粤电力Ａ(000539)粤电力Ｂ2003年年度报告（英文版）

GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. ANNUAL REPORT 2003 Important Notice The Board of Directors of the Company assures that there is no untrue presentations, nor seriously misleading statements, nor omission of material facts contained in the information hereinto. Chairman of the Board of Directors, Pan Li, General Manager, Liu Luoshou and Finance Department Manager, Liu Xuemao severally and jointly accept responsibility for the correctness, accuracy and completeness of the information contained in this annual 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. 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 International Auditors’ Report Issued by PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd.(“ PricewaterhouseCoopers”) XI. DOCUMENTS AVAILABLE FOR INSPECTION I. GENERAL INFORMATION OF THE COMPANY 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 Luoshou 4. Secretary to the Board of Directors: Ms. Li Xiaoqing Telephone: (8620)87570276 Email: lxq@ged.com.cn Representatives on security issues: Mr. Liu Wei Telephone: (8620)87570251 Facsimile: (8620)85138084 Email: liuw@ged.com.cn Company’s correspondence address: 26/F., Yudean Plaza, 2 Tian He Dong Road, Guangzhou, Guangdong Province Postal code : 510630 5. Company’s registered address: 10/F., Boli Commercial Centre, Guang Fa Garden, 498 Huan Shi Dong Road, Guangzhou, Guangdong Province Company’s office address: 23-26/F., Yudean Plaza, 2 Tian He Dong Road, Guangzhou, Guangdong Province Postal code : 510630 Company’s E-mail address: ged@www.ged.com.cn Company’s Web site: http://www.ged.com.cn 6. Newspapers selected by Company China Securities, Securities Times, Shanghai Securities, Hong Kong Commercial (Chinese and English for overseas) Web site designated by CSRC to http://www.cninfo.com.cn publish Company’s annual report: Place where Company’s annual Office of Board Affairs report is kept: 7. Place of listing, Abbreviation and code of the Company’s shares: Place of listing of Company’s shares: Shenzhen Stock Exchange Code of Company’s shares: 000539 and 200539 Abbreviation of Company’s shares: Yue Dian Li A and Yue Dian Li B Code of Company’s shares: 000539 and 200539 -1- I. GENERAL INFORMATION OF THE COMPANY (CONT’D) 8. Other information: 1) Company’s first registration date: 3 November 1992 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) 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) PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. Office address: 12th Floor, Shui On Plaza, 333 Huai Hai Zhong Lu, Shanghai, 200021, People’s Republic of China 6) Legal Consultant: Guangdong Xin Yang Lawyers Firm Office address: 31/F, Peace World Plaza, 362-366 Huan Shi Dong Road, Guangzhou II. SUMMARY OF ACCOUNTING AND OPERATING DATA Summary of major accounting and operating data of the Group prepared in accordance with International Financial Reporting Standards (“IFRS”) and audited by PricewaterhouseCoopers are as follows: 1. Major accounting data for current year: RMB’000 Income from sales of electricity 5,996,285 Cost of sale of electricity 3,967,655 Operating profit 2,028,630 Other income, net 51,023 Profit before taxation 1,977,179 Net profit 1,163,667 Net cash flows from operating activities 2,009,091 Note: Explanations for differences between the Group’s profit for the year as reported by domestic and international auditors The adjustments made by PricewaterhouseCoopers in accordance with IFRS on the Group’s profit and net assets for the year are as follows: -2- II. SUMMARY OF ACCOUNTING AND OPERATING DATA (CONT’D) Profit for the year Net assets RMB’000 RMB’000 As per the statutory financial statements (audited by certified public accountants in the PRC) 1,255,249 7,885,887 Impact of IFRS adjustments: Write-off of pre-operating costs 11,086 - Housing loss in statutory financial statements (20,177) 97,274 Amortization of deferred staff costs (13,022) (35,964) Difference in amortization of land use rights (3,171) 69,141 Deferred tax 23,982 35,972 Provision for the early retirement obligation (94,181) (94,181) Others 3,901 (8,655) As restated for the Group 1,163,667 7,949,474 2. Three-year major accounting data and financial yardstick summary Unit：RMB’000 Yardstick item Year 2003 Year 2002 Year 2001 (1) Income from sales of electricity 5,996,285 5,586,730 5,386,785 (2) Net profit 1,163,667 1,179,746 1,051,805 (3) Earnings per share (RMB) Earnings per share (Basic) 0.44 0.44 0.40 Earnings per share (diluted) N/A N/A N/A Earnings per share after extraordinary item 0.44 0.44 0.40 (4) Earnings on net asset (%) 15 17 18 (5) Net cash flow per share from operating activities (RMB) 0.76 0.97 0.59 December 31 December 31 December 31 Yardstick item 2003 2002 2001 (1) Total Assets 12,590,293 11,872,866 12,416,341 (2) Shareholders’ Equity (excluding MI) 7,949,474 7,397,470 6,802,793 (3) Net assets per share (RMB) 2.99 2.78 2.56 (4) Adjusted net asset per share (RMB) 2.99 2.78 2.56 -3- II. SUMMARY OF ACCOUNTING AND OPERATING DATA (CONT’D) 3. C onsolidated statements of changes in shareholders’ equity for the year ended 31 December 2003 RMB’000 Reserves Statutory Statutory surplus public welfare Discretionary Retained Share capital Capital reserve reserve fund surplus reserve earnings Total Balances at 1 January 2002 2,659,404 1,383,187 612,463 226,905 900,115 1,020,719 6,802,793 Dividends relating to 2001 - - - - - (585,069) (585,069) Net profit - - - - - 1,179,746 1,179,746 Appropriation from retained earnings - - 118,999 59,499 264,442 (442,940) - Balances at 1 January 2003 2,659,404 1,383,187 731,462 286,404 1,164,557 1,172,456 7,397,470 Dividends relating to 2002 - - - - - (611,663) (611,663) Net profit - - - - - 1,163,667 1,163,667 Appropriation from retained earnings - - 125,525 62,762 297,496 (485,783) - Balances at 31 December 2003 2,659,404 1,383,187 856,987 349,166 1,462,053 1,238,677 7,949,474 Annual profit Annual profit Annual profit Annual profit Annual profit Reason of change appropriation appropriation appropriation appropriation appropriation -4- 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（+,-） Converted from Balance at capital beginning of Rights Bonus Additional Balance at end Type of Shares year issue issue reserve Issuance Others Sub-total of the year I. Non-listed shares 1. Promoters’ shares 1,553,175,000 1,553,175,000 Including: - State-owned 1,375,007,400 1,375,007,400 shares - Domestic legal 178,167,600 person shares 178,167,600 - Foreign legal person shares - Others 2.Subscriber legal 49,413,000 49,413,000 person shares 3.Employee shares 4.Preferred Shares or others: Total 1,602,588,000 1,602,588,000 II. Listed shares 1. Domestic listed RMB ordinary shares 391,476,000 391,476,000 2. Domestic listed foreign shares 665,340,000 665,340,000 3. Overseas listed foreign shares 4. Others Total 1,056,816,000 1,056,816,000 III. Total shares 2,659,404,000 2,659,404,000 (2) Issuance and listing of shares The Company issued 84,000,000 A shares with offer price of Rmb12.20 on 28 March 2001, which was listed since April 19, 2001. There is no change in total shares or share structure during the reporting period. The Company has no employee shares. -5- III. CHANGES IN SHARE CAPITAL AND DETAILS OF SHAREHOLDING STRUCTURE (CONT’D) 2. Information about shareholders (1) As at 31December 2003, the Company has 110,430 shareholders, including 63,814 A shareholders, 46,616 B shareholders. (2) Top 10 major shareholders (as at 31December 2003) Proportion Number of Number of to total shares Name of Changes shares held at share Nature of impawned Nature of shareholders during year end of the year capital (%) shares held or frozen share holders Guangdong - 1,333,800,000 50.15 Non-listed - State-owned Electric Power enterprise Holding Co.* China Cinda 87,750,000 87,750,000 3.3 Non-listed Unknown State-owned Asset enterprise Management Corporation Guangdong - 85,082,400 3.2 Non-listed - State-owned Electric Power enterprise Development Co. Ltd ** Guangdong - 43,875,000 1.65 Non-listed Unknown - Guangkong Group Great Wall 17,722,628 27,279,950 1.03 Listed Unknown - Securities Co., Ltd CMBLSA RE - 18,239,234 0.69 Listed Unknown Foreign FTIF invested TEMPLENTO enterprise N ASIAN GRW FD GTI 5496 Xiangcai - 17,855,298 0.67 Listed Unknown - Securities Co., Ltd Yang Pu Hua - 16,728,419 0.63 Listed Unknown - Sheng Investment Management Co., Ltd TEMPLETON -48,591,215 16,090,315 0.61 Listed Unknown Foreign WORLD invested FUND,INC. enterprise Northwest 1,232,841 11,332,841 0.43 Listed Unknown - Securities Co., Ltd -6- III. CHANGES IN SHARE CAPITAL AND DETAILS OF SHAREHOLDING STRUCTURE (CONT’D) 2. Information about shareholders (Cont’d) Notes: * 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 and the Approval on the Restruction Plan of State Power Assets owned by Guangdong Province, documents issued by Guangdong Provincial Government and referred to as Yue Fu Han [2001] No.252 and Yue Fu Han [2001] No.269, the shares of the company formerly held by Guangdong Electric Power Holding Co. was changed to be held by Guangdong Yuedian Assets Management Co., Ltd. (Renamed as Guangdong Yudean Group Co., Ltd. (“Yudean”). ).The registration of equity interest change is still in progress. ** Guangdong Electric Power Development Co. Ltd, the third of the top 10 shareholders, is a subsidiary of Yudean, which is the No.1 shareholder; it is unknown whether relationship exists between other shareholders. (3) Information of holding company Yudean holds 50.15% shares of the Company and is the No.1 shareholder of the Company. On 8 August 2001, Guangdong Electric Power Holding Co. was split into two separate companies, namely, Guangdong Guangdian Group Co. Ltd. and Guangdong Yuedian Assets Management Co., Ltd., which was renamed as Guangdong Yudean Group Co., Ltd. on 28 May 2003. The announcement of rename was published on Securities Times, China Securities, Shanghai Securities, Hong Kong Commercial. Yudean is a wholly state-owned limited company. Its registered capital is Rmb 12,000,000,000 and its registered address is 14-18/F., Feng Yuan Building, 1-3 Ti Yu Xi Road. Its legal representative is Mr. Pan Li. It is mainly engaged in management of power plants and power generation assets; construction of power plants; sale of electricity; sales, establishment, repair and maintenance of electricity equipments; technology service on electricity industry; electricity investment; investment planning and consulting; information consulting service; sales of production materials (except for gold, silver, vehicle and dangerous chemistry materials). (4) No other legal person shareholders who hold more than 10% (inclusive) of the Company’s shares. -7- III. CHANGES IN SHARE CAPITAL AND DETAILS OF SHAREHOLDING STRUCTURE (Cont’d) 2. Information about shareholders (cont’d) (5) Top 10 shareholders of listed shares Number of shares Type Name of shareholders held at year-end Great Wall Securities Co., Ltd 27,279,950 A share CMBLSA RE FTIF TEMPLENTON ASIAN 18,239,234 B share GRW FD GTI 5496 Xiangcai Securities Co., Ltd 17,855,298 A share Yang Pu Hua Sheng Investment Management 16,728,419 A share Co., Ltd TEMPLETON WORLD FUND,INC. 16,090,315 B share Northwest Securities Co., Ltd 11,332,841 A share TEMPLETON EMERGING MARKETS 9,090,765 B share INVESTMENT TRUST MERRILL LYNCH INTERNATIONAL 9,066,905 B share TOYO SECURITIES ASIA LIMITED-A/C 8,783,117 B share CLIENT. CREDIT SUISSE FIRST 7,155,213 B share BOSTON(HONGKONG) LIMITED Relationship between top 10 major Unknown shareholders of listing shares -8- IV. INFORMATION OF DIRECTORS, SUPERVISORS SENIOR MANAGEMENT AND EMPLOYEES 1. Information about the Company’s Directors, Supervisors and senior management: 2 Gender Age Position Period of Shares Shares Name Position in Period . Service held at held at shareholder’s of opening of year-end company service year Pan Li Male 49 Chairman 2002.5-2005.5 - - From Chairman of 2001 R Yudean on e An Deng Male 54 Vice-Chairman 2002.5—2005.5 - - General Manager From 2001 m of Yudean on u Rongkun Hong Male 46 Director 2002.5—2005.5 - - Vice General From Manager of 2001 n Yudean on e Qian Liu Male 49 Director 2002.5—2005.5 - - Vice General From Manager of 2003 r Yudean on Liu a Luoshou Male 52 Director, 2003 10－ - - - - General 2005 5 t Manager Li i Xihua Male 56 Director, Plant 2002.5—2005.5 - - - - Director o Teychao Cao Male 37 Director 2002.5—2005.5 - - n Financial Minister From of Yudean 2001 s on Yu Fumin Male 61 Director 2002.5—2005.5 - - - - Lao o Qiongjuan Female 49 Director 2002.5—2005.5 - - Executor of China Cinda Asset f Management Co., From Guangzhou 2001 representative on d office Zou Xiaoping Male 39 Director 2002.5—2005.5 - - Chairman of From i Guangdong 2001 r Guangkong Group on Wang Jun Male 45 Independent 2002.5—2005.5 - - - - e Director c Zhang Zhiyue Male 37 Independent 2002.5—2005.5 - - - - Director tSong Xianzhong Male 40 Independent 2002.5—2005.5 2,750 2,750 - - o Director Cheng Xinxin Female 50 Independent 2002.5—2005.5 - - - - r Director s Baohe Zhu Male 41 Independent 2002.5—2005.5 - - - - Director , Xuanxing Yang Male 38 Chairman of 2002.5—2005.5 - - Audit and From s Supervisory Inspection 2001 Committee Minister of Yudean on u Runxiong Xu Male 58 Supervisor 2002.5—2005.5 - - - - p Huanping Xin Male 40 Independent 2002.5—2005.5 - - - - e Supervisor Liang Ruyu Male 36 Independent 2002.5—2005.5 - - - - r Supervisor Lin v Weifeng Male 35 Supervisor 2002.5—2005.5 3,000 3,000 - - Chen i Chuyang Male 44 Supervisor 2003.5—2005.5 - - - - s Peiyin Xu Male 48 Vice General 2003 10－2005 - - - - Manager 5 o Sujie Yuan Male 43 Vice General 2002 5－2005 5 - - - - r Manger Luo Zhiheng Male 36 Vice General 2002.5—2005.5 1,128 1,128 - - s Manager Li Xiaoqing Female 48 Secretary to the 2002 5－2005 5 - - - - board of a directors n Xuemao Liu Female 47 Finance 2002.5—2005.5 - - - - Manager -9- d IV. INFORMATION OF DIRECTORS, SUPERVISORS SENIOR MANAGEMENT AND EMPLOYEES (CONT’D) 2. Remunerations of directors, supervisors and senior management of the Company The salary and welfare of directors, supervisors and senior management of the Company are determined by their position in the Company and are in accordance with the Company’s principle on staff payroll and welfare. No additional salary and welfare are paid. Allowance of independent directors, independent supervisors are paid according to the standard approved by the General Shareholders’ Meeting. Total remuneration paid to current directors, supervisors and senior management was RMB 3,082,000. Total amount paid to the top three directors was RMB 1,060,000, and total amount paid to the top three senior managers was RMB 895,000. Of them, three were paid over RMB 300,000, six were paid between RMB 100,000 and RMB 300,000, and nine were paid below RMB 100,000. There are eight directors and supervisors whose remunerations are not paid by the Company. They are: Pan Li, Deng An, Hong Rongkun, Chao Techao, Lao Qiongjuan, Zou Xiaoping, Yang Xuanxin, and Xu Runxiong. They are paid by respective shareholders instead. During the year, allowance for independent directors was RMB 80,000 per annum per person (tax inclusive). They are: Wang Jun, Zhang Zhiyue, Song Xianzhong, Cheng Xinxin, and Zhu Baohe. Allowance for the independent supervisors was RMB 30,000 per annum per person (tax inclusive), they are Xin Huampin and Liang Ruyu. 3. Directors, Supervisors and Senior Management who resigned, appointed or elected in reporting period During the year, Liu Qian resigned from General Manager of the Company, Yuan Sujie resigned from director of the Company, Zhang Dewei resigned from secretary to the board of directors and Chen Jinliang resigned from supervisor of the Company. The General Shareholders’ Meeting had appointed Liu Luoshou as director of the Company. The employee meeting elected Chen Chuyang as supervisor representing employee. During the year, Liu Luoshou was appointed as general manager of the Company, Xu Peijin was appointed as deputy general manager of the Company, and Li Xiaoqing was appointed as secretary to the board of directors. For details, please refer to relative announcement. 4. Particulars of employees At the end of 2003, the Company had 1,717 employees, including 585 technicians, 1,027 production workers, 21 finance staffs, 84 administrative and management staffs and 256 retired staffs. Current employees consisted of 521 college graduates or above, 950 technical secondary school or high school graduates and 243 junior high school graduates or below. Except for few staff working in headquarters of the Company(accounts for 1.8%), most of the staff work in Shajiao A Power Plant. - 10 - V. CORPORATION GOVERNANCE STRUCTURE 1. General information about the Company’s corporation governance structure The Company continuously improves its corporate governance structure according to the requirement of Corporation Ordinance, the Securities Law, the Guideline of Listed Company Corporate Governance and other principles.. The Company set out, improve and executes the Articles of Association, the Standing Orders of the Shareholders’ Convention, the Standing Orders of the Boards and the Standing Orders of the Supervisor Committee, exerting decision-making and supervising function of independent directors and supervisors. (1) Information about shareholders and General Shareholders’ Meeting The Company ensures the equal rights of all shareholders, and protects shareholders’ knowing and participating rights on significant affairs in accordance with law, principles and the Articles of Association. The Company convenes general shareholders’ meeting according to the Criterion of General Shareholders’ Meeting and the Standing Orders of the Shareholders’ Convention. The assembling, convening, qualification of attendants and voting procedure of the three general shareholders’ meeting during the year are in accordance with the Corporation Law, the Articles of Association and are compliant with the laws and are effective under the witness of the lawyer. (2) Information about the holding company and the Company The holding company, Yudean exerts shareholders’ rights legally. It participates in operation of the Company through general shareholders’ meetings and meetings of the board of directors and hasn’t impaired the rights and interests of other shareholders. Yudean assists development of the Company utilizing its advantages on projects resource, technique resource and human resource. Yudean actively standardizes its transactions with the Company to meet the criteria of equity and reasonableness. (3) Information about directors and the board of directors. The Company elects directors according to the Articles of Association. The structure and number of board of directors are in accordance with relevant law and principles. The Company set out the Sanding Orders of the Boards. The directors of the Company carry out their responsibility and right seriously, attending meeting of the board of directors and general shareholders’ meeting and making decision scientifically, quickly and prudently. The Company set five specific committees to deliberate affairs according to their respective responsibilities. Independent directors exert their effect as independent professionals and protect the interests of minority shareholders effectively. (4) Information about supervisors and the board of supervisors The board of supervisors operates according to the Corporation Law, the Articles of Association and other relevant regulations. Supervisors of the Company carry out their responsibility seriously, supervising the finance position and the performance of directors, general managers and other senior management, protected the rights and interests of the Company and the shareholders. - 11 - V. CORPORATION GOVERNANCE STRUCTURE (CONT’D) 1. General information about the Company’s corporation governance structure (cont’d) (5) The information about the Company’s evaluation and incentive system The Company was in the process of establishing a fair, visible and reasonable performance evaluation scheme and incentive system for senior management. Risk Management System for management was carried out which connects the remuneration with the performance of the management. The management were appointed openly and fairly . The appointments were compliant with laws and regulations. (6) The information about other correlative parties The Company respects the interests of the banks, creditors, employee, consumers, vendors, community and other parties, cooperating with interest correlative parties actively for healthy and continuous development of the Company. The Company concerns the environment protection and its social oligations. (7) The disclosure of information The secretary of the board of directors is appointed to be responsible for information disclosure. The Company set out the Reporting and Disclosure Rules and built up the website of the Company. Special telephone line was set up in the Department of Director Affairs and specific person is assigned to reply the investors’ consultation. The Company disclosed information truly, completely, timely and accurately according to the Listing Rules. 2. Information about independent directors and supervisors According to the relevant rules and Articles of Association of the Company, the independent directors and supervisors carried out their responsibility and rights seriously and pay special concerns on the operation and production of the Company. They attended the board meetings, supervisory meetings and shareholders meetings actively, and expressed opinions on the Company’s operation and 5 related party transactions to improve governance of the Company and to protect the interests of shareholders. 3. Separation of operation with the holding company A. Separation of human resource: the General Manager and all his subordinates, Secretary to the Board of Directors, Financial Manager are paid by the Company and take no position in the holding company. B. Separation of assets: the Company has independent production system, supporting system and other facilities. The Company owns its intangible assets such as intellectual property rights, trademarks and non-patent technology, except that the procedures to apply land use right certificate of Shajiao A Power Plant are still in progress. C. 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. D. Separation of organization: the Company has established integrated operating institution of its own. - 12 - V. CORPORATION GOVERNANCE STRUCTURE (CONT’D) 3. Separation of operation with the holding company (cont’d) E. Separation of operation: the Company is principally engaged in the electricity generation and sales to Guangdong Electric Power Holding Co.(“GPHC”) directly. The Company has subcontracted the subsidiary of Yudean, the holding company, to purchase the fuels, which is solely for the purpose of better utilization of large-scale purchase and cost control. 4. The implementation of the Company’s evaluation and incentive system of senior management The Company is in the process of establishing a fair, visible performance evaluation scheme and incentive system for directors, supervisors and management. The management is appointed openly and fairly to be compliant with laws and regulations. VI. GENERAL SHAREHOLDERS’ MEETINGS 1. 2002 Annual General Shareholders’ Meeting On 8 April 2003, notice on convening the meeting was published on China Securities, Shanghai Securities, Securities Times and Hong Kong Commercial. The Company convened its 2002 Annual General Shareholders’ Meeting in the morning of 12 May 2003 at the Conference Room on the Fifth Floor of Guangzhou Dongfengzhong Road No. 509 JianYin Building. 14 shareholders (or proxy of shareholders) attended the meeting, representing 1,580,017,520 shares, which is equivalent to 59.41% of the total 2,659,404,000 shares. Among the shareholders, there were 5 A share shareholders, representing 1,579,212,239 shares and 9 B shareholders, representing 805,281 shares. Convening of the meeting complied with the Corporation Ordinance and Articles of Association of the Company. Following resolutions were voted and passed at the meeting: (1) Reviewed and approved the 2002 Report of the Board of directors; (2) Reviewed and approved the 2002 Report of the General Manager; (3) Reviewed and approved the 2002 Report of the Supervisory Committee; (4) Reviewed and approved the 2002 Financial Statements; (5) Reviewed and approved the 2002 Proposal of Profit Appropriation and Dividend; (6) Reviewed and approved the 2002 Annual Report; (7) Reviewed and approved the Proposal of Appointment of Auditors. - 13 - VI. GENERAL SHAREHOLDERS’ MEETINGS (CONT’D) 2. The First Extraordinary General Shareholders’ Meeting of 2003 The Company published the announcement for convening this meeting in the Securities Times, China Securities, Shanghai Securities and Hong Kong Commercial on 8 June 2003. The Company convened its first Extraordinary General Shareholders’ Meeting for 2003 in the morning of 18 July 2003 at the Conference Room on the Fifth Floor of Guangzhou Dongfengzhong Road No. 509 JianYin Building. 13 shareholders (or proxy of shareholders) attended the meeting, representing 1,593,300,705 shares, which is equivalent to 59.91% of the total 2,659,404,000 shares. Among the shareholders, there were 4 A share shareholders, representing 1,550,507,400 shares and 9 B shareholders, representing 42,793,305 shares. Convening of the meeting comply with the Corporation Ordinance and Articles of Association of the Company. Following resolutions were passed at the meeting: a. Reviewed and approved the Proposal on Increasing Investment Percentage in Shenzhen Guangqian Electricity Co., Ltd. 3. The Second Extraordinary General Shareholders’ Meeting The Company published the announcement for convening this meeting in the Securities Times, China Securities, Shanghai Securities and Hong Kong Commercial on 31 October 2003. The Company convened its Second Extraordinary General Shareholders’ Meeting of 2003 in the morning of 2 December 2003 at the Conference Room on the fifth floor, Jian Yin Building, 509 Dong Feng Zhong Road in Guangzhou. 15 shareholders (or proxy of shareholders) attended the meeting, representing 1,637,918,136 shares, which was equivalent to 61.59 % of the total 2,659,404,000 shares. Among them, there were 4 A share shareholders, representing 1,550,507,400 shares and 11 B shareholders, representing 87,410,736 shares. Convening of the meeting complied with Corporation Ordinance of the People’s Republic of China and Articles of Association of the Company. The following resolution was voted and passed during the meeting: a. Reviewed and approved the Proposal of the Company’s Agreement on the Fuel Purchase with Yudean b. Reviewed and approved the Proposal of the Company and its Subsidiaries’ Investments in the Desulfuration Projects; c. Reviewed and approved the Proposal on the Investment in Huilai Shi Bei Shan Wind Power Plant; d. Reviewed and approved the Proposal on the Investment in Shanwei Electric Power Plant (Phase I); e. Reviewed and approved the Proposal on Writing off of Certain Bad Debts; f. Reviewed and approved the Proposal on Mr. Yuan Sujie’s Resignation from Director; g Reviewed and approved the “Proposal on the Nomination of Mr. Liu Luoshou as Director of the Fourth Board of Directors of the Company. The resolutions passed in above three general shareholders meetings were published in the Securities Times, China Securities, Shanghai Securities and Hong Kong Commercial on 13 May 19 July and 3 December2003 respectively. - 14 - VII. REPORT OF DIRECTORS 1. The Company’s operation during reporting period (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. The Company has achieved electric power sales of approximately RMB 5,996,285,000, gross profit of approximately RMB 2,028,630,000 in Guangdong. The cost was approximately RMB 3,967,655,000 and the gross profit rate was 33.8%. At the end of 2003, the Group’s installed generation capacity was 3,150MW, accounting for 9% of the total installed generation capacity of Guangdong Province, installed generation capacity attributable to the Company was 2,554MW. The total generation volume of the Group amounted to 19.057 billion KWH, and on-grid volume totaled 17.788 billion KWH, increased by 14.07% and 14.55% respectively as compared to those of last year. The total generation volume of the Group accounted for 10.12% of that in Guangdong Province, which decreased lightly as compared to it of last year’s. During reporting period no significant change occurred on the Group’s construction and profitability of operating activities. (2) The Company's wholly-owned plant and subsidiaries In 2003, Shajiao A Power Plant, the Company's wholly-owned plant, achieved electricity generation volume of 8,172 million KWH and on-grid electricity generation volume of 7,632 million KWH, increased by 6.12% and 6.18% respectively as compared to those of last year’s respectively. Zhanjiang Electric Power Co., Ltd. (“Zhanjiang Electric”), a 76% 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 RMB 559 million. The Zhanjiang Power Plant owned by Zhanjiang Electric has achieved power generation of 6,879 million KWH and on-grid electricity of 6,498 million KWH, increased by 15.70% and 16.71% respectively compared to those of last year. Guangdong Yuejia Electric Power Co., Ltd. (“Yuejia Electric”), a 58% held subsidiary, with a registered capital of RMB 1.2 billion, is mainly engaged in power generation and contributed a net profit of RMB 177 million. The Meixian B Power Plant owned by Yuejia Electric has achieved power generation of 1,667 million KWH and on-grid electricity volume of 1,525 million KWH, increased by 9.89% and 9.55% respectively compared to those of last year. Shaoguan Yuejiang 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 RMB 89 million. The No.10 generator managed by Yuejiang Electric has achieved electricity generation volume of 1,703 million KWH and on-grid electricity volume of 1,545 million KWH, increased by 10.44% and 11.88% respectively as compared with those of last year. - 15 - VII. REPORT OF DIRECTORS (CONT’D) 1. The Company’s operation during reporting period (Cont’d) (2) The Company's wholly-owned plant and subsidiaries (cont’d) Guangdong Maoming Ruineng Thermal Power Co., Ltd. (“Maoming Ruineng”), a 51% held subsidiary with a registered capital of RMB 217 million, was mainly engaged in power generation. It contributed a net profit of approximately RMB 15 million. The No.5 generator managed by Maoming Thermal Power Plant was put into operation on 25 May 2003. It achieved electricity generation volume of 636 million KWH and on-grid electricity volume of 588 million KWH. (3) Major suppliers and customer In 2003, all the electricity of the Group were sold to GPHC and 100% fuels were purchased from top five suppliers. (4) Difficulties in operation and Settlement During reporting period, the electric power consumption in Guangdong Province has increased by 19.80%, which created good business environment for the Company’s power plants. The generation of electric power has increased by 14.07%. The electric market share in Guangdong Province has decreased slightly because the expansion of the installed generation capacity of the Company cannot meet with the expansion of market demand. Besides, some electric power plants’ electric generation was not so ideal during the first half year, which was affected by the construction of grids, restriction of electric transmission lines and the electric plants’ inspection and maintenance. The Company won with the difficulties in the second half year by generating safely and voluminously. The Company achieved 108.85% of electric generation plan. In 2004, the power supply in Guangdong Province will not fully meet the demand, so there will also be a tense supply in power electricity. The Company is facing a good market. But with the further electric power reform, there still be more drastic competition in electric power market. At the same time the tense coal supply and the fluctuation of fuel price will also bring press to the Company. In order to achieve the electric power generation plan, the Company will continue to pay attention to the safety of generation, strengthen the control of the budget and cost, quicken the construction of projects and increase the profit by the expansion of the scale and capacity. - 16 - VII. REPORT OF DIRECTORS (CONT’D) 2. Investments The investment made during the reporting period was 445.42 million, which decreased by 98.67 million and 18% as compared with that of 2002. (1) There is no usage of the proceeds raised during the reporting period. There is no proceeds raised but not used up by the Company, either; (2) The progress of investment projects funded by self-owned capital other than proceed of previous fund: The No.5 generator (200 MW) managed by Maoming Reineng has already been put into operation on 25 May 2003. The operation of the project was run normally. It has achieved net profit of 15 million. The feasibility report of the No.6 generator managed by Maoming Reineng has been approved by government. The three main generators of the project are under the bidding procedures. The capital injection of 169 million to Yuejiang Electric, a 65% held subsidiary has been completed. The construction of No.11 generator managed by Yuejiang Electric began on 9 December 2003. All the basic construction has been completed. The construction and installation are ongoing under control. The capital injection of 18.6 million to Yuejia Electric has been finished. The original 65% equity interest held was decreased to 58%. The No. 5 generator of Meixian B Electric Power Plant managed by Yuejia Electric has been put into construction on 28 June 2003. The construction and installation of the project were in satisfactory process. It is expected to be put into trial production in December of current year. The Shanwei Electric Power Plant Phrase I (2 X 600MW), with 25% equity interest held by the Company has been approved by the government. The project company would be set up as planned . The Company has not yet invested to the project company. The feasibility study report of Qianwan LNG Electric Power Plant project (3 X 350MW), with 19% equity interest held by the Company, has been approved by the government. The Company has invested RMB127 million to the project in 2003 and achieved the investment plan. The feasibility study report of the (3 X 350MW) project of Huizhou LNG Electric Power Plant with 32% equity interests held by the company has been approved by the government. The Company has invested 26.56 million to the project in 2003 and achieved 33% of 2003’s investment plan. The project company of Zhanjiang Aoli Oil electricity generation was in the progress of incorporation. The Company has invested 87.66 million to the project in 2003. The Company invested 2.60 million to Guangdong Yudean Holding Western Investment Co., Ltd. , the project company of Guizhou Pannan Electric Power Plant. (2 X 600 MW). The Company finished the investment target in 2003. - 17 - VII. REPORT OF DIRECTORS (CONT’D) 2. Investments (Cont’d) The project company of Shibeishan Wind Power Plant, with 30 % equity interests held by the Company has been set up. The Company has not yet put any investment in 2003. The Desulfuration Project of the No. 5 Generator of Shajiao A Power proceeded satisfactorily and has been in the testing. Invitation for public bidding of #1 to #4 generators’ desulfuration projects has been made. The bidding evaluation of Yuejiang Electric’s #10 and #11 generators of desulfuration projects has been finished. The field exploring on the Zhanjiang Electric’s #1 and #2 generators’ desulfuration project has begun. The examination of bidding documents is under preparation. The feasibility study reports of desulfuration projects of the #5 generator in Maoming Reineng, #3 and #4 generators in Meixian B Elctric Power Plant is under preparation. The Company has invested 14 million to the desulfuration project of Shajiao A Electric Power Plant. 3. Financial highlights and analysis on operation result (1) Financial highlights and operation result Unit: RMB'000 Items 31 December 2003 31 December 2002 Increase / decrease +/(-) Total Asset 12,590,293 11,872,866 717,427 Long-term Liabilities 1,550,811 1,578,500 (27,689) Shareholder Equity 7,949,474 7,397,470 552,004 Items Jan-Dec 2003 Jan-Dec 2002 Jan-Dec 2001 Profit from selling 2,028,630 2,079,422 (50,792) electricity Net profit 1,163,667 1,179,746 (16,079) Net (decrease)/ (61,892) 648,166 (710,058) increase in cash and cash equivalents Explanations of the movements of the above and other outstanding items: i The increase of total asset was mainly due to that no appropriation of current year’s profit is made yet; ii The decrease of long-term liabilities was mainly due to the repayment of certain bank loans; (2) Effect of the significant changes in external environment, government policies and regulations With the continuous increase of power demand drawn up by national economics’ continuous development in 2003, the Company’s operating environment is satisfactory. It is expected that demand on electricity power will keep ascending which would benefit the stability and development of electricity power generation of the Company. The Company is confronted with great pressure due to the continuous increase of market price of fuels. Pursuant to a document issued by State Development and Reforming Commission and referred to as Fa Gai Dian [2003] No. 24, on-grid - 18 - electricity prices of the Company’s power plants have been adjusted up Rmb 0.007 per KWH (tax inclusive) since 1 January 2004 to mitigate the pressure of increasing cost. VII. REPORT OF DIRECTORS (CONT’D) 4. Work plan for year 2004 (1) Subsidiaries’ electricity generation plan The planned generation volume of the Company's subsidiaries for year 2004 is 21,517 million KWH, showing an increase of 22.90% as compared to the plan of prior year (17,508 million KWH) and 12.91% as compared to the actual generation volume of prior year (19,057 million KWH). The total generation plan included: Shajiao A Plant: 8,262 million KWH, Zhanjiang Electric: 8,232 million KWH, Meixian B Power Plant: 1,723 million KWH, Shaoguan #10 generator: 2,028 million KWH, Maoming Ruineng: 1,272 million KWH; (2) To strengthen the management on the subsidiaries’ operation and safety production; to improve the load factor and equivalent availability factor of generators, and try to decrease the scheduled shut down factor and unscheduled shut down factor, to ensure the generators to produce continuously, safely and stably; and to perform budget and cost control to increase the operating profit. (3) Investment plan The planned investment projects are Rmb560.52 million, of which the investment on desulfuration projects is Rmb362.54 million and capital injection is Rmb 1,132.15 million. (4) To take active involvement in the constructions of the investment projects, proceed to the exploitation of new electricity power, and prepare for the acquisition and reconstruction of electricity assets. 5. Work performed by the Board of Directors (1) Meetings of the Board of Directors and major resolutions passed by the Board of Directors Eight board meetings were held on 3 April, 25 April, 12 May, 16 June, 19August, 29 October, 2 December and 29 December 2003 respectively. They were the 6th to 13th meetings of the Fourth Board of Directors. The Fourth Board of Directors of the Company held its sixth meeting on 3 April 2003 in Shaoguan. All the directors and secretary to the Board of Directors attended the meeting. The supervisors and other senior managements of the Company were presented at the meeting. Following resolutions were reviewed and passed at the meeting: (1). Reviewed and approved the Work Report of the Board of Directors for 2002. (2). Reviewed and approved the Work Report of the General Manager and the Operation Report of the General Manager. (3). Reviewed and approved the Annual Financial Report for 2002. (4). Reviewed and approved the Proposal of Profit Appropriation and Dividends for 2002. (5). Reviewed and approved the Annual Report for 2002 and the Extracts of the Annual Report for 2002. (6). Approved the Proposal of Bad Debt Provision for 2002. (7). Approved the Proposal of Increasing the Company’s Equity Interests in Huizhou LNG Electric Power Factory. (8). Reviewed and approved the Proposal of Authorizing the Company to Participate in the preparation of the Development of Shanwei Electric Power Plant. (9). Approved - 19 - the Proposal of Appointing Certified Public Accountants Firms. (10). Approved the Proposal of Appointing Law Firm as legal counselor. (11). Reviewed and approved the Proposal of Convening the General Shareholders’ Meeting for 2002. - 20 - VII. REPORT OF DIRECTORS (CONT’D) 5. Work performed by the Board of Directors (Cont’d) (1) Meetings of the Board of Directors and major resolutions passed by the Board of Directors (Cont’d) The Fourth Board of Directors of the Company held its seventh meeting on 25 April 2003 in Guangzhou. The Chairman of the Board, Pan Li has presided the meeting. 15 directors should attend the meeting, including 5 independent directors. 12 directors have attended the meeting, including 5 independent directors. The three directors who could not attend the meeting have consigned other directors to attend and vote. The secretary to the Board of Directors attended the meeting. The supervisors and other senior managements of the Company were presented at the meeting. The meeting has passed the following resolutions: (1). Reviewed and approved the Work Report of the General Manager for the first quarter of 2003. (2). Reviewed and approved the Quarterly Report of 2003 (the First Quarter). The Fourth Board of Directors of the Company held its eighth meeting on 12 May 2003 in Guangzhou. The Chairman of the Board, Pan Li has presided the meeting. 15 directors should attend the meeting, including 5 independent directors. 12 directors have attended the meeting, including 3 independent directors. The three directors who cannot attend the meeting have consigned other directors to attend and vote. The secretary to the Board of Directors attended the meeting. The supervisors and other senior managements of the Company were presented at the meeting. The meeting has passed the following resolutions: (1). Due to the redeployment of the position, Mr Zhang Dewei no longer took the responsibility of secretary to the Board. Ms Li Xiaoqing was appointed as secretary to the Board. (2). Due to the redeployment of the position, Mr Chen Jinliang no longer took the position of representative on securities affairs. Mr Liu Wei was appointed representative on securities affairs. The Fourth Board of Directors of the Company held its ninth meeting on 6 June 2003 in Guangzhou. The Vice-chairman of the Board, Deng An has presided the meeting. 15 directors should attend the meeting, including 5 independent directors. 12 directors have attended the meeting, including 5 independent directors. The three directors who cannot attend the meeting have consigned other directors to attend and vote. The secretary to the Board of Directors attended the meeting. The supervisors and other senior managements of the Company were presented at the meeting. The meeting has passed the following resolutions: (1). Reviewed and approved the Proposal of the Increasing Investment to Shenzhen Guangqian Electric Power Co., Ltd. (2) Reviewed and approved the Authorization of the Investment to Development work on Integral Unit of Combustion Engine in Zhujiang Delta. (3) Principally approved Proposal of Receivables Management of the Company, authorized the Company’s management to implement according to the opinions modified by the meeting. (4) Reviewed and approved the Proposal of the partial capital injection on Guangdong Yuejia Electric Power Co., Ltd. (5) Reviewed and approved the proposal of Convening the First Extraordinary General Shareholders’ Meeting for 2003. - 21 - VII. REPORT OF DIRECTORS (CONT’D) 5. Work performed by the Board of Directors (Cont’d) (1) Meetings of the Board of Directors and major resolutions passed by the Board of Directors (Cont’d) The Fourth Board of Directors of the Company held its tenth meeting on 19 August 2003 in Guangzhou. The Chairman of the Board, Pan Li has presided the meeting. 15 directors should attend the meeting, including 5 independent directors. 11 directors have attended the meeting, including 5 independent directors. The four directors who cannot attend the meeting have consigned other directors to attend and vote. The secretary to the Board of Directors attended the meeting. The supervisors and other senior managements of the Company were presented at the meeting. The meeting has passed the following resolutions: (1) Reviewed and approved the Work Report of the General Manager for the First Half Year of 2003; (2) Reviewed and approved the Interim Financial Reports of the First Half Year of 2003; (3) Reviewed and approved the Interim Report and Extract of Interim Report of 2003; (4) Reviewed and approved the Proposal of “Agreement on Fuel Purchase” signed by the Company and Yedean; (5) Reviewed and approved the Proposal of the Company and its Subsidiaries’ Investment in the Desulfurization Projects. The Fourth Board of Directors of Guangdong Electric Power Development Co., Ltd. (the “Company”) held its eleventh meeting on 28 October 2003 in Guangzhou. The Vice-chairman of the Board, Deng An has presided the meeting. 15 directors should attend the meeting, including 5 independent directors. 13 directors have attended the meeting, including 4 independent directors. The two directors who cannot attend the meeting have consigned other directors to attend and vote. The secretary to the Board of Directors attended the meeting. The supervisors and other senior managements of the Company were presented at the meeting. The meeting has passed the following resolutions: (1) Reviewed and approved the Work Report of the General Manager for the Third Quarter of 2003; (2) Reviewed and approved the Explanation of Financial Situation (the Third Quarter); (3) Reviewed and approved the Quarterly Report of 2003 (the Third Quarter); (4) Reviewed and approved the Proposal on the Investment in Huilai Shi Bei Shan Wind Power Plant; (5) Reviewed and approved the Proposal on Authorizing the Company to Proceed the Pre-operation Work of 6# Generator of Maoming Thermoelectricity Plant; (6) Reviewed and approved the Proposal on the Investment in Shanwei Electric Power Plant (Phase I); (7) Reviewed and approved the Proposal on Authorizing General Manger of Use Right on Project Development Fund; (8) Reviewed and approved the Proposal on Writing off Certain Bad Debts; (9) Reviewed and approved the Proposal on Mr. Liu Qian’s Resignation from General Manager; (10) Reviewed and approved the Proposal on Appointment of General Manager; (11) Reviewed and approved the Proposal on Appointment of Vice-general Manager; (12) Reviewed and approved the Proposal on Mr. Yuan Sujie’s Resignation from Director; (13) Reviewed and approved the Proposal on the Nomination of Mr. Liu Luoshou as Director of the Fourth Board of Directors of the Company; (14) Reviewed and approved the Proposal on Convening the Second Extraordinary General Shareholders’ Meeting for 2003. - 22 - VII. REPORT OF DIRECTORS (CONT’D) 5. Work performed by the Board of Directors (Cont’d) (1) Meetings of the Board of Directors and major resolutions passed by the Board of Directors (Cont’d) The Fourth Board of Directors of the Company held its twelfth meeting on 2 December 2003 in Guangzhou. The Chairman of the Board, Pan Li has presided the meeting. 15 directors should attend the meeting, including 5 independent directors. 13 directors have attended the meeting, including 4 independent directors. The two directors who cannot attend the meeting have consigned other directors to attend and vote. The secretary to the Board of Directors attended the meeting. The supervisors and other senior managements of the Company were presented at the meeting. The meeting has passed the following resolutions: (1) Reviewed and approved the Proposal on the Investment in Zhanjiang Aoli Oil Generator Project; (2) Reviewed and approved the Proposal on Change of Members in the Special Committee of the Board of Directors. The Fourth Board of Directors of Guangdong Electric Power Development Co., Ltd. (the “Company”) held its thirteenth meeting on 29 December 2003 in Guangzhou. The Chairman of the Board, Pan Li has presided the meeting. 15 directors should attend the meeting, including 5 independent directors. 10 directors have attended the meeting, including 3 independent directors. The five directors who cannot attend the meeting have consigned other directors to attend and vote. The secretary to the Board of Directors attended the meeting. The supervisors and other senior managements of the Company were presented at the meeting. The meeting has passed the following resolutions: (1) Reviewed and approved the Proposal on Increasing the Investment Percentage in Zhanjiang Aoli Fuel Generator Project; (2) Reviewed and approved the Proposal on Loan of Yuejiang Company; (3) Reviewed and approved the Proposal on the Trusteeship of No.5 Generator of Maoming Ruineng to Maoming Thermal Power Plant; (4) Reviewed and approved the Proposal on Convening of the First Extraordinary General Meeting of Shareholders. (2) Implement of resolutions passed in general shareholders’ meetings Profit Appropriation and Dividends Appropriation Plan of 2002 was reviewed and approved in General Shareholders’ Meeting of 2002 on 12 May 2003. The resolution on dividends appropriation plan is: RMB 0.23(tax inclusive) per share for A shares and RMB0.23 per share for B shares. The dividends appropriation was accomplished in May 2003. The dividends were paid to shareholders whose names appear on the register of members of the Company as at the close of business on 29 May 2003 for both A shares and B shares. The Ex-dividend date is 30 May 2003. The implement of resolutions on investment that passed in General Shareholders’ Meetings please refer to “Note 3 Investment”. - 23 - VII. REPORT OF DIRECTORS (CONT’D) 6. Proposed Profit Appropriation and Dividend Distribution Plan of 2003 According to the operation result of 2003, the Board of Directors proposed following Profit Appropriation and Dividend Distribution Plan of 2003: (1) The Company will set aside 10% of the net profit amounting to approximately RMB 1,255,248,800 to statutory surplus reserve totaling approximately RMB 125,524,900; 25% totaling approximately RMB 313,812,200 to discretionary surplus reserve and 5% totaling approximately RMB 62,762,400 million to statutory public welfare fund. (2) The total distributable reserve for 2003 to approximately RMB1,238,677,000. Board of Directors proposed the following plan for dividends: RMB 0.25(tax inclusive) per share for A shares and RMB0.25 per share for B shares. 7. Other reporting affairs (1) Self-check on capital occupancy and guarantee offering of listed company Pursuant to the Notice on Standardization of Listed Companies in Capital Transaction with Related Parties and Guarantee Offering, a document issued by CSRC and referred to Zheng Jian Fa[2003] No. 56, and a document on the implement of this notice issued by CSRC Guangzhou Office and referred to Guangzhou Zheng Jian [2003] No. 189, the Company had carried out self-check on its capital occupancy and guaranty offering, and reported the self-check result to the CSRC Guangdong Office on 25 November 2003. The Company had no illegal capital transactions with the holding company and other shareholders, and no capital of the listed company were occupied by the holding company and other shareholders. The Company hasn’t offered guarantee to the holding companies, shareholders with 50% or below of the Company’s shares, illegal person and personnel; no illegal guaranty was offered by the Company. (2) Certified Public Accountant’s special explanation on capital occupancy by the holding company and related parties. Explanations on Usage of Funds by the Holding Company and Other Related Parties The reader is advised that these explanations have been prepared originally in Chinese. In the event of a conflict between these explanations and the original Chinese version or difference in interpretation between the versions of the explanations, the Chinese language explanations shall prevail. Tianjian (2004) Te Shen No. 028 To the shareholders of Guangdong Electric Power Development Co., Ltd.: We have performed specific review on the usage of funds of Guangdong Electric Power Development Co., Ltd (the “Company”) by the Company’s holding company and other related parties as of 31 December 2003. The Company is responsible to provide true, lawful - 24 - and complete information in connection with the usage of funds by the Company’s holding company and other related parties, including original contracts or agreements, accounting records, ledgers, financial statements and other related information we considered necessary. Our responsibility is to review the usage of funds by the holding company and other related parties and issue the explanations on the specific review. Our review was conducted in accordance with China Certified Public Accountants’ Independent Auditing Standards and consequently included such review procedures as were considered necessary and appropriate to the Company’s circumstances, including examination, on a test basis, of the Company’s transactions and accounting records. Pursuant to the requirement of the Notification on Regulating the Fund Intercourse of Listed Company and Related Parties as Zheng Jian Fa [2003] No.56 issued jointly by China Securities Regulatory Commission and the State-owned Assets Supervision and Administration Commission, our findings during the specific review on the usage of funds by the Company’s holding company and other related parties are explained as follows: 1. RELATED PARTIES RELATIONSHIPS (a) Related parties that has control relationship with the Company Relationship Registered Type of Legal with the Name of related parties address Principal business enterprise representative Company Guangdong Yudean Guangzhou Management of power Limited Pan Li Parent Group Co., generation enterprises, company company Ltd.(“Yudean”) operation of electricity assets and capitals, construction of electric power plants and sales of electric power. - 25 - 1. RELATED PARTIES RELATIONSHIPS (CONT’D) (a) Related parties that has control relationship with the Company (Cont’d) Relationship Registered Type of Legal with the Name of related parties address Principal business enterprise representative Company Zhanjiang Electric Power Zhanjiang Electric generation and Limited Yu Fuming Subsidiary Co., Ltd.(“Zhanjiang power plant construction company Electric”) Guangdong Yuejia Meizhou Electric generation Limited Yu Fuming Subsidiary Electric Power Co., company Ltd.(“Yuejia Electric”) Guangdong Shaoguan Qujiang Electric generation Limited Pan Li Subsidiary Yuejiang Electric company Power Co., Ltd. (“Yuejiang Electric”) Maoming Reineng Maoming Electric generation and Limited Pan Li Subsidiary Thermal Power Co., power plant construction company Ltd(“Maoming Reineng”) (b) Related parties that does not have control relationships with the Company: Name of related party Relationships with the Company Guangdong Electric Materials Supply Co., Ltd Both were controlled by Yudean Maoming Thermal Power Plant Both were controlled by Yudean Shaoguan Electric Power Plant Both were controlled by Yudean Meixian A Power Plant Both were controlled by Yudean Shaoguan Power Plant D Both were controlled by Yudean Shajiao C Power Plant Both were controlled by Yudean Shaoguan No. 9 Generator Co., Ltd Both were controlled by Yudean Guangdong Yudean Holding Western Investment Both were controlled by Yudean Co., Ltd - 26 - 2. RELATED PARTY TRANSACTIONS (a) Purchase from related parties The Company and its subsidiaries purchase fuels from Guangdong Electric Materials Supply Co., Ltd. according to agreements. Details were as follows: I. Ite 2003 2002 Entity names m The Company (Shajiao A Power Plant) Coal 938,345,428.76 984,459,311.05 The Company (Shajiao A Power Plant) Oil 1,230,130.00 1,029,408.36 Zhanjiang Electric Coal 802,401,517.62 648,802,783.46 Maoming Reineng Coil 88,411,482.66 - Total 1,830,388,559.04 1,634,291,502.87 Yuejiang Electric purchased fuels and materials from Shaoguan Electric Power Plant. Details were as follows: Items 2003 2002 Coal 190,051,690.22 189,156,899.04 Oil 10,580,357.18 11,203,506.29 Materials 29,317,596.98 12,506,387.18 Total 229,949,644.38 212,866,792.51 (b) Common expense allocation (i) According to a mutual agreement, Shaoguan Electric Power Plant allocates certain administrative expenses to Yuejiang Electric based on the proportion of their respective generators’ capacity. For the year ended 31 December 2003, the common administrative expenses allocated to Yuejiang Electric amounted to approximately Rmb 12,727,643.90, overheads allocated to Yuejiang Electric amounted to Rmb 29,317,596.98. (2002: Rmb 23,021,115.80 and Rmb 3,670,639.76 respectively); (ii) The Company (Shajiao A Power Plant) and Shajiao C Power Plant allocated certain administrative expenses and overheads based on the actual amount or a proportion of 50%. For the year ended 31 December 2003, the allocated expenses and overheads were Rmb 2,192,373.87 and nil respectively (2002: Rmb 2,059,760.71 and nil). (iii) According to a mutual agreement, Yuejia Electric and Meixian A Power Plant shares the administrative expense and overheads according to the proportion of the headcount quota or their respective generators’ capacity. For the year ended 31 December 2002, the administrative expenses and overheads allocated to Yuejia Electric were Rmb 2,959,961.73 and Rmb 1,660,829.45 respectively. There was no such allocation for the year ended 31 December 2003. - 27 - 2. RELATED PARTY TRANSACTIONS (CONT’D) (c) Rental income According to a mutual agreement between Yuejiang Electric and relevant parties, a rental arrangement was made for Long Huang Chong Ash Ground from 1 January 2003. Rentals were paid annually by relevant parties detailed as follows: Entity names II. Item 2003 2002 Shaoguan Electric Power Plant Rental 10,474,700.00 - Shaoguan Power Plant D Rental 1,351,200.00 - Shaoguan No. 9 Generator Co., Ltd Rental 5,588,700.00 - Total 17,414,600.00 - (d) Funding For the year ended 31 December 2003, Yudean funded the Desulfurization Project amounting to 7,000,000.00 for the Desulfurization Project to Shajiao A Power Plant of the Company (2002: 23,480,000.00). Total fund provided by Yudean is Rmb 30,480,000.00. According to the Agreement on Joint Investment in Guangdong Yudean Holding Western Investment Co., Ltd, expect for capital injection, the investors should provide additional fundings to Guangdong Yudean Holding Western Investment Co., Ltd by instalment. For the year ended 31 December 2003, the Company provided entrusted loan amounting to 68,479,000.00 to Guangdong Yudean Holding Western Investment Co., Ltd according to its proportion of equity interests. 3. BALANCES WITH RELATED PARTIES Please refer to the attachment. Pan-China Certified Public Accountants Beijing PRC 8 April 2004 (3) Independent directors’ special explanation and opinion on current and accumulative guarantee offering of the Company Pursuant to the Notice on Standardization of Listed Companies in Capital Transaction with Related Parties and Guaranty Offering, a document issued by CSRC and referred to Zheng Jian Fa [2003] No. 56, independent directors carried out inspection on the - 28 - guarantee offered by the Company, and believed that: up to the end of the reporting period, the Company hasn’t offered guarantee to the holding companies, shareholders with 50% or below of the Company’s shares, illegal person and personnel and no illegal guaranty was offered by the Company. Chairman of the Company: Pan Li - 29 - VIII. REPORT OF THE SUPERVISORY COMMITTEE (1) Summary of the Supervisory Committee’s work done in 2003 In 2003, the Supervisors attended eight meetings of the Board of Directors and the 2002 annual and two extraordinary General Shareholders’ Meetings of 2003. In addition, six Supervisory Committee meetings were held in 2003. Details are as follows: The Supervisory Committee convened its first meeting of year 2003 on 3 April 2003 in Shaoguan. The meeting has passed The Supervisory Committee’s Annual Working Report of 2002 and The Company’s Annual Report and Extracts of Annual Report of 2002. The Supervisory Committee convened its second meeting of year 2003 on 15 May 2003 in Guangzhou, and approved the Proposal of appointing Mr. LiuWei as the Secretary to the Supervisory Committee. . The Supervisory Committee held its third meeting of year 2003 on 16 June 2003 in Guangzhou. The supervisors discussed and approved the Proposal on Increase of Investment in Shenzhen Guangqian Power raised by the Board of Directors. The Supervisory Committee convened its forth meeting of year 2003 on 19 August 2003 in Guangzhou. The supervisors approved the Company’s Interim Report and Extract of Interim Report for the First Half Year of 2003”, and approved the proposal on Agreement on Fuel Purchase with Yudean Group Co., Ltd raised by the Board of Directors. The Supervisory Committee convened its fifth meeting of year 2003 on 29 October 2003 in Guangzhou. The supervisors approved the Proposals on the Company’s Investment in.Huilai Wind Power Plan and Shanwei Power Plant (Phase I) raised by the Board of Directors. The Supervisory Committee convened its sixth meeting of year 2003 on 29 December 2003 in Guangzhou. The supervisors discussed and approved the Proposal on the Trusteeship of No.5 Generator of Maoming Ruineng to Maoming Thermal Power Plant raised by the Board of Directors. The Supervisors have assessed and monitored the operation of the Company during all the above meetings and considered the control system of the Company was efficient and the operation of the Company was prudent and compliant with relevant laws and regulations. In addition, the supervisors has enhanced the control on the daily operation by the monitoring control and the internal audit. They have enhanced the monitoring and supervision on the power of the senior management by attending the general meeting of the management and performing the audit procedures when there was resignation of the senior management. - 30 - VIII. REPORT OF THE SUPERVISORY COMMITTEE (CONT’D) (2) Independent Opinion from the Supervisory Committee i. In accordance with relevant laws and regulations, as well as the Articles of Association, the Supervisory Committee exerted supervisions on the convening procedures and resolutions of Board of Directors’ meetings and shareholders’ meetings, the Board of Director’s execution for the resolutions passed by shareholders’ meetings, the performance of the Company’s senior management, and the management system of the Company. The Supervisory Committee is of the opinion that during the reporting period, the operation of the Company and its decision-making procedures were noted legally, the system of internal controls was improved, and no illegal or improper activities in violation of the Company’s Articles of Association and the interests of the Company and the shareholders by the Directors or General Manager were noted. ii In the Supervisory Committee’s opinion, the auditor’s reports with unqualified opinion issued by Pan-China Certified Public Accountants and PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. are true and fair, while the financial statements are a true reflection of the Company’s financial status and operating results iii The latest capital proceeding was the A share issuance on 28 March 2001 amounting to RMB 84,000,000 for the acquisition of Shajiao A Power Plant’s 2×600 MW generator (Phrase II). The actual injection in the project was consistent with the commitment. iv The Company had no significant acquisition or sale of assets in the reporting period. v The Supervisory Committee is of the opinion that related party transactions were conducted fairly and reasonably in the reporting period, the decision-making and information disclosure procedures was standardized, therefore, no activities that impair the interest of the listed company were incurred. (3) Assessment on the Company’s operation and financial position In 2003, the Group’s total electricity generation volume amounted to 19,057 million KWH, achieving 108.85% of the planned annual power generation of 17,508 million KWH, and an increase of 14.07% as compared to 16,706 million KWH of 2002. The Company has got a better operation result than that of year 2002 by increasing the generation volume on the premise of a safety operation, and enhancing the budge and cost control, though the on-grid electricity price has been substantively adjusted down and cost of fuel has increased greatly compared to those of 2002. According to the audit report issued by PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd., the Group’s total assets amounted to RMB12.590 billion in 2003, the total sales amounted to RMB 5.996 billion. The net profit was RMB1.164 billion. Earnings per share was RMB0.44.. The Company has got a satisfactory operating result in current year. (4) Work Plan for 2004 i To enhance the supervision by improvement of the Supervisory Committee - 31 - according to the governance standards of listed company and the relevant requirements by the Securities Regulatory Commission; - 32 - VIII. REPORT OF THE SUPERVISORY COMMITTEE (CONT’D) (4) Work Plan for 2004 (Cont’d) ii To attend the General Shareholders’ Meeting actively and be present on the board meetings, and to carry out the responsibilities seriously; iii To convene the supervisory meetings periodically and take part in the supervision on the Company’s operation in order to protect the interests of the shareholders; iv To arrange the supervisors to take part in the supervisory training organized by the relevant organizations so as to enhance their sense of legal responsibilities and improve their supervisory quality; v To perform field inspection to the power plants of the Group. Chairman of the Supervisory Committee : Yang Xuanxing SIGNIFICANT EVENTS 1. The Company has no significant lawsuits or arbitrations during the reporting period. 2. The Group has no significant acquisition, or sales of assets in the reporting period. 3. Significant related party transactions (1) On 13 June 2003, the Company entered into an investment agreement with Shenzhen Guangqian Electricity Co. Ltd. (“Shenzhen Guangqian”) and committed to provide additional investment on Shenzhen Guangqian. Shenzhe Guangqian is a subsidiary of the Company’s holding company, Yudean, and planned to participate in investment and construction of Shenzhen Qianwan Gas Engine Electricity Plant (“Shenzhen Qianwan”) which required a great deal of capital injection. According to the feasibility report of Shenzhen Qianwan, the construction capacity is 3*350MW and the total investment is RMB 4,161million (will be finalized depending on the government’s approval of feasibility report). Based on the equity interest of 27.15% and the construction progress, the Company should invest 198.2 million by installment and the total investment by Yudean is 530 million. (2) Shajiao A Power Plant consumes fuel continuously. Yudean is experienced in business of fuel purchase and has its own purchase channels. As Yudean could constantly provide fuels of high quality in a reasonable price, the Company entered into an Agreement on the Fuel Purchase with Yudean. This agreement is a framework regarding the fuel supply, payment, settlement, and capital prepayment of Shajiao A Power Plant. The Company and Yudean shall sign specific fuel purchase contracts based on the agreement. According to the agreement, Yudean will be responsible for the fuel supply of Shajiao A Power Plant and for the coal with same quality, the fuel price offered to the Company will not be higher than those offered to the third parties to ensure the supply of the fuel. But the Company should prepay an amount of Rmb180 million in cash as deposit to Yudean. By the end of each fiscal year, the Company will settle the fuel payable with the deposit for the year. Within 3 days at the beginning of the next fiscal year, the Company will pay Yudean the shortfall between the remaining balance of the deposit and fuel payable, vice versa. Whereas the Company had prepaid Rmb120 million to Yudean according to the agreement signed in 1994, the Company only needs to make a further payment of Rmb60 million. - 33 - (3) Yudean, Chaokang Investment Co. Ltd and the Company entered into an agreement on the investment in Huilai Shi Bei Shan Wind Power Plant, and committed to participate in the establishment of the Wind Power Project Company with the investment percentage of 4:3:3. Huilai Wind Power Project Company is a joint-venture and takes charge of design, construction, debugging, operation and maintenance of the wind power plant. According to Equity Joint-venture Law and regulations on the minimum capital of construction projects, the registered capital of the project company is Rmb 231,683,100. Based on the investment percentage, the Company should invest Rmb 210,621,000, of which the capital is Rmb 69,505,000. (4) Yudean, Guangdong Developing Electric Power Investment Co. Ltd. and the Company entered into an agreement on the investment in Honghai Bay Electric Power Co., Ltd., and committed to participate in the establishment of Honghai Bay Electric Power Co., Ltd with the investment percentage of 2:1:1. Honghai Bay Electric Power Co., Ltd. takes charge of the construction and operation of Shanwei Power Plant. The investors agreed that the registered capital of the project company is 25% of the total investment. Based on the total investment in Phase I of Rmb 5,800 million (will be finalized depending on the government’s approval) and investment percentage of 25%, the Company should invest Rmb 1,400 million, of which the capital is Rmb 362.5 million. - 34 - IX. SIGNIFICANT EVENTS (CONT’D) 3. Significant related party transactions (cont’d) (5) Maoming Ruineng, a 51% equity held subsidiary of the Company, entered into an agreement with Maoming Thermal Power Plant, a subsidiary of Yudean, on consigning management of 5# generator. According to the agreement, Maoming Thermal Power Plant takes charge of production management, daily operation, repairs and maintenance, and technology transformation of the generator. Staff cost and maintenance fee paid to Maoming Thermal Power Plant is ratified as 20.36million per annum. Common management fee is allocated based on electricity capacity, with RMB0.005 yuan every KWH. Maoming Ruineng evaluates performance of Maoming Thermal Power Plant and executes rewards and punishment by guidelines such as yearly electricity generation volume, consumption volume of standard coal, self-consumption volume, annual heavy oil consumption for the ignition and low charge operation, safety in production. The transaction has active effect on saving cost of production, improving efficiency and increasing benefits of Maoming Ruineng. 4. Significant contracts and implementation. (1) The Company is not involved in trustee, sub-contract or lease with other companies in the reporting period. (2) Significant guarantee. The Company provided guarantee to its subsidiary, Zhanjiang Electric from 2002 to August, 2006. It is due to the Company’s take-up of guarantee from Yudean in 2002. Yudean transferred the guarantee for bank loan of the Zhanjiang Electric, for its power plant’s construction, to the Company. As at December 31, 2003, the guaranteed borrowing balance was RMB 412 million. (3) The Company is not involved in financing consigning with other companies in the reporting period. (4) Other significant contracts i. China National Offshore Oil Co., Yudean and the Company entered into the Agreement on Cooperation Principles of Guangdong Huizhou LNG Electricity Plant Project in January 2003. This agreement prescribes cooperation basis, form and contents, cooperation terms and scope, investment and financing, project management. This project is under construction. ii. The Company signed Investment Agreement with Guangqian in June 2003. For details please refer to Note IX 3. (1) . The project was under construction. iii. Yudean, Guangzhou Developing Electric Power Investment Co. Ltd. and the Company entered into the Agreement on the Investment in Honghai Bay Electric Power Co., Ltd. in September 2003. The details please refer to Note IX 3. (4). iv. Yudean, Chaokang Investment Co. Ltd. and the Company entered into the Agreement on the Investment in Huilai Shi Bei Shan Wind Power Plant in October 2003. Details please refer to Note IX 3. (2); In November 2003, Joint-venture Contact on Establishment and Operation of Guangdong Yudean Shi Bei Shan Wind Power Development Co. Ltd. was signed by the three parties, which further arranged total investment, share proportion and cooperation affairs. This project is under construction. - 35 - IX. SIGNIFICANT EVENTS (CONT’D) 4. Significant contracts and implementation (cont’d) (4) Other significant contracts (cont’d) v. Zhanjiang Electric and the Company reached the Agreement on Transferring the 30% Interests in Zhanjiang Aoli Oil Generator Project. The Company agreed to take all rights and obligations of Zhanjiang Electric related to Zhanjiang Aoli Oil Generator Project, participate in the construction of Zhanjiang Aoli Oil 2×600MW Generator Project, and bear the cost of 31.23 million which had already been injected as start-up expense and the corresponding capital cost as the capital injection in this project. This project is under construction. vi. Yudean and the Company entered into the Agreement on the Fuel Purchase of Shajiao Power Plant A. The details please refer to Note IX 3 (2). This agreement is being fulfilled. 5. Commitments of the Company or its shareholders holding 5% or above of the Company’s shares Maoming Ruineng, a subsidiary of the Company, entered into a long-term loan contract with Shanghai Pudong Development Bank Guangzhou Branch for an amount of RMB650 million. The Company issued a supporting letter for the loan and committed as follows: (1) Unless written consent by the creditor, the Company shall maintain its 51% equity interest in Maoming Ruineng. Before the rescission day, the disposition of the relevant equity interests should obtain the written consent by the creditor. (2) The Company was forbidden from any mortgage, pledge, retain or other guarantee on the direct or indirect equity interests held in Maoming Ruineng. (3) Except for requirement by law or regulation, the Company was forbidden from modifying the Articles of Association of Maoming Ruineng without written consent by the creditor. The balance of borrowings is Rmb 453 million as at 31 December 2003. 6. Appointment of auditors 5. During the reporting period, the Company appointed Beijing Pan-China Certified Public Accountants and PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. as its auditors. The Company paid RMB650,000 and RMB1,200,000 to Beijing Pan-China Certified Public Accountants and PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. respectively in 2003. Pan-China Certified Public Accountants has been the auditor of the Company for 3 sequential years and PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. has been its auditor for 3 sequential years. X. FINANCIAL STATEMENTS INTERNATIONAL AUDITORS’ REPORT TO THE SHAREHOLDERS OF GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. (Incorporated as a joint stock limited company in the People's Republic of China) We have audited the accompanying consolidated balance sheet of Guangdong Electric Power - 36 - Development Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2003 and the related consolidated income and cash flow statements for the year then ended. These financial statements set out on pages 2 to 33 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 statements 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 31 December 2003, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. 8 April 2004 - 37 - GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts in Rmb thousands, except for earnings per share data) Notes 2003 2002 Operating revenue, net 3 5,996,285 5,586,730 Operating costs: Fuel (2,269,656) (1,956,785) Repair and maintenance (332,659) (326,954) Depreciation (686,638) (673,492) Staff costs 4 (459,378) (289,366) Administrative expenses (178,942) (167,935) Others (40,382) (92,776) Total operating costs (3,967,655) (3,507,308) Profit from operations 5 2,028,630 2,079,422 Other income, net 51,023 19,147 Finance costs, net 6 (103,966) (125,587) Share of results of associates before tax 1,492 3,870 Profit before tax 1,977,179 1,976,852 Income tax expense 7 (594,028) (557,648) Profit after tax 1,383,151 1,419,204 Minority interests (219,484) (239,458) Net profit 1,163,667 1,179,746 Earnings per share - Basic 8 Rmb0.44 Rmb0.44 - Diluted 8 N/A N/A - 38 - GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUSBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2003 (All amounts in Rmb thousands) Notes 2003 2002 ASSETS Non-current assets Property, plant and equipment, net 10 7,602,956 7,435,992 Land use rights 11 316,564 309,611 Intangible assets 12 347,594 396,650 Investments in associates 13 257,101 23,760 Loans to associates and available-for-sale investments 14 76,115 9,322 Available-for-sale investments 15 76,982 67,998 Deferred tax assets 16 35,972 11,990 Deferred staff costs 17 61,310 94,509 Long-term prepayment for coal purchase 24(b) 180,000 120,000 8,954,594 8,469,832 Current assets Materials and supplies 18 234,610 301,995 Trade receivables 835,331 506,779 Prepayments and other receivables 33,719 36,301 Due from related companies 24(f) 22,540 21,413 Short-term bank deposits 314,845 280,000 Cash and cash equivalents 23(b) 2,194,654 2,256,546 3,635,699 3,403,034 Total assets 12,590,293 11,872,866 EQUITY AND LIABILITIES Capital and reserves Shareholders’ equity 21 2,659,404 2,659,404 Reserves 22 5,290,070 4,738,066 7,949,474 7,397,470 Minority interests 1,811,090 1,568,212 Non-current liabilities Borrowings 19 1,473,780 1,578,500 Early retirement obligation 20 77,031 - 1,550,811 1,578,500 Current liabilities Trade payables 45,698 20,225 Borrowings 19 283,360 525,000 Taxes payable 283,009 269,682 Other payables and accruals 275,080 274,622 Due to related companies 24(f) 391,771 239,155 1,278,918 1,328,684 Total equity and liabilities 12,590,293 11,872,866 - 39 - GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES III. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts in Rmb thousands) Reserves Statutory Statutory public welfare Discretionary Retained Notes Share capital Capital reserve surplus reserve fund surplus reserve earnings Total Balances at 1 January 2002 2,659,404 1,383,187 612,463 226,905 900,115 1,020,719 6,802,793 Dividends relating to 2001 9 - - - - - (585,069) (585,069) Net profit - - - - - 1,179,746 1,179,746 Appropriation from retained earnings 22 - - 118,999 59,499 264,442 (442,940) - Balances at 1 January 2003 2,659,404 1,383,187 731,462 286,404 1,164,557 1,172,456 7,397,470 Dividends relating to 2002 9 - - - - - (611,663) (611,663) Net profit - - - - - 1,163,667 1,163,667 Appropriation from retained earnings 22 - - 125,525 62,762 297,496 (485,783) - Balances at 31 December 2003 2,659,404 1,383,187 856,987 349,166 1,462,053 1,238,677 7,949,474 - 40 - GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts in Rmb thousands) Notes 2003 2002 Cash flows from operating activities: Cash generated from operations 23(a) 2,749,255 3,275,324 Interest paid (103,966) (125,587) Income tax paid (636,198) (557,046) Net cash from operating activities 2,009,091 2,592,691 Cash flows from investing activities: Acquisition of additional equity interest in subsidiaries - (522,568) Proceeds from disposal of property, plant and equipment - 1,020 Purchase of property, plant and equipment (847,870) (611,600) Purchase of intangible assets - (218) Purchase of land use rights (14,990) (34,519) Interest received 29,257 28,333 Investment in associates (243,460) - Dividends received from associates 2,095 4,227 Dividends received from available-for-sale investments 3,983 5,944 Loans to associates made (68,479) - Loan repayments received 1,686 5,037 Net cash used in investing activities (1,137,778) (1,124,344) Cash flows from financing activities: (Repayments of )/proceeds from borrowings (346,360) 21,020 Dividends paid to group shareholders (611,663) (585,069) Dividends paid to minority shareholders (189,169) (278,189) Contribution from minority shareholders 213,987 22,057 Net cash used in financing activities (933,205) (820,181) Net (decrease)/increase in cash and cash equivalents (61,892) 648,166 Cash and cash equivalents at beginning of year 2,256,546 1,608,380 Cash and cash equivalents at end of year 23(b) 2,194,654 2,256,546 - 41 - 1 General information 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 3 November 1992. 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 26 November 1993 and 28 June 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 Yudean Group Co., Ltd. (“Yudean”, formerly Guangdong Yuedian Assets Management Co., Ltd.). 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 Yudean on 1 August 2001. As such, the directors of the Company considered Yudean 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, the PRC. The Company’s registered address is 10th Floor, Boli Commercial Center, Guangfa Garden, 498 Huanshi Dong Road, Guangzhou. As of 31 December 2003, the Company had the following subsidiaries, which were incorporated in the PRC as limited liability companies: Attributable Date of equity Principal Name of entity incorporation interest Paid-in capital activities Rmb Zhanjiang Electric Power Co., 21 November 1995 76% 2,875,440,000 Electricity Ltd (“Zhanjiang Electric”) generation Guangdong Yuejia Electric 25 January 1996 58% 1,200,000,000 Electricity Power Co., Ltd (“Yuejia generation Electric”) * Guangdong Shaoguan 16 September 1997 65% 450,000,000 Electricity Yuejiang Electric Power generation Co., Ltd (“Yuejiang Electric”) Maoming Ruineng Thermal 1 January 2001 51% 217,157,500 Electricity Power Co., Ltd (“Maoming generation Ruineng”) 1 General information (Cont’d) * Pursuant to the approval by relevant government authorities, stating from 1 July 2003, the paid-in capital of Yuejia Electric was increased from Rmb1,000,000,000 to Rmb1,200,000,000, while the equity interest attributable to the Company decreased from 68% to 58%. - 42 - 2 Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: (a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This basis of accounting differs from that used in the preparation of the statutory financial statements of the Company and its subsidiaries comprising the Group, which have been prepared in accordance with accounting principles and regulations as applicable in the PRC. Appropriate adjustments have been made to these financial statements to conform with IFRS but such adjustments are not incorporated in the Group’s statutory accounting records. The consolidated financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates. (b) Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. - 43 - 2 Accounting policies (Cont’d) (b) Group accounting (Cont’d) (1) Subsidiaries (Cont’d) Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See note (f) for the accounting policy on goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. (2) Associates Investments in associates are accounted for by the equity method of accounting. Under this method the Company’s share of the post-acquisition profits or losses of associates is recognized in the income statement and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortization) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the associates. Details of the Group’s associates are set out in Note 13. (c) Foreign currency translation The Group’s books and records are maintained in Renminbi (“Rmb”) which is the measurement currency of the Group. Foreign currency transactions are translated to Rmb at the exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currency at the balance sheet date are translated into Rmb at the exchange rate prevailing at the balance sheet date. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. - 44 - 2 Accounting policies (Cont’d) (d) Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over their estimated useful lives as follows: Buildings 30 to 50 years Electric utility plants in service 8 to 20 years Motor vehicles and other non-generation equipment 8 to 20 years 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. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalized, during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Construction-in-progress is not depreciated until such time as the assets are completed and ready for their intended use. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. (e) 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. - 45 - 2 Accounting policies (Cont’d) (f) Intangible assets (1) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is amortized using the straight-line method over its estimated useful life of 10 years. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired companies. At each balance sheet date the Group assesses whether there is any indication of impairment. If such indications exist an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. The gain or loss on disposal of an entity includes the carrying amount of goodwill relating to the entity sold. (2) Other intangible assets Other intangible assets are measured initially at cost and 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, other intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Other intangible assets are amortized on a straight-line basis over the best estimate of their useful lives of 5 to 18 years. The amortization period and the amortization method are reviewed annually at each financial year end. (g) Impairment of long lived assets Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price or value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. - 46 - 2 Accounting policies (cont’d) (h) Available-for-sale investments Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale investment; and are included in non-current assets unless management has the express intention of holding the investment for less than twelve months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Available-for-sale investments are stated at fair value which is initially measured at cost for consideration given for them and is subsequently subject to impairment review. Gain or loss arsing from changes in fair value of an available-for-sale investment is recognized in income statement. Available-for-sale investments 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. (i) Materials and supplies Materials and supplies are stated at the lower of weighted average cost or net realizable value, and are expensed to fuel cost and repair and maintenance when used, or capitalized to fixed assets when installed, as appropriate. Net realizable value is the estimated selling price in the ordinary course of business, less selling expenses. (j) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (k) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. - 47 - 2 Accounting policies (cont’d) (l) Borrowings Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings. (m) 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 income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. (n) Employee benefits (i) 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 25% to 28% 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. - 48 - 2 Accounting policies (Cont’d) (n) Employee benefits (Cont’d) (ii) Early retirement benefits Early retirement benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes early retirement benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide early retirement benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than twelve months after balance sheet date are discounted to present value. (o) Revenue recognition Revenue is recognized on the following bases: (1) Operating revenue Operating revenue represents amounts billed for electricity generated and sold, net of value added tax. It is recognized upon transmission of electricity. (2) Interest income Interest income is recognized on a time proportion basis taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. (3) Dividend income Dividends are recognized when the right to receive payment is established. (4) Rental income Rental income (net of any incentives given to lessees) is recognized on a straight-line basis over the lease term. (p) Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. - 49 - 2 Accounting policies (Cont’d) (q) Segment information The Group operates within one geographic segment because its revenues are all generated in the Guangdong Province, the PRC, and its assets are located in the Guangdong Province, the PRC. No segment information is presented as the Group operates in one single industry and one single geographic area. (r) Financial instruments Financial instruments carried on the balance sheet include cash and bank balances, interest in associates, available-for-sale investments, receivables, payables and borrowings. Interest in associates, available-for-sale investments and trade receivables are stated at their carrying amounts determined in accordance with notes 2(b), 2(h) and 2(j) respectively. Other financial assets and financial liabilities without a quoted market price in an active market are measured at cost subject to impairment review. Disclosure of financial risk management are provided in Note 25. 3 Operating revenue The electricity transmission and distribution of Guangdong Province, the PRC, were controlled and managed by GPHC, the former parent company of the Company, before August 2001. The control was transferred to Guangdian after the restructuring of GPHC as described in Note 1 (the “Restructuring”). Guangdian (formerly GPHC) has a monopoly over the supply and distribution of electricity to end users in the Guangdong Province. As such, Guangdian is the sole customer of the electricity generated by the Group. The Group companies entered into power purchase agreements with GPHC prior to the Restructuring in August 2001. After the Restructuring, Guangdian has continued to execute the agreements under their present terms. The Group companies plan to enter into new agreements with Guangdian to replace the existing agreements in the near future. Key provisions, amongst others, of the existing agreements for the Group companies are as follows: - 50 - 3 Operating revenue (Cont’d) - The Company Guangdian (formerly GPHC) has agreed to purchase not less than 3,100 million KWH of electricity generated by the Shajiao Power Plant A of the Company per annum from 1 January 2001 to 31 December 2009. 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. - Zhanjiang Electric Guangdian (formerly GPHC) is to purchase all the electricity transmitted by Zhanjiang Electric. Electricity fees are to be paid before the 25th of the following month. - Yuejia Electric Guangdian (formerly GPHC) has agreed to purchase, for each generator unit of Yuejia Electric, 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. - Yuejiang Electric Guangdian (formerly GPHC) is to purchase all the electricity transmitted by Yuejiang Electric. Electricity fees are to be paid in 25 days after issuance of invoices. - Maoming Ruineng Guangdian is to purchase all the electricity transmitted by Maoming Ruineng. 70% of the electricity fees are to be paid in 20 days after issuance of invoices and the remaining is to be paid in 40 days after issuance of invoices. The electricity tariffs for the power plants of the Group companies are subject to the approval of the Bureau of Prices of Guangdong Province (“BPGP”). For the year ended 31 December 2003, the amount of the electricity purchased by Guangdian (formerly GPHC) from the power plants of the Group companies and the corresponding unit selling prices were as follows: - 51 - 3 Operating revenue (Cont’d) Electricity amount Unit electricity prices Million KWH Rmb per MWH 2003 2002 2003 2002 Before 1 After 1 July 2002 July 2002 The Company - Shajiao Power Plant A (Phase I) * 4,239 4,051 318.00 331.47 318.00 - Shajiao Power Plant A (Phase II) * 3,393 3,137 318.00 304.75 318.00 Zhanjiang Electric * 6,498 5,568 351.70 445.77 351.70 Yuejia Electric * 1,525 1,392 355.00 415.19 355.00 Yuejiang Electric * 1,545 1,381 380.00 460.00 380.00 Maoming Ruineng ** 588 - 320.00 - - * For these power plants, the electricity prices applied were the same as those of 2002 as approved by BPGP. ** Maoming Ruineng started operation since May 2003. Its proposed electricity price of Rmb320 per MWH has been submitted for the approval of BPGP. 4 Staff costs 2003 2002 Rmb’000 Rmb’000 Wages and salaries 263,433 208,161 Contribution to defined contribution pension scheme (Note 38,894 38,243 a) Early retirement benefits (Note b) 94,181 - Contribution to the housing scheme (Note c) 24,608 13,650 Other social securities costs 38,262 29,312 459,378 289,366 The average number of employees in 2003 was 3,574 (2002: 3,178). (a)Pension scheme 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. The Group has no further obligation to the pension cost beyond its monthly contribution. - 52 - 4 Staff costs (Cont’d) (b) Early retirement benefits Certain employees of the Group were directed to retire early during the year. Employee early retirement benefits are recognized in the income statement in the year which the Group entered into an agreement specifying the terms of redundancy, or after the individual employee has been advised of the specific terms. These specific terms vary among the early retired employees depending on various factors including position, length of service and district of the employee concerned (Note 20). (c)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%-20% of the specific salaries of the employees. At the same time, the employees are also required to make a contribution at 8%-20% of the specific salaries 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. 5 Profit from operations The following items have been (credited)/charged in arriving at profit from operations: 2003 2002 Rmb’000 Rmb’000 Interest income from bank deposits (29,257) (28,333) Depreciation of property, plant and equipment 686,638 673,492 Loss on disposal of property, plant and equipment 1,964 16,606 Repairs and maintenance expenditure on property, plant and 332,659 326,954 equipment Amortization of intangible assets - Goodwill 10,432 10,432 - Other intangible assets 38,624 38,670 Amortization of deferred staff costs 13,022 13,022 Amortization of land use rights 8,537 8,447 Loss on write down of deferred staff costs 20,177 - Provisions/(reversal of provisions) for doubtful receivables 1,631 (14,893) Costs of fuel recognized as expense 2,269,656 1,956,785 - 53 - 6 Finance costs, net 2003 2002 Rmb’000 Rmb’000 Interest expenses - Bank borrowings 109,094 133,077 Less: interest capitalized in construction-in-progress (5,128) (7,490) 103,966 125,587 7 Income tax expense 2003 2002 Rmb’000 Rmb’000 Current tax 617,478 557,046 Deferred tax (Note 16) (23,982) - Share of tax of associates (Note 13) 532 602 594,028 557,648 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: 2003 2002 Rmb’000 Rmb’000 Profit before tax 1,977,179 1,976,852 Tax calculated at a statutory rate of 27% (2002: 27%) 533,838 533,750 Effect of different tax rates of subsidiaries 34,141 11,372 Expense not deductible for tax purposes 26,049 12,526 Tax charge 594,028 557,648 The income tax rates applicable to the Group companies are as follows: 2003 2002 The Company 27% 27% Zhanjiang Electric 33% 33% Yuejia Electric * 15% 15% Yuejiang Electric 33% 33% Maoming Ruineng 33% 33% *The Company’s subsidiary, Yuejia Electric, as a foreign investment enterprise, has been granted full exemption from income tax for two years starting from its first cumulative profit-making year net of losses carried forward, and a 50% reduction for the next three years. 2002 was the fifth cumulative profit-making year of Yuejia Electric and therefore, the effective income tax rate applicable to the Yuejia Electric for 2002 was 7.5% while the effective income tax rate for 2003 is 15%. - 54 - 8 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 Rmb1,163,667,000 (2002: approximately Rmb1,179,746,000), divided by the weighted average number of ordinary shares outstanding during the year of 2,659,404,000 shares (2002: 2,659,404,000 shares). No diluted earnings per share were presented as there were no dilutive potential ordinary shares as of year end. 9 Dividends Dividends approved by the Company’s shareholders in the year ended 31 December 2003 were as follows: 2003 2002 Rmb’000 Rmb’000 Final dividends for prior year, paid of Rmb0.23 per share (2002: Rmb0.22 per share) 611,663 585,069 At the board meeting on 8 April 2004, a dividend in respect of 2003 of 0.25 per share amounting to a total dividend of Rmb664,851,000 was proposed. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2004. - 55 - 10 Property, plant and equipment Motor vehicles and Electric other non utility plants -generation Construction-i Buildings in service equipment n-progress Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Year ended 31 December 2002 Opening net book amount 116,972 7,081,020 36,132 192,999 7,427,123 Transfer 37,602 275,814 24,479 (337,895) - Additions 8,342 6,485 10,111 675,049 699,987 Disposals (985) (16,594) (47) - (17,626) Depreciation charge (6,119) (653,038) (14,335) - (673,492) Closing net book amount 155,812 6,693,687 56,340 530,153 7,435,992 At 31 December 2002 Cost 187,992 9,907,631 105,223 530,153 10,730,999 Accumulated depreciation (32,180) (3,213,944) (48,883) - (3,295,007) Net book amount 155,812 6,693,687 56,340 530,153 7,435,992 Year ended 31 December 2003 Opening net book amount 155,812 6,693,687 56,340 530,153 7,435,992 Transfer 897 781,004 6,691 (788,592) - Additions 667 12,254 12,501 830,144 855,566 Disposals (26) (1,911) (27) - (1,964) Depreciation charge (5,771) (668,913) (11,954) - (686,638) Closing net book amount 151,579 6,816,121 63,551 571,705 7,602,956 At 31 December 2003 Cost 189,509 10,646,475 122,750 571,705 11,530,439 Accumulated depreciation (37,930) (3,830,354) (59,199) - (3,927,483) Net book amount 151,579 6,816,121 63,551 571,705 7,602,956 Certain electric utility plants in service with a net book amount of approximately Rmb319,342,000 (2002: 689,611,000) have been pledged to secure certain bank borrowings of the Group totalling Rmb453,000,000 (Note 19). Borrowing costs of approximately Rmb5,128,000 (2002: approximately Rmb7,490,000) were capitalized as construction-in-progress during the year. A capitalization rate of 5.76% (2002: 5.76%) per annum was used to determine the amount of borrowing costs eligible for capitalization. - 56 - 11 Land use rights 2003 2002 Rmb’000 Rmb’000 Year ended 31 December Opening net book amount 309,611 283,539 Additions 15,490 34,519 Amortization charge (8,537) (8,447) Closing net book amount 316,564 309,611 At 31 December Cost 385,508 370,018 Accumulated amortization (68,944) (60,407) Net book amount 316,564 309,611 12 Intangible assets Other intangible Goodwill assets Total Rmb’000 Rmb’000 Rmb’000 Year ended 31 December 2002 Opening net book amount 64,057 349,953 414,010 Additions 31,524 218 31,742 Amortization (10,432) (38,670) (49,102) Closing net book amount 85,149 311,501 396,650 At 31 December 2002 Cost 104,309 460,230 564,539 Accumulated amortization (19,160) (148,729) (167,889) Net book amount 85,149 311,501 396,650 Year ended 31 December 2003 Opening net book amount 85,149 311,501 396,650 Amortization (10,432) (38,624) (49,056) Closing net book amount 74,717 272,877 347,594 At 31 December 2003 Cost 104,309 460,230 564,539 Accumulated amortization (29,592) (187,353) (216,945) Net book amount 74,717 272,877 347,594 - 57 - 12 Intangible assets (Cont’d) (a) Goodwill On 5 July 2000, the Company acquired 65% of the equity interest of Yuejiang Electric from GPHC at a cash consideration 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 approximately Rmb72,785,000 has been recorded as goodwill. On 1 January 2002, the Company acquired additional 9% and 16% equity interests of Zhanjiang Electric from Yudean 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. 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. The excess of the purchase price over the Company’s share of the fair value of net identifiable assets acquired of approximately Rmb31,524,000 has been recorded as goodwill. Goodwill is amortized on a straight-line basis over 10 years. (b) Other intangible assets 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. The directors of the Company consider it probable that the future economic benefits attributable to the above intangible assets will flow to the Group over their respective expected useful lives. (c) The directors of the Company are of the opinion that the underlying value of the intangible assets was not less than its carrying value as of 31 December 2003. - 58 - 13 Investments in associates 2003 2002 Rmb’000 Rmb’000 At the beginning of year 23,760 24,719 Additions 243,460 - Share of results before tax 1,492 3,870 Share of tax (532) (602) Share of results after tax 960 3,268 Dividends received (2,095) (4,227) Other movement (8,984) - At the end of year 257,101 23,760 The principal associates, all of which are unlisted, are: Country of Percentage of equity Name incorporation Principal activities interest held Yangshan Jiangkeng Hydroelectric PRC Electricity generation 25% Station Yangshan Zhongxinkeng Electric Power PRC Electricity generation 40% Co. Ltd. (“Zhongxinkeng”) Yudean Holding Western Investment Co., PRC Investment on electricity 26% Ltd (“Yudean Western”) power plant Shenzhen Guangqian Electricity Co., PRC Construction and operation of 27% Ltd. * electricity power plant Zhanjiang Aoli Oil Power Plant * PRC Electricity generation 39% Guangdong Yudean Huizhou LNG Power PRC Electricity generation 32% Plant * * As of 31 December 2003, these companies were in the process of incorporation as the relevant legal registration procedures are still in progress. 14 Loans to associates and available-for-sale investments Loans to associates and available-for-sale investments consist of the following: 2003 2002 Rmb’000 Rmb’000 Loan to Zhongxinkeng 5,161 6,022 Loan to Yudean Western 68,479 - Loan to available-for-sale investments 2,475 3,300 76,115 9,322 - 59 - 14 Loans to associates and available-for-sale investments (Cont’d) Loan to Zhongxinkeng is unsecured, bears interest at 7.56% (2002: 7.56%) per annum and will mature in 2008. Loan to Yudean Western is unsecured, bears interest at 4.941% per annum and will mature in 2006. Loan to available-for-sale investments is unsecured, bears interest at 10% (2002: 10%) per annum and has no fixed term of repayment. 15 Available -for-sale investments 2003 2002 Rmb’000 Rmb’000 Non-current 76,982 67,998 Non-current available-for-sale investments comprise the following: 2003 2002 Rmb’000 Rmb’000 Investments in unlisted companies 61,484 52,500 Investment in legal person shares of a listed company, at carrying value 15,498 15,498 76,982 67,998 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, the above non-current available-for-sale investments are carried at cost subject to review for impairment loss. 16 Deferred tax assets Deferred income taxes are calculated in full on temporary differences under the liability method using the applicable tax rates for the respective companies. The movement on the deferred income tax account is as follows: 2003 2002 Rmb’000 Rmb’000 At beginning of year 11,990 11,990 Income statement credit (note 7) 23,982 - At end of year 35,972 11,990 - 60 - 16 Deferred tax assets (Cont’d) The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the period is as follows: Credit/(Charge) to 2002 income statement 2003 Rmb’000 Rmb’000 Rmb’000 Deferred income tax assets Write-off of pre-operating expenses 10,143 (7,734) 2,409 Provision for bad and doubtful debts 6,213 (43) 6,170 Provision for early retirement obligation - 26,715 26,715 Difference in land use rights amortization - 678 678 Subtotal 16,356 19,616 35,972 Deferred income tax liabilities Accruals of repair and maintenance expenses (4,366) 4,366 - Total 11,990 23,982 35,972 Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. 17 Deferred staff costs 2003 2002 Rmb’000 Rmb’000 Year ended 31 December Opening net book amount 94,509 107,531 Write down (20,177) - Amortization (13,022) (13,022) Closing net book amount 61,310 94,509 At 31 December Cost 97,274 130,223 Accumulated amortization (35,964) (35,714) Net book amount 61,310 94,509 - 61 - 17 Deferred staff costs (Cont’d) 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 estimated remaining average service life of the employees. At each balance sheet date, the Group assesses whether there is any indication of impairment, considering the remaining service life of the employees and other qualitative factors. If such indications exist, an analysis is performed to assess whether the carrying amount of the deferred staff costs are fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. 18 Materials and supplies 2003 2002 Rmb’000 Rmb’000 Coal 55,122 130,800 Oil 13,038 12,397 Spare parts and chemicals 166,450 158,798 234,610 301,995 As of 31 December 2003, there were no inventories stated at net realisable value (2002: Nil). 19 Borrowings 2003 2002 Rmb’000 Rmb’000 Bank borrowings - Current 283,360 525,000 - Non-current 1,473,780 1,578,500 1,757,140 2,103,500 The borrowings include secured bank borrowings in a total amount of Rmb1,345,140,000 (2002:Rmb397,000,000) and guaranteed bank borrowings in a total amount of Rmb412,000,000 (2002: Rmb966,500,000). The secured bank borrowings with an amount of Rmb453,000,000 are secured over certain electric utility plants amounting to approximately Rmb319,342,000 as of 31 December 2003 (Note 10), the future revenue from the power generation and other interests of Maoming Ruineng; the remaining of Rmb892,140,000 are secured over the future revenue from power generation, trade receivables and bank deposit of Yuejiang Electric (As of 31 December 2002, the secured bank borrowings of Rmb397,000,000 were secured over certain electric utility plants of the Group amounting to approximately Rmb689,611,000). The guaranteed bank borrowings with an amount of Rmb966,500,000 as of 31 December 2002 were originally guaranteed by GPHC. In 2003, the Group has re-arranged the borrowings with the relevant banks. As of 31 December 2003, the guaranteed bank borrowing of Rmb412,000,000 of Zhanjiang Electric are guaranteed by the Company. - 62 - 19 Borrowings (Cont’d) The interest rate exposure of the borrowings of the Group is as follows: 2003 2002 Rmb’000 Rmb’000 At fixed rates - 50,000 At floating rates 1,757,140 2,053,500 Total borrowings 1,757,140 2,103,500 The carrying amounts of the Group’s borrowings approximate their fair values. The fair values are determined based on discounted cash flows using a discount rate based upon the borrowing rate which the directors of the Company expect would be available to the Group at the balance sheet date. Maturity of the non-current borrowings is as follows: 2003 2002 Rmb’000 Rmb’000 Between 1 and 2 years 294,360 351,000 Between 2 and 5 years 586,080 1,227,500 Over 5 years 593,340 - 1,473,780 1,578,500 The Group has the following undrawn committed borrowing facilities: 2003 2002 Rmb’000 Rmb’000 Floating rate - Expiring within one year 657,000 151,000 - Expiring beyond one year 511,000 1,020,200 1,168,000 1,171,200 The facilities have been arranged to help finance the proposed expansion of the Group. 20 Early retirement obligation 2003 2002 Rmb’000 Rmb’000 Early retirement obligation 94,181 - Less: current portion included in other payables and accruals (17,150) - 77,031 - Details of the early retirement obligation are set out in Note 4(b). Where the obligation do not fall due within twelve months, the obligation payable are discounted using the discount rate determined by reference to market yields at the balance sheet date on high quality investments. - 63 - 21 Share capital As of 31 December 2003, the authorized share capital of the Company was Rmb 2,659,404,000 (2002: Rmb2,659,404,000) 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. Number of shares Share capital 2003 2002 2003 2002 Thousand Thousand shares shares Rmb’000 Rmb’000 Authorized, issued and fully paid: Yudean (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 391,476 391,476 391,476 391,476 B Shares 665,340 665,340 665,340 665,340 2,659,404 2,659,404 2,659,404 2,659,404 22 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 of 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. - 64 - 22 Reserves (Cont’d) For the year ended 31 December 2003, the directors proposed the following appropriations to statutory reserves: 2003 2002 Rmb’000 Rmb’000 Statutory surplus reserve 125,525 118,999 Statutory public welfare fund 62,762 59,499 Discretionary surplus reserve 297,496 264,442 485,783 442,940 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. As of 31 December 2003, the reserve of the Company available for distribution determined in accordance with PRC accounting standards and IFRS were approximately Rmb950,648,000 (2002: approximately Rmb809,162,000) and Rmb1,238,677,000 (2002: approximately Rmb1,172,456,000), respectively. - 65 - 23 Cash generated from operations (a) Reconciliation from net profit to cash generated from operations: 2003 2002 Rmb’000 Rmb’000 Net profit 1,163,667 1,179,746 Adjustments for: Minority interests 219,484 239,458 Income tax expense 594,028 557,648 Loss on write down of deferred staff cost 20,177 - Depreciation 686,638 673,492 Provision/(reversal of provision) for doubtful receivables 1,631 (14,893) Amortization of deferred staff costs 13,022 13,022 Amortization of intangible assets 49,056 49,102 Amortization for land use rights 8,537 8,447 Loss on disposal of property, plant and equipment 1,964 16,606 Provision for early retirement obligation 94,181 - Interest income (29,257) (28,333) Dividend income (3,983) (5,944) Interest expenses 103,966 125,587 Share of results of associates before tax (1,492) (3,870) Changes in working capital: Decrease/(increase) in materials and supplies 67,385 (72,619) (Increase)/decrease in short-term bank deposit (34,845) 300,000 (Increase)/decrease in trade receivables (330,143) 425,314 (Increase)/decrease in prepayments and other receivables (57,418) 21,651 Increase/(decrease) in trade payables 25,473 (6,748) Decrease in other payables and accruals (25,820) (10,779) Increase/(decrease) in taxes payable 31,515 (159,754) Increase/(decrease) in amount due from/to related companies 151,489 (31,809) Cash generated from operations 2,749,255 3,275,324 (b) Analysis of the balances of cash and cash equivalents: 2003 2002 Rmb’000 Rmb’000 Cash and bank deposits 2,194,654 2,256,546 - 66 - 24 Related party transactions Other than the information as disclosed elsewhere in the notes to the consolidated financial statements, the Group had carried out the following material related party transactions: (a) Purchase of fuel from related parties The Company, Zhanjiang Electric and Maoming Ruineng purchase fuel from Guangdong Electric Materials Supply Co.,Ltd. (“GEMS”), a subsidiary of Yudean through the assistance of Yudean. For the year ended 31 December 2003, purchase of fuel from GEMS amounted to approximately Rmb1,785,902,000 (2002: approximately Rmb1,750,500,000). Yuejiang Electric purchases fuel and other materials from Shaoguan Electric Power Plant (“Shaoguan Electric”), a subsidiary of Yudean. For the year ended 31 December 2003, purchase of fuel and other raw materials from Shaoguan Electric amounted to approximately Rmb218,318,000 (2002: approximately Rmb200,220,000). In the opinion of the Company’s directors, purchase prices of the above transactions are determined on an arm’s length basis. (b) Long-term prepayment for coal purchase The long-term prepayment for coal purchase, which amounted to Rmb180,000,000 as of 31 December 2003 (2002: Rmb120,000,000), represented a prepayment placed with Yudean to purchase and store fossil fuel on behalf of Shajiao Power Plant A of the Company. The prepayment is unsecured, non-interest bearing and long-term in nature. The directors consider that the prepayment is necessary for maintaining the proper operation of Shajiao Power Plant A. (c) Common expense allocation According to a mutual agreement, Shaoguan Electric allocates certain administrative expenses to Yuejiang Electric based on the proportion of their respective generators’ capacity. For the year ended 31 December 2003, the expenses allocated to Yuejiang Electric amounted to approximately Rmb24,223,000 (2002: Rmb26,692,000). (d) Rental income Yuejiang Electric rent certain electric utilities to Shaoguan Power Plant D, Shaoguan No. 9 Generator Co., Ltd, and Shaoguan Electric, all of which are the subsidiaries of Yudean. For the year ended 31 December 2003, the rental income amounted to Rmb17,415,000 (2002: Nil). (e) Directors’ remuneration In 2003 the total remuneration of directors was approximately Rmb1,850,000 (2002: Rmb1,306,000). - 67 - 24 Related party transactions (Cont’d) (f) Balances with related parties Balances with the above related parties as of 31 December 2003 are as follows: 2003 2002 Rmb’000 Rmb’000 Amount due from related companies: - Shaoguan Power Plant D 10,475 - - Shaoguan No. 9 Generator Co., Ltd. 5,589 - - Shaoguan Electric 1,351 21,413 - Others 5,125 - 22,540 21,413 Amount due to related companies: - Yudean 316,613 239,155 - Shaoguan Electric 9,993 - - Shaoguan Power Plant D 65,072 - Others 93 - 391,771 239,155 The balances with the related parties are unsecured, interest-free and have no fixed terms of repayment. 25 Financial risk management 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 31 December 2003, the estimated fair values of non-current borrowings including current portions were approximately Rmb1,757,140,000 (2002: Rmb2,103,500,000) based on current market interest rates for comparable instruments. As of the same date, the book value of these liabilities was approximately Rmb1,757,140,000 (2002: Rmb2,103,500,000). (a) Credit risk The carrying amount of cash and cash equivalents, trade receivables, short-term bank deposits 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. 25 Financial risk management (Cont’d) (b) Interest rate risk The interest rates and terms of repayment of the long-term borrowings are disclosed in Note 19. (c) Currency risk Substantially all of the revenue-generating operations of the Group are transacted in Rmb. 26 Capital commitments Capital expenditure contracted for at the balance sheet date but not recognized in the - 68 - consolidated financial statements is as follows: 2003 2002 Rmb’000 Rmb’000 Investment in associates 992,733 - Acquisition of property, plant and equipment 411,494 1,165,357 1,404,227 1,165,357 27 Approval of financial statements The consolidated financial statements were approved by the Board of Directors on 8 April 2004. - 69 - GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. AND SUBSIDIARIES SUPPLEMENTARY INFORMATION IFRS ADJUSTMENTS ON THE STATUTORY ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2003 Consolidated profit attributable to the Group Consolidated net assets Rmb’000 Rmb’000 As per the statutory financial statements (audited by certified public accountants in the PRC) 1,255,249 7,885,887 Impact of IFRS adjustments: Write-off of pre-operating expenses 11,086 - Housing loss in statutory financial statements (20,177) 97,274 Amortization of deferred staff costs (13,022) (35,964) Difference in amortization of land use rights (3,171) 69,141 Deferred tax 23,982 35,972 Provision for the early retirement obligation (94,181) (94,181) Others 3,901 (8,655) As restated after IFRS adjustments 1,163,667 7,949,474 - 70 -