wing shan international limited€¦ · annual report 2004 wing shan international limited 3 notice...

Contents

1Annual Report 2004 Wing Shan International Limited

Page

Corporate Information 2

Notice of Annual General Meeting 3

Chairman’s Statement 6

Management Discussion and Analysis 8

Biographical Details of Directors and Senior Managers 12

Report of the Directors 14

Report of the auditors 26

Consolidated profit and loss account 27

Consolidated balance sheet 28

Balance sheet 29

Consolidated statement of changes in equity 30

Consolidated cash flow statement 31

Notes on the accounts 32

Five year financial summary 58

2 Wing Shan International Limited Annual Report 2004

Corporate Information

BOARD OF DIRECTORS

Executive Directors

HE Haochang (Chairman & Managing Director)

CHAN Che Kan, Edward (Deputy Managing Director)

SITU Min (Chief Financial Officer & Qualified Accountant)

LI Feng

Independent Non-executive Directors

CHAN Ting Chuen, David

NG Pui Cheung, Joseph

CHEUNG Kin Piu, Valiant

COMPANY SECRETARY

HUEN Po Wah

AUDIT COMMITTEE

CHAN Ting Chuen, David (Chairman)



REMUNERATION COMMITTEE(Established on 31 January 2005)

CHAN Ting Chuen, David (Chairman)



HE Haochang

REGISTERED OFFICE

Rooms 2801-2805, China Insurance Group Building

141 Des Voeux Road Central

Hong Kong

Tel: (852) 2854-3393

Fax: (852) 2544-1269

E-mail: [email protected]

STOCK CODE

The shares of Wing Shan International Limited are listed

on The Stock Exchange of Hong Kong Limited

(Stock code: 00570)

AUDITORS

KPMG

Certified Public Accountants

Hong Kong

REGISTRARS AND TRANSFER OFFICE

Computershare Hong Kong Investor Services Limited

Shop 1712-16, 17th Floor, Hopewell Centre

183 Queen’s Road East

Hong Kong

PRINCIPAL BANKERS

Bank of China (Hong Kong) Limited

The Hongkong & Shanghai Banking Corporation Limited

WEBSITE

http://www.wingshan.com.hk

Notice of Annual General Meeting


NOTICE IS HEREBY GIVEN that annual general meeting of Wing Shan International Limited (“the Company”) will be

held at Chater Room III, Function Room Level, The Ritz-Carlton, Hong Kong, 3 Connaught Road Central, Hong Kong, on

Tuesday, 24 May 2005 at 10:00 a.m. for the following purposes:

1. To receive and consider the audited statements of accounts and the reports of the Directors and Auditors for the year

ended 31 December 2004.

2. To re-elect Directors.

3. To re-appoint Auditors and to authorise the Board to fix their remuneration.

As special business to consider and, if thought fit, pass the following Ordinary Resolutions:

ORDINARY RESOLUTIONS

4. “THAT:

(a) subject to paragraph (b) of this Resolution, the exercise by the Directors during the Relevant Period (as

hereinafter defined) of all powers of the Company to repurchase shares of the Company on The Stock

Exchange of Hong Kong Limited (“the Stock Exchange”) or on any other stock exchange on which the shares

of the Company may be listed and recognised by the Securities and Futures Commission and the Stock

Exchange for this purpose, subject to and in accordance with all applicable laws and the requirements of the

Rules Governing the Listing of Securities on the Stock Exchange or of any other stock exchange as amended

from time to time, be and is hereby generally and unconditionally approved;

(b) the aggregate nominal amount of shares of the Company which the Company is authorised to repurchase

pursuant to the approval in paragraph (a) of this Resolution during the Relevant Period shall not exceed 10 per

cent. of the aggregate nominal amount of the share capital of the Company in issue as at the date of passing of

this Resolution, and authority pursuant to paragraph (a) of this Resolution shall be limited accordingly; and

(c) for the purposes of this Resolution,

“Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:

(i) the conclusion of the next annual general meeting of the Company;

(ii) the expiration of the period within which the next annual general meeting of the Company is required by

the Companies Ordinance (Cap.32 of the Laws of Hong Kong) (the “Companies Ordinance”) to be held;

and

(iii) the date on which the authority set out in this Resolution is revoked or varied by an ordinary resolution

of the shareholders in general meeting.”



5. “THAT:

(a) subject to paragraph (c) of this Resolution, the exercise by the Directors during the Relevant Period (as

hereinafter defined) of all powers of the Company to allot, issue and deal with additional shares in the capital

of the Company and to make or grant offers, agreements and options (including warrants, bonds, debentures,

notes and other securities which carry rights to subscribe for or are convertible into shares of the Company)

which would or might require the exercise of such power be and is hereby generally and unconditionally

approved;

(b) the approval in paragraph (a) of this Resolution shall authorise the Directors during the Relevant Period to

make and grant offers, agreements and options (including warrants, bonds, debentures, notes and other

securities which carry rights to subscribe for or are convertible into shares of the Company) which would or

might require the exercise of such power after the end of the Relevant Period;

(c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted

(whether pursuant to an option or otherwise) by the Directors pursuant to the approval in paragraph (a) of this

Resolution, otherwise than pursuant to (i) a Rights Issue (as hereinafter defined); or (ii) an issue of shares in

the Company under any option scheme or similar arrangement for the time being adopted for the grant or issue

to the grantees as specified in such scheme or similar arrangement of shares or rights to acquire shares of the

Company; or (iii) an issue of shares in the Company upon the exercise of subscription or conversion rights

under the terms of any existing warrants, bonds, debentures, notes and other securities of the Company which

carry rights to subscribe for or are convertible into shares of the Company; or (iv) an issue of shares in the

Company as scrip dividends pursuant to the articles of association of the Company from time to time, shall not

exceed 20 per cent. of the aggregate nominal amount of the share capital of the Company in issue as at the date

of passing of this Resolution and the said approval shall be limited accordingly; and

(d) for the purpose of this Resolution,

“Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:

(i) the conclusion of the next annual general meeting of the Company;

(ii) the expiration of the period within which the next annual general meeting of the Company is required by

the Companies Ordinance to be held; and

(iii) the date on which the authority set out in this Resolution is revoked or varied by an ordinary resolution

of the shareholders in general meeting;

“Rights Issue” means an offer of shares of the Company or issue of option, warrants or other securities giving

the right to subscribe for shares of the Company, open for a period fixed by the Directors to holders of shares

whose names appear on the register of members of the Company (and, where appropriate, to holders of other



securities of the Company entitled to the offer) on a fixed record date in proportion to their then holdings of

such shares of the Company (or, where appropriate, such other securities) (subject to such exclusions or other

arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having

regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory

body or any stock exchange in, any territory applicable to the Company).”

6. “THAT conditional upon the passing of Ordinary Resolutions Nos. 4 and 5 set out in the notice convening this

meeting, the general mandate granted to the Directors to exercise the powers of the Company to allot shares pursuant

to said Ordinary Resolution No. 5 be and is hereby extended by the addition thereto of an amount representing the

aggregate nominal amount of the share capital of the Company repurchased by the Company under the authority

granted pursuant to Ordinary Resolution No. 4, provided that such extended amount shall not exceed 10 per cent. of

the aggregate nominal amount of the share capital of the Company in issue as at the date of passing of this

Resolution.”

By Order of the Board of Directors

HUEN Po Wah

Company Secretary

Hong Kong, 28 April 2005

Notes:

1. Any member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote

instead of him. A proxy need not be a member of the Company.

2. In order to be valid, the form of proxy together with any power of attorney or other authority (if any) under which it is signed or a

notarially certified copy of that power or authority, must be deposited at the registered office of the Company at Rooms 2801-

2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong not less than 48 hours before the time appointed

for holding the meeting.

3. In relation to the Ordinary Resolutions Nos. 4, 5 and 6, the Directors wish to state that they have no immediate plan to issue any

new shares or repurchase any existing shares of the Company.

4. As at the date of this notice, the board of directors of the Company comprise 7 directors, of which Mr. HE Haochang, Mr. CHAN

Che Kan, Edward, Mr. SITU Min and Mr. LI Feng are the executive directors of the Company, Mr. CHAN Ting Chuen, David,

Mr. NG Pui Cheung, Joseph and Mr. CHEUNG Kin Piu, Valiant are independent non-executive directors of the Company.


Chairman’s Statement

Dear Shareholders,

BUSINESS RESULTS

In 2004, Wing Shan International Limited (the “Company”)

(together with its subsidiaries called the “Group”)

experienced another year of extreme difficulty. The Group

reported a net loss of HK$55.9 million (2003: HK$17.6

million) for the year ended 31 December 2004. Loss per

share therefore increased further from the previous 2.12 to

6.73 Hong Kong cents. The performance decline was

primarily attributable to the persistent surge of fuel oil

prices. The Group’s EBITDA (Earnings Before Interest,

Taxation, Depreciation and Amortization) significantly

decreased to HK$79.8 million (2003: HK$144.6 million).

In light of the increased working capital requirement, the

Company’s board of directors (the “Board”) has resolved not to recommend the payment of a final dividend for the year

(2003: 1.5 Hong Kong cents per share).

OPERATIONAL PERFORMANCE

Despite the somewhat disappointing business results which reflected an industry-wide phenomenon for most fuel-oil power

plants operating in Guangdong Province, the People’s Republic of China (“PRC”) during the year, the Group achieved

encouraging performance on operational fronts. First of all, the Group achieved record high of electricity production

volume with improved utilization of its existing installed capacity. Secondly, the Group’s electricity sales volume

complied with the production quota as allocated by the relevant authorities of Foshan Municipality thereby ensuring

reliable supply of electricity at times of severe power supply shortfall to the local communities of Foshan Municipality.

These were made possible as routine maintenance and repairs programs were scheduled and undertaken mostly during low

demand periods so that maximum production could be accomplished during peak demand periods. Throughout the year,

production was hence carried out safely without serious interruption caused by unexpected mechanical breakdown or

failures. On the financial management side, the Group has adopted financial measures to reduce imminent pressure caused

by the performance decline on the Group’s financial health. In this regard, the long-term debts due to the Group’s joint-

venture partner and its associate had been rescheduled and additional sources of external financing were secured for

ensuring the Group’s working capital sufficiency and strengthening long-term financial solidarity. On the market front, the

achievement is more encouraging. The Group sustained its market position as the dominant local power plant operator in

Foshan Municipality. During the year, the Group adopted cooperative strategy to work with industry counterparts in the

province to lobby for additional fuel cost surcharge. In addition, the Group entered into a facility lease agreement with a

newly built oil fired power plant located in close proximity to the Group’s existing power generating facilities. The

transaction was expected to enhance mutual relationship and foster future cooperation opportunities.

HE Haochang Chairman

Chairman’s Statement


THE WAY AHEAD

The Group has been operating its electricity generation business for nearly two decades in Foshan Municipality with

established market reputation for operational efficiency and management excellence. Notwithstanding the short-term

repercussion caused by the fluctuating fuel oil prices which could exert pressure on the Group’s financial performance and

strategy flexibility, the Board is confident in the long-term business prospects of the Group’s business. The Group would

continue its effort to obtain additional fuel cost surcharge. While consumer tariff in the Province had been generally

adjusted upwards during the year, there were also reports that the relevant authorities of Guangdong Province are

contemplating to establish a fuel-linked tariff adjustment scheme for fuel oil power plant operators in the Guangdong

Province to improve on-grid tariff adjustment flexibility. On the other hand, the Group will closely monitor the availability

of natural gas supply to Foshan Municipality in the near future and explore the feasibility of the gasification of the Group’s

power plant facilities to reduce the Group’s susceptibility to fuel oil prices fluctuation. While every measure would

continue to be taken to improve the Group’s performance, tremendous efforts would also be expended to ensure the

Group’s financial solidarity and facilitate necessary capital expenditure program and prospective investment opportunity.

APPRECIATION

During the year, our management teams and all our staff have endeavored their greatest effort to brave the challenges

brought about by the high fuel oil prices. I have witnessed the strongest ever unity amongst all of us at the highest team

spirit to face the difficult external environment. At the same time, I have also experienced the warmest support and the

most generous assistance from our suppliers, joint-venture partners, customer, the relevant authorities of the Foshan

Municipal Government and in particular the greatest patience of our shareholders. On behalf of the Board, I must hereby

express my sincere appreciation to all of you.

HE Haochang

Chairman



Management Discussion and Analysis

PERFORMANCE REVIEW

The Group’s total turnover grew by 3.4% to HK$740.7 million (2003: HK$716.5 million) which included additional fuel

cost surcharge of HK$12.3 million (2003: HK$42.6 million). However, the total cost of sales grew more markedly by

17.0% to HK$747.8 million (2003: HK$639.3 million). As the relevant PRC parties of the Guangdong Provincial

Government and the customer have not yet agreed and hence the Group has not yet recognized and received the amount of

additional fuel cost surcharge for the year ended 31 December 2004, the Group suffered gross loss of HK$7.0 million

(2003: profit of HK$77 million). Although administrative expense was contained at HK$22.5 million (2003: HK$22.5

million), loss from operations amounted to HK$47.0 million (2003: profit of HK$19.1 million). Finance cost continued to

decline from the previous HK$26.4 million to HK$20.9 million. Loss from operating activities before taxation widened to

HK$67.9 million (2003: HK$7.3 million) and loss per share further widened from the previous 2.1 Hong Kong cents to 6.7

Hong Kong cents.

OPERATIONAL REVIEW

Market Development

During the year, Foshan Municipality experienced sustained electricity demand growth as a result of the sustained strong

growth of economic activities of Guangdong Province, PRC. Despite the increased power supplies from the provincial

grid, electricity supply shortage persisted. Shakou Power Plant and other local power plants in Foshan Municipality had to

operate at maximum capacity during peak load demand periods. However, operating environment remained extremely

difficult as fuel oil price surged to new high levels during the year as a result of the movements in international oil price.

On-grid tariff adjustment remained inflexible under the strict control of the relevant authorities of the Guangdong

Provincial Government. During the year, a number of newly built power plants in the Province commenced operation. In

particular, a new thermal power plant named Funeng Power Plant, operated by Funeng Power Supply Co., Ltd. (“Funeng

JV”), was built in Foshan Municipality in close proximity to the Group’s existing power generating facilities. Funeng JV, a

Sino-foreign equity joint-venture established in the PRC, is controlled by the Group’s PRC joint-venture partner. Funeng

Power Plant has a total installed capacity of approximately 360 megawatts; the first phase of 180 megawatts had already

commenced production in late 2004 while the second phase of 180 megawatts is expected to commence production in mid-

2005. Due to the expected strong growth of electricity demand of Foshan Municipality in the coming years, the Group

considered that Funeng Power Plant would not be in immediate and direct competition with the Groups’ existing business.

The Group believed that by adopting a cooperative business strategy towards Funeng Power Plant, the Group could foster

further opportunities for future cooperation.

Electricity Sales

The Group increased its electricity sales volume by 7.7% to approximately 1.54 billion (2003: 1.43 billion) kilowatt-hours.

All the electricity produced was primarily sold to the Group’s sole customer, 廣東省廣電集團有限公司佛山供電分公

司 (Guangdong Guan-dian Power Grid Group Co. Ltd., Foshan Branch), for onward sales and transmissions to end-users

in Foshan Municipality, Guangdong Province, the PRC. The Group’s on-grid tariff remained unchanged throughout the

year. The average plant utilization rate for the year improved to 59% (2003: 54%). No major incident of mechanical

breakdown or operational failure was recorded.



Fuel Oil Price

During the year, international oil price continued to hike and fuel oil prices hovered at new high levels. With the support of

its fuel oil suppliers, the Group continued its strategic bulk-purchasing policy and was able to sustain a less marked

increase as compared with market magnitude in fuel oil cost. The weighted average cost of heavy oil consumed by Shakou

JV for the year therefore increased by 8.2% from the previous Renminbi 1,798 to Renminbi 1,946 per tonne.

Additional Fuel Cost Surcharge

The Group continued its strategy to reduce the full impact of increased fuel oil cost on its performance by negotiating with

the relevant PRC parties of the Province and the customer for additional fuel cost surcharge. During the year, the Group

received additional fuel cost surcharge for the fourth quarter of 2003 of an aggregate amount of HK$12.3 million. As such

additional fuel cost surcharge was confirmed and received after the approval date of the Group’s accounts for 2003, the

amount had been accounted for in the Group’s accounts for this year. The total amount of additional fuel cost surcharge for

the year 2003 was therefore HK$54.9 million. However, as up to the date of this report, the relevant PRC parties of the

Guangdong Provincial Government and the customer have not yet agreed and hence the Group has not yet recognized and

received the amount of additional fuel cost surcharge for the year ended 31 December 2004. Barring unforeseen

circumstances, the Group believed that such additional fuel cost surcharge would be finalized and received in 2005.

Facility Lease Agreement

On 30 July 2004, Shakou JV and Funeng JV entered into the Facilities Lease Agreement, pursuant to which Funeng JV

agreed to lease from Shakou JV certain assets (including office premises, factory premises, land-use rights and auxiliary

power generation facilities) for two years commencing from 30 July 2004, the date of the Facilities Lease Agreement. The

consideration is to be satisfied in cash by two annual payments of RMB4.8 million (equivalent to approximately HK$4.5

million) each. Details of the transaction have already been disclosed in the Company announcement dated 2 August 2004.

FINANCIAL REVIEW

Liquidity and Financial Resources

The Group funded its operation largely by internal cash inflow generated from its operating activities. However, net cash

outflow from operating activities amounted to HK$46.5 million (2003: inflow of HK$177.2 million) mainly due to the

increased net loss and the increased trade receivables. Net cash generated from investing activities amounted to HK$0.9

million (2003: HK$1.0 million). During the year, the Group repaid other loans of an aggregate amount of HK$87.8 million

(2003: HK$71.4 million) and bank loans of HK$50.5 million (2003: HK$168.4 million), partly re-financed by proceed

from new bank borrowings of HK$97.3 million (2003: HK$162.8 million). As a result, net cash used in financing activities

amounted to HK$76.4 million (2003: HK$125.9 million). Total cash and cash equivalents as at balance sheet date therefore

decreased significantly from HK$220.3 million to HK$98.3 million.



As at balance sheet date, the Group’s total current assets amounted to HK$296.2 million (2003: HK$295.6 million), which

mainly comprised of cash and cash equivalents of HK$98.3 million (2003: HK$220.3 million); and trade and other

receivables of HK$179.8 million (2003: 56.8 million). Total current liabilities amounted to HK$180.1 million (2003:

HK$251.2 million), which mainly comprised of trade and other payables of HK$132.1 million (2003: HK$123.0 million);

current portion of long-term loans of HK$ nil (2003: HK$65.3 million); and a short-term bank loan of HK$46.8 million

(2003: HK$50.5 million). Net working capital surplus amounted to HK$116.1 million (2003: HK$44.4 million). Current

ratio moderately increased from the previous 1.18 to 1.64. Net debts (total interest-bearing short-term debts and long-term

debts less cash) grew 34.4% to HK$316.2 million (2003: HK$235.2 million).

Committed Banking Facilities

As at 31 December 2004, the Group had available committed banking facilities from three PRC banks for an aggregate

amount of HK$196.5 million (2003: HK$196.5 million). At 31 December 2004, the outstanding balance of a short-term

Renminbi bank loan was HK$46.8 million (2003: HK$50.5 million) and the bank loan bears interest at an annual rate of

4.779% (2003: 4.536%). The Group also had three three-year term bank loans the aggregate outstanding balance of which

amounted to HK$78.6 million (2003: HK$28.1 million) and the loans all bear interest at annual rate of 4.941% (2003:

4.941%). Save as disclosed herein, the Group had no other bank borrowings or committed banking facilities.

Charge on Group Assets

As at 31 December 2004, the Group’s power generating facilities of an aggregate amount of HK$1.1 billion (2003: HK$1.2

billion) were charged to three banks in the PRC to secure the respective banking facilities for Shakou JV’s working capital

requirements. Apart from such, no other part of the Group’s assets has been charged to banks, financial institutions or other

enterprises.

Contingent Liabilities

As at 31 December 2004, the Group had contingent liabilities of approximately HK$43 million (2003: HK$43 million),

details of which has been disclosed in the section headed “CONTINGENT LIABILITIES” under “Notes on the accounts”

in this report.

Capital Structure and Gearing Ratio

The Group continued to finance its non-current assets principally by a mix of long-term debts and shareholders’ equity.

The Group’s long-term debts (including their current portions) decreased by 9.2% to HK$367.6 million (2003: HK$404.9

million). Total long-term debts mainly comprised: (1) the aggregate outstanding balance of the unsecured long-term

Renminbi loans due to Shakou JV’s PRC joint-venture partner and its associate of HK$289.0 million (2003: HK$376.8

million); and (2) three three-year Renminbi term loans due to three PRC banks of aggregate amount of HK$78.6 million

(2003: HK$28.1 million). The long-term Renminbi loans due to Shakou JV’s PRC joint-venture partner and its associate

were primarily employed to re-finance Shakou JV’s investment in its fixed assets, principally power generating facilities,

and were repayable within 10 years commencing in 1997 and 1998. The applicable loan rates for the year were 5.76%

(2003: 5.76%) per annum. During the year, the Group made partial payment of HK$87.8 million (2003: HK$71.4 million).



Furthermore, Shakou JV negotiated with its PRC joint-venture partner and its associate to reschedule current portions of

the long-term loans due for repayments in 2005 of an aggregate amount of HK$93.7 million (2003: HK$66 million),

extending the expiry for about 18 months. Gearing ratio, being the aggregate amount of bank loans and other loans

(including current portion) as a percentage of shareholders’ fund, decreased modestly from the previous 31.2% to 29.8%.

Net Assets

The Group’s net assets amounted to HK$1.39 billion (2003: HK$1.46 billion). The net book value of goodwill arising from

acquisition of subsidiaries was HK$578.3 million (2003: HK$609.9 million). Net assets per share decreased from the

previous HK$1.76 to HK$1.68 while net tangible assets per share decreased slightly from the previous level of

approximately HK$1.03 to HK$0.98.

Exchange Risk

During the year, the Group’s revenue, operating costs, finance costs, debt servicing and capital expenditure were

substantially denominated in Renminbi. Currently the exchange rate of Renminbi against Hong Kong dollars has been

relatively stable. No financial instrument has been used for the purpose of hedging exchange rate risk during the year.

Employees and Remuneration Policies

As at year end, the Group employed a total of approximately 198 (2003: 198) staff excluding executive directors.

Remuneration packages principally comprised salary and performance bonuses based on individual merits. The Group’s

total employee remuneration for the year was approximately HK$21.4 million (2003: HK$21.4 million).

SITU Min HE Haochang

Chief Financial Officer Chairman and Managing Director



Biographical Details of Directors and Senior Managers

EXECUTIVE DIRECTORS

HE Haochang, aged 54, was appointed to the Board in February 2001. Mr. HE has been the Chairman & Managing

Director of the Company since 19 July 2001. As the Chairman of the Board, Mr. HE is responsible for the running of the

Board and the ensuring of the Directors’ performance. As the Managing Director of the Company, he is also responsible

for the overall strategic planning and management of the Group’s businesses. Mr. HE is the Chairman of Shakou JV.

Educated in China, Mr. HE is experienced in the management of joint-venture enterprises in the PRC. At present, Mr. HE

is also the Chairman of Foshan Development Company Limited, a controlling shareholder of the Company.

CHAN Che Kan, Edward, aged 43, was appointed to the Board in December 1992. Mr. CHAN is the Deputy Managing

Director of the Company and is responsible for the formulation of operational plans and the supervision of the day-to-day

administration of the Company’s corporate head office in Hong Kong. Graduated with a bachelor degree in Social Sciences

from the University of Hong Kong, Mr. CHAN has worked in The Sumitomo Bank Limited, Deutsche Bank and Banque

Nationale de Paris and specialized in China lending business before joining the Company. Presently, Mr. Chan is a

member of The Hong Kong Institute of Directors.

SITU Min, aged 35, was appointed to the Board in September 2001. Mr. SITU is the Chief Financial Officer and the

Qualified Accountant of the Company and a director of Shakou JV. Mr. SITU is responsible for the Group’s financial

planning and management, overseeing all its financial matters. Mr. SITU is a member of the Association of Chartered

Certified Accountants and is also a member of Chinese Institute of Certified Public Accountants. Mr. SITU has

experiences in auditing and financial management and has worked as the Manager of Finance Department of Foshan

Development Company Limited.

LI Feng, aged 36, was appointed to the Board in February 2003. Mr. LI is also a director and the Plant Manager of Shakou

JV, responsible for the production and operation of Shakou Power Plant. Mr. LI is a senior mechanical engineer, graduated

from 哈爾濱船舶工程學院(Harbin Shipping Engineering University) and obtained his Master of Business Administration

degree from 暨南大學 (Ji Nam University). He has also worked in various thermal power plants in Guangdong before

joining Shakou JV.

INDEPENDENT NON-EXECUTIVE DIRECTORS

CHAN Ting Chuen, David, aged 57, was appointed to the Board in December 1992. Mr. CHAN is the Chairman of both

the Company’s audit committee and remuneration committee. Mr. CHAN graduated with a bachelor degree in Civil

Engineering from the University of Hong Kong. He is an entrepreneur, especially in the property development and

manufacturing industry. He is the Chairman of Build Tech Holdings Limited. Mr. CHAN is currently an non-executive

director of Symphony Holdings Limited, a company listed on The Stock Exchange of Hong Kong Limited (the “Stock

Exchange”).

Biographical Details of Directors and Senior Managers


NG Pui Cheung, Joseph, aged 59, was appointed to the Board in June 2002 and is a member of the Company’s audit

committee and remuneration committee. Mr. NG is an ex-banker, experienced in China financial businesses. He has

worked in a number of reputable banking institutions which include Bank of East Asia Limited, Banque Nationale De

Paris, Bank of the Orient, Societe Generale and Credit Lyonnais Securities Limited. Mr. NG has been the General Manager

of Hong Kong Operation of Credit Card DNA Security System (Holdings) Limited, a company listed on the Stock

Exchange. He is presently an independent non-executive director of Vision Grande Group Holdings Limited, also a

company listed on the Stock Exchange.

CHEUNG Kin Piu, Valiant, aged 59, was appointed to the Board in March 2004 and is a member of the Company’s audit

committee and remuneration committee. Mr. CHEUNG had been a partner at KPMG, a leading international accounting

firm in Hong Kong, until his retirement in March 2001. Mr. CHEUNG has extensive experience in assurance and corporate

finance work, particularly on trading and manufacturing corporations in Hong Kong and the PRC and has assisted a

number of companies in obtaining a listing on stock exchanges in Hong Kong, the PRC, Singapore and the US. In addition,

he has provided financial advisory and due diligence services to foreign investors on investments in the PRC. Mr. Cheung

is a fellow member of the Institute of Chartered Accountants in England and Wales and the Hong Kong Institute of

Certified Public Accountants. He is presently an independent non-executive director of Dream International Limited and

Pacific Century Premium Development Limited, both are companies listed on the Stock Exchange.


Report of the Directors

The directors submit herewith their annual report together with the audited accounts for the year ended 31 December 2004.

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. The principal activities of the Company and its subsidiaries

are the generation and sale of electricity in Foshan City, Guangdong Province, the People’s Republic of China (the

“PRC”).

ACCOUNTS

The Group’s loss for the year ended 31 December 2004 and the state of the Company’s and the Group’s affairs at that date

are set out in the accounts on pages 27 to 57.

The Directors have resolved not to recommend the payment of a final dividend (2003: 1.5 Hong Kong cents per share) in

respect of the year ended 31 December 2004.

MAJOR CUSTOMER AND SUPPLIERS

All of the Group’s electricity was sold to one single customer, 廣東省廣電集團有限公司佛山供電分公司

(Guangdong Guang-Dian Power Grid Group Co. Ltd., Foshan Branch) (“Guangdong Guang-Dian”), for onward supply to

the ultimate end users in Foshan City. The Group’s largest supplier contributed to 86.6% of its total purchases and the

Group’s five largest suppliers contributed to 99.0% of its total purchases during the year. At no time during the year have

the directors, their associates or any shareholders of the Company (which to the knowledge of the Directors own more than

5% of the Company’s share capital) had any interest in the Group’s five largest suppliers and customer.

SUBSIDIARIES

Particulars of the Company’s subsidiaries as at 31 December 2004 are set out in note 14 on the accounts.

FIXED ASSETS

Details of movements in fixed assets during the year are set out in note 12 on the accounts.

BANK LOANS AND OTHER BORROWINGS

Particulars of bank loans and other borrowings of the Company and the Group as at 31 December 2004 are set out in notes

21 to 22 on the accounts.

SHARE CAPITAL AND RESERVES

Details of the movements in share capital and reserves of the Company during the year are set out in notes 23 and 24 on the

accounts respectively.



FIVE YEAR FINANCIAL SUMMARY

A summary of the results and of the assets and liabilities of the Group for the last five financial years is set out on page 58

of the annual report.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed

securities.

CORPORATE GOVERNANCE

During the year ended 31 December, 2004, the Company has complied with the then applicable Code of Best Practice as

was then set out in Appendix 14 of the pre-existing Listing Rules. The Company has adopted the Model Code set out in

Appendix 10 to the Listing Rules as the code of conduct regarding securities transactions by the Directors. Having made

specific enquiry of all Directors, the Company confirmed that all Directors have complied with the required standard set

out in the Model Code.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information that is publicly available to the Company and within the knowledge of its Directors, as at the date

of this annual report, there is sufficient public float, as not less than 25% of the Company’s issued shares are held by the

public.

AUDIT COMMITTEE

The audit committee comprises three independent non-executive directors and reports to the board of directors. The audit

committee meets with the Group’s senior management and external auditors regularly to review the effectiveness of the

internal control systems and the interim and annual reports of the Group.

AUDITORS

KPMG retire and, being eligible, offer themselves for re-appointment. A resolution for the re-appointment of KPMG as

auditors of the Company is to be proposed at the forthcoming Annual General Meeting.

FUEL SUPPLY TRANSACTIONS

Pursuant to a fuel supply agreement dated 30 November 2002 entered into between Shakou JV and 佛山市區電力燃料

公司 (Foshan City District Electricity Fuel Supply Company) (the “Fuel Company”) (the “Fuel Supply Agreement”),

Shakou JV purchased fuel of an aggregate amount of approximately HK$542.8 million during the year (2003: HK$507.8

million) from the Fuel Company (the “Fuel Supply Transactions”). These transactions are detailed below:

FY 2004 Heavy Oil Diesel Oil Total

Quantity (tonnes): 297,397 662 N.A.

Value (HK$’000): 540,813 2,009 542,822

Weighted average price (HK$/tonne): 1,818 3,035 N.A.

Note: All prices and values are exclusive of value added tax.



FUEL SUPPLY TRANSACTIONS (Continued)

Pricing Policy

During the year, Shakou JV purchased most of its fuel from the Fuel Company. Shakou JV has established a pricing policy

such that the price payable by Shakou JV for the fuel delivered will be determined by Shakou JV and the Fuel Company

from time to time, but in any event will not be higher than: i) the then prevailing market prices for sales of fuel by the Fuel

Company to independent third parties; or ii) the then quotation of price of the fuel that Shakou JV could obtain from other

independent supplier(s), whichever is the lower.

The Stock Exchange Waiver

As the Fuel Company is an associate of 佛山市區電力建設總公司 (Foshan City District Electric Power Construction

Corporation) (“Power Construction Corporation”), which in turn is a substantial shareholder of Shakou JV, the Fuel

Company is hence a connected party of the Company and the Fuel Supply Transactions were connected transactions as

defined under the Listing Rules. The Stock Exchange of Hong Kong Limited (The “Stock Exchange”) has issued a letter

dated 24 December 2002 to grant a waiver to the Company so that it can be exempted from the relevant requirements as

stipulated under Chapter 14A of the Listing Rules on certain conditions.

Opinion of the Independent Non-executive Directors

The Company’s independent non-executive directors have reviewed the Fuel Supply Transactions and confirmed in a letter

dated 12 April 2005 that: (a) the Fuel Supply Transactions have been entered into by the Company in the ordinary and

usual course of its business; (b) the Fuel Supply Transactions have been entered into on terms no less favorable than terms

available from independent third parties; (c) the Fuel Supply Transactions have been entered into in accordance with the

terms and conditions of the Fuel Supply Agreement dated 30 November 2002 governing such Fuel Supply Transactions;

and (d) the aggregate amount the Fuel Supply Transactions has not exceeded the cap amount of 80% of the cost of sales of

the Group for the year ended 31 December 2004.

Confirmation from the Auditors

The Company’s auditors have reviewed the Fuel Supply Transactions and confirmed to the Directors in writing stating

that: (a) the Fuel Supply Transactions have received the approval of the Directors; (b) the Fuel Supply Transactions were

in accordance with the pricing policy as stated in the Company’s annual report; (c) the Fuel Supply Transactions have been

entered into in accordance with the terms of the Fuel Supply Agreement dated 30 November 2002; and (d) the aggregate

amount of the Fuel Supply Transactions has not exceeded the cap amount of 80% of the cost of sales of the Group for the

year ended 31 December 2004.



DISCLOSURE OF TRADE RECEIVABLES PURSUANT TO RULE 13.20 OF THE LISTING RULES

The market capitalization of the Company as at 31 December 2004 amounting to approximately HK$320,436,450 based on

the total number of 830,146,244 shares in issue on 31 December 2004 and the average closing price of HK$0.386 per share

as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding 31 December

2004. As at 31 December 2004, the trade receivables owed to the Group by Guangdong Guan-Dian, in aggregate amounted

to RMB184,231,331 (equivalent to approximately HK$172,404,390), represented approximately 53.80% of the Company’s

market capitalization on 31 December 2004. Due to persistent strong demand of electricity in Foshan City, the relevant

trade receivables had increased in line with the increase in sales of electricity to Guangdong Guan-Dian last year. The

relevant trade receivables comprised account receivables arose solely from the sales of electricity to Guangdong Guan-

Dian by the Group in its ordinary course of business. The relevant trade receivables are interest-free, unsecured and with

credit terms of 30 days and with average settlement period of approximately 45 days. Guangdong Guan-Dian, a state-

owned enterprise incorporated in the PRC, is an independent third party and not a connected person of the Company (as

defined in the Listing Rules) whose principal business is the commercial operation of electric power distribution and

supply in Foshan Municipality of Guangdong Province, the PRC. The Group has well-established business relationship

with Guangdong Guan-Dian which is the Group’s sole customer. Pursuant to the requirements under Rules 13.13, 13.14

and 13.15 of the Listing Rules, details of such trade receivables were disclosed in the Company’s announcement dated 8

February 2005. Pursuant to Rule 13.20 of the Listing Rules, the Company was required to include in this report the

information specified under Rule 13.15 of the Listing Rules.

CONNECTED TRANSACTIONS

Renminbi Long-term Loans

Shakou JV had outstanding unsecured Renminbi long-term loans due to Power Construction Corporation and its associate

of an aggregate amount of HK$289.0 million as at balance sheet date. Power Construction Corporation is a 20%

shareholder of Shakou JV and hence a connected person of the Company as defined under the Listing Rules. Shakou JV

made repayments of an aggregate amount of HK$87.8 million and interest payments of HK$16.2 million to lenders in

accordance with the terms and conditions of the respective loan agreements, details of which have been disclosed in the

Company’s circular to shareholders dated 23 March 1998. During the year, Power Construction Corporation has agreed to

waive Shakou JV’s previous years’ overdue interest in the amount of HK$9.0 million without consideration. Subsequent to

31 December 2004, Shakou JV has obtained consents from the lenders to extend the expiry for an aggregate amount of

HK$93.7 million loan repayments due in 2005 for about 18 months and the lenders also agreed to waive the interest

penalties on all interest payable due in 2004.

Fuel Purchases

Shakou JV made fuel purchases from the Fuel Company of an aggregate amount of approximately HK$542.8 million,

details of which are listed in the section headed Fuel Supply Transaction of this report. These transactions were made in

accordance with a Fuel Supply Agreement entered into between Shakou JV and the Fuel Company on 30 November 2002,

details of which have been disclosed in the Company’s circular dated 14 December 2002 and approved by the Company’s

shareholders on 31 December 2002.



CONNECTED TRANSACTIONS (Continued)

Facility Lease Agreement

On 30 July 2004, Shakou JV and Funeng Power Supply Co. Ltd. (“Funeng JV”), a Sino-foreign equity joint-venture

established in the PRC and a subsidiary of Foshan Electric Power Construction Group Corporation (“Power Group

Corporation”), entered into the Facilities Lease Agreement, pursuant to which Funeng JV agreed to lease from Shakou JV

certain assets (including office premises, factory premises, land-use rights and auxiliary power generation facilities) for

two years commencing from 30 July 2004, the date of the Facilities Lease Agreement. The consideration is to be satisfied

in cash by two annual payments of RMB4.8 million (equivalent to approximately HK$4.5 million) each. As Power

Construction Corporation, a wholly-owned subsidiary of Power Group Corporation, is a substantial shareholder (as defined

in the Listing Rules) of Shakou JV, it is a connected person of the Company within the meaning of the Listing Rules.

Funeng JV, being a subsidiary of Power Group Corporation, is an associate (as defined in the Listing Rules) of Power

Construction Corporation by virtue of its being a fellow subsidiary of Power Construction Corporation and thus the

entering into of the Facilities Lease Agreement between Shakou JV and Funeng JV constitutes a connected transaction of

the Company and the transactions arising therefrom constitute continuing connected transactions under Chapter 14A of the

Listing Rules. Since, in respect of the aggregate consideration on an annual basis under the Facilities Lease Agreement

payable by Funeng JV to Shakou JV, each of the applicable percentage ratios for connected transaction purpose is less than

2.5%, the entering into the Facilities Lease Agreement is only subject to the reporting and announcement requirements

under Rules 14A.45 to 14A.47 of the Listing Rules and no shareholders’ approval is required. Detailed of the transaction

had been disclosed in the Company’s announcement dated 2 August 2004.

DIRECTORS

The directors during the financial year and up to the date of this report were:

Executive Directors

HE Haochang (Chairman & Managing Director)

CHAN Che Kan, Edward (Deputy Managing Director)

SITU Min (Chief Financial Officer & Qualified Accountant)

LI Feng

Non-executive Director

LAM Siu Hung (Appointed on 20 January 2004 and retired on 21 May 2004)

Independent Non-executive Directors

CHAN Ting Chuen, David


CHEUNG Kin Piu, Valiant (Appointed on 15 March 2004)

In accordance with articles 92 and 101 of the Company’s articles of association, Mr. HE Haochang, Mr. SITU Min and Mr. LI

Feng will retire from the board at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election.



DIRECTORS’ INTERESTS IN CONTRACTS

No contracts of significance to which the Company or subsidiaries was a party, and in which a director of the Company

had a material interest, subsisted at the end of the year or at any time during the year.

DIRECTORS’ SERVICE CONTRACTS

Mr. CHAN Che Kan, Edward has service contract with the Company for a period of 3 years commencing on 1 January

1993 at the salary remuneration of HK$780,000 per annum which is subject to approval by the Board and will continue

thereafter until terminated by either party to the contracts at six months’ notice.

Mr. HE Haochang also has a service contract with the Company for a term of two years commencing on 19 July 2001 at

the salary remuneration of HK$256,960 per annum which is subject to approval by the Board and will continue thereafter

until terminated by either party to the agreement at six months’ notice.

On 1 March 2003, Mr. SITU Min entered into a service contract with the Company for a term of two years commencing on

1 March 2003 at the salary remuneration of HK$295,000 per annum which is subject to approval by the Board and will

continue thereafter until terminated by either party to the agreement at six months’ notice.

No director proposed for re-election at the forthcoming Annual General Meeting has an unexpired service contract which

is not determinable by the Company and any of its subsidiaries within one year without payment of compensation, other

than normal statutory obligations.

NON-EXECUTIVE DIRECTORS

Terms of non-executive directors

Currently, all non-executive directors are independent and are appointed for a specific term, subject to re-election. Mr.

CHAN Ting Chuen, David, Mr. NG Pui Cheung, Joseph and Mr. CHEUNG Kin Piu, Valiant, all of them being

independent non-executive directors of the Company, are appointed for a period of two years up to 30 November 2005, 17

June 2006 and 14 March 2006 respectively or such later date(s) as agreed by the respective independent non-executive

directors and the Company. On 17 June 2004, Mr. NG Pui Cheung, Joseph renewed his term of appointment with the

Company for a period of two years up to 17 June 2006. The fee for each of the directors was fixed at HK$100,000 per

annum by the shareholders at the Annual General Meeting of the Company held in May 2002 and continues to be paid at

such rate until otherwise determined by the shareholders in general meeting.

Confirmation of independence

The Company has received annual confirmation from each of the independent non-executive directors as regards to their

independence to the Company and considers that each of the independent non-executive directors is independent to the

Company.



DISCLOSURE OF INTERESTS

Directors’ and Chief Executives’ Interests

As at 31 December, 2004, the interests or short positions of the directors and chief executive in the shares, underlying

shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and

Futures Ordinance (“SFO”)) as recorded in the register which were required to be kept under section 352 of the SFO or as

otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by

Directors of Listed Companies were as follows:-

Long Positions in shares and underlying shares of the Company:

Number of Ordinary Shares

Approximate

Personal Corporate Underlying Percentage

Interests Interests Shares of Total

(held as (interests of Pursuant to Interests to

beneficial controlled Share Options Issued Share

Name of Directors owner) corporation) (Note 2) Total Interests Capital (%)

HE Haochang – 6,117,079 4,200,000 10,317,079 1.24

(Note 1)

CHAN Che Kan, Edward 205,034 – 3,900,000 4,105,034 0.49

SITU Min – – 3,800,000 3,800,000 0.46

LI Feng – – 1,500,000 1,500,000 0.18

CHAN Ting Chuen, David 828,000 – – 828,000 0.10

NG Pui Cheung, Joseph – – 828,000 828,000 0.10

Notes:–

1. These shares were held by Main Fortune International Limited which is 50% owned by Mr. HE Haochang.

2. These represents interests of options granted to the directors under the Share Option Scheme to acquire for shares of the Company,

further details of which are set out hereinafter.

Other than as disclosed above, none of the directors and chief executive of the Company had any interests or short

positions in any shares and underlying shares or debentures of the Company or any of its associated corporations as

recorded in the register which were required to be kept by the Company under Section 352 of the SFO or as otherwise

notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of

Listed Company. None of directors or their spouses or children under the age of 18, had been granted any right to

subscribe for the equity or debt securities of the Company or any of its associated corporations, or had exercised any such

right during the year.



DISCLOSURE OF INTERESTS (Continued)

Substantial Shareholders’ Interests

At 31 December, 2004, the interests and short positions of the shareholders, other than a director or chief executive of

Company, in the shares and underlying shares of the Company as recorded in the register which were required to be kept

by the Company under Section 336 of SFO were as follows:

Long Positions in shares of the Company:

Number of Ordinary Shares Percentage

Personal Corporate Family Other of Issued

Name Interest Interest Interest Interest Capital

(%)

Hensil Investments Group Limited – 315,000,000 – – 37.95%

(Note 1)

Foshan Development Company Limited – 315,000,000 – – 37.95%

(Note 1)

YIP Siu Chun 290,196,037 – – – 34.96%

(Note 2)

Oakwood Enterprise Limited – – – 290,196,037 34.96%

(Note 2)

KWAN Tik Hoi – – 290,196,037 – 34.96%

(Note 2)

Notes:

1. The 315,000,000 shares are held by Hensil Investments Group Limited. By virtue of its interest in Hensil Investments Group

Limited, Foshan Development Company Limited is deemed to be interested in the 315,000,000 shares held by Hensil Investments

Group Limited.

2. The 290,196,037 shares are held by Madam YIP Siu Chun as beneficial owner. Oakwood Enterprises Limited has given

notification in respect of its interest in 290,196,037 shares held by Madam YIP Siu Chun. By virtue of his relationship as the

spouse of Madam YIP Siu Chun, Mr. KWAN Tik Hoi is deemed to be interested in the 290,196,037 shares held by Madam YIP

Siu Chun.

Save as disclosed above, the register which was required to be kept under section 336 of the SFO showed that the

Company had not been notified of any interests or short positions in the shares and underlying shares of the Company as at

31 December 2004.



SHARE OPTION SCHEME

The Company adopted a share option scheme (the “Scheme”) for any eligible employee or director of any member of the

Group. The Scheme was approved by the Company’s shareholders at an extraordinary general meeting of the Company

held on 22 May 2002, details of which have been disclosed in the Company’s circular to shareholders dated 29 April 2002

and the most recent interim and annual reports. Disclosures in respect of the share options granted, exercised, lapsed and

cancelled during the year are listed under the section headed “OPTIONS TO SUBSCRIBE FOR ORDINARY SHARES

GRANTED UNDER THE COMPANY’S SHARE OPTION SCHEME” in this report.

Details of the Scheme

Details of the Scheme have already been disclosed in the Company’s circular to shareholders dated 29 April 2002 and

approved by the Company’s shareholders on 22 May 2002. The following are a summary of the Scheme:

(i) Who May Participate

Any employee or director of any member of the Group (the “Participant(s)”) as invited by the Board at the Board’s

absolute discretion may participate. In determining the basis of eligibility of each Participant, the Board will mainly

take into account of the experience of the Participant on the Group’s business, the length of service of the Participant

with the Group, the efforts and contributions the Participant has made or is likely to be able to give or make towards

the success of the Group in the future.

(ii) Purpose

The purpose of the Scheme is for the Company to attract, retain and motivate talented Participants to strive for future

developments and expansion of the Group, to encourage the Participants to perform their best in achieving the goals

of the Group and to allow the Participants to enjoy the results of the Company attained through their efforts and

contributions.

(iii) Duration and Administration

Subject to that the Scheme is terminated by the Company, the Scheme shall be valid and effective for a period of 10

years commencing on the date of adoption, after which period no further options will be issued but in all other

respects the provisions of the Scheme shall remain in full force and effect and options which are granted during the

life of the Scheme may continue to be exercisable in accordance with their terms of issue.



SHARE OPTION SCHEME (Continued)

(iv) Grant of Option

The Board shall be entitled at any time within 10 years after the date of adoption to make an offer to any Participant.

An option shall be deemed to have been granted and accepted and to have taken effect when a signed copy of an

offer letter made by the Company to a Participant together with a remittance in favor of the Company of HK$1.00 by

way of consideration for the granting of the same is received by the Company. Subject to the provisions of the

Scheme and the Listing Rules, the Board may at its discretion, when making the offer, impose any conditions,

restrictions or limitations in relation thereto as it may think fit.

(v) Subscription Price

The subscription price shall be a price determined by the Board and notified to a Participant and shall be at least the

highest of (a) the closing price of the shares as stated in the Stock Exchange’s daily quotations sheet on the date of

the offer of the grant of an option (the “Grant Date”); (b) a price being the average of the closing prices of the shares

as stated in the Stock Exchange’s daily quotations sheets for the 5 Business Days immediately preceding the Grant

Date; and (c) the nominal value of a share.

(vi) Maximum Number of Shares Available for Subscription

The total number of shares which may be issued upon exercise of all options to be granted under the Scheme and any

other share option schemes of the Company shall not in aggregate exceed 10 per cent. of the total number of shares

in issue as at the date of approval of the Scheme, unless the Company obtains an approval from its shareholders to

refresh the 10 per cent. limit. Notwithstanding the above, the maximum number of shares which may be issued upon

exercise of all outstanding options granted and yet to be exercised under the Scheme and any other share option

schemes of the Company shall not exceed 30 per cent. of the shares in issue from time to time. The total number of

shares available for issue under the Scheme as at 31 December 2004 was 83,014,624 shares (including options for

14,228,000 shares that have been granted but not yet lapsed or exercised) which represented 10% of the issued share

capital of the Company at 31 December 2004.

(vii) Maximum Entitlement of Shares of Each Participant

The total number of shares issued and to be issued upon exercise of the options granted to each Participant

(including both exercised, cancelled, lapsed and outstanding options) in any 12-month period shall not exceed 1 per

cent. of the Company’s total number of shares in issue. Should any further grant of options in excess of the 1 per

cent. limit of the shares is in issue, such further grant must be separately approved by the shareholders in general

meeting with such Participant and his associates abstaining from voting.



OPTIONS TO SUBSCRIBE FOR ORDINARY SHARES GRANTED UNDER THE COMPANY’SSHARE OPTION SCHEME

As at 31 December 2004, the following directors and chief executives had personal interests in the share options to

subscribe for the shares of the Company:

Market

value per Market value No. of options

No. of options share at date Exercise Options per share at outstanding

outstanding Period during which of exercise price exercised date of grant as at

Name of Directors/ as at Date Granted options exercisable of options per share during of options 31 December

chief executive 1 January 2004 (DD/MM/YY) (DD/MM/YY-DD/MM/YY) (HK$) (HK$) the year (HK$) 2004

HE Haochang 4,200,000 30/07/02 30/01/03–29/01/08 – 0.35 – 0.33 4,200,000

CHAN Che Kan, Edward 3,900,000 30/07/02 30/01/03–29/01/08 – 0.35 – 0.33 3,900,000

SITU Min 3,800,000 30/07/02 30/01/03–29/01/08 – 0.35 – 0.33 3,800,000

LI Feng 1,500,000 22/05/03 22/11/03–21/11/08 – 0.415 – 0.395 1,500,000

CHAN Ting Chuen, David* 828,000 29/07/02 29/01/03–28/01/08 0.435 0.35 828,000 0.34 –

NG Pui Cheung, Joseph* 828,000 25/07/02 25/01/03–24/01/08 – 0.35 – 0.345 828,000

Former employee

working under continuous contract 300,000 29/07/02 29/01/03–28/01/08 0.519 0.35 300,000 0.34 –

Total 15,356,000 1,128,000 14,228,000

* Independent non-executive director



OPTIONS TO SUBSCRIBE FOR ORDINARY SHARES GRANTED UNDER THE COMPANY’SSHARE OPTION SCHEME (Continued)

Notes:

1. During the year, a total of 1,128,000 share options were exercised. Out of which, a total of 300,000 share options were exercised at

an exercise price of HK$0.35 per share by a former employee working under continuous contract and a total of 828,000 share

options were exercised at an exercise price of HK$0.35 per share by Mr. CHAN Ting Chuen, David, an independent non-executive

director of the Company, in accordance with the Scheme and the relevant offer letters of the Company.

2. The prices of the Company’s shares disclosed as at the date of the exercise of the share options were the weighted average of the

Stock Exchange closing prices of the Company’s shares immediately before the dates on which the share options were exercised.

3. The vesting periods of the options are from the date of the options granted until the commencement of the exercise period.

4. The above options granted are not recognized in the accounts until they are exercised. The directors consider it is inappropriate to

value the options as a number of factors critical for the valuation cannot be determined accurately. Any valuation of the options

based on various speculative assumptions would be meaningless and could be misleading to shareholders. The directors therefore

consider the disclosure of only the relevant market price and exercise price which are readily ascertainable, will be appropriate.

5. Market value is the closing price at date preceding the date of options granted.

6. No share option has been granted, cancelled or lapsed during the year.

Apart from the foregoing, at no time during the year was the Company or subsidiaries a party to any arrangement to enable

the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or

any other body corporate.

By Order of the Board

HE Haochang

Chairman



Report of the auditors

To the shareholders of

WING SHAN INTERNATIONAL LIMITED

(Incorporated in Hong Kong with limited liability)

We have audited the accounts on pages 27 to 57 which have been prepared in accordance with accounting principles

generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Hong Kong Companies Ordinance requires the Directors to prepare accounts which give a true and fair view. In

preparing accounts which give a true and fair view, it is fundamental that appropriate accounting policies are selected and

applied consistently, that judgments and estimates are made which are prudent and reasonable and that the reasons for any

significant departure from applicable accounting standards are stated.

It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion

solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, and for no other

purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of

Certified Public Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and

disclosures in the accounts. It also includes an assessment of the significant estimates and judgments made by the Directors

in the preparation of the accounts, and of whether the accounting policies are appropriate to the Company’s and the

Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in

order to provide us with sufficient evidence to give reasonable assurance as to whether the accounts are free from material

misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the

accounts. We believe that our audit provides a reasonable basis for our opinion.

OPINION

In our opinion, the accounts give a true and fair view of the state of affairs of the Company and of the Group as at 31

December 2004 and of the Group’s loss and cash flows for the year then ended and have been properly prepared in

accordance with the Hong Kong Companies Ordinance.

KPMG

Certified Public Accountants



Consolidated profit and loss accountFor the year ended 31 December 2004

(Expressed in Hong Kong dollars)

2004 2003

Note $’000 $’000

Turnover 2 740,724 716,489

Cost of sales (747,753) (639,343)

Gross (loss)/profit (7,029) 77,146

Interest income 1,638 1,725

Other net income/(expenses) 4 12,502 (5,598)

Administrative expenses (22,522) (22,512)

Goodwill amortization (31,621) (31,621)

(Loss)/profit from operations (47,032) 19,140

Finance costs 5(a) (20,892) (26,436)

Loss from ordinary activities before taxation 5 (67,924) (7,296)

Taxation 6(a) 7,453 (5,381)

Loss from ordinary activities after taxation (60,471) (12,677)

Minority interests 4,614 (4,894)

Loss attributable to shareholders 8&24 (55,857) (17,571)

Dividends attributable to the year:

Final dividend proposed after the balance sheet date 9 – 12,452

Basic loss per share 10 6.73 cents 2.12 cents

The notes on pages 32 to 57 form part of these accounts.

As at 31 December 2004(Expressed in Hong Kong dollars)


Consolidated balance sheet

2004 2003Note $’000 $’000 $’000 $’000

Non-current assetsFixed assets 12 1,254,460 1,348,915Goodwill 13 578,319 609,940Deferred taxation 15(b) 12,856 5,215

1,845,635 1,964,070

Current assetsConsumables 16 18,145 18,547Trade and other receivables 17 179,795 56,805Tax recoverable 15(a) 25 –Cash and cash equivalents 18 98,258 220,263

296,223 295,615

Current liabilitiesTrade and other payables 19 132,099 122,955Provision for staff welfare 20 1,241 6,365Bank loans 21 46,790 50,533Current portion of other loans 22 – 65,296Taxation 15(a) – 6,062

180,130 251,211

Net current assets 116,093 44,404

Total assets less current liabilities 1,961,728 2,008,474

Non-current liabilitiesBank loans 21 78,607 28,074Other loans 22 289,036 311,534

367,643 339,608Minority interests 201,550 208,417

Net assets 1,392,535 1,460,449

Share capital and reservesShare capital 23 83,015 82,902Reserves 24 1,309,520 1,377,547

1,392,535 1,460,449

Approved and authorized for issue by the Board of Directors on 14 April 2005

HE Haochang SITU MinDirector Director



Balance sheetAs at 31 December 2004


2004 2003Note $’000 $’000 $’000 $’000

Non-current assets

Investments in subsidiaries 14 1,338,500 1,338,500

Current assets

Amounts due from subsidiaries 18,035 17,478

Other receivables 17 172 172

Cash and cash equivalents 18 21,027 26,135

39,234 43,785

Current liabilities

Trade and other payables 19 835 682

Amount due to subsidiary 12,743 19,647

13,578 20,329

Net current assets 25,656 23,456

Net assets 1,364,156 1,361,956

Share capital and reserves

Share capital 23 83,015 82,902

Reserves 24 1,281,141 1,279,054

1,364,156 1,361,956

Approved and authorized for issue by the Board of Directors on 14 April 2005

HE Haochang SITU Min

Director Director


For the year ended 31 December 2004(Expressed in Hong Kong dollars)


Consolidated statement of changes in equity

2004 2003

Note $’000 $’000

Shareholders’ equity at 1 January 1,460,449 1,492,942

Net loss for the year (55,857) (17,571)

Dividends declared and approved during the year 9 (12,452) (14,922)

Shares issued under share option scheme 23&24 395 –

Shareholders’ equity at 31 December 1,392,535 1,460,449

The notes on pages 32 to 57 form part of these accounts


Consolidated cash flow statementFor the year ended 31 December 2004


2004 2003

Note $’000 $’000

Operating activities

Loss from ordinary activities before taxation (67,924) (7,296)

Adjustments for:

Depreciation and amortization 95,181 93,846

Goodwill amortization 31,621 31,621

(Gain)/loss on disposal of fixed assets (18) 6,491

Interest income (1,638) (1,725)

Finance costs 20,892 26,436

Interest payable waived (9,032) –

Operating profit before changes in working capital 69,082 149,373

Decrease/(increase) in consumables 402 (6,889)

(Increase)/decrease in trade and other receivables (122,990) 71,390

Increase/(decrease) in trade and other payables 18,383 (1,339)

Decrease in provision for staff welfare (5,124) (4,440)

Cash (used in)/generated from operations (40,247) 208,095

PRC income tax paid (6,275) (30,921)

Net cash (used in)/generated from operating activities (46,522) 177,174

Investing activities

Interest received 1,638 1,725

Purchase of fixed assets (726) (2,244)

Proceeds from sales of fixed assets 18 1,552

Net cash generated from investing activities 930 1,033

Financing activities

Interest paid (21,099) (19,374)

Dividends paid (12,452) (14,922)

Dividends paid to minority shareholder (2,253) (14,592)

Proceeds from new bank loans 97,323 162,830

Repayment of bank loans (50,533) (168,445)

Repayment of other loans (87,794) (71,378)

Proceeds from shares issued under share option scheme 395 –

Net cash used in financing activities (76,413) (125,881)

Net (decrease)/increase in cash and cash equivalents (122,005) 52,326

Cash and cash equivalents at 1 January 220,263 167,937

Cash and cash equivalents at 31 December 18 98,258 220,263




Notes on the accounts

1. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These accounts have been prepared in accordance with all applicable Hong Kong Financial Reporting

Standards (which includes all applicable Statements of Standard Accounting Practice and Interpretations)

issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), accounting principles

generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These

accounts also comply with the applicable disclosure provisions of the Rules Governing the Listing of

Securities on the Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies

adopted by the Group is set out below.

(b) Basis of preparation of the accounts

(i) The measurement basis used in the preparation of the accounts is historical cost.

(ii) The consolidated accounts include the accounts of the Company and all its subsidiaries (the “Group”)

made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year

are included in the consolidated profit and loss account from or to the date of their acquisition or

disposal, as appropriate. All material intercompany transactions and balances are eliminated on

consolidation.

(iii) Recently issued accounting standards

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and

Hong Kong Accounting Standards (“new HKFRSs”), which are effective for accounting periods

beginning on or after 1 January 2005.

The Group has not early adopted these new HKFRSs in the accounts for the year ended 31 December

2004. The Group has already commenced an assessment of the impact of these new HKFRSs but is not

yet in a position to state whether these new HKFRSs would have a significant impact on its results of

operations and financial position.

(c) Subsidiaries

A subsidiary, in accordance with the Hong Kong Companies Ordinance, is a company in which the Group,

directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting

power, or controls the composition of the board of directors. Subsidiaries are considered to be controlled if the

company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain

benefits from their activities.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less any impairment losses (see

note 1(f)).


Notes on the accounts(Expressed in Hong Kong dollars)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d) Goodwill

Goodwill arising on consolidation represents the excess of the cost of the acquisition over the Group’s share of

the fair value of the identifiable assets and liabilities acquired. Amortization is charged to the consolidated

profit and loss account on a straight-line basis over its estimated useful life. Goodwill is stated in the

consolidated balance sheet at cost less accumulated amortization and any impairment losses (see note 1(f)).

(e) Fixed assets, depreciation and amortization

Fixed assets are stated at cost less accumulated depreciation and any impairment losses (see note 1(f)).

Subsequent expenditure relating to a fixed asset that has already been recognized is added to 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 enterprise. All other subsequent expenditure is

recognized as an expense in the period in which it is incurred.

Gains or losses arising from the retirement or disposal of a fixed asset are determined as the difference

between the estimated net disposal proceeds and the carrying amount of the asset and are recognized in the

profit and loss account on the date of retirement or disposal.

Depreciation and amortization are calculated to write off the cost of fixed assets over their estimated useful

lives as follows :

(i) Land use rights

The cost of acquiring land use rights is amortized in equal annual instalments over the period of the

grant or the remaining joint venture period, if shorter.

(ii) Buildings

Depreciation is provided to write off the cost of buildings on a straight-line basis over the remaining

terms of the respective land use rights or their estimated useful lives, if shorter.

(iii) Other fixed assets

Depreciation is calculated to write off the cost of other fixed assets over their estimated useful lives on a

straight-line basis as follows :

Plant, machinery and equipment 27 years

Motor vehicles 5 years

Others 2–10 years





(f) Impairment of assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that

the following assets may be impaired or an impairment loss previously recognized no longer exists or may

have decreased :

– fixed assets;

– investments in subsidiaries; and

– goodwill.

If any such indication exists, the asset’s recoverable amount is estimated. For goodwill that is amortized over

20 years from initial recognition, the recoverable amount is estimated at each balance sheet date. An

impairment loss is recognized whenever the carrying amount of such an asset exceeds its recoverable amount.

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing

value in use, the estimated future cash flows are discounted to their present value using a pre-tax

discount rate that reflects current market assessments of time value of money and the risks specific to

the asset. Where an asset does not generate cash inflows largely independent of those from other assets,

the recoverable amount is determined for the smallest group of assets that generates cash inflows

independently (i.e. a cash-generating unit).

(ii) Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable

change in the estimates used to determine the recoverable amount. An impairment loss in respect of

goodwill is reversed only if the loss was caused by a specific external event of an exceptional nature that

is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the

effect of that specific event.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been

determined had no impairment loss been recognized in prior years. Reversals of impairment losses are

credited to the profit and loss account in the year in which the reversals are recognized.

(g) Consumables

Consumables comprise fuel oil, components and replacement parts held for consumption by the Group. Fuel

oil is stated at cost computed using the weighted average method. Components and replacement parts are

stated at cost computed using the weighted average method less any provisions for damages or obsolescence.




(h) Cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial

institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash

and which are subject to an insignificant risk of changes in value, having been within three months of maturity

at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash

management are also included as a component of cash and cash equivalents for the purpose of the cash flow

statement.

(i) Employee benefits

(i) Salaries, annual bonuses, paid annual leave and the cost to the Group of non-monetary benefits are

accrued in the year in which the associated services are rendered by employees of the Group. Where

payment or settlement is deferred and the effect would be material, these amounts are stated at their

present values.

(ii) Contributions to Mandatory Provident Funds as required under the Hong Kong Mandatory Provident

Fund Schemes Ordinance, are recognized as an expense in the profit and loss account as incurred.

(iii) Contributions to the retirement plan of the PRC subsidiary are recognized as an expense in the profit and

loss account when the contributions become due in accordance with the terms of the plan.

(iv) When the Group grants employees options to acquire shares of the Company at nil consideration, no

employee benefit cost or obligation is recognized at the date of grant. When the options are exercised,

equity is increased by the amount of the proceeds received.





(j) Income tax

(i) Income tax for the year comprises current tax and movements in deferred tax assets and liabilities.

Current tax and movements in deferred tax assets and liabilities are recognized in the profit and loss

account except to the extent that they relate to items recognized directly in equity, in which case they are

recognized in equity.

(ii) Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or

substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous

years.

(iii) Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively,

being the differences between the carrying amounts of assets and liabilities for financial reporting

purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credit.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent

that it is probable that future taxable profits will be available against which the asset can be utilized, are

recognized. Future taxable profits that may support the recognition of deferred tax assets arising from

deductible temporary differences include those that will arise from the reversal of existing taxable

temporary differences, provided those differences relate to the same taxation authority and the same

taxable entity, and are expected to reverse either in the same period as the expected reversal of the

deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset

can be carried back or forward. The same criteria are adopted when determining whether existing

taxable temporary differences support the recognition of deferred tax assets arising from unused tax

losses and credits, that is, those differences are taken into account if they relate to the same taxation

authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the

tax loss or credit can be utilized.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary

differences arising from goodwill not deductible for tax purposes, negative goodwill treated as deferred

income, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit

(provided they are not part of a business combination), and temporary differences relating to

investments in subsidiaries to the extent that, in the case of taxable differences, the group controls the

timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or

in the case of deductible differences, unless it is probable that they will reverse in the future.

The amount of deferred tax recognized is measured based on the expected manner of realization or

settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively

enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.




(j) Income tax (Continued)

(iii) (Continued)

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the

extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax

benefit to be utilized. Any such reduction is reversed to the extent that it becomes probable that

sufficient taxable profit will be available.

(iv) Current tax balances and deferred tax balances, and movements therein, are presented separately from

each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax

assets against deferred tax liabilities if, and only if, the Company or the Group has the legally

enforceable right to set off current tax assets against current tax liabilities and the following additional

conditions are met:

– in the case of current tax assets and liabilities, the Company or the Group intends either to settle

on a net basis, or to realize the asset and settle the liability simultaneously; or

– in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same

taxation authority on either:

– the same taxable entity; or

– different taxable entities, which, in each future period in which significant amounts of

deferred tax liabilities or assets are expected to be settled or recovered, intend to realize the

current tax assets and settle the current tax liabilities on a net basis or realize and settle

simultaneously.

(k) Provisions and contingent liabilities

Provisions are recognized for liabilities of uncertain timing or amount when the Group has a legal or

constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits

will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is

material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be

estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of

economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence

or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the

probability of outflow of economic benefits is remote.





(l) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if

applicable, can be measured reliably, revenue is recognized in the profit and loss account as follows:

(i) Revenue arising from sale of electricity is recognized based on electricity supplied as recorded by

meters read during the year. Additional fuel cost surcharges for electricity supplied, representing an

adjustment for tariff of electricity supplied, are recorded as revenue in the period that agreement on the

surcharge amount is reached. Subsequent agreement in respect of the current period is accrued in the

current period if the agreement occurs prior to finalization of the accounts.

(ii) Rental income receivable under operating leases is recognized in equal instalments over the accounting

periods covered by the lease term.

(iii) Interest income is accrued on a time-proportion basis on the principal outstanding and at the rate

applicable.

(m) Translation of foreign currencies

Foreign currency transactions during the year are translated into Hong Kong dollars at the exchange rates

ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated

into Hong Kong dollars at the exchange rates ruling at the balance sheet date. Exchange gains and losses are

dealt with in the profit and loss account.

The results of a subsidiary established in the People’s Republic of China (the”PRC”) are translated into Hong

Kong dollars at the average exchange rate for the year; balance sheet items are translated into Hong Kong

dollars at the rate of exchange ruling at the balance sheet date. The resulting exchange differences are dealt

with as a movement in reserves.

(n) Operating lease charges

Where the Group has the use of assets under operating leases, payments made under the leases are charged to

the profit and loss account in equal instalments over the accounting periods covered by the lease term, except

where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset.

(o) Borrowing costs

Borrowing costs are expensed in the profit and loss account in the period in which they are incurred, except to

the extent that they are capitalized as being directly attributable to the acquisition or construction of an asset

which necessarily takes a substantial period of time to get ready for its intended use or sale.




(p) Related parties

For the purposes of these accounts, parties are considered to be related to the Group if the Group has the

ability, directly or indirectly, to control the party or exercise significant influence over the party in making

financial and operating decisions, or vice versa, or where the Group and the party are subject to common

control or common significant influence. Related parties may be individuals or other entities.

2. TURNOVER

The principal activity of the Company is investment holding. The principal activities of the subsidiaries are set out in

note 14 on the accounts. Turnover represents the invoiced value, net of value added tax, of electricity supplied in

Foshan City, Guangdong Province, the PRC and additional fuel cost surcharges of $12.3 million (2003: $42.6

million) for electricity supplied, representing an adjustment for tariff of electricity supplied.

3. SEGMENT REPORTING

The Group’s results are almost entirely attributable to its generation and sale of electricity in the PRC. Accordingly,

no segmental analysis is provided.

4. OTHER NET INCOME/(EXPENSES)

2004 2003

$’000 $’000

Insurance compensation 850 652

Net exchange gain 67 180

Rental income 1,879 –

Gain/(loss) on disposal of fixed assets 18 (6,491)

Interest payable waived by a lender (Note 11(ii)) 9,032 –

Others 656 61

12,502 (5,598)




5. LOSS FROM ORDINARY ACTIVITIES BEFORE TAXATION

Loss from ordinary activities before taxation is arrived at after charging:

2004 2003

$’000 $’000

(a) Finance costs

Interest on bank advances and other borrowings

wholly repayable within five years 20,892 26,436

(b) Staff costs

Salaries, wages and other benefits 20,130 20,123

Contributions to defined contribution plans 1,282 1,230

21,412 21,353

(c) Other items

Cost of consumables 626,767 517,865

Depreciation and amortization (other than for goodwill)

– assets held for use under operating leases 1,692 –

– other assets 93,489 93,846

Operating lease charges on buildings 300 378

Auditors’ remuneration 780 780



6. INCOME TAX IN THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

(a) Taxation in the consolidated profit and loss account represents :

2004 2003

$’000 $’000

Current tax

PRC enterprise income tax for the year – 6,064

Under–provision in respect of prior years 188 40

188 6,104

Deferred tax

Origination and reversal of temporary differences (Note 15(b)) (7,641) (723)

(7,453) 5,381

No provision has been made for Hong Kong Profits Tax as the Group sustained losses in Hong Kong for

taxation purposes during the year. No provision has been made for PRC enterprise income tax as the

Company’s subsidiary, 佛山市沙口發電廠有限公司 (Foshan Shakou Power Plant Co., Ltd.) (“Shakou

JV”), sustained a loss for taxation purposes during the year.

The tax charge in 2003 represented provision for PRC enterprise income tax levied at 18% on the estimated

assessable profit of Shakou JV.

(b) Reconciliation between tax (credit)/expense and accounting loss at applicable tax rates:

2004 2003

$’000 $’000

Loss before tax (67,924) (7,296)

Notional tax on loss before tax calculated at the rates applicable (12,039) (1,128)

Under-provision in respect of prior years 188 40

Tax effect on non-deductible expenses 6,492 6,531

Tax effect on non-taxable revenue (2,170) (89)

Tax effect on unused tax losses not recognized 76 27

(7,453) 5,381




7. DIRECTORS’ REMUNERATION AND INDIVIDUALS WITH HIGHEST EMOLUMENTS

Directors’ remuneration disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows :

2004 2003

$’000 $’000

Fees 713 615

Salaries and other emoluments 2,346 2,016

Retirement scheme contributions 169 166

3,228 2,797

Included in the directors’ remuneration were fees of $279,781 (2003: $200,000) paid to the independent non-

executive directors during the year.

The remuneration of the directors is within the following bands:

2004 2003

Number of Number of

$ directors directors

Nil – 1,000,000 7 7

1,000,001 – 1,500,000 1 1

Of the five individuals with the highest emoluments, four (2003: four) are directors whose emoluments are disclosed

in the above. The aggregate of the emoluments in respect of the other (2003: one) individual are as follows:

2004 2003

$’000 $’000

Salaries and other emoluments 335 436

Retirement scheme contributions 15 17

350 453

The emoluments of the individual (2003: one) with the highest emolument are within the band of $Nil – $1,000,000.



8. LOSS ATTRIBUTABLE TO SHAREHOLDERS

The consolidated loss attributable to shareholders includes a loss of $5,383,000 (2003: $5,455,000) which has been

dealt with in the accounts of the Company.

Reconciliation of the above amount to the Company’s profit for the year:

2004 2003

$’000 $’000

Amount of consolidated loss attributable to shareholders

dealt with in the Company’s accounts (5,383) (5,455)

Final dividend from subsidiary attributable to the profits of the

previous financial year, approved and received during the year 19,640 32,400

Profit for the year (Note 24) 14,257 26,945

9. DIVIDENDS

(a) Dividends attributable to the year

2004 2003

$’000 $’000

Final dividend proposed after the balance

sheet date of nil cents per share (2003 : 1.5 cents per share) – 12,452

The final dividend proposed after the balance sheet date has not been recognized as a liability at the balance

sheet date.

(b) Dividends attributable to the previous financial year, approved and paid during the year

2004 2003

$’000 $’000

Final dividend in respect of the previous financial year,

approved and paid during the year, of 1.5 cents per share

(2003 : 1.8 cents per share) 12,452 14,922




10. LOSS PER SHARE

(a) Basic

The calculation of basic loss per share is based on the loss attributable to shareholders of $55,857,000 (2003 :

$17,571,000) and on the weighted average number of shares in issue during the year of 829,883,228 (2003 :

829,018,244).

(b) Diluted

The diluted loss per share for the years ended 31 December 2003 and 2004 is not shown as all potential

ordinary shares are anti-dilutive.

11. MATERIAL RELATED PARTY TRANSACTIONS

Name of related company Nature of transaction Note 2004 2003

$’000 $’000

Foshan City District Electricity Purchase of fuel (excluding

Fuel Supply Company value added tax) (i) 542,822 507,830

Foshan City District Electric Interest on loans (ii) 15,861 22,580

Power Construction Corporation Interest payable waived (ii) 9,032 –

and its associate

Funeng Power Supply Co., Ltd. Lease of facilities and (iii) 1,872 –

premises

(i) During the year, the Group purchased fuel from 佛山市區電力燃料公司 (Foshan City District Electricity

Fuel Supply Company) (“Fuel Company”). As at 31 December 2004, amount due to Fuel Company was

$108.2 million (2003: $87.3 million). The Fuel Company, being a fellow subsidiary of 佛山市區電力建設

總公司 (Foshan City District Electric Power Construction Corporation) (“Power Construction Corporation”),

is a related party to the Company because Power Construction Corporation is a substantial shareholder of

Shakou JV. The Fuel Company supplies fuel to the Group at prices which are determined by Shakou JV and

the Fuel Company from time to time, but in any event will not be higher than: i) the then prevailing market

prices for sales of fuel by the Fuel Company to independent third parties; or ii) the then quotation of price of

the fuel that Shakou JV could obtain from other independent supplier, whichever is lower.



11. MATERIAL RELATED PARTY TRANSACTIONS (Continued)

(ii) During the year, Shakou JV had outstanding loans due to Power Construction Corporation and its associate

pursuant to certain loan agreements entered into between Shakou JV and the respective counter parties. As at

31 December 2004, the outstanding loans amounted to approximately $289.04 million (2003: $376.83 million,

including an overdue amount of $42.23 million). There was no overdue loan as at 31 December 2004. As at 31

December 2004, the loans are interest-bearing at a fixed rate of 5.76% per annum (2003: 5.76% per annum).

As at 31 December 2004, there was overdue interest payable to these parties amounting to $7.2 million (2003:

$15.5 million), which is interest-free.

According to the loan agreements, overdue interest payable is subject to an interest penalty at a rate of 0.03%

per day. No provision for these interest penalties has been made for the year ended 31 December 2004 as the

lenders have subsequently waived the interest penalties on all interest payable as in previous years.

During the year, Power Construction Corporation waived Shakou JV’s previous years’ overdue interest

payable of approximately $9.03 million.

(iii) During the year, Shakou JV entered into a facilities lease agreement with 佛山市褔能發電廠有限公司

(Funeng Power Supply Co., Ltd.) (“Funeng JV”). Funeng JV, being a fellow subsidiary of Power Construction

Corporation, is a related party to the Company because Power Construction Corporation is a substantial

shareholder of Shakou JV. Pursuant to the facilities lease agreement, Shakou JV leased to Funeng JV certain

assets (including office premises, factory premises, land use rights and auxiliary power generation facilities)

for two years commencing from the date of the agreement and Shakou JV would receive two annual rental

payments of approximately $4.49 million (Rmb: 4.80 million) for each of the two years.




12. FIXED ASSETS.

Plant,

machinery The The

Land use and Motor Group Company

rights Buildings equipment vehicles Others Total Others

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Cost:

At 1 January 2004 55,972 142,599 1,802,205 9,386 12,060 2,022,222 2,880

Additions – – 317 – 409 726 –

Disposal – – (6,412) (794) (1,859) (9,065) (1,859)

At 31 December 2004 55,972 142,599 1,796,110 8,592 10,610 2,013,883 1,021

Accumulated depreciation

and amortization:

At 1 January 2004 17,491 43,961 592,919 8,521 10,415 673,307 2,880

Charge for the year 1,999 5,283 86,522 203 1,174 95,181 –

Written back on disposal – – (6,412) (794) (1,859) (9,065) (1,859)

At 31 December 2004 19,490 49,244 673,029 7,930 9,730 759,423 1,021

Net book value:

At 31 December 2004 36,482 93,355 1,123,081 662 880 1,254,460 –

At 31 December 2003 38,481 98,638 1,209,286 865 1,645 1,348,915 –

All of the Group’s buildings are located in the PRC. Land use rights relate to the right to use the land of Shakou JV,

on which the Group’s buildings and plant are situated, for period to 1 May 2043.

As described in note11(iii), the Group leases out certain assets under an operating lease at a fixed annual rental

payment for a period of two years, with the option to renew the lease after that date at which time all terms are

renegotiated. The lease does not include contingent rentals.

The gross carrying amounts of land use rights and buildings of the Group held for use in the operating lease were

$7.3 million (2003: Nil) and the related accumulated depreciation and amortization charges were $2.4 million (2003:

Nil). The gross carrying amounts of machinery and equipment of the Group held for use in the operating lease were

$102.4 million (2003: Nil) and the related accumulated depreciation charges were $34.1 million (2003: Nil).



12. FIXED ASSETS (Continued)

The Group’s total future minimum lease payments under non-cancellable operating leases are receivable as follows:

2004 2003

$’000 $’000

Within 1 year 4,492 –

After 1 year but within 5 years 2,620 –

7,112 –

13. GOODWILL

The Group $’000

Cost:

At 1 January & 31 December 2004 790,533

Accumulated amortization:

At 1 January 2004 180,593

Amortization for the year 31,621

At 31 December 2004 212,214

Carrying amount:

At 31 December 2004 578,319

At 31 December 2003 609,940

Goodwill is amortized on a straight-line basis over 25 years, i.e. the remaining joint venture period of Shakou JV as

at the date of acquisition.




14. INVESTMENTS IN SUBSIDIARIES

(a) The Company

2004 2003

$’000 $’000

Unlisted shares, at cost 1,338,500 1,338,500

(b) Details of the Company’s subsidiaries are as follows:

Place of incorporation/ Issued and Percentage of

Name of establishment and paid up equity interest held

company operation share capital Directly Indirectly Principal activities

Hensil Worldwide British Virgin Islands Ordinary 100% – Investment holding

Inc. US$2

Lipromate Limited Hong Kong Ordinary 100% – Provision of financial and

$2 management services

to the Group

Foshan Shakou The PRC US$85,000,000 – 80% Generation and sale of

Power Plant (Note) electricity

Co., Ltd.

Note: This represents the registered and paid up capital of Shakou JV, a sino-foreign equity joint venture established in Foshan

City, the PRC. Pursuant to an approval document issued by the Guangdong Province Foreign Trade and Economic

Commission dated 14 March 1997, the joint venture period was extended to 30 years expiring on 16 April 2023.



15. INCOME TAX IN THE BALANCE SHEET

(a) Current taxation in the consolidated balance sheet represents :

2004 2003

$’000 $’000

Provision for PRC enterprise income tax for the year – 6,064

Amount paid during the year (25) (2)

Tax (recoverable)/payable (25) 6,062

(b) Deferred tax assets recognized

The components of deferred tax assets recognized in the consolidated balance sheet and the movements during

the year are as follows:

Deferred tax arising from:

Depreciation in

excess of related

Tax depreciation

losses allowance Total

$’000 $’000 $’000

At 1 January 2003 – 4,492 4,492

Credited to consolidated profit and loss account – 723 723

At 31 December 2003 – 5,215 5,215

At 1 January 2004 – 5,215 5,215

Credited to consolidated profit and loss

account (Note 6(a)) 5,341 2,300 7,641

At 31 December 2004 5,341 7,515 12,856

(c) Deferred tax assets have not been recognized in respect of tax losses of $17,712,000 (2003: $17,277,000) of a

subsidiary in Hong Kong as it is not probable that future taxable profits will be available against which the

assets can be utilized.




16. CONSUMABLES

The Group

2004 2003

$’000 $’000

Fuel oil 343 2,443

Components and replacement parts 17,802 16,104

18,145 18,547

17. TRADE AND OTHER RECEIVABLES

The Group The Company

2004 2003 2004 2003

$’000 $’000 $’000 $’000

Trade receivables 172,404 54,566 — —

Other receivables 7,391 2,239 172 172

179,795 56,805 172 172

Included in trade and other receivables is a trade debtor with the following ageing analysis :


2004 2003 2004 2003

$’000 $’000 $’000 $’000

Current 103,574 54,566 — —

1 to 3 months overdue 68,830 — — —

172,404 54,566 — —

Debts are due within 30 days from the date of billing. All of the trade and other receivables are expected to be

recovered within one year.



18. CASH AND CASH EQUIVALENTS


2004 2003 2004 2003

$’000 $’000 $’000 $’000

Deposits with banks 20,167 25,708 20,167 25,708

Cash at bank and in hand 78,091 194,555 860 427

98,258 220,263 21,027 26,135

19. TRADE AND OTHER PAYABLES


2004 2003 2004 2003

$’000 $’000 $’000 $’000

Creditors and accrued charges 16,732 20,152 835 682

Amounts due to related companies 115,367 102,803 – –

132,099 122,955 835 682

Included in trade and other payables are trade creditors with the following ageing analysis:


2004 2003 2004 2003

$’000 $’000 $’000 $’000

Due within 1 month or on demand 108,207 87,256 – –

All of the trade and other payables are expected to be settled within one year.




20. PROVISION FOR STAFF WELFARE

The Group $’000

At 1 January 2004 6,365

Amount utilized (5,124)

At 31 December 2004 1,241

In accordance with the articles of association of the PRC subsidiary, the PRC subsidiary is required to transfer part

of its profit after taxation to the staff welfare fund. The transfer amount is determined by the subsidiary’s board of

directors in accordance with the joint venture agreement and the transfer is made before profit distribution to the

joint venture partners. No transfer was made for year 2004 as the PRC subsidiary suffered a loss.

21. BANK LOANS – SECURED

At 31 December 2004, the Group’s bank loans were repayable as follows :

2004 2003

$’000 $’000

Within 1 year 46,790 50,533

After 1 year but within 2 years 28,074 –

After 2 years but within 5 years 50,533 28,074

78,607 28,074

125,397 78,607

The banking facilities of the PRC subsidiary are secured by charges over its power generating facilities with an

aggregate carrying value of $1,120,703,000 (2003: $1,205,387,000) at 31 December 2004. Such banking facilities

amount to $196,519,000 (2003: $196,519,000), out of which $125,397,000 (2003: $78,607,000) were drawn down at

31 December 2004. The bank loans bear interest rates ranging from 4.779% to 4.941% per annum as at 31 December

2004 (2003: 4.536 to 4.941%).



22. OTHER LOANS – UNSECURED

The Group

At 31 December 2004, the Group’s other loans were repayable as follows:

2004 2003

$’000 $’000

Within 1 year – 65,296

After 1 year but within 2 years 149,574 116,177

After 2 years but within 5 years 139,462 195,357

289,036 311,534

289,036 376,830

The loans are denominated in Renminbi bearing interest at a fixed interest rate of 5.76% (2003: 5.76%) per annum.

These loans are due to Power Construction Corporation and its associate.

Subsequent to 31 December 2004, agreements have been reached with the lenders to reschedule repayments of

several loans, which were originally due in 2005, amounting to $93.7 million on a long-term basis.

23. SHARE CAPITAL

2004 2003

Number of Nominal Number of Nominal

shares value shares value

‘000 $’000 ‘000 $’000

Authorized:

Shares of $0.10 each 1,100,000 110,000 1,100,000 110,000

Issued and fully paid:

At 1 January 2004 829,018 82,902 829,018 82,902

Shares issued under share option scheme 1,128 113 – –

At 31 December 2004 830,146 83,015 829,018 82,902

On 2 January, 6 January and 22 April 2004, options were exercised to subscribe for 60,000, 240,000 and 828,000

shares respectively in the Company at a total consideration of $395,000 of which $113,000 was credited to share

capital and the balance of $282,000 was credited to the share premium account (see note 24).




24. RESERVES

The Group

Capital Enterprise

Share redemption Reserve development Retained

premium reserve fund fund profits Total

(Note a) (Note a) (Note b) (Note b)

$’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 January 2003 1,041,444 297 22,551 22,551 323,197 1,410,040

Loss for the year – – – – (17,571) (17,571)

Dividends (Note 9) – – – – (14,922) (14,922)

Transfer to PRC

subsidiary’s reserves – – 930 930 (1,860) –

Balance at 31 December

2003 1,041,444 297 23,481 23,481 288,844 1,377,547

Balance at 1 January

2004 1,041,444 297 23,481 23,481 288,844 1,377,547

Loss for the year – – – – (55,857) (55,857)

Dividends (Note 9) – – – – (12,452) (12,452)

Shares issued under

share option scheme 282 – – – – 282

Balance at 31 December

2004 1,041,726 297 23,481 23,481 220,535 1,309,520

Notes :

(a) The application of the share premium account and capital redemption reserve is governed by Sections 48B and 49H

respectively of the Hong Kong Companies Ordinance.

(b) In accordance with the accounting principles and financial regulations applicable in the PRC, the PRC subsidiary is required

to transfer part of its profit after taxation to the reserve fund and the enterprise development fund. The transfer amounts are

determined by the subsidiary’s board of directors in accordance with the articles of association and the transfers are made

before profit distribution to the joint venture partners. Reserve fund can only be used to make good losses, if any, and for

increasing capital. Enterprise development fund can only be used for increasing capital.



24. RESERVES (Continued)

The Company

Capital

Share redemption Retained

premium reserve profits Total

$’000 $’000 $’000 $’000

Balance at 1 January 2003 1,041,444 297 225,290 1,267,031

Profit for the year – – 26,945 26,945

Dividends (Note 9) – – (14,922) (14,922)

Balance at 31 December 2003 1,041,444 297 237,313 1,279,054

Balance at 1 January 2004 1,041,444 297 237,313 1,279,054

Profit for the year – – 14,257 14,257

Dividends (Note 9) – – (12,452) (12,452)

Shares issued under share option scheme 282 – – 282

Balance at 31 December 2004 1,041,726 297 239,118 1,281,141

The distributable reserves of the Company at 31 December 2004 amounted to $239,118,000 (2003: $237,313,000).

25. EMPLOYEES RETIREMENT BENEFITS

The Group operates a Mandatory Provident Fund Scheme (the “MPF scheme”) under the Hong Kong Mandatory

Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment

Ordinance. The MPF scheme is a defined contribution retirement scheme administered by independent trustees.

Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at

5% of the employees’ relevant income, subject to a cap of monthly relevant income of $20,000. Apart from the

mandatory contributions, the employer would make monthly voluntary contributions, which is the excess of 5%, or

10% for employees working over ten years, of the basic salary over the mandatory contribution. Mandatory

contributions to the scheme vest immediately. Where there are employees who leave the Group prior to vesting fully

in the voluntary contributions, the contributions payable by the Group are reduced by the amount of forfeited

contributions.

The employees in the Group’s PRC subsidiary are members of the state-managed retirement scheme. The PRC

subsidiary is required to contribute a specified percentage of its payroll to the scheme. The only obligation of the

Group with respect to the retirement scheme is to make the specified contributions.




26. EQUITY COMPENSATION BENEFITS

The Company has a share option scheme which was adopted on 22 May 2002 whereby the directors of the Company

are authorized, at their discretion, to invite employees of the Group, including directors of any company in the

Group, to take up options to subscribe for shares of the Company. The exercise price of options is the highest of the

nominal value of the shares, the closing price of the shares on The Stock Exchange of Hong Kong Limited on the

date of grant and the average closing price of the shares on The Stock Exchange of Hong Kong Limited for the five

business days immediately preceding the date of grant. The options vest after six months from the date of grant and

are then exercisable within a period of five years. Each option gives the holder the right to subscribe for one share.

(a) Movement in share options

2004 2003

‘000 ‘000

At 1 January 15,356 18,484

Issued – 1,500

Exercised (1,128) –

Lapsed and cancelled – (4,628)

At 31 December 14,228 15,356

Options vested at 31 December 14,228 15,356

(b) Terms of unexpired and unexercised share options at balance sheet date

Date granted Exercise period Exercise 31 December 31 December

price 2004 2003

‘000 ‘000

25 July 2002 25 January 2003 to 24 January 2008 $0.35 828 828

29 July 2002 29 January 2003 to 28 January 2008 $0.35 – 1,128

30 July 2002 30 January 2003 to 29 January 2008 $0.35 11,900 11,900

19 May 2003 22 November 2003 to 21 November 2008 $0.415 1,500 1,500

14,228 15,356



26. EQUITY COMPENSATION BENEFITS (Continued)

(c) Details of share options exercised during the year:

Market value per share Proceed

Exercised date Exercise price at exercise date received Number

$’000 ‘000

2 January 2004 $0.35 $0.50 21 60

6 January 2004 $0.35 $0.50 84 240

22 April 2004 $0.35 $0.445 290 828

395 1,128

27. COMMITMENTS

At 31 December 2004, the total future lease payments of the Group and the Company under non-cancellable

operating lease in respect of office premise are payable as follows:


2004 2003 2004 2003

$’000 $’000 $’000 $’000

Within 1 year 275 25 – –

The Group leases office premise under operating lease. The lease typically runs for an initial period of two years,

with an option to renew the lease when all terms are renegotiated. Lease payments are usually increased annually to

reflect market rentals. The lease do not include contingent rentals.

28. CONTINGENT LIABILITIES

Shakou JV had a syndicated loan denominated in US dollar which was fully repaid on 23 March 1998. Under the

loan agreement, Shakou JV is required to bear any PRC tax payable in respect of interest paid to the lenders. By a

letter dated 17 March 1998, Shakou JV’s former ultimate holding company, Foshan Development Company Limited,

agreed to bear any tax liabilities, including penalties, if any, which may arise from the interest paid on the syndicated

loan. The estimated tax which may be payable is approximately $43 million, excluding penalties.



Five year financial summary

2000 2001 2002 2003 2004

$’000 $’000 $’000 $’000 $’000

Results

Turnover 803,262 789,335 732,442 716,489 740,724

Profit/(loss) from operations 57,053 86,184 133,469 19,140 (47,032)

Finance costs (68,925) (47,075) (34,642) (26,436) (20,892)

(Loss)/profit before taxation (11,872) 39,109 98,827 (7,296) (67,924)

Taxation (2,276) (13,943) (27,524) (5,381) 7,453

(Loss)/profit after taxation (14,148) 25,166 71,303 (12,677) (60,471)

Minority interests (4,474) (12,291) (21,720) (4,894) 4,614

(Loss)/profit attributable to shareholders (18,622) 12,875 49,583 (17,571) (55,857)

Assets and liabilities

Fixed assets 1,450,057 1,369,539 1,285,231 1,348,915 1,254,460

Components for planned maintenance – – 163,329 – –

Goodwill 704,804 673,183 641,561 609,940 578,319

Deferred taxation – – 4,492 5,215 12,856

Prepayment for planned maintenance – 45,301 – – –

Net current (liabilities)/assets (3,938) (12,281) (48,952) 44,404 116,093

2,150,923 2,075,742 2,045,661 2,008,474 1,961,728

Promissory note (6,720) – – – –

Bank loans – – – (28,074) (78,607)

Other loans (512,501) (423,553) (334,604) (311,534) (289,036)

Minority interests (188,783) (196,395) (218,115) (208,417) (201,550)

1,442,919 1,455,794 1,492,942 1,460,449 1,392,535

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