Interim Report 2008

RNS Number : 1036D

Datang Intl Power Generation Co Ld

10 September 2008

 

Diversifying To Enhance Power

Datang Power is committed to its diversification development strategy. Its generation structure has evolved from a single-mode thermal generation into a strategically balanced deployment of thermal power, hydropower, wind power and nuclear power. Its business structure has also extended from a pure power generation operation to a chain of upstream and downstream businesses related to power generation, forming a structure of integrated "coal-power-railway" operation.

Datang Power firmly believes that diversification on the one hand leverages the complementary advantages of various resources, thereby facilitating a sustainable development of the Company; and on the other hand allows the Company to take full advantage of the opportunities presented by the State's promotion of renewable energy development. As such, Datang Power has gained all the competitive advantages and has much enhanced its power among its peers.

results OF THE Company

FINANCIAL HIGHLIGHTS • Consolidated operating revenue amounted to approximately RMB17,652 million, representing an increase of 14.14% over the first half of 2007. • Consolidated net profit attributable to equity holders of the Company amounted to approximately RMB406 million, representing a decrease of 77.52% over the first half of 2007. • Basic earnings per share attributable to equity holders of the Company amounted to approximately RMB0.03, representing a decrease of approximately RMB0.13 per share over the first half of 2007.

The board of directors (the "Board") of Datang International Power Generation Co., Ltd. (the "Company") hereby announces the unaudited consolidated operating results of the Company, its subsidiaries and jointly-controlled entities (the "Company and its Subsidiaries") prepared in accordance with the International Financial Reporting Standards ("IFRS") for the six months ended 30 June 2008 (the "Period"), together with the unaudited consolidated operating results of the first half of 2007 (the "Corresponding Period Last Year") for comparison. Such operating results have been reviewed and confirmed by the Company's audit committee (the "Audit Committee").

  Consolidated operating revenue of the Company and its Subsidiaries for the Period was approximately RMB17,652 million, representing an increase of approximately 14.14% as compared to the Corresponding Period Last Year. Consolidated net profit attributable to equity holders of the Company was approximately RMB406 million, representing a decrease of approximately 77.52% as compared to the Corresponding Period Last Year. Basic earnings per share attributable to equity holders of the Company for the Period amounted to approximately RMB0.03, representing a decrease of approximately RMB0.13 per share as compared to the Corresponding Period Last Year.

The Board does not recommend any payment of interim dividend for 2008.

Please refer to the unaudited condensed consolidated interim financial information set out in the Appendix for details of the consolidated operating results of the Company and its Subsidiaries.

MANAGEMENT DISCUSSION AND ANALYSIS

The Company is one of the largest independent power companies in the People's Republic of China (the "PRC"), which is primarily engaged in power generation businesses with its main focus on coal-fired power generation. As at 30 June 2008, the Company managed a total installed capacity of 22,896.7MW. The power generated by the Company and its Subsidiaries is primarily distributed in the Northern China Power Grid, the Gansu Power Grid, the Zhejiang Power Grid, the Yunnan Power Grid, the Fujian Power Grid, the Guangdong Power Grid, the Chongqing Power Grid and the Jiangxi Power Grid.

During the Period, the PRC's economy maintained steadily rapid growth, with a growth rate of the gross domestic product ("GDP") of 10.4%, down 1.8 percentage-points over the Corresponding Period Last Year. Power consumption continued to rise but at a slowing pace. Newly installed generation units increased but utilisation hours of power generation facilities were lower than that in the Corresponding Period Last Year. The imbalance in demand and supply of thermal coal was further aggravated by other negative factors including the domestic snowstorm, earthquake and suspension and safety rectifications of small coal mines. Thermal coal prices continued to surge to high levels with a marked deterioration in thermal coal quality, which severely undermined the profitability of power generation companies.

(A) Business Review

During the Period, the Company and its Subsidiaries were confronted with unprecedented challenges in its operation and development under a grim operating environment. Facing such enormous operating pressure, the Company and its Subsidiaries took initiatives in planning budgets, rigorously enhancing production and operation, and stringently controlling costs and expenses, with a view to conscientiously mitigating the impact of various factors that depressed profits and ensuring steady, safe and orderly production and operation management of the Company, thereby maintaining profitability for the Company.

1. Maintained stable growth in power production

During the Period, total power generation of the Company and its Subsidiaries amounted to 62.2529 billion kWh, representing an increase of 11.08% when compared to the Corresponding Period Last Year. Total on-grid power generation amounted to 58.5987 billion kWh, representing an increase of 10.96% over the Corresponding Period Last Year.

The increases in total power generation and on-grid power generation were mainly attributable to an increase in capacity of operational generating units of the Company and its Subsidiaries as well as the safe and stable operation of the generating units. (1) Compared to the Corresponding Period Last Year, the Company and its Subsidiaries' newly installed capacity increased by 3,816.7MW. Given the shutdown of a 200MW generating unit at Xia Hua Yuan Power Plant and the shutdown of a 150MW generating unit at Hebei Datang International Tangshan Thermal Power Company Limited ("Tangshan Thermal Power Company"), the Company and its Subsidiaries had a net capacity increase of 3,466.7MW. (2) During the Period, no casualties or material damages to the above-mentioned production facilities occurred to the Company and its Subsidiaries during the course of power production. The equivalent availability factor of operational generating units stood at a relatively high level of 93.25%.

  

Details of power generation of the Company and its Subsidiaries during the Period were as follows:

2. Achieved remarkable results in energy savings and consumption reduction

During the Period, coal consumption of the Company was 332.47g/kWh, representing a decrease of approximately 4.5g/kWh over the Corresponding Period Last Year. The consolidated electricity consumption rate was 5.9%. The Company completed the desulphurisation upgrade projects for a capacity of 3,900MW in total for its 15 generating units, thus enabling the installed capacity with desulphurisation facilities to account for 97.10% of the coal-fired generating units of the Company and its Subsidiaries, or 100% of the coal-fired generation plants in the Beijing-Tianjin-Tangshan region.

3. Overcame various unfavourable factors, striving to realise profits for the Company

During the Period, the Company witnessed a sharp decline in profitability due to the combined effects of the skyrocketing fuel prices and other factors. To cope with the enormous operating pressure, the Company kept abreast of the trends of the market while taking initiatives in planning budgets, rigorously enhancing production and operation, and stringently controlling costs and expenses, with a view to conscientiously mitigating the impact of various factors such as surging fuel prices and rising financial costs that depressed profits, thereby maintaining profitability for the Company. During the Period, the Company and its Subsidiaries achieved a net profit attributable to equity holders of the Company of RMB406 million, representing a decrease of 77.52% from the Corresponding Period Last Year.

4. Kept overall construction of projects under control and achieved a breakthrough in preliminary works

During the Period, the Company continued to implement its development strategy with good progress in its preliminary projects, including coal-fired power, hydropower, nuclear power and wind power. Six projects were approved by the State's relevant authorities, including:

Coal-fired power projects: Two 600MW generating units at Phase 4 of the Tuoketuo Power Generation Project; two 300MW generating units at the Jinzhou Thermal Power Project. (In addition, two 300MW generating units at the Zhang Jia Kou Thermal Power Project and two 300MW generating units at Phase 2 of the Yungang Thermal Power Project were approved in July of 2008).

Nuclear power project: Four 1,000MW generating units at Phase 1 of the Ningde Nuclear Power Project.

Wind power projects: Phase 2 of the Shanxi Zuoyun Wind Power Project with a generating capacity of 49.5MW; Phase 1 of the Hebei Fengning Luotuogou Wind Power Project with a generating capacity of 48MW; Shandong Dongying Wind Power Project with a generating capacity of 49.5MW. (In addition, Phase 1 of the Inner Mongolia Hongmu Wing Power Project with a generating capacity of 48MW was approved in July of 2008).

Meanwhile, the power-related upstream and downstream projects of the Company such as coal mining, coal chemical and railway construction progressed at a steady pace as scheduled.

During the Period, the staff of the Company and its Subsidiaries overcame various challenges such as frequent natural disasters and difficulties in securing delivery of generation facilities and in carrying out construction works. They worked diligently, thereby keeping the Company's schedule of construction-in-progress largely under control. During the Period, a total of 2,962MW generating units commenced operation successfully.

  (B) Major Financial Indicators and Analysis

During the Period, the Company and its Subsidiaries achieved an operating revenue of RMB17,652 million, representing an increase of 14.14% over the Corresponding Period Last Year. Net profit attributable to the equity holders of the Company was RMB406 million, representing a decrease of 77.52% over the Corresponding Period Last Year. Basic earnings per share was approximately RMB0.03, representing a decrease of RMB0.13 per share over the Corresponding Period Last Year.

1. Operating revenue

The revenues from principal activities of the Company and its Subsidiaries mainly comprise revenues from electricity sales and heat sales.

During the Period, the Company and its Subsidiaries achieved a consolidated operating revenue of RMB17,652 million, representing an increase of 14.14% over the Corresponding Period Last Year. Of the operating revenue of RMB17,652 million, revenue from electricity sales increased by RMB1,611 million.

2. Operating costs

During the Period, total operating costs of the Company and its Subsidiaries amounted to RMB15,675 million, representing an increase of approximately RMB4,130 million or approximately 35.78% over the Corresponding Period Last Year.

During the Period, fuel costs accounted for 63.33% of operating costs of the Company and its subsidiaries. As a result of the increase in the commencement of operation of newly installed generating units and the increase in power generation of the Company and its Subsidiaries, as well as surging fuel prices, particularly, fuel costs rose by approximately RMB2,748 million or approximately 38.28% over the Corresponding Period Last Year, exceeding the growth rate of operating revenue.

3. Net financing costs

During the Period, the financing costs of the Company and its Subsidiaries amounted to RMB1,613 million, representing an increase of approximately RMB640 million or 65.78% over the Corresponding Period Last Year. The increase was mainly due to the termination of capitalisation of interests for newly installed generating units and the rise in interest expenses caused by an increase in lending rates during the Period.

4. Profit before tax and net profit

During the Period, the Company and its Subsidiaries reported a total consolidated profit before tax amounting to RMB525 million, representing a decrease of 82.42% over the Corresponding Period Last Year. Consolidated net profit attributable to shareholders of the Company and its Subsidiaries amounted to approximately RMB406 million, representing a decrease of 77.52% over the Corresponding Period Last Year. The decrease in profit of the Company and its Subsidiaries was mainly attributable to a sharp increase in fuel costs.

5. Financial position

As at 30 June 2008, total consolidated assets of the Company and its Subsidiaries amounted to approximately RMB144,182 million, representing an increase of approximately RMB22,408 million as compared to the end of 2007. Total liabilities of the Company and its Subsidiaries amounted to approximately RMB112,478 million, representing an increase of approximately RMB24,946 million over the end of 2007. Minority interests amounted to approximately RMB4,798 million, representing an increase of approximately RMB155 million over the end of 2007. Total equity amounted to approximately RMB31,703 million, representing a decrease of approximately RMB2,538 million over the end of 2007. The increase in total assets was primarily caused by the implementation of the expansion strategy by the Company and its Subsidiaries, which led to a corresponding increase in investments in construction-in-progress.

6. Liquidity

As at 30 June 2008, the asset-to-liability ratio for the Company and its Subsidiaries was approximately 78.01%. The net debt-to-equity ratio (i.e. (loans + convertible bonds + short-term commercial papers - cash and cash equivalents - short-term bank deposits with a maturity of over 3 months)/total equity) was approximately 268.30%.

  

As at 30 June 2008, total cash and cash equivalents and bank deposits with a maturity of over 3 months of the Company and its Subsidiaries amounted to approximately RMB9,257 million, of which the deposits equivalent to approximately RMB104 million were in foreign currencies. The Company and its Subsidiaries had no entrusted deposits or overdue fixed deposits during the Period.

As at 30 June 2008, short-term loans of the Company and its Subsidiaries amounted to approximately RMB34,946 million, bearing annual interest rates ranging from 3.08% to 9.71%. Long-term loans (excluding those due within 1 year) amounted to approximately RMB55,846 million and long-term loans due within 1 year amounted to approximately RMB3,441 million, at annual interest rates ranging from 3.60% to 7.83%, of which a loan equivalent to approximately RMB1,881 million was denominated in US dollar. The Company and its Subsidiaries paid close attention to foreign exchange market fluctuations and cautiously assessed foreign currency risks on a regular basis.

As at 30 June 2008, North China Grid Company Limited ("NCG", originally North China Power (Group) Corp. and its subsidiaries) and some minority shareholders of the Company's subsidiaries provided guarantees for the loans of the Company and its Subsidiaries amounting to approximately RMB5,059 million. According to the Transfer Agreement entered into between the NCG and China Datang Corporation, China Datang Corporation shall undertake the commitment for NCG to provide guarantee for the loans. The Company had not provided any guarantee in whatever forms for any other company apart from its subsidiaries, jointly controlled entities and associates.

(C) Outlook for the Second Half of 2008

In 2008, the Company has a daunting task on maintaining stable and healthy development under a mixed condition with opportunities and challenges. Recently, the State raised the tariffs twice and made a temporary intervention in thermal coal prices, thereby effectively easing the pressure on the operations of the Company and its Subsidiaries. However, the continuously tight supply and the significant increase in thermal coal prices still affected the production and profitability of the Company and its Subsidiaries considerably. In addition, the financing of the Company and its Subsidiaries will face a challenging situation due to the State's tightening monetary policies as part of the macro-economic control measures. Furthermore, the drop in utilisation hours of generating units has further imposed pressure on the operations of the Company and its Subsidiaries.

Facing a difficult operating environment, the Company and its Subsidiaries will actively expand its room for development and strengthen its marketing and sales efforts, by fully utilising its advantages in resources, scale, geographical distribution and costs. The Company plans to realise power generation of 140 billion kWh, while exercising stringent cost controls and striving to contain the increase in unit fuel cost increase, with a view to enhancing the profitability of the Company.

In the second half of 2008, the Company will focus on the following tasks:

1. Strengthening production safety and management and ensuring stable operation of its generating units;

2. Implementing the power generation increment plan supported by a guaranteed fuel supply: The Company will increase revenues and reduce expenses at the same time with a view to boosting economic efficiency;

3. Fulfilling its social obligation of environmental protection by achieving its objectives of energy-saving and consumption reduction, as well as ensuring that the Company and its Subsidiaries achieve a 100% rate of desulphurisation facility installation for all coal-fired units, with the desulphurisation facility operation rate and desulphurisation efficiency both reaching 95%;

4. Promoting preliminary works in an orderly manner: The Company will have a proper control in different phases of its construction-in-progress to commence operation safely and successfully, by adhering to the principle of ensuring synchronised advancement in safety, quality, progress and production preparation;

  5. Continuing the implementation of the Company's diversified development strategy, by actively pursuing the expansion of the Company in projects such as coal-fired power, hydropower, wind power and nuclear power as well as pursuing the development of power-related upstream and downstream projects such as coal mining, coal chemical and railway, so as to ensure the Company's sustainable development;

6. Actively expanding financing channels to secure fundings for the Company's development in scale.

SHARE CAPITAL AND DIVIDENDS

1. Share capital

As at 30 June 2008, the total share capital of the Company amounted to 11,743,355,283 shares, divided into 11,743,355,283 shares with a nominal value of RMB1.00 each.

2. Shareholding of substantial shareholders

So far as the directors of the Company are aware, as at 30 June 2008, the following persons hold the interests or short positions in the shares or underlying shares of the Company which are required to be disclosed to the Company under section 336 of the Securities and Futures Ordinance (the "SFO") (Chapter 571 of the Law of Hong Kong):

 

The distribution proposal on the payment of dividends for the year ended 2007 in cash was considered and approved at the 2007 annual general meeting of the Company held on 30 May 2008. The above distribution arrangement was completed before the date of this announcement.

The Board does not recommend the payment of any interim dividend for 2008.

  4. Shareholding of the directors and supervisors

As at 30 June 2008, Mr. Fang Qinghai, a director of the Company, was interested in 24,000 A Shares of the Company. Save as disclosed above, none of the directors, supervisors and chief executives of the Company nor their associates had any interest and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of SFO) that were required to be notified to the Company and The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") under the provisions of Divisions 7 and 8 of Part XV of the SFO, or required to be recorded in the register mentioned in the SFO pursuant to section 352 or otherwise required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") in Appendix 10 of the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the "Listing Rules").

SIGNIFICANT EVENTS

1. Pursuant to the resolutions of the 2007 annual general meeting held on 30 May 2008, it was resolved that:

(1) Mr. Cao Jingshan was appointed as an executive director of the Company, with term of office from 30 May 2008 to 30 June 2010; and that Mr. Zhang Yi ceased to be an executive director of the Company.

(2) Mr. Li Hengyuan was appointed as an independent non-executive director of the Company, with term of office from 30 May 2008 to 30 June 2010.

(3) Mr. Zhang Xiaoxu was appointed as a supervisor of the Company, with term of office from 30 May 2008 to 30 June 2010; Mr. Zhang Wantuo ceased to be a supervisor of the Company.

2. Pursuant to the resolutions passed at the seventh meeting of the sixth session of the Board on 14 April 2008, Mr. Cao Jingshan was appointed as the President of the Company, with term of office from 14 April 2008, while Mr. Zhang Yi ceased to be the President of the Company.

PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the Period, the Company and its Subsidiaries have not purchased, sold or redeemed any of its listed securities.

COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES

To the knowledge of the Board, the Company has complied with the code provisions under the Code on Corporate Governance Practices as set out in Appendix 14 of the Listing Rules during the Period.

COMPLIANCE WITH THE MODEL CODE

Upon specific enquiries made to all the directors of the Company and to the information of the Board, the Board confirmed that all directors of the Company have complied with the provisions under the Model Code as set out in Appendix 10 of the Listing Rules during the Period.

AUDIT COMMITTEE

The Audit Committee has reviewed the accounting principles and methods adopted by the Company and its Subsidiaries with the management of the Company. It has also discussed matters regarding internal controls and the financial statements, including the review of the unaudited condensed consolidated interim financial information for the six months ended 30 June 2008.

The Audit Committee considers that the financial information of the Company and its Subsidiaries for the first half year of 2008 has complied with the applicable accounting standards, and that the Company has made appropriate disclosures thereof.

By Order of the Board

Zhai Ruoyu

Chairman

Beijing, the PRC, 26 August 2008

 

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET (UNAUDITED)

AS AT 30 JUNE 2008

(Amounts expressed in thousands of Renminbi ("Rmb"))

 

 

The accompanying notes are an integral part of this unaudited condensed consolidated interim financial information.  CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT (UNAUDITED)

For The Six Months Ended 30 June 2008

(Amounts expressed in thousands of Rmb, except per share data)

The accompanying notes are an integral part of this unaudited condensed consolidated interim financial information.

  CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

For The Six Months Ended 30 June 2008

(Amounts expressed in thousands of Rmb)

 

	Attributable to equity holders of the Company
		Reserves
						Statutory		Discretionary				Currency
		Share		Capital		surplus		surplus		Restricted		translation		Other		Retained		Total		Minority		Total
	Note	capital		reserve		reserve		reserve		reserve		differences		reserve		earnings		reserves		interests		equity
Balance as at
01-Jan-07		5,662,849		6,432,245		2,292,203		5,741,287		181,244		422		840,304		2,745,497		18,233,202		3,304,667		27,200,718
Fair value gains, net of tax:
available-for-sale
financial assets		-		-		-		-		-		-		912,354		-		912,354		-		912,354
Profit for the period		-		-		-		-		-		-		-		1,807,257		1,807,257		445,413		2,252,670
Currency translation
differences		-		-		-		-		-		(2,426	)	-		-		(2,426	)	-		(2,426)
Total recognised income
and expense for
the period		-		-		-		-		-		(2,426	)	912,354		1,807,257		2,717,185		445,413		3,162,598
Conversion of convertible
bonds		170,230		796,394		-		-		-		-		(112,673	)	-		683,721		-		853,951
Capital injection from
minority shareholders
of subsidiaries		-		-		-		-		-		-		-		-		-		1,006,010		1,006,010
Dividends declared		-		-		-		-		-		-		-		(1,348,714	)	(1,348,714	)	(176,771	)	(1,525,485	)
Release of restricted reserve		-		-		-		-		(34,162	)	-		-		34,162		-		-		-
Transfer to discretionary
surplus reserve		-		-		-		1,020,774		-		-		-		(1,020,774	)	-		-		-
Balance as at
30-Jun-07		5,833,079		7,228,639		2,292,203		6,762,061		147,082		(2,004	)	1,639,985		2,217,428		20,285,394		4,579,319		30,697,792

Attributable to equity holders of the Company
		Reserves
						Statutory		Discretionary				Currency
		Share		Capital		surplus		surplus		Restricted		translation		Other		Retained		Total		Minority		Total
	Note	capital		reserve		reserve		reserve		reserve		differences		reserve		earnings		reserves		interests		equity
Balance as at
1 January 2008		11,734,083		1,519,014		2,602,239		6,762,061		124,625		(2,844	)	3,329,500		3,528,825		17,863,420		4,643,359		34,240,862
Fair value gains, net
of tax available-for-
sale financial assets		-		-		-		-		-		-		(1,742,229	)	-		(1,742,229	)	-		(1,742,229	)
Profit for the period		-		-		-		-		-		-		-		406,225		406,225		146,677		552,902
Currency translation
differences		-		-		-		-		-		25,828		-		-		25,828		-		25,828
Total recognised income
and expense
for the period		-		-		-		-		-		25,828		(1,742,229	)	406,225		(1,310,176	)	146,677		(1,163,499	)
Government grant
received in subsidiary		-		-		-		-		-		-		10,880		-		10,880		-		10,880
Impact of acquisition
of minority interests		-		-		-		-		-		-		-		(5,552	)	(5,552	)	(57,038	)	(62,590	)
Acquisition of subsidiaries		-		-		-		-		-		-		-		-		-		781,143		781,143
Capital injection from
minority shareholders
of subsidiaries		-		-		-		-		-		-		-		-		-		96,520		96,520
Conversion of
convertible bonds	11	9,272		14,979		-		-		-		-		(3,011	)	-		11,968		-		21,240
Dividends declared	15	-		-		-		-		-		-		-		(1,408,582	)	(1,408,582	)	(812,733	)	(2,221,315	)
Release of restricted reserve	15	-		-		-		-		(20,553	)	-		-		20,553		-		-		-
Profit appropriations	15	-		-		-		38,631		-		-		-		(38,631	)	-		-		-
Balance as at 30 June 2008		11,743,355		1,533,993		2,602,239		6,800,692		104,072		22,984		1,595,140		2,502,838		15,161,958		4,797,928		31,703,241

 

 The accompanying notes are an integral part of this unaudited condensed consolidated interim financial information.

  CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT (UNAUDITED)

For The Six Months Ended 30 June 2008

(Amounts expressed in thousands of Rmb)

 

The accompanying notes are an integral part of this unaudited condensed consolidated interim financial information.

  NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (UNAUDITED)

For The Six Months Ended 30 June 2008

(Amounts expressed in thousands of Rmb unless otherwise stated)

1. Company organisation and principal activities

Datang International Power Generation Co., Ltd. (the "Company") was incorporated in Beijing, the People's Republic of China (the "PRC"), on 13 December 1994 as a joint stock limited company. The Company listed its H Shares on the Stock Exchange of Hong Kong Limited and the London Stock Exchange Limited on 21 March 1997 and was registered as a sino-foreign joint stock limited company on 13 May 1998. On 20 December 2006, the Company listed its A Shares on the Shanghai Stock Exchange.

The principal activity of the Company and its subsidiaries and jointly controlled entities (the "Company and its Subsidiaries") is power generation and power plant development in the PRC. Substantially all of the businesses of the Company and its Subsidiaries are conducted within one industry segment.

The directors consider that the significant shareholder of the Company is China Datang Corporation ("China Datang"), which is incorporated in the PRC and does not produce financial statements available for public use.

2. Principal accounting policies

The unaudited condensed consolidated interim financial information for the six months ended 30 June 2008 has been prepared in accordance with International Accounting Standard ("IAS") 34 "Interim Financial Reporting" promulgated by the International Accounting Standards Board. The unaudited condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2007. The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2007, as described in those annual financial statements.

A significant portion of the Company and its Subsidiaries' funding requirements for capital expenditure was satisfied by short-term borrowings. Consequently, as at 30 June 2008, the Company and its Subsidiaries had a negative working capital balance of approximately Rmb32,608 million (31 December 2007 - Rmb30,123 million). The Company and its Subsidiaries had undrawn borrowing facilities, subject to certain conditions, amounting to approximately Rmb51,402 million (31 December 2007 - Rmb55,069 million) and may refinance and/or restructure certain short-term loans into long-term loans and will also consider alternative sources of financing, where applicable. The directors of the Company are of the opinion that the Company and its Subsidiaries will be able to meet its liabilities as and when they fall due within the next twelve months and have prepared these financial statements on a going concern basis.

There are no standards, interpretations or amendments to published standard or interpretations that are mandatory for the first time for the financial year beginning 1 January 2008 and are relevant to the operations of the Company and its Subsidiaries.

The new standards, interpretations or amendments to published standards or interpretations that have been issued but are not effective for the financial year beginning 1 January 2008 have not been early adopted by the Company and its Subsidiaries.

  3. Property, plant and equipment, net

Equipment includes the following amounts where the Company and its Subsidiaries are the lessees under finance leases:

4. Available-for-sale investments

* Change in fair value of available-for-sale investments mainly represents the decrease of the share price of Daqin Railway Company Limited's A shares, which are listed in the Shanghai Stock Exchange.

  5. Intangible assets

* The additions of goodwill in current period were recognised based on provisional purchase price allocation, which may need to be revised when a full and reliable fair value exercise of each acquisition is completed.

** Coal mine exploration rights and mining rights will be amortised on the units of production method after the coal mines commence operation.

6. Accounts receivable

Accounts receivable of the Company and its Subsidiaries mainly represents the receivables from North China Grid Company Limited ("NCG"), State Grid Corporation of China and other provincial grid companies for tariff revenue. The tariff revenue is settled on a monthly basis according to the payment provisions in the power purchase agreements. These receivables are unsecured and non-interest bearing. As at 30 June 2008 and 31 December 2007, all tariff revenue receivables from the respective grid companies were aged within three months, and no doubtful debts were considered necessary.

As at 30 June 2008, receivables amounting to Rmb 278,000,000 (the book value of which is Rmb 278,000,000, aged within one year, and no doubtful debt provision was considered necessary) are pledged for short-term bank loan amounting to Rmb278,000,000.

Ageing analysis of accounts receivable is as follows:

  7. Cash and cash equivalents

 

8. Loans

As at 30 June 2008, the Company and its Subsidiaries had short-term and long-term loans payable to Datang Finance totalling Rmb1,410,000,000 and Rmb203,500,000 (31 December 2007 - Rmb1,926,500,000 and Rmb203,500,000), respectively.

9. Other long term liabilities

 

* Finance lease payables

Finance lease payables are the present value of the minimum lease payment for the financial lease of fixed assets.

  Gross finance lease liabilities - minimum lease payments:

10. Accounts payable and accrued liabilities

As at 30 June 2008 and 31 December 2007, other than certain deposits for construction which were aged between one to three years, substantially all accounts payable were aged within one year.

As at 30 June 2008, the notional principal amount of the outstanding interest rate swap contract of Inner Mongolia Datang International Tuoketuo Power Generation Company Limited was USD179,825,486 (31 December 2007 -  USD186,955,486), and the fixed rate and floating rate were 5.15% (31 December 2007 - 5.15%) and 4.08% (31 December 2007 - 5.39%) (LIBOR offered by British Bankers' Association on 14 January 2008), respectively.

  11. Current portion of long-term liabilities

* Convertible bonds due within one year

The movement of the liability component of the convertible bonds during the six months ended 30 June 2008 is as follows:

The carrying amount of the liability component as at 30 June 2008 of the convertible bonds approximated its fair value.

Interest expense on the bonds is calculated on the effective yield basis of 5.51% (2007 - 5.51%) per annum by applying the effective interest rate for an equivalent non-convertible bonds to the liability component of the convertible bond after considering the effect of issuance cost.

12. Operating revenue

Pursuant to the Power Purchase Agreements entered into between the Company and its Subsidiaries and the regional or provincial grid companies, the Company and its Subsidiaries sell their entire net generation of electricity to these grid companies at approved tariff rates.

  13. Taxation

Income tax is provided on the basis of the statutory profit for financial reporting purposes, adjusted for income and expense items, which are not assessable or deductible for income tax purposes.

In March 2007, the PRC government promulgated the Corporate Income Tax Law (the "CIT Law") which is effective from 1 January 2008. The CIT Law imposes a single income tax rate of 25% for both domestic and foreign invested enterprise. Except the subsidiaries subject to tax exemption, the Company and its Subsidiaries applied the tax rate of 25% under the CIT Law from 1 January 2008.

Income tax has been provided on the estimated assessable profit for the period at their prevailing rates of taxation. Certain subsidiaries, being located in specially designated regions, are subject to preferential income tax rates. In addition, certain subsidiaries are exempted from the PRC income tax for two years starting from the first year of operation followed by a 50% exemption of the applicable tax rate for the next three years.

14. Earnings per share

(i) Basic earnings per share

The calculation of basic earnings per share for profit attributable to the equity holders of the Company was based on profit attributable to equity holders of the Company and on the weighted average amount of shares outstanding during the period.

  14. Earnings per share (Continued)

(ii) Diluted earnings per share

The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The convertible bond is assumed to have been converted into ordinary shares and the net profit is adjusted to eliminate the interest expenses less the tax effect.

* According to the terms and conditions of the convertible bonds, if the Company makes a bonus issue (in either case credited as fully paid by way of capitalisation of profits or reserves), the conversion price will be adjusted to mirror the change of outstanding ordinary shares due to the bonus issue, hence the assumed conversion of convertible bonds have been adjusted retrospectively according to the bonus issue approved in the general meeting held on 29 June 2007.

15. Profit appropriations

Dividends

In the general meeting held on 30 May 2008, the shareholders approved a cash dividend amounting to Rmb 1,408,582,000 in respect of the year ended 31 December 2007. The amounts have been reflected as an appropriation of retained earnings for the six months ended 30 June 2008.

On 16 June 2008, the Company announced the payment of cash dividends of Rmb 1,408,582,000, with reference to the total 11,738,183,947 outstanding ordinary shares as at 30 April 2008 representing the cash dividend per share of Rmb 0.12.

Reserves

During the period, approximately Rmb20,553,000 have been transferred from the restricted reserve to retained earnings. This amount represented amortisation of deferred housing benefits for the six months ended 30 June 2008, net of the additional deferred housing benefits incurred during the same period.

An appropriation of approximately Rmb38,631,000 to the discretionary surplus reserve for the year ended 31 December 2007 was approved by the shareholders on the general meeting held on 30 May 2008.

  16. Related parties and transactions

(i) The related parties of the Company and its Subsidiaries are as follows:

  16. Related parties and transactions (Continued)

(ii) The following is a summary of the major related party transactions undertaken by the Company and its Subsidiaries during the period:

Transactions with other state-controlled entities

The PRC government controls a significant portion of the assets and a substantial number of entities in the PRC. The PRC government is considered to be the Company's ultimate controlling party. Apart from the transactions disclosed above, the Company and its Subsidiaries also conduct a majority of its business with state-controlled entities.

Many state-controlled entities have a multi-layered and complicated corporate structure and the ownership structures change over time as a result of transfers and privatisation programs. Nevertheless, management believes that the Company and its Subsidiaries have provided meaningful disclosures of related party transactions, with inclusion of the following disclosures of material transactions and balances with other state-controlled entities.

  16. Related parties and transactions (Continued)

(ii) The following is a summary of the major related party transactions undertaken by the Company and its Subsidiaries during the period: (Continued)

  16. Related parties and transactions (Continued)

(iii) Key Management Compensation

17. Acquisition

(i) Acquisition of Zhenxing Power Co., Ltd. ("Zhenxing Power")

In January 2008, Datang International (Hong Kong) Limited entered into an agreement with Zhenxing Group Co., Ltd. and Zeng Wei to acquire 70% and 20% interest in Zhenxing Power, respectively, with a total consideration of Rmb652 million. This acquisition became effective on 10 March 2008.

The details of net assets acquired and the related cash flow arising from this acquisition are as follows:

(i) Acquisition of Zhenxing Power Co., Ltd. ("Zhenxing Power") (Continued)

The acquired business contributed revenues of Rmb44 million and net profit of Rmb0.75 million to the consolidated operating results for the period from 10 March 2008 to 30 June 2008. If the acquisition had occurred on 1 January 2008, the consolidated revenue would have been Rmb17,671 million, and profit attributable to the equity holders of the Company would have been Rmb412million.

(ii) Acquisition of Erdos Linyang Resource Consulting Co., Ltd. ("Linyang Company")

In January 2008, the Company entered into an agreement with Inner Mongolia Changqing Coal Sales Co., Ltd. and some individual shareholders of Linyang Company to acquire 32% interest in Linyang Company, with a total consideration of Rmb256 million. This acquisition became effective on 1 February 2008. In addition, in February 2008, the Company entered into an agreement with Inner Mongolia Changqing Coal Sales Co., Ltd. to acquire 20% interest in Linyang Company, with a consideration of Rmb178 million. This acquisition became effective on 11 March 2008. Thereafter the Company controlled 52% interest in Linyang Company and became the controlling shareholder.

The details of net assets acquired and the related cash flow arising from this acquisition are as follows:

 17. Acquisition (Continued)

(ii) Acquisition of Erdos Linyang Resource Consulting Co., Ltd. ("Linyang Company") (Continued)

 

The acquired business contributed nil revenue and nil net profit to the consolidated operation results. If the acquisition had occurred on 1 January 2008, there would be nil impact to the consolidated revenue and net profit attributable to the equity holders of the Company.

  17. Acquisition (Continued)

(iii) Acquisition of Shanxi Zhongqiang Trade Co., Ltd. ("Zhongqiang Company")

In February 2008, the Company entered into an agreement with Fushan Jietong Industrial Co., Ltd. and Ji Hongping to make an investment of Rmb500 million to hold 48% interest in Zhongqiang Company and then acquire another 3% interest in Zhongqiang Company from Ji Hongping with a consideration of Rmb45 million. This acquisition became effective on 23 May 2008. The Company controlled 51% interest in Zhongqiang Company and became the controlling shareholder.

The details of net assets acquired and the related cash flow arising from this acquisition are as follows:

The acquired business contributed nil revenue and nil net profit to the consolidated operation results. If the acquisition had occurred on 1 January 2008, there would be nil impact to the consolidated revenue and net profit attributable to the equity holders of the Company.

  18. Supplemental financial information

  18. Supplemental financial information (Continued)

(c) Condensed consolidated cash flow statement

19. Commitments

(a) Capital commitments

As at 30 June 2008, the Company and its Subsidiaries had capital commitments of investments amounted to Rmb13,088 million (31 December - 2007 Rmb13,423million). In addition, capital commitments of the Company and its Subsidiaries in relation to the construction and renovation of the electric utility plants not provided for in the balance sheet were as follows:

A substantial portion of the above capital commitment is in relation to a coal mining project for which the Company and its Subsidiaries has not yet obtained the relevant mining license. If the mining license is not obtained at the end of the exploration work, there will be no capital commitment for this coal mining project.

 (b) Operating lease commitments

Operating lease commitments extending to November 2016 in relation to buildings were as follows:

 

  20. Financial Guarantees

Based on historical experience, no claims have been made against the Company and its Subsidiaries since the dates of granting the financial guarantees described above.

21. Net assets and net profit reconciliation between PRC GAAP and IFRS

The consolidated financial statements, which are prepared by the Company and its Subsidiaries in conformity with PRC GAAP, differ in certain respects from IFRS. Major differences between PRC GAAP and IFRS, which affect the net assets and net profit of the Company and its Subsidiaries, are summarised as follows:

21. Net assets and net profit reconciliation between PRC GAAP and IFRS (Continued)

(a) Difference in the recognition policy on housing benefits to the employees

The Company and its Subsidiaries provided housing to its employees at a discount price. The price difference between the selling price and the cost of housing is considered to be a housing benefit and is borne by the Company and its Subsidiaries.

For PRC statutory reporting purposes, in accordance with the relevant regulations issued by the Ministry of Finance of the PRC, the total housing benefits provided by the Company and its Subsidiaries before 6 September 2000 should be directly deducted from the statutory public welfare fund and those provided after 6 September 2000 are charged to non-operating expenses as incurred. Under IFRS, the housing benefits provided by the Company and its Subsidiaries are recognised on a straight-line basis over the estimated remaining average service lives of the employees.

(b) Difference in the commencement of depreciation of property, plant and equipment

Under PRC GAAP, depreciation of property, plant and equipment commences from one month after the relevant assets are completed and ready for their intended use. Under IFRS, depreciation commences immediately when the relevant assets are ready for its intended use.

(c) Difference in accounting treatment on monetary housing benefits

Under PRC GAAP, the monetary housing benefits provided to employees who started work before 31 December 1998 were directly deducted from the retained earnings and statutory public welfare fund after approval by the general meeting of the Company.

Under IFRS, these benefits are recorded as deferred assets and amortised on a straight-line basis over the estimated service lives of relevant employees.

(d) Difference in negative goodwill arising from acquisition of Yuzhou Mining Company

Under PRC GAAP, the fair value of the net assets of Yuzhou Mining Company that was acquired by the Company below the consideration therefore resulted in goodwill.

However, certain GAAP differences increased the fair value of the acquired net identifiable assets under IFRS to an amount exceeded the consideration, including reversal of provisions for unused safety fund and development fund of coal mines etc. Hence, under IFRS, a negative goodwill was recognised and credited to the income statement as non-operating income.

(e) Applicable deferred tax impact on the above GAAP differences

This represents the deferred tax effect on the above GAAP differences where applicable.

This information is provided by RNS

The company news service from the London Stock Exchange