be in effect in 2001 upon mutual consent. According to the agreement, Zhanjiang Electric will pay GPHC a management fee of RMB0.002 per KWH (2000: RMB0.002 per KWH) of electricity sold. For the year ended December 31, 2001, Zhanjiang Electric paid management fees of approximately RMB6,193,000 (2000: RMB10,300,000) to GPHC. According to document Yue Jia [2002] No. 6 issued by BPGP on January 9, 2002, the agreement was cancelled effective August 1, 2001 and the Company was no longer required to pay any management fee from August 1, 2001 onwards, after the restructuring of GPHC. - 20 - 3. RELATED PARTY TRANSACTIONS (Cont’d) Yuejia Electric Yuejia Electric signed an agreement with GPHC in 2000 regarding the provision of management and administrative services by GPHC to Yuejia Electric. The agreement signed continued to be in effect in 2001 upon mutual consent. According to the agreement, Yuejia Electric will pay GPHC a management fee of RMB0.002 per KWH (2000: RMB0.002 per KWH) of electricity sold. For the year ended December 31, 2001, Yuejia Electric paid management fees of approximately RMB1,569,000 to GPHC (2000: RMB2,909,000). According to document Yue Jia [2002] No. 6 issued by BPGP on January 9, 2002, the agreement was cancelled effective August 1, 2001 and the Company was no longer required to pay any management fee from August 1, 2001 onwards, after the restructuring of GPHC. (c) Purchase of fuel from fellow subsidiaries Shajiao Electric and Zhanjiang Electric purchase fuel and other materials from GEMS, a subsidiary of Yuedian. For the year ended December 31, 2001, purchase of fuel from GEMS amounted to RMB1,466,751,000 (2000: 639,525,000). In the opinion of the Company’s management, purchase prices are made on an arm’s length basis. Yuejiang Electric purchases fuel and other materials from Shaoguan Electric Power Plant, a subsidiary of Yuedian. For the year ended December 31, 2001, purchase of fuel and other raw materials from Shaoguan Electric Power Plant amounted to RMB110,919,000 (2000: nil). In the opinion of the Company’s management, purchase prices are made on an arm’s length basis. Balances with fellow subsidiaries as of December 31, 2001 are as follows: 2001 2000 RMB’000 RMB’000 Amount due to GEMS 97,041 - Amount due to Shaoguan Electric Power Plant 152,510 - 249,551 - The balances with fellow subsidiaries are unsecured, interest-free and have no fixed terms of repayment. (d) Long-term deposit for coal purchase The long-term deposit for coal purchase, which amounted to RMB120,000,000 as of December 31, 2001 (2000: RMB120,000,000), represented a deposit placed with Yuedian to purchase and store fossil fuel and spare parts on behalf of Shajiao Power Plant A. The deposit is unsecured, non-interest bearing and long-term in nature. The directors consider that the deposit is necessary for maintaining the proper operation of the Shajiao Power Plant A. - 21 - 3. RELATED PARTY TRANSACTIONS (Cont’d) (e) Acquisition of a subsidiary from Yuedian On January 1, 2001, the Company acquired 100% equity interest of Shajiao Power Plant II from GPHC, the former majority shareholder, at a cash consideration of RMB1,525,499,000, which was equivalent to the fair value of net assets of Shajiao Power Plant II as verified by independent valuers as of the acquisition date. The acquisition was funded by a public offering of A shares (See Note 15). Shajiao Power Plant II owns two 300MHW generators and management believes that the acquisition will benefit the overall operation of the Group in the future. (f) Interest income from associates In 2001, the Company received interest income from loans to associates amounted to RMB616,000 (2000: RMB616,000). (g) Emoluments of the Board of Directors Directors' total remuneration approximated RMB378,000 in 2001 (2000: RMB284,000). 4. PROPERTY, PLANT AND EQUIPMENT, net 2001 2000 Motor vehicles and other non- Electric utility generation Construction- Note Buildings plant equipment in-progress Total Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost (Note 33) Beginning of year 417,490 6,506,107 40,533 1,540,352 8,504,482 6,671,909 Transfer 9 90,178 1,596,107 1,615 (1,709,052) (21,152) - Additions from acquisition of a 26(C) 1,087,164 subsidiary 6,729 1,445,200 14,853 11,267 1,478,049 Reclassification (300,711) 300,711 - - - - Additions 612 20,797 12,754 374,977 409,140 888,949 Disposals (56,064) (163,755) (2,847) (24,545) (247,211) (143,540) End of year 158,234 9,705,167 66,908 192,999 10,123,308 8,504,482 Accumulated depreciation Beginning of year 140,323 1,919,695 22,466 - 2,082,484 1,703,862 Provision for the year 4,636 620,879 10,179 - 635,694 428,920 Reclassification (103,615) 103,615 - - - - Disposals (82) (20,042) (1,869) - (21,993) (50,298) End of year 41,262 2,624,147 30,776 - 2,696,185 2,082,484 Net book value End of year 116,972 7,081,020 36,132 192,999 7,427,123 6,421,998 Beginning of year 277,167 4,586,412 18,067 1,540,352 6,421,998 4,968,047 Construction-in-progress included: 2001 2000 RMB’000 RMB’000 (Note 33) Borrowing costs capitalized during the year 19,361 115,397 - 22 - Average capitalization rate 5.53% 7.22% - 23 - 5. LAND USE RIGHTS 2001 2000 RMB’000 RMB’000 (Note 33) Cost Beginning of year 311,252 247,914 Addition 17,556 63,338 End of year 328,808 311,252 Accumulated amortization Beginning of year 39,655 34,068 Amortization for the year 5,614 5,587 End of year 45,269 39,655 Net book value 283,539 271,597 6. INVESTMENTS IN ASSOCIATES Supplementary financial information of associates is as follows: 2001 2000 RMB’000 RMB’000 Consolidated balance sheet: (Note 33) The Company’s share of the net identifiable assets of associates 24,719 16,841 Consolidated income statement: The Company’s share of profit of associates’: Profit before taxation 8,577 5,500 Taxation (1,607) (1,554) Net profit 6,970 3,946 Dividends (2,692) (2,639) 4,278 1,307 As of December 31, 2001, the Company had the following associates: Country of Percentage of incorporation/ equity interest Name establishment Principal activities held Maoming Electric Power Water Supply PRC Water supply 25% Co., Ltd. (“Maoming Water”) Yangshan Jiangkeng Hydroelectric PRC Electricity generation 25% Station Yangshan Zhongxinkeng Electric Power PRC Electricity generation 40% Co. Ltd. (“Zhongxinkeng”) Maoming Jieneng Shui Mei Jiang Co. PRC Power plant dirt 30% Ltd. (“Maoming Jieneng”) cleaning - 24 - 6. INVESTMENTS IN ASSOCIATES (Cont’d) Maoming Jieneng was incorporated in Maoming, Guangdong Province, PRC in June 2001. Maoming Jieneng is engaged in recycling and reutilizing coal dirt for power generation and has a registered capital of RMB12,000,000. The Company invested RMB3,600,000 in Maoming Jieneng in 2001 and has 30% of interest share in Maoming Jieneng. Paid-up capital of Maoming Jieneng was verified by PRC certified public accountants. 7. LOANS TO ASSOCIATES Loans to associates consist of the following: 2001 2000 RMB’000 RMB’000 (Note 33) Loan to Maoming Water 7,500 12,000 Loan to Zhongxinkeng 6,859 6,859 14,359 18,859 Loan to Maoming Water is unsecured, bears interest at 10% (2000: 10%) per annum and has no fixed term of repayment. In 2001, Maoming Water repaid RMB4,500,000 of the loan. Loan to Zhongxinkeng is unsecured, bears interest at 7.56% (2000: 7.56%) per annum and will mature in 2008. 8. LONG-TERM INVESTMENTS 2001 2000 RMB’000 RMB’000 (Note 33) Available-for-sale investment – non-current 70,160 90,004 Non-current available-for-sale investment comprises the following: 2001 2000 RMB’000 RMB’000 (Note 33) Investment in an unlisted company 52,500 52,500 Investment in Maoming Ruineng - 19,844 Investment in property - Jinyan Garden 3,531 3,531 Investments in legal person shares of a listed company, at carrying value 14,129 14,129 70,160 90,004 - 25 - - 26 - 8. LONG-TERM INVESTMENTS (Cont’d) Pursuant to an board resolution on December 31, 2000 and the issuance of the business certificate of Maoming Ruineng, The Company established control in Maoming Ruineng in 2001. This long-term investment was recorded as part of investment in subsidiary in 2001. The directors of the Company are of the opinion that no quoted market price in an active market is available for the above investments. In addition, fair value cannot be reliably measured by alternative valuation methods. In accordance with IFRS 39, the above non-current available-for-sale investments are carried at cost. 9. INTANGIBLE ASSETS, net According to the respective joint venture contracts of Zhanjiang Electric and Yuejia Electric and with reference to prevailing government regulations and practices, certain of the electricity transmission facilities constructed by Zhanjiang Electric and Yuejia Electric were transferred to GPHC upon the completion of these facilities in 1999 at no cost. The costs of constructing these facilities incurred by Zhanjiang Electric and Yuejia Electric were capitalized as intangible assets and amortized on a straight line basis starting from 1999 over their expected useful lives of 10 years and 18 years respectively for Zhanjiang Electric and Yuejia Electric. In addition, according to the agreements signed between Yuejiang Electric, Yangcheng Railway Company and Transportation Bureau of Qujiang County, the railway and highway constructed by Yuejiang Electric were transferred to Yangcheng Railway Company and Transportation Bureau of Qujiang County respectively upon their completion in 2001 at no cost. The cost of the railway and highway incurred by Yuejiang Electric was capitalized as an intangible asset and amortized on a straight line basis starting from 2001 over their expected useful lives of 5 years. 2001 2000 RMB’000 RMB’000 Cost Beginning of year 431,544 431,544 Addition (See Note 4) 21,152 - End of year 452,696 431,544 Accumulated amortization Beginning of year 64,933 34,871 Amortization for the year 43,345 30,062 End of year 108,278 64,933 Net book value 344,418 366,611 The directors of the Company are of the opinion that the underlying values of the intangible assets were not less than their carrying value as of 31 December 2001. - 27 - 10. DEFERRED STAFF COSTS, net 2001 2000 RMB’000 RMB’000 Cost Beginning of year 120,554 - Addition 9,669 120,554 End of year 130,223 120,554 Accumulated amortization Beginning of year 9,747 - Amortization for the year 12,945 9,747 End of year 22,692 9,747 Net book value 107,531 110,807 Deferred staff costs represent housing losses incurred as a result of selling staff quarters to employees at preferential prices. The losses are recorded as deferred staff costs and are amortized over the minimum contractual service life of the employees. 11. GOODWILL, net 2001 2000 RMB’000 RMB’000 Cost Beginning of year 72,785 - Addition - 72,785 End of year 72,785 72,785 Accumulated amortization Beginning of year 1,587 - Amortization for the year 7,141 1,587 End of year 8,728 1,587 Net book value 64,057 71,198 On July 5, 2000, the Company acquired 65% of the equity interest of Yuejiang Electric from GPHC at a cash price of RMB365,285,000. The excess of the purchase price over the Company’s share of the fair value of net identifiable assets acquired of RMB72,785,000 has been recorded as goodwill that is being amortized on a straight-line basis over 10 years. Yuejiang Electric owns a 300MW generator and management believes that the acquisition will benefit the overall operation of the Group in the future. The directors of the Company are of the opinion that the underlying value of the goodwill was not less than its carrying value as of 31 December 2001. - 28 - 12. DEFERRED TAX ASSETS Deferred tax assets (liabilities) consisted of the following: 2001 2000 RMB’000 RMB’000 Deferred tax assets (liabilities): - Write-off of pre-operating expenses - 10,118 - Difference in amortization period of land use rights 11,990 3,089 - Others - (492) Net deferred tax assets 11,990 12,715 Deferred tax expenses (income) recognized in the consolidated income statement consisted of the following: 2001 2000 RMB’000 RMB’000 Deferred tax expenses (income): - Write-off of pre-operating expenses 10,118 5,280 - Difference in amortization of land use rights (8,901) (3,089) - Others (492) 492 725 2,683 13. MATERIALS AND SUPPLIES 2001 2000 RMB’000 RMB’000 Coal 54,813 42,956 Oil 12,216 5,236 Spare parts and chemicals 162,348 59,706 229,377 107,898 14. PREPAYMENT FOR ACQUISITION OF SUBSIDIARIES As at December 31, 2001, deposit of RMB550,000,000 had been paid to the Financial Bureau of Guangdong Province in respect of certain proposed acquisitions that were completed on January 1, 2002. Details of which are as follows: Pursuant to the resolution passed in the extraordinary general shareholders’meeting, on January 1, 2002, the Company acquired an additional 9% and 16% equity interest of Zhanjiang Electric from Yuedian, the ultimate holding company, and Guangdong Electric Power Development Company (“GEPD”), the third largest shareholder of the Company, for cash considerations of approximately RMB316,456,000 and RMB562,588,000 respectively, which were equivalent to the respective share of the fair value of the net assets of Zhanjiang Electric as verified by independent valuers as of the acquisition date. - 29 - 14. PREPAYMENT FOR ACQUISITION OF SUBSIDIARIES (Cont’d) Pursuant to the resolution passed in the second extraordinary general shareholders’meeting, on January 1, 2002, the Company acquired and additional 17% equity interest of Yuejia Electric from GEPD for a cash consideration of RMB193,524,000, which was equivalent to the relevant share of the fair value of the net assets of Yuejia Electric as verified by independent valuers as of the acquisition date. 15. SHARE CAPITAL As of December 31, 2001, the authorized share capital of the Company was RMB2,659,404,000 (2000: RMB2,575,404,000) at RMB1 per share and included both A Shares and B Shares. The B Shares ranked pari passu in all respects with the A Shares except that A Shares can only be owned and traded by investors in the Mainland China; while B Shares can be owned and traded in foreign currency by both domestic and foreign investors. In April 2001, the Company issued 84,000,000 A shares at RMB12.20 per share with a total proceeds from the issuance of RMB1,024,800,000 and relevant issuance expenses of approximately RMB31,280,000. Number of Shares Share Capital 2001 2000 2001 2000 Thousand Thousand shares shares RMB’000 RMB’000 Authorized, issued and fully paid: Balance, beginning of year State – GPHC 1,333,800 666,900 1,333,800 666,900 Legal persons 268,788 134,394 268,788 134,394 A Shares 307,476 153,738 307,476 153,738 B Shares 665,340 332,670 665,340 332,670 2,575,404 1,287,702 2,575,404 1,287,702 Issue of new shares, bonus shares and transfer of capital reserve State – GPHC - 666,900 - 666,900 Legal persons - 134,394 - 134,394 A Shares 84,000 153,738 84,000 153,738 B Shares - 332,670 - 332,670 84,000 1,287,702 84,000 1,287,702 Balance, end of year State – Yuedian (See Note 1) 1,333,800 1,333,800 1,333,800 1,333,800 Legal persons 268,788 268,788 268,788 268,788 A Shares 391,476 307,476 391,476 307,476 B Shares 665,340 665,340 665,340 665,340 2,659,404 2,575,404 2,659,404 2,575,404 - 30 - 16. RESERVES According to the articles of association of the Company, when distributing the net profit of each year, the Company shall set aside 10% of its net profit after tax based on the Company’s local statutory accounts for the statutory surplus reserve fund (except where the reserve balance has reached 50% of the Company’s registered share capital), and for the statutory public welfare fund at a percentage from 5% to 10% determined by the directors. The Company may make appropriation from its profit to the discretionary surplus reserve provided it is approved by a resolution of a shareholders’general meeting. These reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends. Capital reserve includes share premium. When the statutory surplus reserve is not sufficient to make good for any losses of the Company from previous years, current year net profit shall be used to make good the losses before allocations are set aside for the statutory surplus reserve or the statutory public welfare fund. The statutory public welfare fund is used to build or acquire capital items, such as dormitories and other facilities for the Company’s employees and cannot be used to pay for welfare expenses. Title of these capital items will remain with the Company. The statutory surplus reserve, the discretionary surplus reserve and the share premium may be converted into share capital provided it is approved by a resolution at a shareholders’general meeting and the balance of the statutory surplus reserve does not fall below 25% of the registered share capital. The Company may either distribute new shares in proportion to the number of shares held by shareholders, or increase the par value of each share. For the year ended December 31, 2001, the directors proposed the following appropriations to statutory reserves: 2001 2000 RMB’000 RMB’000 Statutory surplus reserve 105,777 97,029 Statutory public welfare fund 52,888 48,515 Discretionary surplus reserve 123,443 327,781 282,108 473,325 According to the articles of association of the Company, the reserve available for distribution is the lower of the amount determined under the PRC accounting standards and the amount determined under IFRS. Pursuant to a resolution passed on April 3, 2002, an amount of RMB30,658,000 was transferred from statutory public welfare fund to statutory surplus reserve for future appropriation. As of December 31, 2001, the reserve of the Company available for distribution determined in accordance with PRC accounting standards and IFRS were approximately RMB692,576,000 (2000: approximately RMB544,302,000) and RMB1,020,719,000 (2000: approximately RMB649,933,000), respectively. - 31 - 17. LONG-TERM BANK LOANS As of December 31, 2001, long-term bank loans were unsecured, bore interest at a rate of 6.21% (2000: 6.21%) per annum and were repayable before 2006, as follows: 2001 2000 RMB’000 RMB’000 Long-term bank loans repayable within: - One year 275,980 260,000 - One to two years 365,000 250,000 - Two to five years 1,079,000 1,946,000 - Over five years 362,500 264,000 2,082,480 2,720,000 Less: due within one year included under current liabilities (275,980) (260,000) 1,806,500 2,460,000 The above loans are used for the construction of power generators in Zhanjiang Electric and Yuejiang Electric and are guaranteed by the Company. Pursuant to an agreement signed between Yuejiang Electric and the Bank of China in August 2001, the repayment schedule for the loan balance of RMB990,000,000 was extended from six years to ten years. 18. HOUSING SCHEME In accordance with the PRC housing reform regulations, the Company and its subsidiaries are required to make contributions to the State-sponsored housing fund at [8%-10%] of the specific salaries of the employees. At the same time, the employees are required to make a contribution equal to the Company and its subsidiaries’contributions out of their payroll. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. The Company and its subsidiaries have no further obligation for housing benefits beyond the above contributions made. For the year ended December 31, 2001, the Company contributed approximately RMB13,393,000 (2000: RMB1,742,000) to the fund. 19. RETIREMENT BENEFIT OBLIGATION All staff of the Group are entitled to a pension equal to their basic salaries beginning at their retirement dates until death from a statutory pension scheme. A government agent is responsible for the pension liabilities relating to such retired staff. The Group’s responsibility is limited to the monthly contributions to the statutory pension scheme computed at 17% to 20% of total monthly salary after deduction of certain government subsidies. The amount of contributions made by the Group in 2001 was RMB32,475,000 (2000: RMB14,865,000). The Group has no further obligation to the pension cost beyond its monthly contribution. - 32 - 20. COAL PRICE ADJUSTMENT PAYABLE Pursuant to an approval document Yue Jia Chong Zi (1993) No. 4 issued by BPGP on January 6, 1993, the Company can apply for an adjustment in the future electricity price if the actual cost of coal is higher than the budgeted amount as approved by BPGP in the annual tariff rate application. Conversely, the Company is required to transfer any saving to coal price adjustment payable if the actual cost of coal is lower than the budgeted amount. During the year ended December 31, 2001, actual cost of coal incurred was approximately RMB41,048,000 (2000: approximately RMB17,599,000) higher than the budgeted amount approved by BPGP. This excess amount is recoverable from future tariffs and has been recorded as an offset against the coal price adjustment payable balance. 21. FINANCE COST 2001 2000 RMB’000 RMB’000 Interest expense on - Bank loans 166,674 114,201 - Loans from minority shareholders - 13,248 166,674 127,449 Less: amount capitalized in construction-in-progress (19,361) (41,476) 147,313 85,973 22. PROFIT BEFORE TAX Profit before tax was determined at after charging (crediting) the following: 2001 2000 RMB’000 RMB’000 Interest expense 166,674 127,449 Less: capitalized interest (19,361) (41,476) Interest expense, net 147,313 85,973 Interest income from bank deposit (37,162) (29,657) Interest income from loans to associates (616) (616) Staff costs - salaries and wages 169,654 106,957 - provision for staff and workers’bonus and welfare 6,451 3,495 - contribution to defined contribution pension plan 32,475 14,865 Auditors’remuneration 1,600 1,500 Depreciation 635,694 428,920 Loss on disposal of property, plant and equipment 13,749 33,167 Amortization of intangible assets 43,345 30,062 Amortization of deferred staff costs 12,945 9,747 Provision for doubtful debts 5,735 16,966 Amortization of goodwill 7,141 1,587 Amortization of land use rights 5,614 5,587 Cost of spare parts, chemicals and repair cost 243,035 168,998 - 33 - 23. TAXATION 2001 2000 RMB’000 RMB’000 Current income tax 588,739 453,518 Share of income tax of associates 1,607 1,554 Deferred tax expenses 725 2,683 591,071 457,755 A reconciliation of applicable tax rate is as follows: 2001 2000 RMB’000 Percentage RMB’000 Percentage Accounting profit 2,094,158 100% 1,941,472 100.0% Income tax at the statutory rate of 27% 565,423 27.0% 524,197 27.0% (2000: 27%) Tax effect of expenses that are not deductible in determining taxable profit: - Amortization of deferred staff costs 3,236 0.2% 1,170 - - Amortization of goodwill 1,950 - 190 - Effect of tax holiday - - (292,221) (15%) Effect of different tax rates of subsidiaries and other effects 20,462 0.9% 224,419 11.5% Tax expense 591,071 28.1% 457,755 23.5 % The enterprise income tax (“EIT”) rates applicable to the group companies are as follows: 2001 2000 The Company 27% 27% Zhanjiang Electric 33% 33% Yuejia Electric 15% 15% Yuejiang Electric 33% 33% Maoming Ruineng 33% - The Company is a foreign invested share holding company and is entitled to full exemption from EIT for two years starting from its first profit-making year and a 50% reduction for the next three years. In 2001, such tax holiday expired and the EIT rate applicable to the Company in current year is 27% (2000: 12%). The Company’s subsidiary, Yuejia Electric, as a foreign investment enterprise, has been granted full exemption from EIT for two years starting from its first profit-making year and a 50% reduction for the next three years. 2001 was the fourth profit-making year of Yuejia Electric and therefore, the effective EIT rate applicable to the Yuejia Electric for the current year is 7.5% (2000: 7.5%). - 34 - 24. DIVIDENDS On April 3, 2002, the directors recommended a cash dividend of RMB0.22 per share, totaling approximately RMB585,069,000, for the year ended December 31, 2001. The proposed dividend distribution is subject to the approval by shareholders in their general meeting. 2001 2000 RMB’000 RMB’000 Final dividend for prior year, paid of RMB0.15 per share (2000: RMB0.3 per share) 398,911 386,311 Interim dividend, nil (2000: RMB0.04 per share) - 51,508 398,911 437,819 25. EARNINGS PER SHARE The calculation of basic earnings per share is based on the net profit for the year attributable to ordinary shareholders of approximately RMB1,039,233,000 (2000: approximately RMB971,104,000), divided by the weighted average number of ordinary shares outstanding during the year of 2,638,404,000 shares (2000: 2,575,404,000 shares). No diluted earnings per share were presented as there were no dilutive potential ordinary shares as of year end. - 35 - 26. CASH GENERATED FROM OPERATIONS (a) Reconciliation from profit before tax but after minority interests to cash generated from operations: 2001 2000 RMB’000 RMB’000 (Note 33) Profit before tax 2,114,576 1,941,472 Adjustments for: Depreciation 635,694 428,920 Amortization of intangible assets 43,345 30,062 Amortization of land use rights 5,614 5,587 Amortization of deferred staff costs 12,945 9,747 Amortization of goodwill 7,141 1,587 Share of profit after tax of associates (6,970) (3,946) Provision for doubtful debts 5,735 16,966 Interest expense 147,313 85,973 Interest income (37,162) (29,657) Loss on disposal of property, plant and equipment 13,749 33,167 Gain from disposal of a subsidiary - (300) 2,941,980 2,519,578 Increase in materials and supplies (121,478) (22,779) (Increase) Decrease in short-term bank deposits (300,000) 10,000 Increase in accounts receivable (416,775) (302,571) Decrease (Increase) in prepayments and other assets 28,967 (8,204) Increase (Decrease) in accounts payable 12,506 (3,605) Decrease in coal price adjustment payable (41,048) （17,599） Increase in taxes payable 143,756 20,235 (Decrease) Increase in other payables and accruals (207,775) 326,135 Increase in due to fellow subsidiaries 249,551 - Cash generated from operations 2,289,684 2,521,190 (b) Analysis of the balances of cash and cash equivalents: 2001 2000 RMB’000 RMB’000 (Note 33) Cash and bank deposits 1,608,380 1,293,505 - 36 - 26. CASH GENERATED FROM OPERATIONS (Cont’d) (c) Acquisition of a subsidiary RMB’000 Prepayments and other assets 63,500 Materials and supplies 126,790 Property, plant and equipment 1,478,049 Accounts payable (89,854) Other payables and accruals (52,986) Net assets acquired 1,525,499 Consideration - Less: cash and cash equivalents - Less: prepayment for acquisition paid in 2000 (1,525,499) Net cash flow from acquisition of a subsidiary - 27. FINANCIAL INSTRUMENTS The carrying amounts of the Group’s cash and cash equivalents, trade receivables, short-term bank deposits over three months and trade payable approximate their fair values because of the short maturity of these instruments. As of December 31, 2001, the estimated fair values of long-term loans including current portions were approximately RMB2,082,480,000 (2000: RMB2,720,000,000) based on current market interest rates for comparable instruments. As of the same date, the book value of these liabilities was approximately RMB2,082,480,000 (2000: RMB2,720,000,000). (a) Credit risk The carrying amount of cash and cash equivalents, trade receivables, short-term bank deposits and due from related parties and other current assets except for prepayments, represent the Group’s maximum exposure to credit risk in relation to financial assets. The majority of the Group’s trade receivables relate to sales of electricity to Guangdian. The Group performs ongoing credit evaluations of Guangdian’s financial condition. The directors of the Company do not expect Guangdian to fail to meet its obligations given Guangdian’s strong financial position. No other financial assets carry a significant exposure to credit risk. (b) Interest rate risk The interest rates and terms of repayment of the long-term loans are disclosed in Note 16. (c) Currency risk Substantially all of the revenue-generating operations of the Company and its subsidiaries are transacted in Renminbi. - 37 - 28. CONCENTRATION OF BUSINESS RISK The Company conducts all its operation in the PRC and accordingly is subject to special consideration and risks. These include risks associated with, among others, the political, economic and legal environment, restructuring of the PRC electric power industry and regulatory reform, new regulation pertaining to setting of power tariff and availability of fuel supply at stable price. All of the Company’s sales of on-grid electricity for the year was made to GPHC/Guangdian (See Note 1). In addition, the largest supplier represented approximately 85% of the purchase of the Company for the year ended December 31, 2001 (2000: 35%). 29. COMMITMENTS As of December 31, 2001, the Group had the following significant capital commitments: (i) investment in subsidiaries amounting to approximately RMB522,567,000; (ii) acquisition of property, plant and equipment amounting to approximately RMB99,305,000. 30. SUBSEQUENT EVENTS a) Acquisition of equity interests in two subsidiaries Pursuant to the resolution passed in the extraordinary general shareholders’meeting on January 1, 2002, the Company acquired an additional 9% and 16% equity interest of Zhanjiang Electric from Yuedian, the ultimate holding company, and Guangdong Electric Power Development Company (“GEPD”), the third largest shareholder of the Company, for cash considerations of RMB316,456,000 and RMB562,588,000 respectively, which were equivalent to the relevant share of the fair value of the net assets of Zhanjiang Electric verified by independent valuers as of the acquisition date. Pursuant to the resolution passed in the second extraordinary general shareholders’meeting in 2001, on January 1, 2002, the Company acquired an additional 17% equity interest of Yuejia Electric from GEPD for a cash consideration of RMB193,524,000, which was equivalent to the relevant share of the fair value of the net assets of Yuejia Electric verified by independent valuers as of the acquisition date. b) Profit appropriation scheme Pursuant to a board resolution on April 3, 2002, the directors recommended the payment of a final dividend of RMB0.22 per share, totaling RMB585,069,000, and the appropriation of approximately RMB264,442,000 to the discretionary surplus reserve, and that the retained earnings of approximately RMB171,208,000 as of December 31, 2001 be carried forward. The recommended payment of the final dividend and appropriation to the discretionary surplus reserve had not been recorded in the consolidated financial statements as of December 31, 2001. - 38 - 31. IMPACT OF IFRS ADJUSTMENTS ON CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS AND CONSOLIDATED NET ASSETS Consolidated profit attributable to shareholders for the year Consolidated net assets ended December 31, as of December 31, 2001 2000 2001 2000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 33) (Note 33) As reported in statutory accounts (audited by certified public accountants in the PRC) 1,057,769 970,292 6,052,646 5,121,885 Impact of IFRS adjustments: Write-off of pre-operating expenses costs - 19,651 - (32,352) Additional provision for doubtful debts - (10,900) (34,233) (34,233) Amortization of deferred staff costs (12,945) (9,746) (22,659) (9,746) Housing loss in Statutory Accounts - - 130,224 - Amortization of goodwill - (1,587) (1,587) (1,587) Reversal of over-amortization of land use rights 2,358 8,450 61,886 55,948 Deferred tax (725) (2,683) 11,990 12,715 Profit appropriation in Statutory Accounts for 2001 final dividends declared in 2002 - - 585,069 - Others 5,348 (2,373) 19,457 43,402 As restated for the Group 1,051,805 971,104 6,802,793 5,156,032 32. SEGMENT INFORMATION No segment information is presented as the Group operates in one single industry and one single segment. The Group operates within one geographic segment because its revenues are all generated in the Guangdong Province, PRC and its assets are located in the Guangdong Province, PRC. 33. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the current year’s presentation. The land use right balance has been reclassified to be shown as a single item on the balance sheet instead of being as part of property, plant and equipment. The Group adopted IFRS 39 at January 1, 2001. In accordance with the transitional provisions of that standard, the comparative financial statements for periods prior to the effective date of the standard have not been restated. - 39 - 34. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the Board of Directors on April 3, 2002. 1857/SME - 40 -