Wanjia Group Holdings Limited - Proxy Solicitation & Information Statement 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Min Xin Holdings Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank or stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representations as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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MIN XIN HOLDINGS LIMITED

(incorporated in Hong Kong with limited liability)

(Stock Code: 222)

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

Independent financial adviser to the independent board committee of Min Xin Holdings Limited

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Goldbond Capital (Asia) Limited

A letter from the Board is set out on pages 4 to 19 of this circular. A letter from the Independent Board Committee is set out on page 20 of this circular.

A letter from Goldbond Capital (Asia) Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee is set out on pages 21 to 39 of this circular.

A notice convening the EGM of Min Xin Holdings Limited to be held at Island Ballroom, Level 5, Island Shangri-La, Pacific Place, Supreme Court Road, Central, Hong Kong on Monday, 18 April 2005 at 3:30 p.m. is set out on pages 301 to 302 to this circular.

Whether or not you are able to attend the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

29 March 2005

Pages	Pages
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Supplemental Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Information on the Vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Information on the Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Information on the Huaneng Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Reasons for entering into the Supplemental Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Financial effects of the Revised Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Risks in relation to the Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Financial and trading prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Management discussion and analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
The Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
The EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Poll procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from Goldbond Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Appendix I — Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
Appendix II — Financial information on the Huaneng Group . . . . . . . . . . . . . . . . . . .	106
Appendix III — Unaudited pro forma financial information . . . . . . . . . . . . . . . . . . . . .	285
Appendix IV — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	295
Notice of extraordinary general meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	301

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DEFINITIONS

In this circular, the following expressions have the following meanings unless the context otherwise requires:

“Acquisition”	transaction contemplated under the Agreement
“Agreement”	agreement dated 19 July 2004 entered into between the
	Vendor and the Company for the acquisition of the Asset by
	the Company at the consideration of RMB358,560,000
	(equivalent to approximately HK$338,936,000)
“Announcement”	announcement made by the Company dated 2 March 2005 in
	relation to the Revised Acquisition
“Asset”	108,000,000 Huaneng Domestic Shares
“associates”	has the same meaning as ascribed to it under the Listing Rules
“Board”	board of Directors
“Company”	Min Xin Holdings Limited, a company incorporated in Hong
	Kong with limited liability and the securities of which are
	listed on the Stock Exchange
“connected person(s)”	has the same meaning as ascribed to it under the Listing Rules
“controlling shareholder”	has the same meaning as ascribed to it under the Listing Rules
“Director(s)”	director(s) of the Company
“EGM”	an extraordinary general meeting of the Company to be held
	at Island Ballroom, Level 5, Island Shangri-La, Pacific Place,
	Supreme Court Road, Central, Hong Kong on Monday, 18
	April 2005 to consider the ordinary resolution to be proposed
	to approve the Supplemental Agreement and the transaction
	contemplated thereunder
“FITIC”	(for identification purposes, in English,
	Fujian International Trust & Investment Corporation), a
	company incorporated in the PRC with limited liability
“Goldbond Capital”	Goldbond Capital (Asia) Limited, a licensed corporation to
	carry out Types 1 and 6 regulated activities under the SFO
“Group”	the Company, its subsidiaries and associated companies
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Huaneng”	Huaneng Power International, Inc., a Sino-foreign joint stock
	limited company incorporated in the PRC whose Huaneng H
	Shares are listed on the Stock Exchange

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DEFINITIONS

“Huaneng Domestic Share(s)”	ordinary domestic shares in the existing issued share capital
	of Huaneng, with a nominal value of RMB1.00, which are not
	traded in any stock exchange
“Huaneng Group”	Huaneng and its subsidiaries
“Huaneng H Share(s)”	overseas listed foreign shares in the existing issued share
	capital of Huaneng, with a nominal value of RMB1.00, which
	are traded in Hong Kong dollars and listed on the Stock
	Exchange
“Huaneng Share(s)”	Huaneng Domestic Share(s), Huaneng H Share(s) and
	Renminbi-denominated domestic share(s) in the ordinary
	share capital of Huaneng with a nominal value of RMB1.00
	which are listed on the Shanghai Stock Exchange
“Huaneng Unlisted Foreign	Huaneng Domestic Shares to be re-designated whose re-
Shares”	designation would take place upon completion of the Revised
	Acquisition, and for the avoidance of doubt, Huaneng
	Unlisted Foreign Shares exclude Huaneng H Shares
“Independent Board Committee”	an independent committee of the Board comprising Messrs.
	Robert Tsai To Sze, Ip Kai Ming and So Hop Shing, all being
	independent non-executive Directors, established for the
	purpose of reviewing the Revised Acquisition
“Independent Shareholders”	Shareholders who are, to the best of the Directors’ knowledge,
	information and belief having made all reasonable enquiry,
	third parties independent of the Company and the connected
	persons of the Company
“Latest Practicable Date”	22 March 2005, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	referred to in this circular
“Listing Rules”	Rules Governing the Listing of Securities on the Stock
	Exchange
“Long Stop Date”	18 July 2005, being the date of the expiry of 12 months from
	the signing of the Agreement or, such later date as the parties
	to the Agreement may agree in writing
“NAV Appreciation”	a pro-rata entitlement in terms of the appreciation in the net
	asset value of the Asset during the period from 1 January 2004
	until the date of actual payment of the consideration of the
	Revised Acquisition with reference to the audited accounts to
	be issued by Huaneng for the year ended 31 December 2004
	and thereafter (if applicable) under PRC Accounting
	Standards payable from the Company to the Vendor

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DEFINITIONS

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|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|“Notification”|written|notification|from|the|Vendor|to|the|Company|of|21|
|February|2005|setting|out,|among|other|things,|the|outcome|of|
|the|negotiation|in|respect|of|the|revised|consideration|
|between|the|Vendor|and|the|SASAC|
|“Percentage|Ratios”|percentage|ratios|(other|than|the|equity|capital|ratio)|under|
|Rule|14.07|of|the|Listing|Rules|
|“PRC”|People’s|Republic|of|China|
|“Previous|Announcement”|announcement|made|by|the|Company|dated|19|July|2004|in|
|relation|to|the|Acquisition|
|“Revised|Acquisition”|transaction|contemplated|under|the|Agreement|and|as|
|amended|by|the|Supplemental|Agreement|
|“SASAC”|State-owned|Assets|Supervision|and|Administration|
|Commission|
|“SFO”|Securities|and|Futures|Ordinance|(Chapter|571|of|the|Laws|of|
|Hong|Kong)|
|“Share(s)”|ordinary|share(s)|of|HK$1.00|each|in|the|existing|issued|share|
|capital|of|the|Company|
|“Shareholder(s)”|holder(s)|of|the|Shares|
|“Stock|Exchange”|The|Stock|Exchange|of|Hong|Kong|Limited|
|“Supplemental|Agreement”|agreement|dated|2|March|2005|entered|into|between|the|
|Vendor|and|the|Company|amending|the|Agreement|by|
|adjusting|the|consideration|for|the|acquisition|of|the Asset|by|
|the|Company|from|RMB358,560,000|(equivalent|to|
|approximately|HK$338,936,000)|to|RMB373,896,000|
|(equivalent|to|approximately|HK$353,432,000)|
|“Vendor”|(for|identification|purposes,|in|
|English,|the|liquidation|team|of|FITIC),|the|vendor|of|the|
|Asset|and|is|responsible|for|the|liquidation|of|FITIC,|which|
|was|set|up|by|the|Fujian|Provincial|Government|
|“HK$”|and|“cents”|Hong|Kong|dollars|and|cents|respectively,|the|lawful|currency|
|of|Hong|Kong|
|“RMB”|Renminbi,|the|lawful|currency|of|the|PRC|

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Translation of Renminbi into Hong Kong dollars in this circular is based on the exchange rate of HK$1.00 = RMB1.0579

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LETTER FROM THE BOARD

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MIN XIN HOLDINGS LIMITED

(incorporated in Hong Kong with limited liability)

(Stock Code: 222)

Board of Directors

Executive Directors:

Mr. Ding Shi Da (Chairman) Mr. Chen Gui Zong (Vice Chairman) Mr. Yang Sheng Ming Mr. Zhu Xue Lun Mr. Weng Jian Yu

Registered Office: 17th Floor, Fairmont House 8 Cotton Tree Drive Central Hong Kong

Independent non-executive Directors:

Mr. Ip Kai Ming Mr. Robert Tsai To Sze Mr. So Hop Shing

29 March 2005

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

INTRODUCTION

Reference is made to the circular of the Company dated 1 September 2004 in relation to the acquisition of 108,000,000 Huaneng Domestic Shares, which represent approximately 0.90% of the issued share capital of Huaneng as at 31 December 2004, at a consideration of RMB358,560,000 (equivalent to approximately HK$338,936,000) from the Vendor.

On 20 July 2004, the Company announced in the Previous Announcement that on 19 July 2004, the Company and the Vendor had entered into the Agreement.

As at the date of the Announcement, not all the conditions precedent of the Agreement have been satisfied and the Acquisition has not been completed. The Supplemental Agreement was entered into by the Company and the Vendor on 2 March 2005 to revise the consideration of the Agreement.

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LETTER FROM THE BOARD

The Vendor is the liquidation team of FITIC. As the consideration for the Revised Acquisition represents more than 100% under one of the Percentage Ratios, the Revised Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules. As the Asset is beneficially owned by FITIC, the controlling shareholder (as defined in the Listing Rules) of the Company holding approximately 41.96% interest in the existing share capital of the Company and hence a connected person of the Company under the Listing Rules, the Revised Acquisition is also a connected transaction for the Company under the Listing Rules and will be subject to the approval of the Independent Shareholders by poll at the EGM.

THE SUPPLEMENTAL AGREEMENT

Date

2 March 2005

Parties

Vendor: the liquidation team of FITIC. FITIC was principally engaged in, among other businesses, financial services and investments before the liquidation.

Purchaser: the Company.

Terms of the Supplemental Agreement

The purpose of the Supplemental Agreement is to amend the consideration as set out in the Agreement. Other than the revision of the consideration, the Agreement remains the same.

Consideration

Pursuant to the Supplemental Agreement, the consideration for the acquisition of the Asset has been adjusted from RMB358,560,000 (equivalent to approximately HK$338,936,000) to RMB373,896,000 (equivalent to approximately HK$353,432,000). The adjusted consideration was agreed after the Board’s careful consideration having taken into account the business potential and growth prospect of the Huaneng Group. The consideration and all calculations are based on the accounts of Huaneng (under PRC Accounting Standards) unless stated otherwise.

Based on the net asset value per Huaneng Share under PRC Accounting Standards as at 31 December 2003, the net asset value attributable to such 108,000,000 Huaneng Domestic Shares amounted to approximately RMB311,580,000 (equivalent to approximately HK$294,527,000). The consideration of the Revised Acquisition of RMB373,896,000 (equivalent to approximately HK$353,432,000) represents a premium of 20.0% over the net asset value attributable to the Asset and is approximately 4.28% higher than the original consideration of RMB358,560,000 (equivalent to approximately HK$338,936,000) agreed upon under the Agreement. For information purposes only, the consideration (before adjustment for the NAV Appreciation) under the Revised Acquisition represents a premium of approximately 12.4% over the net asset value attributable to the Asset as at 31 December 2004.

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LETTER FROM THE BOARD

The consideration of the Revised Acquisition would be satisfied in cash within 20 days from the date when all of the conditions set out in the section headed “Conditions precedent” below are being satisfied. The Group intends to fund the Revised Acquisition primarily from internal cash resources of the Group with the remaining balance by a bank loan of approximately HK$120,000,000. The Directors consider that by satisfying part of the consideration of the Revised Acquisition by bank borrowings, the Group will be able to maintain flexibility in the working capital of the Group.

Revised acquisition cost of each share in the Asset

The Asset comprises 108,000,000 Huaneng Domestic Shares. Based on the consideration of the Revised Acquisition of RMB373,896,000 (equivalent to approximately HK$353,432,000), acquisition cost per Huaneng Domestic Share under the Revised Acquisition is RMB3.462 (equivalent to approximately HK$3.27) which represents:

a discount of approximately 52.26% to HK$6.85, the closing price of Huaneng H Share on the Stock Exchange on 28 June 2004, being the last trading day before the suspension of trading in the Shares prior to the date of Previous Announcement;
a discount of approximately 44.58% to HK$5.90, the closing price of Huaneng H Share on the Stock Exchange on 2 March 2005, being the date of the Supplemental Agreement;
a discount of approximately 43.13% to HK$5.75, the closing price of Huaneng H Share on the Stock Exchange on 22 March 2005, being the Latest Practicable Date; and
a premium of 20.0% to the audited net asset value of the Huaneng Group per Huaneng Share as at 31 December 2003 (under PRC Accounting Standards) of RMB2.885 (equivalent to approximately HK$2.727).

Conditions precedent

As set out in the Previous Announcement and in the circular of the Company dated 1 September 2004, completion of the Agreement is subject to the fulfillment of the following conditions:

the approval by the Independent Shareholders at an extraordinary general meeting of the Company by way of a poll of the Acquisition and the approval by the Stock Exchange on the Previous Announcement and the circular on the Acquisition issued to the Shareholders; and
the provision of all certified true copies, by the Vendor (or the successor/ transferee of the Asset (if any)), of all the necessary approvals required by the PRC and Hong Kong (where applicable) laws and regulations (including but not limited to the relevant regulatory authorities in Hong Kong, the People’s Government of the Fujian Province, the SASAC and the Department of Commerce of the State Council of the PRC having approved the Acquisition) for effecting the transaction contemplated thereunder.

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LETTER FROM THE BOARD

The above conditions cannot be waived by any party. The above conditions precedent shall be fulfilled by the Long Stop Date. If the aforesaid conditions have not been fulfilled by the Long Stop Date, the Agreement and the Supplemental Agreement shall cease to have any effect and no party shall have any liability thereunder (but without prejudice to the rights of any party against the others for antecedent breaches of the Agreement and the Supplemental Agreement).

Notwithstanding the approval of the Agreement by the Independent Shareholders at the extraordinary general meeting of the Company held on 17 September 2004, not all the conditions precedent of the Agreement have been satisfied and the Acquisition has not been completed. Since the consideration for the Asset has been adjusted pursuant to the Supplemental Agreement, approval by the Independent Shareholders at the EGM by way of a poll of the Revised Acquisition would be required.

The SASAC has granted the approval of the Revised Acquisition based on the revised consideration stated above.

INFORMATION ON THE GROUP

The principal activities of the Group are financial services, investment holding, property development and investment, and infrastructure investment.

INFORMATION ON THE VENDOR

The Vendor is the liquidation team of FITIC. FITIC was principally engaged in, among other businesses, financial services and investments before the liquidation.

On 28 December 2001, the Company announced that The Shanghai Branch of The People’s Bank of China had released an announcement (the “PBC Announcement”) to deregister FITIC and to terminate all its financial activities with effect from the date of the PBC Announcement. After such deregistration, a liquidation team was set up by the Fujian Provincial Government. During the liquidation process, the subsidiaries of FITIC would continue to operate its usual course of business under the supervision of the liquidation team, the Vendor to the Acquisition and the Revised Acquisition. The liquidation process is carried out in accordance with Document Min Zheng Ban ( ) [2001] No. 234 issued by the Fujian Provincial Government. The legal advisers to the Company on PRC law has advised that during the liquidation process of FITIC, the liquidation team of FITIC (i.e. the Vendor) has among other rights, the right to the sale and/or transfer of the whole or any part of the Asset.

As the Asset is beneficially owned by FITIC, the controlling shareholder (as defined in the Listing Rules) of the Company and hence a connected person of the Company under the Listing Rules, the Revised Acquisition will be treated as a connected transaction for the Company under the Listing Rules.

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LETTER FROM THE BOARD

INFORMATION ON THE ASSET

The Asset, being 108,000,000 Huaneng Domestic Shares, represents approximately 0.90% of the issued share capital of Huaneng as at 31 December 2004. Pursuant to the promoters’ agreement entered into between, among others, the former shareholder of the Asset (“Former Holder”) and the controlling shareholder of Huaneng (namely, Huaneng International Power Development Corporation (“HIPDC”)) dated 31 May 1994, the Former Holder granted its voting rights attached to the Asset to HIPDC, which any successor of the Asset has to abide by. Thus, the Asset will not carry any voting rights. The Asset is under liquidation by the liquidation team of FITIC. FITIC is the beneficial owner of the Asset. Please refer to the section headed “Risks in relation to the Asset” for the risks attached to the Asset.

INFORMATION ON THE HUANENG GROUP

The Huaneng Group is principally engaged in developing, constructing, operating and managing large-scale coal-fired power plants throughout the PRC. The Huaneng Group is one of the largest independent power producers in the PRC and achieved power generation totaling 114.28 billion kilowatt (kWh) on a consolidated basis for the year ended 31 December 2004, representing an increase of approximately 25.7% over the same period for the year ended 31 December 2003.

Set out below is some of the key financial information of the Huaneng Group for the three years ended 31 December 2004:

Based on International Financial Reporting Standards:

	For	the year ended 31	December
	2002	2003	2004
		(Audited)
		(RMB million)
Net operating revenue	18,474	23,388	30,118
Profit after taxation and before
minority interests	4,077	5,614	5,581
Net profit	3,921	5,430	5,324
Net profit margin	21.2%	23.2%	17.7%
Fully diluted earnings per Huaneng Share
(Approximate) (Note)	RMB0.33	RMB0.45	RMB0.44
Dividend paid per Huaneng Share
(Approximate) (Note)	RMB0.17	RMB0.25	RMB0.25
Dividend payout ratio	52.3%	55.6%	56.8%

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LETTER FROM THE BOARD

Based on PRC Accounting Standards:

	For	the year ended 31	December
	2002	2003	2004
		(Audited)
		(RMB million)
Revenue from principal operations	18,725	23,480	30,293
Profit before taxation and minority interests	5,212	6,774	6,692
Net profit	4,082	5,457	5,389
Net profit margin	21.8%	23.2%	17.8%
Fully diluted earnings per Huaneng Share
(Approximate) (Note)	RMB0.34	RMB0.45	RMB0.45
Dividend paid per Huaneng Share
(Approximate) (Note)	RMB0.17	RMB0.25	RMB0.25
Dividend payout ratio	50.0%	55.6%	55.6%

Note: Adjusted for the issue of bonus Huaneng Shares and the conversion of additional paid-in capital of Huaneng, details of which are set out in the announcement of Huaneng dated 16 March 2004.

REASONS FOR THE ACQUISITION

The Asset represents approximately 0.90% equity interest in the issued share capital of Huaneng as at 31 December 2004. Huaneng declared and paid dividend of RMB0.17 and RMB0.25 per Huaneng Share for the two years ended 31 December 2003 respectively and proposed to declare cash dividend of RMB0.25 per Huaneng Share for the year ended 31 December 2004 (Note: adjusted for the issue of bonus Huaneng Shares and the conversion of additional paid-in capital of Huaneng as set out in the announcement of Huaneng dated 16 March 2004). Each of the dividend payout ratio for the two years ended 31 December 2003 and the expected dividend payout ratio for the year ended 31 December 2004 was over 50%. For each of the two years ended 31 December 2003, net profit margin of the Huaneng Group was over 20% while such margin was decreased to approximately 18% for the year ended 31 December 2004.

The management team of the Company has undertaken legal and financial assessments and analyses on the Huaneng Group (including comparisons between the Huaneng Group and other power stations in the PRC) and a feasibility report on the Acquisition (including financial comparisons) was prepared for the Board’s consideration. As one of the principal activities of the Group is investment holding, the Directors believe that the Acquisition will allow the Group to diversify its investment portfolios.

According to the PRC law and as confirmed by the Company’s PRC legal adviser in its legal opinion, the Asset will be re-designated as Huaneng Unlisted Foreign Shares upon completion of the acquisition of the Asset. The articles of association of Huaneng provide that Huaneng shall declare dividends in RMB and holders of Huaneng Domestic Shares shall be paid dividends in RMB, holders of foreign shares of Huaneng shall be paid dividends in United States dollars whilst holders of Huaneng H Shares shall be paid dividends in HK$.

— 9 —

LETTER FROM THE BOARD

Although the Asset, being 108,000,000 Huaneng Domestic Shares, cannot be freely transferable nor traded on any stock exchange and there may be risks associated with the Acquisition (the details of which are set out in the section headed “Risks in relation to the Asset” below), the Directors (including the independent non-executive Directors) consider that the Acquisition represents a good opportunity for the Company to diversify its investment portfolio into a large scale enterprise with a sound profit track record and a relatively high dividend payout ratio at a steep discount to the trading price of such equity interest.

As set out in different sections of this circular, the management team of the Company has undertaken legal and financial assessments and analyses on the Huaneng Group (including comparisons between the Huaneng Group and other power stations in the PRC) and a feasibility report on the Acquisition (including financial comparisons) was prepared for the Board’s consideration. The Board has sought legal advice from the Company’s PRC legal adviser and requested guidance from Huaneng as to the rights of holders of Huaneng Unlisted Foreign Shares and was referred to the rights of holders of ordinary shares of Huaneng as set out in the Articles of Association of Huaneng. Based on the work done by the management team of the Company and after considering the risks in relation to the Asset as disclosed below, the Directors (including all independent non-executive Directors) consider sufficient work has been done to ascertain the rights of the Assets and notwithstanding the risks in relation to the Asset (as set out in the section headed “Risks in relation to the Asset” below), the Directors consider the Acquisition represents a good investment for the Company and is in the interests of the Company and the Shareholders as a whole. Further, the Directors (including all independent non-executive Directors) consider that the terms and conditions of the Agreement are based on arm’s length negotiations and the Agreement is on normal commercial terms.

REASONS FOR ENTERING INTO THE SUPPLEMENTAL AGREEMENT

The Acquisition is subject to (a) the approval by the Independent Shareholders at the extraordinary general meeting of the Company held on 17 September 2004 which was duly passed and (b) approvals required by the PRC and Hong Kong (where applicable) laws and regulations. The Vendor submitted an application for the sale of the Asset to the SASAC. The SASAC required the Vendor to adjust the consideration. The SASAC approved the Revised Acquisition based on the revised consideration as agreed between the Vendor and the SASAC. On 21 February 2005, the Company received the Notification from the Vendor. It is stated in the Notification that the SASAC considered the consideration of the Acquisition relatively low and required the Vendor to adjust the consideration of the Acquisition to a higher level in order to reflect the good prospect of the underlying Asset to the Acquisition and after further discussion between the Vendor and the SASAC, the acquisition cost per Huaneng Domestic Share was adjusted from RMB3.32 (equivalent to approximately HK$3.14) to RMB3.462 (equivalent to approximately HK$3.27) and the SASAC approved the Revised Acquisition. As at the date of this circular, not all the conditions precedent of the Agreement have been satisfied and the Acquisition has not been completed. The long stop date of the Agreement is 18 July 2005.

As set out in the section headed “Information on the Group” above, the Group is engaged in, among other activities, investment holding. Power supply in the PRC has not been able to meet the recent economic growth of the country. The imbalance in the supply and demand of power in the PRC is expected to continue until 2007. The Huaneng Group is a leading power supplier in the PRC which has benefited from the growing economy. In light of the above, the Company is optimistic of the

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LETTER FROM THE BOARD

growth and prospects of quality power producers in the PRC of which the Huaneng Group is a market leader. The Board (including the independent non-executive Directors) considered the revised consideration is acceptable in view of the quality and prospect of the underlying Asset to the Acquisition. As a result, the Supplemental Agreement was entered into by the Company and the Vendor on 2 March 2005.

The consideration under the Revised Acquisition was adjusted to RMB373,896,000 (equivalent to approximately HK$353,432,000) pursuant to the Supplemental Agreement. The consideration for the Revised Acquisition represents a premium of 20.0% over the net asset value attributable to the Asset as at 31 December 2003 and is approximately 4.28% higher than the original consideration of RMB358,560,000 (equivalent to approximately HK$338,936,000) agreed upon under the Agreement. For information purposes only, the consideration under the Revised Acquisition represents a premium of approximately 12.4% over the net asset value attributable to the Asset as at 31 December 2004 (before adjustment for the NAV Appreciation). The adjusted consideration, approved by the SASAC, was agreed after the Board’s careful consideration having taken into account, among other things, the business potential and growth prospect of the Huaneng Group and the discount as compared to the closing price of Huaneng H Shares and Huaneng A Shares. At the time of entering into the Supplemental Agreement, the Directors are of the view that the consideration of the Revised Acquisition is justifiable after taking into account the financial performance of the Huaneng Group for the six months ended 30 June 2004 and the Directors, including the independent non-executive Directors, consider the revised consideration fair and reasonable as far as the Company and the Shareholders as a whole are concerned.

The SASAC has granted the approval of the Revised Acquisition based on the revised consideration stated above.

FINANCIAL EFFECTS OF THE REVISED ACQUISITION

As of the date of completion of the Revised Acquisition, the consolidated net asset value of the Group shall remain unchanged as the increase in long term investments of the Group will be offset by the decrease in cash and bank balances and an increase in bank borrowings by the Group.

RISKS IN RELATION TO THE ASSET

It is stated in the circular of the Company dated 1 September 2004 that, as advised by the PRC legal advisers of the Company, upon completion of the Acquisition, the Asset will be re-designated as Huaneng Unlisted Foreign Shares according to the PRC law. The articles of association of Huaneng do not contain express provisions as to whether Huaneng Unlisted Foreign Shares constitute a separate class of ordinary shares of Huaneng. The Company has however liaised with a number of PRC authorities to understand the legality and viability of the Acquisition. Furthermore, the PRC legal advisers of the Company have issued a legal opinion as to PRC law on the legality of the Acquisition and the rights attached to Huaneng Unlisted Foreign Shares which states that the Acquisition is valid upon completion of all relevant approval and registration procedures under the PRC law. The PRC legal advisers of the Company have confirmed in its opinion that the Acquisition is legitimate and the Company is permitted under PRC law to hold the Asset after satisfying the conditions precedent of the Agreement and upon completion of the Acquisition.

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LETTER FROM THE BOARD

In relation to the rights attached to Huaneng Unlisted Foreign Shares, the PRC legal opinion stated that at present, there are no clear applicable PRC laws and regulations governing the rights attached to Huaneng Unlisted Foreign Shares and until new laws or regulations are introduced in this respect, the Company as a holder of Huaneng Unlisted Foreign Shares after completion of the Acquisition will enjoy all the rights of the holders of ordinary shares of Huaneng under the articles of association of Huaneng, such as:

(a) to be treated as if it is in the same class as holders of Huaneng Domestic Shares, to attend and vote at general meetings and class meetings and to receive notice of such meetings in the same manner as the holders of Huaneng Domestic Shares;
(b) to be paid dividends declared by Huaneng in United States dollars (note: the dividends are paid in United States dollars as they are foreign shares of Huaneng) ; and
(c) in the event of the winding up of Huaneng, to remit their respective shares in the remaining assets (if any) of Huaneng out of the PRC in accordance with the applicable foreign exchange control laws and regulations in the PRC.

No provision is made for the settlement of disputes between holders of Huaneng Unlisted Foreign Shares and holders of Huaneng Domestic Shares in the articles of association of Huaneng. Therefore, as to disputes between holders of Huaneng Unlisted Foreign Shares and holders of Huaneng Domestic Shares, if there is no settlement after negotiation or mediation, either party could choose an arbitration commission in the PRC or any other arbitration commission to conduct arbitration agreement; if there is no prior arbitration agreement and the parties are not able to reach agreement to arbitrate their disputes, either party could bring suit in a PRC court with competent jurisdiction.

According to the above legal opinion, in general, disputes between holders of Huaneng H Shares and holders of Huaneng Domestic Shares can be settled through arbitration. Such dispute resolution method is equally applicable to disputes between holders of Huaneng H Shares and holders of Huaneng Unlisted Foreign Shares.

If any related laws or regulations are newly introduced in the PRC, the rights attaching to Huaneng Unlisted Foreign Shares may be clarified and/or varied and the articles of association of Huaneng may have to be amended in connection therewith.

As the articles of association of Huaneng do not contain express provisions governing the rights of Huaneng Unlisted Foreign Shares, there is no assurance that any subsequent holders of such Huaneng Unlisted Foreign Shares including the Company or other classes of shares would not dispute the rights attaching to Huaneng Unlisted Foreign Shares as set out above, and such rights may be affected as a result. Pursuant to the promoters’ agreement entered into between, among others, the Former Holder and HIPDC, the Former Holder granted its voting rights attached to the Asset to HIPDC. Accordingly, the Asset will not carry any voting rights.

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LETTER FROM THE BOARD

The Directors (including the independent non-executive Directors) are aware that the Revised Acquisition is the acquisition of the Asset without the voting rights being attached thereto. Notwithstanding the above, the Directors (including the independent non-executive Directors) consider the Revised Acquisition represents a good opportunity for the Company to diversify its investment portfolio.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

As mentioned in the annual report of the Company for the year ended 31 December 2003, it is the goal of the Group to enhance its asset value and corporate competitiveness. In addition, the Board believes that with the cash in hand and a sound financial position, the Directors have every confidence and capability to capture market opportunities and take on quality investments. The Directors shall continue to actively search for quality investments for the Group’s future development. The Directors believe the continuous increase in the number of quality investments will enable the Group to achieve attractive results in the future.

MANAGEMENT DISCUSSION AND ANALYSIS

For the year ended 31 December 2003

Results

The Group recorded a profit attributable to Shareholders of HK$56.79 million for the year with earnings per Share of 12.36 cents.

Business review

Banking business

The Group’s major investment, a 36.75% interest in Xiamen International Bank (“XIB”), maintained steady growth in its profits during the year. It has attained satisfactory performance in various aspects including business development, asset quality and internal management, and has met its established goal. According to the statutory accounts of XIB prepared under PRC Accounting Standards, a consolidated profit after tax of approximately HK$116.30 million was recorded for the year. Being a commercial bank with international shareholders, XIB will capitalise on new opportunities to enhance its efficiencies, set up new branches, initiate new businesses and enhance its capital strength with a view to pursuing stable and healthy long-term development in order to generate favourable returns to its shareholders.

Insurance business

Min Xin Insurance Company Limited (“MXIC”), a wholly-owned subsidiary of the Company, achieved a net profit after tax of approximately HK$4.82 million for the year. Apart from maintaining its core business in the private car insurance sector, MXIC will strive to explore business opportunities in the commercial vehicle insurance sector in order to maintain its premium and profit growth momentum.

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LETTER FROM THE BOARD

Toll road investments

The Group’s toll road investment, through its associated company in Maanshan, Anhui Province, the PRC, continued to operate satisfactorily in 2003 and generated an increase of approximately 11.2% in toll revenue as compared with last year. The Directors anticipated that the traffic flow and revenue of this toll road will continue the rising trend in 2004. However, the Group’s toll road investment, through its associated company in Fenghua, Zhejiang Province, the PRC, recorded an impairment loss of approximately HK$13.03 million in 2003 due to the adverse effect arising from neighbouring competing routes.

Property investments

In 2003, the Group’s property project in Jinan, Shandong Province, the PRC, achieved prominent growth in its profits and recorded a profit after tax of approximately RMB8.14 million. The Directors expect this project will continue to contribute a steady return to the Group in 2004.

High-tech investments

The Group together with Charm Faith Hi-Tech Limited set up a joint-venture company, Min Faith Investments Limited (“MFIL”), of which the Group holds a 40% interest, by investing approximately HK$16.33 million in Hong Kong in January 2003. The wholly owned subsidiary of MFIL, Fuzhou Charm Faith Autosystem Co., Ltd., is principally engaged in the manufacturing of digital instruments for industrial auto-control. It has performed remarkably in 2003 and reported a net profit after tax of approximately RMB11.45 million. The Directors envisage promising growth in this investment.

Financial position

The Group maintained a sound financial position. As at 31 December 2003, the Group had current assets and current liabilities of HK$559.97 million and HK$152.81 million respectively with a current ratio of 3.7.

As at 31 December 2003, the Group had no bank borrowings.

The gearing ratio (long term liabilities (including deferred tax liabilities) divided by net asset value) of the Group as at 31 December 2003 was approximately 0.4%.

As at 31 December 2003, bank deposits of the Group amounted to HK$478.47 million which included deposits of RMB143.05 million (equivalent to approximately HK$134.71 million) placed with certain banks in the PRC.

As at 31 December 2003, a non-wholly owned subsidiary of the Group in the PRC has issued guarantees amounting to approximately HK$13.80 million for mortgage loan facilities obtained by certain buyers for purchasing properties from such non-wholly owned subsidiary. Such guarantees will be released upon receipt of the title deeds of the properties by the relevant banks.

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LETTER FROM THE BOARD

The Company has made appropriate disclosures in the Company’s 2003 annual report and the Company’s announcement dated 21 April 2004 pursuant to Rules 13.13 to 13.16 of the Listing Rules.

Employees and remuneration policy

As at 31 December 2003, the Group had 85 employees. The remuneration of the employees is based on individual merits and experience. The Group also provides other benefits to the employees including retirement benefits and medical scheme.

For the year ended 31 December 2002

Results

The Group recorded a profit attributable to Shareholders of HK$45.98 million for the year with earnings per Share of 10.01 cents.

Business review

Banking business

XIB achieved prominent growth in its profits during the year. According to the statutory accounts of XIB prepared in accordance with PRC Accounting Standards, a consolidated net profit of approximately HK$114.92 million was registered for the year. During the year, XIB was the first sino-foreign bank in PRC authorised to operate full-range foreign exchange business, paving the way for its long-term development amidst the increasingly competitive operating environment.

Insurance business

The Hong Kong general insurance market has shown a turnaround in year 2002. Following the improving trend of the market, MXIC achieved a net profit after tax of approximately HK$3.58 million for the year.

Toll road investments

In 2002, the performance of the Group’s toll road project in Maanshan, Anhui Province, the PRC, was better than expected with an increase of approximately 15.7% in the toll revenue as compared with last year. The Group’s toll road investment in Fenghua, Zhejiang Province, the PRC, on the other hand, recorded a decrease of approximately 42.3% in toll revenue as compared with last year owing to the diversion effect.

Property investments

In 2002, the Group’s property project in Jinan, Shandong Province, the PRC, maintained a steady growth and recorded a profit after tax of approximately RMB5.44 million.

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LETTER FROM THE BOARD

Financial position

As at 31 December 2002, the Group had current assets and current liabilities of HK$549.21 million and HK$152.01 million respectively with a current ratio of 3.6.

As at 31 December 2002, the Group was debt free.

At 31 December 2002, bank deposits of the Group amounted to HK$451.69 million which included deposits of RMB117.34 million (equivalent to approximately HK$110.48 million) placed with certain banks in the PRC.

For the year ended 31 December 2001

Results

The Group recorded a profit attributable to Shareholders of HK$73.09 million with earnings per Share amounted to 15.91 cents.

Business review

Banking business

According to the statutory accounts of XIB prepared in accordance with PRC Accounting Standards, a consolidated profit after tax of approximately HK$69.77 million was achieved for the year.

Insurance business

Despite the adverse market environment, MXIC improved its operating profit as a result of its fine-tuned underwriting standard and reduced operating cost. A net profit after tax of approximately HK$2.69 million was recorded for the year.

Toll road investments

The Group disposed its toll road investment in Zhangzhou, Fujian Province, the PRC, during the year, the Group’s toll road investments (including those through the Group’s associates) recorded a total profit of approximately HK$14.9 million.

Property investments

In 2001, the Group’s property project in Jinan, Shandong Province, the PRC, continued to attain satisfactory results which showed a profit after tax of approximately RMB5.74 million. During the year, the project was among one of the first project rated as “quality house” in Jinan.

As the property market in Hong Kong remained sluggish, the joint venture property project at Pik Sha Wan incurred a loss of approximately HK$46.75 million in 2001.

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LETTER FROM THE BOARD

Financial position

As at 31 December 2001, the Group had current assets and current liabilities of HK$563.7 million and HK$189.76 million respectively with a current ratio of 3.

As at 31 December 2001, the Group was debt free.

At 31 December 2001, bank deposits of the Group amounted to HK$410.62 million which included deposits of RMB142.34 million (equivalent to approximately HK$134.09 million) placed with certain banks in the PRC.

GENERAL

The Vendor is the liquidation team of FITIC. As the consideration for the Revised Acquisition represents more than 100% under one of the Percentage Ratios, the Revised Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules. As the Asset is beneficially owned by FITIC, the controlling shareholder (as defined in the Listing Rules) of the Company holding approximately 41.96% interest in the existing share capital of the Company and hence a connected person of the Company under the Listing Rules, the Revised Acquisition will be treated as a connected transaction for the Company under the Listing Rules and will be subject to the approval of the Independent Shareholders by poll at the EGM. The Vendor, FITIC and their respective associates will abstain from voting in relation to the ordinary resolution to be put forward at the EGM for the purpose of approving the transaction contemplated under the Supplemental Agreement.

The Directors noted that the Revised Acquisition shall constitute a connected transaction and accordingly an independent financial adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders on the Supplemental Agreement and the transaction contemplated thereunder.

Shareholders and potential investors should note that the Revised Acquisition, which is subject to a number of conditions precedent, may or may not be completed. Shareholders and potential investors are reminded to exercise caution when dealing in the securities of the Company.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising the independent non-executive Directors has been formed to advise the Independent Shareholders regarding the fairness and reasonableness of the terms of the Supplemental Agreement and the transaction contemplated thereunder so far as the Independent Shareholders are concerned and are in the interests of the Company as a whole.

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LETTER FROM THE BOARD

Goldbond Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders regarding the fairness and reasonableness of the terms of the Supplemental Agreement and the transaction contemplated thereunder so far as the Independent Shareholders are concerned and are in the interests of the Company as a whole. The letter of Goldbond Capital is set out in the section headed “Letter from Goldbond Capital” of this circular.

THE EGM

As at the Latest Practicable Date, FITIC was beneficially interested in approximately 41.96% of the existing share capital of the Company and the controlling shareholder and a connected person of the Company. As the Asset is beneficially owned by FITIC, the controlling shareholder of the Company and hence a connected person of the Company under the Listing Rules, the Revised Acquisition will be treated as a connected transaction for the Company under the Listing Rules and will be subject to the approval of the Independent Shareholders by poll at the EGM.

The Vendor, FITIC and their respective associates will abstain from voting in relation to the ordinary resolution to be put forward at the EGM for the purpose of approving the Revised Acquisition.

A notice convening the EGM to be held at Island Ballroom, Level 5, Island Shangri-La, Pacific Place, Supreme Court Road, Central, Hong Kong on Monday, 18 April 2005 at 3:30 p.m. for the purpose of considering and, if thought fit, approving the terms of the Supplemental Agreement and the transaction contemplated thereunder by way of poll is set out on pages 301 to 302 of this circular.

Shareholders of the Company whose names appear on the register of members of the Company on 15 April 2005 are entitled to attend and vote at the EGM. The register of members of the Company will be closed from 16 April 2005 to 18 April 2005, both days inclusive, during such period no share transfer will be registered.

POLL PROCEDURE

As at the Latest Practicable Date, FITIC was beneficially interested in approximately 41.96% of the existing share capital of the Company and a connected person of the Company. In view of the interest of FITIC and its associates in the Revised Acquisition, the Vendor, FITIC, and their respective associates will abstain from voting at the EGM in this regard. The votes to be taken at the EGM will be taken by poll, the results of which will be announced after the EGM.

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LETTER FROM THE BOARD

Under the articles of association of the Company, a poll can be demanded by:

(a) the chairman of the meeting; or
(b) at least three Shareholders present in person or by proxy and entitled to vote; or
(c) any Shareholder or Shareholders present in person or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all Shareholders having the right to attend and vote at the meeting; or
(d) any Shareholder or Shareholders present in person or by proxy and holding Shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

The Chairman will demand a poll at the EGM.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 20 which contains its recommendation to the Independent Shareholders on the terms of the Supplemental Agreement, and the letter of advice from Goldbond Capital, the text of which is set out on pages 21 to 39 of this circular containing its advice to the Independent Board Committee and the Independent Shareholders.

For the reasons set out above, the Board considers the terms of the Supplemental Agreement and the transaction contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and therefore recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM for approving the terms of the Supplemental Agreement and the transaction contemplated thereunder. You are advised to read the aforesaid letters before deciding as to how to vote at the EGM.

FURTHER INFORMATION

Your attention is drawn to the further information set out in the appendices to this circular.

Yours faithfully, Ding Shi Da Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [74 x 44] intentionally omitted <==

MIN XIN HOLDINGS LIMITED

(incorporated in Hong Kong with limited liability)

(Stock Code: 222)

Registered office: 17th Floor, Fairmont House 8 Cotton Tree Drive Central Hong Kong

29 March 2005

To the Independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

We have been appointed as members of the Independent Board Committee to advise you in respect of the Revised Acquisition, details of which are set out in the letter from the Board in the circular dated 29 March 2005 (the “Circular”) to the Shareholders, of which this letter forms part. Terms defined in the Circular shall have the same meanings when used in this letter unless the context otherwise requires.

Having taken into account the principal factors and reasons considered by Goldbond Capital, we consider that the Revised Acquisition is fair and reasonable so far as the interests of the Independent Shareholders are concerned and conducting the Revised Acquisition with the party thereto is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution which will be proposed at the EGM to approve the Revised Acquisition.

Yours faithfully,

Mr. Robert Tsai To Sze Mr. Ip Kai Ming Mr. So Hop Shing Independent Board Committee

— 20 —

LETTER FROM GOLDBOND CAPITAL

==> picture [109 x 57] intentionally omitted <==

Goldbond Capital (Asia) Limited

3902B, 39th Floor, Tower 1 Lippo Centre 89 Queensway Hong Kong

29 March 2005

The Independent Board Committee and the Independent Shareholders

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our letter of advice to the independent board committee of the Company dated 1 September 2004, which was set out in the circular of the Company dated 1 September 2004 (the “Previous Circular”).

We refer to our engagement under which Goldbond Capital (Asia) Limited (“Goldbond Capital”) has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Revised Acquisition. Details of the Revised Acquisition are set out in the circular dated 29 March 2005 issued by the Company (the “Circular”) to the Shareholders, of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders as to whether or not the Revised Acquisition and the terms of the Supplemental Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Unless the context otherwise requires, terms used in this letter shall have the same meanings as those defined in the Circular.

In formulating our opinions and recommendations, we have relied on the statements, information and facts supplied by, the opinions expressed by and the representations of the Directors and management of the Group concerning the Revised Acquisition, including those set out in the Circular. We have also relied on the assumptions described in the Circular, details of which are also set forth in this letter, being materialised in deriving our opinions and recommendations. We have assumed that all statements, information and facts supplied by, the opinions expressed by and the representations of the Directors and management of the Group concerning the Revised Acquisition, including those set out in the Circular were true, complete and accurate in all aspects at the time they were made and given and continue to be so in all respects at the date of despatch of the Circular. We have also assumed that all statements of beliefs, opinions, assumptions and intentions made by the Directors in the Circular were reasonably made after due and careful enquiry and were based on honestly-held

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LETTER FROM GOLDBOND CAPITAL

opinions. We have no reason to doubt the truth, accuracy and completeness of the information and representation provided to us by the Directors and we have been advised by the Directors that no material facts have been omitted from the information and representations provided in and referred to in the Circular.

We consider that we have been provided with sufficient information to enable us to reach an independent view to justify our reliance on the accuracy of the information and representations contained in the Circular and to provide a reasonable basis for our recommendations. We have no reason to suspect that any relevant information or reports have been withheld, nor are we aware of any facts or circumstances which would render the information provided and the representations made to us to be untrue, inaccurate, or misleading. We have not, however, carried out any independent verification of the information provided to us by the Directors, nor have we conducted any independent investigation into any related transactions referred to in the Circular, the businesses, affairs and prospects of the Group.

Goldbond Capital is a licensed securities dealer and corporate finance adviser under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and together with its affiliates provide a full range of investment banking and broking services, which, in the course of normal trading activities, may from time to time effect transactions and hold securities, including derivative securities, of the Company for our own account and the accounts of customers.

PRINCIPAL FACTORS AND REASONS CONSIDERED

Pursuant to the Supplemental Agreement, all terms and conditions to the Agreement remain to be the same and valid with the exception of the consideration of the acquisition of the Asset. As mentioned in the letter from the Board, the Acquisition was subject to (a) the approval by the Independent Shareholders at an extraordinary general meeting of the Company held on 17 September 2004 which was duly passed and (b) approvals required by the PRC and Hong Kong (where applicable) laws and regulations. The Vendor submitted an application for the sale of the Asset to the SASAC pursuant to the Agreement. The Company received a notification from the Vendor on 21 February 2005 stating that the SASAC considered the consideration of the Acquisition to be relatively low and required the Vendor to adjust the consideration of the Acquisition to a higher level in order to reflect the good prospect of the Asset. Pursuant to the Supplemental Agreement, the Company had agreed to purchase and the Vendor had agreed to sell (or procure its successor/ transferee (if any) to sell) the Asset at the consideration of RMB373,896,000 (equivalent to approximately HK$353,432,000), which was adjusted upward from RMB358,560,000 (equivalent to approximately HK$338,936,000) under the Agreement. Please also refer to the circular of the Company dated 1 September 2004 for details of the Acquisition.

In arriving at our opinion regarding the terms of the Revised Acquisition, we have considered the following principal factors and reasons:

1. Background information

Background of the Group

The principal activities of the Group are financial services, investment holding, property development and investment, and infrastructure investment.

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LETTER FROM GOLDBOND CAPITAL

According to the annual report of the Company for the year ended 31 December 2003 and as advised by the Directors, the major investments of the Group are as follow:

		Interest held
Name of business	Nature of business	by the Group
Xiamen International Bank	Banking and investment holding	36.75%
Min Xin Insurance Company Limited	Insurance	100.00%
Jinan Pacific Real Estate Development	Property development and sales	51.00%
Co., Ltd.
Maanshan Huan Tung Highway	Toll road	21.00%
Development Limited
Min Faith Investments Limited	Investment in high technology	40.00%
	manufacturing companies

In addition to the above, the Group is interested in various properties in the PRC and Hong Kong.

The following tables set out the key financial information of the Group prepared under generally accepted accounting principles in Hong Kong as extracted from the annual report of the Company for the year ended 31 December 2003 and the interim report of the Company for the six months ended 30 June 2004:

Consolidated profit and loss account

Turnover Profit before tax Profit attributable to shareholders Basic earnings per Share	For the year ended 31 December For the six months ended 2002 2003 30 June 2004 (Audited) (Audited) (Unaudited) HK$ HK$ HK$ 120,198,823 116,544,198 71,307,549 60,750,443 74,938,581 50,899,943 45,975,297 56,786,807 36,583,776 10.01 cents 12.36 cents 7.96 cents	For the year ended 31 December For the six months ended 2002 2003 30 June 2004 (Audited) (Audited) (Unaudited) HK$ HK$ HK$ 120,198,823 116,544,198 71,307,549 60,750,443 74,938,581 50,899,943 45,975,297 56,786,807 36,583,776 10.01 cents 12.36 cents 7.96 cents
		50,899,943 36,583,776
		7.96 cents

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LETTER FROM GOLDBOND CAPITAL

Consolidated Assets, Liabilities and Minority Interests

Non-current assets Current assets - Cash and bank balances - Others Current liabilities Long term liabilities Minority interests Net asset value Net asset value per Share	As at 31 December 2002 2003 (Audited) (Audited) HK$ HK$ 781,492,640 832,014,763 --------------- --------------- 451,688,557 478,469,483 97,521,389 81,501,160 549,209,946 559,970,643 --------------- --------------- 152,008,499 152,807,632 --------------- --------------- 3,803,715 4,547,468 --------------- --------------- 12,207,338 13,503,689 --------------- --------------- 1,162,683,034 1,221,126,617 2.53 2.66	As at 30 June 2004 (Unaudited) HK$ 772,289,339 --------------- 506,525,008 151,700,480
		658,225,488 --------------- 168,715,961 --------------- 3,930,234 --------------- 16,007,394 --------------- 1,241,861,238
		2.70

Background of the Huaneng Group

The Huaneng Group is principally engaged in development, construction, ownership and operation of large coal-fired power plants throughout the PRC.

Since the listing of the Huaneng H Shares on the Stock Exchange in January 1998, Huaneng has declared and paid dividend for each of its financial years. For each of the three years ended 31 December 2004, net profit margin and dividend payout ratio (for the year ended 31 December 2004, the dividend payout ratio based on the proposed dividend divided by the net profit of the year as mentioned in the results announcement of Huaneng) was around 20% and over 50% respectively. Net profit of the Huaneng Group (under International Financial Reporting Standards) amounted to approximately RMB1,868 million, RMB2,516 million, RMB3,451 million, RMB3,921 million, RMB5,430 million and RMB5,324 million for the six years ended 31 December 2004 respectively, represented a compounded annual growth rate (“CAGR”) of approximately 20.6%. As mentioned in the results announcement of Huaneng for the year ended 31 December 2004, turnover of the Huaneng Group increased by approximately 29% while net profit dropped by approximately 2% due to the nationwide short supply of coal, rising coal prices and declining coal quality, which have caused great impact on the production and operation of the Huaneng Group. In addition, as mentioned in such announcement of Huaneng, unit fuel cost of Huaneng for the year increased by 32.97% when compared to the year ended 31 December 2003.

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LETTER FROM GOLDBOND CAPITAL

Huaneng declared and paid dividend of approximately RMB0.17 and RMB0.25 per Huaneng Share for the two years ended 31 December 2003 respectively (Note: adjusted for the issue of the bonus Huaneng Shares and the conversion of the additional paid-in capital of Huaneng, details of which are set out in the letter from the Board of the Circular and the interim report of Huaneng for the six months ended 30 June 2004 (the “Bonus Issue and Conversion)). For the year ended 31 December 2004, Huaneng proposed a dividend of RMB0.25 per Huaneng Share (adjusted for the Bonus Issue and Conversion).

Pursuant to the promoters’ agreement entered into between, among others, the former shareholder of the Asset (namely, (for identification purposes, in English, Fujian Investment and Development Company, the “Former Holder”)) and the controlling shareholder of Huaneng (namely, Huaneng International Power Development Corporation (“HIPDC”)) dated 31 May 1994, the Former Holder granted its voting rights (the “Voting Rights”) attached to the Asset to HIPDC, and any successor(s) as holder(s) of the Asset has to abide by such agreement. Details of the detachment of Voting Rights from the Asset have been disclosed in the prospectus of Huaneng dated 19 January 1998.

In December 2001, Huaneng issued a total of 700,000,000 Huaneng A Shares, of which 500,000,000 Huaneng A Shares were placed to independent investors and 200,000,000 Huaneng A Shares were placed to HIPDC as non-listed legal person shares of Huaneng, at RMB3.975 each (Note: number of Huaneng A Shares issued and issue price per Huaneng A Share are adjusted for the Bonus Issue and Conversion).

The net asset value of the Huaneng Group under the PRC Accounting Standards increased from approximately RMB21,118 million as at 31 December 1999 to approximately RMB37,183 million as at 31 December 2004, representing a CAGR of approximately 12.0%. The following tables set out (i) the audited consolidated profit and loss accounts of the Huaneng Group for the three years ended 31 December 2004 and (ii) the consolidated balance sheet of the Huaneng Group as at 31 December 2002 and 2003 and 30 June 2004 and 30 September 2004, prepared under PRC Accounting Standards:

Consolidated profit and loss account

	For the	year ended 31	December
	2002	2003	2004
		RMB million
Revenue from principal operations	18,725	23,480	30,293
Profit before taxation and minority interests	5,212	6,774	6,692
Net profit	4,082	5,457	5,389
Net profit margin	21.8%	23.2%	17.8%
Fully diluted earnings per Huaneng Share
(Approximate) (Note)	RMB0.34	RMB0.45	RMB0.45
Dividend paid per Huaneng Share
(Approximate) (Note)	RMB0.17	RMB0.25	RMB0.25
Dividend payout ratio	50.0%	55.6%	55.6%

Note: Adjusted for the Bonus Issue and Conversion.

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LETTER FROM GOLDBOND CAPITAL

Consolidated Assets, Liabilities and Minority Interests

Non-current assets Long term investments Current assets Intangible and other assets Total assets Current liabilities Long term liabilities Total liabilities Minority interests Net asset value	As at 31 December As at 30 June 2004 As at 30 September 2004 2002 2003 (Audited) (Audited) (Unaudited) (Unaudited) RMB million 40,901 42,603 44,434 53,401 ------------ ------------ ------------ ------------ 786 3,407 3,470 5,818 ------------ ------------ ------------ ------------ 7,703 8,303 11,216 9,277 ------------ ------------ ------------ ------------ (1,291) (1,036) (914) (596) 48,099 53,277 58,206 67,900 6,719 8,246 12,066 14,333 ------------ ------------ ------------ ------------ 9,351 9,154 10,559 15,669 16,070 17,400 22,625 30,002 819 1,090 1,277 2,265 31,210 34,787 34,304 35,633	As at 31 December As at 30 June 2004 As at 30 September 2004 2002 2003 (Audited) (Audited) (Unaudited) (Unaudited) RMB million 40,901 42,603 44,434 53,401 ------------ ------------ ------------ ------------ 786 3,407 3,470 5,818 ------------ ------------ ------------ ------------ 7,703 8,303 11,216 9,277 ------------ ------------ ------------ ------------ (1,291) (1,036) (914) (596) 48,099 53,277 58,206 67,900 6,719 8,246 12,066 14,333 ------------ ------------ ------------ ------------ 9,351 9,154 10,559 15,669 16,070 17,400 22,625 30,002 819 1,090 1,277 2,265 31,210 34,787 34,304 35,633	As at 31 December As at 30 June 2004 As at 30 September 2004 2002 2003 (Audited) (Audited) (Unaudited) (Unaudited) RMB million 40,901 42,603 44,434 53,401 ------------ ------------ ------------ ------------ 786 3,407 3,470 5,818 ------------ ------------ ------------ ------------ 7,703 8,303 11,216 9,277 ------------ ------------ ------------ ------------ (1,291) (1,036) (914) (596) 48,099 53,277 58,206 67,900 6,719 8,246 12,066 14,333 ------------ ------------ ------------ ------------ 9,351 9,154 10,559 15,669 16,070 17,400 22,625 30,002 819 1,090 1,277 2,265 31,210 34,787 34,304 35,633	As at 31 December As at 30 June 2004 As at 30 September 2004 2002 2003 (Audited) (Audited) (Unaudited) (Unaudited) RMB million 40,901 42,603 44,434 53,401 ------------ ------------ ------------ ------------ 786 3,407 3,470 5,818 ------------ ------------ ------------ ------------ 7,703 8,303 11,216 9,277 ------------ ------------ ------------ ------------ (1,291) (1,036) (914) (596) 48,099 53,277 58,206 67,900 6,719 8,246 12,066 14,333 ------------ ------------ ------------ ------------ 9,351 9,154 10,559 15,669 16,070 17,400 22,625 30,002 819 1,090 1,277 2,265 31,210 34,787 34,304 35,633
	6,719 ------------ 9,351	8,246 ------------ 9,154	12,066 ------------ 10,559	14,333 ------------ 15,669
	16,070 819 31,210	17,400 1,090 34,787	22,625 1,277 34,304

As mentioned in the results announcement of Huaneng for the year ended 31 December 2004, unit fuel cost of Huaneng for the year increased by 32.97% when compared to the year ended 31 December 2003. In view of the unfavourable operation situation, Huaneng has proactively formulated a new fuel management system of centralizing coal purchase, reallocation and settlement by entering into three to five-year mid and long term coal supply agreements with several large-scale national and local coal enterprise. In addition, as mentioned in the interim report of Huaneng for the six months ended 30 June 2004, “the State Development and Reform Commission will exercise control over the coal price, and the Railway Department has strengthened the transportation of coal, thus creating conditions for the overall completion of production operation targets of Huaneng”.

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LETTER FROM GOLDBOND CAPITAL

2. Background and particulars of the Acquisition and the Revised Acquisition

As referred to in the letter from the Board, the Revised Acquisition constitutes a very substantial acquisition and connected transaction of the Company. The Vendor is the liquidation team of FITIC, which was principally engaged in, among other businesses, financial services and investments before the liquidation. As FITIC is the controlling Shareholder, beneficially holding 41.96% of the existing issued share capital of the Company, FITIC is a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the transaction contemplated under the Supplemental Agreement shall constitute connected transaction of the Company and is subject to the disclosure and shareholders’ approval requirements under Chapter 14A of the Listing Rules. As confirmed by the Directors, the Acquisition and the Revised Acquisition have been carried out in the ordinary and usual course of business of the Group and have been negotiated on arm’s length basis based on normal commercial terms between the Company and the Vendor. In this regard, we have reviewed and evaluated below the nature of the Revised Acquisition.

Pursuant to the Supplemental Agreement, the Company had agreed to purchase and the Vendor had agreed to sell (or procure its successor/ transferee (if any) to sell) the Asset at the consideration of RMB373,896,000 (equivalent to approximately HK$353,432,000), which was adjusted upward from RMB358,560,000 (equivalent to approximately HK$338,936,000) under the Agreement. The Asset, being 108,000,000 Huaneng Domestic Shares, represents approximately 0.90% of the issued share capital of Huaneng as at 31 December 2004.

We have reviewed the prospectus of Huaneng dated 19 January 1998 regarding the detachment of the Voting Rights and have discussed with the PRC legal advisers of the Company and the Directors in relation to such detachment. As advised by the Directors, they have taken into account the effect of the detachment of the Voting Rights, and still consider the acquisition of the Asset represents a good investment for the Company and in the interests of the Company and the Shareholders as a whole.

Pursuant to the Agreement, the Company should pay the Vendor the pro-rata entitlement in terms of the appreciation in the net asset value of the Asset during the period from 1 January 2004 until the date of actual payment (the “Payment Date”) of the consideration of the Revised Acquisition with reference to the audited accounts to be issued by Huaneng for the year ended 31 December 2004 and thereafter (if applicable) under PRC Accounting Standards (the “NAV Appreciation”). This clause of the Agreement remains to be valid under the Supplemental Agreement, therefore the consideration of the Revised Acquisition is subject to adjustment arising from the NAV Appreciation. The following sets out the formula for the calculation of the NAV Appreciation:

==> picture [215 x 38] intentionally omitted <==

A i = Net asset value attributable to the Asset as at the end of the financial year i of Huaneng

B i = Dividend attributable to the Asset declared by Huaneng during the financial year i of Huaneng

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LETTER FROM GOLDBOND CAPITAL

C i = Number of days from 1 January of financial year i of Huaneng until the Payment Date (subject to a maximum of 365 days)
D i = Dividend attributable to the Asset declared by Huaneng during the financial year i of Huaneng and received by the Vendor
i = Financial year of Huaneng n = Financial year of Huaneng which the Payment Date falls under

The amount of the NAV Appreciation to be paid by the Company cannot be ascertained until the completion of the Revised Acquisition takes place, which is expected to be on or before the Long Stop Date. For information purposes only, the NAV Appreciation of the Asset from 1 January 2004 to 31 December 2004 amounted to approximately RMB21.0 million (equivalent to approximately HK$19.9 million), representing approximately 5.6% of the consideration of the Revised Acquisition. As it is stated in the letter from the Board, the Company intends to finance the NAV Appreciation by internal resources of the Group. Furthermore, the Company will make proper announcement upon ascertaining amount of the NAV Appreciation and completion of the Revised Acquisition, and details of which will also be disclosed in the annual report of the Company.

3. Reasons for entering into the Supplemental Agreement and the Revised Acquisition

As a result, the consideration of the acquisition of the Asset was adjusted from RMB358,560,000 (equivalent to approximately HK$338,936,000) to RMB373,896,000 (equivalent to approximately HK$353,432,000) pursuant to the Supplemental Agreement. The consideration of the Revised Acquisition represents a premium of 20.0% over the net asset value attributable to the Asset as at 31 December 2003 and is approximately 4.28% higher than the original consideration for the Acquisition under the Agreement. The abovementioned adjusted consideration for the Asset under the Supplemental Agreement, approved by the SASAC, was agreed with reference to the net asset value of the Huaneng Group as at 31 December 2003 (under PRC Accounting Standards), business potential and growth prospect of the Huaneng Group. At the time of the entering into the Supplemental Agreement, the Directors are of the view that the consideration of the Revised Acquisition is justifiable after taking into account of the aforementioned and the financial performance of the Huaneng Group for the six months ended 30 June 2004. For information purposes only, the consideration under the Revised Acquisition represents a premium of approximately 12.4% over the net asset value attributable to the Asset as at 31 December 2004 (before adjustment for the NAV Appreciation as mentioned above).

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LETTER FROM GOLDBOND CAPITAL

As mentioned in the letter from the Board, the SASAC has granted the approval of the Revised Acquisition based on the revised consideration stated therein the Supplemental Agreement.

For each of the two years ended 31 December 2003, the Group has maintained a “cash and bank balances” level of over HK$450 million. Further, as at 30 June 2004, “cash and bank balances” of the Group increased to over HK$500 million. As advised by the Directors, such liquid assets are mainly used as working capital of the Group. The Directors therefore consider that the Revised Acquisition would provide the opportunity for the Group to diversify its investment portfolios and at the same time, to generate revenue for the Group. For information purposes only, if the Company completes the Revised Acquisition before the record date for entitlement of the dividend to be paid by Huaneng for the year ended 31 December 2004, the Company will receive a dividend payout of RMB27.0 million (equivalent to approximately HK$25.5 million) for its interest in the Asset.

As advised by the Directors, based on the reports prepared by the management of the Company, in which evaluation and analysis of the effect of the Revised Acquisition are mentioned, the Directors expect that nationwide power consumption demand would continue to rise in the future and the upward adjustment to the consideration of the Acquisition to be justifiable in terms of the investment return to the Company. As such, the Directors are of the view that the Revised Acquisition will provide the Company the opportunity to invest in a sector with growth potentials.

We have reviewed several market reports of the utilities industry in the PRC and according to such reports, demand for electricity remains to be robust for the next couple of years. According to the National Bureau of Statistics, production of electricity in the PRC increased from approximately 1,910.8 billion kilowatts hour (kwh) in 2003 to approximately 2,187.0 billion kilowatts hour (kwh) in 2004, represented an annual increase of approximately 14.5%. On the other hand, production of coal also increased from approximately 1.7 billion tonnes in 2003 to 2.0 billion tonnes in 2004, represented an annual increase of approximately 17.6%. In view of these and the abovementioned, we concur with the Directors that nationwide power consumption demand would continue to rise in the future.

The Group currently has investments covering financial services, property development and investment, and infrastructure investment, which are all long term investments of the Group. As advised by the Directors, it is their intention to hold the Asset as long term investments. In addition, it is mentioned in the results announcement of Huaneng for the year ended 31 December 2004 that Huaneng “has been provided with more market space for its steady growth in power generation as a result of continued growth in power demand which was given rise to the continued rapid development of the national economy”. Further, as stated in such announcement of Huaneng, unit fuel cost of Huaneng for the year increased by 32.97% when compared to the year ended 31 December 2003. The Directors believe that the short-term fluctuations in terms of the unit fuel cost of Huaneng do not undermine the long term business potential and growth prospect of the Huaneng Group as there exists strong demand for power in light of the growing economy and industrialisations experienced in the PRC as mentioned above. The Directors believe that, based on the track record of Huaneng in terms of its dividend payout, the Asset will provide a steady income stream from dividend to be paid by Huaneng to the Group and the long term capital appreciation potentials.

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LETTER FROM GOLDBOND CAPITAL

According to the annual report of the Company for the year ended 31 December 2003, “interest income from loans and bank deposits” for the two years ended 31 December 2003 amounted to HK$7,039,576 and HK$4,890,891 respectively. Such interest income represented a yield of approximately 1.63% and 1.05% per annum based on the average cash level as at 31 December 2001 and 2002 and 31 December 2002 and 2003 respectively. Further, as stated in the interim report of the Company for the six months ended 30 June 2004, “interest income from loans and bank deposits” for the period amounted to HK$1,813,045, which represented an annualised yield of approximately 0.37% per annum based on the average cash level as at 31 December 2003 and 30 June 2004. For information purposes only, if the Company completes the Revised Acquisition before the record date for entitlement of the dividend to be paid by Huaneng for the year ended 31 December 2004, the Company will receive a dividend payout of RMB27.0 million (equivalent to approximately HK$25.5 million) for its interest in the Asset. Such dividend payout represents a return on investment of approximately 7.22% (before adjustment for the NAV Appreciation as mentioned below) based on the consideration of the Revised Acquisition of RMB373,896,000 (equivalent to approximately HK$353,432,000) (as compared to 7.53% under the consideration of the Acquisition), which is much more favourable to the Group than the average yield earned from “interest income from loans and bank deposits” as mentioned above.

Regarding the NAV Appreciation, the Company has to pay the Vendor the pro-rata entitlement in terms of the appreciation in the net asset value of the Asset during the period from 1 January 2004 until the date of actual payment of the consideration of the Revised Acquisition. As the consideration of the Revised Acquisition is based on the net asset value of the Asset as at 31 December 2003 and will not become due until after all the conditions precedent to the Agreement and the Supplemental Agreement are being fulfilled, therefore any appreciations in terms of the net asset value of the Asset during the period from 1 January 2004 until the Payment Date should be enjoyed by the Vendor rather than the Company. Furthermore, upon completion of the Revised Acquisition, the Company will capitalise the consideration of the Revised Acquisition and the NAV Appreciation as cost of the investments. Therefore, the Directors consider that it is fair and reasonable to pay the Vendor the NAV Appreciation. In addition, the absolute amount of premium over the net asset value of Huaneng to be paid by the Company (which has been agreed between the parties to the Supplemental Agreement) will not change but the percentage premium to be paid will decrease as the net asset value of the Asset is expected to increase. For information purposes only, the consideration under the Revised Acquisition represents a premium of approximately 12.4% over the net asset value attributable to the Asset as at 31 December 2004 (before adjustment for the NAV Appreciation as mentioned below) as compared to a premium of 20% over the net asset value attributable to the Asset as at 31 December 2003. In view of the above and despite the fact that the amount of the NAV Appreciation to be paid by the Company cannot be ascertained until the completion of the Revised Acquisition takes place which is expected to be on or before the Long Stop Date, we concur with the Directors’ view that the payment for the NAV Appreciation (including the formula for calculating the NAV Appreciation) by the Company to the Vendor is fair and reasonable so far as the Company and the Shareholders are concerned.

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LETTER FROM GOLDBOND CAPITAL

Taking into consideration of the above, we are of the view that the Revised Acquisition provides an opportunity for the Group to diversify its investment portfolios and to enhance its earnings capability. As mentioned above, the Group currently has investments covering financial services, property development and investment, and infrastructure investment, which are all long term investments of the Group, therefore we consider that the acquisition of the Asset is in line with the principal business activities of the Group.

4. Consideration of the Revised Acquisition

(i) Acquisition cost of each share in the Asset

As it is set out in the letter from the Board, the Asset comprises 108,000,000 Huaneng Domestic Shares. Based on the consideration of the Revised Acquisition of RMB373,896,000 (equivalent to approximately HK$353,432,000), acquisition cost per Huaneng Domestic Share under the Revised Acquisition is RMB3.462 (equivalent to approximately HK$3.27) (the “Revised Average Acquisition Price”) as compared to RMB3.32 (equivalent to approximately HK$3.14) under the Acquisition (the “Average Acquisition Price”).

Although the Revised Average Acquisition Price represents a premium of 20.0% over the audited net asset value per Huaneng Share as at 31 December 2003 (under PRC Accounting Standards) of RMB2.885 as compared to a premium of 15.08% under the Average Acquisition Price, the Revised Average Acquisition Price still represents a discount of over 40% to the share price for different periods from 3 March 2004 to the Latest Practicable Date of the Huaneng H Shares and the Huaneng A Shares as mentioned below. Furthermore, the Revised Average Acquisition Price represents a price to earnings multiple of approximately 7.69 times, which is slightly higher than approximately 7.38 times under the Average Acquisition Price, with reference to the earnings per Huaneng Share of approximately RMB0.45 for the year ended 31 December 2004 under PRC Accounting Standards.

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LETTER FROM GOLDBOND CAPITAL

The following table sets out, for information purposes only and in comparable format, the Revised Average Acquisition Price (i.e. RMB3.462 (equivalent to approximately HK$3.27)) as compared to the share prices of the Huaneng H Shares and the Huaneng A Shares. The Independent Shareholders should, however, note that the Huaneng Domestic Shares, the Huaneng H Shares and the Huaneng A Shares are not identical as the Huaneng Domestic Shares are not traded in any stock exchange while the Huaneng H Shares and the Huaneng A Shares are traded on the Stock Exchange and the Shanghai Stock Exchange respectively.

		Discount of the		Discount of the
		Revised Average		Revised Average
	Closing	Acquisition	Closing	Acquisition
	price or	Price to the	price or	Price to the
	average	closing price or	average	closing price or
	closing	average closing	closing	average closing
	price per	price per	price per	price per
	Huaneng	Huaneng	Huaneng	Huaneng
Period	H Share	H Share	A Share	A Share
	(Note 1)		(Note 2)
	(HK$)		(RMB)
28 June 2004 (Note 3)	6.85	52.3%	9.40	63.2%
20 July 2004 (Note 4)	6.30	48.1%	9.22	62.5%
2 March 2005 (being the date
of the Supplemental
Agreement)	5.90	44.6%	7.29	52.5%
One month average
(3 February 2005 -
2 March 2005) (Note 5)	5.79	43.5%	7.16	51.6%
Three months average
(3 December 2004 -
2 March 2005) (Note 5)	5.71	42.7%	7.12	51.4%
Six months average
(3 September 2004 -
2 March 2005) (Note 5)	5.92	44.8%	7.70	55.0%
12 months average
(3 March 2004 -
2 March 2005) (Note 5)	6.38	48.7%	8.92	61.2%
22 March 2005
(the Latest Practicable Date)	5.75	43.1%	6.69	48.3%

Notes:

Source: The Stock Exchange.
Source: Bloomberg.

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LETTER FROM GOLDBOND CAPITAL

28 June 2004, being the last trading day before suspension of trading in the Shares prior to the date of the Previous Announcement.
20 July 2004, being the first trading day after the resumption of trading in the Shares on the date of the publication of the Previous Announcement.
2 March 2005, being the date of the Supplemental Agreement.

As mentioned above, Huaneng issued a total of 700,000,000 Huaneng A Shares in December 2001 at RMB3.975 each (Note: number of Huaneng A Shares issued and issue price per Huaneng A Share are adjusted for the Bonus Issue and Conversion) , of which 200,000,000 Huaneng A Shares were placed to HIPDC as non-listed legal person shares of Huaneng. The Revised Average Acquisition Price of RMB3.462 represents a discount of approximately 12.9% to the issue price per Huaneng A Shares in December 2001. The Directors consider that, it is a good opportunity for the Group to invest in the Asset at a price below its historical issue price, and in particular lower than the subscription price paid by HIPDC for the non-listed legal person shares of Huaneng in December 2001. The closing price of the Huaneng H Shares on the Latest Practicable Date was HK$5.75, represented an increase of approximately 140% to the average closing price of the Huaneng H Shares of HK$2.35 in December 2001. Given such increase in terms of the share price of the Huaneng Shares, we concur with the Directors’ view that it is a good opportunity for the Group to invest in the Asset at a price below the then issue price of the Huaneng A Shares and non-listed legal person shares of Huaneng in December 2001.

The Directors consider that the Revised Acquisition represents a good opportunity for the Group to diversify its investment portfolios as the acquisition cost per Huaneng Domestic Shares represents a discount of over 40% to the share price of Huaneng H Share for different periods from 3 March 2004 to the Latest Practicable Date as stated above and a discount of over 10% to the issue price per Huaneng A Shares and the non-listed legal person shares issued to HIPDC in December 2001.

The Directors are of the view that the consideration of the Revised Acquisition is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM GOLDBOND CAPITAL

(ii) Comparisons between the consideration under the Acquisition and the Revised Acquisition

Pursuant to the Agreement, the consideration of the acquisition of the Asset was RMB358,560,000 (equivalent to approximately HK$338,936,000), as compared to RMB373,896,000 (equivalent to approximately HK$353,432,000) under the Supplemental Agreement. The following table sets out some comparable figures between the respective considerations under the Acquisition and the Revised Acquisition:

	Consideration	Consideration
	under the	under the Revised
	Acquisition or	Acquisition or
	Average	Revised Average	Percentage
	Acquisition Price	Acquisition Price	change
Consideration for the acquisition of
the Asset	RMB358,560,000	RMB373,896,000	+4.28%
Premium to the net asset value
attributable to the Asset as at
31 December 2003	15.08%	20.00%	+4.92%
Discount to the closing price of the
Huaneng H Share of HK$6.85 as at
28 June 2004 (Note 1)	54.16%	52.26%	-1.90%
Discount to the closing price of the
Huaneng H Share of HK$5.90 as at
2 March 2005 (Note 2)	46.78%	44.58%	-2.20%
Discount to the issue price of the
Huaneng A Share and the non-
listed legal person shares issued to
HIPDC of RMB3.975 (equivalent
to approximately HK$3.76) in
December 2001	16.48%	12.91%	-3.57%
Proposed dividend by Huaneng for
the year ended 31 December 2004
attributable to the Asset
(i.e. RMB27.0 million)/the
consideration of the acquisition of
the Asset (Note 3)	7.53%	7.22%	-0.31%

Notes:

28 June 2004, being the last trading day before suspension of trading in the Shares prior to the date of the Previous Announcement.
2 March 2005, being the date of the Supplemental Agreement
For information purposes only.

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LETTER FROM GOLDBOND CAPITAL

As mentioned above, it is the Directors’ intention to hold the Asset as long term investments, therefore the upward adjustment to the consideration of the Acquisition to be justifiable in terms of the investment return of the Company.

(iii) Comparable listed companies

In formulating our opinion, we have analysed and considered the current market multiples of various comparable listed companies in Hong Kong principally engaged in the generation and sale of power based in the PRC. The comparable companies were principally selected based on their size, nature and location of the business and the availability of their financial information to the general public.

Based on the above selection criteria, we set out in the following table the relevant multiples of the selected comparable listed companies in Hong Kong based on their latest published annual reports available as at the Latest Practicable Date. The Independent Shareholders should, however, note that the comparable companies are not identical to the Huaneng Group and that the selection of these comparable companies is for information purposes only.

		Net asset value as
	Net profit for the	at the end of the	CAGR	Return	Dividend
	latest financial	latest financial	of net	on	payout
Company name	year	year	profit	equity	ratio
	Approximate	(Note 1)	(Note 2)
	(Note 1)
Huaneng Power	RMB5,324 million	RMB37,183	30.6%	14.5%	56.8%
International, Inc.	(equivalent to	million (equivalent		(for the	(for the
(902.HK) (Note 3)	approximately	to approximately		year	year
	HK$5,033 million)	HK$35,148		ended 31	ended 31
	(for the year ended	million) (for the	December		December
	31 December	year ended 31		2004)	2004)
	2004)	December 2004		(Note 7)
		under PRC
		Accounting
		Standards)
Datang International	RMB1,812 million	RMB15,721	9.7%	11.5%	49.9%
Power Generation	(equivalent to	million (equivalent
Company Limited	approximately	to approximately
(991.HK) (Note 4)	HK$1,713 million)	HK$14,861
		million)
China Resources Power	HK$589 million	HK$8,945 million	N/A	6.6%	N/A
Holdings Company					(Note 8)
Limited (836.HK)
(Note 5)

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LETTER FROM GOLDBOND CAPITAL

		Net asset value as
	Net profit for the	at the end of the	CAGR	Return	Dividend
	latest financial	latest financial	of net	on	payout
Company name	year	year	profit	equity	ratio
	Approximate	(Note 1)	(Note 2)
	(Note 1)
Huadian Power	RMB1,029 million	RMB9,117 million	(2.8)%	11.3%	17.9%
International, Inc.	(equivalent to	(equivalent to
(1071.HK) (Note 6)	approximately	approximately
	HK$973 million)	HK$8,618 million)

Sources: Annual report of the respective comparable companies available as at the Latest Practicable Date.

Notes:

Other than the figures for the net profit and net asset value of the Huaneng Group which is for the year ended 31 December 2004, all other figures for the comparable companies are for the year ended 31 December 2003.
CAGR (compounded annual growth rate) was calculated for the five years ended 31 December 2003. China Resources Power Holdings Company Limited did not have any turnover until the year ended 31 December 2003, therefore it was excluded from the calculation of CAGR.
Huaneng Power International, Inc. operates power plants in the provinces of Liaoning, Hebei, Shangdong, Shanghai, Jiangsu, Fujian and Guangdong Provinces of the PRC. Other than the net asset of the Huaneng Group, financial data are prepared in accordance with International Financial Reporting Standards.
Datang International Power Generation Company Limited operates power plants in the provinces of Tianjian, Inner Mongolia, Hebei, Shanxi, Yunnan, Gansu and Chongqing of the PRC. Financial data are prepared in accordance with International Financial Reporting Standards.
China Resources Power Holdings Company Limited operates power plants in the provinces of Guangdong, Jiangsu, Zhejiang, Hebei, Henan and Hubei Provinces of the PRC. Financial data are prepared in accordance with accounting principles generally accepted in Hong Kong.
Huadian Power International, Inc. operates power plants in the Shangdong province of the PRC. Financial data are prepared in accordance with International Financial Reporting Standards.
Return on equity of the Huaneng Group is based on the net profit for the year ended 31 December 2004 divided by the net asset value as at 31 December 2004 under PRC Accounting Standards.
China Resources Power Holdings Company Limited did not declare any dividend for the year ended 31 December 2003.

We have reviewed the latest available published financial statements of the abovementioned companies and all of them were profit making in their respective latest financial year. Huaneng had a net asset value of approximately HK$32,097 million as at 31 December 2003, which was close to the combined net asset value of the other three comparable companies of approximately HK$32,424 million. Huaneng also had a net earning of approximately RMB5,430 million and RMB5,324 million

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LETTER FROM GOLDBOND CAPITAL

(equivalent to approximately HK$5,133 million and RMB5,033 million) (under International Financial Reporting Standards) for the two years ended 31 December 2004 respectively, which each of them was more than the combined net earnings of the other three comparable companies of HK$3,275 million. In addition, for the six months ended 30 June 2004, net profit of Huaneng of approximately HK$2,345 million (under International Financial Reporting Standards), which was more than the combined net earnings of the other three comparable companies of HK$2,309 million.

In terms of dividend payout, Huaneng not only had the highest dividend payout ratio of approximately 56.8% among the four comparable companies, but also had the highest return on equity among them. In terms of the growth rate of net profit of the abovementioned comparable companies, Huaneng also had the highest CAGR of approximately 30.6% for the five years ended 31 December 2003. Further, for the six years ended 31 December 2004, Huaneng had a CAGR of approximately 23.3%.

Taking into account of the financial performance of Huaneng, the Directors consider that the Revised Acquisition represents a good opportunity for the Group to diversify its investment portfolios as Huaneng has a solid track record, steady dividend payout stream, relatively higher dividend payout ratio and growth potentials in the market. Based on the above, we consider that the Revised Acquisition represents a good infrastructure investment with sound financial performance and a steady dividend payout stream.

Taking into account of the above, we are of the opinion that the consideration of the Revised Acquisition is fair and reasonable.

5. Financial effects of the Acquisition

(i) Profit and loss account

The Group recorded a profit attributable to shareholders of HK$56,786,807 (audited) and HK$36,583,776 (unaudited) for the year ended 31 December 2003 and the six months ended 30 June 2004 respectively. Upon completion of the Revised Acquisition, the Company will account for the dividend to be paid by Huaneng as revenue of the Company. As mentioned above, Huaneng declared and paid dividend of RMB0.25 per Huaneng Share for the year ended 31 December 2003 (adjusted for the Bonus Issue and Conversion). For information purposes only, if the Company completes the Revised Acquisition before the record date for entitlement of the dividend to be paid by Huaneng for the year ended 31 December 2004, the Company will receive a dividend payout of RMB27.0 million (equivalent to approximately HK$25.5 million) for its interest in the Asset. Although there is no assurance that Huaneng will declare and pay dividend for every subsequent year, the Directors believe that, based on the track record of Huaneng in terms of its dividend payout, the Revised Acquisition will enhance the profit of the Group. Save and except for the interest income foregone/ expenses incurred in relation to the Revised Acquisition and circumstances when Huaneng pays dividend and/or special dividend, the Company disposes of its interest in the Asset or the Asset is determined to be impaired, the Revised Acquisition will not have any material effect on the profit and loss accounts of the Group upon completion of the Revised Acquisition.

— 37 —

LETTER FROM GOLDBOND CAPITAL

In light of the potential steady stream of income, from possible dividend to be paid by Huaneng to the Group and the long term capital appreciation potentials of the Asset, we are of the view that the Revised Acquisition represents a good opportunity for the Group to strengthen its financial performance and enhance the return to the Shareholders.

(ii) Net asset value

As at 31 December 2003 and 30 June 2004, the net asset value of the Group amounted to HK$1,221,126,617 (audited) and HK$1,241,861,238 (unaudited) respectively. The Company will settle the costs of the Revised Acquisition (including the NAV Appreciation) by internal resources of the Group and bank borrowings. Such amount will be capitalised as cost of the investments on initial recognition. The net asset value of the Group will remain unchanged as at the date of completion of the Revised Acquisition. As advised by the Company, after initial recognition, such investments will be re-measured at fair value at the end of each subsequent financial period. Any gain or loss arising from a change in the fair value of the Asset will be recognised directly in equity until such investments are being disposed of or otherwise derecognised or there is objective evidence of impairment of the Asset, at which time the cumulative gain or loss previously recognised in equity will be recognised in profit and loss.

We consider that, barring any unforeseen circumstances, the long term capital appreciation of the Asset would, to certain extent, lead to an increase in net asset value of the Group. The potential increase in net asset value of the Group is in the interests of the Shareholders and the Company as a whole.

(iii) Working capital

As stated in the Company’s annual report for the year ended 31 December 2003 and the interim report for the six months ended 30 June 2004, the Group did not have any bank borrowings. As at 31 December 2003 and 30 June 2004, the Group had cash and bank balances of HK$478,469,483 and HK$506,525,008 respectively. As advised by the Directors, the Company will satisfy the consideration of the Revised Acquisition as to HK$120 million by bank borrowings and as to the remaining balance by internal resources of the Group. We note that the Group’s cash and bank balances and bank loan facilities to be obtained by the Group are in excess to satisfy the consideration of the Revised Acquisition of RMB373,896,000 (equivalent to approximately HK$353,432,000) (excluding the NAV Appreciation, if any). The Directors have also confirmed that the Group has sufficient working capital for its working capital requirements for the next 12 months from the date of the Circular and completion of the Revised Acquisition under the paragraph headed “Working capital” in Appendix I of this circular.

In view of the above, we concur with the Directors’ view that the Group has adequate working capital and the business operation of the Group would not be adversely affected.

— 38 —

LETTER FROM GOLDBOND CAPITAL

RISKS IN RELATION TO THE ASSET

It should be noted that as the Articles of Association of Huaneng do not contain express provisions governing the rights of Huaneng Unlisted Foreign Shares, there is no assurance that any subsequent holders of such Huaneng Unlisted Foreign Shares including the Company or other classes of shares would not dispute the rights attaching to Huaneng Unlisted Foreign Shares as set out above, and such rights may be affected as a result.

As mentioned in the letter from the Board, the Asset will be re-designated as Huaneng Unlisted Foreign Shares according to the PRC law upon completion of the Acquisition. As the Articles of Association of Huaneng do not contain express provisions as to whether Huaneng Unlisted Foreign Shares constitute a separate class of ordinary shares of Huaneng, the Company has liaised with a number of PRC authorities to understand the legality and viability of the Acquisition. Furthermore, the PRC legal advisers of the Company have issued a legal opinion on the legality of the Acquisition and the rights attached to Huaneng Unlisted Foreign Shares. We have reviewed such legal opinion which states that the Acquisition is valid upon completion of all relevant approval and registration procedures under the PRC law. The PRC legal advisers of the Company have confirmed in its opinion that the Acquisition is legitimate and the Company is permitted under PRC law to hold the Asset after satisfying the conditions precedent to the Agreement and upon completion of the Acquisition.

Based on the above, we have no reason to believe the Acquisition or the Revised Acquisition is illegitimate.

RECOMMENDATION

Taking into account the above principal factors and reasons, we consider that the consideration of the Revised Acquisition and the transaction contemplated under the Supplemental Agreement is fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Revised Acquisition.

Yours faithfully, For and on behalf of

Goldbond Capital (Asia) Limited Stacey Wong

Head of Corporate Finance

— 39 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. INDEBTEDNESS

At the close of business on 28 February 2005, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, a non-wholly owned subsidiary of the Group in the PRC had outstanding short term unsecured advances from non-financial institutions amounted to approximately RMB24.7 million (equivalent to approximately HK$23.4 million). In addition, such subsidiary has issued guarantees amounting to approximately RMB39.6 million (equivalent to approximately HK$37.4 million) for bank mortgage loan facilities obtained by certain buyers for purchasing properties from it. These guarantees will be released upon the receipt of the title deeds of the properties by the relevant banks.

Save as aforesaid and apart from intra-group liabilities, neither the Company nor any of the companies comprising the Group had, at the close of business on 28 February 2005, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptance or acceptance credits, debentures, mortgages, charges, hire purchase or other finance lease commitments, guarantees or other material contingent liabilities.

2. MATERIAL ADVERSE CHANGES

As the diversion effect of the neighbouring competing routes of the Group’s toll road investment (through an associated company) in Fenghua, Zhejiang Province has worsened since 31 December 2003, the Directors consider that an impairment loss to be determined against the Group’s investment in the associated company of HK$38.2 million as at 31 December 2003 is necessary for the year ended 31 December 2004.

Save as disclosed above and in the Company’s annual report for the year ended 31 December 2003, an extract of which is set out in note 31 to the Company’s financial statements as set out on page 90 under the paragraph headed “Summary of the audited financial statements of the Group” in Appendix I, the Directors are not aware of any other material adverse changes in the financial or trading position or prospects of the Group since 31 December 2003, being the date to which the latest audited consolidated financial statements of the Group were made up.

3. WORKING CAPITAL

Taking into account the Group’s existing cash and bank balances and the financial resources available, including internally generated funds and a new bank loan of HK$120 million to be obtained from a bank which the Group has received an indicative proposal for financing the Revised Acquisition, in the absence of unforeseen circumstances, the Directors are of the opinion that the Group has sufficient working capital for its working capital requirements for the next 12 months from the date of this circular and for the completion of the Revised Acquisition.

— 40 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SUMMARY OF THE AUDITED FINANCIAL STATEMENTS OF THE GROUP

(A) The following is a summary of the audited financial results of the Group for each of the three years ended 31 December 2003 as extracted from the audited accounts of the Group for the relevant years.

There were no qualified opinion for the Group’s accounts for each of the three years ended 31 December 2003.

Three Years Financial Summary

Consolidated Profit and Loss Account

Turnover
Profit before taxation
Taxation
Profit after taxation
Minority interests
Profit attributable to shareholders
Consolidated net assets
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Minority interests
Net assets

Year ended 31 December
2003
2002
2001
HK$
HK$
HK$
116,544,198
120,198,823
124,223,204
74,938,581
60,750,443
77,757,601
(14,398,235)
(12,258,168)
(2,224,444)
60,540,346
48,492,275
75,533,157
(3,753,539)
(2,516,978)
(2,446,926)
56,786,807
45,975,297
73,086,231
As at 31 December
2003
2002
2001
HK$
HK$
HK$
832,014,763
781,492,640
764,349,760
559,970,643
549,209,946
563,699,890
(152,807,632)
(152,008,499)
(189,758,673)
(4,547,468)
(3,803,715)
(3,415,586)
(13,503,689)
(12,207,338)
(12,683,237)
1,221,126,617
1,162,683,034
1,122,192,154

— 41 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(B) The following is the audited financial statements of the Group for the year ended 31 December 2003 (the date to which the latest audited accounts were made up), together with the comparative figures for the year ended 31 December 2002 and the accompanying notes to the audited accounts of the Group for the year ended 31 December 2003 as extracted from the annual report of the Company for the year ended 31 December 2003.

In respect of the notes to the following financial statements, references to page numbers are the page numbers of the annual report of the Company for the year ended 31 December 2003.

Consolidated Profit and Loss Account

For the year ended 31 December 2003

Note TURNOVER 2 TOTAL REVENUES 2 COST OF PROPERTIES SOLD NET COMMISSIONS, CLAIMS AND OTHER EXPENSES INCURRED ON INSURANCE BUSINESS 3 STAFF COSTS DEPRECIATION OTHER PROVISIONS AND LOSSES 4 OTHER OPERATING EXPENSES TOTAL OPERATING EXPENSES OPERATING PROFIT 5 SHARE OF RESULTS OF �JOINTLY CONTROLLED ENTITIES 6 �ASSOCIATES 7	2003 HK$ 116,544,198	2002 HK$ As restated (Note 1) 120,198,823 117,484,767 --------------- (34,912,154) (37,331,595) (22,290,899) (2,488,199) 3,838,724 (13,709,882) (106,894,005) --------------- ----------------------------------------------------------- 10,590,762 --------------- 44,725,535 5,434,146 50,159,681 --------------- -----------------------------------------------------------
	127,280,343 --------------- (39,285,079) (30,837,638) (22,445,664) (2,525,369) 6,630,754 (13,812,363) (102,275,359) --------------- ----------------------------------------------------------- 25,004,984 --------------- 57,985,181 (8,051,584)	117,484,767 --------------- (34,912,154 (37,331,595 (22,290,899 (2,488,199 3,838,724 (13,709,882
		(106,894,005 --------------- ----------------------------------------------------------- 10,590,762 --------------- 44,725,535 5,434,146
	49,933,597 --------------- -----------------------------------------------------------

— 42 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Note PROFIT BEFORE TAXATION TAXATION 9 PROFIT AFTER TAXATION MINORITY INTERESTS PROFIT ATTRIBUTABLE TO SHAREHOLDERS 10 DIVIDEND 11 BASIC EARNINGS PER SHARE 12	2003 HK$ 74,938,581 (14,398,235) 60,540,346 (3,753,539) 56,786,807 18,377,146 HK CENTS 12.36	2002 HK$ As restated (Note 1) 60,750,443 (12,258,168) 48,492,275 (2,516,978) 45,975,297 — HK CENTS 10.01

— 43 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 December 2003

Note NON-CURRENT ASSETS Fixed assets 13 Jointly controlled entities 15 Associates 16 Held-to-maturity debt securities, unlisted Other asset 17 CURRENT ASSETS Properties held for sale 18 Deferred acquisition costs Insurance debtors 19 Claims recoverable from reinsurers Other debtors and prepayments Trading securities, listed 20 Cash and bank balances 21 CURRENT LIABILITIES Unearned premiums Unexpired risks Gross outstanding insurance claims Insurance liabilities 22 Other creditors and accruals Taxation	2003 HK$ 152,023,204 512,426,822 100,505,419 9,009,318 58,050,000	2002 HK$ As restated (Note 1) 171,591,605 450,102,609 101,748,426 — 58,050,000
	832,014,763 --------------- 32,960,761 7,824,360 13,777,314 17,511,179 3,762,450 5,665,096 478,469,483 559,970,643 --------------- 22,096,166 948,000 68,806,753 5,605,631 50,496,335 4,854,747	781,492,640 --------------- 23,685,878 9,045,071 18,460,111 18,779,686 13,521,939 14,028,704 451,688,557
		549,209,946 --------------- 26,749,608 995,000 75,938,453 7,684,838 36,409,627 4,230,973
	152,807,632 --------------- -----------------------------------------------------------	152,008,499 --------------- -----------------------------------------------------------

— 44 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Note NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES DEFERRED TAX LIABILITIES 23 MINORITY INTERESTS NET ASSETS SHARE CAPITAL 24 OTHER RESERVES 25 RETAINED PROFITS Proposed final dividend 25 Others 25 SHAREHOLDERS’ FUNDS	2003 HK$ 407,163,011 --------------- ----------------------------------------------------------- 1,239,177,774 4,547,468 13,503,689 1,221,126,617 459,428,656 674,059,815 18,377,146 69,261,000 1,221,126,617	2002 HK$ As restated (Note 1) 397,201,447 --------------- ----------------------------------------------------------- 1,178,694,087 3,803,715 12,207,338
		1,162,683,034
		459,428,656 677,755,137 — 25,499,241
		1,162,683,034

— 45 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

As at 31 December 2003

Note NON-CURRENT ASSETS Fixed assets 13 Subsidiaries 14 Jointly controlled entities 15 Associate 16 Other asset 17 CURRENT ASSETS Other debtors and prepayments Dividend receivable from a subsidiary Trading securities 20 Cash and bank balances 21 CURRENT LIABILITIES Other creditors and accruals TOTAL ASSETS LESS CURRENT LIABILITIES NET ASSETS SHARE CAPITAL 24 OTHER RESERVES 25 RETAINED PROFIT/(ACCUMULATED LOSS) Proposed final dividend 25 Others 25 SHAREHOLDERS’ FUNDS	2003 HK$ 27,383,271 226,866,354 205,800,000 10,069,838 58,050,000	2002 HK$ 26,729,681 235,687,349 205,800,000 — 58,050,000 526,267,030 --------------- 11,986,633 — 9,525,768 355,035,864 376,548,265 --------------- 15,842,139 --------------- ----------------------------------------------------------- 360,706,126 --------------- ----------------------------------------------------------- 886,973,156 459,428,656 431,706,414 — (4,161,914) 886,973,156
	528,169,463 --------------- 1,125,965 11,550,000 3,115,096 368,644,286	526,267,030 --------------- 11,986,633 — 9,525,768 355,035,864
	384,435,347 --------------- 2,232,230 --------------- ----------------------------------------------------------- 382,203,117 --------------- ----------------------------------------------------------- 910,372,580
	459,428,656 431,706,414 18,377,146 860,364	459,428,656 431,706,414 — (4,161,914
	910,372,580

— 46 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

for the year ended 31 December 2003

Note NET CASH INFLOW GENERATED FROM OPERATIONS 29 Interest received Tax paid NET CASH INFLOW FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of fixed assets Short term loan repaid Equity investment in a jointly controlled entity Equity investment in an associate Loans (advanced to)/repaid by a jointly controlled entity Loans repaid by/(advanced to) associates Purchase of held-to-maturity debt securities Withdrawal of insurance regulatory related deposits Dividend received from a jointly controlled entity Dividends received from an associate Dividends received from listed investments Interest income from debt securities Sale of fixed assets Sale of investment properties NET CASH INFLOW FROM INVESTING ACTIVITIES NET CASH INFLOW BEFORE FINANCING FINANCING Dividends paid to minority interests Advances to minority interests NET CASH OUTFLOW FROM FINANCING	2003 HK$ 19,800,717 4,863,374 (2,572,349)	2002 HK$ 1,649,188 9,637,553 (1,850,791) 9,435,950 --------------- (802,726) 7,420,000 — — 19,790,744 (9,242,991) — 1,648,544 14,251,650 2,541,702 358,764 — 1,100 294,870 36,261,657 --------------- ----------------------------------------------------------- 45,697,607 --------------- (2,761,278) (223,802) (2,985,080) --------------- -----------------------------------------------------------
	22,091,742 --------------- (674,685) — (40) (10,069,838) (15,577,029) 14,208,916 (9,012,500) 463,941 — — 566,663 111,433 — 27,597,570 7,614,431 --------------- ----------------------------------------------------------- 29,706,173 --------------- (1,732,435) (728,871)	9,435,950 --------------- (802,726 7,420,000 — — 19,790,744 (9,242,991 — 1,648,544 14,251,650 2,541,702 358,764 — 1,100 294,870
		36,261,657 --------------- ----------------------------------------------------------- 45,697,607 --------------- (2,761,278 (223,802
	(2,461,306) --------------- -----------------------------------------------------------

— 47 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Note INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1 JANUARY CASH AND CASH EQUIVALENTS AT 31 DECEMBER ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Less: Deposits placed pursuant to insurance regulatory requirements 21	2003 HK$ 27,244,867 429,987,586 457,232,453 478,469,483 (21,237,030) 457,232,453	2002 HK$ 42,712,527 387,275,059 429,987,586 451,688,557 (21,700,971) 429,987,586

— 48 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity for the year ended 31 December 2003 TOTAL EQUITY AS AT 1 JANUARY - as previously stated CHANGE IN ACCOUNTING POLICY - prior period adjustment on provision for net deferred tax liabilities TOTAL EQUITY AS AT 1 JANUARY, AS RESTATED DEFERRED TAX LIABILITIES RECOGNISED IN RESERVE CHANGE IN FAIR VALUE OF NON-TRADING SECURITIES IMPAIRMENT OF OTHER PROPERTIES EXCHANGE DIFFERENCES ARISING ON TRANSLATION OF THE FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES, ASSOCIATES AND JOINTLY CONTROLLED ENTITIES NET GAIN NOT RECOGNISED IN THE PROFIT AND LOSS ACCOUNT PROFIT FOR THE YEAR REALISATION OF RESERVES ON WINDING UP OF SUBSIDIARIES TO THE PROFIT AND LOSS ACCOUNT IMPAIRMENT OF GOODWILL PREVIOUSLY TAKEN DIRECTLY TO RESERVES (note 4) REALISATION OF RESERVE ON DISPOSAL BY A JOINTLY CONTROLLED ENTITY OF A SUBSIDIARY TO THE PROFIT AND LOSS ACCOUNT TOTAL EQUITY AS AT 31 DECEMBER	2003 HK$ 1,176,598,051 (13,915,017)	2002 HK$ 1,128,969,873 (6,777,719) 1,122,192,154 ---------------- (200,565) 2,399,743 (996,235) 19,786 1,222,729 ---------------- 45,975,297 ---------------- (6,747,175) ---------------- — ---------------- 40,029 ---------------- -------------------------------------------------------------- 1,162,683,034
	1,162,683,034 ---------------- (346,862) 562,366 — (18,420)	1,122,192,154 ---------------- (200,565 2,399,743 (996,235 19,786
	197,084 ---------------- 56,786,807 ---------------- — ---------------- 1,459,692 ---------------- — ---------------- -------------------------------------------------------------- 1,221,126,617

— 49 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Accounts

1. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of preparation

The accounts have been prepared in accordance with generally accepted accounting principles in Hong Kong and comply with Statements of Standard Accounting Practice (“SSAPs”) issued by the Hong Kong Society of Accountants. The accounts are prepared under the historical cost convention except that, as disclosed in the accounting policies below, investment properties and investments in securities other than held-to-maturity debt securities are stated at fair value.

(i) In the current year, the Group has changed its accounting policy on deferred taxation following the adoption of the new SSAP 12 “Income taxes” issued by the Hong Kong Society of Accountants which is effective for accounting periods commencing on or after 1 January 2003.

Under the new SSAP 12, deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

In prior years, deferred taxation was accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset was expected to be payable or recoverable in the foreseeable future. The adoption of the new SSAP 12 represents a change in accounting policy, which has been applied retrospectively so that the comparatives presented herein have been restated to conform to this changed policy.

As detailed in note 25 to the accounts, the Group’s opening retained earnings, investment revaluation reserve and other properties revaluation reserve have been reduced by the net deferred tax liabilities of the Group computed under the changed policy as at those dates, which amounted to HK$1,627,831, HK$1,280,912 and HK$3,868,976 respectively at 1 January 2002 and HK$8,564,564, HK$1,640,874 and HK$3,709,579 respectively at 1 January 2003. The application of the changed policy has resulted in an increase of the Group’s deferred tax liabilities and a decrease of the Group’s minority interests, share of net assets in jointly controlled entities and associates at 31 December 2002 by HK$3,803,715, HK$491,777, HK$7,934,401 and HK$2,668,678 respectively.

The Group’s taxation charges attributable to the Company and its subsidiaries, jointly controlled entities and associates (note 9) for the year ended 31 December 2002 have also increased by HK$547,526, HK$6,136,364 and HK$573,732 respectively, resulting in a decrease of net profit after minority interests for the year ended 31 December 2002 by HK$6,936,733. In addition, the Group’s investment revaluation reserve and other properties revaluation reserve have also reduced by HK$359,962 and increased by HK$159,397 respectively for the year ended 31 December 2002.

— 50 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the year ended 31 December 2003, the adoption of this changed policy has resulted in a decrease in net profit after minority interests, investment revaluation reserve and other properties revaluation reserve by HK$314,584, HK$84,355 and HK$262,507 respectively.

(ii) Commencing this year, the Group no longer deducts premiums on reinsurance ceded and movements in net unearned insurance premiums and provision for unexpired risks from the gross insurance premiums written in reporting its turnover. The comparative figure for turnover presented herein has been adjusted accordingly. There is no impact on the Group’s revenue or profit before taxation in the current and prior years arising from this reclassification.

(b) Consolidation

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 31 December. Subsidiaries are those entities in which the Company, directly or indirectly, controls the composition of the board of directors, controls more than half the voting power or holds more than half of the issued share capital.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill/negative goodwill or goodwill/negative goodwill taken to reserves and which has not been previously charged or recognised in the consolidated profit and loss account and also any related exchange translation reserve.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

In the Company’s balance sheet the investments in subsidiaries are stated at cost less impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(c) Jointly controlled entities

A jointly controlled entity is an entity which, through contractual arrangements, is subject to joint control of the Group and other parties, and none of the participating parties has unilateral control over the entity.

The consolidated profit and loss account includes the Group’s share of the results of jointly controlled entities for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the jointly controlled entities and goodwill/negative goodwill (net of accumulated amortisation) on acquisition less impairment losses.

Equity accounting is discontinued when the carrying amount of the equtiy investment in a jointly controlled entity reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the jointly controlled entity.

In the Company’s balance sheet the investments in jointly controlled entities are stated at cost less impairment losses. The results of jointly controlled entities are accounted for by the Company on the basis of dividends received and receivable.

(d) Associates

An associate is a company, not being a subsidiary or a jointly controlled entity, in which an equity interest is held for the long term and significant influence is exercised in its management by the Group.

— 51 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The consolidated profit and loss account includes the Group’s share of the results of associates for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the associates and goodwill/negative goodwill (net of accumulated amortisation) on acquisition less impairment losses.

Equity accounting is discontinued when the carrying amount of the equity investment in an associate reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associate.

In the Company’s balance sheet the investments in associates are stated at cost less impairment losses. The results of associates are accounted for by the Company on the basis of dividends received and receivable.

(e) Revenue recognition
(i) Interest and rental income

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable, except for doubtful debts where interest income is recognised on a cash basis.

Rental income from operating leases net of any incentives paid is recognised on a straight-line basis over the life of the lease agreements.

(ii) Gross insurance premiums less reinsurance

Gross insurance premiums less reinsurance are recognised corresponding to the insurance risk covered.

(iii) Sale of properties

Revenue from the sale of properties held for sale in Mainland China is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the development and construction of the properties as well as the sale process are completed. Payments received prior to completion are recorded as deposits received and included in other creditors.

(iv) Commission income and management fees

Commission income and management fees are recognised upon the provision of services. Income accrual is ceased in case the collectibility of the income is doubtful.

(v) Dividend income

Dividend income is recognised when the right to receive payment is established.

(f) Fixed assets

Fixed assets other than investment properties (note 1(g)) and other properties are stated at cost less accumulated depreciation and accumulated impairment losses.

Other properties, which are interests in land and buildings, are stated at cost or valuation less accumulated depreciation and accumulated impairment losses. Surpluses arising from valuation of other properties are credited to other properties revaluation reserve; decreases are first set off against increases on earlier valuation of the same piece of other property and thereafter are debited to operating profit. Any subsequent increases are credited to operating profit up to the amount previously debited.

— 52 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Effective from 1 January 1993, no further revaluations of the Group’s other properties stated at valuation have been carried out. The Group places reliance on paragraph 80 of SSAP 17 “Property, plant and equipment” issued by the Hong Kong Society of Accountants which provides exemption from the need to make regular revaluations for such assets.

Freehold land is not depreciated. Other fixed assets are depreciated at rates sufficient to write off their cost or valuation less accumulated impairment losses over their estimated useful lives at the following annual rates:

(i)	Straight line method:
	Leasehold land	Over the unexpired term of the lease
	Buildings	Over the shorter of the unexpired term of the lease and
		thirty years
	Computer equipment	20% - 25%
(ii)	Reducing balance method:
	Furniture, fixtures and office equipment	10% - 20%
	Motor vehicles	20% - 25%

Major costs incurred in restoring fixed assets to their normal working condition are charged to the profit and loss account. Improvements are capitalised and depreciated over their expected useful lives to the Group.

The gain or loss on disposal of a fixed asset other than investment properties is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the profit and loss account. Any revaluation reserve balance remaining attributable to the relevant asset is transferred to retained earnings and is shown as a movement in reserves.

(g) Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties held on leases with unexpired periods greater than 20 years are valued annually by independent valuers. The valuations are on an open market value basis related to individual properties and separate values are not attributed to land and buildings. The valuations are incorporated in the annual accounts. Increases in valuation are credited to the investment properties revaluation reserve; decreases are first set off against increases on earlier valuations on a portfolio basis and thereafter are debited to operating profit. Any subsequent increases are credited to operating profit up to the amount previously debited.

Investment properties are not depreciated except for those held on leases with unexpired periods of 20 years or less. In which case, depreciation is provided on the carrying amount over the remaining terms of the leases.

Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in respect of previous valuations is released and transferred from the revaluation reserve to the profit and loss account.

(h) Impairment of assets

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that assets other than properties held for sale, investment properties and financial assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant,

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss account except where the asset is carried at valuation and the impairment loss does not exceed the revaluation surplus for that same asset, in which case it is treated as a revaluation decrease.

(i) Goodwill/negative goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiaries, jointly controlled entities and associates at the date of acquisition. Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition. The Group has taken advantage of the transitional provisions in SSAP 30 “Business combinations” for acquisitions undertaken prior to 1 January 2001 that goodwill previously written off against reserves and negative goodwill previously taken to reserves are not restated. However any impairment arising on goodwill is accounted for in the profit and loss account. On the disposal of a subsidiary, a jointly controlled entity or an associate, the related goodwill/negative goodwill is included in calculating the profit and loss on disposal.

(j) Investments in securities

(i) Trading securities

Trading securities are securities which are acquired for the purpose of generating a profit from short-term fluctuations in price and are stated at fair value at the balance sheet date. Fair value is the amount for which an asset can be exchanged, or a liability settled, between knowledgeable willing parties in an arm’s length transaction. Changes in fair value of trading securities are recognised in the profit and loss account as they arise. Profit or loss on disposal of trading securities, representing the difference between the net sale proceeds and the carrying amounts, are recognised in the profit and loss account as they arise.

(ii) Non-trading securities

Non-trading securities other than debt securities intended to be held-to-maturity are stated at fair value at the balance sheet date.

Changes in the fair value of non-trading securities are credited or debited to the investment revaluation reserve until the security is sold or is determined to be impaired. Upon disposal, the cumulative gain or loss representing the difference between the net sales proceeds and the carrying amount of the relevant security, together with any surplus/deficit transferred from the investment revaluation reserve, is dealt with in the profit and loss account. Where there is objective evidence that individual investments are impaired the cumulative loss recorded in the revaluation reserve is taken to the profit and loss account.

(iii) Held-to-maturity securities

Held-to-maturity securities are stated in the balance sheet at cost plus/less any discount/premium amortised to date. The discount or premium is amortised over the period to maturity and included as interest income/ expense in the profit and loss account.

The carrying amounts of individual held-to-maturity securities or holdings of the same securities are reviewed at the balance sheet date in order to assess the credit risk and whether the carrying amounts are expected to be recovered. Provisions are made when there is a diminution in value other than temporary and the carrying amounts are not expected to be recovered. Such provisions are recognised in the profit and loss account as an expense immediately.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(k) Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Cost, calculated on an average basis, includes land cost, development expenditure and other direct expenses. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

(l) Unearned premiums

Unearned premiums represent those portions of premiums written which are related to periods of risk subsequent to the balance sheet date.

(m) Deferred acquisition costs

Acquisition costs consist of commissions and other costs net of reinsurance commission income, which are directly related to the production of insurance revenues. They are deferred and amortised over the terms of the related insurance policies.

(n) Outstanding claims

Full provision is made for outstanding claims including those incurred but not reported at the balance sheet date. Provision is made in the light of available information, after taking into account direct claims handling expenses and possible recoveries from other parties. Indirect expenses relating to the general administration of claims are included as part of outstanding claims.

Claims recoverable from reinsurers are included as an asset in the balance sheet.

(o) Provision for unexpired risks

Provision for unexpired risks represents the estimated amounts required over and above unearned premiums to meet future claims and related expenses on business in force at the end of the year. Provision is made taking into account the losses, management expenses and investment yields expected to occur on the unearned premiums to which the policies relate.

(p) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the profit and loss account on a straight line basis over the lease term.

(q) Foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

The balance sheet of subsidiaries, jointly controlled entities and associates expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss is translated at an average rate. Exchange differences arising are dealt with as a movement in reserves.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(r) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Retirement benefit costs

The Group’s contributions to staff retirement scheme (note 5(a)) are expensed as incurred and are reduced by contributions forfeited in relation to those employees who leave the scheme prior to vesting fully in the contributions.

(s) Borrowing costs

All borrowing costs are charged to the profit and loss account in the year in which they are incurred.

(t) Segment reporting

In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

Unallocated costs represent corporate expenses. Segment assets consist primarily of fixed assets, properties held for sale, receivables, investments in securities, insurance related assets and operating cash. Segment liabilities comprise operating liabilities and exclude items such as taxation, corporate borrowings and accruals for corporate expenses. Capital expenditure comprises additions to fixed assets (note 13). Inter-segment loans and advances employed by the Group as part of the Group’s funding and capital allocation and the resulting interest income and expenses are excluded from the determination of segment assets, liabilities and results.

In respect of geographical segment reporting, sales are based on the country in which the customers are located. Total assets and capital expenditure are based on the country in which the assets are located.

(u) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, cash investments with a maturity of three months or less from the date of investment less bank overdrafts.

(v) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(w) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.

A contingent asset is not recognised but is disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

2. TURNOVER AND SEGMENTAL INFORMATION

The Group is principally engaged in property investment, development and sales, financial services, toll road investment, industrial instrument manufacturing and investment holdings.

The amount of each significant category of revenue recognised during the year is as follows:

Turnover Gross insurance premiums Insurance brokerage commission Gross proceeds from disposal of properties held for sale Rental income from investment properties Interest income from loans and bank deposits Management fee Reinsurance premiums ceded Decrease in net unearned insurance premiums written and provision for unexpired risks Other revenues Dividend income from listed equity investments Interest income from debt securities Net realised and unrealised gain on trading securities Gain on winding up of subsidiaries (a) Gain on disposal of investment properties (note 30(c)) Total revenues	2003 HK$ 52,028,034 887,361 53,026,076 5,160,236 4,890,891 551,600	2002 HK$ 62,935,245 507,451 44,252,425 4,935,944 7,039,576 528,182 120,198,823 - - - - - - - - - - - - (10,543,910) - - - - - - - - - - - - 723,915 - - - - - - - - - - - - 358,764 — — 6,747,175 — 7,105,939 - - - - - - - - - - - - ----------------------------------------------- 117,484,767
	116,544,198 - - - - - - - - - - - - (11,869,106) - - - - - - - - - - - - 4,700,442 - - - - - - - - - - - - 566,663 111,433 5,429,143 — 11,797,570	120,198,823 - - - - - - - - - - - - (10,543,910 - - - - - - - - - - - - 723,915 - - - - - - - - - - - - 358,764 — — 6,747,175 —
	17,904,809 - - - - - - - - - - - - ----------------------------------------------- 127,280,343

(a) The prior year amount represented the release of capital reserve and exchange translation reserve attributable to the subsidiaries on their winding up.

— 57 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Primary reporting format - business segments

The Group’s activities are principally organised under the following business segments:

Property investment, development and sales

investing in and development of properties for sale and for rental income

Financial services

Toll road investment Industrial instrument manufacturing Investment holdings and others

underwriting of general insurance, insurance brokerage, investing in banking business and trading in securities
investing in toll road projects in Mainland China
manufacturing and distribution of digital instruments
this comprises other investment activities of the Group

— 58 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Property investment, development and sales HK$ Total revenues 70,472,910 Segment results 35,477,426 Unallocated costs Operating profit Share of results of - Jointly controlled entities — - Associates — Profit before taxation Taxation Profit after taxation Minority interests Profit attributable to shareholders Segment assets 172,719,053 Investments in jointly controlled entities — Investments in associates 14,763,945 Unallocated assets Total assets Segment liabilities 56,514,376 Unallocated liabilities Total liabilities Capital expenditure — Depreciation 225,920 Impairment of goodwill —	Financial services HK$ 52,555,486 10,155,211 54,940,052 — 188,196,088 493,339,852 — 99,562,557 155,679 630,676 —	For the year ended 31 December 2003 Toll road investment Industrial instrument manufacturing Investment holdings and others HK$ HK$ HK$ — — 4,251,947 (1,459,692) — 3,090,904 — 3,045,129 — (8,069,319) — 17,735 — — 374,340,493 — 19,086,970 — 75,675,266 — 10,066,208 — — 985,498 — — 519,006 — — 1,668,773 1,459,692 — —	Group HK$ 127,280,343
			47,263,849 (22,258,865
			25,004,984 57,985,181 (8,051,584
			74,938,581 (14,398,235
			60,540,346 (3,753,539
			56,786,807
			735,255,634 512,426,822 100,505,419 43,797,531
			1,391,985,406
			157,062,431 13,796,358
			170,858,789
			674,685 2,525,369 1,459,692

— 59 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Property investment, development and sales HK$ Total revenues 49,517,005 Segment results 3,577,793 Unallocated costs Operating profit Share of results of - Jointly controlled entities — - Associates — Profit before taxation Taxation (note 1) Profit after taxation Minority interests Profit attributable to shareholders Segment assets 160,495,768 Investments in jointly controlled entities — Investments in associates 14,960,130 Unallocated assets Total assets Segment liabilities 27,938,057 Unallocated liabilities Total liabilities Capital expenditure — Depreciation 188,210 Impairment charge of other properties —	For the year ended 31 December 2002 (as restated) Financial services Toll road investment Industrial instrument manufacturing Investment holdings and others HK$ HK$ HK$ HK$ 55,130,564 — — 12,837,198 4,135,856 — — 25,372,922 44,725,535 — — — — 5,434,146 — — 201,111,334 — — 372,326,713 450,102,609 — — — — 86,788,296 — — 113,336,004 — — 14,444,339 10,386 — — 792,340 658,532 — — 1,641,457 — — — 996,235	Group HK$ 117,484,767
		33,086,571 (22,495,809
		10,590,762 44,725,535 5,434,146
		60,750,443 (12,258,168
		48,492,275 (2,516,978
		45,975,297
		733,933,815 450,102,609 101,748,426 44,917,736
		1,330,702,586
		155,718,400 12,301,152
		168,019,552
		802,726 2,488,199 996,235

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Secondary reporting format - geographical segments

For the year ended 31 December 2003 Total revenues Operating profit/(loss) Total assets Capital expenditure HK$ HK$ HK$ HK$ Hong Kong 53,114,744 (7,880,822) 395,997,615 133,178 Mainland China 55,545,661 19,151,678 349,918,719 448,317 Macau 18,619,938 13,734,128 33,136,831 93,190 127,280,343 25,004,984 779,053,165 674,685 Investments in jointly controlled entities 512,426,822 Investments in associates 100,505,419 1,391,985,406	For the year ended 31 December 2003 Total revenues Operating profit/(loss) Total assets Capital expenditure HK$ HK$ HK$ HK$ Hong Kong 53,114,744 (7,880,822) 395,997,615 133,178 Mainland China 55,545,661 19,151,678 349,918,719 448,317 Macau 18,619,938 13,734,128 33,136,831 93,190 127,280,343 25,004,984 779,053,165 674,685 Investments in jointly controlled entities 512,426,822 Investments in associates 100,505,419 1,391,985,406	For the year ended 31 December 2003 Total revenues Operating profit/(loss) Total assets Capital expenditure HK$ HK$ HK$ HK$ Hong Kong 53,114,744 (7,880,822) 395,997,615 133,178 Mainland China 55,545,661 19,151,678 349,918,719 448,317 Macau 18,619,938 13,734,128 33,136,831 93,190 127,280,343 25,004,984 779,053,165 674,685 Investments in jointly controlled entities 512,426,822 Investments in associates 100,505,419 1,391,985,406	For the year ended 31 December 2003 Total revenues Operating profit/(loss) Total assets Capital expenditure HK$ HK$ HK$ HK$ Hong Kong 53,114,744 (7,880,822) 395,997,615 133,178 Mainland China 55,545,661 19,151,678 349,918,719 448,317 Macau 18,619,938 13,734,128 33,136,831 93,190 127,280,343 25,004,984 779,053,165 674,685 Investments in jointly controlled entities 512,426,822 Investments in associates 100,505,419 1,391,985,406
			674,685

	1,391,985,406

For the year ended 31 December 2002 Total revenues Operating profit Total assets Capital expenditure HK$ HK$ HK$ HK$ Hong Kong 63,625,328 533,201 478,429,884 483,281 Mainland China 46,702,779 8,161,300 251,187,504 319,445 Macau 7,156,660 1,896,261 49,234,163 — 117,484,767 10,590,762 778,851,551 802,726 Investments in jointly controlled entities 450,102,609 Investments in associates 101,748,426 1,330,702,586	For the year ended 31 December 2002 Total revenues Operating profit Total assets Capital expenditure HK$ HK$ HK$ HK$ Hong Kong 63,625,328 533,201 478,429,884 483,281 Mainland China 46,702,779 8,161,300 251,187,504 319,445 Macau 7,156,660 1,896,261 49,234,163 — 117,484,767 10,590,762 778,851,551 802,726 Investments in jointly controlled entities 450,102,609 Investments in associates 101,748,426 1,330,702,586	For the year ended 31 December 2002 Total revenues Operating profit Total assets Capital expenditure HK$ HK$ HK$ HK$ Hong Kong 63,625,328 533,201 478,429,884 483,281 Mainland China 46,702,779 8,161,300 251,187,504 319,445 Macau 7,156,660 1,896,261 49,234,163 — 117,484,767 10,590,762 778,851,551 802,726 Investments in jointly controlled entities 450,102,609 Investments in associates 101,748,426 1,330,702,586	For the year ended 31 December 2002 Total revenues Operating profit Total assets Capital expenditure HK$ HK$ HK$ HK$ Hong Kong 63,625,328 533,201 478,429,884 483,281 Mainland China 46,702,779 8,161,300 251,187,504 319,445 Macau 7,156,660 1,896,261 49,234,163 — 117,484,767 10,590,762 778,851,551 802,726 Investments in jointly controlled entities 450,102,609 Investments in associates 101,748,426 1,330,702,586
			802,726

	1,330,702,586

There are no sales or other transactions between the business and geographical segments disclosed above.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. NET COMMISSIONS, CLAIMS AND OTHER EXPENSES INCURRED ON INSURANCE BUSINESS

Gross commissions payable Less: Commissions receivable from reinsurers Net commissions payable Gross claims incurred Less: Claims recovered from reinsurers Net claims incurred Claims handling expenses 4. OTHER PROVISIONS AND LOSSES Net realised and unrealised losses in trading securities Loss on disposal of investment properties Deficit on revaluation of investment properties Impairment of goodwill attributable to an associate Write back of impairment losses for loans to and amounts due from jointly controlled entities and associates (note 31(a))	2003 HK$ 17,093,117 (1,402,756) 15,690,361 - - - - - - - - - 16,953,032 (4,480,808) 12,472,224 - - - - - - - - - 2,675,053 - - - - - - - - - ----------------------------------- 30,837,638 2003 HK$ — — 1,883,790 1,459,692 (9,974,236) (6,630,754)	2002 HK$ 20,347,702 (2,835,114) 17,512,588 - - - - - - - - - 24,829,207 (7,082,204) 17,747,003 - - - - - - - - - 2,072,004 - - - - - - - - - ----------------------------------- 37,331,595 2002 HK$ 1,386,362 26,949 5,859,573 — (11,111,608) (3,838,724)

— 62 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. OPERATING PROFIT

	2003	2002
	HK$	HK$
Operating profit is stated after charging the following:
Depreciation	2,525,369	2,488,199
Loss on disposal of fixed assets	34,170	76,284
Net exchange losses	645,495	69,853
Operating lease rentals in respect of land and buildings	344,760	362,760
Auditors’ remuneration	1,887,130	1,894,083
Management fee (note 30(b))	1,880,000	1,880,000
Retirement benefit costs (a)	725,125	790,707

(a) The Group contributed to a defined contribution scheme which was available to all eligible employees. The assets of the scheme were held separately from those of the Group in an independently administered fund. Contributions to the scheme by the Group and employees were calculated at 15% of the employees’ basic salary until 30 November 2000 when the scheme was replaced by a mandatory provident fund scheme (“MPF Scheme”) set up under the Hong Kong Mandatory Provident Fund Schemes Ordinance.

The Group’s monthly contributions (mandatory and voluntary) to the MPF Scheme for each employee is calculated at the lower of HK$2,000 or 10% (or 6% for employees who joined after 30 September 2000) of the monthly basic salary. The Group’s contributions to the MPF Scheme can be reduced by the Group’s voluntary contributions forfeited in relation to those employees who leave the scheme prior to vesting fully in the contributions. At 31 December 2003, there were no material unutilised forfeited contributions.

6. SHARE OF RESULTS OF JOINTLY CONTROLLED ENTITIES

The prior year amount included the Group’s share of the gain on disposal of a subsidiary by a jointly controlled entity of HK$6.97 million.

7. SHARE OF RESULTS OF ASSOCIATES

For the year ended 31 December 2003, the amount included the Group’s share of impairment loss recognised by an associate on its toll road investments of HK$13.03 million (2002: Nil).

— 63 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. SENIOR EXECUTIVES’ EMOLUMENTS

(a) Directors’ emoluments

Fees Salaries, housing and other allowances, and benefits in kind Bonuses paid by a subsidiary The emoluments were paid to the directors as follows: Emoluments Band HK$ Nil - HK$1,000,000	2003 2002 HK$ HK$ 440,630 393,698 989,352 1,006,273 2,500,000 2,250,000 3,929,982 3,649,971 Number of Directors 2003 2002 7 7	2002 HK$ 393,698 1,006,273 2,250,000
		3,649,971

Emoluments paid to independent non-executive directors amounted to HK$260,000 during the year (2002: HK$260,000).

(b) Other senior executives’ emoluments

The analysis in note (a) above does not include those individuals who are not directors but whose emoluments were among the five highest in the Group. Details of the emoluments paid to those individuals are as follows:

Salaries, housing and other allowances, and benefits in kind Contributions to retirement benefit scheme Emoluments Band HK$ Nil - HK$1,000,000 HK$1,000,001 - HK$1,500,000	2003 2002 HK$ HK$ 3,627,231 2,608,643 48,000 72,000 3,675,231 2,680,643 Number of Individuals 2003 2002 3 2 1 1	2002 HK$ 2,608,643 72,000
		2,680,643

— 64 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. TAXATION

Hong Kong profits tax has been provided at the rate of 17.5% (2002: 16%) on the estimated assessable profit for the year. In 2003, the Hong Kong Government enacted a change in the profits tax rate from 16% to 17.5% starting from the fiscal year 2003/2004. Taxation on Mainland China and Macau profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in Mainland China and Macau.

The amount of taxation charged to the consolidated profit and loss account represents:

Company and subsidiaries: Hong Kong profits tax Mainland China and Macau taxation Over provision in prior years: Hong Kong profits tax Macau taxation Deferred taxation Relating to the origination and reversal of temporary differences (note 23) Jointly controlled entities: Mainland China and Macau taxation Associates: Mainland China taxation Taxation charge	2003 HK$ 187 3,206,409	2002 HK$ As restated (Note 1) 4,300 2,105,181 2,109,481 - - - - - - - - - (63,386) (139,612) (202,998) - - - - - - - - - 547,526 - - - - - - - - - ----------------------------------- 2,454,009 - - - - - - - - - 9,230,427 - - - - - - - - - 573,732 - - - - - - - - - ----------------------------------- 12,258,168
	3,206,596 - - - - - - - - - (438) (10,035)	2,109,481 - - - - - - - - - (63,386 (139,612
	(10,473) - - - - - - - - - 480,823 - - - - - - - - - ----------------------------------- 3,676,946 - - - - - - - - - 12,472,688 - - - - - - - - - (1,751,399) - - - - - - - - - ----------------------------------- 14,398,235

— 65 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The taxation on the group’s profit before taxation differs from the theoretical amount that would arise using the taxation rate of the home country of the company as follows:

For the Company and subsidiaries HK$ Profit/(loss) before taxation 25,004,984 Calculated at a taxation rate of 17.5% 4,375,872 Effect of different taxation rates in other tax jurisdictions 1,773,446 Income not subject to taxation (5,012,055) Expenses not deductible for taxation purposes 1,939,982 Utilisation of previously unrecognised tax losses (780,222) Increase in unrecognised tax losses 1,129,260 Under/(Over) provision in prior years (10,473) Others 261,136 3,676,946 For the Company and subsidiaries HK$ Profit before taxation 10,590,762 Calculated at a taxation rate of 16% 1,694,522 Effect of different taxation rates in other tax jurisdictions 1,366,722 Income not subject to taxation (4,519,230) Expenses not deductible for taxation purposes 2,132,009 Utilisation of previously unrecognised tax losses (418,384) Increase in unrecognised tax losses 2,264,274 Over provision in prior years (65,354) Others (550) 2,454,009	year ended 31 Jointly controlled entities HK$ 57,985,181	December 2003 Associates Total HK$ HK$ (8,051,584) 74,938,581 (1,409,027) 13,114,252 — 5,304,443 (966,185) (8,782,162) 367,101 3,765,968 — (780,222) 256,712 1,580,697 — (10,214) — 205,473 (1,751,399) 14,398,235 December 2002 Associates Total HK$ HK$ 5,434,146 60,750,443 869,463 9,720,071 — 3,804,359 (590,822) (6,919,812) 295,091 3,632,564 — (418,384) — 2,402,643 — (65,354) — 102,081 573,732 12,258,168	December 2003 Associates Total HK$ HK$ (8,051,584) 74,938,581 (1,409,027) 13,114,252 — 5,304,443 (966,185) (8,782,162) 367,101 3,765,968 — (780,222) 256,712 1,580,697 — (10,214) — 205,473 (1,751,399) 14,398,235 December 2002 Associates Total HK$ HK$ 5,434,146 60,750,443 869,463 9,720,071 — 3,804,359 (590,822) (6,919,812) 295,091 3,632,564 — (418,384) — 2,402,643 — (65,354) — 102,081 573,732 12,258,168
4,375,872 1,773,446 (5,012,055) 1,939,982 (780,222) 1,129,260 (10,473) 261,136	10,147,407 3,530,997 (2,803,922) 1,458,885 — 194,725 259 (55,663)	(1,409,027) — (966,185) 367,101 — 256,712 — —	13,114,252 5,304,443 (8,782,162 3,765,968 (780,222 1,580,697 (10,214 205,473
	12,472,688 year ended 31 Jointly controlled entities HK$ 44,725,535
1,694,522 1,366,722 (4,519,230) 2,132,009 (418,384) 2,264,274 (65,354) (550)	7,156,086 2,437,637 (1,809,760) 1,205,464 — 138,369 — 102,631	869,463 — (590,822) 295,091 — — — —	9,720,071 3,804,359 (6,919,812 3,632,564 (418,384 2,402,643 (65,354 102,081
2,454,009	9,230,427	573,732

— 66 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The profit attributable to shareholders is dealt with in the accounts of the Company to the extent of HK$23,399,424 (2002: HK$32,650,196).

11. DIVIDENDS

										2003	2002
										HK$	HK$
Final,	proposed,	of	4	cents	(2002:	Nil)	per	ordinary	share	18,377,146	—

At a board meeting held on 23 April 2004, the directors proposed a final dividend of 4 cents per ordinary share. This proposed dividend is not reflected as a dividend payable in these accounts, but will be reflected as an appropriation of retained profit for the year ending 31 December 2004.

12. BASIC EARNINGS PER SHARE

The calculation of basic earnings per share is based on the Group’s profit attributable to shareholders of HK$56,786,807 (2002: HK$45,975,297) and the weighted average number of 459,428,656 (2002: 459,428,656) shares in issue during the year.

The Group has no dilutive potential ordinary shares in issue during the current year and prior year and therefore there is no diluted earnings per share presented in these accounts.

— 67 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. FIXED ASSETS

Group

Cost or valuation At 1 January 2003 Translation differences Additions Revaluation Disposals At 31 December 2003 Accumulated depreciation and impairment losses At 1 January 2003 Translation differences Charge for the year Disposals At 31 December 2003 Net book value At 31 December 2003 At 31 December 2002	Investment properties HK$ 119,394,720 — — (1,883,790) (15,800,000)	Other properties Furniture, fixtures, office and computer equipment HK$ HK$ 67,833,765 9,510,889 243 238 — 288,841 — — — (407,091)	Other properties Furniture, fixtures, office and computer equipment HK$ HK$ 67,833,765 9,510,889 243 238 — 288,841 — — — (407,091)	Motor vehicles HK$ 4,501,290 175 385,844 — —	Total HK$ 201,240,664 656 674,685 (1,883,790) (16,207,091) 183,825,124 - - - - - - - - - - - - 29,649,059 413 2,525,369 (372,921) 31,801,920 - - - - - - - - - - - - ----------------------------------------------- 152,023,204 171,591,605
	101,710,930 - - - - - - - - - - - - — — — —	67,834,008 - - - - - - - - - - - - 21,086,204 60 1,156,435 —	9,392,877 - - - - - - - - - - - - 4,930,047 205 1,090,596 (372,921)	4,887,309 - - - - - - - - - - - - 3,632,808 148 278,338 —	183,825,124 - - - - - - - - - - - - 29,649,059 413 2,525,369 (372,921
	— - - - - - - - - - - - - ----------------------------------------------- 101,710,930 119,394,720	22,242,699 - - - - - - - - - - - - ----------------------------------------------- 45,591,309 46,747,561	5,647,927 - - - - - - - - - - - - ----------------------------------------------- 3,744,950 4,580,842	3,911,294 - - - - - - - - - - - - ----------------------------------------------- 976,015 868,482

— 68 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company

			Furniture,
			fixtures, office
	Investment	Other	and computer	Motor
	properties	properties	equipment	vehicles	Total
	HK$	HK$	HK$	HK$	HK$
Cost or valuation
At 1 January 2003	20,694,720	5,219,041	2,890,152	3,771,204	32,575,117
Translation differences	—	213	42	—	255
Additions	—	—	54,888	—	54,888
Revaluation	1,116,210	—	—	—	1,116,210
Disposals	—	—	(202,013)	—	(202,013)
At 31 December 2003	21,810,930	5,219,254	2,743,069	3,771,204	33,544,457
	- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -
Accumulated depreciation
and impairment losses
At 1 January 2003	—	1,316,846	1,284,846	3,243,744	5,845,436
Translation differences	—	54	47	—	101
Charge for the year	—	65,836	335,254	105,492	506,582
Disposals	—	—	(190,933)	—	(190,933)
At 31 December 2003	—	1,382,736	1,429,214	3,349,236	6,161,186
	- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -
	-----------------------------------------------	-----------------------------------------------	-----------------------------------------------	-----------------------------------------------	-----------------------------------------------
Net book value
At 31 December 2003	21,810,930	3,836,518	1,313,855	421,968	27,383,271
At 31 December 2002	20,694,720	3,902,195	1,605,306	527,460	26,729,681

— 69 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The analysis of the cost or valuation of the above assets is as follows:

Group

Investment properties HK$ — 101,710,930 101,710,930	Other properties Furniture, fixtures, office and computer equipment HK$ HK$ 14,834,008 9,392,877 53,000,000 — 67,834,008 9,392,877	Other properties Furniture, fixtures, office and computer equipment HK$ HK$ 14,834,008 9,392,877 53,000,000 — 67,834,008 9,392,877	Other properties Furniture, fixtures, office and computer equipment HK$ HK$ 14,834,008 9,392,877 53,000,000 — 67,834,008 9,392,877	Motor vehicles HK$ 4,887,309 — 4,887,309	Total HK$ 29,114,194 154,710,930	Total HK$ 29,114,194 154,710,930
					183,825,124
— 119,394,720	14,833,765 53,000,000		9,510,889 —	4,501,290 —	28,845,944 172,394,720
119,394,720 Investment properties HK$ — 21,810,930 21,810,930 — 20,694,720 20,694,720	67,833,765 9,510,889 Other properties Furniture, fixtures, office and computer equipment HK$ HK$ 5,219,254 2,743,069 — — 5,219,254 2,743,069			4,501,290 Motor vehicles HK$ 3,771,204 — 3,771,204	201,240,664
						Total HK$ 11,733,527 21,810,930
						33,544,457
		5,219,041 —	2,890,152 —	3,771,204 —		11,880,397 20,694,720
		5,219,041	2,890,152	3,771,204		32,575,117

— 70 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The net book value of investment properties and other properties is analysed as follows:

Investment properties

Held in Hong Kong Leases of over 50 years Leases of between 10 to 50 years Held outside Hong Kong Leases of between 10 to 50 years Other properties Held in Hong Kong Leases of over 50 years Held outside Hong Kong Freehold Leases of over 50 years Leases of between 10 to 50 years	Group 2003 2002 HK$ HK$ 43,900,000 44,200,000 27,000,000 27,000,000 30,810,930 48,194,720 101,710,930 119,394,720 Group 2003 2002 HK$ HK$ 42,882,071 43,961,483 272,000 278,400 1,473,693 1,510,434 963,545 997,244 45,591,309 46,747,561	Company 2003 2002 HK$ HK$ — — — — 21,810,930 20,694,720 21,810,930 20,694,720 Company 2003 2002 HK$ HK$ 2,974,908 3,012,454 — — — — 861,610 889,741 3,836,518 3,902,195	Company 2003 2002 HK$ HK$ — — — — 21,810,930 20,694,720 21,810,930 20,694,720 Company 2003 2002 HK$ HK$ 2,974,908 3,012,454 — — — — 861,610 889,741 3,836,518 3,902,195

			3,902,195

The investment properties were revalued on an open market value basis at 31 December 2003 by independent professional valuers, namely Chesterton Petty Limited in Hong Kong and Fujian Huaxing Certified Public Accountants Ltd. in Mainland China.

Other properties stated at valuation were valued by an independent professional valuer, Chesterton Petty Limited, on an open market value basis at 31 December 1992.

The carrying amount of other properties of the Group would have been HK$29,072,559 (2002: HK$29,724,317) had they been stated at cost less accumulated depreciation and impairment losses.

The title deeds in respect of certain investment properties in Hong Kong with a net book value of HK$33.4 million (2002: HK$34.2 million) held by a subsidiary are placed in the custody of the Office of the Commissioner of Insurance in Hong Kong.

— 71 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries Amounts due to subsidiaries Less: Impairment losses	Company 2003 2002 HK$ HK$ 60,655,034 60,655,026 327,603,697 350,987,546 (3,203) (2,441)	Company 2003 2002 HK$ HK$ 60,655,034 60,655,026 327,603,697 350,987,546 (3,203) (2,441)
	388,255,528 (161,389,174)	411,640,131 (175,952,782)
	226,866,354	235,687,349

The following is a list of the Company’s principal subsidiaries at 31 December 2003:

			Nominal value of
	Place of		issued ordinary	Group’s
	incorporation/		share capital/	equity
Name	operations	Principal activities	registered capital	interest
Directly held:
Dorfine Development Limited	Hong Kong	Property investment	HK$2	100%
Fujian Minxin Investment	The People’s	Investment	HK$3,000,000(4)	100%
Consultants Co., Ltd. (1)&(2)	Republic of	consulting
	China
Min Xin (China) Investment	British Virgin	Investment holding	US$1	100%
Limited	Islands
Minxin Ferdinand Investments	Hong Kong	Investment holding	HK$5,000,000	51%
Limited
Min Xin Infrastructure Limited	British Virgin	Investment holding	US$1	100%
	Islands
Min Xin Insurance Company	Hong Kong	Writing of	HK$55,000,000	100%
Limited		general insurance
		business
Ranger Insurance Brokers Limited	Hong Kong	Insurance brokerage	HK$100,000	100%
Take Chance Company Limited	Hong Kong	Property investment	HK$2	100%
Thousand Limited	British Virgin	Investment holding	US$1	100%
	Islands
Welljet Development Limited	Hong Kong	Property investment	HK$2	100%

— 72 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			Nominal value of
	Place of		issued ordinary	Group’s
	incorporation/		share capital/	equity
Name	operations	Principal activities	registered capital	interest
Indirectly held:
Crown Land International Limited	Hong Kong	Investment holding	HK$10,000	100%
Jinan Pacific Real Estate	The People’s	Property	RMB13,881,160(4)	51%
Development Co., Ltd. (1)&(3)	Republic of	development
	China	and sales
Min Xin Properties Limited	Hong Kong	Investment holding	HK$5,000,000	100%
Shining Gold Limited	British Virgin	Investment holding	US$1	100%
	Islands
Wide Exposure Developments	British Virgin	Investment holding	US$1	100%
Limited	Islands

(1) Companies not audited by PricewaterhouseCoopers. The Group’s profit before taxation attributable to these companies amounted to HK$11,869,259 (2002: HK$8,847,525).
(2) Wholly foreign-owned enterprise in Mainland China
(3) Equity joint venture enterprise in Mainland China.
(4) Registered and paid up capital

15. JOINTLY CONTROLLED ENTITIES

Share of net assets Loans to jointly controlled entities (note (a)) Amounts due from jointly controlled entities (note (a)) Less: Impairment losses (note (b)) Unlisted investments, at cost	Group 2003 2002 HK$ HK$ 496,093,152 450,102,609 - - - - - - - - - - - - - - - - - - - - - - - - 110,256,527 94,679,498 51,130,299 51,130,299	Group 2003 2002 HK$ HK$ 496,093,152 450,102,609 - - - - - - - - - - - - - - - - - - - - - - - - 110,256,527 94,679,498 51,130,299 51,130,299
	161,386,826 (145,053,156)	145,809,797 (145,809,797)
	16,333,670 - - - - - - - - - - - - ----------------------------------------------- 512,426,822 210,805,040	— - - - - - - - - - - - - ----------------------------------------------- 450,102,609
		210,805,000

— 73 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Unlisted investments, at cost Loans to jointly controlled entities (note (a)) Amounts due from jointly controlled entities (note (a)) Less: Impairment losses (note (b))	Company 2003 2002 HK$ HK$ 210,805,000 210,805,000 93,922,857 94,679,498 51,130,299 51,130,299 355,858,156 356,614,797 (150,058,156) (150,814,797) 205,800,000 205,800,000

(a) Loans and other amounts were advanced to the jointly controlled entities as part of the Group’s and the Company’s investments in these jointly controlled entities and are unsecured and have no fixed repayment terms. During the year, the Group advanced a loan of HK$16,333,670 to a newly acquired jointly controlled entity, Min Faith Investments Limited, which is unsecured and interest free. Except for this newly granted loan, the remaining balances bear interest at 12% per annum (2002: 12%).
(b) As a result of the accumulated losses arising from certain joint ventures, impairment losses were recognised by the Group and the Company against the investments and the loans and amounts due from these jointly controlled entities in prior years. Interest income on these loans is accounted for on a cash basis and no interest income was received during the year (2002: HK$70,282).
(c) The Group and the Company also have bank deposits placed with jointly controlled financial institutions in the normal course of business which are included in cash and bank balances (note 21(a)).

— 74 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The following is a list of the principal jointly controlled entities at 31 December 2003:

	Place of		Group’s
	incorporation/		equity
Name	operations	Principal activities	interest
Xiamen International Bank(1),	The People’s	Banking and investment	36.75%
and its subsidiaries:	Republic of China	holding
Fast Rise Investments Limited	Hong Kong	Property investment	36.75%
Luso International Banking Limited	Macau	Banking	36.75%
Setwide Investments Limited	Hong Kong	Property investment	36.75%
Silver Win Development Limited	Hong Kong	Property investment	36.75%
Wealth Rise Development Limited	Hong Kong	Property investment	36.75%
Xiamen International Investment Limited	Hong Kong	Investment holding	36.75%
XIB Properties Limited	Liberia	Property investment	36.75%
Min Faith Investments Limited(2),	Hong Kong	Investment holding	40%
and its subsidiaries:
Fuzhou Charm Faith Autosystem Co., Ltd.(2)	The People’s	Manufacturing and	40%
	Republic of China	distribution of digital
		instruments
Min Faith Instruments Limited(2)	Hong Kong	Investment holding	20.4%
Tianjin Charm Faith Instruments Co., Ltd.(2)	The People’s	Manufacturing and	20.4%
	Republic of China	distribution of digital
		instruments
Westly Limited(1), and its subsidiary:	Hong Kong	Investment holding	50%
Asian Eagle Limited	Hong Kong	Property development and	50%
		sales

(1) Jointly controlled entities directly held by the Company.
(2) Companies not audited by PricewaterhouseCoopers. The Group’s attributable share of profit before taxation with respect to these newly acquired companies amounted to HK$3,045,129.

— 75 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Xiamen International Bank (“XIB”) is a major jointly controlled entity directly held by the Company. The Group holds a 36.75% interest in ownership and, jointly with a substantial shareholder of the Company, a 47.62% interest in voting power of the board of directors of XIB. The financial information of XIB extracted from its statutory accounts prepared in accordance with generally accepted accounting principles in The People’s Republic of China are as follows:

(a) Consolidated profit and loss account

Profit before taxation Taxation Profit after taxation Minority interests Net profit Consolidated balance sheet Cash and short term funds Investments Loans and advances and other assets, less provisions Fixed assets Share capital Reserves Shareholders’ equity Deposits and other liabilities	2003 HK$’000 143,669 (27,369) 116,300 — 116,300 2003 HK$’000 1,102,504 2,007,875 8,656,150 212,270 11,978,799	2002 HK$’000 122,946 (8,584) 114,362 556 114,918 2002 HK$’000 744,385 1,532,544 7,214,029 218,742 9,709,700 800,000 393,235 1,193,235 8,516,465 9,709,700
	800,000 509,535 1,309,535 10,669,264	800,000 393,235
		1,193,235 8,516,465
	11,978,799

(b) Consolidated balance sheet

Net interest income, charge for bad and doubtful debts and depreciation charge of XIB during the year amounted to HK$247,936,000 (2002: HK$187,736,000), HK$56,938,000 (2002: HK$41,323,000) and HK$20,804,000 (2002: HK$18,714,000) respectively.

— 76 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. ASSOCIATES

Share of net assets
Loans to associates
Amount due from an associate
Less: Impairment losses
Unlisted investments, at cost
Unlisted investments, at cost

Group
2003
2002
HK$
HK$
29,735,144
25,986,856
- - - - - - - - - - - -
- - - - - - - - - - - -
70,664,162
84,871,020
106,113
106,087
70,770,275
84,977,107
—
(9,215,537)
70,770,275
75,761,570
- - - - - - - - - - - -
-----------------------------------------------
- - - - - - - - - - - -
-----------------------------------------------
100,505,419
101,748,426
16,355,633
6,285,803
Company
2003
2002
HK$
HK$
10,069,838
—

The loans to and amount due from associates are unsecured, interest free and have no fixed repayment terms except for an amount of RMB1,520,000 (2002: RMB1,520,000) which bears interest at normal commercial rates and is repayable in two years from the drawdown date. At 31 December 2002, a RMB10 million interest bearing loan has been granted to an associate, on normal commercial terms, for the purpose of financing a property project. The loan was secured by a piece of land in Mainland China and was fully repaid during the year. Interest income received and receivable from the associate during the year amounted to HK$385,145 (2002: HK$220,969).

— 77 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The following is a list of the principal associates at 31 December 2003:

	Place of incorporation/		Group’s equity
Name	operations	Principal activities	interest
Changchun Changxin International Real	The People’s	Property development and	20%
Estate Development Co., Ltd.(1)	Republic of China	sales
(note 31(a))
Fujian Hua Yuan City Construction	The People’s	Sewage and waste	25%
Environment Protection Co., Ltd.(1)	Republic of China	treatment services
Promise Good Limited(1), and its	British Virgin Islands	Investment holding	40%
subsidiaries:
Nickwell Investments Limited(1)	British Virgin Islands	Investment holding	40%
Raytek Investments Limited(1)	British Virgin Islands	Investment holding	40%
Wise Link Investments Limited(1)	British Virgin Islands	Investment holding	40%
Ningbo Nickwell Highway	The People’s	Infrastructure	26%(2)
Development Company Limited(1)	Republic of China
Ningbo Rayter Highway Development	The People’s	Infrastructure	26%(2)
Company Limited(1)	Republic of China
Ningbo Wise Link Highway	The People’s	Infrastructure	26%(2)
Development Company Limited(1)	Republic of China
Vigorous Developments Limited(1),	British Virgin Islands	Investment holding	30%
and its subsidiary:
Maanshan Huan Tung Highway	The People’s	Infrastructure	21%(3)
Development Limited(1)	Republic of China

(1) Companies not audited by PricewaterhouseCoopers. The Group’s attributable share of net loss before taxation with respect to these companies amounted to HK$7,952,681 (2002: a profit of HK$5,779,639).
(2) The profit sharing arrangement commenced from August 1998 and the Group’s share of the associates’ profit is 32% for the first five years, 20% for the next five years and 26% for the remaining years.
(3) The profit sharing arrangement commenced from January 2000 and the Group’s share of the associate’s profit is 24% for the first five years, 18% for the next five years and 21% for the remaining years.

17. OTHER ASSET

Advance to an unrelated company Less: Impairment loss	Group and Company 2003 2002 HK$ HK$ 64,500,000 64,500,000 (6,450,000) (6,450,000) 58,050,000 58,050,000

— 78 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The advance is secured by certain units of a building in Fuzhou, Mainland China. Interest of 14% and management fee of 4% per annum is payable by the borrower on the advance.

In 2001, the Company took legal action against the borrower for settlement of the advance which was not repaid as originally scheduled. On 26 January 2001, a court order was granted to confirm the Company’s right to foreclose on secured units of the building held as collateral. The Company is currently taking steps to arrange for the disposal of the properties collateral by public auction and the directors, based on a valuation report obtained, consider that an impairment loss of HK$6,450,000 against the advance is adequate and appropriate. The Group and the Company have ceased accruing interest and management fee on the advance since 2001.

18. PROPERTIES HELD FOR SALE

Properties under development, at cost Completed properties, at cost	Group 2003 2002 HK$ HK$ — 7,588,000 32,960,761 16,097,878 32,960,761 23,685,878	Group 2003 2002 HK$ HK$ — 7,588,000 32,960,761 16,097,878 32,960,761 23,685,878
		23,685,878

19. INSURANCE DEBTORS

The credit period for the majority of insurance debtors normally ranges from 90 to 120 days. The credit terms of insurance debtors, including whether guarantees from third parties are required, are determined by senior management.

At 31 December 2003, the ageing analysis of the insurance debtors by invoice date was as follows:

Within 30 days 31 - 60 days 61 - 90 days Over 90 days	Group 2003 HK$ 3,359,470 3,468,581 2,970,985 3,978,278 13,777,314	2002 HK$ 3,793,371 7,783,371 4,053,969 2,829,400
		18,460,111

— 79 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. TRADING SECURITIES

		Group		Company
	2003	2002	2003	2002
	HK$	HK$	HK$	HK$
Equity securities, listed in Hong Kong
at market value	5,665,096	14,028,704	3,115,096	9,525,768

21. CASH AND BANK BALANCES

Included in cash and bank balances are:

(a) deposits with jointly controlled financial institutions totalling HK$216,143,594 (2002: HK$133,182,917) by the Group and HK$204,849,872 (2002: HK$121,964,951) by the Company. The deposits carry interest at normal commercial rates and have generated interest income of HK$2,065,685 (2002: HK$2,360,211) to the Group for the year.
(b) deposits of RMB143,046,050 (equivalent to HK$134,713,618) placed with certain banks (including jointly controlled financial institutions as disclosed in note (a) above) in Mainland China (2002: RMB117,342,495, equivalent to HK$110,480,893).

In accordance with the requirement from The Commissioner of Insurance in Hong Kong, a subsidiary maintains at all times a portion of its funds, being not less than HK$16 million (2002: HK$16 million), in fixed deposits. The subsidiary also maintains a bank deposit of HK$5,237,030 (2002: HK$5,700,971) for fulfilling certain requirements under the Macau Insurance Ordinance.

22. INSURANCE LIABILITIES

At 31 December 2003, the ageing analysis of the insurance liabilities by invoice date was as follows:

Within 30 days 31 - 60 days 61 - 90 days Over 90 days	Group 2003 HK$ 796,351 1,771,455 1,218,123 1,819,702 5,605,631	2002 HK$ 2,303,248 2,212,207 1,444,832 1,724,551
		7,684,838

— 80 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23. DEFERRED TAXATION

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2002: 16%) for Hong Kong taxation and 33% (2002: 33%) for Mainland China taxation. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

The movement on the deferred tax liabilities account is as follows:

At the beginning of the year Deferred taxation charged to profit and loss account Deferred taxation charged/(credited) to other properties revaluation reserve Exchange differences At the end of the year	2003 HK$ 3,803,715 480,823 262,507 423 4,547,468	2002 HK$ (Note 1) 3,415,586 547,526 (159,397) — 3,803,715

Deferred income tax assets are recognised for tax losses carried forward to the extent that realisation of the related tax benefit through future taxable profits is probable. At 31 December 2003, the Group has estimated unrecognised tax losses of HK$80,440,770 (2002: HK$78,446,291) to carry forward against future taxable income. These tax losses have no expiry date.

The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same taxation jurisdiction) during the year is as follows:

Deferred tax liabilities

At 1 January Charged/(credited) to profit and loss account Charged to equity Exchange differences At 31 December	Accelerated tax depreciation 2003 2002 HK$ HK$ 917,161 881,715 85,053 35,446 — — — — 1,002,214 917,161	Revaluation of properties 2003 2002 HK$ HK$ 2,800,086 3,042,262 (88,285) (82,779) 262,507 (159,397) — — 2,974,308 2,800,086	Accrued income 2003 2002 HK$ HK$ 1,291,546 643,014 1,217,946 648,532 — — 1,636 — 2,511,128 1,291,546	Total 2003 2002 HK$ HK$ 5,008,793 4,566,991 1,214,714 601,199 262,507 (159,397) 1,636 — 6,487,650 5,008,793

— 81 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Deferred tax assets

At 1 January Charged/(credited) to profit and loss account Exchange differences At 31 December	Tax losses 2003 2002 HK$ HK$ (929,865) (907,703) (71,437) (22,162) — — (1,001,302) (929,865)	Unearned income 2003 2002 HK$ HK$ (275,213) (243,702) (662,454) (31,511) (1,213) — (938,880) (275,213)	Total 2003 2002 HK$ HK$ (1,205,078) (1,151,405) (733,891) (53,673) (1,213) — (1,940,182) (1,205,078)	Total 2003 2002 HK$ HK$ (1,205,078) (1,151,405) (733,891) (53,673) (1,213) — (1,940,182) (1,205,078)
				(1,205,078)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amount, determined after appropriate offsetting, is shown in the consolidated balance sheet:

Deferred tax liabilities The amount shown in the balance sheet includes the following: Deferred tax liabilities to be settled after more than 12 months	2003 HK$ 4,547,468 2,886,023	2002 HK$ 3,803,715 2,717,307

24. SHARE CAPITAL

						Authorised
						Ordinary shares of HK$1	each
						No. of shares	HK$
At	31	December	2003	and	2002	800,000,000 800,000,000
						Issued and fully paid
						Ordinary shares of HK$1	each
						No. of shares	HK$
At	31	December	2003	and	2002	459,428,656 459,428,656

— 82 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. RESERVES

Group

Share premium HK$ 384,620,414 —	Capital redemption reserve HK$ 47,086,000 —	Statutory reserve HK$ 31,033,936 —	General reserve HK$ 52,862,258 —	Investment revaluation reserve HK$ 10,939,158 (1,640,874)	Other properties revaluation reserve HK$ 23,184,866 (3,709,579)	Exchange translation reserve HK$ 405,123 —	Capital reserve Retained profit/ (accumulated loss) HK$ HK$ 132,973,835 34,063,805 — (8,564,564)	Capital reserve Retained profit/ (accumulated loss) HK$ HK$ 132,973,835 34,063,805 — (8,564,564)	Total HK$ 717,169,395 (13,915,017
384,620,414 — — — — — — —	47,086,000 — — — — — — —	31,033,936 — — — — — — 3,137,737	52,862,258 — — — — — — (8,489,835)	9,298,284 — 562,366 (84,355) — — — —	19,475,287 — — (262,507) — — — —	405,123 132,973,835 — — — — — — — 1,459,692 (18,420) — — — — —		25,499,241 — — — — — 56,786,807 5,352,098	703,254,378 — 562,366 (346,862 1,459,692 (18,420 56,786,807 —
384,620,414	47,086,000	34,171,673	44,372,423	9,776,295	19,212,780	386,703	134,433,527	87,638,146	761,697,961
								18,377,146 69,261,000
								87,638,146

— 83 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Group

Share premium HK$ 384,620,414 —	Capital redemption reserve HK$ 47,086,000 —	Statutory reserve HK$ 29,177,827 —	General reserve Investment revaluation reserve HK$ HK$ 86,758,875 8,499,386 — (1,280,912)	General reserve Investment revaluation reserve HK$ HK$ 86,758,875 8,499,386 — (1,280,912)	Other properties revaluation reserve Exchange translation reserve HK$ HK$ 24,181,101 1,261,267 (3,868,976) —	Other properties revaluation reserve Exchange translation reserve HK$ HK$ 24,181,101 1,261,267 (3,868,976) —	Capital reserve Retained profit/ (accumulated loss) HK$ HK$ 93,835,473 (5,879,126) — (1,627,831)	Capital reserve Retained profit/ (accumulated loss) HK$ HK$ 93,835,473 (5,879,126) — (1,627,831)	Total HK$ 669,541,217 (6,777,719
384,620,414 — — — — — — — — —	47,086,000 — — — — — — — — —	29,177,827 — — — — — — — — 1,856,109	86,758,875 — — — — 7,974,616 — — (52,984,223) 11,112,990	7,218,474 — 2,399,743 (359,962) — 40,029 — — — —	20,312,125 (996,235) — 159,397 — — — — — —	1,261,267 93,835,473 — — — — — — (875,930) (5,871,245) — (7,974,616) 19,786 — — — — 52,984,223 — —		(7,506,957) — — — — — — 45,975,297 — (12,969,099)	662,763,498 (996,235 2,399,743 (200,565 (6,747,175 40,029 19,786 45,975,297 — —
384,620,414	47,086,000	31,033,936	52,862,258	9,298,284	19,475,287	405,123	132,973,835	25,499,241	703,254,378
								— 25,499,241
								25,499,241

— 84 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Group

Company and subsidiaries Jointly controlled entities Associates At 31 December 2003 Company and subsidiaries Jointly controlled entities Associates At 31 December 2002	Share premium HK$ 384,620,414 — — 384,620,414 384,620,414 — — 384,620,414	Capital redemption reserve HK$ 47,086,000 — — 47,086,000 47,086,000 — — 47,086,000	Statutory reserve HK$ 2,660 33,508,619 660,394 34,171,673 — 30,463,007 570,929 31,033,936	General reserve Investment revaluation reserve HK$ HK$ 449,571 — 43,922,852 9,776,295 — — 44,372,423 9,776,295 249,280 — 52,612,978 9,298,284 — — 52,862,258 9,298,284	Other properties revaluation reserve Exchange translation reserve Capital reserve Retained profit/ (accumulated loss) HK$ HK$ HK$ HK$ 19,212,780 640,708 (3,819,491) 14,917,030 — — 141,184,223 56,896,123 — (254,005) (2,931,205) 15,824,993 19,212,780 386,703 134,433,527 87,638,146 19,475,287 637,763 (3,819,491) (3,916,878) — — 141,184,223 5,739,116 — (232,640) (4,390,897) 23,677,003 19,475,287 405,123 132,973,835 25,499,241	Total HK$ 463,109,672 285,288,112 13,300,177
						761,697,961
						444,332,375 239,297,608 19,624,395
						703,254,378

The statutory reserve is set aside from retained earnings in accordance with the relevant statutory requirements. The general reserve is transferred from retained earnings and is available for general use. The capital reserve represents goodwill and negative goodwill arising from consolidation of subsidiaries and associates acquired prior to 1 January 2001 and capitalisation of reserves by a jointly controlled entity. At 31 December 2003, capital reserve included goodwill of HK$6,826,441 (2002: HK$8,286,133) and negative goodwill of HK$75,745 (2002: HK$75,745).

— 85 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company

Share premium HK$ At 1 January 2003 384,620,414 Profit for the year — At 31 December 2003 384,620,414 Representing: 2003 final dividend proposed Others Retained profit at 31 December 2003 At 1 January 2002 384,620,414 Profit for the year — At 31 December 2002 384,620,414 Representing: 2002 final dividend proposed Others Accumulated loss at 31 December 2002	Capital redemption reserve Retained profit/ (accumulated loss) HK$ HK$ 47,086,000 (4,161,914) — 23,399,424 47,086,000 19,237,510 18,377,146 860,364 19,237,510	Capital redemption reserve Retained profit/ (accumulated loss) HK$ HK$ 47,086,000 (4,161,914) — 23,399,424 47,086,000 19,237,510 18,377,146 860,364 19,237,510	Total HK$ 427,544,500 23,399,424
			450,943,924
		18,377,146 860,364
		19,237,510
	47,086,000 —	(36,812,110) 32,650,196	394,894,304 32,650,196
384,620,414	47,086,000	(4,161,914)	427,544,500
		— (4,161,914)
		(4,161,914)

26. CONTINGENT LIABILITIES


	2003	2002	2003	2002
	HK$	HK$	HK$	HK$
Guarantees	13,800,340	9,454,335	—	—

A subsidiary has issued guarantees for bank mortgage loan facilities obtained by certain buyers for acquiring properties in Mainland China from the subsidiary. These guarantees will be released upon the receipt of title deeds of the related mortgaged properties by the banks which normally takes less than one year from the date of guarantee.

— 86 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. CAPITAL COMMITMENTS

Authorised but not contracted for Contracted but not provided for The Group’s share of capital commitments of the jointly controlled entities not included above is as follows: Contracted but not provided for	Group 2003 2002 HK$ HK$ — 2,750,000 284,760 573,850 284,760 3,323,850 1,421,817 3,487,532	Company 2003 2002 HK$ HK$ — 2,750,000 156,133 156,095 156,133 2,906,095	Company 2003 2002 HK$ HK$ — 2,750,000 156,133 156,095 156,133 2,906,095
			2,906,095

28. LEASE COMMITMENTS

(a) As lessee

At 31 December 2003, the Group and the Company had future aggregate minimum lease payments payable under non-cancellable operating leases as follows:

Land and buildings Within one year In the second to fifth year inclusive	Group 2003 2002 HK$ HK$ 270,920 226,920 184,000 — 454,920 226,920	Company 2003 2002 HK$ HK$ 1,090,320 196,000 184,000 — 1,274,320 196,000	Company 2003 2002 HK$ HK$ 1,090,320 196,000 184,000 — 1,274,320 196,000
			196,000

— 87 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) As lessor

At 31 December 2003, the Group had future aggregate minimum lease payments receivable under non-cancellable operating leases as follows:

Land and buildings Within one year In the second to fifth year inclusive	Group 2003 HK$ 4,416,262 5,506,104 9,922,366	2002 HK$ 2,155,800 187,148
		2,342,948

The lease terms for business and residential properties leased out by the Group range from one to six years, with fixed rentals throughout the lease periods.

— 88 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW GENERATED FROM OPERATIONS

Profit before taxation Share of profits of jointly controlled entities Share of losses/(profits) of associates Deficit on revaluation of investment properties Write back of impairment losses for loans to and amounts due from jointly controlled entities and associates Depreciation Gain on winding up of subsidiaries Loss on sale of fixed assets (Gain)/loss on disposal of investment properties Goodwill written off Dividend income from listed investments Interest income from debt securities Interest income Operating profit/(loss) before working capital changes Decrease in amounts due from jointly controlled entities (Increase)/decrease in amounts due from associates (Increase)/decrease in properties held for sale Decrease in deferred acquisition costs Decrease/(increase) in insurance debtors Decrease/(increase) in claims recoverable from reinsurers Decrease in other debtors and prepayments Decrease in trading securities (Decrease)/increase in unearned premiums Decrease in unexpired risks (Decrease)/increase in gross outstanding insurance claims Decrease in insurance liabilities Increase/(decrease) in other creditors and accruals Exchange difference Net cash inflow generated from operations	2003 HK$ 74,938,581 (57,985,181) 8,051,584 1,883,790 (9,974,236) 2,525,369 — 34,170 (11,797,570) 1,459,692 (566,663) (111,433) (4,890,891)	2002 HK$ 60,750,443 (44,725,535) (5,434,146) 5,859,573 (11,111,608) 2,488,199 (6,747,175) 76,284 26,949 — (358,764) — (7,039,576) (6,215,356) 126,898 287 22,237,239 5,430 (1,932,653) (2,943,421) 27,783,944 385,411 119,085 (843,000) 4,014,056 (885,686) (40,210,321) 7,275 1,649,188
	3,567,212 — (26) (9,274,883) 1,220,711 4,682,797 1,268,507 9,787,006 8,363,608 (4,653,442) (47,000) (7,131,700) (2,079,207) 14,086,708 10,426	(6,215,356 126,898 287 22,237,239 5,430 (1,932,653 (2,943,421 27,783,944 385,411 119,085 (843,000 4,014,056 (885,686 (40,210,321 7,275
	19,800,717

— 89 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. RELATED PARTY TRANSACTIONS

In addition to those disclosed elsewhere in the accounts, significant related party transactions which were carried out in the normal course of the Group’s business are as follows:

(a) Gross insurance premium less commission paid totalling HK$4,686,479 (2002: HK$5,263,834) was generated from jointly controlled entities for the year. Those insurance policies underwritten by the Group were contracted at prices and terms not less favourable than those contracted with other third party customers of the Group.
(b) An amount of HK$1,880,000 (2002: HK$1,880,000) was paid to Vigour Fine Company Limited, a substantial shareholder of the Company, for the provision of certain management services which include the provision of directors to the board of directors of the Company pursuant to a management agreement.
(c) During the year, the Group together with a subsidiary of one of its substantial shareholders entered into an agreement with a third party to dispose of a building in which certain floors were held by the Group as investment properties. The Group paid a fee of HK$400,000 to a jointly controlled entity for advice and agency services received in the negotiation of this transaction and a gain of approximately HK$11.8 million (note 2) was recognised by the Group on the disposal.

31. POST BALANCE SHEET DATE EVENTS

(a) In December 2003, the Group entered into an agreement (“the Agreement”) with a third party (“the Transferee”) to transfer its equity and debt interest in an associated company, Changchun Changxin International Real Estate Develpoment Co., Ltd. (“the Associate”) (note 16) at a cash consideration of RMB22.15 million (equivalent to approximately HK$20.9 million). The transferee would also reimburse any taxes or levies paid or payable by the Group in Mainland China other than stamp duty arising from this transaction. The transaction was completed in March 2004 upon the full settlement of the cash consideration by the Transferee.

At 31 December 2003, the net carrying value of the Group’s investment in the Associate (including the balances due from the Associate) is approximately HK$14.8 million after the write back of the provisions previously made against the balances due from this Associate of approximately HK$9.2 million (note 4). A gain on disposal of the Associate of approximately HK$6.1 million will be recorded by the Group in 2004.

(b) In April 2004, the Group entered into a sale and purchase agreement with a third party (“the Buyer”) to dispose of one of the Group’s investment properties (“the Property”) at a cash consideration of HK$52 million. The carrying value of the property is HK$37.5 million at 31 December 2003 based on an independent professional valuation.

The transaction is to be completed on or before 30 June 2004. As at the date of this report, the Group has received a cash deposit of HK$5.2 million from the Buyer.

32. APPROVAL OF ACCOUNTS

The accounts were approved by the board of directors on 23 April 2004.

— 90 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. UNAUDITED INTERIM FINANCIAL INFORMATION OF THE GROUP

The following is the unaudited condensed financial statements of the Group for the six months ended 30 June 2004 together with the relevant notes as extracted from the interim report of the Company for the six months ended 30 June 2004.

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

for the six months ended 30 June 2004

Note TURNOVER 2 TOTAL REVENUES 2 COST OF PROPERTIES SOLD NET COMMISSIONS, CLAIMS AND OTHER EXPENSES INCURRED ON INSURANCE BUSINESS STAFF COSTS DEPRECIATION OTHER PROVISIONS AND LOSSES 3 OTHER OPERATING EXPENSES TOTAL OPERATING EXPENSES OPERATING PROFIT/(LOSS) SHARE OF RESULTS OF — JOINTLY CONTROLLED ENTITIES — ASSOCIATES PROFIT BEFORE TAXATION TAXATION 4 PROFIT AFTER TAXATION MINORITY INTERESTS PROFIT ATTRIBUTABLE TO SHAREHOLDERS BASIC EARNINGS PER SHARE 5	(Unaudited) Six months ended 30 June 2004 2003 HK$ HK$ 71,307,549 45,449,982 86,545,321 43,991,264 --------------- --------------- (27,673,378) (8,604,279) (13,008,358) (16,485,024) (11,792,640) (11,297,057) (1,191,955) (1,264,062) (9,053,176) (4,600,000) (7,071,537) (6,143,815) (69,791,044) (48,394,237) --------------- ----------------------------------------------------------- --------------- ----------------------------------------------------------- 16,754,277 (4,402,973) --------------- --------------- 34,012,048 13,963,301 133,618 2,662,021 34,145,666 16,625,322 --------------- ----------------------------------------------------------- --------------- ----------------------------------------------------------- 50,899,943 12,222,349 (11,877,058) (5,651,293) 39,022,885 6,571,056 (2,439,109) (548,932) 36,583,776 6,022,124 HK CENTS HK CENTS 7.96 1.31	(Unaudited) Six months ended 30 June 2004 2003 HK$ HK$ 71,307,549 45,449,982 86,545,321 43,991,264 --------------- --------------- (27,673,378) (8,604,279) (13,008,358) (16,485,024) (11,792,640) (11,297,057) (1,191,955) (1,264,062) (9,053,176) (4,600,000) (7,071,537) (6,143,815) (69,791,044) (48,394,237) --------------- ----------------------------------------------------------- --------------- ----------------------------------------------------------- 16,754,277 (4,402,973) --------------- --------------- 34,012,048 13,963,301 133,618 2,662,021 34,145,666 16,625,322 --------------- ----------------------------------------------------------- --------------- ----------------------------------------------------------- 50,899,943 12,222,349 (11,877,058) (5,651,293) 39,022,885 6,571,056 (2,439,109) (548,932) 36,583,776 6,022,124 HK CENTS HK CENTS 7.96 1.31
	86,545,321 --------------- (27,673,378) (13,008,358) (11,792,640) (1,191,955) (9,053,176) (7,071,537) (69,791,044) --------------- ----------------------------------------------------------- 16,754,277 --------------- 34,012,048 133,618 34,145,666 --------------- ----------------------------------------------------------- 50,899,943 (11,877,058) 39,022,885 (2,439,109)	43,991,264 --------------- (8,604,279 (16,485,024 (11,297,057 (1,264,062 (4,600,000 (6,143,815
		(48,394,237 --------------- ----------------------------------------------------------- (4,402,973 --------------- 13,963,301 2,662,021
		16,625,322 --------------- ----------------------------------------------------------- 12,222,349 (5,651,293
		6,571,056 (548,932
	36,583,776 HK CENTS 7.96

— 91 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2004

Note NON-CURRENT ASSETS Fixed assets 6 Jointly controlled entities 7 Associates Held-to-maturity debt securities, unlisted Other asset 8 Deferred tax assets 12 CURRENT ASSETS Properties held for sale Deferred acquisition costs Insurance debtors 9 Claims recoverable from reinsurers Dividend receivable from a jointly controlled entity Other debtors and prepayments 2(b) Trading securities, listed Cash and bank balances 10 CURRENT LIABILITIES Unearned premiums Unexpired risks Gross outstanding insurance claims Insurance liabilities 11 Other creditors and accruals Taxation NET CURRENT ASSETS	(Unaudited) 30 June 2004 HK$ 120,651,008 516,209,468 71,040,329 5,007,242 58,050,000 1,331,292	(Audited) 31 December 2003 HK$ 152,023,204 512,426,822 100,505,419 9,009,318 58,050,000 —
	772,289,339 --------------- 20,452,979 9,478,312 17,903,955 19,308,253 18,375,000 58,980,378 7,201,603 506,525,008 658,225,488 --------------- 26,825,441 948,000 67,120,242 10,381,674 57,609,607 5,830,997	832,014,763 --------------- 32,960,761 7,824,360 13,777,314 17,511,179 — 3,762,450 5,665,096 478,469,483
		559,970,643 --------------- 22,096,166 948,000 68,806,753 5,605,631 50,496,335 4,854,747
	168,715,961 --------------- ----------------------------------------------------------- 489,509,527 --------------- -----------------------------------------------------------	152,807,632 --------------- ----------------------------------------------------------- 407,163,011 --------------- -----------------------------------------------------------

— 92 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Note TOTAL ASSETS LESS CURRENT LIABILITIES DEFERRED TAX LIABILITIES 12 MINORITY INTERESTS NET ASSETS SHARE CAPITAL OTHER RESERVES RETAINED PROFITS Proposed final dividend Others SHAREHOLDERS’ FUNDS	(Unaudited) 30 June 2004 HK$ 1,261,798,866 3,930,234 16,007,394 1,241,861,238 459,428,656 697,081,534 — 85,351,048 1,241,861,238	(Audited) 31 December 2003 HK$ 1,239,177,774 4,547,468 13,503,689
		1,221,126,617
		459,428,656 674,059,815 18,377,146 69,261,000
		1,221,126,617

— 93 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months ended 30 June 2004

NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES NET CASH OUTFLOW FROM INVESTING ACTIVITIES NET CASH OUTFLOW FROM FINANCING ACTIVITIES DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1 JANUARY CASH AND CASH EQUIVALENTS AT 30 JUNE ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances (Note 10) Less: Deposits placed pursuant to insurance regulatory requirements (Note 10) Deposits with original maturity of over three months	(Unaudited) Six months ended 30 June 2004 2003 HK$ HK$ 11,588,565 (14,720,609) --------------- --------------- (5,883,668) (29,373,816) --------------- --------------- (18,379,143) (2,461,280) --------------- ----------------------------------------------------------- --------------- ----------------------------------------------------------- (12,674,246) (46,555,705) 457,232,453 429,987,586 444,558,207 383,431,881 506,525,008 405,132,852 (21,966,801) (21,700,971) (40,000,000) — 444,558,207 383,431,881	(Unaudited) Six months ended 30 June 2004 2003 HK$ HK$ 11,588,565 (14,720,609) --------------- --------------- (5,883,668) (29,373,816) --------------- --------------- (18,379,143) (2,461,280) --------------- ----------------------------------------------------------- --------------- ----------------------------------------------------------- (12,674,246) (46,555,705) 457,232,453 429,987,586 444,558,207 383,431,881 506,525,008 405,132,852 (21,966,801) (21,700,971) (40,000,000) — 444,558,207 383,431,881
	506,525,008 (21,966,801) (40,000,000)	405,132,852 (21,700,971 —
	444,558,207

— 94 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2004

hare capital HK$ 459,428,656 - - - - - - - — — — — —	Share premium HK$ 384,620,414 - - - - - - - — — — — —	Capital redemption reserve HK$ 47,086,000 - - - - - - - — — — — —	Statutory reserve HK$ 34,171,673 - - - - - - - — — — — —	General reserve HK$ 44,372,423 - - - - - - - — — — — —	Investment revaluation reserve HK$ 9,776,295 - - - - - - - — (3,109,758) 466,464 — —	Other properties revaluation reserve HK$ 19,212,780 - - - - - - - 6,023,700 — (1,054,148) — —	Exchange translation reserve HK$ 386,703 - - - - - - - — — — 78,732 123,001	Capital reserve HK$ 134,433,527 - - - - - - - — — — — —	Retained profits HK$ 87,638,146 - - - - - - - — — — — —	(Unaudited) Total HK$ 1,221,126,617 - - - - - - - 6,023,700 (3,109,758) (587,684) 78,732 123,001
— - - - - - - - ------------------------- 459,428,656 — — —	— - - - - - - - ------------------------- 384,620,414 — — —	— - - - - - - - ------------------------- 47,086,000 — — —	— - - - - - - - ------------------------- 34,171,673 — 4,067,459 —	— - - - - - - - ------------------------- 44,372,423 — 16,426,269 —	(2,643,294) - - - - - - - ------------------------- 7,133,001 — — —	4,969,552 - - - - - - - ------------------------- 24,182,332 — — —	201,733 - - - - - - - ------------------------- 588,436 — — —	— - - - - - - - ------------------------- 134,433,527 — — —	— 2,527,991 - - - - - - - ------------------------- - - - - - - - ------------------------- 87,638,146 1,223,654,608 36,583,776 36,583,776 (20,493,728) — (18,377,146) (18,377,146)
459,428,656	384,620,414	47,086,000	38,239,132	60,798,692	7,133,001	24,182,332	588,436	134,433,527	85,351,048	1,241,861,238
459,428,656 - - - - - - - — — — — - - - - - - - ------------------------- 459,428,656 — —	384,620,414 - - - - - - - — — — — - - - - - - - ------------------------- 384,620,414 — —	47,086,000 - - - - - - - — — — — - - - - - - - ------------------------- 47,086,000 — —	31,033,936 - - - - - - - — — — — - - - - - - - ------------------------- 31,033,936 — 3,084,226	52,862,258 - - - - - - - — — — — - - - - - - - ------------------------- 52,862,258 — 12,382,831	9,298,284 - - - - - - - (4,158,127) 623,719 — (3,534,408) - - - - - - - ------------------------- 5,763,876 — —	19,475,287 - - - - - - - — (262,507) — (262,507) - - - - - - - ------------------------- 19,212,780 — —	405,123 - - - - - - - — — 1,582 1,582 - - - - - - - ------------------------- 406,705 — —	132,973,835 - - - - - - - — — — — - - - - - - - ------------------------- 132,973,835 — —	25,499,241 - - - - - - - — — —	1,162,683,034 - - - - - - - (4,158,127) 361,212 1,582

— 95 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to condensed interim accounts

1. Basis of Preparation

These unaudited condensed consolidated interim accounts are prepared in accordance with Hong Kong Statement of Standard Accounting Practice 25 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants. These condensed interim accounts should be read in conjunction with the 2003 annual accounts.

The accounting policies used in the preparation of these condensed interim accounts are consistent with those adopted in the Group’s annual accounts for the year ended 31 December 2003.

2. Turnover and Segmental Information

The Group is principally engaged in financial services, property development and investment, toll road investment, industrial instrument manufacturing and investment holding.

The amount of each significant category of revenue recognised during the period is as follows:

Turnover Gross insurance premiums Insurance brokerage commission Gross proceeds from disposal of properties held for sale Rental income from investment properties Interest income from bank deposits Management fee Reinsurance premiums ceded (Increase)/decrease in net unearned insurance premiums written and provision for unexpired risks Other revenues Dividend income from listed equity investments Net realised and unrealised gains on trading securities Interest income from debt securities Gain on disposal of an associate (a) Gain on disposal of investment properties (b) Compensation receivable on affected right over usage of land (c) Others Total revenues	Six months ended 30 June 2004 2003 HK$ HK$ 29,884,048 28,191,235 792,013 614,831 36,240,333 11,163,659 2,283,810 2,674,136 1,813,045 2,571,821 294,300 234,300 71,307,549 45,449,982 - - - - - - - - - - - - - - - - - - - - - - - - (5,096,832) (6,285,499) - - - - - - - - - - - - - - - - - - - - - - - - (4,729,275) 2,279,287 - - - - - - - - - - - - ----------------------------------------------- - - - - - - - - - - - - ----------------------------------------------- 61,481,442 41,443,770 - - - - - - - - - - - - - - - - - - - - - - - - 117,760 258,707 — 2,215,249 93,703 — 6,030,032 — 14,204,660 — 3,954,280 — 663,444 73,538 25,063,879 2,547,494 - - - - - - - - - - - - ----------------------------------------------- - - - - - - - - - - - - ----------------------------------------------- 86,545,321 43,991,264	Six months ended 30 June 2004 2003 HK$ HK$ 29,884,048 28,191,235 792,013 614,831 36,240,333 11,163,659 2,283,810 2,674,136 1,813,045 2,571,821 294,300 234,300 71,307,549 45,449,982 - - - - - - - - - - - - - - - - - - - - - - - - (5,096,832) (6,285,499) - - - - - - - - - - - - - - - - - - - - - - - - (4,729,275) 2,279,287 - - - - - - - - - - - - ----------------------------------------------- - - - - - - - - - - - - ----------------------------------------------- 61,481,442 41,443,770 - - - - - - - - - - - - - - - - - - - - - - - - 117,760 258,707 — 2,215,249 93,703 — 6,030,032 — 14,204,660 — 3,954,280 — 663,444 73,538 25,063,879 2,547,494 - - - - - - - - - - - - ----------------------------------------------- - - - - - - - - - - - - ----------------------------------------------- 86,545,321 43,991,264
	71,307,549 - - - - - - - - - - - - (5,096,832) - - - - - - - - - - - - (4,729,275) - - - - - - - - - - - - ----------------------------------------------- 61,481,442 - - - - - - - - - - - - 117,760 — 93,703 6,030,032 14,204,660 3,954,280 663,444	45,449,982 - - - - - - - - - - - - (6,285,499 - - - - - - - - - - - - 2,279,287 - - - - - - - - - - - - ----------------------------------------------- 41,443,770 - - - - - - - - - - - - 258,707 2,215,249 — — — — 73,538
	25,063,879 - - - - - - - - - - - - ----------------------------------------------- 86,545,321

— 96 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(a) The amount represented the gain on disposal of an associated company, Changchun Changxin International Real Estate Development Co., Ltd., to a third party which was completed in March 2004.
(b) In April 2004, the Group entered into a sale and purchase agreement with a third party (“the Buyer”) to dispose of one of the Group’s investment properties (“the Property”) at a cash consideration of HK$52 million and a gain of HK$14.2 million was recognised on disposal of the Property. As at 30 June 2004, the Group had an outstanding purchase consideration of HK$46.8 million due from the Buyer, which was included in “Other debtors and prepayments”. The outstanding purchase consideration was fully settled by the Buyer in early July 2004.
(c) During the period, a local government office of the Tianqiao District People’s Government of Jinan, Shandong Province, Mainland China has agreed to pay the Group RMB4.18 million as a compensation for the Group’s consequential loss of potential profits arising from the Group’s affected right over the usage of certain parcels of land in Jinan.

The Group’s activities are principally organised under the following business segments:

Financial services	—	underwriting of general insurance, insurance brokerage,
		investing in banking business and trading in securities
Property development and investment	—	development and sale of properties and leasing of investment
		properties
Toll road investment	—	investing in toll road projects in Mainland China
Industrial instrument manufacturing	—	manufacturing and distribution of digital instruments
Investment holding and others	—	this comprises other investment activities of the Group

An analysis of the Group’s revenues and results for the period by business segments is as follows:

For the six months ended 30 June 2004

Total revenues Segment results Unallocated costs Operating profit Share of results of — Jointly controlled entities — Associates Profit before taxation	Financial services Property development and investment HK$ HK$ 21,148,390 63,065,278 1,403,007 34,338,775 31,768,110 — — —	Toll road investment Industrial instrument manufacturing Investment holding and others HK$ HK$ HK$ — — 2,331,653 (9,700,913) — 1,960,614 — 2,243,938 — 76,016 — 57,602	Group HK$ 86,545,321 28,001,483 (11,247,206) 16,754,277 34,012,048 133,618 50,899,943

— 97 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

For the six months ended 30 June 2003

	For the six months ended 30 June 2003
Total revenues Segment results Unallocated costs Operating loss Share of results of — Jointly controlled entities — Associates Profit before taxation	Financial services Property development and investment Toll road investment Industrial instrument manufacturing Investment holding and others HK$ HK$ HK$ HK$ HK$ 27,780,405 13,876,338 — — 2,334,521 5,601,163 (1,052,117) — — 1,508,533 13,557,939 — — 405,362 — — — 2,689,939 — (27,918)	Group HK$ 43,991,264
		6,057,579 (10,460,552)
		(4,402,973) 13,963,301 2,662,021
		12,222,349

3. Other Provisions and Losses

(Write back of deficit)/deficit on revaluation of investment properties Net realised and unrealised losses on trading securities Impairment losses for loan to an associate	Six months ended 30 June 2004 2003 HK$ HK$ (1,600,000) 4,600,000 952,263 — 9,700,913 — 9,053,176 4,600,000

— 98 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. Taxation

Hong Kong profits tax has been provided at the rate of 17.5% (2003: 17.5%) on the estimated assessable profit for the period. Taxation on Mainland China and Macau profits has been calculated on the estimated assessable profit for the period at the rates of taxation prevailing in Mainland China and Macau.

The amount of taxation charged to the consolidated profit and loss account represents:

Company and subsidiaries:
Hong Kong profits tax
Mainland China and Macau taxation
Deferred taxation
Relating to the origination and reversal of temporary differences
Jointly controlled entities:
Mainland China and Macau taxation
Associates:
Mainland China taxation
Taxation charge

Six months ended 30 June
2004
2003
HK$
HK$
1,550
65,500
5,470,274
672,128
5,471,824
737,628
- - - - - - - - - - -
- - - - - - - - - - -
(3,005,411)
(284,833)
- - - - - - - - - - -
-----------------------------------------
- - - - - - - - - - -
-----------------------------------------
2,466,413
452,795
- - - - - - - - - - -
- - - - - - - - - - -
9,211,108
4,936,908
- - - - - - - - - - -
- - - - - - - - - - -
199,537
261,590
- - - - - - - - - - -
-----------------------------------------
- - - - - - - - - - -
-----------------------------------------
11,877,058
5,651,293

5. Basic Earnings Per Share

The calculation of basic earnings per share is based on the Group’s profit attributable to shareholders for the six months ended 30 June 2004 of HK$36,583,776 (2003: HK$6,022,124) and the weighted average number of 459,428,656 (2003: 459,428,656) shares in issue during the period.

The Group has no dilutive potential ordinary shares in issue during the current and prior period and therefore there is no diluted earnings per share presented in these accounts.

— 99 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. Fixed Assets

Six months ended 30 June 2004 Opening net book amount Translation differences Additions Disposals Depreciation Reversal of impairment Revaluation (Note 3) Closing net book amount	Investment properties Other properties and fixed assets HK$ HK$ 101,710,930 50,312,274 — 8,470 — 276,550 (37,500,000) (588,961) — (1,191,955) — 6,023,700 1,600,000 — 65,810,930 54,840,078	Total HK$ 152,023,204 8,470 276,550 (38,088,961) (1,191,955) 6,023,700 1,600,000 120,651,008

7. Jointly Controlled Entities

At 30 June 2004, investments in jointly controlled entities mainly represent the Group’s investments of 36.75% in Xiamen International Bank. The Group’s investments comprising share of their net assets and balances due from them are set out below:

	Xiamen
	International
	Bank	Others	Total
	HK$	HK$	HK$
At 1 January 2004, net of provision	493,339,852	19,086,970	512,426,822
Share of net profit for the period	22,695,377	2,105,563	24,800,940
Dividend declared during the period	(18,375,000)	—	(18,375,000)
Decrease in investment revaluation reserve	(2,643,294)	—	(2,643,294)
At 30 June 2004	495,016,935	21,192,533	516,209,468
	Xiamen
	International
	Bank	Others	Total
	HK$	HK$	HK$
At 1 January 2003, net of provision	441,453,181	—	441,453,181
Equity investment and shareholder’s loan advanced	—	16,333,710	16,333,710
Share of net profit for the period	8,691,255	335,138	9,026,393
Decrease in investment revaluation reserve	(3,534,408)	—	(3,534,408)
At 30 June 2003	446,610,028	16,668,848	463,278,876

— 100 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. Other Asset

Advance to an unrelated company Less: Impairment loss	30 June 2004 31 December 2003 HK$ HK$ 64,500,000 64,500,000 (6,450,000) (6,450,000) 58,050,000 58,050,000	30 June 2004 31 December 2003 HK$ HK$ 64,500,000 64,500,000 (6,450,000) (6,450,000) 58,050,000 58,050,000
		58,050,000

The advance is secured by certain units of a building in Fuzhou, Mainland China. Interest of 14% and management fee of 4% per annum is payable by the borrower on the advance.

In 2001, the Company took legal action against the borrower for settlement of the advance which was not repaid as originally scheduled. On 26 January 2001, a court order was granted to confirm the Company’s right to foreclose on secured units of the building held as collateral. The Company is currently taking steps to arrange for the disposal of the properties collateral and the directors, based on a valuation performed by an independent professional valuer as of 30 June 2004, consider that the impairment loss of HK$6,450,000 against the advance brought forward from the prior year is adequate and appropriate. The Group has ceased accruing interest and management fee on the advance since 2001.

9. Insurance Debtors

At 30 June 2004, the ageing analysis of the insurance debtors by invoice date was as follows:

Within 30 days 31-60 days 61-90 days Over 90 days	30 June 2004 31 December 2003 HK$ HK$ 4,996,395 3,359,470 6,248,579 3,468,581 3,875,915 2,970,985 2,783,066 3,978,278 17,903,955 13,777,314	30 June 2004 31 December 2003 HK$ HK$ 4,996,395 3,359,470 6,248,579 3,468,581 3,875,915 2,970,985 2,783,066 3,978,278 17,903,955 13,777,314
		13,777,314

10. Cash and Bank Balances

Included in cash and bank balances are deposits of RMB184,990,076 (equivalent to HK$175,000,612) placed with certain banks (including jointly controlled financial institutions as disclosed in Note 15(a)) in Mainland China (At 31 December 2003: RMB143,046,050, equivalent to HK$134,713,618).

In accordance with the requirement from The Commissioner of Insurance in Hong Kong, a subsidiary maintains at all times a portion of its funds, being not less than HK$16 million (At 31 December 2003: HK$16 million), in fixed deposits. The subsidiary has also maintained bank deposit of HK$5,966,801 (At 31 December 2003: HK$5,237,030) for fulfilling certain requirements under the Macau Insurance Ordinance.

— 101 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. Insurance Liabilities

At 30 June 2004, the ageing analysis of the insurance liabilities by invoice date was as follows:

Within 30 days 31-60 days 61-90 days Over 90 days	30 June 2004 31 December 2003 HK$ HK$ 5,252,673 796,351 2,386,949 1,771,455 1,583,968 1,218,123 1,158,084 1,819,702 10,381,674 5,605,631	30 June 2004 31 December 2003 HK$ HK$ 5,252,673 796,351 2,386,949 1,771,455 1,583,968 1,218,123 1,158,084 1,819,702 10,381,674 5,605,631
		5,605,631

12. Deferred Taxation

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2003: 17.5%) for Hong Kong taxation and 33% (2003: 33%) for Mainland China taxation. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

The movement on the deferred tax assets/(liabilities) account is as follows:

	Six months ended	Year ended
	30 June	31 December
	2004	2003
	HK$	HK$
At the beginning of the period/year	(4,547,468)	(3,803,715)
Deferred taxation credited/(charged) to profit and loss account	3,005,411	(480,823)
Deferred taxation charged to other properties revaluation reserves	(1,054,148)	(262,507)
Exchange differences	(2,737)	(423)
At the end of the period/year	(2,598,942)	(4,547,468)

Deferred income tax assets are recognised for tax losses carried forward to the extent that realisation of the related tax benefit through future taxable profits is probable. At 30 June 2004, the Group has estimated unrecognised tax losses of HK$86,671,161 (31 December 2003: HK$80,440,770) to carry forward against future taxable income. These tax losses have no expiry date.

— 102 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. Contingent Liabilities

	30 June	31 December
	2004	2003
	HK$	HK$
Guarantees	44,376,103	13,800,340

A non-wholly owned subsidiary has issued guarantees for bank mortgage loan facilities obtained by certain buyers for acquiring properties in Mainland China from such non-wholly owned subsidiary. These guarantees will be released upon the receipt of title deeds of the related mortgaged properties by the banks which normally takes less than one year from the date of issue of guarantee.

14. Capital Commitments

For property development and investment Contracted but not provided for The Group’s share of capital commitments for fixed assets of jointly controlled entities not included in above is as follows: Contracted but not provided for	30 June 2004 31 December 2003 HK$ HK$ 410,185 284,760 550,408 1,421,817	30 June 2004 31 December 2003 HK$ HK$ 410,185 284,760 550,408 1,421,817
		1,421,817

On 28 June 2004, the Board of Directors authorised the Company’s proposed acquisition of certain interests in Huaneng Power International, Inc. and a conditional purchase agreement was entered into by the Company on 19 July 2004 (Note 16).

15. Related Party Transactions

Significant related party transactions, which were carried out in the normal course of the Group’s business, are as follows:

(a) As of 30 June 2004, the Group had deposits with jointly controlled financial institutions totalling HK$259,126,200 (At 31 December 2003: HK$216,143,594). The deposits carry interest at normal commercial rates and have generated interest income of HK$1,097,667 (2003: HK$979,679) to the Group for the period.
(b) Gross insurance premium less commission paid totalling HK$2,912,169 (2003: HK$2,605,300) was generated from jointly controlled entities during the period. Those insurance policies underwritten by the Group were contracted at prices and terms not less favourable than those contracted with other third party customers of the Group.

— 103 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(c) As of 30 June 2004, the Group had shareholder’s loans to and amounts due from jointly controlled entities amounting to HK$110,256,527 (At 31 December 2003: HK$110,256,527) and HK$51,130,299 (At 31 December 2003: HK$51,130,299) respectively as part of the Group’s investment in these jointly controlled entities. As of 30 June 2004, total provisions of HK$145,053,156 (At 31 December 2003: HK$145,053,156) had been made against these balances as a result of the accumulated losses arising from the underlying joint ventures.

The shareholder’s loans are unsecured and have no fixed repayment terms. Except for an interest free loan of HK$16,333,670 (At 31 December 2003: HK$16,333,670), the remaining balance bears interest of 12% per annum (2003: 12%). The amounts due from the jointly controlled entities are unsecured, interest free and have no fixed repayment terms. Given the circumstances, interest income on these loans is accounted for on a cash basis and no interest income was received during the period (2003: Nil).

(d) As of 30 June 2004, the Group had loans to and amounts due from associates totalling HK$55,231,990 (At 31 December 2003: HK$70,770,275). These loans and amounts are unsecured, interest free and have no fixed repayment terms except for a loan of RMB1,520,000 which bore interest at normal commercial rates at 31 December 2003. This loan was disposed of in conjunction with the Group’s disposal of its interest in an associate during the period (Note 2(a)). No interest income was received from these associates during the period (2003: Nil).
(e) An amount of HK$940,000 (2003: HK$940,000) was paid to Vigour Fine Company Limited, a substantial shareholder of the Company, for the provision of certain management services which include the provision of directors to the board of directors of the Company pursuant to a management agreement.

16. Subsequent Event

On 19 July 2004, the Company entered into a conditional agreement (“the Agreement”) with the liquidation team of Fujian International Trust & Investment Corporation (“FITIC”) (“the Vendor”), where FITIC is a substantial shareholder of the Company. Pursuant to the Agreement, the Company agreed to acquire from the Vendor 108,000,000 unlisted ordinary domestic shares of Huaneng Power International, Inc. (“the Asset”) at a cash consideration of RMB358.56 million (equivalent to approximately HK$338.94 million) as adjusted by an amount equal to the appreciation in the net asset value (as defined in the Agreement) of the Asset from 1 January 2004 to the date of payment of the aforementioned consideration of RMB358.56 million.

The completion of the Agreement is subject to the provision by the Vendor (or the successor/transferee of the Asset (if any) as defined in the Agreement) of certified true copies of all the necessary approvals required by Hong Kong and the People’s Republic of China laws and regulations for effecting the transaction contemplated thereunder.

— 104 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. Disclosure Under Rule 13.22 of Chapter 13 of the Listing Rules

The Group had amounts due from jointly controlled entities and associates of HK$161.4 million (before impairment losses of HK$145.1 million) and HK$55.2 million respectively. A pro-forma combined balance sheet of these companies and the Group’s attributable interest in these companies are presented below:

As at 30 June 2004

Pro-forma combined balance sheet HK$ Fixed assets 632,708,135 Property under development 3,607,175 Goodwill 10,694,175 Current assets 58,418,928 Current liabilities (68,774,353) Long term bank loans (183,422,750) Deferred tax liabilities (4,585,555) Minority interests (210,921,468) Net assets 237,724,287 Share capital and reserves (322,009,223) Shareholder’s loans and advances 559,733,510 237,724,287	Pro-forma combined balance sheet HK$ Fixed assets 632,708,135 Property under development 3,607,175 Goodwill 10,694,175 Current assets 58,418,928 Current liabilities (68,774,353) Long term bank loans (183,422,750) Deferred tax liabilities (4,585,555) Minority interests (210,921,468) Net assets 237,724,287 Share capital and reserves (322,009,223) Shareholder’s loans and advances 559,733,510 237,724,287	Group’s attributable interest HK$ 231,891,370 1,442,870 4,277,670 22,640,477 (17,641,696) (69,452,600) (1,519,853) (79,238,796) 92,399,442 (167,982,814) 260,382,256 92,399,442
	(322,009,223) 559,733,510	(167,982,814 260,382,256
	237,724,287

— 105 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

1. AUDITED FINANCIAL INFORMATION (REPRODUCED FROM THE ANNUAL REPORTS OF THE HUANENG GROUP FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2003 PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS)

Set out below are (i) the consolidated income statement and (ii) the consolidated balance sheet reproduced from the audited accounts published in the annual reports of the Huaneng Group for each of the three years ended 31 December 2003; and (iii) the consolidated statement of changes in shareholders’ equity, (iv) the consolidated cash flow statement and (v) notes to the financial statements reproduced from the audited accounts published in the annual reports of the Huaneng Group for the year ended 31 December 2003.

CONSOLIDATED INCOME STATEMENT

Year ended 31 December

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

	2003 23,388,237
	(9,025,013) (921,561) (4,117,478) (1,439,673) (214,723) (596,627) 16,315,075) 7,073,162 53,044 (569,148) (28,181) (544,285) 212,091 10,705 12,070		(5,147,364 (765,712 (3,261,001 (807,136 (307,322 (488,793
(		(10,777,328
		5,014,034
		113,081 (867,538 (41,758
		(796,215
		(5,381 24,671 —

— 106 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

Note Profit before tax 6 Income tax expense 32 Profit before minority interests Minority interests 33 Net profit attributable to shareholders Proposed dividend 21 Proposed dividend per share (Rmb) 21 Basic earnings per share (Rmb) 34 Diluted earnings per share (Rmb) 34	2003 6,763,743 (1,149,441) 5,614,302 (183,894) 5,430,408 3,013,836 0.50 0.90 0.90	2002 5,057,892 (980,854) 4,077,038 (156,034) 3,921,004 2,049,408 0.34 0.65 0.65	2001 4,237,109 (715,220) 3,521,889 (71,231) 3,450,658 1,800,000 0.30 0.61 0.60

The accompanying notes are an integral part of these financial statements.

— 107 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

CONSOLIDATED BALANCE SHEET

As at 31 December

(Amounts expressed in thousands of RMB)

The Company and its subsidiaries 2003 2002 2001 42,658,365 41,103,468 37,557,114 2,766,031 200,960 226,488 — — — 254,990 254,990 — 1,037,859 1,067,838 970,759 21,311 — — 298,876 126,560 — (1,730,949) (1,978,227) (2,225,505)	The Company and its subsidiaries 2003 2002 2001 42,658,365 41,103,468 37,557,114 2,766,031 200,960 226,488 — — — 254,990 254,990 — 1,037,859 1,067,838 970,759 21,311 — — 298,876 126,560 — (1,730,949) (1,978,227) (2,225,505)	The Company and its subsidiaries 2003 2002 2001 42,658,365 41,103,468 37,557,114 2,766,031 200,960 226,488 — — — 254,990 254,990 — 1,037,859 1,067,838 970,759 21,311 — — 298,876 126,560 — (1,730,949) (1,978,227) (2,225,505)	The Company 2003 2002 2001 34,290,511 35,952,425 34,868,277 2,766,031 200,960 226,488 2,445,550 1,864,996 860,967 254,990 254,990 — 871,529 1,330,449 1,611,755 13,239 — — 107,231 45,612 — (1,730,949) (1,978,227) (2,225,505) 39,018,132 37,671,205 35,341,982 624,762 748,267 638,108 611,444 460,037 230,707 2,341,204 1,985,374 1,331,720 3,437 — 18,266 5,862 — — 158,621 13,008 — 69,660 1,136,356 5,995,752 3,291,923 2,703,918 2,129,332 7,106,913 7,046,960 10,343,885 46,125,045 44,718,165 45,685,867	The Company 2003 2002 2001 34,290,511 35,952,425 34,868,277 2,766,031 200,960 226,488 2,445,550 1,864,996 860,967 254,990 254,990 — 871,529 1,330,449 1,611,755 13,239 — — 107,231 45,612 — (1,730,949) (1,978,227) (2,225,505) 39,018,132 37,671,205 35,341,982 624,762 748,267 638,108 611,444 460,037 230,707 2,341,204 1,985,374 1,331,720 3,437 — 18,266 5,862 — — 158,621 13,008 — 69,660 1,136,356 5,995,752 3,291,923 2,703,918 2,129,332 7,106,913 7,046,960 10,343,885 46,125,045 44,718,165 45,685,867	The Company 2003 2002 2001 34,290,511 35,952,425 34,868,277 2,766,031 200,960 226,488 2,445,550 1,864,996 860,967 254,990 254,990 — 871,529 1,330,449 1,611,755 13,239 — — 107,231 45,612 — (1,730,949) (1,978,227) (2,225,505) 39,018,132 37,671,205 35,341,982 624,762 748,267 638,108 611,444 460,037 230,707 2,341,204 1,985,374 1,331,720 3,437 — 18,266 5,862 — — 158,621 13,008 — 69,660 1,136,356 5,995,752 3,291,923 2,703,918 2,129,332 7,106,913 7,046,960 10,343,885 46,125,045 44,718,165 45,685,867
45,306,483 800,281 259,421 2,804,026 — 5,862 159,961 144,996 4,128,648 8,303,195	40,775,589 923,341 242,905 2,361,833 — — 13,259 1,141,502 3,002,601 7,685,441	36,528,856 718,997 240,545 1,407,171 — — — 6,224,070 2,173,136 10,763,919	39,018,132 624,762 611,444 2,341,204 3,437 5,862 158,621 69,660 3,291,923 7,106,913	37,671,205 748,267 460,037 1,985,374 — — 13,008 1,136,356 2,703,918 7,046,960	35,341,982
					638,108 230,707 1,331,720 18,266 — — 5,995,752 2,129,332
					10,343,885
53,609,678	48,461,030	47,292,775	46,125,045	44,718,165

— 108 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The Company and its subsidiaries 2003 2002 2001 4,250,000 4,250,000 4,250,000 250,000 250,000 250,000 1,527,671 1,500,274 1,500,000 10,780,133 10,604,843 10,137,732 4,328,423 3,373,423 2,659,012 255 44,647 510,506 12,818,873 10,392,873 8,986,280	The Company and its subsidiaries 2003 2002 2001 4,250,000 4,250,000 4,250,000 250,000 250,000 250,000 1,527,671 1,500,274 1,500,000 10,780,133 10,604,843 10,137,732 4,328,423 3,373,423 2,659,012 255 44,647 510,506 12,818,873 10,392,873 8,986,280	The Company and its subsidiaries 2003 2002 2001 4,250,000 4,250,000 4,250,000 250,000 250,000 250,000 1,527,671 1,500,274 1,500,000 10,780,133 10,604,843 10,137,732 4,328,423 3,373,423 2,659,012 255 44,647 510,506 12,818,873 10,392,873 8,986,280	The Company 2003 2002 2001 4,250,000 4,250,000 4,250,000 250,000 250,000 250,000 1,527,671 1,500,274 1,500,000 10,780,133 10,604,843 10,137,732 4,328,423 3,373,423 2,659,012 255 44,647 510,506 12,818,873 10,392,873 8,986,280	The Company 2003 2002 2001 4,250,000 4,250,000 4,250,000 250,000 250,000 250,000 1,527,671 1,500,274 1,500,000 10,780,133 10,604,843 10,137,732 4,328,423 3,373,423 2,659,012 255 44,647 510,506 12,818,873 10,392,873 8,986,280	The Company 2003 2002 2001 4,250,000 4,250,000 4,250,000 250,000 250,000 250,000 1,527,671 1,500,274 1,500,000 10,780,133 10,604,843 10,137,732 4,328,423 3,373,423 2,659,012 255 44,647 510,506 12,818,873 10,392,873 8,986,280
33,955,355 1,155,197 — — 8,305,320 848,284 — 103,114 9,256,718	30,416,060 910,704 155,999 388,891 8,464,521 331,389 19,397 121,853 9,482,050	28,293,530 486,261 — 777,717 8,691,246 106,799 14,875 — 9,590,637	33,955,355 — — — 5,317,804 575,000 — 14,028 5,906,832	30,416,060 — 155,999 388,891 6,463,815 225,000 19,397 15,030 7,268,132	28,293,530
					—
					— 777,717 8,081,033 — 14,875 —
					8,873,625

— 109 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Note Current liabilities Accounts payable and other liabilities 26 Taxes payable 27 Due to HIPDC 7(h) Due to other related parties 7(h) Staff welfare and bonus payable Short-term loans 28 Current portion of long-term loans from shareholders 23 Current portion of long-term bank loans 24 Current portion of other long-term loans 25 Liability component of convertible notes 22 Other financial liabilities 38 Put option of convertibles notes Total current liabilities Total equity and liabilities	The Company and its subsidiaries 2003 2002 2001 3,342,517 3,734,350 2,657,223 917,362 620,189 521,193 87,508 100,475 36,584 27,338 — 3,225 220,896 233,566 376,193 1,600,000 550,000 40,000 388,875 388,891 15,565 2,409,240 1,928,732 2,630,008 243,386 96,013 283,273 935 — 1,703,443 4,351 — — — — 655,640	The Company and its subsidiaries 2003 2002 2001 3,342,517 3,734,350 2,657,223 917,362 620,189 521,193 87,508 100,475 36,584 27,338 — 3,225 220,896 233,566 376,193 1,600,000 550,000 40,000 388,875 388,891 15,565 2,409,240 1,928,732 2,630,008 243,386 96,013 283,273 935 — 1,703,443 4,351 — — — — 655,640	The Company and its subsidiaries 2003 2002 2001 3,342,517 3,734,350 2,657,223 917,362 620,189 521,193 87,508 100,475 36,584 27,338 — 3,225 220,896 233,566 376,193 1,600,000 550,000 40,000 388,875 388,891 15,565 2,409,240 1,928,732 2,630,008 243,386 96,013 283,273 935 — 1,703,443 4,351 — — — — 655,640	The Company 2003 2002 2001 2,906,516 3,583,488 2,496,379 601,337 395,661 441,190 87,508 100,475 36,584 24,387 — 3,225 212,875 231,726 362,310 280,000 550,000 — 388,875 388,891 15,565 1,756,074 1,783,732 2,630,008 — — 174,368 935 — 1,703,443 4,351 — — — — 655,640	The Company 2003 2002 2001 2,906,516 3,583,488 2,496,379 601,337 395,661 441,190 87,508 100,475 36,584 24,387 — 3,225 212,875 231,726 362,310 280,000 550,000 — 388,875 388,891 15,565 1,756,074 1,783,732 2,630,008 — — 174,368 935 — 1,703,443 4,351 — — — — 655,640	The Company 2003 2002 2001 2,906,516 3,583,488 2,496,379 601,337 395,661 441,190 87,508 100,475 36,584 24,387 — 3,225 212,875 231,726 362,310 280,000 550,000 — 388,875 388,891 15,565 1,756,074 1,783,732 2,630,008 — — 174,368 935 — 1,703,443 4,351 — — — — 655,640
	9,242,408	7,652,216	8,922,347	6,262,858	7,033,973	8,518,712
	53,609,678	48,461,030	47,292,775	46,125,045	44,718,165	45,685,867

The accompanying notes are an integral part of these financial statements.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY Year ended 31 December 2003

(Amounts expressed in thousands of RMB)

The Company and its subsidiaries

Balance at 1st January,2002 Dividend relating to 2001 Net profit for the year ended 31st December, 2002 Conversion of convertible notes to share capital (Note 22) Redemption of convertible notes (Note 22) Transfer from statutory public welfare fund to discretionary surplus reserve fund Transfer to dedicated capital Balance at 31st December, 2002 Dividend relating to 2002 Net profit for the year ended 31st December, 2003 Conversion of convertible notes to share capital (Note 22) Transfer from statutory public welfare fund to discretionary surplus reserve fund Transfer to dedicated capital Balance at 31st December, 2003	Share Capital (Note 19) 6,000,000 — — 274 — — —	Additional Paid-in Capital (Note 19) Dedicated Statutory and discretionary surplus reserve fund 10,137,732 1,896,270 — — — — 1,696 — 465,415 — — 15,398 — 408,235	Additional Paid-in Capital (Note 19) Dedicated Statutory and discretionary surplus reserve fund 10,137,732 1,896,270 — — — — 1,696 — 465,415 — — 15,398 — 408,235	Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —	Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —	Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —	Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —	Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —
	6,000,274 — — 27,397 — —	10,604,843 — — 175,290 — —	2,319,903 — — — 2,104 545,714	1,053,520 3,373,423 — — — — — — (2,104) — 409,286 955,000		44,647 10,392,873 30,416,060 — (2,049,408) (2,049,408) — 5,430,408 5,430,408 (44,392) — 158,295 — — — — (955,000) —
	6,027,671	10,780,133	2,867,721	1,460,702	4,328,423	255	12,818,873	33,955,355

The accompanying notes are an integral part of these financial statements.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Balance at 1st January, 2002 Dividend relating to 2001 Net profit for the year ended 31st December, 2002 Conversion of convertible notes to share capital (Note 22) Redemption of convertible notes (Note 22) Transfer from statutory public welfare fund to discretionary surplus reserve fund Transfer to dedicated capital Balance at 31st December, 2002 Dividend relating to 2002 Net profit for the year ended 31st December, 2003 Conversion of convertible notes to share capital (Note 22) Transfer from statutory public welfare fund to discretionary surplus reserve fund Transfer to dedicated capital Balance at 31st December, 2003	Share Capital (Note19) 6,000,000 — — 274 — — —	Additional Paid-in Capital (Note19) Dedicated Statutory and discretionary surplus reserve fund 10,137,732 1,896,270 — — — — 1,696 — 465,415 — — 15,398 — 408,235	Additional Paid-in Capital (Note19) Dedicated Statutory and discretionary surplus reserve fund 10,137,732 1,896,270 — — — — 1,696 — 465,415 — — 15,398 — 408,235	The Company Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —	The Company Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —	The Company Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —	The Company Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —	The Company Capital (Note 20) Equity Component of Convertible Notes (Note 22) Retained Earnings Total Statutory public welfare fund Sub-total 762,742 2,659,012 510,506 8,986,280 28,293,530 — — — (1,800,000) (1,800,000) — — — 3,921,004 3,921,004 — — (444) — 1,526 — — (465,415) — — (15,398) — — — — 306,176 714,411 — (714,411) —
	6,000,274 — — 27,397 — —	10,604,843 — — 175,290 — —	2,319,903 — — — 2,104 545,714	1,053,520 3,373,423 — — — — — — (2,104) — 409,286 955,000		44,647 10,392,873 30,416,060 — (2,049,408) (2,049,408) — 5,430,408 5,430,408 (44,392) — 158,295 — — — — (955,000) —
	6,027,671	10,780,133	2,867,721	1,460,702	4,328,423	255	12,818,873	33,955,355

The accompanying notes are an integral part of these financial statements.

— 112 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December (Amounts expressed in thousands of RMB)

Note CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments to reconcile profit before tax to net cash provided by operating activities: Depreciation Amortization of prepaid land use rights Amortization of goodwill and negative goodwill Amortization of other long-term assets Provision for bad debts Reversal of provision for inventory obsolescence Gain from disposal of investments Loss on disposals of fixed assets Unrealized exchange loss Gain on interest rate swaps Share of (profit)/loss of associates Interest income Interest expenses Changes in working capital: Restricted cash Accounts receivable Due from other related parties Inventories Other receivables and assets Accounts payable and other liabilities Taxes payable Due to HIPDC Due to Huaneng Group Due to other related parties Staff welfare and bonus payable Interest paid Income tax paid Interest received Net cash provided by operating activities	2003 6,763,743 4,117,478 19,136 (222,108) 41,566 12,567 (751) (10,705) 138,726 1,094 (11,771) (212,091) (53,044) 569,148 (146,702) (353,637) (5,862) 159,419 (65,900) 226,584 131,281 (12,967) (13,968) 27,338 (12,670) (617,162) (989,635) 54,182 9,533,289	2002 5,057,892 3,533,609 16,847 (246,128) 24,112 15,826 (945) (1,288) 31,980 4,846 (2,179) 11,145 (83,015) 561,875 (13,259) (496,559) — (39,272) 92,579 279,019 44,070 65,891 — (3,225) (152,033) (733,600) (984,047) 95,577 7,079,718

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

Note CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from disposals of fixed assets (Increase)/decrease in other long-term assets Decrease in temporary cash investments Proceeds from disposal of investments Cash consideration paid for available-for-sale investment 13 Cash consideration paid for acquisitions 3 Direct costs paid for acquisitions 3 Cash inflow from the acquired power plants 3 Net cash (used in)/provided by investing activities CASH FLOWS FROM FINANCING ACTIVITIES Drawdown of short-term loans Repayment of short-term loans Repayment of long-term loans from shareholders Drawdown of long-term bank loans Repayment of long-term bank loans Drawdown of other long-term bank loans Repayment of other long-term loans Capital injection from minority shareholders of the subsidiaries Dividend paid to shareholders of the Company Dividend paid to minority shareholders of the subsidiaries Redemption of convertible notes Net cash used in financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents, beginning of year CASH AND CASH EQUIVALENTS, END OF YEAR 35(a)	2003 (3,606,704) 7,679 (29,355) 1,066,629 80,704 — (2,940,000) (19,618) 215,585	2002 (1,594,210) 41,567 3,412 5,082,568 2,390 (254,990) (2,759,435) (17,042) 569,841 1,074,101 120,000 (190,000) (15,565) 173,379 (2,954,748) — (283,683) — (1,800,000) (138,947) (2,234,790) (7,324,354) 829,465 2,173,136 3,002,601
	(5,225,080) 769,000 (450,000) (388,988) 1,016,230 (2,322,348) 350,000 (36,060) 77,632 (2,049,408) (148,220) — (3,182,162) 1,126,047 3,002,601	1,074,101
		120,000 (190,000 (15,565 173,379 (2,954,748 — (283,683 — (1,800,000 (138,947 (2,234,790
		(7,324,354
		829,465 2,173,136
	4,128,648

The accompanying notes are an integral part of these financial statements.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

NOTES TO THE FINANCIAL STATEMENTS

(Amounts expressed in thousands of RMB unless otherwise stated)

1. COMPANY ORGANIZATION AND PRINCIPAL ACTIVITIES

Huaneng Power International, Inc. (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) as a Sino-foreign joint stock limited company on 30th June, 1994. As at 31st December, 2003, the Company and its subsidiaries had 17,886 employees (2002: 15,222 employees).

The Company and its subsidiaries are principally engaged in the generation and sale of electric power to the respective regional or provincial grid companies.

Particulars of the Company’s, its subsidiaries’ and its associates’ operating power plants are as follows:

	Total installed
	capacity of	Equity portion
	the Company,	of total	Province/
	its subsidiaries	capacity of the	Municipality
Operating Plants	and associates	Company	located
	(MW)	(MW)
The Company:
Huaneng Dalian Power Plant (the “Dalian Power Plant”)	700	700	Liaoning
Huaneng Shangan Power Plant
(the “Shangan Power Plant”)	700	700	Hebei
Huaneng Nantong Power Plant
(the “Nantong Power Plant”)	704	704	Jiangsu
Huaneng Fuzhou Power Plant
(the “Fuzhou Power Plant”)	700	700	Fujian
Huaneng Shantou Oil-Fired Power Plant
(the “Shantou Oil-Fired Power Plant”)	103	103	Guangdong
Huaneng Shantou Coal-Fired Power Plant
(the “Shantou Power Plant”)	600	600	Guangdong
Huaneng Shangan Power Plant Phase II
(the “Shangan Phase II”)	600	600	Hebei
Huaneng Shanghai Shidongkou Second Power Plant
(the “Shanghai Power Plant”)	1,200	1,200	Shanghai
Huaneng Dalian Power Plant Phase II
(the “Dalian Phase II”)	700	700	Liaoning
Huaneng Dandong Power Plant
(the “Dandong Power Plant”)	700	700	Liaoning
Huaneng Nantong Power Plant Phase II
(the “Nantong Phase II”)	700	700	Jiangsu
Huaneng Fuzhou Power Plant Phase II
(the “Fuzhou Phase II”)	700	700	Fujian
Huaneng Nanjing Power Plant
(the “Nanjing Power Plant”)	640	640	Jiangsu
Huaneng Dezhou Power Plant
(the “Dezhou Power Plant”)	2,520	2,520	Shandong

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

	Total installed
	capacity of	Equity portion
	the Company,	of total	Province/
	its subsidiaries	capacity of the	Municipality
Operating Plants	and associates	Company	located
	(MW)	(MW)
Huaneng Jining Power Plant
(the “Jining Power Plant”) (Note 3)	595	595	Shandong
Huaneng Changxing Power Plant
(the “Changxing Power Plant) (Note 3)	250	250	Zhejiang
Huaneng Shanghai Shidongkou I Power Plant
(the “Shidongkou I Power Plant”) (Note 3)	1,200	1,200	Shanghai
Huaneng Xindian Power Plant
(the “Xindian Power Plant”) (Note 3)	450	450	Shandong
Subsidiaries:
Huaneng Weihai Power Limited Liability Company
(the “Weihai Power Company”)	850	510	Shandong
Suzhou Industrial Park Huaneng Power
Limited Liability Company
(the “Taicang Power Company”) (Note 3)	600	450	Jiangsu
Jiangsu Huaneng Huaiyin Power Limited Company
(the “Huaiyin Power Company”) (Note 3)	400	255	Jiangsu
Shanxi Huaneng Yushe Power Co., Ltd.
(the “Yushe Power Company”) (Note 3)	200	120	Shanxi
Associates:
Shandong Rizhao Power Company Ltd.
(the “Rizhao Power Company”)	700	178	Shandong
Shenzhen Energy Group Co., Ltd. (“SEG”) (Note 3)	1,844	461	Guangdong
Total	18,356	15,736

The parent company and ultimate parent company of the Company are Huaneng International Power Development Corporation (“HIPDC”) and China Huaneng Group Corporation (“Huaneng Group”) respectively. Both companies are incorporated in the PRC.

2. ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below:

(a) Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared under the historical cost convention.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates.

(b) Principles of consolidation

(i) Subsidiaries

Subsidiaries, which are those entities in which the Company has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated.

Subsidiaries are consolidated from the date on which control is transferred to the Company and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See Note 2(f) for the accounting policy on goodwill. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated; unrealized losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Company.

(ii) Associates

Associates are entities over which the Company generally has between 20% and 50% of the voting rights, or over which the Company has significant influence, but which it does not control. Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognized in the income statement and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the associates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Company’s investment in associates includes goodwill (net of accumulated amortization) on acquisition. When the Company’s share of losses in an associate equals or exceeds its interest in the associates, the Company does not recognize further losses, unless the Company has incurred obligations or made payments on behalf of the associates.

(c) Foreign currency translation

(i) Measurement currency

Items included in the financial statements of each entity in the Company and its subsidiaries are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi (“Rmb”), which is the measurement currency of the Company and its subsidiaries.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

(ii) Transactions and balances

Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognized in the income statement.

Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses.

(d) Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment loss. When assets are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gain or loss resulting from their disposal is determined by comparing proceeds with the carrying amount and is included in the income statement.

The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to income statement in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalised as an additional cost of property, plant and equipment.

Depreciation is calculated on a straight-line basis to write off the cost of each asset to their estimated residual value over their estimated useful life as follows:

Buildings	8-35 years
Electric utility plant in service	4-30 years
Transportation facilities	13-27 years
Others	5-13 years

The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

Construction-in-progress represents plants and properties under construction and is stated at cost. This includes the costs of construction, plant and machinery and other direct costs. Construction-in-progress is not depreciated until such time as the relevant asset is completed and ready for its intended use.

Interest costs on borrowings to finance the construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(e) Investments

The Company and its subsidiaries classify its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets.

Purchases and sales of investments are recognized on the trade date, which is the date that the Company and its subsidiaries commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortized cost, which is the amount at which the investment was measured at initial recognition less principal repayments, plus or minus the amortization of any difference between that initial amount and maturity amount by using the effective yield method. Realized and unrealized gains and losses arising from changes in the fair value of trading investments are included in the income statement in the period in which they arise. Unrealized gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognized in equity. The fair values of investments are based on quoted bid prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognized at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

(f) Goodwill and negative goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net assets of the acquired subsidiary/associate at the date of acquisition, and negative goodwill represents the excess of the fair value of the Company’s share of the net assets of the acquired subsidiary/associate over the cost of an acquisition at the date of acquisition.

Goodwill and negative goodwill are amortized using the straight-line method over its estimated useful life and recognized in the income statement. Management determines the estimated useful life of goodwill and negative goodwill based on the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets of the respective business at the time of the acquisition.

At each balance sheet date the Company assesses whether there is any indication of impairment. If such indications exist an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(g) Impairment of long lived assets

Property, plant and equipment and other non-current assets, including goodwill and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the cost of disposal while value in use is the present value of estimated future cash flow expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows.

(h) Inventories

Inventories consist of fuel, materials and supplies. They are stated at the lower of weighted average costs or net realizable values after provision for obsolete items, and are expensed to fuel costs or repairs and maintenance when used, or capitalised to fixed assets when installed, as appropriate. Cost of inventories includes direct material cost and transportation expenses incurred in bringing the inventories to the working locations.

(i) Receivables

Receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of receivables is established when there is an objective evidence that the Company and its subsidiaries will not be able to collect all amounts due according to the original terms of receivables.

(j) Temporary cash investments

Temporary cash investments are cash invested in fixed-term deposits with original maturities ranging from more than 3 months to one year. Temporary cash investments are classified as held-to-maturity investments and are carried at amortized cost (see Note 2(e)).

(k) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 3 months or less.

(l) Borrowings and convertible notes

Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings.

The proceeds received on the issue of the convertible notes were allocated into liability and equity components. Upon initial recognition, the liability component represents the present value, at the issuance date, of the contractually determined stream of cash flows discounted at the market interest rate for

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FINANCIAL INFORMATION ON THE HUANENG GROUP

instruments of comparable credit status providing substantially the same cash flows, on the same terms, but without the conversion option. The equity component is then determined by deducting the liability component from the proceeds received on the issue of the notes. After the initial recognition, the liability component is measured at amortized cost.

(m) Provisions

Provisions are recognized when the Company and its subsidiaries have a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Company and its subsidiaries expect a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

(n) Equity transaction costs

Incremental external costs directly attributable to the issue of new shares, other than in connection with business combinations, are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred, if any, directly in connection with a business combination are included in the cost of acquisition.

(o) Revenue and income recognition

Revenue and income are recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and its subsidiaries and the amount of the revenue and income can be measured reliably.

(i) Operating revenue, net

Net operating revenue represents amounts earned for electricity generated and transmitted to the respective regional or provincial grid companies (net of value added tax (“VAT”) and deferred revenue). Revenue is earned and recognized upon transmission of electricity to the power grid controlled and owned by the respective grid companies.

(ii) Interest income

Interest income from deposits in banks or other financial institutions is recognized on a time proportion basis that reflects the effective yield on the assets.

(iii) Management service income

As mentioned in Note 5, the company provides management services to certain power plants owned by Huaneng Group and HIPDC. The Company recognizes the service income as other income when service is provided in accordance with the management service agreement.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(p) Borrowing costs

Borrowing costs generally are expensed as incurred. Borrowing costs are capitalised as part of the cost of property, plant and equipment, if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalised until the assets are substantially ready for their intended use. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, including exchange differences arising from foreign currency borrowings used to finance these projects to the extent that they are regarded as an adjustment to interest costs.

(q) Operating leases

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

(r) Taxation

(i) VAT

Under the relevant PRC tax laws, the Company and its subsidiaries are subject to Value Added Tax (“VAT”). The Company and its subsidiaries are subject to output VAT levied at 17% of the Company’s and its subsidiaries’ operating revenue. The input VAT can be used to offset the output VAT levied on operating revenue to determine the net VAT payable. Because the VAT is a tax on the customer and the Company and its subsidiaries collect such tax from the customers and pay such tax to the suppliers on behalf of the tax authority, the VAT has not been included in operating revenues or operating expenses.

(ii) Income Tax

In accordance with the practice notes on the PRC income tax laws applicable to Sino-foreign enterprises investing in energy and transportation infrastructure businesses, the reduced income tax rate of 15% (after the approval of State Tax Bureau) are applicable across the country.

All the power plants (except for the Dezhou Power Plant, Jining Power Plant, Changxing Power Plant, Shidongkou I Power Plant, Xindian Power Plant and Dalian Phase II) are exempted from income tax for two years starting from the first profit-making year, after offsetting all tax losses carried forward from the previous years (at most five years), followed by a 50% reduction of the applicable tax rate for the next three years (“tax holiday”).

The tax holiday of the Dalian Power Plant, the Shangan Power Plant, the Nantong Power Plant, the Fuzhou Power Plant, the Shantou Oil-Fired Power Plant, the Shanghai Power Plant and the Nanjing Power Plant had already expired prior to 2003. The tax holiday of Shang’an Phase II expired in 2003, the tax holiday of the Nantong Phase II and Fuzhou Phase II will expire in 2004, and the tax holiday of Shantou Power Plant will expire in 2005.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The statutory income tax is assessed on an individual power plant basis, based on each of their results of operations. The commencement dates of tax holiday of each power plant are individually determined. The statutory income tax rates applicable to the head office, Shandong branch and the operating power plants, after taking the effect of tax holidays into consideration, are summarized below:

	2003	2002
Head Office	15.0%	15.0%
Dalian Power Plant (including Dalian Phase II)	18.0%	18.0%
Shangan Power Plant	18.0%	18.0%
Shangan Phase II	9.0%	9.0%
Nantong Power Plant	15.0%	15.0%
Nantong Phase II*	7.5%	7.5%
Fuzhou Power Plant	15.0%	15.0%
Fuzhou Phase II**	7.5%	7.5%
Shantou Oil-Fired Plant	15.0%	15.0%
Shantou Power Plant***	10.0%	7.5%
Shanghai Power Plant	16.5%	16.5%
Dandong Power Plant*	—	—
Nanjing Power Plant	15.0%	15.0%
Shandong Branch	17.0%	17.0%
Dezhou Power Plant	17.0%	17.0%
Jining Power Plant	15.0%	15.0%
Changxing Power Plant	16.5%	16.5%
Shidongkou I Power Plant	18.0%	33.0%
Xindian Power Plant****	18.0%	Not Applicable
Weihai Power Company	33.0%	33.0%
Taicang Power Company	33.0%	33.0%
Huaiyin Power Company	33.0%	33.0%
Yushe Power Company****	33.0%	Not Applicable

In accordance with Su Guo Shui Han [2003] No. 248 and Tong Guo Shui Wai Zi [2003] No.1, the tax holiday of the Nantong Phase II is determined separately from the Nantong Power Plant. The Nantong Phase II is entitled to a 50% reduction of the applicable tax rate from 1st January, 2002 to 31st December, 2004. The Nantong Phase II is currently negotiating with the Jiangsu State Tax Bureau for a refund of the overpaid income tax for the year ended 31st December, 2002.
** In accordance with Min Guo Shui Han [2003] No. 37 the tax holiday of the Fuzhou Phase II is determined separately from the Fuzhou Power Plant. The Fuzhou Phase II is entitled to a 50% reduction of the applicable tax rate from 1st January, 2002 to 31st December, 2004. The Fuzhou Power Plant is currently negotiating with the Fujian State Tax Bureau for a refund of the overpaid income tax for the year ended 31st December, 2002.
*** In accordance with the approval from Shantou State Tax Bureau Shewai Branch dated 16th January, 2003, the Shantou Power Plant is qualified as a foreign invested advanced technology enterprise and is, therefore, entitled to extend its tax holiday for three years from 1st January, 2003 to 31st December, 2005. The applicable tax rate during the extension is 10%.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

**** Not applicable in 2002 as they were not subsidiaries or branches of the Company.

* The tax holiday of Dandong Power Plant has not commenced yet as it has not recovered all of the accumulated deficits.

The income tax charge is based on profit for the year and after considering deferred taxation.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

(s) Employee benefits

Pension obligations

The Company and its subsidiaries have various defined contribution plans in accordance with the local conditions and practices in the provinces in which they operate. A defined contribution plan is a pension plan under which the Company and its subsidiaries pay fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

For defined contribution plans, the Company and its subsidiaries pay contributions to publicly administered pension insurance plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the Company and subsidiaries have no further payment obligations. The regular contributions constitute net periodic costs for the year in which they are due and as such are included in staff costs.

(t) Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

(u) Financial instruments

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. When the rights and obligations regarding the manner of settlement of financial instruments depend on the occurrence or non-occurrence of uncertain future events or on the outcome of uncertain circumstances that are beyond the control of both the issuer and the holder, the financial instrument is classified as a liability unless the possibility of the issuer being required to settle in cash or another financial asset is remote at the time of issuance, in which case the instrument is classified as equity.

Financial instruments are reviewed for impairment at each balance sheet date. For financial assets carried at amortized cost, whenever it is probable that the Company and its subsidiaries will not collect all amounts

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FINANCIAL INFORMATION ON THE HUANENG GROUP

due according to the contractual terms of loans, receivables or held-to-maturity investments, an impairment or bad debt loss is recognized in the income statement. Reversal of impairment losses previously recognized is recorded when the decrease in impairment loss can be objectively related to an event occurring after the write-down. Such reversal is recorded in income. However, the increased carrying amount is only recognized to the extent it does not exceed what amortized cost would have been had the impairment not been recognized.

(v) Contingencies

Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable.

(w) Dividends

Dividends are recorded in the financial statements of the Company and its subsidiaries in the period in which they are approved by the shareholders of the Company and its subsidiaries.

3. ACQUISITIONS

During 2002 and 2003, the Company acquired a number of power plants from both the Huaneng Group as well as other parties. These acquisitions have been accounted for under the purchase method of accounting. These acquisitions became effective when, amongst other things, the Company obtained minority shareholders’ approval where applicable and all necessary government approvals and made payment of the purchase considerations. All of the acquisitions by the Company were paid by cash.

Details of these acquisitions are shown in the table below:

	For the year ended 31st December, 2003	For the year ended 31st December, 2003
	Acquisition of subsidiaries and	Acquisition of
	net assets	an associate
Equity interest acquired	55% equity interest in Henan Huaneng	25% equity interest in
	Qinbei Power Co., Ltd. (the “Qinbei	SEG’s enlarged share
	Power Company”), 60% equity interest in	capital (Note 11)
	Yushe Power Company and all of the
	assets and liabilities of Xindian Power
	Plant*
Acquired from	Huaneng Group	Shenzhen Investment
		Holding Corporation
		(“SIH”) and SEG
Effective date	27th October, 2003	22nd April, 2003
Consideration paid	Rmb550 million	Rmb 2,390 million
Direct cost of acquisition	Rmb12 million	Rmb15 million
Fair value of net assets acquired	Rmb382 million	Rmb1,585 million
Goodwill	Rmb180 million	Rmb820 million

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

For the year ended 31st December, 2002

	For the	year ended 31st	December, 2002
		Acquisition of
	Acquisition of	additional
	subsidiaries, an	equity interests
	associate and net assets	in subsidiaries
Equity interest acquired	70% equity interest in	25% additional	30% additional	19.48%
	Shidongkou I Power	equity interest	equity interest	additional
	Plant, 70% equity interest	in Jinning	in Shidongkou I	equity interest
	in Taicang Power	Power Plant	Power Plant and	in Huaiyin
	Company, 44.16% equity		additional 5%	Power
	interest in Huaiyin Power		equity interest	Company*
	Company and all of the		in Taicang
	assets and liabilities of		Power Company
	Changxing Power Plant*
Acquired from	Huaneng Group	Shandong	Huaneng Group	Jiangsu Huaiyin
		Electricity		Investment
		Power Group		Company
		Corporation		(“JHIC”)
Effective date	1st July, 2002	18th June, 2002	31st December,	31st December,
			2002	2002
Consideration paid	Rmb2,050 million	Rmb109 million	Rmb415 million	Rmb185 million
Direct cost of acquisitions	Rmb18 million	—	Rmb4 million	—
Fair value of net assets	Rmb2,047 million	Rmb106 million	Rmb374 million	Rmb109 million
acquired
Goodwill	Rmb21 million	Rmb3 million	Rmb45 million	Rmb76 million

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The aggregated assets and liabilities arising from these acquisitions of subsidiaries and net assets in 2002 and 2003 were as follows:

Property, plant and equipment, net Deferred tax assets Other long-term assets Inventories Other current assets Accounts receivable Cash and cash equivalents Minority Interest Long-term loans Due to Huaneng Group Deferred tax liabilities Current liabilities Fair value of net assets acquired Add: Goodwill Less: Direct costs of acquisition Total consideration paid Add: Direct costs of acquisition paid Less: Cash inflow from the acquired power plants Net cash outflow for the acquisitions	2003 Rmb’000 3,085,503 21,809 18,667 35,608 96,608 88,556 215,585 (115,639) (1,706,104) (13,968) — (1,344,842)	2002 Rmb’000 4,923,490 — 121,324 164,127 54,402 458,103 569,841 (829,320) (2,039,735) — (109,568) (1,156,534) 2,156,130 97,280 (18,410) 2,235,000 17,042 (569,841) 1,682,201
	381,783 179,997 (11,780) 550,000 2,528 (215,585)	2,156,130 97,280 (18,410
		2,235,000 17,042 (569,841
	336,943

4. FINANCIAL RISK MANAGEMENT

(1) Financial risk factors

The Company and its subsidiaries’ activities expose them to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Company and its subsidiaries’ overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Company and its subsidiaries. The Company and its subsidiaries use derivative financial instruments such as interest rate swaps to hedge certain exposures.

(a) Interest rate risk

The Company’s floating rate bank loans expose the Company to interest rate risk. The Company uses derivative instruments when considered appropriate, to manage exposures arising from changes in interest rates by entering into interest rate swap agreements with PRC banks to convert certain floating rate bank loans into fixed rate debts of the same principal amounts and for the same maturities to hedge against cash flow interest rate risk.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

The interest rates and terms of repayment of the convertible notes, shareholders loans, bank loans and other loans of the Company and its subsidiaries are disclosed in Notes 22, 23, 24, 25 and 28.

(b) Foreign currency risk

The Company and its subsidiaries have foreign currency risk as a significant portion of its long-term bank loans, shareholders loans and other loans are denominated in foreign currencies, principally US dollars, as described in Note 23, 24(b) and 25. Fluctuation of exchange rates of Renminbi against foreign currencies could affect the Company and its subsidiaries’ results of operation.

Significant portions of the Company and its subsidiaries’ cash and cash equivalents and temporary cash investments maturing over 3 months are deposited with the four largest state-owned banks of the PRC and a non-bank financial institution in the PRC, which is a related party of the Company.

Each power plant of the Company and its subsidiaries sells the electricity generated to its sole customer (the provincial or regional grid companies) in the province or region where the power plant is situated.

(2) Fair value estimation

The fair value of publicly traded derivatives and trading and available-for-sale securities is based on quoted market prices at the balance sheet date.

In assessing the fair value of non-traded derivatives and other financial instruments, the Company and its subsidiaries use a variety of methods and make assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are used for long-term debt. Other techniques, such as option pricing models and estimated discounted value of future cash flows, are used to determine fair values for the remaining financial instruments.

The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Company and its subsidiaries for similar financial instruments.

5. OTHER INCOME, NET

Pursuant to a management service agreement entered into with Huaneng Group and HIPDC, the Company has, in 2003, provided management services to certain power plants owned by the Huaneng Group and HIPDC in return for a service fee. Net other income represented the management service fee income net of relevant expenses.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

6. PROFIT BEFORE TAX

Profit before tax was determined after charging and (crediting) the following:

Interest expenses on convertible notes Interest expenses on bank loans: — repayable within 5 years — repayable beyond 5 years Interest expenses on shareholders loans wholly repayable within 5 years Interest expenses on other long-term loans wholly repayable within 5 years Less: Amount capitalised in property, plant and equipment Total interest expenses Interest income Bank charges and exchange losses, net Change in fair value on financial instruments: — Gains of interest rate swaps Auditors’ remuneration Loss on disposals of fixed assets Gain from disposals of investment Operating leases: — Buildings — Land use rights Depreciation of property, plant and equipment Amortization of prepaid land use rights Amortization of other long-term assets Amortization of goodwill Amortization of negative goodwill Cost of inventories Provision for doubtful accounts Reversal of provision for inventory obsolescence Staff costs: — Wages and staff welfare — Retirement benefits — Staff housing benefits — Other staff costs	2003 ’000 3,248 104,012 422,809 22,053 57,493	2002 ’000 47,904 155,987 415,181 29,622 29,619 678,313 (116,438) 561,875 (83,015) 31,405 (2,179) 10,750 31,980 (1,288) 27,566 42,293 3,533,609 16,847 24,112 1,150 (247,278) 7,100,336 15,826 (945) 698,862 142,734 78,612 115,532
	609,615 (40,467)	678,313 (116,438
	569,148 (53,044) 28,181 (11,771) 19,359 138,726 (10,705) 25,985 44,100 4,117,478 19,136 41,566 25,170 (247,278) 9,222,583 12,567 (751) 1,020,444 235,950 72,163 111,116

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

7. RELATED PARTY TRANSACTIONS

The related parties of the Company and its subsidiaries include:

Name of related parties

Nature of relationship

Huaneng Group Ultimate parent HIPDC Parent China Huaneng Finance Company (“Huaneng Finance”) A subsidiary of Huaneng Group Weihai Power Development Bureau (“WPDB”) Minority shareholder of Weihai Power Company Henan Construction Investment Company Minority shareholder of Qinbei Power Company (“Henan Investment”) China Huaneng International Trade A subsidiary of Huaneng Group Economics Corporation (“CHITEC”) Time Shipping Company (“Time Shipping”) A joint venture of Huaneng Group Rizhao Power Company An associate of the Company

a. Pursuant to the relevant service agreements entered into between the Company and HIPDC on 30th June, 1994, HIPDC provides transmission services and transformer facilities to some of the power plants of the Company and receives service fees. The agreements cover a period of 10 years. Such service fees represent recoverable costs for rate setting purposes. The total amount of service fees paid to HIPDC for the year ended 31st December, 2003 were approximately Rmb215 million (2002: Rmb264 million).
b. In accordance with the leasing agreement entered into between the Company and HIPDC, the land use rights of the Shanghai Power Plant is leased to the Company for a period of 50 years at an annual rental payment of Rmb6 million, starting from 30th June, 1997.
c. Pursuant to a leasing agreement entered into amongst the Company, HIPDC and Nanjing Investment Company, the land use rights of the Nanjing Power Plant is leased to the Company for 50 years with an annual rental payment of approximately Rmb1.3 million, starting from 1st January, 1999.
d. As at 31st December, 2003, current deposits of approximately Rmb2,792 million (2002: current deposits: Rmb2,376 million; fixed deposits: Rmb570 million) were placed with a non-bank PRC financial institution, Huaneng Finance.

As at 31st December, 2003, the interest rate per annum of the current deposits placed with Huaneng Finance ranged from 0.72% to 1.44% (2002: current deposits: 0.72% to 1.44%; fixed deposits: 1.71%). The interest earned from these deposits amounted to Rmb14 million in 2003 (2002: Rmb52 million).

e. Pursuant to the leasing agreement between the Company and HIPDC, HIPDC agreed to lease its building to the Company for 5 years at an annual rental of Rmb25 million effective from 1st January, 2000.
f. As described in Note 23 and Note 25, certain loans of the Company and its subsidiaries were on-lent from HIPDC or borrowed from WPDB and Huaneng Finance.
g. As at 31st December, 2003, short-term loans amounting to Rmb1,130 million (2002: Rmb200 million) and Rmb130 million (2002: nil) were borrowed from Huaneng Finance and Henan Investment, which bore interest at 4.78% to 5.05% (2002: 5.56%) and 4.78% per annum respectively.
h. As at 31st December, 2003, the balances with HIPDC, the subsidiaries and other related parties are unsecured, non-interest bearing and receivable or repayable within one year.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

i. As at 31st December, 2003, long-term bank loans of approximately Rmb4,648 million, Rmb1,096 million, Rmb280 million, and Rmb34 million (2002: Rmb5,544 million, Rmb1,140 million, Rmb280 million and nil) were guaranteed by HIPDC, Huaneng Group, WPDB and Henan Investment, respectively.
j. As at 31st December, 2003, the Company had provided guarantees on certain long-term bank loans of the Rizhao Power Company totaling approximately Rmb339 million (2002: Rmb399 million).
k. During the years ended 31st December, 2003 and 2002, the Company entered into several agreements with Huaneng Group to acquire equity interests or net assets of certain power plants (See Note 3).
l. On 6th November, 2002, the Company entered into a management service agreement with Huaneng Group and HIPDC. Pursuant to which, the Company provides management services to certain power plants owned by Huaneng Group and HIPDC for 5 years. For the year ended 31st December, 2003, the service fee earned from Huaneng Group and HIPDC amounted to approximately Rmb33 million and Rmb17 million, respectively (2002: nil). The Company incurred a total costs of services of Rmb38 million, and recorded the management service fee, net of relevant expenses, as other income.
m. In accordance with an equipment import agency service agreement entered into between Shandong Huaneng and CHITEC, the Company is required to pay an agency fee at 0.5% of the value of imported equipment in return for the agency service provided by CHITEC. For the year ended 31st December, 2003, no agency fee was due to CHITEC (2002: Rmb3 million).
n. For the year ended 31st December, 2003, the Company and its subsidiaries paid approximately Rmb145 million for coal purchased from CHITEC (2002: nil).
o. For the year ended 31st December, 2003, the Company and its subsidiaries paid approximately Rmb457 million for the fuel purchased and transportation services received from Time Shipping (2002: Rmb301 million).

8. RETIREMENT PLAN AND POST-RETIREMENT BENEFITS

All PRC employees of the Company and its subsidiaries are entitled to a monthly pension at their retirement dates. The PRC government is responsible for the pension liability to these employees on retirement. The Company and its subsidiaries are required to make contributions to the state-sponsored retirement plan at a specified rate, currently set at 18% to 20%, of the basic salary of the PRC employees. The retirement plan contributions paid by the Company and its subsidiaries for the year ended 31st December, 2003 were approximately Rmb132 million (2002: Rmb89 million).

In addition, the Company and its subsidiaries have implemented a supplementary defined contribution retirement scheme. Under this scheme, the employees are required to make a specified contribution based on the number of years of service with the Company and its subsidiaries, and the Company and its subsidiaries are required to make a contribution equal to two to three times the employees’ contributions. The employees will receive the total contributions upon their retirement. The contributions paid by the Company and its subsidiaries for the year ended 31st December, 2003 totaled approximately Rmb111 million (2002: Rmb80 million).

The Company and its subsidiaries have no further obligation for post-retirement benefits beyond the above annual contributions made.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

9. DIRECTORS’, SENIOR MANAGEMENTS’ AND SUPERVISORS’ EMOLUMENTS

(a) Directors’ and supervisors’ emolument

The aggregate amounts of emoluments payable to directors and supervisors of the company during the year are as follows:

Fees for executive directors Fees for non-executive directors Fees for supervisors Other emoluments for executive directors: Basic salaries and allowances Discretionary bonuses Contributions to pensions schemes for directors (and past directors): — as directors — for other offices Other emoluments for non-executive directors Other emoluments for supervisors	2003 ’000 — — — 120 264 — 42 1,332 850 2,608	2002 ’000 — — — 445 1,027 — 263 1,118 576
		3,429

During the year, no option was granted to the directors (2002: nil).

During the year, no emolument was paid to the directors and supervisors (including the five highest paid employees) as an inducement to join or upon joining the Company or as compensation for loss of office.

The annual emoluments paid during the year to each of the directors and supervisors (including the five highest paid employees) fell within the range of nil to Rmb1 million.

No director had waived or agreed to waive any emoluments during the year.

(b) Five highest paid individuals

For the year ended 31st December, 2003, none of the five individuals, whose emoluments were the highest in the Company and its subsidiaries, were directors (2002: all of the five individuals were directors). The emoluments payable to the five highest paid individuals during the year are as follows:

Basic salaries and allowances Bonuses Pensions	2003 ’000 516 1,835 192 2,543	2002 ’000 477 1,034 282
		1,793

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

10. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net comprised:

The Company and its subsidiaries

Buildings Electric Utility Plant in Service Transportation Facilities ’000 ’000 ’000 2,097,231 52,567,658 634,870 (895,175) 809,030 (49,930) 131,452 1,022,451 18,184 5,432 26,144 245 23,540 885,859 699 (5,698) (295,512) —	Buildings Electric Utility Plant in Service Transportation Facilities ’000 ’000 ’000 2,097,231 52,567,658 634,870 (895,175) 809,030 (49,930) 131,452 1,022,451 18,184 5,432 26,144 245 23,540 885,859 699 (5,698) (295,512) —	Buildings Electric Utility Plant in Service Transportation Facilities ’000 ’000 ’000 2,097,231 52,567,658 634,870 (895,175) 809,030 (49,930) 131,452 1,022,451 18,184 5,432 26,144 245 23,540 885,859 699 (5,698) (295,512) —	2003 Others Construction- in-progress ’000 ’000 1,067,217 685,758 136,075 — 115,027 1,798,389 46,039 2,655,419 39,304 (949,402) (108,771) —	2003 Others Construction- in-progress ’000 ’000 1,067,217 685,758 136,075 — 115,027 1,798,389 46,039 2,655,419 39,304 (949,402) (108,771) —	Total ’000 57,052,734 — 3,085,503 2,733,279 — (409,981)	2002 Total ’000 50,014,849 — 4,923,490 2,257,383 — (142,988)
1,356,782 419,048 (153,025) 68,331 (2,054) 332,300	55,015,630 14,913,396 169,355 3,877,634 (184,152) 18,776,233	604,068 127,132 (12,073) 30,035 — 145,094	1,294,891 489,690 (4,257) 141,478 (77,368) 549,543	4,190,164 — — — — —	62,461,535 15,949,266 — 4,117,478 (263,574) 19,803,170	57,052,734
						12,457,735 — 3,533,609 (42,078)
						15,949,266
1,024,482 1,678,183	36,239,397 37,654,262	458,974 507,738	745,348 577,527	4,190,164 685,758	42,658,365 41,103,468	41,103,468
						37,557,114

— 133 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The Company 2003 Buildings Electric Utility Plant in Service Transportation Facilities Others Construction- in-progress ’000 ’000 ’000 ’000 ’000 1,853,746 47,099,077 528,428 1,011,034 626,226 (828,027) 777,567 (55,226) 105,686 — 30,676 649,904 14,826 99,086 18,811 5,101 23,392 — 40,649 1,203,316 21,648 840,109 699 35,299 (897,755) (5,111) (262,337) — (91,000) —	The Company 2003 Buildings Electric Utility Plant in Service Transportation Facilities Others Construction- in-progress ’000 ’000 ’000 ’000 ’000 1,853,746 47,099,077 528,428 1,011,034 626,226 (828,027) 777,567 (55,226) 105,686 — 30,676 649,904 14,826 99,086 18,811 5,101 23,392 — 40,649 1,203,316 21,648 840,109 699 35,299 (897,755) (5,111) (262,337) — (91,000) —	The Company 2003 Buildings Electric Utility Plant in Service Transportation Facilities Others Construction- in-progress ’000 ’000 ’000 ’000 ’000 1,853,746 47,099,077 528,428 1,011,034 626,226 (828,027) 777,567 (55,226) 105,686 — 30,676 649,904 14,826 99,086 18,811 5,101 23,392 — 40,649 1,203,316 21,648 840,109 699 35,299 (897,755) (5,111) (262,337) — (91,000) —	The Company 2003 Buildings Electric Utility Plant in Service Transportation Facilities Others Construction- in-progress ’000 ’000 ’000 ’000 ’000 1,853,746 47,099,077 528,428 1,011,034 626,226 (828,027) 777,567 (55,226) 105,686 — 30,676 649,904 14,826 99,086 18,811 5,101 23,392 — 40,649 1,203,316 21,648 840,109 699 35,299 (897,755) (5,111) (262,337) — (91,000) —	The Company 2003 Buildings Electric Utility Plant in Service Transportation Facilities Others Construction- in-progress ’000 ’000 ’000 ’000 ’000 1,853,746 47,099,077 528,428 1,011,034 626,226 (828,027) 777,567 (55,226) 105,686 — 30,676 649,904 14,826 99,086 18,811 5,101 23,392 — 40,649 1,203,316 21,648 840,109 699 35,299 (897,755) (5,111) (262,337) — (91,000) —	Total ’000 51,118,511 — 813,303 1,272,458 — (358,448)	2002 Total ’000 46,966,145 — 2,058,726 2,197,099 — (103,459)
1,078,033 390,353 (139,826) 58,248 (1,873) 306,902	49,127,712 14,211,658 110,404 3,408,722 (156,936) 17,573,848	488,727 115,691 (16,812) 24,215 — 123,094	1,200,754 448,384 46,234 118,581 (61,730) 551,469	950,598 — — — — —	52,845,824 15,166,086 — 3,609,766 (220,539) 18,555,313	51,118,511
						12,097,868 — 3,105,813 (37,595)
						15,166,086
771,131 1,463,393	31,553,864 32,887,419	365,633 412,737	649,285 562,650	950,598 626,226	34,290,511 35,952,425	35,952,425
						34,868,277

Borrowing costs capitalised to construction-in-progress for the year ended 31st December, 2003 amounted to approximately Rmb40 million (2002: Rmb116 million). The capitalization rate used to determine the amount of borrowing costs eligible for capitalization was 5.06% per annum for the year ended 31st December, 2003 (2002: 5.25%).

There was no write-down of any property, plant and equipment during the year.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

11. INVESTMENT IN ASSOCIATES

Beginning of year Acquisition of 44.16% equity interest of Huaiyin Power Company (Note 3) Acquisition of 25% equity interest of SEG (Note 3) Share of results before tax Share of tax (Note 32) Transfer to investment in subsidiary as a result of acquisition of additional interest (Note 3) End of year	2003 ’000 200,960 — 2,404,562 212,091 (51,582) — 2,766,031	2002 ’000 226,488 271,598 — (11,145) (5,059) (280,922) 200,960

The share of results before tax included the amortization charge of goodwill of Rmb55 million (2002: nil) in respect of the acquisition of an associate. Investment in associates at 31st December, 2003 included goodwill with a carrying amount of Rmb765 million (2002: nil).

As at 31st December, 2003, the following are details of the Company’s investment in associates:

				Percentage
			Country and date	of equity	Issued and fully	Principal
Name			of incorporation	interest held	paid capital	activities
Rizhao	Power	Company	PRC 20th March, 1996	25.5%	US$150,000,000	Power generation
SEG			PRC 16th July, 1997	25%	Rmb955,555,556	Power generation

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

12. INVESTMENT IN SUBSIDIARIES

As at 31st December, 2003, the Company had equity interests in the following significant subsidiaries:

		Percentage
	Country, date	of equity
	of incorporation	interest
Name of	and type of	directly	Issued and fully	Principal
subsidiaries	legal entity	held	paid capital	activities
Weihai Power Company	PRC	60%	Rmb761,832,800	Power generation
	22nd November, 1993
	Limited liability company
Taicang Power Company	PRC	75%	Rmb682,840,000	Power generation
	19th June, 1997
	Limited liability company
Huaiyin Power Company	PRC	63.64%	Rmb265,000,000	Power generation
	26th January, 1995
	Limited liability company
Qinbei Power Company	PRC	55%	Rmb10,000,000	Power generation
	12th July, 1995
	Limited liability company
Yushe Power Company	PRC	60%	Rmb80,000,000	Power generation
	29th November, 1994
	Limited liability company

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Summarized financial information of the two subsidiaries (Qinbei Power Company and Yushe Power Company) acquired in 2003 is as follows:

		As at
		31st December,
		2003
		’000
	Balance sheet
	Current assets	323,032
	Long-term assets	2,739,414
	Total assets	3,062,446
	Current liabilities	1,073,960
	Long-term liabilities	1,641,484
	Total liabilities	2,715,444
		For the period from
		the effective date of
		the acquisition to
		31st December, 2003
		’000
	Income statement
	Revenue	57,348
	Expenses	(54,282)
	Net profit	3,066
13.	AVAILABLE-FOR-SALE INVESTMENT

Available-for sale investment represents a 3% equity interest (unlisted) in a power generation company China Yangtze Power Co., Ltd. (“Yangtze Power”) in the PRC.

The investment does not have a quoted market price in an active market. There is no appropriate method to reliably measure its fair values. Accordingly, the investment is stated at cost and subject to review for impairment loss.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

14. GOODWILL AND NEGATIVE GOODWILL

Goodwill and negative goodwill arose from acquisitions. Goodwill and negative goodwill are recognized in the income statement as other operating expenses and deduction of other operating expenses respectively on a systematic basis over the remaining weighted average useful lives of the identifiable acquired depreciable/amortizable assets (see Note 3). The movement on the carrying amount of goodwill and negative goodwill during the year is as follows:

The Company and its subsidiaries Goodwill Negative goodwill Total ’000 ’000 ’000 — (2,225,505) (2,225,505) 127,710 — 127,710 (1,150) 247,278 246,128 126,560 (1,978,227) (1,851,667) 127,710 (2,472,784) (2,345,074) (1,150) 494,557 493,407 126,560 (1,978,227) (1,851,667) 126,560 (1,978,227) (1,851,667) 197,486 — 197,486 (25,170) 247,278 222,108 298,876 (1,730,949) (1,432,073) 325,196 (2,472,784) (2,147,588) (26,320) 741,835 715,515 298,876 (1,730,949) (1,432,073)	The Company and its subsidiaries Goodwill Negative goodwill Total ’000 ’000 ’000 — (2,225,505) (2,225,505) 127,710 — 127,710 (1,150) 247,278 246,128 126,560 (1,978,227) (1,851,667) 127,710 (2,472,784) (2,345,074) (1,150) 494,557 493,407 126,560 (1,978,227) (1,851,667) 126,560 (1,978,227) (1,851,667) 197,486 — 197,486 (25,170) 247,278 222,108 298,876 (1,730,949) (1,432,073) 325,196 (2,472,784) (2,147,588) (26,320) 741,835 715,515 298,876 (1,730,949) (1,432,073)	The Company and its subsidiaries Goodwill Negative goodwill Total ’000 ’000 ’000 — (2,225,505) (2,225,505) 127,710 — 127,710 (1,150) 247,278 246,128 126,560 (1,978,227) (1,851,667) 127,710 (2,472,784) (2,345,074) (1,150) 494,557 493,407 126,560 (1,978,227) (1,851,667) 126,560 (1,978,227) (1,851,667) 197,486 — 197,486 (25,170) 247,278 222,108 298,876 (1,730,949) (1,432,073) 325,196 (2,472,784) (2,147,588) (26,320) 741,835 715,515 298,876 (1,730,949) (1,432,073)
127,710 (1,150)	(2,472,784) 494,557	(2,345,074 493,407
126,560	(1,978,227)
126,560 197,486 (25,170)	(1,978,227) — 247,278	(1,851,667 197,486 222,108
298,876	(1,730,949)
325,196 (26,320)	(2,472,784) 741,835	(2,147,588 715,515
298,876	(1,730,949)

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

The Company Goodwill Negative goodwill ’000 ’000 — (2,225,505) 45,716 — (104) 247,278 45,612 (1,978,227) 45,716 (2,472,784) (104) 494,557 45,612 (1,978,227)	The Company Goodwill Negative goodwill ’000 ’000 — (2,225,505) 45,716 — (104) 247,278 45,612 (1,978,227) 45,716 (2,472,784) (104) 494,557 45,612 (1,978,227)	Total ’000 (2,225,505) 45,716 247,174 (1,932,615) (2,427,068) 494,453 (1,932,615) (1,932,615) 67,916 240,981 (1,623,718) (2,359,152) 735,434 (1,623,718)
45,612 67,916 (6,297)	(1,978,227) — 247,278	(1,932,615 67,916 240,981
107,231	(1,730,949)
113,632 (6,401)	(2,472,784) 741,835	(2,359,152 735,434
107,231	(1,730,949)

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

15. INVENTORIES, NET

Inventories comprised:

	The Company and	The Company and
	its subsidiaries		The	Company
	2003	2002	2003	2002
	’000	’000	’000	’000
Fuel (coal and oil) for power generation	308,861	434,726	219,974	341,446
Material and other supplies	505,041	500,854	414,478	417,221
	813,902	935,580	634,452	758,667
Less: provision for inventory obsolescence	(13,621)	(12,239)	(9,690)	(10,400)
	800,281	923,341	624,762	748,267

As at 31st December 2003, approximately Rmb406 million of the total carrying amount of inventories are carried at net realizable value (2002: Rmb396 million).

16. OTHER RECEIVABLES AND ASSETS, NET

Other receivables and assets comprised:

Prepayments for inventories Prepayments for contractors Interest receivable on temporary cash investments Current portion of long-term entrusted loan to Weihai Power Company Receivable from Shantou Coal Port Group Company Others Less: Provision for doubtful accounts	The Company and its subsidiaries 2003 2002 ’000 ’000 76,543 6,113 42,282 20,356 3,291 3,792 — — — 70,000 191,190 164,088	The Company and its subsidiaries 2003 2002 ’000 ’000 76,543 6,113 42,282 20,356 3,291 3,792 — — — 70,000 191,190 164,088	The Company 2003 2002 ’000 ’000 51,713 4,813 29,833 19,721 2,388 3,792 470,663 256,300 — 70,000 85,500 126,515 640,097 481,141 (28,653) (21,104) 611,444 460,037	The Company 2003 2002 ’000 ’000 51,713 4,813 29,833 19,721 2,388 3,792 470,663 256,300 — 70,000 85,500 126,515 640,097 481,141 (28,653) (21,104) 611,444 460,037
	313,306 (53,885)	264,349 (21,444)	640,097 (28,653)	481,141 (21,104
	259,421	242,905	611,444

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

17. ACCOUNTS RECEIVABLE

Accounts receivable comprised:

Accounts receivable Notes receivable	The Company and its subsidiaries 2003 2002 ’000 ’000 2,356,826 1,889,083 447,200 472,750 2,804,026 2,361,833	The Company 2003 2002 ’000 ’000 2,005,024 1,545,294 336,180 440,080 2,341,204 1,985,374	The Company 2003 2002 ’000 ’000 2,005,024 1,545,294 336,180 440,080 2,341,204 1,985,374
			1,985,374

The Company and its subsidiaries usually grant about one month credit period to all the local grid companies from the end of the month in which the sales are made.

As at 31st December, 2003, the aging analysis of accounts receivable was as follows:

	The	Company and
	its	subsidiaries	The	Company
	2003	2002	2003	2002
	’000	’000	’000	’000
Within one year	2,800,330	2,357,213	2,337,508	1,980,754
Between one to two years	—	4,620	—	4,620
Between two to three years	3,696	—	3,696	—
	2,804,026	2,361,833	2,341,204	1,985,374

As at 31st December, 2003, the maturity period of the notes receivable ranged from one month to six months (2002: one month to six months).

18. TEMPORARY CASH INVESTMENTS

Temporary cash investments consist of fixed-term deposits denominated in Renminbi and US dollars with original maturities ranging from more than three months to one year.

19. CAPITALISATION

Authorized Share Capital

As at 31st December, 2003, the authorized share capital of the Company was Rmb6,027,671,200, divided into 6,027,671,200 shares of Rmb1.00 each. In addition, the issued and fully paid share capital of the Company as at 31st December, 2003 was Rmb6,027,671,200 (2002: Rmb6,000,273,960) comprising of 4,500,000,000 Domestic Shares and 1,527,671,200 Overseas Listed Foreign Shares. The holders of Overseas Listed Foreign Shares and Domestic Shares, with minor exceptions, are entitled to the same economic and voting rights.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Conversion of Convertible Notes to Share Capital

The noteholders converted the convertible notes with principal of US$200,000 to 6,849 American Depositary Shares (“ADS”) (273,960 H shares equivalent) during the year ended 31st December, 2002 (see Note 22) .

The noteholders converted the convertible notes with principal of US$20 million to 685,931 ADS (27,397,240 H shares equivalent) during the year ended 31st December, 2003 (see Note 22) .

Conversion of the Additional Paid-in Capital and the Statutory Surplus Reserve Fund to Share Capital

On 16th March 2004, the Board resolved to propose to convert part of the additional paid-in capital and the statutory surplus reserve fund into share capital by issuing new shares to all of its shareholders on the basis of 5 new shares for every 10 existing ordinary shares (3 of which from additional paid-in capital and 2 from statutory surplus reserve fund). The proposal is subjected to shareholders’ approval at the annual general meeting.

20. APPROPRIATION AND DISTRIBUTION OF PROFIT

The Board of Directors decides on an annual basis the percentages of the profit after tax, as determined under the PRC accounting standards and regulations, to be appropriated to the statutory surplus reserve fund, the statutory public welfare fund and, on an optional basis, the discretionary surplus reserve fund. When the balance of the statutory surplus reserve fund reaches 50% of the Company’s share capital, any further appropriation will be optional. The statutory surplus reserve fund can be used to offset prior years’ losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholding or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of registered capital. The statutory public welfare fund can only be utilised on capital items for the collective benefits of the Company’s employees. Titles of these capital items will remain with the Company. This fund is non-distributable other than in liquidation. The discretionary surplus reserve fund can be provided and used in accordance with the resolutions of the shareholders.

For the year ended 31st December, 2003, the Board of Directors resolved the following on 16th March, 2004:

(i) to appropriate 10% and 7.5% (2002: 10% and 7.5%), respectively, of the profit after taxation as determined under the PRC accounting standards and regulations to the statutory surplus reserve fund and the statutory public welfare fund. The total amount of appropriation is approximately Rmb955 million (2002: Rmb714 million).
(ii) to make no appropriation to the discretionary surplus reserve fund.

In accordance with the Articles of Association, earnings available for distribution by the Company will be based on the lowest of the amounts determined in accordance with (a) the PRC accounting standards and regulations, (b) IFRS and (c) US GAAP. The amount of distributable profit resulting from the current year operation after appropriation to dedicated capital for the year ended 31st December, 2003 was approximately Rmb4.48 billion (2002: Rmb3.18 billion). The cumulative balance of distributable profit as at 31st December, 2003 was approximately Rmb10.97 billion (2002: Rmb9.13 billion).

21. DIVIDENDS

On 16th March, 2004, the Board of Directors proposed a cash dividend of Rmb0.50 per share, totaling approximately Rmb3,014 million, together with an issue of bonus shares on the basis of 5 bonus shares for every 10 existing ordinary shares. This proposal is subject to the approval of the shareholders at the annual general meeting. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31st December, 2004.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

On 28th May, 2003, the shareholders approved the declaration of Rmb0.34 per share, totaling Rmb2,049 million in respect of the year ended 31st December, 2002, based on the 6,027,671,200 outstanding shares on the date, in their annual general meeting.

22. CONVERTIBLE NOTES

In May 1997, the Company issued at par value convertible notes with an aggregate principal amount of US$230 million at 1.75% due 2004. These notes are listed on the New York Stock Exchange and the Luxemburg Stock Exchange. The notes mature on 21st May, 2004, unless previously redeemed or converted.

The notes are convertible, at the option of the noteholders, at any time from and including 21st August, 1997 up to and including the date of maturity, unless previously redeemed, at an initial conversion price of US$29.20 per ADS, each of which represents 40 Overseas Listed Foreign Shares, subject to adjustment in certain circumstances.

The notes were redeemable, at the option of the noteholders, in whole or in part, on 21st May, 2002 at 128.575% of the principal amount of the notes together with accrued interest, if any.

The notes may be redeemed, at the option of the Company, at any time on or after 21st May, 2000, but prior to maturity, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes, together with accrued interest, if any, if the closing price of the ADSs for a period of 30 consecutive trading days is at least 130% of the conversion price in effect on each such trading day.

The proceeds received were allocated for accounting purposes into a liability component of approximately US$168 million (equivalent to Rmb1,393 million) and an equity component of approximately US$62 million (equivalent to Rmb511 million) at the issuance date.

Before 21st May, 2002, the put option for the noteholders to redeem the notes at 128.575% of the principal amount of the notes was accounted for as an embedded derivative. It was separated from the host contract of the convertible notes and measured at its fair value with changes in fair value included in net profit or loss. The liability component was measured at amortized cost.

The fair value of the put option was determined on the following basis:

(i) No fair value was attributed to the share conversion option. Management believed that the probability of the noteholders exercising the conversion option was very low because the prevailing share price of the Company was significantly below 128.575% of the principal amount of the notes.
(ii) The fair value of the liability component was determined by discounting the stream of future payments of interest and principal at the prevailing market rate for a similar liability (instrument of comparable credit status and providing substantially the same cash flows, on the same terms, but without the conversion option).
(iii) Given (i) and (ii) above, the fair value of the put option was then determined by deducting the fair value of the liability component from the prevailing market price of the convertible notes.

On 21st May, 2002, the noteholders, by exercising their put option rights, redeemed a substantial portion of the convertible notes with an aggregate principal amount of US$209,685,000, at 128.575% of the principal amount together with accrued interest. Upon the redemption, the equity component attributable to the redeemed portion of the convertible notes amounting to approximately Rmb465 million was transferred to additional paid-in capital as at 21st May, 2002. The net shortfall of approximately Rmb42 million between (a) the sum of the relevant

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

principal amount plus accrued interest and the 28.575% put premium settled upon redemption and (b) the sum of the amortized cost of the liability component attributable to the redeemed portion of the convertible notes and the total carrying amount of the put option value as at 21st May, 2003, was charged to the income statement as interest expense.

During the year ended 31st December, 2003, convertible notes with principal of US$20 million were converted by noteholders to 684,931 ADS (27,397,240 H shares equivalent) (2002: principal of US$200,000, converted to 6,849 ADS, 273,960 H shares equivalent). Upon the conversion, the equity component attributable to the converted portion of the convertible notes amounting to Rmb44 million was transferred to additional paid-in-capital (2002 Rmb0.44 million).

23. LONG-TERM LOANS FROM SHAREHOLDERS

Long-term loans from shareholders comprised the United States dollar (“US$”) denominated bank loans on lent by HIPDC. These loans bear both fixed and floating interest rates that ranged from 3.62% to 4.01% per annum for the year ended 31st December, 2003 (2002: 4.01% to 7.40%), and are repayable in accordance with the repayment schedules set by the banks.

The shareholders’ loans are repayable as follows:

Within one year Between one to two years Less: Amount due within one year included under current liabilities	2003 ’000 388,875 —	2002 ’000 388,891 388,891
	388,875 (388,875)	777,782 (388,891)
	—	388,891

24. LONG-TERM BANK LOANS

Long-term bank loans comprised:

The Company and

Renminbi bank loans (a) United States dollar (“US$”) bank loans (b)	its subsidiaries 2003 2002 US$’000 Rmb’000 Rmb’000 4,064,499 2,053,000 803,465 6,650,061 8,340,253 10,714,560 10,393,253	The Company 2003 US$’000 Rmb’000 500,000 794,265 6,573,878 7,073,878	2002 Rmb’000 — 8,247,547
			8,247,547

a. Renminbi bank loans were borrowed from PRC banks to finance the construction of the power plants of the Company and its subsidiaries. These loans bore fixed interest rates from 4.94% to 6.21% per annum for the year ended 31st December, 2003 (2002: 5.76% to 6.21%) and are repayable in accordance with the agreed repayment schedules set by the banks.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

b. United States dollar bank loans were borrowed to finance the construction of the power plants of the Company and its subsidiaries. These loans bore interest at lending rates (both fixed and floating) ranging from 1.18% to 6.60% per annum for the year ended 31st December, 2003 (2002: 2.00% to 6.60%), and are repayable in accordance with the agreed repayment schedules set by the banks. The Company had entered into interest rate swap agreements with PRC banks to convert certain floating rate bank loans into fixed rate debts to hedge against the interest rate risk (See Note 38).

The long-term bank loans are repayable as follows:

	The Company and	The Company and
	its subsidiaries		The Company
	2003	2002	2003	2002
	’000	’000	’000	’000
Within one year	2,409,240	1,928,732	1,756,074	1,783,732
Between one to two years	1,058,155	2,179,281	723,832	1,532,726
Between two to five years	2,940,506	2,490,335	1,920,313	1,924,184
Over five years	4,306,659	3,794,905	2,673,659	3,006,905
	10,714,560	10,393,253	7,073,878	8,247,547
Less: Amount due within one year included
under current liabilities	(2,409,240)	(1,928,732)	(1,756,074)	(1,783,732)
	8,305,320	8,464,521	5,317,804	6,463,815

25. OTHER LONG-TERM LOANS

Other long-term loans comprised:

The Company and its subsidiaries 2003 Original currency 2002 ’000 Rmb’000 Rmb’000 Renminbi loans 776,342 427,402 Foreign currency bank loans US$ 21,429 177,358 — Japanese Yen (“JPY”) 1,785,714 137,970 — 1,091,670 427,402	The Company 2003 2002 Rmb’000 Rmb’000 575,000 225,000 — — — — 575,000 225,000

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

The other long term loans were drawn from:

Long-term loan from WPDB Long-term loan from Huaneng Finance Long-term loan from Jiangsu International Trust and Investment Corporation Long-term loan from Huaian Investment Company Long-term loan from Jiangsu Electric Power Development Co,. Ltd Long-term foreign loans on lent by Ministry of Finance Long-term foreign loans on lent by Ministry of Finance	The Company and its subsidiaries 2003 2002 ’000 ’000 106,389 106,389 610,000 225,000 31,505 43,245 8,980 25,050 19,468 27,718 177,358 — 137,970 — 1,091,670 427,402	The Company 2003 2002 ’000 ’000 — — 575,000 225,000 — — — — — — — — — — 575,000 225,000	The Company 2003 2002 ’000 ’000 — — 575,000 225,000 — — — — — — — — — — 575,000 225,000
			225,000

The other long-term loans bear both fixed and floating interest rates, which ranged from 4.94% to 6.21% per annum for the year ended 31st December, 2003 (2002: 5.64% to 6.21%), and are repayable in accordance with the repayment schedules set by the contracts.

Other long-term loans are repayable as follows:

Within one year Between one to two years Between two to five years Over five years Less: Amounts due within one year included under current liabilities	The Company and its subsidiaries 2003 2002 ’000 ’000 243,386 96,013 267,044 106,389 476,131 225,000 105,109 —	The Company and its subsidiaries 2003 2002 ’000 ’000 243,386 96,013 267,044 106,389 476,131 225,000 105,109 —	The Company 2003 2002 ’000 ’000 — — 225,000 — 350,000 225,000 — —	The Company 2003 2002 ’000 ’000 — — 225,000 — 350,000 225,000 — —
	1,091,670 (243,386)	427,402 (96,013)	575,000 —	225,000 —
	848,284	331,389	575,000	225,000

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

26. ACCOUNTS PAYABLE AND OTHER LIABILITIES

Accounts payable and other liabilities comprised:

Accounts payable Deferred revenue Payable to contractors for construction Other payable to contractors Accrued interest Others	The Company and its subsidiaries 2003 2002 ’000 ’000 635,860 471,609 987,500 939,564 846,473 1,333,448 207,257 140,328 96,127 115,861 569,300 733,540 3,342,517 3,734,350	The Company 2003 2002 ’000 ’000 470,676 409,500 987,500 939,564 805,378 1,319,830 157,603 131,129 96,097 113,371 389,262 670,094 2,906,516 3,583,488	The Company 2003 2002 ’000 ’000 470,676 409,500 987,500 939,564 805,378 1,319,830 157,603 131,129 96,097 113,371 389,262 670,094 2,906,516 3,583,488
			3,583,488

As at 31st December, 2003, the aging analysis of accounts payable was as follows:

	The	Company and
	its	subsidiaries	The	Company
	2003	2002	2003	2002
	’000	’000	’000	’000
Within one year	595,994	465,624	438,352	406,265
Between one to two year	36,188	3,395	28,843	856
Over two years	3,678	2,590	3,481	2,379
	635,860	471,609	470,676	409,500

27. TAXES PAYABLE

Taxes payable comprised:

	The	Company and
	its	subsidiaries	The	Company
	2003	2002	2003	2002
	’000	’000	’000	’000
VAT payable	415,147	291,456	314,158	184,992
Income tax payable	472,850	311,436	272,394	198,256
Others	29,365	17,297	14,785	12,413
	917,362	620,189	601,337	395,661

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

28. SHORT-TERM LOANS

Short-term loans are denominated in Renminbi and bear interest at the prevailing interest rates in the PRC, which ranged from 4.54% to 5.05% per annum for the year ended 31st December, 2003 (2002: 4.78% to 5.56%), and are repayable within one year (see Note 7(g)) .

29. DEFERRED INCOME TAXES

Deferred income taxes are calculated in full on temporary differences under the liability method using the applicable tax rates for the respective operating units.

The movement on the deferred income tax account is as follows:

As at 1st January Acquisitions (Note 3) Charged to income statement (Note 32) As at 31st December	The Company and its subsidiaries 2003 2002 ’000 ’000 121,853 — (21,809) 109,568 (18,241) 12,285 81,803 121,853	The Company 2003 2002 ’000 ’000 15,030 — (13,261) — (980) 15,030 789 15,030	The Company 2003 2002 ’000 ’000 15,030 — (13,261) — (980) 15,030 789 15,030
			15,030

The power plants acquired in 2003 (Note 3) recognized deferred tax assets for the temporary differences of amortization of prepaid land use rights, provisions for doubtful debt and others.

The Company and its subsidiary recognized deferred tax liabilities mainly arising from the acquisitions of the Shidongkou I Power Plant, Changxing Power Plant, Taicang Power Company and Huaiyin Power Company in 2002. The initial recognition of the identifiable assets and liabilities acquired was based on valuations performed by valuers. The resulting valuation surplus is not a tax deductible credit. Deferred tax liability of approximately Rmb107 million relating to this temporary difference was recorded in 2002.

The movement in deferred tax assets and liabilities during the year is as follows:

	The	Company and its subsidiaries Difference in	Company and its subsidiaries Difference in	The Company Difference in	The Company Difference in
					Amortization
	Amortization of				of prepaid
	prepaid land	Provisions for			land use
Deferred tax assets	use rights	doubtful debts	Others	Total	rights
	’000	’000	’000	’000	’000
As at 1st January, 2003	—	—	—	—	—
Acquisition of power plants	13,261	3,288	5,260	21,809	13,261
charged to income statement	(22)	(69)	(407)	(498)	(22)
As at 31st December, 2003	13,239	3,219	4,853	21,311	13,239

— 148 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

	The Company and
	its subsidiaries	The Company
	Difference in	Difference in
Deferred tax liabilities	depreciation	depreciation
	’000	’000
As at 1st January, 2003	121,853	15,030
Credited to profit and loss account	(18,739)	(1,002)
As at 31st December, 2003	103,114	14,028

Deferred income tax assets and liabilities are offset when there is legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet:

Deferred tax assets Deferred tax liabilities The amounts shown in the consolidated balance sheet include the following: Deferred tax assets to be recovered after more than 12 months Deferred tax liabilities to be settled after more than 12 months	The Company and its subsidiaries 2003 2002 ’000 ’000 (21,311) — 103,114 121,853 81,803 121,853 (21,311) — 84,375 121,853	The Company 2003 2002 ’000 ’000 (13,239) — 14,028 15,030 789 15,030 (13,239) — 1,003 15,030	The Company 2003 2002 ’000 ’000 (13,239) — 14,028 15,030 789 15,030 (13,239) — 1,003 15,030
			15,030
			— 15,030

30. ADDITIONAL FINANCIAL INFORMATION ON BALANCE SHEET

As at 31st December, 2003, the net current liabilities of the Company and its subsidiaries amounted to approximately Rmb939 million (2002: net current assets Rmb33 million). On the same date, the total assets less current liabilities was approximately Rmb44,367 million (2002: Rmb40,809 million).

31. HOUSING SCHEME

In accordance with the PRC housing reform regulations, the Company and its subsidiaries are required to make contributions to the State-sponsored housing fund at 7%-11% of the specified salary amount of the PRC employees. At the same time, the employees are required to make a contribution equal to the Company’s and its subsidiaries’ contribution out of their payroll. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. For the year ended 31st December, 2003, the Company and its subsidiaries contributed approximately Rmb77 million (2002: Rmb71 million) to the fund.

— 149 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

In addition, the Company and its subsidiaries provided housing benefits to certain employees to enable them to purchase living quarters from the Company and its subsidiaries at a substantial discount. Such housing benefits represent the difference between the cost of the staff quarters sold to and the net proceeds collected from the employees. The provision of housing benefits is expected to benefit the Company and its subsidiaries over the estimated remaining average service life of the relevant employees. For the year ended 31st December, 2003, the housing benefits provided by the Company and its subsidiaries to the employees amounted to approximately Rmb29 million (2002: Rmb18 million) which is recorded as a long-term deferred asset and amortized over the remaining average service life of the relevant employees which is estimated to be about 10 years.

The Company and its subsidiaries have no further obligation for housing benefits.

32. INCOME TAX EXPENSE

Income tax expense comprised:

Current tax expense Deferred tax (Note 29) Share of tax of associates (Note 11)	2003 ’000 1,116,100 (18,241) 51,582 1,149,441	2002 ’000 963,510 12,285 5,059
		980,854

The reconciliation of the effective income tax rate to the statutory income tax rate in the PRC is as follows:

Average statutory tax rate Effect of tax holiday Others Effective tax rate	2003 18% (1%) — 17%	2002 18% (1%) 2%
		19%

The aggregate effect of the tax holiday was approximately Rmb61 million for the year ended 31st December, 2003 (2002: Rmb58 million).

The average statutory tax rate for the year ended 31st December, 2003 represented the weighted average tax rate of the head office and the individual power plants calculated on the basis of the relative amounts of net profit before tax and the applicable statutory tax rates.

— 150 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

33. MINORITY INTERESTS

As at 1st January Acquisitions (Note 3) Minority shares in net profit of subsidiaries Capital injection from minority shareholders of subsidiaries Dividends paid As at 31st December	2003 ’000 910,704 115,639 183,894 77,632 (132,672) 1,155,197	2002 ’000 486,261 330,993 156,034 — (62,584)
		910,704

34. EARNINGS PER SHARE

		2003			2002
		Weighted			Weighted
		Average	Per Share		Average	Per Share
	Net Profit	Shares	Amount	Net Profit	Shares	Amount
	’000	’000		’000	’000
Earnings per Share
Net profit attributable
to shareholders	5,430,408	6,019,114	0.90	3,921,004	6,000,099	0.65
Finance costs in relation to
convertible notes and the
relevant put option
(net of tax effect)	2,746	—		41,368	—
Effect of assumed conversion	—	8,715		—	139,754
Diluted Earnings per Share
Net profit attributable to
shareholders plus effect of
assumed conversion	5,433,154	6,027,829	0.90	3,962,372	6,139,853	0.65

Basic earnings per share was computed by dividing the net profit attributable to shareholders for the year by the weighted average number of ordinary shares outstanding during the year. On a diluted basis, both net profit and the weighted average number of ordinary shares outstanding were adjusted on the assumption that the convertible notes (see Note 22) had been fully converted at the beginning of the year.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

35. NOTES TO CASH FLOW STATEMENT

a. Analysis of cash and cash equivalents

As at 31st December, 2003, cash and cash equivalents consisted of:

Cash in Rmb Current deposits Rmb US$ denominated JPY denominated Total cash and cash equivalents	The Company and its subsidiaries 2003 2002 ’000 ’000 726 266 3,763,015 2,815,473 234,468 186,862 130,439 — 4,128,648 3,002,601	The Company 2003 2002 ’000 ’000 352 253 3,088,565 2,516,803 203,006 186,862 — — 3,291,923 2,703,918	The Company 2003 2002 ’000 ’000 352 253 3,088,565 2,516,803 203,006 186,862 — — 3,291,923 2,703,918
			2,703,918

b. Undrawn borrowing facilities

The Company has obtained unsecured borrowing facilities from banks amounting to Rmb7 billion (2002: Rmb7 billion) and Rmb5 billion (2002: Rmb5 billion) to finance its funding requirements for a period of three years starting from 18th September, 2003 and 4th March, 2002, respectively. As at 31st December, 2003, the unutilized borrowing facilities amounted to Rmb11,998 million (2002: Rmb11,993 million). Such borrowing facilities would be drawn down in accordance with the level of working capital and planned capital expenditure of the Company and its subsidiaries.

36. OBLIGATIONS AND COMMITMENTS

a. Capital and Operational Commitments

Commitments mainly relate to the construction of new power projects, certain complementary facilities and renovation projects for existing power plants and the purchase of coal. Commitments outstanding as at 31st December, 2003 not provided for in the balance sheet were as follows:

	The	Company and
	its	subsidiaries	The	Company
	2003	2002	2003	2002
	’000	’000	’000	’000
Authorized and contracted for
- purchase of inventories	2,279,191	2,012,170	1,829,854	2,012,170
- construction	9,793,244	643,344	5,183,916	642,344
	12,072,435	2,655,514	7,013,770	2,654,514

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

b. Operating Lease Commitments

The Company has various operating lease arrangements with HIPDC for land and buildings (see Note 7). Some of the leases contain renewal options. Most of the leases contain escalation clauses. Lease terms do not contain restrictions on the Company’s activities concerning dividends, additional debts or further leasing.

Total future minimum lease payments under non-cancellable operating leases in respect of land and buildings of the Head Office, the Nanjing Power Plant and the Shanghai Power Plant are as follows:

Land and buildings - not later than one year - later than one year and not later than two years - later than two years and not later than five years - later than five years	2003 ’000 32,334 7,334 22,002 284,360 346,030	2002 ’000 32,334 32,334 22,002 291,694
		378,364

In accordance with the land use operating lease agreement signed by the Dezhou Power Plant and the relevant land management authorities for the land occupied by Dezhou Phase I and Phase II, annual rental is approximately Rmb30 million effective from June 1994 and is subject to revision five years after the said date. Thereafter, the annual rental is subject to revision once every three years. The increment for each rental revision is restricted to no more than 30 percent of the previous annual rental amount. For the year ended 31st December, 2003, the annual rental is approximately Rmb30 million.

37. CONTINGENT LIABILITIES

	The	Company and
	its	subsidiaries	The	Company
	2003	2002	2003	2002
	’000	’000	’000	’000
Guarantee for loan facilities
- granted to an associate	339,250	399,250	339,250	399,250
- granted to subsidiaries	—	—	2,460,613	1,845,706
	339,250	399,250	2,799,863	2,244,956

38. INTEREST RATE SWAPS

As at 31st December, 2003, the notional amount of the outstanding interest rate swap agreements was approximately US$20.5 million (2002: US$52 million). Such agreements will mature in September 2004. For the year ended 31st December, 2003, there was a gain amounting to approximately Rmb11.8 million (2002: Rmb2.2 million) arising from changes in the fair value of the interest rate swaps subsequent to initial recognition. Since the hedging relationship does not meet all of the conditions required for special hedge accounting as set out in IAS 39, the gain was credited to earnings in current year.

— 153 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

39. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company and its subsidiaries’ financial instruments not carried at fair value are cash and cash equivalents, temporary cash investments, accounts receivables, other current assets, other non-current assets, accounts and other payables, short-term borrowings, long-term borrowings and held-to-maturity investments.

The carrying amounts of the Company and its subsidiaries’ cash and cash equivalents, temporary cash investments, short-term investments, short-term borrowings and other current financial assets and liabilities approximated their fair value due to the short-term maturity of these instruments.

Similarly, the historical cost carrying amounts of receivables and payables which are all subject to normal trade credit terms approximate their fair values.

Available-for-sale investments are measured at cost as they are not traded in an active market and their fair value cannot be reliably measured.

The estimated fair value of long-term debt including current maturities was Rmb12.43 billion as at 31st December, 2003 (2002: Rmb11.93 billion). The fair value of long-term debt is determined by discounting the stream of future payments of interest and principal at the prevailing market interest rates for comparable instruments. The book value of these liabilities was Rmb12.20 billion as at 31st December, 2003 (2002: Rmb11.75 billion).

40. BUSINESS RISK

The Company and its subsidiaries conduct their operations in the PRC and accordingly investing in the shares of the Company and its subsidiaries are subject to the risks of, among others, the PRC’s political, economic and legal environment, restructuring of the PRC electric power industry and regulatory reform, new regulation pertaining to setting of power tariff and availability of fuel supply at stable price.

For the year ended 31st December, 2003, the Company and its subsidiaries sold electricity to five major customers, each of which amounted to 10% or more of the operating revenue. In aggregation, these customers represented approximately 77% (2002: 90%) of the operating revenue of the Company and its subsidiaries.

— 154 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

2. AUDITED FINANCIAL INFORMATION (REPRODUCED FROM THE ANNUAL REPORTS OF THE HUANENG GROUP FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2003 PREPARED IN ACCORDANCE WITH PRC ACCOUNTING STANDARDS)

Set out below are (i) the balance sheet, (ii) the profit and loss accounts and (iii) the statement of income appropriation reproduced from the audited accounts published in the annual reports of the Huaneng Group for each of the three years ended 31 December 2003; and (iv) the cash flow statement and (v) notes to the financial statements reproduced from the audited accounts published in the annual report of the Huaneng Group for the year ended 31 December 2003.

— 155 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

BALANCE SHEET

As at 31 December

(Amounts expressed in RMB)

2003 4,433,604,438 13,200 447,200,000 — 3,291,154 2,356,825,998 160,720,886 88,194,813 808,159,276 4,779,340 83,060 —	Consolidated 2002 2001 4,157,362,535 8,397,206,331 — 1,101,700 472,750,000 152,230,000 — — 3,792,434 16,354,768 1,889,082,774 1,254,941,073 102,595,147 115,537,645 54,040,826 94,953,798 940,723,848 739,458,212 12,451,202 12,596,842 25,160 — 70,000,000 —	Consolidated 2002 2001 4,157,362,535 8,397,206,331 — 1,101,700 472,750,000 152,230,000 — — 3,792,434 16,354,768 1,889,082,774 1,254,941,073 102,595,147 115,537,645 54,040,826 94,953,798 940,723,848 739,458,212 12,451,202 12,596,842 25,160 — 70,000,000 —	2003 3,520,203,732 13,200 336,180,000 — 2,387,688 2,005,023,640 87,489,711 54,736,358 632,641,423 4,594,883 470,746,016 —	The Company 2002 2001 3,853,281,582 8,125,084,855 — — 440,080,000 152,230,000 — 18,266,173 3,792,434 13,642,318 1,545,294,232 1,179,490,289 81,195,078 113,397,926 39,068,231 94,072,219 765,649,739 658,569,823 9,659,052 9,594,544 256,325,160 31,735,090 70,000,000 —	The Company 2002 2001 3,853,281,582 8,125,084,855 — — 440,080,000 152,230,000 — 18,266,173 3,792,434 13,642,318 1,545,294,232 1,179,490,289 81,195,078 113,397,926 39,068,231 94,072,219 765,649,739 658,569,823 9,659,052 9,594,544 256,325,160 31,735,090 70,000,000 —
8,302,872,165	7,702,823,926	10,784,380,369	7,114,016,651	7,064,345,508	10,396,083,237
3,407,034,531 1,133,262,633 12,500	776,151,596 313,862,886 10,137,770	238,093,644 — 9,734,610	5,472,475,440 — 12,500	2,324,449,270 — 450,800,726	1,096,268,191 — 697,190,066
3,407,047,031	786,289,366	247,828,254	5,472,487,940	2,775,249,996	1,793,458,257
53,276,965,016	48,098,755,152	47,229,708,718	45,954,355,976	44,554,885,647	45,622,802,781

The accompanying notes form an integral part of these financial statements.

— 156 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

2003 1,600,000,000 — 653,100,248 10,157,597 214,006,684 14,780,096 94,083,122 917,362,692 2,955,512 1,670,941,617 26,733,205 3,041,501,169 951,821	Consolidated 2002 2001 550,000,000 40,000,000 — 22,770,473 471,608,936 365,043,809 9,276,290 — 224,289,622 376,192,419 — 1,800,000,000 115,860,824 200,977,985 620,188,900 521,192,667 7,805,368 31,030,111 2,280,414,185 1,337,091,359 26,273,238 13,309,372 2,413,636,557 2,928,846,440 — 2,405,667,641	Consolidated 2002 2001 550,000,000 40,000,000 — 22,770,473 471,608,936 365,043,809 9,276,290 — 224,289,622 376,192,419 — 1,800,000,000 115,860,824 200,977,985 620,188,900 521,192,667 7,805,368 31,030,111 2,280,414,185 1,337,091,359 26,273,238 13,309,372 2,413,636,557 2,928,846,440 — 2,405,667,641	2003 280,000,000 — 486,384,541 7,209,340 203,101,081 — 92,823,122 601,337,983 12,748,584 1,418,213,280 26,733,205 2,144,948,831 951,821	The Company 2002 2001 550,000,000 — — 22,770,473 409,500,258 319,240,988 9,077,965 — 222,648,524 362,310,666 — 1,800,000,000 113,370,824 200,977,985 395,661,112 441,189,903 2,713,031 31,030,111 2,199,243,434 1,222,050,536 26,273,238 13,309,372 2,172,623,070 2,819,941,273 — 2,405,667,641	The Company 2002 2001 550,000,000 — — 22,770,473 409,500,258 319,240,988 9,077,965 — 222,648,524 362,310,666 — 1,800,000,000 113,370,824 200,977,985 395,661,112 441,189,903 2,713,031 31,030,111 2,199,243,434 1,222,050,536 26,273,238 13,309,372 2,172,623,070 2,819,941,273 — 2,405,667,641
8,246,573,763 9,153,604,209 — 9,153,604,209 17,400,177,972 1,089,686,841 6,027,671,200 10,403,229,361 4,374,668,188 1,460,700,799 13,981,531,454 34,787,100,203	6,719,353,920 9,184,800,869 166,497,890 9,351,298,759 16,070,652,679 818,532,459 6,000,273,960 10,260,830,755 3,419,668,242 1,053,519,606 11,528,797,057 31,209,570,014	10,042,122,276 9,575,761,625 — 9,575,761,625 19,617,883,901 486,260,812 6,000,000,000 10,259,449,295 2,705,256,889 762,741,506 8,160,857,821 27,125,564,005	5,274,451,788 5,892,803,985 — 5,892,803,985 11,167,255,773 — 6,027,671,200 10,403,229,361 4,374,668,188 1,460,700,799 13,981,531,454 34,787,100,203	6,101,111,456 7,077,706,287 166,497,890 7,244,204,177 13,345,315,633 — 6,000,273,960 10,260,830,755 3,419,668,242 1,053,519,606 11,528,797,057 31,209,570,014	9,638,488,948
					8,858,749,828 —
					8,858,749,828
					18,497,238,776
					—
					6,000,000,000 10,259,449,295 2,705,256,889 762,741,506 8,160,857,821
					27,125,564,005

The accompanying notes form an integral part of these financial statements.

— 157 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

PROFIT AND LOSS ACCOUNTS

Year ended 31 December

(Amounts expressed in RMB)

2003 23,479,646,958 (15,690,199,491) (45,334,549)	Consolidated 2002 18,725,340,857 (12,528,622,594) (38,116,331)	2001 15,816,656,338 (10,333,929,258) (25,294,665)	2003 20,287,987,380 (13,698,115,361) (7,542,002)	The Company 2002 15,720,550,997 (10,480,868,719) (5,839,726)	2001 14,047,671,476 (9,032,497,748) (4,618,868)
7,744,112,918 30,574,635 (441,548,979) (559,636,467)	6,158,601,932 16,821,913 (327,188,932) (562,719,815)	5,457,432,415 (529,020) (175,836,006) (842,777,611)	6,582,330,017 31,991,798 (327,750,541) (430,705,990)	5,233,842,552 14,421,931 (229,565,700) (450,065,716) 4,568,633,067 288,673,388 19,264,890 (71,346,712) 4,805,224,633 (722,874,044) —	5,010,554,860 (749,903) (125,305,716) (778,765,740)
6,773,502,107 133,885,686 20,485,605 (153,792,811)	5,285,515,098 (46,138,983) 50,717,819 (78,014,523)	4,438,289,778 19,290,314 30,799,078 (65,863,415)	5,855,865,284 567,970,021 2,108,848 (143,297,291)		4,105,733,501 183,277,931 30,698,092 (65,328,999)
6,774,080,587 (1,116,100,498) (200,837,538)	5,212,079,411 (963,510,283) (166,218,539)	4,422,515,755 (715,220,304) (71,231,207)	6,282,646,862 (825,504,311) —		4,254,380,525 (618,316,281) —
5,457,142,551	4,082,350,589	3,636,064,244	5,457,142,551	4,082,350,589	3,636,064,244

— 158 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

STATEMENT OF INCOME APPROPRIATION

Year ended 31 December

(Amounts expressed in RMB)

1. Net profit Add: Unappropriated profit brought forward 2. Unappropriated profit Less: Transfer to statutory surplus reserve fund Transfer to statutory public welfare fund 3. Profit distributable to shareholders Less: Dividends 4. Unappropriated profit carried forward	2003 5,457,142,551 11,528,797,057	Consolidated 2002 4,082,350,589 9,960,857,821	2001 3,636,064,244 6,961,104,819	2003 5,457,142,551 11,528,797,057	The Company 2002 4,082,350,589 9,960,857,821	2001 3,636,064,244 6,961,104,819
	13,981,531,454	11,528,797,057	8,160,857,821	13,981,531,454	11,528,797,057	8,160,857,821

The accompanying notes form an integral part of these financial statements.

— 159 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

CASH FLOW STATEMENT

Year ended 31 December 2003 (Amounts expressed in RMB)

Items Note 1. Cash flows from operating activities Cash received from sale of goods and services Other cash received relating to operating activities Sub-total of cash inflows Cash paid for goods and services Cash paid to and on behalf of employees Payment of all types of taxes Other cash paid relating to operating activities 6(26) Sub-total of cash outflows Net cash flows from operating activities 2. Cash flows from investing activities Cash received on disposal of investments Cash received on investment income Net cash received from disposals of fixed assets Other cash received relating to investing activities Sub-total of cash inflows Cash paid to acquire fixed assets, intangible assets and other long-term assets Cash paid to acquire investments other than the equity interest in subsidiaries Cash paid to acquire equity interest in subsidiaries 6(25) Sub-total of cash outflows Net cash flows used in investing activities	Consolidated 27,129,383,880 148,138,072	The Company 23,327,923,627 118,556,992 23,446,480,619 (8,642,057,829) (918,563,772) (3,199,900,923) (1,753,373,344) (14,513,895,868) 8,932,584,751 1,417,003,473 244,302,149 116,867,453 28,193,651 1,806,366,726 (2,327,081,953) (2,618,881,200) (550,000,000) (5,495,963,153) (3,689,596,427)
	27,277,521,952 (9,941,830,698) (1,079,192,007) (3,855,986,487) (2,243,538,053) (17,120,547,245) 10,156,974,707 1,147,192,869 10,704,716 121,074,089 215,665,745 1,494,637,419 (3,760,373,288) (2,390,013,200) (550,000,000) (6,700,386,488) (5,205,749,069)	23,446,480,619
		(8,642,057,829 (918,563,772 (3,199,900,923 (1,753,373,344
		(14,513,895,868
		8,932,584,751
		1,417,003,473 244,302,149 116,867,453 28,193,651
		1,806,366,726
		(2,327,081,953 (2,618,881,200 (550,000,000
		(5,495,963,153
		(3,689,596,427

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FINANCIAL INFORMATION ON THE HUANENG GROUP

Items

Note Consolidated The Company

3. Cash flows from financing activities Cash received from investments Including: cash received from minority shareholders equity investment in subsidiaries Cash received from borrowings Sub-total of cash inflow Cash paid on repayment of borrowings Cash payments of interest expenses and appropriation of dividends or profit Including: Dividends paid to minority shareholders of subsidiaries Sub-total of cash outflows Net cash flows used in financing activities 4. Effect of foreign exchange rate changes on cash 5. Net increase in cash and cash equivalents	77,632,000 77,632,000 2,135,230,542	— — 560,363,542 560,363,542 (2,623,089,472) (2,548,620,805) — (5,171,710,277) (4,611,346,735) (193,468) 631,448,121
	2,212,862,542 (3,197,395,992) (2,841,265,670) (133,244,836) (6,038,661,662) (3,825,799,120) 620,026	560,363,542
		(2,623,089,472 (2,548,620,805 —
		(5,171,710,277
		(4,611,346,735
		(193,468
	1,126,046,544

The accompanying notes form an integral part of these financial statements.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

Supplementary Information 1. Reconciliation of net profit to cash flows from operating activities Net profit Add: Minority interests Provision for asset impairment Depreciation of fixed assets Amortization of intangible assets Amortization of long-term deferred expenses Decrease in deferred expenses Decrease in accrued expenses Losses on disposal of fixed assets Financial expenses Gains arising from investments Decrease in inventories Increase in operating receivables items Increase in operating payables items Others Net cash flows from operating activities 2. Investing and financing activities that do not involve cash receipts or payments Conversion of debt into capital Reclassification of current portion of convertible notes to current liabilities Fixed assets capitalized under finance leases 3. Net increase in cash and cash equivalents Cash at end of year Less: cash at beginning of year Cash equivalents at end of year Less: cash equivalents at beginning of year Net increase in cash and cash equivalents	Consolidated 5,457,142,551 200,837,538 11,815,322 4,063,465,119 (229,670,474) 8,070,188 8,383,311 (4,336,944) 137,719,028 612,257,765 (133,885,686) 168,923,943 (577,868,758) 433,435,156 686,648 10,156,974,707	The Company 5,457,142,551 — 6,837,653 3,611,012,801 (231,701,267) 8,070,188 5,316,161 (4,336,944) 133,427,243 478,934,847 (567,970,021) 156,628,864 (492,481,282) 371,703,957 — 8,932,584,751 165,548,000 951,901 — 3,291,922,217 (2,660,474,096) — — 631,448,121
	165,548,000 951,901 — 4,128,648,014 (3,002,601,470) — —	165,548,000 951,901 — 3,291,922,217 (2,660,474,096 — —
	1,126,046,544

The accompanying notes form an integral part of these financial statements.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

NOTES TO THE FINANCIAL STATEMENTS

As at 31st December, 2003

(Amounts expressed in RMB unless otherwise stated)

1. COMPANY BACKGROUND

Huaneng Power International, Inc. (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) as a Sino-foreign joint stock company on 30th June, 1994.

The Company and its subsidiaries are principally engaged in the generation and sale of electric power to ultimately consumers through the respective provincial or regional grid companies.

Five of the power plants were already in commercial operations at time of incorporation of the Company in 1994 (hereinafter collectively referred to as the “five original operating plants”). The five original operating plants were previously divisions of Huaneng International Power Development Corporation (“HIPDC”), which is a Sino-foreign equity joint venture established in the PRC. In accordance with the Reorganization Agreement dated 30th June, 1994, the Company acquired the assets, liabilities and businesses of the five original operating plants from HIPDC which in return received an equity interest in the Company (the “Reorganization”). The other operating plants were either constructed or acquired by the Company after the Reorganization.

The Company’s Overseas Listed Foreign Shares were listed on the New York Stock Exchange and The Stock Exchange of Hong Kong Limited on 6th October, 1994 and 4th March, 1998, respectively. The A shares of the Company issued to the public were listed on the Shanghai Stock Exchange on 6th December, 2001.

The Company’s ultimately parent company is China Huaneng Group (“Huaneng Group”). Huaneng Group is a state-owned enterprise registered in the People’s Republic of China. For details, please refer to Note 8(1).

Particulars of operating power plants of the Company, its subsidiaries and associates are as follows:

	Total installed
	capacity of	Equity portion
	the Company, its	of total
	subsidiaries and	capacity of	Province/
	associates	the Company	Municipality
Operating plants	(MW)	(MW)	located
Wholly-owned power plants:
Huaneng Dalian Power Plant
(the “Dalian Power Plant”)	700	700	Liaoning
Huaneng Shangan Power Plant
(the “Shangan Power Plant”)	700	700	Hebei
Huaneng Nantong Power Plant
(the “Nantong Power Plant”)	704	704	Jiangsu
Huaneng Fuzhou Power Plant
(the “Fuzhou Power Plant”)	700	700	Fujian
Huaneng Shantou Oil-Fired Power Plant
(the “Shantou Oil-Fired Power Plant”)	103	103	Guangdong
Huaneng Shantou Coal-Fired Power Plant
(the “Shantou Power Plant”)	600	600	Guangdong
Huaneng Shangan Power Plant Phase II
( the “Shangan Phase II”)	600	600	Hebei

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

	Total installed
	capacity of	Equity portion
	the Company, its	of total
	subsidiaries and	capacity of	Province/
	associates	the Company	Municipality
Operating plants	(MW)	(MW)	located
Huaneng Shanghai Shidongkou Second Power Plant
(the “Shanghai Power Plant”)	1,200	1,200	Shanghai
Huaneng Dalian Power Plant Phase II
(the “Dalian Phase II”)	700	700	Liaoning
Huaneng Dandong Power Plant
(the “Dandong Power Plant”)	700	700	Liaoning
Huaneng Nantong Power Plant Phase II
(the “Nantong Phase II”)	700	700	Jiangsu
Huaneng Fuzhou Power Plant Phase II
(the “Fuzhou Phase II”)	700	700	Fujian
Huaneng Nanjing Power Plant
(the “Nanjing Power Plant”)	640	640	Jiangsu
Huaneng Dezhou Power Plant
(the “Dezhou Power Plant”)	2,520	2,520	Shandong
Huaneng Jining Power Plant
(the “Jining Power Plant”)	595	595	Shandong
Huaneng Changxing Power Plant
(the “Changxing Power Plant)	250	250	Zhejiang
Shanghai Shidongkou Power Plant
(the “Shidongkou I Power Plant”)	1,200	1,200	Shanghai
Huaneng Xindian Power Plant
(the “Xindian Power Plant”)**	450	450	Shandong
Subsidiaries:
Huaneng Weihai Power Company
(the “Weihai Power Company”)	850	510	Shandong
Suzhou Industrial Park Huaneng Power Limited Liability
Company (the “Taicang Power Company”)	600	450	Jiangsu
Jiangsu Huaneng Huaiyin Power Limited Company
(the “Huaiyin Power Company”)	400	255	Jiangsu
Huaneng Yushe Power Company
(the “Yushe Power Company”)**	200	120	Shanxi
Associates:
Shandong Rizhao Power Company Ltd.
(the “Rizhao Power Company”)	700	178	Shandong
Shenzhen Energy Group Co., Ltd. (the “SEG”)*	1,844	461	Guangdong
	18,356	15,736

On 28th January, 2003, the Company entered into an agreement with Shenzhen Investment Holding Corporation (“Shenzhen Investment”) and SEG. Pursuant to which, SEG increased its original registered capital by 10%. The Company subscribed equity interest representing 10% of SEG’s expanded share capital

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

and acquired additional equity interest representing 15% of SEG’s expanded share capital from Shenzhen Investment at a total consideration of Rmb 2.39 billion. The acquisition became effective on 22nd April, 2003 after obtaining all necessary government approvals on the transaction and the payment of the consideration.

** On 5th June, 2003, the Company entered into an agreement with Huaneng Group, pursuant to which the Company acquired from Huaneng Group 55% equity interest in Huaneng Qinbei Power Company (the “Qinbei Power Company”), 60% equity interest in Yushe Power Company and all the assets and liabilities of Xindian Power Plant at a total consideration of Rmb550 million. The acquisition became effective on 27th October, 2003 after obtaining all necessary government approvals on the transaction and the payment of the consideration. Qinbei Power Company has two 600MW units under construction.

2. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES

Effective 1st July, 2003, the Company has adopted the revised “Accounting Standards for Business Enterprises - Events Occurring After the Balance Sheet Date”. Prior to the adoption of the revised standard, profit distribution was transferred out of shareholders’ equity and cash dividends were recognized as payables in the period related to which the Board of Directors proposed the distribution plan. Subsequent to 1st July 2003, profit distribution is recognized as a liability in the period when the distribution plan is approved at the general meeting of the shareholders. This change in accounting policy has been accounted for retroactively, and as a result, the net assets as at 1st January, 2003 and 1st January, 2002 have been increased by Rmb2,040,093,146 and Rmb1,800,000,000, respectively. For details, please refer to Note 6(20).

3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of preparation

The financial statements have been prepared in accordance the Accounting Standards for Business Enterprises and Accounting Systems for Business Enterprises and relevant regulations as promulgated by the government of the PRC.

(2) Accounting year

The financial year starts on 1st January and ends on 31st December.

(3) Reporting currency

The Company and its subsidiaries use the Renminbi as reporting currency.

(4) Basis of accounting and measurement bases

Accrual method is used as the basis of accounting. Assets are initially recorded at their costs. Subsequently, if they are impaired, impairment provisions are taken accordingly.

(5) Foreign currency translation

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FINANCIAL INFORMATION ON THE HUANENG GROUP

stipulated by the PBOC at the balance sheet date. Exchange differences arising from these translations are taken to the profit and loss account, except that when they are attributable to foreign currency borrowings that have been taken out specifically for construction of fixed assets, which are capitalized as part of the fixed asset costs accordingly.

(6) Cash and cash equivalents

For the purpose of the cash flow statement, cash refers to all cash on hand and deposits held at call with banks. Cash equivalents refers to short-term, highly-liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For the purpose of the cash flow statement, restricted cash and time deposits with maturity beyond of three months are not considered as cash and cash equivalents. Their movements are considered as cash flow from investing activities.

(7) Receivables and provision for bad debts

Receivables include accounts receivable and other receivables.

The Company and its subsidiaries make provision for bad debts using the “allowance method”. Receivables are netted with the provision for bad debts.

Provisions for bad debts are made based on the assessment of the collectibility of the receivables. Based on the actual circumstances and experiences, the Company and its subsidiaries made specific provisions against balances that have been assessed to be uncollectible.

For balances where there are clear evidence that they cannot be recovered (e.g. creditor has been deregistered, declared bankruptcy, unable to meet its liabilities as they fall due or having serious cash flow problem), then bad debts are recognized and the balances are written off against the provision.

(8) Inventories

Inventories include fuel for power generation, materials and supplies for repairs and maintenance. Inventories are recorded at actual cost and are charged to fuel costs or repairs and maintenance when used, or capitalized to fixed assets when installed, as appropriate, using weighted average cost basis. Cost of inventories includes costs of purchase and transportation costs.

Inventories at balance sheet date are stated at lower of cost and net realizable values. When their costs exceed their net realizable value, the excess of their original cost over their net realizable value is taken as a “provision for loss on realization of inventories”. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to conclude the sale.

(9) Long-term investments

Long-term investments comprise equity investments in companies that the Company does not intend to dispose of within one year, bonds and other debt investments that are not readily convertible into cash or the Company does not intend to dispose.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

Subsidiaries are investees in which the Company has, directly or indirectly, an interest of more than 50% of the voting rights, or otherwise has power to govern the investees’ financial and operating policies. Associates generally represent investees in which the Company has an interest of between 20% to 50% (excluding 20% and 50%) of the voting rights or otherwise has significant influence over the financial and operating policies.

(a) Equity investment

Long-term equity investments are recorded at the actual cost of acquisition. The Company accounts for long-term equity investments in subsidiaries and associates using the equity method of accounting. Other equity investments, which the Company intends to hold for more than one year, are accounted for using the cost method of accounting.

When long-term equity investments acquired prior to 17th March, 2003 are accounted for using the equity method of accounting, the difference between the initial cost of investment and the proportionate share of the net assets of the investee is amortized using the straight-line method over a certain period. According to Cai Kuai [2003] No.10, when long-term equity investments acquired after 17th March, 2003 are accounted for using the equity method of accounting, if the initial cost of investment is less than the proportionate share of the net assets of the investee, the difference is accounted for as capital surplus. If there is an excess of the initial cost of investment over the proportionate share of net assets of the investee, the excess is amortized using the straight-line method over a certain period.

Under the equity method of accounting, the attributable share of the investees’ net profit or loss for the period is recognized as an investment income or loss. When the investees declare dividends, the carrying amount of the investment is reduced accordingly. Under the cost method of accounting, investment income is recognized when the investees declare dividends.

(b) Debt investment

Long-term debt investments are recorded at cost on acquisition, less unpaid interest which has been accrued. Interest income from investments is computed for each period.

Entrusted loans refers to loans that the Company provides to other companies via intermediary financial institutions with maturities over one year. Interest income is accrued and recorded as income in each period. Interest receivable that has been accrued, but cannot be collected when due, should be written off. At the balance sheet date, when events indicate that the principal amount is higher than the recoverable amount of the entrusted loans, provision for impairment loss will be made.

(10) Fixed assets and depreciation

Fixed assets include buildings, plant and other equipment related to the production and operation of the Company and its subsidiaries with useful lives over one year. Effective from 1st January, 2001, when construction takes place on the Company’s land and the construction is for its own use, the carrying value of land use right is capitalized as part of the cost of buildings.

Fixed assets purchased or constructed were initially recorded at cost. Fixed assets obtained upon Reorganization were initially recorded at their appraised value approved by relevant government authorities.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

Depreciation of fixed assets is calculated on the straight-line method to write off the cost of each asset, net of estimated residual values, over their estimated useful lives. When a provision for impairment loss has been made for a fixed asset, the depreciation rate and depreciation charge for the fixed asset should be recalculated based on the asset’s carrying amount and its remaining useful life.

The estimated useful lives, estimated residual value and depreciation rates of the fixed assets of the Company and its subsidiaries are as follows:

	Estimated	Estimated
Categories	useful lives	residual value	Depreciation rate
Buildings	8-35 years	0%-11%	2.54%-12.50%
Electric utility plant in service	4-30years	0%-11%	2.97%-25.00%
Transportation and transmission facilities	13-27years	5%-11%	3.30%-7.31%
Others	5-13years	0%-11%	6.85%-20.00%

When fixed assets are sold, transferred, disposed of or destroyed, proceeds reduced by the carrying amount of the assets, related taxes and expenses, are included in non-operating income or expenses.

Repairs and maintenance of fixed assets are expensed as incurred. Subsequent expenditures for major reconstruction, expansion, improvement and renovation are capitalized when it is probable that future economic benefits in excess of the original assessment of performance will flow to the Company. Capitalized expenditures arising from major reconstruction, expansion and improvement are depreciated using the straight-line method over the remaining useful lives of the fixed assets.

(11) Construction-in-progress

Construction-in-progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs which include interest costs incurred on specific borrowings used to finance the capital assets, prior to the date at which the asset reaches the expected usable condition. Construction-in-progress is transferred to the fixed assets account and depreciation commences when the assets has been substantially completed and reaches the expected usable condition.

(12) Borrowing costs

The borrowings are initially recognized at the amount of the proceeds received. Ancillary costs incurred in connection with the borrowing arrangement are expensed as incurred.

Interest, ancillary costs incurred, and exchange differences incurred in connection with specific borrowings obtained for the acquisition or construction of fixed assets are capitalized as costs of the assets when the capital expenditures and borrowing costs have been incurred and the activities to enable the assets to reach their expected usable condition have commenced. The capitalization of borrowing costs ceases when the construction-in-progress has reached the asset’s expected usable condition. Borrowing costs incurred thereafter are recognized as expenses in the period in which they are incurred.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

The amount of interest for each capitalization period shall not exceed the actual amount of interest incurred of the specific borrowings during that period. Exchange difference for specific borrowings denominated in foreign currency and ancillary costs incurred in connection with the arrangement of specific borrowings are capitalized in the period in which they are incurred.

Interests incurred in connection with other borrowings are recognized as expenses in the period in which they are incurred.

(13) Intangible assets

Intangible assets include land use rights, goodwill and negative goodwill and are stated at cost net of accumulated amortization.

The land use rights acquired directly from the land bureau, through payment of land use fees, are initially recorded at cost. They are amortized using the straight-line method over the land use rights period of 20-70 years. Effective 1st January, 2001, when construction is taking place on land for which will eventually be utilized by the Company, then the carrying value of the land use rights is transferred into the construction-in-progress account. Land use rights acquired prior to 1st January, 2001 that have already been constructed and utilized by the Company and its subsidiaries are not reclassified.

Goodwill and negative goodwill arose from acquisitions are amortized over 10 years on a straight-line basis.

(14) Long-term deferred expenses

Long-term deferred expenses represent other deferred expenses with amortization period of more than one year. They are stated at cost and amortized using the straight-line method over the expected beneficial period of the asset.

(15) Asset impairment

The recognition of impairment provisions against entrusted loans, receivables and loss on realization of inventories is described in the respective accounting policies. When events or changes in circumstances indicate that the carrying value of other individual assets is higher than their recoverable amounts, then test for impairment is undertaken. If the carrying amount is higher than the recoverable amount, then the excess is recognized as an impairment provision and taken into the profit and loss account.

The recoverable amount of an individual asset item is the higher of its net selling price and its value in use. Net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, after deducting any direct incremental disposal costs. Value in use is the present value of estimated future cash flows expected to be derived from continuing use of an asset and from its disposal at the end of its useful life.

If there are indications that the impairment loss recognized for an asset in prior years no longer exist or have decreased, then the recoverable amount of the asset will be assessed. If the carrying value of the asset is lower than the reassessed recoverable amount, then the provision for asset impairment is reversed to the extent of impairment loss being recognized in the previous years.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

(16) Convertible notes

Convertible notes are stated at principal plus interest receivable.

As mentioned in Note 6(16), the convertible notes are issued at par value with redemption rights. The notes might be redeemed, at the option of the noteholders, on 21st May, 2002 at 128.575% of the principal amount of the notes together with accrued interest. Such premium is accrued together with the interest payable on the notes from date of issuance to date of redemption. The accounting treatment of accrued interest of the convertible notes is the same as that of borrowing costs.

(17) Employee social security benefits

The Company and its subsidiaries participate in employee social security plans, including pension, medical, housing and other welfare benefits, organised by the local government authorities in accordance with relevant regulations. Except for the above social security benefits as disclosed, the Company and its subsidiaries have no additional material commitment to other employee welfare benefits.

According to the relevant regulations, premium and welfare benefit contributions are remitted to the social welfare authorities and are calculated based on percentages (47% to 62.5%) of the total salary of employees, subject to certain ceilings. Contributions to the plans are charged to the profit and loss account as incurred.

(18) Profit distribution

If a profit distribution plan is proposed by the Board of Directors after the balance sheet date but before the date the financial statements are authorized for issuance, statutory surplus reserve fund, statutory public welfare fund and discretionary surplus reserve fund are recognized in related equity account.

Profit distribution is transferred out of owners’ equity in the period when the distribution plan is approved by the shareholders at their annual general meeting.

(19) Revenue recognition

Revenue is recognized under the following methods:

(a) Operating revenue

Operating revenue represents amounts earned for electricity generated and transmitted to the ultimate consumers through respective provincial or regional gird companies (net of Value Added Tax (“VAT”)). The Company and its subsidiaries bill the respective power companies based on the actual quantity of electricity transmitted or sold to the power grid controlled and owned by the respective grid companies and recognize revenue at the end of each month.

(b) Interest income

Interest income is recognized on a time proportion basis on the amounts deposited/entrusted lending and the effective yield.

As mentioned in Note 8(5)(l), the Company provides management service to certain power plants owned by Huaneng Group and HIPDC. The Company recognized the service income as other income when service was provided in accordance with the management service agreement.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(20) Lease

Leases of fixed assets where all the risks and rewards of ownership of the assets are in substance transferred to the lessees are classified as finance leases. All other leases are operating leases. Payments made under operating leases are expensed on a straight-line basis over the period of the lease.

(21) Accounting for income tax

The Company and its subsidiaries account for enterprise and local income taxes using the tax payable method. Tax expense is recognized based on current period taxable income and tax rates.

(22) Consolidation of financial statements

The consolidated financial statements, including the financial statements of the Company and its subsidiaries, are prepared in accordance with the Cai Kuai Zi (1995) 11 “Tentative Regulations for Consolidated Financial Statements” and relevant regulations issued by the Ministry of Finance of the PRC.

Subsidiaries are consolidated from the date on which control is obtained by the Company. Major intercompany balances, transactions and unrealized gains between the Company and its subsidiaries are eliminated upon consolidation. Minority interests in the consolidated financial statements represent the portion of the shareholders equity of the subsidiaries that are not owned by the Company.

When the accounting policies adopted by subsidiaries are not consistent with those adopted by the Company and such inconsistency created a material impact to the consolidated financial statements, accounting policies of subsidiaries are changed to ensure consistency with the policies adopted by the Company.

4. TAXATION

(1) Value added tax

The electricity sales of the Company and its subsidiaries is subjected to Value Added Tax (“VAT”). The applicable tax rate is 17%. Input VAT from purchase of raw materials and other production materials can be netted off against output VAT from sales.

(2) Income tax

According to the relevant income tax law, Sino-foreign enterprises are, in general, subject to statutory income tax of 33% (30% of Enterprise Income Tax (“EIT”) and 3% of local income tax). If these enterprises are located in specified location or city, or specifically approved by the State Tax Bureau, a lower tax rate can be enjoyed. Effective from 1st January, 1999, in accordance with the practice notes on the PRC income tax laws applicable to Sino-foreign enterprises investing in energy and transportation infrastructure businesses, a reduced income tax rate of 15% (after the approval of State Tax Bureau) are applicable across the country. The Company applied this rule in all operating power plants after the approval of State Tax Bureau since 1st January, 1999.

Pursuant to “Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises”, all power plants (except for the Dezhou Power Plant, Jining Power Plant, Changxing Power Plant, Shidongkou I Power Plant, Xindian Power Plant and Dalian Power Plant Phase II) are exempted from income tax for two years starting from the first profit-making year, after offsetting all tax losses carried forward from the previous years (at most five years), followed by a 50% reduction of the applicable tax rate for the next three years (“tax holiday”).

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

In accordance with Guo Shui Han [1994] No.381, the head office, the Shandong branch (the former headquarter of Shandong Huaneng Power Development Company Limited (“Shandong Huaneng”)) and all the individual power plants make their income tax payment to local tax bureau individually.

The statutory income tax rates applicable to the head office, the Shandong branch and the operating individual power plants after the expiration of tax holiday are summarized as follow:

	EIT rate	Tax holiday period
Head Office	15.0%	None
Dalian Power Plant
(including Dalian Phase II)	18.0%	Till 31st December, 1994
Shangan Power Plant	18.0%	Till 31st December, 1996
Shangan Phase II	18.0%	Till 31st December, 2003
Nantong Power Plant	15.0%	Till 31st December, 1996
Nantong Phase II	15.0%	Till 31st December, 2004
Fuzhou Power Plant	15.0%	Till 31st December, 1995
Fuzhou Phase II	15.0%	Till 31st December, 2004
Shantou Oil-Fired Plant	15.0%	Till 31st December, 1994
Shantou Power Plant	15.0%	Till 31st December, 2005
Shanghai Power Plant	16.5%	Till 31st December, 1998
Dandong Power Plant	18.0%	Not commenced yet
Nanjing Power Plant	15.0%	Till 31st December, 2001
Shandong Branch	17.0%	None
Dezhou Power Plant	17.0%	None
Jining Power Plant	15.0%	None (Effective from 1st September, 2002)
Changxing Power Plant	16.5%	None (Effective from 1st July, 2002)
Shidongkou I Power Plant	18.0%	None
Xindian Power Plant*	18.0%	None
Weihai Power Company	33.0%	None
Taicang Power Company	33.0%	None
Huaiyin Power Company	33.0%	None
Yushe Power Company	33.0%	None

The Company acquired all of the assets and liabilities of Xindian Power Plant in 2003. As such, Xindian Power Plant is entitled to preferential tax treatment applicable to Sino-foreign enterprises and it is in the process of applying to the relevant tax bureau for such preferential treatment.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

The actual income tax rates applicable to the head office, the Shandong branch and the operating individual power plants, after taking the effect of tax holiday into consideration are summarized as follow:

	Approved File No.	2003	2002
Head Office	Guo Shui Han [1997]368	15.0%	15.0%
Dalian Power Plant	Guo Shui Han [1994]381	18.0%	18.0%
(including Dalian Phase II)
Shangan Power Plant	Guo Shui Han [1994]381 &	18.0%	18.0%
	Guo Shui Han [1999]604
Shangan Phase II	Guo Shui Han [1994]381 &	9.0%	9.0%
	Guo Shui Han [2000]194
Nantong Power Plant	Guo Shui Han [1994]381	15.0%	15.0%
Nantong Phase II (i)	Su Guo Shui Han [2003]248 &	7.5%	7.5%
	Tong Guo Shui Wai Zi [2003] 1
Fuzhou Power Plant	Guo Shui Han [1994]381	15.0%	15.0%
Fuzhou Phase II (ii)	Min Guo Shui Han [2003]37	7.5%	7.5%
Shantou Oil-Fired Plant	Guo Shui Han [1994]381	15.0%	15.0%
Shantou Power Plant (iii)	Approved by Shantou State Tax Bureau	10.0%	7.5%
Shanghai Power Plant	Approved by Shanghai State Tax Bureau	16.5%	16.5%
Dandong Power Plant (vii)	Dan Guo Shui She Wai [1999]7	—	—
Nanjing Power Plant	Ning Guo Shui Wai Zi [1997]039	15.0%	15.0%
Shandong Branch	Guo Shui Han [2001]866	17.0%	17.0%
Dezhou Power Plant	Guo Shui Han [2001]866	17.0%	17.0%
Jining Power Plant (iv)	Guo Shui Han [2002]1063 and Ji Guo	15.0%	15.0%
	Shui Han [2003]1
Changxing Power Plant (v)	Guo Shui Han [2002]1030	16.5%	16.5%
Shidongkou I Power Plant	Hu Guo Shui Ba Shui [2003]31	18.0%	33.0%
Xindian Power Plant (vi)	Not applicable	18.0%	Not applicable
Weihai Power Company	Not applicable	33.0%	33.0%
Taicang Power Company	Not applicable	33.0%	33.0%
Huaiying Power Company	Not applicable	33.0%	33.0%
Yushe Power Company (vi)	Not applicable	33.0%	Not applicable

(i) In accordance with Su Guo Shui Han [2003] No. 248 and Tong Guo Shui Wai Zi [2003] No.1, the tax holiday of the Nantong Phase II is determined separately from the Nantong Power Plant. The Nantong Phase II is entitled to a 50% reduction of the applicable tax rate from 1st January, 2002 to 31st December, 2004. The Nantong Phase II is currently negotiating with the Jiangsu State Tax Bureau for a refund of the overpaid income tax for the year ended 31st December, 2002.
(ii) In accordance with Min Guo Shui Han [2003] No. 37 the tax holiday of the Fuzhou Phase II is determined separately from the Fuzhou Power Plant. The Fouzhou Phase II is entitled to a 50% reduction of the applicable tax rate from 1st January 2002 to 31st December, 2004. The Fuzhou Power Plant is currently negotiating with the Fujian State Tax Bureau for a refund of the overpaid income tax for the year ended 31st December, 2002.
(iii) In accordance with the approval from Shantou State Tax Bureau Shewai Branch dated 16th January, 2003, the Shantou Power Plant is qualified as a foreign invested advanced technology enterprise and is, therefore, entitled to extend its tax holiday for three years from 1st January, 2003 to 31st December, 2005. The applicable tax rate during the extension is 10%.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(iv) Effective from 1st September, 2002, Jining Power Plant enjoyed an income tax rate of 15%.
(v) Effective from 1st July, 2002, Changxing Power Plant enjoyed an income tax rate of 16.5%.
(vi) Not applicable in 2002 as they were not subsidiaries or branches of the Company.
(vii) The tax holiday of Dandong Power Plant has not commenced yet as it has not recovered all of the accumulated deficits.

5. SUBSIDIARIES

As at 31st December 2003, the Company had equity interests in the following subsidiaries, which are included in the consolidated financial statements:

				Total
				investment	Percentage
	Place and date	Registered	Principal	contributed by	of equity
Name	of incorporation	capital	activities	the Company	interest held
Weihai Power	Weihai, Shandong	Rmb761,832,800	Power	Rmb457,103,040	60%
Company	22nd November, 1993		generation
Taicang Power	Suzhou Industrial Park,	Rmb682,840,000	Power	Rmb512,130,000	75%
Company	Jiangsu 19th June, 1997		generation
Huaiyin Power	Huaiyin, Jiangsu	Rmb265,000,000	Power	Rmb168,646,000	63.64%
Company	26th January, 1995		generation
Qinbei Power	Jiyuan, Henan	Rmb10,000,000	Power	Rmb148,200,000	55%
Company	12th July, 1995		generation
Yushe Power	Dengyu village,	Rmb80,000,000	Power	Rmb48,000,000	60%
Company	Yushe county, Shanxi		generation
	29th November, 1994

As at 31st December, 2003, Yushe Power Company, one of the Company’s subsidiaries, had 95% equity interests in Shanxi Huaneng Yushe Yuanheng Service Company (“Yuanheng Company”). As at 31st December, 2003, the registered capital of Yuanheng Company was Rmb3,000,000, and Yushe Power Company’s investment in Yuanheng Company was Rmb2,850,000. The princinpal operating activities of Yuanheng Company is providing logistic services and other services to Yushe Power Company. As at 31st December, 2003, the total assets of Yuanheng Company amounted to Rmb18,276,165, and net assets amounted to Rmb2,186,689. For the period from the date when Yushe Power Company became a subsidiary of the Company to 31st December, 2003, the net profit of Yuanheng Company amounted to Rmb815,270. Since the assets, liabilities and operating result of Yuanheng Company are immaterial to the Company, it is not included in the consolidated financial statement.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(1) Cash and cash equivalents

31st December, Original currency amount Exchange rate Cash — RMB Bank deposit — RMB — USD 34,328,609 8.2767 — Japanese yen 1,688,242,236 0.0773 Sub-total Total cash and cash equivalents	2003 31st December, 2002 Rmb equivalent Original currency amount Exchange rate Rmb equivalent 726,410 266,342	2003 31st December, 2002 Rmb equivalent Original currency amount Exchange rate Rmb equivalent 726,410 266,342
	4,018,311,639 284,127,729 66,019,558 8.2773 130,438,660 — 4,432,878,028	3,610,632,507 546,463,686 —
		4,157,096,193
	4,433,604,438	4,157,362,535

The cash and cash equivalents as stated in the cash flow statement comprised the following:

		31st	December, 2003
	Cash		4,433,604,438
	Less: Time deposit with maturity of more than 3 months		(144,995,813)
	Restricted cash		(159,960,611)
	Cash and cash equivalents as at 31st December, 2003		4,128,648,014
	Less: Cash and cash equivalents as at 31st December, 2002		(3,002,601,470)
	Net Increase in cash and cash equivalents		1,126,046,544
(2)	Notes receivable
		31st December,	31st December,
		2003	2002
	Banking notes receivable	149,940,000	—
	Commercial notes receivable	297,260,000	472,750,000
		447,200,000	472,750,000

As at 31st December, 2003 and 31st December, 2002, all the notes receivable were unsecured notes receivable.

— 175 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

(3) Accounts receivable and other receivables

Accounts receivable
				31st December,		31st December,
					2003		2002
Accounts receivable				2,356,825,998		1,889,082,774
Aging of the accounts	receivable was as	follows:
	31st December, 2003				31st December, 2002
Aging	Amount	Percentage	(%)		Amount	Percentage	(%)
Within 1 year	2,353,129,998		100	1,884,462,774			100
1 - 2 years	—		—		4,620,000		—
2 - 3 years	3,696,000		—		—		—
	2,356,825,998		100	1,889,082,774			100

All accounts receivable represented receivable from the provincial or regional grid companies for the sale of electric power. Since these accounts receivable are collectible, no bad debt provision was provided by the Company and its subsidiaries.

As at 31st December, 2003, the five largest accounts receivable of the Company and its subsidiaries amounted to Rmb1,966,974,945 (31st December, 2002: Rmb1,607,995,057), representing 83.46% of total accounts receivable (31st December, 2002: 85.12%).

(ii) Other receivables

		31st December,	31st December,
		2003	2002
Other	receivables	214,605,918	124,038,553
Less:	bad debt provision	(53,885,032)	(21,443,406)
		160,720,886	102,595,147

— 176 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Aging and bad debt provision for other receivables were as follow:

Aging Within 1 year 1-2 years 2-3 years Over 3 years	31st December, 2003 Amount Percentage (%) Bad debt provision 88,240,614 41 (2,647,218) 18,827,094 9 (1,564,813) 55,952,155 26 (1,678,565) 51,586,055 24 (47,994,436) 214,605,918 100 (53,885,032)	31st December, 2002 Amount Percentage (%) Bad debt provision 51,988,624 42 (1,559,659) 28,088,594 23 (842,658) 22,129,117 18 (663,874) 21,832,218 17 (18,377,215) 124,038,553 100 (21,443,406)	31st December, 2002 Amount Percentage (%) Bad debt provision 51,988,624 42 (1,559,659) 28,088,594 23 (842,658) 22,129,117 18 (663,874) 21,832,218 17 (18,377,215) 124,038,553 100 (21,443,406)
			(21,443,406)

Breakdown of other receivables was as follow:

	31st December,	31st December,
	2003	2002
Prepayments for materials	4,667,925	26,468,978
Receivable from employees for sales of staff quarters	10,272,586	10,086,707
Social insurance funds	14,680,384	14,442,688
Petty cash	11,103,320	3,328,956
Transmission fee refund receivable
from Shandong Electric Power Corporation	19,067,120	—
Payment on behalf of Huai’an Huaneng Shiye Company	21,735,192	—
Others	133,079,391	69,711,224
	214,605,918	124,038,553

As at 31st December, 2003, the five largest other receivables of the Company and its subsidiaries amounted to Rmb82,448,358 (31st December, 2002: Rmb54,172,387), representing 38.42% of total other receivables (31st December, 2002: 43.67%).

As at 31st December, 2003 and 31st December, 2002, there were no accounts receivable and other receivables from shareholders who hold 5% or more of the equity interest in the Company.

See Note 8 for related party transactions.

— 177 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(4) Inventories

	31st December,	31st December,
	2003	2002
Fuel (coal and oil) for power generation	308,861,120	434,725,588
Material and spare parts	512,919,617	518,237,161
	821,780,737	952,962,749
Less: provision for inventory obsolescence-spare parts	(13,621,461)	(12,238,901)
	808,159,276	940,723,848

Movements of provision for inventory obsolescence during the year are analyzed as follows:

	Provision for inventory
	obsolescence
31st December, 2002	(12,238,901)
Current year addition	(2,262,847)
Current year reversal	880,287
31st December, 2003	(13,621,461)

(5) Other current assets

Other current assets represented receivable from Shantou Harbor Group Company Limited for coal-port construction. On 28th January, 2003, Shantou Harbor Group Company Limited had repaid the amount to the Company.

— 178 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(6) Long-term investments 1st January, 2003 Long-term equity investment Consolidated difference in value (i) 313,862,886 Associates (ii) 200,960,043 Other long-term equity investments (iii) 254,989,551 Others 6,364,276 776,176,756 Less: current portion of other long-term investments (25,160) Long-term equity investments 776,151,596 Long-term debt investments 10,137,770 Less: current portion of long-term debt investments — Long-term debt investments 10,137,770 Total long-term investments 786,289,366	Current year Current year 31st December, additions decrease 2003 908,047,944 (88,648,197) 1,133,262,633 1,816,809,699 (4,830,110) 2,012,939,632 — — 254,989,551 — (521,561) 5,842,715 2,724,857,643 (93,999,868) 3,407,034,531 — 25,160 — 2,724,857,643 (93,974,708) 3,407,034,531 — (10,042,210) 95,560 (83,060) — (83,060) (83,060) (10,042,210) 12,500 2,724,774,583 (104,016,918) 3,407,047,031	Current year Current year 31st December, additions decrease 2003 908,047,944 (88,648,197) 1,133,262,633 1,816,809,699 (4,830,110) 2,012,939,632 — — 254,989,551 — (521,561) 5,842,715 2,724,857,643 (93,999,868) 3,407,034,531 — 25,160 — 2,724,857,643 (93,974,708) 3,407,034,531 — (10,042,210) 95,560 (83,060) — (83,060) (83,060) (10,042,210) 12,500 2,724,774,583 (104,016,918) 3,407,047,031	Current year Current year 31st December, additions decrease 2003 908,047,944 (88,648,197) 1,133,262,633 1,816,809,699 (4,830,110) 2,012,939,632 — — 254,989,551 — (521,561) 5,842,715 2,724,857,643 (93,999,868) 3,407,034,531 — 25,160 — 2,724,857,643 (93,974,708) 3,407,034,531 — (10,042,210) 95,560 (83,060) — (83,060) (83,060) (10,042,210) 12,500 2,724,774,583 (104,016,918) 3,407,047,031
776,176,756 (25,160) 776,151,596 10,137,770 — 10,137,770	2,724,857,643 — 2,724,857,643 — (83,060) (83,060)	(93,999,868) 25,160 (93,974,708) (10,042,210) — (10,042,210)	3,407,034,531 —
			3,407,034,531
			95,560 (83,060
			12,500
786,289,366	2,724,774,583	(104,016,918)

As at 31st December, 2003 and 31st December, 2002, there was no indication of impairment of long-term investments of the Company and its subsidiaries and therefore no provision of impairment of long-term investments was made.

The long-term investments of the Company and its subsidiaries are not subject to restriction on conversion into cash or restriction on remittance of investment income.

— 179 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(i) Equity investment difference that resulted in consolidated difference in value

Consolidated difference in value represents the difference between the considerations paid for the acquisitions of Taicang Power Company, Huaiyin Power Company, Qinbei Power Company and SEG and the proportionate share of the net assets of these four companies. Details are summarized as follows:

			Balance at	Current	Current		Balance at
	Amortization	Original	1st January,	year	year	Accumulated	31st December,
Name	period	cost	2003	additions	amortization	amortization	2003
Taicang Power
Company	10 years	191,587,073	180,549,248	2,203,583	(18,938,349)	(27,772,591)	163,814,482
Huaiyin Power
Company	10 years	151,623,305	133,313,638	15,285,580	(15,162,331)	(18,186,418)	133,436,887
Qinbei Power
Company	10 years	96,461,357	—	96,461,357	(1,607,689)	(1,607,689)	94,853,668
SEG	10 years	794,097,424	—	794,097,424	(52,939,828)	(52,939,828)	741,157,596
	1,233,769,159		313,862,886	908,047,944	(88,648,197)	(100,506,526)	1,133,262,633

(ii) Investment in associates

				Total
				investment
				contributed	Percentage of
	Place and date of	Registered	Principal	by the	equity interest
Name	incorporation	capital	activities	Company		held
Associates:
Rizhao Power	Rizhao, Shandong	US$150 million	Power	Rmb317.5		25.5%
Company	20th March, 1996		generation	million
SEG	Shenzhen,	Rmb955.56	Development,	Rmb2,390		25%
	Guangdong	million	production and	million
	16th July, 1997		sale of energy,
			and energy
			construction
			project

				Investment cost movement	Investment cost movement	Investment cost movement
				1st January,	Current year	31st December,
Name			Investment period	2003	additions	2003
Rizhao	Power	Company	20 years	231,868,800	—	231,868,800
SEG			No specific terms	—	1,595,902,576	1,595,902,576
				231,868,800	1,595,902,576	1,827,771,376

— 180 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

			Accumulated equity	Accumulated equity	pick-up movement	pick-up movement
			1st January,	Current year	Other	31st December,
Name			2003	profit/(loss)	additions	2003
Rizhao	Power	Company	(30,908,757)	(4,830,110)	—	(35,738,867)
SEG			—	216,659,277	4,247,846	220,907,123
			(30,908,757)	211,829,167	4,247,846	185,168,256
				Net carrying	value
			1st January,			31st December,
Name			2003			2003
Rizhao	Power	Company	200,960,043			196,129,933
SEG			—			1,816,809,699
			200,960,043			2,012,939,632

(iii) Other long-term equity investment

Other long-term equity investment represents investment in China Yangtze Power Co., Limited (the “Yangtze Power”), details are as follows:

			Total investment
			contributed by	Percentage of
Name		Investment period	the Company	equity interest held
Yangtze	Power	Starting from	Rmb254,989,551	3%
		22nd August, 2002,
		with no specific terms

— 181 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

(7) Fixed assets

The movement of cost of fixed assets and related accumulated depreciation were as follow:

Buildings 2,273,032,382 (908,905,012) 291,015,974 23,539,769 7,086,187 (5,698,146)	Electric utility plant in service Transportation and transmission facilities 54,658,543,525 741,285,113 155,042,162 (55,226,096) 1,453,073,048 31,639,264 874,482,743 699,413 26,143,672 244,843 (298,639,644) —	Electric utility plant in service Transportation and transmission facilities 54,658,543,525 741,285,113 155,042,162 (55,226,096) 1,453,073,048 31,639,264 874,482,743 699,413 26,143,672 244,843 (298,639,644) —	Others 1,267,378,625 92,257,319 128,711,813 39,303,641 46,038,761 (109,239,309)	Total 58,940,239,645 (716,831,627) 1,904,440,099 938,025,566 79,513,463 (413,577,099)
1,680,071,154 435,772,726 (150,456,717) 67,957,223 69,956,077 (2,054,447) 421,174,862	56,868,645,506 17,509,933,141 (560,338,084) 430,621,762 3,824,607,298 (188,287,489) 21,016,536,628	718,642,537 235,361,812 (15,322,318) 13,456,091 29,276,851 — 262,772,436	1,464,450,850 544,011,047 9,285,492 13,842,777 141,136,214 (77,836,959) 630,438,571	60,731,810,047
				18,725,078,726 (716,831,627) 525,877,853 4,064,976,440 (268,178,895)
				22,330,922,497
1,258,896,292 1,837,259,656	35,852,108,878 37,148,610,384	455,870,101 505,923,301	834,012,279 723,367,578	38,400,887,550
				40,215,160,919

As at 31st December, 2003 and 31st December, 2002, there was no indication of impairment of fixed assets of the Company and its subsidiaries and therefore no impairment provision of fixed assets was made. No fixed assets were pledged as at 31st December, 2003.

As at 31st December, 2003, fixed assets amounted to Rmb413.81million had been fully depreciated but still in use (31st December, 2002: 83.77 million).

Reclassification includes reclassification of Jining Power Plant’s fixed assets. Because Jining Power Plant became a branch of the Company. The net book value of its fixed assets became the cost of the fixed assets.

— 182 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(8) Construction materials

	31st December,	31st December,
	2003	2002
Specified material & equipment	165,740,734	125,182,754
Prepayment for major equipment	939,069,664	49,934,300
Utility & instrument for production	6,844,406	—
	1,111,654,804	175,117,054

(9) Construction-in-progress

Projects Yuhuan Power Plant project Huaiyin Power Plant Phase II project Taicang Power Plant Phase II project Shantou Power Plant Phase II project Jining Power Plant Phase III expansion project Yushe Power Company Phase II project Qinbei Power Company project Other projects	1st January, 2003 2,294,815 29,357,635 29,418,220 2,884,812 141,823,501 — — 304,865,520 510,644,503	Additions from acquisitions — — — — — 386,902,091 1,252,683,768 18,811,030 1,658,396,889	Current year additions 262,552,871 215,847,514 106,385,461 57,235,357 608,176,499 182,670,267 285,567,545 141,508,841 1,859,944,355	Transfer to fixed assets — — — — (750,000,000) (12,827,380) (2,718,570) (172,479,616) (938,025,566)	31st December, 2003 Budget Percent of completion Source of financing 264,847,686 8,529,430,000 5% Funds borrowed from financial institutions and internal funds 245,205,149 2,380,000,000 22% Funds borrowed from financial institutions and internal funds 135,803,681 4,400,000,000 13.50% Funds borrowed from financial institutions and internal funds 60,120,169 2,260,230,000 2.66% Funds borrowed from financial institutions and internal funds — 850,900,000 100% Funds borrowed from financial institutions and internal funds 556,744,978 4,676,310,000 24% Funds borrowed from financial institutions and internal funds 1,535,532,743 2,686,250,000 60% Funds borrowed from financial institutions and internal funds 292,705,775 — Internal fund 3,090,960,181

For the year ended 31st December, 2003, the interest capitalized for construction-in-progress was Rmb21,224,053 and the capitalized rate per annum was 4.83% ( 2002: Rmb28,026,381, at 4.24% per annum).

As at 31st December, 2003 and 31st December, 2002, there was no indication of impairment of construction-in-progress of the Company and its subsidiaries. Accordingly, no provision for impairment loss was made.

— 183 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

(10) Intangible assets

The movement of intangible assets, which comprised land-use rights, goodwill and negative goodwill, was as follow:

Land use rights Negative goodwill Goodwill Others	Original cost 759,966,621 (2,472,783,635) 2,778,712 13,469,428 (1,696,568,874)	1st January, 2003 Addition from acquisitions C 662,762,458 — (1,978,226,907) — 2,674,976 — 6,621,977 446,417 (1,306,167,496) 446,417	urrent year addition 14,853,403 — — 3,790,473 18,643,876	Current year amortization (15,387,447) 247,278,363 (313,067) (1,907,375) 229,670,474	Accumulated amortization (97,738,207) 741,835,091 (416,803) (4,517,936) 639,162,145	31st December, 2003 Remaining amortization period Obtained through 662,228,414 17-65 years Purchase (1,730,948,544) 7 years Acquisition 2,361,909 7.5 years Acquisition 8,951,492 2-18 years Purchase (1,057,406,729)

As at 31st December, 2003 and 31st December, 2002, there was no indication that the intangible assets of the Company and its subsidiaries were impaired and therefore no provision for impairment loss was made. No intangible assets of the Company and its subsidiaries were pledged as at 31st December, 2003.

(11) Short-term loans

		31st December,	31st December,
		2003	2002
Credit	loans	1,600,000,000	550,000,000

All of the short-term loans of the Company and its subsidiaries were dominated in Rmb, with the interest rate of 4.54% to 5.05% per annum as at 31st December, 2003 (31st December, 2002: 4.78% to 5.56% per annum).

As at 31st December, 2003, short-term loans amounted to Rmb1,130 million was borrowed from China Huaneng Finance Company (“Huaneng Finance”), with the interest rate of 4.78% to 5.05% per annum. (31st December, 2002: Rmb200 million, with interest rate of 5.56% per annum); Short-term loans amounted to Rmb130 million was borrowed from Henan Construction Investment Company (“Henan Investment”), with the interest rate of 4.78% (31st December, 2002: nil).

(12) Accounts payable

Accounts payable was mainly the amounts due to coal suppliers. As at 31st December, 2003 and 31st December, 2002, there was no accounts payable that were due to the shareholders who were holding 5% or more of the equity interest in the Company, and there was no accounts payable aged over three years.

See Note 8 for related party transactions.

— 184 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(13) Taxes payable

Taxes payable comprised:

		31st December,	31st December,
		2003	2002
	Income tax payable	472,850,018	311,436,416
	VAT payable	415,147,473	291,456,338
	Others	29,365,201	17,296,146
		917,362,692	620,188,900
(14)	Other payables
	Other payables comprised:
		31st December,	31st December,
		2003	2002
	Payable to contractors	572,459,421	1,333,447,550
	Other payable to contractors	207,257,299	140,328,419
	Payable to HIPDC	87,507,580	100,475,344
	Technical service fee payable	—	28,124,210
	Project saving bonus	26,541,527	62,110,406
	Payable of housing maintenance fund	66,807,932	47,488,793
	Others	710,367,858	568,439,463
		1,670,941,617	2,280,414,185

As at 31st December, 2003, there was no other payable that were due to the shareholders who were holding 5% or more of the equity interest in the Company, except for the payable to HIPDC amounted to Rmb87,507,580 as mentioned in Note 8(7) (31st December, 2002: Rmb100,475,344), and there was no other payable aged over three years.

See Note 8 for related party transactions.

— 185 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(15) Long-term loans

Long-term loans comprised (all were credit loans unless otherwise stated):

Long-term loans from shareholders (i) Long-term bank loans (ii) Other long-term loans (iii) Less: current portion of long-term loans	31st December, 2003 388,875,071 10,714,560,499 1,091,669,808	31st December, 2002 777,782,754 10,393,252,361 427,402,311
	12,195,105,378 (3,041,501,169)	11,598,437,426 (2,413,636,557
	9,153,604,209	9,184,800,869

(i) Long-term loans from shareholders

Long-term loans from shareholders were all foreign bank loans on-lent by HIPDC, which would mature within on year.

		31st December, 2003	31st December, 2003
		Original	Exchange	Rmb
	Currency	currency	rate	equivalent
Current portion of long-term loans:
Foreign currency bank loans
on-lent by HIPDC	US$	46,984,314	8.2767	388,875,071

As at 31st December, 2003, detailed information of the long-term loans from shareholders was as follow:

			Annual interest
Lender	31st December, 2003	Loan period	rate
Bank loans on-lent by HIPDC
Bank of China	388,875,071	1997-2004	LIBOR+0.9%

The foreign currency bank loans bore interest at the prevailing lending rates (both fixed and floating), prescribed by the loan contracts, which ranged from 3.62% to 4.01% per annum for the year ended 31st December, 2003 (2002: 4.01% to 7.40%). These loans are repayable in accordance with the repayment schedules set by the banks.

The foreign-currency bank loans were previously borrowed by HIPDC for financing the construction of power plants. Upon the restructuring of the Company in 1994 or on the acquisition of the relevant power plants from HIPDC, all these outstanding long-term bank loans were restructured. HIPDC continued to borrow the loans from the banks and then on-lent to the Company as shareholders loans. The existing terms of the loans including interest rates and repayment schedules remained intact after the restructuring.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

(ii) Long-term bank loans

Long-term bank loans (including current portion) comprised:

31st December, 2003 Renminbi bank loans 4,064,499,370 United States dollar bank loans 6,650,061,129 10,714,560,499 Less: current portion of long-term bank loans (2,409,240,130) 8,305,320,369

As at 31st December, 2003, detailed information of the long-term bank loans was as follows:

	31st December,	Loan	Interest rate	Current
Lenders	2003	period	per annum	portion	Terms
Renminbi bank loans	480,000,000	1998-2004	5.76%	480,000,000	Guaranteed by
China Construction Bank-					the Company and
Weihai branch					Weihai Power
					Development
					Bureau
					(“WPDB”)
China Construction Bank-	30,000,000	1999-2005	5.76%	—	Guaranteed by
Weihai branch*					the Company
China Construction Bank-	100,000,000	1999-2007	5.76%	—	Guaranteed by
Weihai branch*					the WPDB
Bank of China**	276,000,000	1999-2009	5.76%	—	Guaranteed by
					the Company
Bank of China-Taicang	664,000,000	1999-2014	5.76%	—	Guaranteed by
branch*					the Company
Bank of China-Suzhou	98,000,000	1999-2009	5.76%	—	Guaranteed by
branch**					the Company
China Construction Bank-	10,000,000	1994-2004	5.76%	10,000,000	Guaranteed by
Huaian Yangzhuang sub					the Company
branch
China Construction Bank-	10,000,000	1994-2004	5.76%	10,000,000	Guaranteed by
Huaian Yangzhuang sub					Jiangsu Huaian
branch					Investment
					Company
China Commercial Bank-	100,000,000	2003-2006	4.94%	—	Nil
Nanjing branch*
China Development Bank	300,000,000	2003-2008	5.02%	—	Nil
Jiangsu branch*
China Construction Bank-	905,000,000	2003-2019	5.18%	—	Guaranteed by
Jiyuan sub branch*					the Company
China Construction Bank-	50,000,000	2000-2009	6.21%	—	Guaranteed by
Linzi sub branch*					the Company

— 187 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Lenders 31st December, 2003 Loan period Interest rate per annum China Construction Bank- Linzi sub branch 250,000,000 2001-2009 6.21% China Construction Bank- Linzi sub branch 80,000,000 2002-2005 5.94% China Construction Bank- Linzi sub branch 120,000,000 2001-2004 5.94% China Construction Bank- Yushe sub branch 5,500,000 1994-2006 5.76% China Construction Bank- Yushe sub branch 119,700,000 1991-2005 5.76% China Construction Bank- Yushe sub branch 13,430,000 1995-2004 5.76% Bank of China-Jinzhong branch 340,000,000 2003-2019 5.18% China Construction Bank- Yushe sub branch 30,000,000 2002-2005 4.94% China Construction Bank- Yushe sub branch 13,000,000 2001-2004 5.49% China Construction Bank- Yushe sub branch 49,869,370 Not fixed 4.78% China Construction Bank- Yushe sub branch 10,000,000 1994-2004 5.76% China Construction Bank- Yushe sub branch 10,000,000 1995-2004 5.76% Sub-total of Renminbi bank loans 4,064,499,370 United States dollar bank loans Bank of China 719,029,656 2002-2004 LIBOR+0.6% Bank of China 103,458,750 2002-2004 LIBOR+0.6% Bank of Communication 7,536,645 2000-2005 LIBOR+1.1% Bank of China-Taicang branch 76,183,384 1999-2006 Interest rate of foreign currency loan prescribed by Bank of China-0.5% 906,208,435	Lenders 31st December, 2003 Loan period Interest rate per annum China Construction Bank- Linzi sub branch 250,000,000 2001-2009 6.21% China Construction Bank- Linzi sub branch 80,000,000 2002-2005 5.94% China Construction Bank- Linzi sub branch 120,000,000 2001-2004 5.94% China Construction Bank- Yushe sub branch 5,500,000 1994-2006 5.76% China Construction Bank- Yushe sub branch 119,700,000 1991-2005 5.76% China Construction Bank- Yushe sub branch 13,430,000 1995-2004 5.76% Bank of China-Jinzhong branch 340,000,000 2003-2019 5.18% China Construction Bank- Yushe sub branch 30,000,000 2002-2005 4.94% China Construction Bank- Yushe sub branch 13,000,000 2001-2004 5.49% China Construction Bank- Yushe sub branch 49,869,370 Not fixed 4.78% China Construction Bank- Yushe sub branch 10,000,000 1994-2004 5.76% China Construction Bank- Yushe sub branch 10,000,000 1995-2004 5.76% Sub-total of Renminbi bank loans 4,064,499,370 United States dollar bank loans Bank of China 719,029,656 2002-2004 LIBOR+0.6% Bank of China 103,458,750 2002-2004 LIBOR+0.6% Bank of Communication 7,536,645 2000-2005 LIBOR+1.1% Bank of China-Taicang branch 76,183,384 1999-2006 Interest rate of foreign currency loan prescribed by Bank of China-0.5% 906,208,435	Current portion Terms — Guaranteed by the Company — Guaranteed by the Company 120,000,000 Guaranteed by the Company — Nil 32,000,000 Nil 13,430,000 Guaranteed by the Company — Nil — Guaranteed by the Company 13,000,000 Guaranteed by the Company 49,869,370 Nil 10,000,000 Guaranteed by the Company 10,000,000 Nil 748,299,370 719,029,656 Nil 103,458,750 Nil 3,808,800 Nil 24,867,000 Guaranteed by the Company 851,164,206
	4,064,499,370 719,029,656 2002-2004 LIBOR+0.6% 103,458,750 2002-2004 LIBOR+0.6% 7,536,645 2000-2005 LIBOR+1.1% 76,183,384 1999-2006 Interest rate of foreign currency loan prescribed by Bank of China-0.5% 906,208,435	748,299,370
		719,029,656 103,458,750 3,808,800 24,867,000
		851,164,206

— 188 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Lenders On-lent loans by Bank of China American I&E Bank American I&E Bank American I&E Bank American I&E Bank KFW Bank Japan Fuji Bank On-lent loans by China Construction Bank KFW Bank Citibank*** Sub-total of US$ bank loans Total	31st December, 2003 Loan period Interest rate per annum 1,203,707,516 1997-2011 6.54% 1,026,672,698 1995-2011 5.95% 1,186,168,372 1997-2011 5.95% 295,904,293 1997-2012 6.60% 765,822,240 1996-2012 6.60% 169,672,354 1996-2004 LIBOR+0.38% 493,658,339 1999-2015 6.36% 602,246,882 1999-2015 LIBOR+0.075%	Current portion Terms 145,231,780 Guaranteed by HIPDC 128,334,081 Guaranteed by HIPDC 148,271,131 Guaranteed by HIPDC 32,878,255 Guaranteed by HIPDC 90,098,087 Guaranteed by HIPDC 169,672,354 Guaranteed by HIPDC 42,871,766 Guaranteed by Huaneng Group 52,419,100 Guaranteed by Huaneng Group 809,776,554 1,660,940,760 2,409,240,130
	5,743,852,694 6,650,061,129	809,776,554
		1,660,940,760
	10,714,560,499

As at 31st December, 2003, these loans were not repayable within one year and therefore there was no current portion.
** In accordance with repayment schedules, there was no repayable in 2004, and therefore there was no current portion.
*** The interest rate of the loan from Citibank was LIBOR prior to the last drawdown date and LIBOR plus 0.075% thereafter. The last drawdown date was 20th July, 2003 or the date of loan cancellation, whichever earlier.
(iii) Other long-term loans

Other long-term loans Less: current portion of other long-term loans

31st December, 2003 1,091,669,808 (243,385,968) 848,283,840

— 189 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

As at 31st December, 2003, other long-term loans comprised of:

Lender 31st December, 2003 Loan period Annual interest rate Renminbi loans WPDB 106,388,822 1994-2004 5.76% Huaneng Finance 225,000,000 2002-2005 5.64% Huaneng Finance 350,000,000 2003-2006 4.94% Jiangsu International Trust and Investment Company 31,505,374 1997-2003 5.76% Jiangsu Huaian Investment Company 8,980,253 1997-2003 5.76% Jiangsu Electric Power Development Company Limited (“Jiangsu Electric Power”)* 19,467,860 1999-2003 5.76% Huaneng Finance 35,000,000 2001-2004 5.22% Subtotal of RMB loans 776,342,309 US$ loan: On-lent foreign loans of Ministry of Finance 177,357,857 1996-2011 LIBOR+0.43% Japanese yen loan: On-lent foreign loans of Ministry of Finance 137,969,642 1996-2011 LIBOR+0.3% Subtotal of foreign loans 315,327,499 Total 1,091,669,808	Lender 31st December, 2003 Loan period Annual interest rate Renminbi loans WPDB 106,388,822 1994-2004 5.76% Huaneng Finance 225,000,000 2002-2005 5.64% Huaneng Finance 350,000,000 2003-2006 4.94% Jiangsu International Trust and Investment Company 31,505,374 1997-2003 5.76% Jiangsu Huaian Investment Company 8,980,253 1997-2003 5.76% Jiangsu Electric Power Development Company Limited (“Jiangsu Electric Power”)* 19,467,860 1999-2003 5.76% Huaneng Finance 35,000,000 2001-2004 5.22% Subtotal of RMB loans 776,342,309 US$ loan: On-lent foreign loans of Ministry of Finance 177,357,857 1996-2011 LIBOR+0.43% Japanese yen loan: On-lent foreign loans of Ministry of Finance 137,969,642 1996-2011 LIBOR+0.3% Subtotal of foreign loans 315,327,499 Total 1,091,669,808	Current portion Terms 106,388,822 Nil — Nil — Nil 31,505,374 Nil 8,980,253 Nil 19,467,860 Nil 35,000,000 Guaranteed by the Company 201,342,309 23,647,707 US$15 million of the loan were guaranteed by Hua Zhong Power Group Finance Company (“Hua Zhong Power”) 18,395,952 RMB34,492,441 of the loan were guaranteed by Henan Investment 42,043,659 243,385,968
	776,342,309 177,357,857 1996-2011 LIBOR+0.43% 137,969,642 1996-2011 LIBOR+0.3% 315,327,499	201,342,309
		23,647,707 18,395,952
		42,043,659
	1,091,669,808

Pursuant to the related loan contracts, these loans were matured in 2003. However, Huaiyin Power Company had reached an agreement with the lenders that the loans will be repaid in 2004.

— 190 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(16) Convertible notes

Details of convertible notes comprised:

						31st
		1st January,	Current year	Interest	Interest	December,
		2003	conversion	accrual	payment	2003
Convertible	notes	166,497,890	(165,548,000)	10,260	(8,329)	951,821

In May 1997, the Company issued at par value convertible notes with an aggregate principal amount of US$230 million (Rmb1.904 billion) at 1.75% per annum due in 2004. These notes are listed on the New York Stock Exchange and the Luxemburg Stock Exchange.

On 21st May, 2002, notes amounted to US$209,685,000 were redeemed by the noteholders. The accrued put premium and interests in connection of the unredeemed portion were charged to the profit and loss account in 2002.

The noteholders converted the convertible notes with principal amount of US$200,000 to 6,849 ADSs (equivalent to 273,960 Overseas Listed Foreign Shares) in 2002. During the year ended 31st December, 2003, the notedholders converted the convertible notes with principal amount of US$20 million to 684,931 ADSs (equivalent to 27,397,240 Overseas Listed Foreign Shares).

As at 31st December, 2003, the Company has convertible notes with principal amount of US$115,000 which have not been redeemed or converted into ADSs.

(17) Share capital

	1st January,	Current year	31st December,
	2003	addition	2003
Unlisted shares
Promoters shares	4,250,000,000	—	4,250,000,000
Including: Domestic legal person shares	4,250,000,000	—	4,250,000,000
Sub-total of unlisted shares	4,250,000,000	—	4,250,000,000
Listed shares
Domestic shares listed in the PRC	250,000,000	—	250,000,000
Overseas listed shares	1,500,273,960	27,397,240	1,527,671,200
Sub-total of listed shares	1,750,273,960	27,397,240	1,777,671,200
Total shares	6,000,273,960	27,397,240	6,027,671,200

As mentioned in Note 6(16), the increase of share capital is due to exercise of conversion rights by noteholders with principal amount of US$20,000,000 into 684,931 ADSs (equivalent to 27,397,240 overseas listed foreign shares) during the year ended 31st December, 2003.

— 191 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(18) Capital surplus

Movement of capital surplus was as follow:

Share premium* Equity investment provision	1st January, 2003 Current year addition 10,260,830,755 138,150,760 — 4,247,846 10,260,830,755 142,398,606	31st December, 2003 10,398,981,515 4,247,846
		10,403,229,361

The increase of capital surplus is mainly due to the exercise of conversion rights by noteholders with principal amount of US$20,000,000 into 684,931 ADSs at a premium during the year ended 31st December, 2003 (Note 6(16)).

(19) Surplus reserves

Statutory capital surplus fund 1st January, 2003 2,350,750,442 Addition in current year 545,714,255 Deduction in current year — 31st December, 2003 2,896,464,697	Statutory public welfare fund Discretionary reserve surplus fund 1,053,519,606 15,398,194 409,285,691 2,104,498 (2,104,498) — 1,460,700,799 17,502,692	Total 3,419,668,242 957,104,444 (2,104,498)
		4,374,668,188

According to the Company Law of the PRC and the Company’s articles of association, the Company appropriates 10% of each year’s net profit to the statutory surplus reserve fund until the fund balance reaches 50% of the registered share capital. After obtaining the approval from the relevant authorities, this reserve can be used to make up any losses incurred or to increase share capital. Except for setting off against losses incurred, any other usage may not result in this reserve balance falling below 25% of the registered share capital. Pursuant to the decision of the Board of Directors, the Company appropriated 10% of the profit after taxation to the statutory capital surplus fund amounted to Rmb545,714,255 in 2003 (2002:Rmb408,235,059).

Each year, the Company appropriates 5% to 10% of net profits to the statutory public welfare fund. The use of this reserve is restricted to the provision of employees’ collective welfare benefits. The statutory public welfare fund is not available for distribution to shareholders. When utilizing the statutory public welfare fund, the amount is transferred from this account to the discretionary surplus reserve funds account. Any amounts utilized are capitalized in the Company’s balance sheet or expensed in the Company’s profit and loss. For the year ended 31st December, 2002, 7.5% of net profit was provided for as statutory public welfare fund amounted to Rmb409,285,691 (2002: 7.5%, amounted to Rmb306,176,294).

The Board of Directors, after obtaining approval from the shareholders, has the discretion to provide for discretionary surplus reserve fund. This reserve can be used to make up any losses incurred or to increase the share capital after approval is obtained from the Board of Directors. For the year ended 31st December, 2003, no discretionary surplus reserve fund is provided (2002: nil).

— 192 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

(20) Unappropriated profit

Unappropriated profit brought forward Add: Retroactive adjustments-cash dividends approved by the general meeting of the shareholders subsequent to the balance sheet date (Note 2) Adjusted unappropriated profit brought forward Add: Net profit of the year Less: Appropriation of statutory surplus reserve fund Appropriation of statutory public welfare fund Dividends payable to ordinary shareholders-cash dividend of prior year approved by the general meeting of the shareholders Unappropriated profit carried forward	For the year ended 31st December, 2003 9,488,703,911 2,040,093,146	For the year ended 31st December, 2002 8,160,857,821 1,800,000,000 9,960,857,821 4,082,350,589 (408,235,059) (306,176,294) (1,800,000,000) 11,528,797,057
	11,528,797,057 5,457,142,551 (545,714,255) (409,285,691) (2,049,408,208)	9,960,857,821 4,082,350,589 (408,235,059 (306,176,294 (1,800,000,000
	13,981,531,454

As at 12th March, 2003, the Board of Directors proposed a dividend of Rmb0.34 per ordinary share for the year ended 31st December, 2002. As the outstanding ordinary shares of the company was 6,000,273,960 as at 12th March, 2003, the Company recorded dividends payable amounted to Rmb2,040,093,146 in the financial statements of 2002. On 24th April, 2003, the noteholders converted the convertible notes with principal amount of US$20,000,000 to 684,931 ADSs (equivalent to 27,397,240. Overseas Listed Foreign Shares), resulted in the increase of ordinary shares from 6,000,273,960 to 6,027,671,200. As at 28th May, 2003, the shareholders approved the declaration of above dividends in the annual general meeting. As there were 6,027,671,200 shares outstanding on that date, the total dividends payable amounted to Rmb2,049,408,208.

As mentioned in Note 2, effective 1 July 2003, the Company has adopted the revised “Accounting Standards for Business Enterprise - Events Occurring After the Balance Sheet Date”. If a profit distribution plan is proposed by the Board of Directors after the balance sheet date but before the date the financial statements are authorized for issuance, cash dividends are recognized as a liability in the period in which a profit distribution plan is approved by the general meeting of the shareholders. The retroactive adjustments of the accounting changes were required upon the adoption of this standard and resulted in an increase of unappropriated profit amounted to Rmb2,040,093,146 as at 31st December, 2002 and Rmb1,800,000,000 as at 31st December, 2001.

Pursuant to the resolution of the Board of Directors on 16th March, 2004, on the basis of 6,027,671,200 ordinary shares outstanding as at 31st December, 2003, the directors proposed a cash dividend of Rmb5.0 (inclusive tax) and 5 bonus shares for every 10 existing ordinary shares. In addition, on the basis of 6,027,671,200 ordinary shares outstanding as at 31st December, 2003, the Board of Directors proposed to convert part of the capital surplus and statutory surplus reserve fund into the share capital by issuing new shares to its shareholders on the basis of 5 new shares for every 10 existing ordinary shares (3 of which from capital surplus and 2 of which from statutory surplus reserve fund). This proposal is subjected to the approval of the shareholders at the annual general meeting. Proposed dividends plan had not been reflected in the financial statements. Once the distribution plan is approved by the general meeting of the shareholders, the dividend distribution will be accounted for in the financial statements for the year ended 31st December, 2004.

— 193 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

The maximum amount available for distribution to the shareholders is the lowest of the amount (i.e. net profit in current year plus undistributed profit brought forward from the beginning of the year, deducting the appropriations to the statutory surplus reserve fund and the statutory public welfare fund) determined under the PRC accounting standards, the amount determined under the International Financial Reporting Standards (“IFRS”) and generally accepted accounting principles in the United States of America (“US GAAP”).

(21) Revenues from principal operations and costs of principal operations

				For the year ended	For the year ended
				31st December, 2003	31st December, 2002
				Revenues	Revenues
				from Costs of	from Costs of
				principal principal	principal principal
				operations operations	operations operations
Sales	of	electric	power	23,479,646,958 15,690,199,491	18,725,340,857 12,528,622,594

The Company and its subsidiaries have contractual arrangements for the sale of electric power with the provincial or regional grid companies.

For the year ended 31st December, 2003 and 2002, the revenue from the five largest customers of the Company and its subsidiaries amounted to Rmb18,115,304,793 and Rmb14,948,671,962, representing 77.15% and 79.83% of the total revenue, respectively.

(22) Financial expenses

	For the	For the
	year ended	year ended
	31st December,	31st December,
	2003	2002
Interest expenses	584,499,789	614,329,847
Less: Interest income	(53,044,361)	(83,014,926)
Exchange losses	630,164	2,893,186
Less: Exchange gain	(154,820)	(66,116)
Others	27,705,695	28,577,824
	559,636,467	562,719,815

— 194 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

(23) Investment income (losses)

	For the	For the
	year ended	year ended
	31st December,	31st December,
	2003	2002
Investment income on bonds	906,302	1,327,073
Investment income on other debt investments	9,213,072	421,285
Share of profit(loss) of associates for the year	211,829,167	(10,137,288)
Investment income on other equity investment	585,342	—
Amortization of equity investment differences	(88,648,197)	(37,750,053)
	133,885,686	(46,138,983)

There was no material restriction on the Company and its subsidiaries to obtain the remittance of investment income.

(24) Non-operating expenses

For the year ended 31st December, 31st 2003 Loss on disposal of fixed assets 139,033,651 Housing benefits to the employees — Donations 4,859,649 Others 9,899,511 153,792,811	For the year ended December, 2002 31,000,935 17,856,026 4,469,616 24,687,946
	78,014,523

(25) Cash paid for acquisition of subsidiaries and condensed income statements of acquired subsidiaries from acquisition date to the year ended 31st December, 2003

As mentioned in Note 1, on 27th October, 2003 the Company entered into an agreement with Huaneng Group, pursuant to which the Company acquired from Huaneng Group 55% equity interest in Qinbei Power

— 195 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Company, 60% equity interest in Yushe Power Company and all the assets and liabilities of Xindian Power Plant. At the acquisition date, the assets, liabilities and acquisition costs comprised:

Current assets Fixed assets Intangible assets Other long-term assets Current liabilities Long-term loans Net assets Acquired equity interest portion Net assets acquired Add: Equity investment difference Total of consideration for acquisition Less: Cash inflow relating to acquisition of 3 power plant Cash outflow relating to acquisition of 3 power plant in 2003	486,477,407 3,196,602,135 446,417 13,262,433 (1,411,789,489) (1,706,103,649) 578,895,254 55%-100% 453,538,643 96,461,357 550,000,000 (215,584,684) 334,415,316

The condensed income statements of above three power plants from acquisition date to the end of year 2003 were as follows:

Revenues from principal operations Costs of principal operations Profit from principal operations Profit before taxation Income tax Net profit (26) Other cash paid relating to operating activities Cash paid for repair and maintenance expenses Service fee paid to HIPDC Payment of balance due to HIPDC Others	205,460,863 (136,645,022) 68,815,841 47,828,366 (10,041,131) 37,787,235 813,176,376 126,956,210 12,967,764 1,290,437,703 2,243,538,053

— 196 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS

(1) Accounts receivable and other receivables
(i) Accounts receivable

		31st December,	31st December,
		2003	2002
Accounts	receivable	2,005,023,640	1,545,294,232

Aging of the accounts receivable was as follow:

	31st December, 2003	31st December, 2003	31st December, 2002	31st December, 2002
Aging	Amount	Percentage	Amount	Percentage
		(%)		(%)
Within 1 year	2,001,327,640	100	1,540,674,232	100
1-2 years	—	—	4,620,000	—
2-3 years	3,696,000	—	—	—
	2,005,023,640	100	1,545,294,232	100

As at 31st December, 2003, the five largest accounts receivable of the Company amounted to Rmb1,636,534,781 (31st December, 2002: Rmb1,264,206,514), representing 81.62% of total accounts receivable (31st December, 2002: 81.81%).

(ii) Other receivables

		31st December,	31st December,
		2003	2002
Other	receivables	116,142,277	102,299,280
Less:	bad debt provision	(28,652,566)	(21,104,202)
		87,489,711	81,195,078

— 197 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Aging and bad debt provision for other receivables were as follow:

	31st	December,	2003	31st	December,	2002
			Bad debt			Bad debt
Aging	Amount	Percentage	provision	Amount	Percentage	provision
		(%)			(%)
Within 1 year	65,168,643	56	(1,955,059)	43,906,321	43	(1,317,190)
1-2 years	7,931,460	7	(237,944)	27,725,976	27	(831,779)
2-3 years	9,896,662	8	(296,900)	9,122,225	9	(273,667)
Over 3 years	33,145,512	29	(26,162,663)	21,544,758	21	(18,681,566)
	116,142,277	100	(28,652,566)	102,299,280	100	(21,104,202)

Breakdown of other receivables was as follows:

	31st December,	31st December,
	2003	2002
Prepayments for materials	3,313,689	24,534,432
Receivables from employees for sales of staff quarters	10,272,586	9,744,849
Petty cash	8,566,762	2,431,802
Transmission fee refund receivable from
Shandong Electric Power Corporation	19,067,120	—
Others	74,922,120	65,588,197
	116,142,277	102,299,280

As at 31st December, 2003, the five largest other receivables of the Company amounted to Rmb57,070,487 (31st December, 2002: Rmb45,783,552), representing 49.14% of total other receivables (31st December, 2002: 44.75%).

As at 31st December, 2003 and 31st December, 2002, there were no accounts receivable and other receivables from shareholders who hold 5% or more of the equity interest in the Company.

See Note 8 for related party transactions.

— 198 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

(2) Long-term equity investments Long-term equity investments Subsidiaries (i) Associates (ii) Equity investment difference Other long-term equity investment Others Less: current portion of other long-term equity investments	1st January, 2003 1,548,297,672 200,960,043 313,862,886 254,989,551 6,364,278	Current year additions Current year deductions 31st December, 2003 735,058,468 (217,915,233) 2,065,440,907 1,816,809,699 (4,830,110) 2,012,939,632 908,047,944 (88,648,197) 1,133,262,633 — — 254,989,551 — (521,561) 5,842,717	Current year additions Current year deductions 31st December, 2003 735,058,468 (217,915,233) 2,065,440,907 1,816,809,699 (4,830,110) 2,012,939,632 908,047,944 (88,648,197) 1,133,262,633 — — 254,989,551 — (521,561) 5,842,717	Current year additions Current year deductions 31st December, 2003 735,058,468 (217,915,233) 2,065,440,907 1,816,809,699 (4,830,110) 2,012,939,632 908,047,944 (88,648,197) 1,133,262,633 — — 254,989,551 — (521,561) 5,842,717
	2,324,474,430 (25,160)	3,459,916,111 —	(311,915,101) 25,160	5,472,475,440 —
	2,324,449,270	3,459,916,111	(311,889,941)	5,472,475,440

Please refer to Note 6(6) for details.

(i) Long-term equity investments in subsidiaries

Name Investment period Weihai Power Company No specific terms Taicang Power Company No specific terms Huaiyin Power Company No specific terms Yushe Power Company No specific terms Qinbei Power Company 50 years	Investment cost movement 1st January, 2003 Current year additions 31st December, 2003 474,038,793 — 474,038,793 469,706,560 37,500,000 507,206,560 341,176,226 76,368,000 417,544,226 — 134,085,896 134,085,896 — 84,055,599 84,055,599 1,284,921,579 332,009,495 1,616,931,074	Investment cost movement 1st January, 2003 Current year additions 31st December, 2003 474,038,793 — 474,038,793 469,706,560 37,500,000 507,206,560 341,176,226 76,368,000 417,544,226 — 134,085,896 134,085,896 — 84,055,599 84,055,599 1,284,921,579 332,009,495 1,616,931,074
		1,616,931,074

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FINANCIAL INFORMATION ON THE HUANENG GROUP

Name Weihai Power Company Taicang Power Company Huaiyin Power Company Yushe Power Company Qinbei Power Company Name Weihai Power Company Taicang Power Company Huaiyin Power Company Yushe Power Company Qinbei Power Company	Accumulated equity pick-up movement 1st January, 2003 Current year profit/(loss) Income appropriation 31st December, 2003 167,986,263 146,768,214 (134,354,145) 180,400,332 79,999,084 181,999,742 (33,053,751) 228,945,075 15,390,746 70,485,291 (49,925,580) 35,950,457 — 3,795,726 — 3,795,726 — (581,757) — (581,757) 263,376,093 402,467,216 (217,333,476) 448,509,833 Net carrying amount 1st January, 2003 31st December, 2003 642,025,056 654,439,125 549,705,644 736,151,635 356,566,972 453,494,683 — 137,881,622 — 83,473,842 1,548,297,672 2,065,440,907	Accumulated equity pick-up movement 1st January, 2003 Current year profit/(loss) Income appropriation 31st December, 2003 167,986,263 146,768,214 (134,354,145) 180,400,332 79,999,084 181,999,742 (33,053,751) 228,945,075 15,390,746 70,485,291 (49,925,580) 35,950,457 — 3,795,726 — 3,795,726 — (581,757) — (581,757) 263,376,093 402,467,216 (217,333,476) 448,509,833 Net carrying amount 1st January, 2003 31st December, 2003 642,025,056 654,439,125 549,705,644 736,151,635 356,566,972 453,494,683 — 137,881,622 — 83,473,842 1,548,297,672 2,065,440,907

		2,065,440,907

There was no significant difference in accounting policies used by the subsidiaries and the Company. There was no significant restriction on the realizability of the investments or the remittance of investment income.

(ii) Long-term equity investments in associates

					Investment cost	movement
			Investment	1st January,	Current year	31st December,
Name			period	2003	additions	2003
Rizhao	Power	Company	20 years	231,868,800	—	231,868,800
SEG			No specific terms	—	1,595,902,576	1,595,902,576
				231,868,800	1,595,902,576	1,827,771,376

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FINANCIAL INFORMATION ON THE HUANENG GROUP

				Accumulated equity pick-up movement	Accumulated equity pick-up movement	Accumulated equity pick-up movement
			1st January,	Current year	Other	31st December,
Name			2003	profit/(loss)	additions	2003
Rizhao	Power	Company	(30,908,757)	(4,830,110)	—	(35,738,867)
SEG			—	216,659,277	4,247,846	220,907,123
			(30,908,757)	211,829,167	4,247,846	185,168,256
				Net carrying amount
			1st January,			31st December,
Name				2003		2003
Rizhao	Power	Company	200,960,043			196,129,933
SEG				—		1,816,809,699
			200,960,043			2,012,939,632

There was no significant difference in accounting policies used by the associates and the Company. There was no significant restriction on the realizability of the investments or the remittance of investment income.

(3) Long-term debt investments

Long-term entrusted loans to a subsidiary * Others Less: Current portion of long-term debt investments	1st January, 2003 Current year additions Current year deductions 31st December, 2003 696,962,956 — (226,300,000) 470,662,956 10,137,770 — (10,042,210) 95,560 707,100,726 — (236,342,210) 470,758,516 (256,300,000) (470,746,016) 256,300,000 (470,746,016) 450,800,726 (470,746,016) 19,957,790 12,500	1st January, 2003 Current year additions Current year deductions 31st December, 2003 696,962,956 — (226,300,000) 470,662,956 10,137,770 — (10,042,210) 95,560 707,100,726 — (236,342,210) 470,758,516 (256,300,000) (470,746,016) 256,300,000 (470,746,016) 450,800,726 (470,746,016) 19,957,790 12,500	1st January, 2003 Current year additions Current year deductions 31st December, 2003 696,962,956 — (226,300,000) 470,662,956 10,137,770 — (10,042,210) 95,560 707,100,726 — (236,342,210) 470,758,516 (256,300,000) (470,746,016) 256,300,000 (470,746,016) 450,800,726 (470,746,016) 19,957,790 12,500	1st January, 2003 Current year additions Current year deductions 31st December, 2003 696,962,956 — (226,300,000) 470,662,956 10,137,770 — (10,042,210) 95,560 707,100,726 — (236,342,210) 470,758,516 (256,300,000) (470,746,016) 256,300,000 (470,746,016) 450,800,726 (470,746,016) 19,957,790 12,500
	707,100,726 (256,300,000)	— (470,746,016)	(236,342,210) 256,300,000	470,758,516 (470,746,016
	450,800,726	(470,746,016)	19,957,790

Long-term entrusted loans to a subsidiary

In order to finance the construction of Weihai Power Company Phase II, the Company had granted entrusted loans to Weihai Power Company through a financial institution on September 1995. These loans were unsecured, not guaranteed and bore interests at 6.21% per annum. As at 31st December, 2003, most of the entrusted loans is mature within one year.

For the year ended 31st December, 2003, the Company received interest income of approximately Rmb33.60 million (2002: Rmb41.10 million) from Weihai Power Company. As at 31st December, 2003, the outstanding entrusted loans, the related interest income and interest expense were eliminated in the consolidated financial statements.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(4) Revenues from principal operations

				For the	year ended	For the	year ended
				31st December, 2003		31st December, 2002
				Revenues		Revenues
				from	Costs of	from	Costs of
				principal	principal	principal	principal
				operations	operations	operations	operations
Sales	of	electric	power	20,287,987,380	13,698,115,361	15,720,550,997	10,480,868,719

The Company has contractual arrangements for the sales of electric power with the provincial or regional grid companies.

For the year ended 31st December, 2003 and 2002, the revenue from the five largest customers of the Company amounted to Rmb16,098,304,242 and Rmb11,939,005,458, representing 79.35% and 75.95% of the total revenue, respectively.

(5) Investment income

	For the	For the
	year ended	year ended
	31st December,	31st December,
	2003	2002
Investment income on bonds	906,302	482,857
Investment income on entrusted loans	40,769,124	41,097,920
Investment income on other debt investments	61,067	421,286
Share of profit of subsidiaries and associates	614,296,383	284,421,378
Other equity investment income	585,342	—
Amortization of equity investment differences	(88,648,197)	(37,750,053)
	567,970,021	288,673,388

There was no material restriction on the Company when remitting the investment income.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

8. RELATED PARTY TRANSACTIONS

(1) Related parties that control/are controlled by the Company:

				Relationship
	Type of	Legal	Registered	with the
Name	enterprise	representative	address	Company	Principal activities
Huaneng Group	State-owned	Li Xiaopeng	23 Xueyuan	Ultimate parent	Investment in power
	enterprise		South Road,	company	stations, coal,
			Haidian District, Beijing		minerals, railways,
					transportation,
					petrochemical,
					energy-saving
					facilities, steel,
					timber, cement and
					related industries
					and others
HIPDC	Sino-foreign	Li Xiaopeng	23 Xueyuan	Parent company	Investment in power
	equity limited		South Road,		plants, development
	liability company		Haidian District, Beijing		and investment in
					other export-
					oriented enterprises
Weihai Power	Limited liability	Wu Dawei	No. 58 Haifu road,	Subsidiary	Power generation
Company	company		Economic Development
			Zone, Weihai, Shandong
			province
Taicang Power	Limited liability	Hu Jianmin	Jinjihupan,	Subsidiary	Power generation
Company	company		Sanxing Road, Suzhou,
			Jiangsu province
Huaiyin Power	Limited liability	Liu Guoyue	No. 291 Huaihai	Subsidiary	Power generation
Company	company		West Road, Huaian,
			Jiangsu province
Qinbei Power	Limited liability	Xiao An	Wulong county,	Subsidiary	Power generation
Company	company		Jiyuan city,
			Henan Province
Yushe Power	Limited liability	Na Xizhi	Dengyu village,	Subsidiary	Power generation
Company	company		Yushe county,
			Shanxi Province

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(2) Registered capital and changes in registered capital of related parties that control/are controlled by the Company:

		1st January,	Current year	31st December,
Name	Currency	2003	additions	2003
Huaneng Group	RMB	1,900,000,000	—	1,900,000,000
HIPDC	US$	450,000,000	—	450,000,000
Weihai Power Company	RMB	761,832,800	—	761,832,800
Taicang Power Company	RMB	632,840,000	50,000,000	682,840,000
Huaiyin Power Company	RMB	265,000,000	—	265,000,000
Qinbei Power Company	RMB	10,000,000	—	10,000,000
Yushe Power Company	RMB	80,000,000	—	80,000,000

(3) Equity shares and changes in equity shares held by parties that control/are controlled by the Company:

	1st January,	1st January,	Current year	Current year	Current	year	31st December,	31st December,
Name	2003		additions		deductions		2003
	Amount	%	Amount	%	Amount	%	Amount	%
Huaneng Group*	1,675,660,547	51.98	—	—	—	—	1,675,660,547	51.98
HIPDC**	2,554,840,000	42.58	—	—	—	(0.19)	2,554,840,000	42.39
Weihai Power Company	457,103,040	60	—	—	—	—	457,103,040	60
Taicang Power Company	474,630,000	75	37,500,000	—	—	—	512,130,000	75
Huaiyin Power Company	168,646,000	63.64	—	—	—	—	168,646,000	63.64
Qinbei Power Company	—	—	148,200,000	55	—	—	148,200,000	55
Yushe Power Company	—	—	48,000,000	60	—	—	48,000,000	60

Huaneng Group holds 51.98% equity interest in HIPDC.
** In accordance with a shareholders’ agreement entered into by certain founding shareholders, during the operating period of the Company, the voting rights of seven founding shareholders are given to HIPDC. Thus, HIPDC holds 70.09% voting rights in the shareholders’ meetings.
(4) Nature of related parties that do not control/are not controlled by the Company:

Name of related parties

Relationship with the Company

Huaneng Finance A subsidiary of Huaneng Group WPDB Minority shareholder of Weihai Power Company Henan Investment Minority shareholder of Qinbei Power Company China Huaneng International Trade Economics Corporation (“CHITEC”) A subsidiary of Huaneng Group Shanghai Time Shipping Company (“Time Shipping”) A Joint venture company of Huaneng Group Rizhao Power Company An associate of the Company

(5) Related party transactions

a. On 30th June, 1994, the Company and HIPDC entered into a service agreement pursuant to which HIPDC provides transmission service and transformer facilities to some of the power plants of the Company and receives service fees. The agreements cover a period of 10 years. The total amount of service fees paid to HIPDC for the year ended 31st December, 2003 were approximately Rmb215 million (2002: Rmb264 million).

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FINANCIAL INFORMATION ON THE HUANENG GROUP

b. In accordance with the leasing agreement entered into between the Company and HIPDC, the land use right of Shanghai Power Plant is leased to the Company for a period of 50 years from 30th June, 1997 at an annual rental payment of Rmb6 million.
c. Pursuant to a leasing agreement entered into amongst the Company, HIPDC and Nanjing Investment Company, the land use right of Nanjing Power Plant is leased to the Company for 50 years from 1st January, 1999 at an annual rental payment of Rmb1.334 million.
d. Pursuant to a leasing agreement between the Company and HIPDC, HIPDC agreed to lease its building to the Company as office at an annual rental of Rmb25 million from 1st January, 2000.
e. As described in Note 6 (15)(i), certain bank loans were on-lent from HIPDC, and as described in Note 6 (15)(iii), certain bank loans were drawn from WPDB and Huaneng Finance.
f. As at 31st December, 2003, Huaneng Finance had granted short-term loans amounted to Rmb1,130 million (31st December, 2002: Rmb200 million) to the Company and its subsidiaries, and Henan Investment had granted short-term loans amounted to Rmb130 million (31st December, 2002: nil) to the Company and its subsidiaries. The interest rates for such loans are not materially different from the prevailing market interest rate (see Note 6(11)).
g. As at 31st December, 2003, long-term bank loans of approximately Rmb4,648 million, Rmb1,096 million, Rmb280 million and Rmb34.49 million were guaranteed by HIPDC, Huaneng Group, WPDB and Henan Investment, respectively (31st December, 2002: Rmb5,544 million, Rmb1,140 million, Rmb280 million and nil, respectively) (see Note 6(15)).
h. As described in Note 9, certain bank loans of Taicang Power Company, Huaiyin Power Company, Rizhao Power Company, Weihai Power Company, Yushe Power Company and Qinbei Power Company were guaranteed by the Company.
i. On 9th May, 2002, the Company entered into an agreement with Huaneng Group under which the Company agreed to acquire from Huaneng Group 70% equity interest in Shidongkou I Power Plant, 70% equity interest in Taicang Power Plant, 44.16% equity interest in Huaiyin Power Plant and all of the assets and liabilities of Changxing Power Plant. The total consideration for the acquisition of four power plants was Rmb2,050 million payable in cash using internal surplus cash resources.
j. On 15th November, 2002, the Company entered into an agreement with Huaneng Group under which the Company agreed to acquire from Huaneng Group 30% equity interest in Shidongkou I Power Plant and 5% equity interest in Taicang Power Plant. The total consideration for the additional acquisition of two power plants was Rmb415 million payable in cash.
k. On 5th June, 2003, the Company entered into an agreement with Huaneng Group under which the Company agreed to acquire from Huaneng Group 55% equity interest in Qinbei Power Company, 60% equity interest in Yushe Power Company and all of the assets and liabilities of Xindian Power Plant. The total consideration for the acquisition of three power plants was Rmb550 million, and the Company paid the consideration in cash.
l. On 6th November, 2002, the Company entered into a management service agreement with Huaneng Group and HIPDC. Pursuant to which, the Company provides management services to certain power plants owned by Huaneng Group and HIPDC. For the year ended 31st December, 2003, the Company earned service fees amounted to Rmb33,294,800 from Huaneng Group and paid expenses on behalf

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

of Huaneng Group’s power plants amounted to Rmb6,839,017 (2002: nil). In addition, the Company earned service fees amounted to Rmb17,305,200 and paid expenses on behalf of HIPDC’s power plant amounted to Rmb1,273,524 (2002: nil). For the year ended 31st December, 2003, the related cost incurred for the management service provided was approximately Rmb38 million.

m. In accordance with an equipment import agency service agreement entered into between Shandong Huaneng and CHITEC, the Company is required to pay an agency fee at 0.5% of the value of imported equipment in return for the agency service provided by CHITEC. For the year ended 31st December, 2003, the Company did not pay any agency fee to CHITEC for equipment transportation and insurance service (2002: RMB3 million).
n. For the year ended 31st December, 2003, the Company and its subsidiaries paid approximately Rmb145.06 million for coal purchased from CHITEC (2002: nil).
o. For the year ended 31st December, 2003, the Company and its subsidiaries paid approximately Rmb457 million for the fuel purchased and transportation services received from Time Shipping (2002: Rmb301million).

(6) Cash deposited with a related party

	31st December,	31st December,
	2003	2002
Deposited in Huaneng Finance:
- Current deposit	2,791,770,168	2,376,197,356
- Fixed deposit	—	570,000,000
	2,791,770,168	2,946,197,356

As at 31st December, 2003, the interest rates per annum for the current deposits placed with Huaneng Finance ranged from 0.72% to 1.44% (31st December, 2002: 0.72% to 1.44%). As at 31st December, 2002, the interest rate per annum for the fixed deposit was 1.71%.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(7) Accounts receivable from/accounts payable to related parties

	31st December, 2003	31st December, 2003	31st December, 2002	31st December, 2002
	Amount	Percentage	Amount	Percentage
Interest receivables (payables)
Interest receivables (payables)
on deposits (loans) from
Huaneng Finance	(1,418,954)	1.51%	1,630,137	42.98%
Other receivables
Other receivables from Huaneng
Group’s subsidiaries	5,286,705	3.29%	—		—
Other receivables from HIPDC’s
subsidiaries	575,120	0.36%	—		—
Accounts payable
Accounts payable to CHITEC	(14,484,416)	2.22%	—		—
Accounts payable to Time Shipping	(11,434,522)	1.75%	(13,917,467)	2.95%
Other payables
Other payables to HIPDC	(87,507,580)	5.24%	(100,475,344)	4.41%

The balances with Huaneng Group’s subsidiaries, HIPDC and its subsidiaries, CHITEC and Time Shipping were unsecured, non-interest bearing and repayable within one year.

9. CONTIGENT LIABILITY

								31st December, 2003	31st December, 2003
								The Company and
Item								its subsidiaries	The Company
Guarantee	on	the	long-term	bank	loans	of	Rizhao Power Company	339,250,000	339,250,000
Guarantee	on	the	long-term	bank	loans	of	Weihai Power Company	—	330,000,000
Guarantee	on	the	long-term	bank	loans	of	Taicang Power Company	—	1,114,183,384
Guarantee	on	the	long-term	bank	loans	of	Huaiyin Power Company	—	10,000,000
Guarantee	on	the	long-term	bank	loans	of	Qinbei Power Company	—	905,000,000
Guarantee	on	the	long-term	bank	loans	of	Yushe Power Company	—	101,430,000
								339,250,000	2,799,863,384

Guarantees on the long-term bank loans of Taicang Power Company, Huaiyin Power Company, Rizhao Power Company, Weihai Power Company, Yushe Power Company and Qinbei Power Company by the Company had no significant financial impact on the Company’s operation.

10. OBLIGATION AND COMMITMENTS

Commitments mainly relate to the construction of electric generation facilities, renovation projects for existing power plants and purchase of coal. Capital commitment and coal purchase commitment amounted to Rmb12.07 billion was not included in the consolidated balance sheet of the Company and its subsidiaries as at 31st December, 2003 (31st December, 2002: Rmb2.66 billion).

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The Company had various operating lease arrangements with HIPDC for land and buildings. Total future minimum lease payments under non-cancelable operating leases were as follow:

	31st December,	31st December,
	2003	2002
Land and buildings
- within 1 year	32,334,000	32,334,000
- 1-2 years	7,334,000	32,334,000
- 2-3 years	7,334,000	7,334,000
- after 3 years	299,028,000	306,362,000
	346,030,000	378,364,000

In addition, in accordance with a 30-year operating lease agreement signed by the Dezhou Power Plant and Shandong Land Bureau for the land occupied by Dezhou Power Plant Phase I and Phase II in June 1994 annual rental is approximately Rmb29.874 million effective from June 1994 and is subject to revision at the fifth year since the contract date. Thereafter, the annual rental is subject to revision once every three years. The increment for each rental revision is restricted to no more than 30 percent of the previous annual rental amount. For the year ended 31st December, 2003, the rental charged was Rmb29,902,347 (2002: Rmb29,884,933).

11. INTEREST RATE SWAP CONTRACT

The Company entered into interest rate swap agreements with the Bank of China to convert certain floating rate bank loans into fixed rate debts of the same principal amounts and for the same maturities to hedge against interest rate risk. As at 31st December, 2003, the notional amount of the outstanding interest swap agreements were approximately US$20.50 million (31st December, 2002: US$51.66 million).

12. NET PROFIT AFTER DEDUCTING NON-RECURRING ITEMS

Net profit Add (Less): non-recurring items - Loss from disposal of fixed assets - Income from entrusted investments - Non-operating income - Non-operating expense Less: tax impact on non-recurring items Net profit after deducting non-recurring items	5,457,142,551 137,631,682 (9,171,085) (19,083,635) 14,759,159 (17,362,130)
	5,563,916,542

13. RECLASSIFICATION OF COMPARATIVE FIGURES

Certain prior year comparative figures have been reclassified to conform to the current period presentation.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

3. NET PROFIT AND NET ASSETS RECONCILIATION BETWEEN PRC GAAP AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)

(Prepared on consolidation basis; amounts expressed in RMB unless otherwise stated)

The financial statements, which are prepared by the Company and its subsidiaries in conformity with the Accounting Standards for Business Enterprises and Accounting Systems for Business Enterprises (“PRC GAAP”), differ in certain respects from IFRS. Major differences between PRC GAAP and IFRS, which affect the net income and net assets of the Company and its subsidiaries, are summarized as follow:

Net Income

Year ended 31 December

Net income under PRC GAAP Impact of IFRS adjustments: Effect of recording deferred revenue (a) Difference in the basis of determining the amount of materials and supplies (b) Difference in the recognition policy on housing benefits to the employees of the Company (c) Difference in accounting treatment of the convertible notes (d) Difference in capitalization of borrowing costs (e) Difference in the recognition of financial liabilities (f) Applicable deferred tax impact of the above GAAP differences (g) Others Net income under IFRS	2003 5,457,142,551 (47,936,528) 9,503,446 (26,258,956) (3,228,425) 12,681,881 11,771,302 18,362,679 (1,630,343) 5,430,407,607	2002 4,082,350,589 (212,755,386) 3,078,998 6,457,886 (35,957,003) 88,411,906 2,179,464 (10,457,892) (2,305,261) 3,921,003,301

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

Net Assets

As at 31 December

Net assets under PRC GAAP
Impact of IFRS adjustments:
Effect of recording deferred revenue (a)
Difference in the basis of determining the amount of
materials and supplies (b)
Difference in the recognition policy on housing benefits
to the employees of the Company (c)
Difference in accounting treatment of convertible
notes (d)
- Effect of recording the equity component of
convertible notes (d)
- Adjustment relating to convertible notes arising from
initial adoption of IAS 39 (d)
- Difference in accounting treatment of amortized cost
of the liability component and put option relating
to the convertible notes (d)
Difference in capitalization of borrowing costs (e)
Difference in the recognition of financial liabilities (f)
Applicable deferred tax impact of the above GAAP
differences (g)
Others
Net assets under IFRS

2003
2002
34,787,100,203 31,209,570,014
(987,500,122)
(939,563,594)
(7,879,241)
(17,382,687)
63,726,056
89,985,012
510,506,379
510,506,379
(463,920,605)
(463,920,605)
(46,568,506)
(36,086,925)
101,093,787
88,411,906
(924,686)
(12,695,988)
7,568,346
(10,457,892)
(7,847,178)
(2,305,261)
33,955,354,433 30,416,060,359

33,955,354,433

(a) Recording of deferred revenue

Under the rate making process applicable to the Company and its subsidiaries except for certain power plants, major repair and maintenance expenses determined on the basis of 1% of the fixed asset cost is recovered through the current power rates. In a particular year, to the extent that the actual repair and maintenance expenses incurred is less than the amount determined on the above basis, the difference is recorded as deferred revenue under IFRS. For PRC statutory financial reporting purposes, in accordance with the requirement of PRC GAAP, no such amount is recorded and revenue is determined and recognized based on the actual amount of electricity transmitted to the grid and the prevailing approved power rates.

(b) Difference in the basis of determining the amount of material and supplies

Under PRC GAAP, materials and supplies have been restated to the appraised value determined by independent valuer during the reorganization of the five original operating plants in 1994 and the appraised value has been used as the basis in determining the amount charged to operating expenses upon actual utilization. Under IFRS, materials and supplies are charged to operating expenses at cost based on actual utilization.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

(c) Difference in the recognition policy on housing benefits to the employees of the Company

The Company and HIPDC provided housing benefits to certain qualified employees of the Company whereby the living quarters owned by the Company and HIPDC were sold to these employees at preferential prices. The housing benefits represent the difference between the cost of the staff quarters sold to and the net proceeds collected from the employees, which are borne by the Company and HIPDC.

For PRC statutory reporting purposes, in accordance with the relevant regulations issued by the Ministry of Finance, the total housing benefits provided by the Company are charged to non-operating expenses in the year when incurred. Under IFRS, the housing benefits provided by the Company are recognized on a straight-line basis over the estimated remaining average service lives of the employees.

(d) Accounting treatment of convertible notes

Under PRC GAAP, the Company had accrued for the put premium liability together with the interest payable on the notes using the effective interest rate of 6.66% till 21st May, 2002. As at 21st May, 2002, all accrued put premium of unredeemed notes was charged to the income statement as reversal of interest expense.

Under IFRS, the proceeds received on the issue of the convertible notes were allocated into liability and equity components. Upon initial recognition, the liability component represented the present value, at the issuance date, of the contractually determined stream of cash flows discounted at the market interest rate for instruments of comparable credit status providing substantially the same cash flows, on the same terms, but without the conversion option. The equity component was then determined by deducting the liability component from the proceeds received on the issue of the notes. Under PRC GAAP, the entire proceeds of the issue of convertible notes were recorded as long-term liabilities without distinguishing between the equity and liability components.

In accordance with IAS 39, the put option of the convertible notes, which allowed the noteholders to redeem the convertible notes at a premium, was separated from the host contract and accounted for as an embedded derivative. This put option was recorded as a liability and measured at its fair value. When IAS 39 was initially applied in 2001, the difference between the previous carrying amount and the fair value of the put option was recognised as an adjustment to the opening retained earnings as at 1st January, 2001. In addition, the liability component was measured at amortized cost and the resulting difference with the previous carrying amount was recognised as an adjustment to the opening retained earnings as at 1st January, 2001. After initial recognition, subsequent changes in the value of the put option and the amortised cost of the liability component were charged or credited to the profit and loss account.

(e) Capitalization of borrowing costs

Under PRC GAAP, the capitalization of interests is limited to specific borrowings. No interest can be capitalized on general borrowings.

In accordance with IAS 23, the Company capitalized interests on general borrowings used for the purpose of obtaining a qualifying asset in addition to the capitalization of interests on specific borrowings.

The GAAP difference of capitalized interests on general borrowings also causes the difference of depreciation expense of relevant fixed assets.

— 211 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(f) Accounting treatment of financial liability

The Company enters into interest rate swap agreements with local banks to convert certain floating rate debts to fixed rate debts of the same principal amounts and for the same maturities to hedge against interest rate risk. As at 31st December, 2003, the notional amount of the outstanding interest rate swap agreements was approximately US$20.5 million. For the year ended 31st December, 2003, there was a gain amounted to approximately Rmb 11.77 million arising from changes in the fair value of the interest rate swaps. Under PRC GAAP, such interest swap contracts are considered and disclosed as off balance sheet items. Under IFRS, derivative instruments are recorded as either assets or liabilities in the balance sheet at fair value, which is determined based on market conditions at each balance sheet date. Changes in the fair value of derivatives are recorded each period in current earnings or recognized directly in equity through the statement of changes in shareholder’s equity, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. Since the hedging relationship does not meet all of the conditions required for special hedge accounting as set out in IAS 39, such gain was credited to the profit and loss account in current period.

(g) Deferred tax impact

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

— 212 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

4. UNAUDITED CONDENSED INTERIM ACCOUNTS (REPRODUCED FROM THE INTERIM REPORT OF THE HUANENG GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2004 PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS)

Set out below are (i) the condensed consolidated balance sheet, (ii) the condensed consolidated statement of income, (iii) the condensed consolidated statement of changes in shareholders’ equity, (iv) the condensed consolidated statement of cash flows and (v) notes to the condensed consolidated financial statements reproduced from unaudited interim accounts published in the interim report of the Huaneng Group for the six months ended 30 June 2004.

CONDENSED CONSOLIDATED BALANCE SHEET

(Amounts expressed in thousands of RMB)

Notes ASSETS Non-current assets Property, plant and equipment, net Investment in associates Available-for-sale investments Land use rights and other assets Deferred tax assets Goodwill Less: Negative goodwill Total non-current assets Current assets Inventories, net Other receivables and assets, net Accounts receivable 4 Due from HIPDC 16 Due from other related parties 16 Restricted cash Temporary cash investments Cash and cash equivalents Total current assets Total assets	As at 30th June, 2004 As at 31st December, 2003 44,490,551 42,658,365 2,847,110 2,766,031 254,990 254,990 1,020,965 1,037,859 19,990 21,311 283,811 298,876 (1,607,309) (1,730,949) 47,310,108 45,306,483 977,796 800,281 705,563 259,421 2,835,013 2,804,026 93,184 — 12,073 5,862 9,008 159,961 56,767 144,996 6,520,626 4,128,648 11,210,030 8,303,195 58,520,138 53,609,678	As at 30th June, 2004 As at 31st December, 2003 44,490,551 42,658,365 2,847,110 2,766,031 254,990 254,990 1,020,965 1,037,859 19,990 21,311 283,811 298,876 (1,607,309) (1,730,949) 47,310,108 45,306,483 977,796 800,281 705,563 259,421 2,835,013 2,804,026 93,184 — 12,073 5,862 9,008 159,961 56,767 144,996 6,520,626 4,128,648 11,210,030 8,303,195 58,520,138 53,609,678
	47,310,108 977,796 705,563 2,835,013 93,184 12,073 9,008 56,767 6,520,626 11,210,030	45,306,483
		800,281 259,421 2,804,026 — 5,862 159,961 144,996 4,128,648
		8,303,195
	58,520,138

— 213 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

Notes EQUITY AND LIABILITIES Shareholders’ equity 8,500,000,000 (2003: 4,250,000,000) PRC Domestic Shares, par value Rmb1.00 each, in form of legal person shares 12 500,000,000 (2003: 250,000,000) A shares, par value Rmb1.00 each 12 3,055,362,920 (2003: 1,527,671,200) Overseas Listed Foreign Shares, par value Rmb1.00 each 12 Additional paid-in capital 12 Dedicated capital 5,12 Equity component of convertible notes Retained earnings Total shareholders’ equity Minority interests Non-current liabilities Long-term loans from ultimate parent company 16 Long-term bank loans Other long-term loans Deferred tax liabilities Total non-current liabilities	As at 30th June, 2004 31st 8,500,000 500,000 3,055,363 8,972,191 3,122,889 — 9,272,328	As at December, 2003 4,250,000 250,000 1,527,671 10,780,133 4,328,423 255 12,818,873
	33,422,771 1,334,817 800,000 9,158,120 600,980 98,898 10,657,998	33,955,355
		1,155,197
		— 8,305,320 848,284 103,114
		9,256,718

— 214 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Notes Current liabilities Accounts payable and other liabilities 6 Taxes payable Due to HIPDC 16 Due to other related parties 16 Staff welfare and bonus payable Short-term loans 7 Current portion of long-term loans from shareholders 16 Current portion of long-term bank loans Current portion of other long-term loans Liability component of convertible notes Other financial liabilities 14 Dividend payable Total current liabilities Total equity and liabilities	As at 30th June, 2004 31st 3,701,155 543,182 — 117,982 162,059 6,495,000 194,441 1,412,050 468,392 — 2,041 8,250 13,104,552 58,520,138	As at December, 2003 3,342,517 917,362 87,508 27,338 220,896 1,600,000 388,875 2,409,240 243,386 935 4,351 —
		9,242,408
		53,609,678

The accompanying notes are an integral part of these condensed consolidated financial statements.

— 215 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

CONDENSED CONSOLIDATED STATEMENT OF INCOME

Six months ended 30 June

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

Notes Operating revenue, net Operating expenses: Fuel Maintenance Depreciation Labor Service fees to HIPDC Others Total operating expenses Profit from operation Interest income Interest expense Bank charges and exchange losses, net Total financial expenses Share of profit of associates Gain from disposal of investments Other income, net Profit before tax 9 Income tax expenses The Company and its subsidiaries 10 Associates Total income tax expenses		2004 12,963,871		2003 10,514,107 (4,031,851) (309,316) (2,046,390) (676,911) (105,220) (256,695) (7,426,383) 3,087,724 32,329 (305,968) (10,439) (284,078) 62,897 10,168 10,035 2,886,746 (512,522) (11,476) (523,998)
		(6,026,598) (410,573) (2,124,463) (799,292) (105,038) (305,036) (9,771,000) 3,192,871 27,893 (244,085) (10,500) (226,692) 108,553 4 28,577 3,103,313 (502,686) (27,473) (530,159)		(4,031,851 (309,316 (2,046,390 (676,911 (105,220 (256,695
				(7,426,383
				3,087,724
				32,329 (305,968 (10,439
				(284,078
				62,897 10,168 10,035
				2,886,746
				(512,522 (11,476
				(523,998

— 216 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

Notes Profit before minority interests Minority interests Net profit attributable to shareholders Basic earnings per share (Rmb) 13 Diluted earnings per share (Rmb) 13	2004 2,573,154 (92,027) 2,481,127 0.21 0.21	2003 2,362,748 (77,543) 2,285,205 0.19 0.19

The accompanying notes are an integral part of these condensed consolidated financial statements.

— 217 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Six months ended 30 June 2004

(Amounts expressed in thousands of RMB)

Share capital 6,027,671 — 6,027,671 — 21 12,055,363	Additional paid-in capital 10,780,133 — (1,808,301) — 359 8,972,191	Dedicated capital Equity component of convertible notes 4,328,423 255 — — (1,205,534) — — — — (255) 3,122,889 —	Dedicated capital Equity component of convertible notes 4,328,423 255 — — (1,205,534) — — — — (255) 3,122,889 —	Retained earnings 12,818,873 (3,013,836) (3,013,836) 2,481,127 — 9,272,328	Retained earnings 12,818,873 (3,013,836) (3,013,836) 2,481,127 — 9,272,328
6,000,274 — — 27,397	10,604,843 — — 175,290	3,373,423 — — —	44,647 — — (44,392)	10,392,873 (2,049,408) 2,285,205 —	30,416,060 (2,049,408 2,285,205 158,295

The accompanying notes are an integral part of these condensed consolidated financial statements.

— 218 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Six months ended 30 June

(Amounts expressed in thousands of RMB)

Notes Net cash provided by operating activities Net cash used in investing activities 15 Net cash provided by (used in) financing activities 15 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period	2004 3,822,777 (3,883,018) 2,452,219 2,391,978 4,128,648 6,520,626	2003 4,241,240 (3,012,632) (3,219,360) (1,990,752) 3,002,601 1,011,849

The accompanying notes are an integral part of these condensed consolidated financial statements.

— 219 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in RMB unless otherwise stated)

1. COMPANY ORGANIZATION AND PRINCIPAL ACTIVITIES

Huaneng Power International, Inc. (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) as a Sino-foreign joint stock limited company on 30th June, 1994. Currently, the Company and its subsidiaries own and operate 18 power plants, which are located in various provinces of the PRC.

The Company and its subsidiaries are principally engaged in the generation and sale of electric power to the respective regional or provincial grid companies.

2. PRINCIPAL ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements have not been audited but have been reviewed by the Audit Committee. These financial statements are prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” promulgated by the International Accounting Standards Committee and Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The principal accounting policies adopted for the preparation of the condensed consolidated financial statements as at and for the six months ended 30th June, 2004 are consistent with those adopted for the preparation of the financial statements as at and for the year ended 31st December, 2003.

3. LIST OF SUBSIDIARIES

Details of the major subsidiaries of the Company as at 30th June, 2004 were as follow:

	Country, date of	Percentage of
	incorporation and	equity interest	Registered	Principal
Name of subsidiaries	type of legal entity	directly held	capital	activities
Huaneng Weihai Power	PRC	60%	Rmb761,832,800	Power generation
Limited Liability Company	22nd November,
(the “Weihai Power	1993
Company”)	Limited liability
	company
Suzhou Industrial Park	PRC	75%	Rmb632,840,000	Power generation
Huaneng Power Limited	19th June, 1997
Liability Company	Limited liability
(the “Taicang Power	company
Company”)
Huaneng Taicang Power	PRC	75%	Rmb894,410,000	Power generation
Co. Ltd.	18th June, 2004
(the “Taicang II	Limited liability
Power Company)	company

— 220 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Name of subsidiaries

Country, date of Percentage of incorporation and equity interest Registered Principal type of legal entity directly held capital activities

Jiangsu Huaneng Huaiyin PRC 63.64% Rmb265,000,000 Power generation Power Limited Company 26th January, 1995 (the “Huaiyin Power Limited liability Company”) company Jiangsu Huaneng Huaiyin II PRC 63.64% Rmb474,000,000 Power generation Power Limited Company 22nd June, 2004 (the “Huaiyin II Power Limited liability Company”) company Henan Huaneng Qinbei Power PRC 55% Rmb10,000,000 Power generation Co., Ltd. 12th July, 1995 (the “Qinbei Limited liability Power Company”) company Shanxi Huaneng Yushe Power PRC 60% Rmb80,000,000 Power generation Co., Ltd. 29th November, (the “Yushe Power 1994 Company”) Limited liability company Shandong Huaneng Xindian PRC 95% Rmb100,000,000 Power generation Power Co., Ltd. 14th March, 2004 (the “Xindian Limited liability II Power Company”) company

4. ACCOUNTS RECEIVABLE

The Company and its subsidiaries usually grant one-month credit period to the regional or provincial grid companies from the end of the month in which the sales are made.

The aging analysis of accounts receivable was as follows:

	As at	As at
	30th June,	31st December,
	2004	2003
	’000	’000
Within one year	2,831,317	2,800,330
Two to three years	—	3,696
Over three years	3,696	—
	2,835,013	2,804,026

— 221 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

5. APPROPRIATIONS AND DISTRIBUTION OF PROFIT

For the six months ended 30th June, 2004, the Company and its subsidiaries did not make a provision for the statutory surplus reserve fund and the statutory public welfare fund.

6. ACCOUNTS PAYABLE AND OTHER LIABILITIES

Accounts payable and other liabilities comprised:

	As at	As at
	30th June,	31st December,
	2004	2003
	’000	’000
Accounts payable	705,715	635,860
Other payables and accrued liabilities	2,995,440	2,706,657
	3,701,155	3,342,517

The aging analysis of accounts payable was as follows:

	As at	As at
	30th June,	31st December,
	2004	2003
	’000	’000
Within one year	659,979	595,994
Between one to two years	24,491	36,188
Over two years	21,245	3,678
	705,715	635,860

7. SHORT-TERM LOANS

Short-term loans are all credit loans denominated in Renminbi and bear interest at the prevailing rates in the PRC, which ranged from 4.54% to 5.05% per annum for the six months ended 30th June, 2004 (2003: 4.54% to 5.05%), and are repayable within one year.

8. ADDITIONAL FINANCIAL INFORMATION ON BALANCE SHEET

As at 30th June, 2004, the net current liabilities of the Company and its subsidiaries amounted to approximately Rmb1,895 million (31st December, 2003: Rmb939 million). On the same date, the total assets less current liabilities of the Company and its subsidiaries were approximately Rmb45,416 million (31st December, 2003: Rmb44,367 million).

— 222 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

9. PROFIT BEFORE TAX

Profit before tax in the condensed consolidated statement of income was determined after charging and (crediting) the following items:

Total interest charges on borrowings Less: capitalized in property, plant and equipment Total interest expense Depreciation of property, plant and equipment Amortization of goodwill Amortization of land use rights and other assets Gain on interest rate swaps Amortization of negative goodwill Interest income	For the six months ended 30th June, 2004 2003 ’000 ’000 358,258 316,096 (114,173) (10,128) 244,085 305,968 2,124,463 2,046,390 21,001 10,999 27,021 27,572 (574) (4,207) (123,639) (123,639) (27,893) (32,329)	For the six months ended 30th June, 2004 2003 ’000 ’000 358,258 316,096 (114,173) (10,128) 244,085 305,968 2,124,463 2,046,390 21,001 10,999 27,021 27,572 (574) (4,207) (123,639) (123,639) (27,893) (32,329)
	244,085	305,968
	2,124,463 21,001 27,021 (574) (123,639) (27,893)

10. TAXATION

Certain of the power plants, being located in specially designated regions or cities, are subject to preferential income tax rates. In addition, certain power plants are exempted from the PRC income tax for two years starting from the first profit-making year (after covering any accumulated deficits) followed by a 50% exemption of the applicable tax rate for the next three years (“tax holiday”). For the six months ended 30th June, 2004, the weighted average effective tax rate applicable to the Company is 17% (for the six months ended 30th June, 2003: 18%).

On 27th October, 2003, the Company acquired all of the assets and liabilities of Huaneng Xindian Power Plant (the “Xindian Power Plant”). Xindian Power Plant became a branch of the Company. As such, Xindian Power Plant is entitled to preferential tax treatment applicable to Sino-foreign enterprises investing in energy and is in the process of applying to the relevant tax bureau for such preferential tax treatment.

11. DIVIDENDS DECLARED

On 11th May, 2004, the shareholders approved the declaration of cash dividends of Rmb0.5 per ordinary share (Rmb0.25 per adjusted ordinary shares after the common stock split as mentioned in Note 12), totalling Rmb3,014 million in their general meeting. As at 30th June, 2004, dividends of approximately Rmb3,006 million had been paid.

12. COMMON STOCK SPLIT

On 11th May, 2004, the shareholders approved a ten-for-ten stock split of the Company’s common stock effected in the form of a) 5 bonus shares for every 10 existing ordinary shares, and b) 5 conversion shares for every 10 existing ordinary shares. The stock split had been completed as at 30th June, 2004.

— 223 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The bonus shares amounting to approximately Rmb3,014 million were charged to retained earnings. The conversion shares issued, amounting to also approximately Rmb3,014 million, were charged to additional paid-in capital and statutory reserve fund in the amount of Rmb1,808 million and Rmb1,206 million respectively. The basic and diluted earnings per share included in this condensed consolidated financial statements have been adjusted retroactively to reflect the stock split (see Note 13).

13. EARNINGS PER SHARE

When calculating the basic and diluted earnings per share, the number of ordinary shares outstanding before the common stock split (Note 12), without a corresponding change in resources, have been adjusted for the proportional change in the number of ordinary shares outstanding as if the transaction had occurred at the beginning of the earliest period presented.

The calculation of basic earnings per share is based on the net profit attributable to shareholders of approximately Rmb2,481 million (for the six months ended 30th June, 2003: Rmb2,285 million) and the weighted average number of 12,055 million (for the six months ended 30th June, 2003: 12,021 million) outstanding ordinary shares during the period.

The calculation of diluted earnings per share is based on the adjusted net profit attributable to shareholders of Rmb2,481 million (for the six months ended 30th June, 2003: Rmb2,288 million) and the adjusted weighted average number of 12,056 million (for the six months ended 30th June, 2003: 12,056 million) outstanding ordinary shares during the period. The calculation assumes that the convertible notes had been fully converted at the beginning of the period.

14. HEDGING OF INTEREST RATE RISK

The Company’s floating rate bank loans expose the Company to interest rate risk. The Company uses derivative instruments, to the extent available in the PRC, to manage risks arising from changes in interest rates. When considered appropriate, the Company would enter into interest rate swap agreements with local banks to convert certain floating rate bank loans into fixed rate debts of the same principal amounts and for the same maturities to hedge against interest rate risk. As at 30th June, 2004, the notional amount of the outstanding interest rate swap agreements was approximately US$10.3 million (as at 31st December, 2003, approximately US$20.5 million). For the six months ended 30th June, 2004, there was a gain amounting to approximately Rmb0.6 million (for the six months ended 30th June, 2003: a gain amounting to approximately Rmb4.2 million) arising from changes in the fair value of the interest rate swaps. Since the hedging relationship does not meet all of the conditions required for special hedge accounting as set out in International Accounting Standards 39, such gain was credited to earnings in current period.

— 224 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

15. SUPPLEMENTARY INFORMATION TO CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

Cash flow (used in)/provided by investing and financing activities mainly included the followings:

	For the six months	For the six months
	ended 30th June,
	2004	2003
	’000	’000
Investing activities:
Capital expenditures on power plant construction and improvement	(3,979,081)	(913,555)
Consideration paid to acquire 25% equity interest of Shenzhen
Energy Group Co., Ltd. (the “SEG”)	—	(2,390,000)
Proceeds from disposal of other assets	—	79,152
Decrease in temporary cash investments	88,229	207,250
Financing activities:
Drawdown of:
— Short-term loans	5,685,000	—
— Long-term loans from ultimate parent company	800,000	—
— Long-term bank loans	1,330,000	105,542
— Other long-term loans	—	350,000
Repayment of:
— Short-term loans	(790,000)	(350,000)
— Long-term loans from shareholders	(194,500)	(194,486)
— Long-term bank loans	(1,474,593)	(961,211)
— Other long-term loans	(21,022)	(36,060)
Payment of dividends to the shareholders of the Company	(3,005,586)	(2,033,598)
Capital injection from minority shareholders of the subsidiaries	247,419	—
Dividend paid to minority shareholders of the subsidiaries	(123,564)	(99,548)

— 225 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

16. RELATED PARTY TRANSACTIONS

The related parties of the Company and its subsidiaries that had transactions with the Company and its subsidiaries are as follows:

Name of related parties

Nature of relationship

Huaneng International Power Development Corporation (“HIPDC”) Parent company China Huaneng Group (“Huaneng Group”) Ultimate parent company China Huaneng Finance Company (“Huaneng Finance”) A subsidiary of Huaneng Group Weihai Power Development Bureau (“WPDB”) Minority shareholder of Weihai Power Company Henan Construction Investment Company (“Henan Investment”) Minority shareholder of Qinbei Power Company China Huaneng International Trade Economics Corporation (“CHITEC”) A subsidiary of Huaneng Group Time Shipping Company (“Time Shipping”) A joint venture company of Huaneng Group Shangdong Rizhao Power Company Ltd. (“Rizhao Power Company”) An associate of the Company SEG An associate of the Company

(a) The significant transactions and balances with HIPDC were as follows:

(i) Transactions during the six months ended 30th June, 2004:

	For the six months	For the six months
	ended 30th June,
	2004	2003
	’000	’000
Service fees on transmission and transformer facilities	105,039	105,220
Rental charge on the land of Shidongkou II Power Plant	3,000	3,000
Rental charge on the land of Nanjing Power Plant	667	667
Rental charge on office space	12,500	12,500
Management service fee income	8,653	8,653

(ii) Balances as at 30th June, 2004:

	As at	As at
	30th June,	31st December,
	2004	2003
	’000	’000
Long-term loans guaranteed by HIPDC	4,292,442	4,647,947
Bank loans on-lent from HIPDC to the Company	194,441	388,875
Due from HIPDC (unsecured and non-interest bearing)	93,184	—
Due to HIPDC (unsecured and non-interest bearing)	—	87,508

— 226 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(b) The significant transactions and balances with other related parties were as follows:

(i) Transactions during the six months ended 30th June, 2004:

	For the six months	For the six months	For the six months
	ended 30th June,
	2004		2003
	’000		’000
Huaneng Group
Management service fee income	16,647	16,647
CHITEC
Coal purchased from CHITEC	100,354	22,897
Time Shipping
Coal purchased from Time Shipping and
service fee paid for transportation	212,585	165,867

— 227 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

(ii) Balances as at 30th June, 2004:

	As at	As at
	30th June,	31st December,
	2004	2003
	’000	’000
Huaneng Group
Long-term loans guaranteed by Huaneng Group	1,048,272	1,095,905
Long-term loans borrowed from Huaneng Group **	800,000	—
Due from Huaneng Group	6,991	—
Huaneng Finance
Current deposits in Huaneng Finance*	2,248,315	2,791,770
Short-term loan borrowed from Huaneng Finance*	1,005,000	1,130,000
Long-term loan borrowed from Huaneng Finance*	610,000	610,000
Interest payable to Huaneng Finance	18,607	1,419
CHITEC
Payable for coal purchased from CHITEC	6,450	14,484
WPDB
Long-term loans borrowed from WPDB*	106,609	106,389
Long-term bank loans guaranteed by WPDB	100,000	280,000
Dividend payable to WPDB	32,233	—
Henan Investment
Long-term loan guaranteed by Henan Investment	231,820	34,492
Short-term loan borrowed from Henan Investment*	1,300,000	1,300,000
Time Shipping
Payable for coal purchase from and transportation service
provided by Time Shipping	10,691	11,434
Rizhao Power Company
Guarantee on the long-term bank loan of Rizhao Power
Company***	326,500	339,250
Due from Rizhao Power Company	1,652	—
SEG
Due to SEG	50,000	—
Others
Due from the subsidiaries of Huaneng Group	2,855	5,287
Due from the subsidiaries of HIPDC	575	575

— 228 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The interest rates have no material difference with the prevailing market interest rate. The terms of these loans have been disclosed in the financial statements as at 31st December, 2003.
** The long-term loans borrowed from Huaneng Group bear fixed interest rates, which ranged from 3.78% to 4.6% per annum for the six months ended 30th June, 2004 and are repayable before 2013, in accordance with the repayment schedules set by the contracts.
*** Guarantee on the long-term bank loan of Rizhao Power Company by the Company had no significant financial impact on the Company’s operation.

17. COMMITMENT

Commitments mainly relate to the construction of new power projects, certain complementary facilities and renovation projects for existing power plants and the purchase of coal. Expenditure which was contracted for but not incurred and thus was not recognized in the financial statements as at 30th June, 2004 amounted to approximately Rmb15.86 billion.

18. SUBSEQUENT EVENT

On 16th April, 2004, the Company entered into an agreement with Huaneng Group under which the Company agreed to acquire from Huaneng Group 40% equity interest in Hebei Hanfeng Power Generation Limited Liability Company, 90% equity interest in Jinggangshan Huaneng Power Generation Limited Liability Company (“Jinggangshan Power Company”). The total consideration for the acquisition of the two power plants was Rmb1,949 million.

On the same date, the Company entered into an agreement with HIPDC under which the Company agreed to acquire from HIPDC 55% equity interest in Huaneng Hunan Yueyang Power Generation Limited Liability Company, 60% equity interest in Huaneng Chongqing Luohuang Power Generation Limited Liability Company and all of the assets and liabilities of Huaneng International Power Development Corporation Yingkou Branch. The total consideration for the acquisition of the three power plants was Rmb2,564 million.

In addition, on 16th April, 2004, the Company entered into an agreement with Jiangxi Provincial Investment Company and agreed to acquire the remaining 10% equity interest in Jinggangshan Power Company at a consideration of Rmb62 million.

After obtaining all the necessary government approvals on the acquisitions and the payment of the purchase considerations, the Company took over the control or significant influence of the above power companies and power plants in July 2004.

— 229 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

5. UNAUDITED INTERIM ACCOUNTS (REPRODUCED FROM THE INTERIM REPORT OF THE HUANENG GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2004 PREPARED IN ACCORDANCE WITH PRC ACCOUNTING STANDARDS)

Set out below are (i) the balance sheet, (ii) the profit and loss accounts, (iii) the statement of income appropriation, (iv) the cash flow statement and (v) notes to the financial statements reproduced from unaudited interim accounts published in the interim report of the Huaneng Group for the six months ended 30 June 2004.

BALANCE SHEET

(Amounts expressed in RMB)

Consolidated 30th June, 2004 31st December, 2003 6,586,400,881 4,433,604,438 — 13,200 — 447,200,000 1,502,330 3,291,154 2,835,012,883 2,356,825,998 289,993,876 160,720,886 486,808,906 88,194,813 984,883,520 808,159,276 31,776,755 4,779,340 48,660 83,060	Consolidated 30th June, 2004 31st December, 2003 6,586,400,881 4,433,604,438 — 13,200 — 447,200,000 1,502,330 3,291,154 2,835,012,883 2,356,825,998 289,993,876 160,720,886 486,808,906 88,194,813 984,883,520 808,159,276 31,776,755 4,779,340 48,660 83,060	The Company 30th June, 2004 31st December, 2003 5,845,991,515 3,520,203,732 — 13,200 — 336,180,000 1,502,330 2,387,688 2,422,101,269 2,005,023,640 193,152,654 87,489,711 360,676,223 54,736,358 792,769,021 632,641,423 30,118,039 4,594,883 270,711,616 470,746,016	The Company 30th June, 2004 31st December, 2003 5,845,991,515 3,520,203,732 — 13,200 — 336,180,000 1,502,330 2,387,688 2,422,101,269 2,005,023,640 193,152,654 87,489,711 360,676,223 54,736,358 792,769,021 632,641,423 30,118,039 4,594,883 270,711,616 470,746,016
11,216,427,811 3,470,232,631 375,760,651 25,700 3,470,258,331	8,302,872,165 3,407,034,531 392,105,037 12,500 3,407,047,031	9,917,022,667 5,967,380,487 — 25,700 5,967,406,187	7,114,016,651
			5,472,475,440 — 12,500
			5,472,487,940

— 230 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

		Consolidated	Consolidated	The Company	The Company
		30th June,	31st December,	30th June,	31st December,
	Notes	2004	2003	2004	2003
FIXED ASSETS
Fixed assets, cost	6(7)	60,846,993,388	60,731,810,047	52,206,011,602	52,100,413,665
Less: Accumulated depreciation	6(7)	(24,429,368,957)	(22,330,922,497)	(20,403,960,866)	(18,556,962,398)
Fixed assets, net book value	6(7)	36,417,624,431	38,400,887,550	31,802,050,736	33,543,451,267
Construction materials	6(8)	2,014,673,929	1,111,654,804	663,788,328	325,349,997
Construction-in-progress	6(9)	6,001,267,443	3,090,960,181	983,080,772	618,045,031
Total fixed assets		44,433,565,803	42,603,502,535	33,448,919,836	34,486,846,295
INTANGIBLE AND OTHER
ASSETS
Intangible assets	6(10)	(935,785,329)	(1,057,406,729)	(1,004,725,328)	(1,127,369,140)
Long-term deferred expenses		21,832,454	20,950,014	7,321,128	8,374,230
Total intangible and other assets		(913,952,875)	(1,036,456,715)	(997,404,200)	(1,118,994,910)
TOTAL ASSETS		58,206,299,070	53,276,965,016	48,335,944,490	45,954,355,976

The accompanying notes form an integral part of these financial statements.

— 231 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Consolidated 30th June, 2004 31st December, 2003 6,495,000,000 1,600,000,000 699,006,842 653,100,248 1,380,008 10,157,597 162,845,006 214,006,684 96,016,646 94,083,122 65,233,386 14,780,096 545,424,030 917,362,692 27,231,287 2,955,512 1,839,726,084 1,670,941,617 59,314,119 26,733,205 2,074,884,244 3,041,501,169 — 951,821	Consolidated 30th June, 2004 31st December, 2003 6,495,000,000 1,600,000,000 699,006,842 653,100,248 1,380,008 10,157,597 162,845,006 214,006,684 96,016,646 94,083,122 65,233,386 14,780,096 545,424,030 917,362,692 27,231,287 2,955,512 1,839,726,084 1,670,941,617 59,314,119 26,733,205 2,074,884,244 3,041,501,169 — 951,821	The Company 30th June, 2004 31st December, 2003 4,230,000,000 280,000,000 536,294,359 486,384,541 89,216 7,209,340 149,044,873 203,101,081 81,731,756 92,823,122 8,250,000 — 321,558,921 601,337,983 11,361,262 12,748,584 1,650,134,803 1,418,213,280 40,767,012 26,733,205 1,694,755,524 2,144,948,831 — 951,821	The Company 30th June, 2004 31st December, 2003 4,230,000,000 280,000,000 536,294,359 486,384,541 89,216 7,209,340 149,044,873 203,101,081 81,731,756 92,823,122 8,250,000 — 321,558,921 601,337,983 11,361,262 12,748,584 1,650,134,803 1,418,213,280 40,767,012 26,733,205 1,694,755,524 2,144,948,831 — 951,821
12,066,061,652 10,559,100,163 10,559,100,163 22,625,161,815 1,276,783,978 12,055,362,920 8,595,031,630 3,169,133,948 1,459,101,029 10,484,824,779 34,304,353,277	8,246,573,763 9,153,604,209 9,153,604,209 17,400,177,972 1,089,686,841 6,027,671,200 10,403,229,361 4,374,668,188 1,460,700,799 13,981,531,454 34,787,100,203	8,723,987,726 5,307,603,487 5,307,603,487 14,031,591,213 — 12,055,362,920 8,595,031,630 3,169,133,948 1,459,101,029 10,484,824,779 34,304,353,277	5,274,451,788
			5,892,803,985
			5,892,803,985
			11,167,255,773
			—
			6,027,671,200 10,403,229,361 4,374,668,188 1,460,700,799 13,981,531,454
			34,787,100,203
58,206,299,070	53,276,965,016	48,335,944,490	45,954,355,976

The accompanying notes form an integral part of these financial statements.

— 232 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

PROFIT AND LOSS ACCOUNTS

Six months ended 30 June

(Amounts expressed in RMB)

				Consolidated	Consolidated	Consolidated			The Company	The Company
			Notes	2004		2003			2004	2003
1.	Revenues from principal
	operations	6(20), 7(4)		13,040,289,339		10,618,086,009		11,104,641,146		9,193,411,044
	Less: Cost of principal operations	6(20), 7(4)		(9,498,640,593)		(7,203,913,330)		(8,157,868,496) (6,296,734,893)
	Tax and levies on
	principal operations			(25,297,711)		(27,469,565)			(3,139,092)	(10,194,034)
2.	Profit from principal operations			3,516,351,035		3,386,703,114		2,943,633,558		2,886,482,117
	Add: Profit from other operations			13,054,772		22,836,671			12,316,201	22,581,519
	Less: General and administrative
	expenses			(210,090,841)		(202,878,405)			(156,908,707)	(158,816,205)
	Financial expenses, net		6(21)	(255,383,895)		(290,999,870)			(186,597,160)	(225,703,753)
3.	Operating profit			3,063,931,071		2,915,661,510		2,612,443,892		2,524,543,678
	Add: Investment income	6(22), 7(5)		79,858,472		42,116,524			281,650,229	230,022,688
	Non-operating income			1,428,338		10,611,425			1,433,597	1,324,530
	Less: Non-operating expenses			(4,544,990)		(5,295,816)			(3,194,339)	(4,528,775)
4.	Profit before taxation and
	minority interests			3,140,672,891		2,963,093,643		2,892,333,379		2,751,362,121
	Less: Income tax			(510,203,778)		(521,882,186)			(361,368,854)	(395,690,127)
	Minority interests			(99,504,588)		(85,539,463)			—	—
5.	Net profit			2,530,964,525		2,355,671,994		2,530,964,525		2,355,671,994
					Consolidated				The	Company
				2004 2003					2004	2003
	Supplemental information:
1.	Profit from sale or disposal		of a business
	unit or investments					—	—		—	—
2.	Loss due to natural disaster					—	—		—	—
3.	Increase/(decrease) in profit		before
	taxation and minority interests as a
	result of changes in accounting policies					—	—		—	—
4.	Increase/(decrease) in profit		before
	taxation and minority interests as a
	result of changes in accounting
	estimates					—	—		—	—
5.	Loss on debt restructuring					—	—		—	—
6.	Others					—	—		—	—

The accompanying notes form an integral part of these financial statements.

— 233 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

STATEMENT OF INCOME APPROPRIATION

Six months ended 30 June

(Amounts expressed in RMB)

1. Net profit Add: Unappropriated profit brought forward 2. Unappropriated profit Less: Transfer to statutory surplus reserve fund Transfer to statutory public welfare fund 3. Profit distributable to shareholders Less: Dividends Bonus shares 4. Unappropriated profit carried forward	Consolidated 2004 2003 2,530,964,525 2,355,671,994 13,981,531,454 11,528,797,057 16,512,495,979 13,884,469,051 — — — — 16,512,495,979 13,884,469,051 (3,013,835,600) (2,049,408,208) (3,013,835,600) — 10,484,824,779 11,835,060,843	The Company 2004 2003 2,530,964,525 2,355,671,994 13,981,531,454 11,528,797,057 16,512,495,979 13,884,469,051 — — — — 16,512,495,979 13,884,469,051 (3,013,835,600) (2,049,408,208) (3,013,835,600) — 10,484,824,779 11,835,060,843

The accompanying notes form an integral part of these financial statements.

— 234 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

CASH FLOW STATEMENT

Six months ended 30 June 2004 (Amounts expressed in RMB)

Items Note 1. Cash flows from operating activities Cash received from sale of goods and services Other cash received relating to operating activities Sub-total of cash inflows Cash paid for goods and services Cash paid to and on behalf of employees Payment of all types of taxes Other cash paid relating to operating activities 6(23) Sub-total of cash outflows Net cash flows from operating activities 2. Cash flows from investing activities Cash received on disposal of investments Cash received on investments income Net cash received from disposals of fixed assets Other cash received relating to investing activities Sub-total of cash inflows Cash paid to acquire fixed assets, intangible assets and other long-term assets Cash paid to acquire investments other than the equity interest in subsidiaries Cash paid to acquire equity interest in subsidiaries	Consolidated 15,219,365,153 301,477,205	The Company 12,904,184,815 573,165,885 13,477,350,700 (5,925,801,989) (551,614,449) (1,905,091,211) (1,233,935,459) (9,616,443,108) 3,860,907,592 269,744,600 362,480,781 935,047 — 633,160,428 (1,175,434,414) (508,285,601) —
	15,520,842,358 (6,863,348,514) (657,828,052) (2,402,283,910) (1,491,452,684) (11,414,913,160) 4,105,929,198 74,957,559 23,680,821 1,325,922 13,675,459 113,639,761 (3,986,669,036) — —	13,477,350,700
		(5,925,801,989 (551,614,449 (1,905,091,211 (1,233,935,459
		(9,616,443,108
		3,860,907,592
		269,744,600 362,480,781 935,047 —
		633,160,428
		(1,175,434,414 (508,285,601 —

— 235 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

Items Note Sub-total of cash outflows Net cash flows used in investing activities 3. Cash flows from financing activities Cash received from investments Including: cash received from equity investment in subsidiaries of minority shareholders Cash received from borrowings Sub-total of cash inflow Cash paid on repayment of borrowings Cash payments of interest expenses and appropriation of dividends or profit Including: Dividends paid to minority shareholders of subsidiaries Sub-total of cash outflows Net cash flows from/(used in) financing activities 4. Effect of foreign exchange rate changes on cash 5. Net increase of cash and cash equivalents 6(1)	Consolidated (3,986,669,036)	The Company (1,683,720,015) (1,050,559,587) — — 4,240,000,000 4,240,000,000 (1,326,614,201) (3,179,942,124) — (4,506,556,325) (266,556,325) 1,269,827 2,545,061,507
	(3,873,029,275) 247,419,400 247,419,400 7,715,000,000 7,962,419,400 (2,381,066,035) (3,422,195,574) (122,050,613) (5,803,261,609) 2,159,157,791 (79,241)	(1,050,559,587
		— — 4,240,000,000
		4,240,000,000
		(1,326,614,201 (3,179,942,124 —
		(4,506,556,325
		(266,556,325
		1,269,827
	2,391,978,473

The accompanying notes form an integral part of these financial statements.

— 236 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

Supplementary Information 1. Reconciliation of net profit to cash flows from operating activities Net profit Add: Minority interests Reversal for asset impairment Depreciation of fixed assets Amortization of intangible assets Amortization of long-term deferred expenses Decrease in deferred expenses Increase in accrued expenses Gain on disposal of fixed assets Financial expenses Gains arising from investments Increase in inventories Increase in operating receivables items Decrease in operating payables items Others Net cash flows from operating activities 2. Investing and financing activities that do not involve cash receipts or payments Conversion of debt into capital Reclassification of current portion of convertible notes to current liabilities Fixed assets capitalized under finance leases 3. Net increase in cash and cash equivalents Cash at end of period Less: cash at beginning of period Cash equivalents at end of period Less: cash equivalents at beginning of period Net increase in cash and cash equivalents	Consolidated 2,530,964,525 99,504,588 (10,226,042) 2,098,973,555 (114,228,896) 1,063,602 17,530,605 25,988,415 (924,961) 229,574,221 (79,858,472) (176,692,374) (101,339,274) (412,650,364) (1,749,930) 4,105,929,198	The Company 2,530,964,525 — (6,502,378) 1,848,607,947 (115,251,308) 1,063,602 16,691,178 14,033,808 (924,961) 162,263,907 (281,650,229) (160,106,002) (64,525,291) (83,757,206) — 3,860,907,592 124,149 — — 5,836,983,724 (3,291,922,217) — — 2,545,061,507
	124,149 — — 6,520,626,487 (4,128,648,014) — —	124,149 — — 5,836,983,724 (3,291,922,217 — —
	2,391,978,473

The accompanying notes form an integral part of these financial statements.

— 237 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

NOTES TO THE FINANCIAL STATEMENTS

(Amounts expressed in RMB unless otherwise stated)

1. COMPANY BACKGROUND

Huaneng Power International, Inc. (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) as a Sino-foreign joint stock company on 30th June, 1994.

The Company and its subsidiaries are principally engaged in the generation and sale of electric power to ultimate consumers through the respective provincial or regional grid companies.

Five of the power plants had always been in commercial operations at time of incorporation of the Company in 1994 (hereinafter collectively referred to as the “five original operating plants”). The five original operating plants were previously branches of Huaneng International Power Development Corporation (“HIPDC”), which is a Sino-foreign equity joint venture established in the PRC. In accordance with the Reorganization Agreement dated 30th June, 1994, the Company acquired the assets, liabilities and businesses of the five original operating plants from HIPDC which in return received an equity interest in the Company (the “Reorganization”). The other operating plants were either constructed or acquired by the Company after the Reorganization.

The Company’s ultimate parent company is China Huaneng Group (“Huaneng Group”). Huaneng Group is a state-owned enterprise registered in People Republic of China. For details, please refer to Note 8(1).

Particulars of operating power plants of the Company, its subsidiaries and associates are as follows:

	Total installed
	capacity of
	the Company,	Equity portion of	Province/
	its subsidiaries	total capacity	Municipality
Operating plants	and associates	of the Company	located
	(MW)	(MW)
Wholly-owned power plants:
Huaneng Dalian Power Plant (the “Dalian
Power Plant”)	700	700	Liaoning
Huaneng Shangan Power Plant (the “Shangan
Power Plant”)	700	700	Hebei
Huaneng Nantong Power Plant (the “Nantong
Power Plant”)	704	704	Jiangsu
Huaneng Fuzhou Power Plant (the “Fuzhou
Power Plant”)	700	700	Fujian
Huaneng Shantou Oil-Fired Plant (the
“Shantou Oil-Fired Power Plant”)	103	103	Guangdong
Huaneng Shantou Coal-Fired Power Plant (the
“Shantou Power Plant”)	600	600	Guangdong
Huaneng Shangan Power Plant Phase II ( the
“Shangan Phase II”)	600	600	Hebei

— 238 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

	Total installed
	capacity of
	the Company,	Equity portion of	Province/
	its subsidiaries	total capacity	Municipality
Operating plants	and associates	of the Company	located
	(MW)	(MW)
Huaneng Shanghai Shidongkou Second Power
Plant (the “Shidongkou II Power Plant”)	1,200	1,200	Shanghai
Huaneng Dalian Power Plant Phase II (the
“Dalian Phase II”)	700	700	Liaoning
Huaneng Dandong Power Plant (the “Dandong
Power Plant”)	700	700	Liaoning
Huaneng Nantong Power Plant Phase II (the
“Nantong Phase II”)	700	700	Jiangsu
Huaneng Fuzhou Power Plant Phase II (the
“Fuzhou Phase II”)	700	700	Fujian
Huaneng Nanjing Power Plant (the “Nanjing
Power Plant”)	640	640	Jiangsu
Huaneng Dezhou Power Plant (the “Dezhou
Power Plant”)	2,520	2,520	Shandong
Huaneng Jining Power Plant (the “Jining
Power Plant”)	595	595	Shandong
Huaneng Changxing Power Plant (the
“Changxing Power Plant)	250	250	Zhejiang
Shanghai Shidongkou Power Plant (the
“Shidongkou I Power Plant”)	1,200	1,200	Shanghai
Huaneng Xindian Power Plant (the “Xindian
Power Plant”)	450	450	Shandong
Subsidiaries:
Huaneng Weihai Power Company (the “Weihai
Power Company”)	850	510	Shandong
Suzhou Industrial Park Huaneng Power
Limited Liability Company (the “Taicang
Power Company”)	600	450	Jiangsu
Jiangsu Huaneng Huaiyin Power Limited
Company (the “Huaiyin Power Company”)	400	255	Jiangsu
Huaneng Yushe Power Company (the
”Yushe Power Company”)	200	120	Shanxi
Associates:
Shandong Rizhao Power Company Ltd. (the
“Rizhao Power Company”)	700	178	Shandong
Shenzhen Energy Group Co., Ltd. (the
“SEG”)	1,844	461	Guangdong
	18,356	15,736

— 239 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

2. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES

Effective 1st July 2003, the Company has adopted the revised “Accounting Standards for Business Enterprises - Events Occurring After the Balance Sheet Date”. Prior to the adoption of the revised standard, profit distribution was transferred out of shareholders’ equity and cash dividends were recognized as payables in the period related to which the Board of Directors proposed the distribution plan. Subsequent to 1st July 2003, profit distribution is recognized as a liability in the period when the distribution plan is approved at the general meeting of the shareholders. This change in accounting policy has been accounted for retrospectively, and as a result, the net assets as at 1st January, 2003 have been increased by Rmb2,040,093,146.

3. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of preparation

The financial statements have been prepared in accordance with the Accounting Standards for Business Enterprises and Accounting Systems for Business Enterprises as promulgated by the government of the PRC.

(2) Accounting year

The financial year starts on 1st January and ends on 31st December.

(3) Reporting currency

The Company and its subsidiaries use the Renminbi as reporting currency.

(4) Basis of accounting and measurement bases

Accrual method is used as the basis of accounting. Assets are initially recorded at their costs. Subsequently, if they are impaired, impairment provisions are taken accordingly.

(5) Foreign currency translation

Transactions denominated in foreign currencies are translated into Rmb at the exchange rates stipulated by the People’s Bank of China (the “PBOC”) prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Rmb at the exchange rates stipulated by the PBOC at the balance sheet date. Exchange differences arising from these translations are taken to the profit and loss account, except that they are attributable to foreign currency borrowings that have been taken out specifically for construction of fixed assets, which are capitalized as part of the fixed asset costs accordingly.

(6) Cash and cash equivalents

— 240 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

For the purpose of the cash flow statement, restricted cash and time deposits with maturity beyond three months are not considered as cash and cash equivalents. Their movements are considered as cash flow from investing activities.

(7) Receivables and provision for bad debts

Receivables include accounts receivable and other receivables.

The Company and its subsidiaries make provision for bad debts using the “allowance method”. Receivables are netted with the provision for bad debts.

Provisions for bad debts are made based on the assessment of the collectibility of the receivables. Based on the actual circumstances and experiences, the Company and its subsidiaries made provisions against balances that have been assessed to be uncollectible.

For balances where there are clear evidence that they cannot be recovered (e.g. creditor has been deregistered, declared bankruptcy, unable to meet its liabilities as they fall due or having serious cash-flow issues), then bad debts are recognized and the balances are written off against the provision.

(8) Inventories

(9) Long-term investments

(a) Equity investment

Subsidiaries are investees in which the Company has, directly or indirectly, an interest of more than 50% (excluding 50%) of the voting rights, or otherwise has power to govern the investees’ financial and operating policies. Associates generally represent investees in which the Company has an interest of between 20% to 50% (excluding 20% and 50%) of the voting rights or otherwise has significant influence over the financial and operating policies.

— 241 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

When long-term equity investments acquired prior to 17th March, 2003 are accounted for using the equity method of accounting, the difference between the initial cost of investment and the proportionate share of the net assets of the investee is amortized using the straight-line method over ten years. When long-term equity investments acquired after 17th March, 2003 are accounted for using the equity method of accounting, if the initial cost of investment is less than the proportionate share of the net assets of the investee, the difference is accounted for as capital surplus. If there is an excess of the initial cost of investment over the proportionate share of net assets of the investee, the excess is amortized using the straight-line method over a certain period.

(b) Debt investment

Long-term debt investments are recorded at cost on acquisition, less unpaid interest which has been accrued. Interest receivable from investments is computed for each period.

Entrusted loans refer to loans that the Company provides to other companies via intermediary financial institutions with maturities over one year. Interest income is accrued and recorded as income in each period. Interest receivable that has been accrued, but cannot be collected when due, should be written off. At the balance sheet date, when events indicate that the principal amount is higher than the recoverable amount of the entrusted loans, provision for impairment loss will be made.

(10) Fixed assets and depreciation

Fixed assets purchased or constructed were initially recorded at cost. Fixed assets obtained upon the Reorganization were initially recorded at their appraised value approved by relevant government authorities.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

The estimated useful lives, estimated residual value and depreciation rates of the fixed assets of the Company and its subsidiaries are as follows:

	Estimated	Estimated	Depreciation
Categories	useful lives	residual value	rate
Buildings	8-35 years	0%-11%	2.54%-12.50%
Electric utility plant in service	4-30years	0%-11%	2.97%-25.00%
Transportation and transmission facilities	13-27years	5%-11%	3.30%-7.31%
Others	5-13years	0%-11%	6.85%-20.00%

When fixed assets are sold, transferred, disposed of or destroyed, proceeds reduced by the carrying amount of the assets, related taxes and expenses, are included in non-operating income or expenses.

(11) Construction-in-progress

(12) Intangible assets

Intangible assets include land use rights, goodwill and negative goodwill, and are stated at cost net of accumulated amortization.

The land use rights acquired through payment of land use fees, are initially recorded at cost. They are recorded as intangible assets and amortized, before the construction takes place on land, using the straight-line method over the land use rights period of 20 to 70 years. Effective from 1st January, 2001, when construction is taking place on land for which will eventually be utilized by the Company, then the carrying value of the land use rights is transferred into the construction-in-progress account. Land use rights acquired prior to 1st January, 2001 that have already been constructed and utilized by the Company and its subsidiaries are not reclassified.

Goodwill and negative goodwill arisen from acquisitions are amortized over 10 years on a straight-line basis.

(13) Long-term deferred expenses

Long-term deferred expenses represent other deferred expenses with amortization period more than one year. They are stated at cost and amortized using the straight-line method over the expected beneficial period of the asset.

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(14) Asset impairment

The recognition of impairment provisions against entrusted loans, receivables and loss on realization of inventories are described in the respective accounting policies mentioned above. When events or changes in circumstances indicate that the carrying value of other individual assets is higher than their recoverable amounts, then tests for impairment are undertaken. If the carrying amount is higher than the recoverable amount, then the excess is recognized as an impairment provision and taken into the profit and loss account.

If there are indications that the impairment loss recognized for an asset in prior years no longer exist or have decreased, then the provision for asset impairment is reversed to the extent of impairment loss being recognized in the previous years.

(15) Borrowing costs

The borrowings are initially recognized at the amount of the proceeds received. Ancillary costs incurred in connection with the borrowing arrangement are expensed as incurred.

The capitalization amount of interest for each accounting period is determined by using the weighted average amount of accumulated expenditures incurred for the acquisition or construction of a fixed asset up to the end of the current period and the relevant capitalization rate of the relevant borrowings. The amount of interest for each capitalization period shall not exceed the actual amount of interest incurred of the specific borrowings during that period. Exchange differences for specific borrowings denominated in foreign currency and ancillary costs incurred in connection with the arrangement of specific borrowings are capitalized in the period in which they are incurred.

Interest incurred in connection with other borrowings is recognized as expenses in the period in which it is incurred.

(16) Convertible notes

Convertible notes are stated at principal plus interest payable.

(17) Employee social security benefits

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APPENDIX II

(18) Profit distribution

Cash dividend is transferred out of owners’ equity in the period when the plan of cash dividend is approved by the shareholders at their annual general meeting.

(19) Revenue recognition

Revenue is recognized under the following methods:

(a) Operating revenue

Operating revenue represents amounts earned for electricity generated and transmitted to the ultimate consumers through respective provincial or regional grid companies (net of Value Added Tax (“VAT”)). The Company and its subsidiaries bill the respective grid companies based on the actual quantity of electricity transmitted or sold to the power grid controlled and owned by the respective grid companies and recognize revenue at the end of each month.

(b) Interest income

Interest income is recognized on a time proportion basis on the amounts deposited/entrusted lending and the effective yield.

As mentioned in Note 8(5)(i), the Company provides management service to certain power plants owned by Huaneng Group and HIPDC. The Company recognized the service income as other income when service was provided in accordance with the management service agreement.

(20) Lease

(21) Accounting for income tax

The Company and its subsidiaries account for enterprise and local income taxes using the tax payable method. Tax expense is recognized based on current period taxable income and tax rates.

(22) Consolidation of financial statements

The consolidated financial statements, including the financial statements of the Company and its subsidiaries, are prepared in accordance with the CaiKuaiZi(1995)11 “Tentative Regulations for Consolidated Financial Statements” and relevant regulations issued by the Ministry of Finance of the PRC.

— 245 —

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FINANCIAL INFORMATION ON THE HUANENG GROUP

The revenue, costs and profit of a subsidiary is consolidated from the date on which control is obtained by the Company. Major intercompany balances, transactions and unrealized gains between the Company and its subsidiaries are eliminated upon consolidation. Minority interests in the consolidated financial statements represent the portion of the shareholders equity of the subsidiaries that are not owned by the Company.

When the accounting policies adopted by subsidiaries are not consistent with those adopted by the Company and such inconsistency created a material impact to the consolidated financial statements, accounting policies of subsidiaries are adjusted to ensure consistency with the policies adopted by the Company.

4. TAXATION

(1) Value added tax

The electricity sales of the Company and its subsidiaries are subjected to Value Added Tax (“VAT”). The applicable tax rate is 17%. Input VAT from purchase of raw materials and other production materials can be netted off against output VAT from sales.

(2) Income tax

Pursuant to “Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises”, all power plants (except for the Dezhou Power Plant, Jining Power Plant, Changxing Power Plant, Shidongkou I Power Plant and Xindian Power Plant) are exempted from income tax for two years starting from the first profit-making year, after offsetting all tax losses carried forward from the previous years (at most five years), followed by a 50% reduction of the applicable tax rate for the next three years (“tax holiday”).

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The statutory income tax rates applicable to the head office, the Shandong branch and the operating individual power plants after the expiration of tax holiday are summarized as follow:

	Income tax rate	Tax holiday period
Head Office	15.0%	None
Dalian Power Plant	18.0%	Till 31st December, 1994
Dalian Phase II	15.0%	Till 31st December, 2008
Shangan Power Plant	18.0%	Till 31st December, 1996
Shangan Phase II	18.0%	Till 31st December, 2003
Nantong Power Plant	15.0%	Till 31st December, 1996
Nantong Phase II	15.0%	Till 31st December, 2004
Fuzhou Power Plant	15.0%	Till 31st December, 1995
Fuzhou Phase II	15.0%	Till 31st December, 2004
Shantou Oil-Fired Plant	15.0%	Till 31st December, 1994
Shantou Power Plant	15.0%	Till 31st December, 2005
Shidongkou II Power Plant	16.5%	Till 31st December, 1998
Dandong Power Plant	18.0%	Not commenced yet
Nanjing Power Plant	15.0%	Till 31st December, 2001
Shandong Branch	17.0%	None
Dezhou Power Plant	17.0%	None
Jining Power Plant	15.0%	None
Changxing Power Plant	16.5%	None
Shidongkou I Power Plant	18.0%	None
Xindian Power Plant*	15.0%	None
Weihai Power Company	33.0%	None
Taicang Power Company	33.0%	None
Huaiyin Power Company	33.0%	None
Yushe Power Company	33.0%	None

The Company acquired all of the assets and liabilities of Xindian Power Plant on 27th October 2003 and Xindian Power Plant became a branch of the Company. As such, Xindian Power Plant is entitled to preferential tax treatment applicable to Sino-foreign enterprises investing in energy and is in the process of applying to the relevant tax bureau for such preferential treatment, and pay EIT based on a reduced income tax rate of 15%. At present, Xindian Power Plant is in the progress of filing the relevant tax holiday application in relevant tax authority.

— 247 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

The statutory income tax rates applicable to the head office, the Shandong branch and the operating individual power plants, after taking the effect of tax holiday into consideration, are summarized as follow:

		For the six	months	ended
		30th June,
	Approved File No.	2004		2003
Head Office	Guo Shui Han [1997]368	15.0%		15.0%
Dalian Power Plant	Guo Shui Han [1994]381	18.0%		18.0%
Dalian Phase II	Guo Shui Zhi Shui Han [2004]12	15.0%		18.0%
Shangan Power Plant	Guo Shui Han [1994]381 & Guo	18.0%		18.0%
	Shui Han [1999]604
Shangan Phase II	Guo Shui Han [1994]381 & Guo	18.0%		9.0%
	Shui Han [2000]194
Nantong Power Plant	Guo Shui Han [1994]381	15.0%		15.0%
Nantong Phase II (i)	Su Guo Shui Han [2003]248 &	7.5%		7.5%
	Tong Guo Shui Wai Zi [2003] 1
Fuzhou Power Plant	Guo Shui Han [1994]381	15.0%		15.0%
Fuzhou Phase II (ii)	Min Guo Shui Han [2003]37	7.5%		7.5%
Shantou Oil-Fired Plant	Guo Shui Han [1994]381	15.0%		15.0%
Shantou Power Plant (iii)	Approved by Shantou State Tax	10.0%		10.0%
	Bureau
Shidongkou II Power Plant	Approved by Shanghai State Tax	16.5%		16.5%
	Bureau
Dandong Power Plant (v)	Dan Guo Shui She Wai [1999]7	—		—
Nanjing Power Plant	Ning Guo Shui Wai Zi [1997]039	15.0%		15.0%
Shandong Branch	Guo Shui Han [2001]866	17.0%		17.0%
Dezhou Power Plant	Guo Shui Han [2001]866	17.0%		17.0%
Jining Power Plant	Guo Shui Han [2002]1063 and Ji	15.0%		15.0%
	Guo Shui Han [2003]1
Changxing Power Plant	Guo Shui Han [2002]1030	16.5%		16.5%
Shidongkou I Power Plant	Hu Guo Shui Ba Shui [2003]31	18.0%		33.0%
Xindian Power Plant (iv)	In process of application	15.0%	Not applicable
Weihai Power Company	Not applicable	33.0%		33.0%
Taicang Power Company	Not applicable	33.0%		33.0%
Huaiying Power Company	Not applicable	33.0%		33.0%
Yushe Power Company (iv)	Not applicable	33.0%	Not applicable

(i) In accordance with Su Guo Shui Han [2003] No. 248 and Tong Guo Shui Wai Zi [2003] No.1, the tax holiday of the Nantong Phase II is determined separately from the Nantong Power Plant. The Nantong Phase II is entitled to a 50% reduction of the applicable tax rate from 1st January, 2002 to 31st December, 2004.
(ii) In accordance with Min Guo Shui Han [2003] No. 37 the tax holiday of the Fuzhou Phase II is determined separately from the Fuzhou Power Plant. The Fuzhou Phase II is entitled to a 50% reduction of the applicable tax rate from 1st January 2002 to 31th December, 2004.
(iii) In accordance with the approval from Shantou State Tax Bureau Shewai Branch dated 16th January, 2003, the Shantou Power Plant is qualified as a foreign invested advanced technology enterprise and is, therefore, entitled to extend its tax holiday for three years from 1st January, 2003 to 31st December, 2005. The applicable tax rate during the extension is 10%.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(iv) Not applicable for the six months ended 30th June, 2003 as they were not subsidiaries or branches of the Company.
(v) The tax holiday of Dandong Power Plant has not commenced yet as it has not recovered all of the accumulated deficits.

5. SUBSIDIARIES

As at 30th June, 2004, the Company had equity interests in the following subsidiaries, which are included in the consolidated financial statements:

				Total
				investment	Percentage
		Registered	Principal	contributed by	of equity
Name	Place and date of incorporation	capital	activities	the Company	interest held
Weihai Power Company	No. 58 Haifu road,	Rmb761,832,800	Power	Rmb457,103,040	60%
	Economic Development Zone,		generation
	Weihai, Shandong province
	22nd November, 1993
Taicang Power Company	Jinjihupan, Sanxing Road,	Rmb632,840,000	Power	Rmb474,630,000	75%
	Suzhou, Jiangsu province		generation
	19th June, 1997
Huaneng Taicang Power	Fuqiao town Jinlanglanggang	Rmb894,410,000	Power	Rmb670,807,500	75%
Limited Company	village, Taicang,		generation
(“Taicang II Power	Jiangsu province
Company”)	18th June, 2004
Huaiyin Power Company	No. 291 Huaihai West Road,	Rmb265,000,000	Power	Rmb168,646,000	63.64%
	Huaian, Jiangsu province		generation
	26th January, 1995
Jiangsu Huaneng Huaiyin	No. 291 Huaihai West Road,	Rmb474,000,000	Power	Rmb301,653,600	63.64%
Second Power Limited	Huaian, Jiangsu province		generation
Company (“Huaiyin II	22nd June, 2004
Power Company”)
Qinbei Power Company	Wulongkou town,	Rmb10,000,000	Power	Rmb148,200,000	55%
	Jiyuan city, Henan province		generation
	12th July, 1995
Yushe Power Company	Dengyu village,	Rmb80,000,000	Power	Rmb48,000,000	60%
	Yushe county, Shanxi		generation
	province
	29th November, 1994
Shandong Xindian Power	Qilu Chemical Industrial Park,	Rmb100,000,000	Power	Rmb95,000,000	95%
Limited Company	Linzi district, Zibo,		generation
(“Xindian II Power	Shandong province
Company”)	14th March, 2004

— 249 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

As at 30th June, 2004, Yushe Power Company, one of the Company’s subsidiaries, had 95% equity interests in Shanxi Huaneng Yushe Yuanheng Service Company (“Yuanheng Company”). As at 30th June, 2004, the registered capital of Yuanheng Company was Rmb3,000,000, and Yushe Power Company’s investment in Yuanheng Company was Rmb2,850,000. The principal operating activities of Yuanheng Company is providing logistic services and other services to Yushe Power Company. As at 30th June, 2004, the total assets of Yuanheng Company amounted to Rmb25,241,474, and net liability amounted to Rmb339,304 . For the six months ended 30th June, 2004, the net profit of Yuanheng Company amounted to Rmb1,882,816 . Since the assets, liabilities and operating result of Yuanheng Company are immaterial to the Company, it is not included in the consolidated financial statements.

6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(1) Cash

30th June, Original currency amount Exchange rate Cash — RMB Bank deposit — RMB — USD 21,622,604 8.2766 — Japanese yen 1,504,759,162 0.0764 Sub-total Total cash	2004 31st December, 2003 Rmb equivalent Original currency amount Exchange rate Rmb equivalent 736,689 726,410	2004 31st December, 2003 Rmb equivalent Original currency amount Exchange rate Rmb equivalent 736,689 726,410
	6,291,738,950 178,961,642 34,328,609 8.2767 114,963,600 1,688,242,236 0.0773 6,585,664,192	4,018,311,639 284,127,729 130,438,660
		4,432,878,028
	6,586,400,881	4,433,604,438

The cash and cash equivalents as stated in the cash flow statement comprised the following:

		30th June, 2004
Cash		6,586,400,881
Less:	Time deposit with maturity beyond 3 months	(56,766,603)
	Restricted cash	(9,007,791)
Cash	and cash equivalents as at 30th June, 2004	6,520,626,487
Less:	Cash and cash equivalents as at 1st January, 2004	(4,128,648,014)
Net increase in cash and cash equivalents		2,391,978,473

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(2) Notes receivable

Banking notes receivable Commercial notes receivable	30th June, 31st December, 2004 2003 — 149,940,000 — 297,260,000 — 447,200,000	30th June, 31st December, 2004 2003 — 149,940,000 — 297,260,000 — 447,200,000
		447,200,000

As at 31st December, 2003, all the notes receivable were unsecured notes receivable.

(3) Accounts receivable and other receivables
(i) Accounts receivable

		30th June,	31st December,
		2004	2003
Accounts	receivable	2,835,012,883	2,356,825,998

Aging of the accounts receivable was as follows:

Aging Within 1 year 1 - 2 years 2 - 3 years Over 3 years	30th June, 2004 Amount Percentage (%) 2,831,316,883 100 — — — — 3,696,000 — 2,835,012,883 100	31st December, 2003 Amount Percentage (%) 2,353,129,998 100 — — 3,696,000 — — — 2,356,825,998 100	31st December, 2003 Amount Percentage (%) 2,353,129,998 100 — — 3,696,000 — — — 2,356,825,998 100
			100

All accounts receivable represented receivables from the provincial or regional grid companies for the sales of electric power. Since these accounts receivable are collectible, no bad debt provision was provided by the Company and its subsidiaries.

As at 30th June, 2004, the five largest accounts receivable of the Company and its subsidiaries amounted to Rmb2,384,828,465 (31st December, 2003: Rmb1,966,974,945), representing 84.12% of total accounts receivable (31st December, 2003: 83.46%).

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APPENDIX II

(ii) Other receivables

Other receivables Less: bad debt provision	30th June, 31st December, 2004 2003 333,684,739 214,605,918 (43,690,863) (53,885,032) 289,993,876 160,720,886	30th June, 31st December, 2004 2003 333,684,739 214,605,918 (43,690,863) (53,885,032) 289,993,876 160,720,886
		160,720,886

Aging and bad debt provision for other receivables were as follow:

Aging Within 1 year 1-2 years 2-3 years Over 3 years	30th June, 2004 Amount Percentage Bad debt provision (%) 221,676,516 66 (1,082,876) 43,407,976 13 (50,329) 3,317,430 1 (1,107,629) 65,282,817 20 (41,450,029) 333,684,739 100 (43,690,863)	31st December, 2003 Amount Percentage Bad debt provision (%) 88,240,614 41 (2,647,218) 18,827,094 9 (1,564,813) 55,952,155 26 (1,678,565) 51,586,055 24 (47,994,436) 214,605,918 100 (53,885,032)

Breakdown of other receivables was as follow:

Receivable from employees for sales of staff quarters Social insurance funds Petty cash Transmission fee refund receivable from Shandong Electric Power Corporation Payment on behalf of Huai’an Huaneng Shiye Company Due from HIPDC Prepayments for constructions Others	30th June, 31st December, 2004 2003 10,304,165 10,272,586 14,718,591 14,680,384 10,353,683 11,103,320 — 19,067,120 19,930,470 21,735,192 93,184,330 — 28,113,988 19,726,451 157,079,512 118,020,865 333,684,739 214,605,918	30th June, 31st December, 2004 2003 10,304,165 10,272,586 14,718,591 14,680,384 10,353,683 11,103,320 — 19,067,120 19,930,470 21,735,192 93,184,330 — 28,113,988 19,726,451 157,079,512 118,020,865 333,684,739 214,605,918
		214,605,918

As at 30th June, 2004, the five largest other receivables of the Company and its subsidiaries amounted to Rmb120,688,546 (31st December, 2003: Rmb82,448,358), representing 36.17% of total other receivables (31st December, 2003: 38.42%).

As at 30th June, 2004, there were no accounts receivable and other receivables from shareholders who hold 5% or more of the equity interest in the Company except for the receivable from HIPDC amounted to Rmb93,184,330 as mentioned in Note 8(7).

See Note 8 for related party transactions.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(4) Advance to suppliers Prepayments for coal Prepayments for materials and spare parts Prepayments for equipment Others (5) Inventories Fuel (coal and oil) for power generation Materials and spare parts Less: provision for inventory obsolescence-spare parts	30th June, 31s 2004 228,958,294 17,221,323 235,249,778 5,379,511 486,808,906 30th June, 31s 2004 477,808,905 520,664,203	t December, 2003 64,325,931 7,549,431 11,179,768 5,139,683 88,194,813 t December, 2003 308,861,120 512,919,617 821,780,737 (13,621,461) 808,159,276
	998,473,108 (13,589,588)	821,780,737 (13,621,461
	984,883,520

Movements of provision for inventory obsolescence during the period are analyzed as follows:

	Provision
	for inventory
	obsolescence
	- spare parts
1st January, 2004	(13,621,461)
Current period addition	(154,092)
Current period reversal	185,965
30th June, 2004	(13,589,588)

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(6) Long-term investments

1st January, 2004 Long-term equity investments Consolidated difference in value (i) 392,105,037 Equity investment difference (ii) 741,157,596 Sub-total 1,133,262,633 Associates (iii) 2,012,939,632 Other long-term equity investments (iv) 260,832,266 Long-term equity investments 3,407,034,531 Long-term debt investments 95,560 Less: current portion of long-term debt investments (83,060) Long-term debt investments 12,500 Total long-term investments 3,407,047,031	Current period additions 5,936,001 —	Current period deductions (22,280,387) (39,704,872)	30th June, 2004 375,760,651 701,452,724 1,077,213,375 2,132,236,990 260,782,266 3,470,232,631 74,360 (48,660) 25,700 3,470,258,331
1,133,262,633 2,012,939,632 260,832,266 3,407,034,531 95,560 (83,060) 12,500	5,936,001 137,799,745 — 143,735,746 13,200 — 13,200	(61,985,259) (18,502,387) (50,000) (80,537,646) (34,400) 34,400 —	1,077,213,375 2,132,236,990 260,782,266
			3,470,232,631
			74,360 (48,660
			25,700
3,407,047,031	143,748,946	(80,537,646)

As at 30th June, 2004 and 31st December, 2003, there was no indication of impairment of long-term investments of the Company and its subsidiaries and therefore no provision of impairment of long-term investments was made.

There was no significant restriction on the realizability of the investments or remittance of investment income.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(i) Equity investment difference that resulted in consolidated difference in value

Consolidated difference in value mainly represents the difference between the considerations paid for the acquisitions of Taicang Power Company, Huaiyin Power Company and Qinbei Power Company and the proportionate share of the net assets of these three companies. Details are summarized as follows:

Name Amortization period Taicang Power Company 10 years Huaiyin Power Company 10 years Qinbei Power Company 10 years Yushe Power Company 10 years	Original cost 191,587,073 151,623,305 96,461,357 5,936,001 445,607,736	Balance at 1st January, 2004 163,814,482 133,436,887 94,853,668 — 392,105,037	Current period additions Current period amortization Accumulated amortization — (9,579,354) (37,351,945) — (7,581,165) (25,767,583) — (4,823,068) (6,430,757) 5,936,001 (296,800) (296,800) 5,936,001 (22,280,387) (69,847,085)	Balance at 30th June, 2004 154,235,128 125,855,722 90,030,600 5,639,201
				375,760,651

(ii) Equity investment difference

Equity investment difference represents the difference between the consideration paid for the acquisition of SEG and the proportionate share of the net assets of the companies. Details are summarized as follows:

			Balance at	Current	Current		Balance at
	Amortization	Original	1st January,	period	period	Accumulated	30th June,
Name	period	cost	2004	additions	amortization	amortization	2004
SEG	10 years	794,097,424	741,157,596	—	(39,704,872)	(92,644,700)	701,452,724

(iii) Investment in associates

						Total investment	Percentage of	Percentage of
	Place and date of		Registered		Principal	contributed by	equity interest
Name	incorporation			capital	activities	the Company		held
Associates:
Rizhao Power	Rizhao, Shandong	US$150 million			Power generation	Rmb317.5 million		25.5%
Company	20th March, 1996
SEG	Shenzhen, Guangdong		Rmb955.56		Generation and	Rmb2,390 million		25%
	16th July, 1997			million	sale of electric
					power

— 255 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

					Investment cost movement	Investment cost movement	Investment cost movement
Name			Investment	period	1st January, 2004	30th June, 2004
Rizhao	Power	Company	20 years		231,868,800		231,868,800
SEG			No specific	terms	1,595,902,576		1,595,902,576
					1,827,771,376		1,827,771,376
				Accumulated equity pick-up movement
				1st January,	Current period		30th June,
Name				2004	profit/(loss)		2004
Rizhao	Power	Company		(35,738,867)	(18,502,387)		(54,241,254)
SEG				220,907,123	137,799,745		358,706,868
				185,168,256	119,297,358		304,465,614
					Net carrying		value
Name					1st January, 2004	30th June, 2004
Rizhao	Power	Company			196,129,933		177,627,546
SEG					1,816,809,699		1,954,609,444
					2,012,939,632		2,132,236,990

There was no significant difference in accounting policies used by the associates and the Company and its subsidiaries. There was no significant restriction on the realizability of the investments or the remittance of investment income.

(iv) Other long-term equity investment

Other long-term equity investment mainly represents the equity investment in China Yangtze Co., Limited (the “Yangtze Company”) (2.11%), details are as follows:

			Total investment	Percentage of
			contributed by	equity interest
Name		Investment period	the Company	held
Yangtze	Company	Starting from 22nd August, 2002,
		with no specific terms	Rmb254,989,551	2.11%

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(7) Fixed assets and accumulated depreciation

The movement of cost of fixed assets and accumulated depreciation were as follow:

Buildings Electric utility plant in service Transportation and transmission facilities Others Total 1,680,071,154 56,868,645,506 718,642,537 1,464,450,850 60,731,810,047 34,450,952 54,972,601 (79,175,352) (10,248,201) — 3,855,509 73,390,758 63,500 8,304,602 85,614,369 5,325,079 7,601,539 435,625 19,121,297 32,483,540 (139,318) (842,481) — (1,932,769) (2,914,568)	Buildings Electric utility plant in service Transportation and transmission facilities Others Total 1,680,071,154 56,868,645,506 718,642,537 1,464,450,850 60,731,810,047 34,450,952 54,972,601 (79,175,352) (10,248,201) — 3,855,509 73,390,758 63,500 8,304,602 85,614,369 5,325,079 7,601,539 435,625 19,121,297 32,483,540 (139,318) (842,481) — (1,932,769) (2,914,568)	Buildings Electric utility plant in service Transportation and transmission facilities Others Total 1,680,071,154 56,868,645,506 718,642,537 1,464,450,850 60,731,810,047 34,450,952 54,972,601 (79,175,352) (10,248,201) — 3,855,509 73,390,758 63,500 8,304,602 85,614,369 5,325,079 7,601,539 435,625 19,121,297 32,483,540 (139,318) (842,481) — (1,932,769) (2,914,568)	Buildings Electric utility plant in service Transportation and transmission facilities Others Total 1,680,071,154 56,868,645,506 718,642,537 1,464,450,850 60,731,810,047 34,450,952 54,972,601 (79,175,352) (10,248,201) — 3,855,509 73,390,758 63,500 8,304,602 85,614,369 5,325,079 7,601,539 435,625 19,121,297 32,483,540 (139,318) (842,481) — (1,932,769) (2,914,568)	Buildings Electric utility plant in service Transportation and transmission facilities Others Total 1,680,071,154 56,868,645,506 718,642,537 1,464,450,850 60,731,810,047 34,450,952 54,972,601 (79,175,352) (10,248,201) — 3,855,509 73,390,758 63,500 8,304,602 85,614,369 5,325,079 7,601,539 435,625 19,121,297 32,483,540 (139,318) (842,481) — (1,932,769) (2,914,568)
1,723,563,376		639,966,310	1,479,695,779	60,846,993,388
474,272,296		230,196,691	702,651,060	24,429,368,957
1,249,291,080	33,981,519,013 35,852,108,878	409,769,619	777,044,719	36,417,624,431
1,258,896,292		455,870,101	834,012,279	38,400,887,550

As at 30th June, 2004 and 31st December, 2003, there was no indication of impairment of fixed assets of the Company and its subsidiaries and therefore no impairment provision of fixed assets was made. No fixed assets were pledged as at 30th June, 2004.

As at 30th June, 2004, fixed assets amounted to Rmb416.33 million had been fully depreciated but still in use (31st December 2003: Rmb413.81 million).

(8) Construction materials

Dedicated material & equipment Prepayment for major equipment Tools & instrument for production	30th June, 31st December, 2004 2003 288,388,432 165,740,734 1,408,327,516 939,069,664 317,957,981 6,844,406 2,014,673,929 1,111,654,804	30th June, 31st December, 2004 2003 288,388,432 165,740,734 1,408,327,516 939,069,664 317,957,981 6,844,406 2,014,673,929 1,111,654,804
		1,111,654,804

— 257 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Construction-in-progress	Construction-in-progress	Construction-in-progress
Projects	Budget	1st January,	Current	Transfer to	Other	30th June,	Percent of	Source of
		2004	period	fixed assets	deduction	2004	completion	financing
			additions
Yuhuan Power	1,225,000,000	264,847,686	169,627,394	—	—	434,475,080	35%	Funds borrowed
Plant								from financial
								institutions and
								internal funds
Huaiyin II Power	2,382,480,000	245,205,149	234,554,125	—	—	479,759,274	20%	Funds borrowed
Company								from financial
project								institutions and
								internal funds
Taicang II Power	4,472,050,000	135,803,681	203,596,912	(718,890)	—	338,681,703	8%	Funds borrowed
Company								from financial
project								institutions and
								internal funds
Shantou Power	2,264,030,000	60,120,169	68,095,253	—	—	128,215,422	6%	Funds borrowed
Plant Phase II								from financial
project								institutions and
								internal funds
Xindian II Power	619,160,000	—	156,867,724	—	—	156,867,724	25%	Funds borrowed
Company								from financial
project								institutions and
								internal funds
Yushe Power	4,676,310,000	556,744,978	940,568,480	—	—	1,497,313,458	32%	Funds borrowed
Company								from financial
Phase II								institutions and
project								internal funds
Qinbei Power	2,686,250,000	1,535,532,743	1,104,358,504	—	—	2,639,891,247	98%	Funds borrowed
Company								from financial
project								institutions and
								internal funds
Other projects	—	292,705,775	147,457,292	(84,895,479)	(29,204,053)	326,063,535		Funds borrowed
								from financial
								institutions and
								internal funds
		3,090,960,181	3,025,125,684	(85,614,369)	(29,204,053)	6,001,267,443

For the six months ended 30th June, 2004, the interest capitalized for construction-in-progress was Rmb83,048,332 and the capitalized rate per annum was 4.87% (2003: Rmb21,224,053, at 4.83% per annum).

As at 30th June, 2004 and 31st December, 2003, there was no indication of impairment of construction-in-progress of the Company and its subsidiaries. Accordingly, no provision for impairment loss was made.

— 258 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(10) Intangible assets

The movement of intangible assets, which comprised land-use rights, goodwill and negative goodwill, were as follows:

Land use rights Negative goodwill Goodwill Others	Original cost 765,599,862 (2,472,783,635) 2,778,712 15,228,691 (1,689,176,370)	1st January, 2004 662,228,414 (1,730,948,544) 2,361,909 8,951,492 (1,057,406,729)	Current period addition 5,633,241 — — 1,759,263 7,392,504	Current period amortization Accumulated amortization (7,777,865) (105,516,072) 123,639,182 865,474,273 (138,934) (555,737) (1,493,487) (6,011,423) 114,228,896 753,391,041	Current period amortization Accumulated amortization (7,777,865) (105,516,072) 123,639,182 865,474,273 (138,934) (555,737) (1,493,487) (6,011,423) 114,228,896 753,391,041	30th June, 2004 Remaining amortization period Obtained through 660,083,790 16.5-64.5 years Purchase (1,607,309,362) 6.5 year Acquisition 2,222,975 7 year Acquisition 9,217,268 1.5-17.5 years Purchase (935,785,329)
					753,391,041

As at 30th June, 2004 and 31st December, 2003, there was no indication that the intangible assets of the Company and its subsidiaries were impaired and therefore no provision for impairment loss was made. No intangible assets of the Company and its subsidiaries were pledged.

(11) Short-term loans

		30th June,	31st December,
		2004	2003
Credit	loans	6,495,000,000	1,600,000,000

As at 30th June, 2004, all of the short-term loans of the Company and its subsidiaries were dominated in Rmb, with the interest rate of 4.54% to 5.05% per annum (31st December 2004: 4.54% to 5.05% per annum).

As at 30th June, 2004, short-term loans amounted to Rmb1,005 million was borrowed from China Huaneng Finance Company (“Huaneng Finance”), with the interest rate of 4.78% to 5.05% per annum. (31st December, 2003: Rmb1,130 million, with interest rate of 4.78% to 5.05% per annum); Short-term loans amounted to Rmb130 million was borrowed from Henan Construction Investment Company (“Henan Investment”), with the interest rate of 4.78% (31st December, 2003: Rmb130 million, with interest rate of 4.78% ).

(12) Accounts payable

Accounts payable were mainly the amounts due to coal suppliers. As at 30th June, 2004 and 31st December, 2003, there was no accounts payable that were due to the shareholders who were holding 5% or more of the equity interest in the Company, and there was no accounts payable aged over three years.

See Note 8 for related party transactions.

— 259 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(13) Taxes payable

Taxes payable comprised:

Income tax payable VAT payable Others Other payables Other payables comprised: Payable to contractors Other payable to contractors Payable to HIPDC Project saving bonus Payable of housing maintenance fund Payables to SEG Others	30th June, 3 2004 283,648,446 236,570,624 25,204,960 545,424,030 30th June, 3 2004 1,128,848,040 134,839,531 — 23,897,870 51,429,663 50,000,000 450,710,980 1,839,726,084	1s 1s	t December, 2003 472,850,018 415,147,473 29,365,201
			917,362,692
			t December, 2003 572,459,421 207,257,299 87,507,580 26,541,527 66,807,932 — 710,367,858
		1,670,941,617

(14) Other payables

As at 30th June, 2004, there was no other payable that were due to the shareholders who were holding 5% or more of the equity interest in the Company (31st December, 2003: Due to HIPDC: Rmb87,507,580), and there was no significant other payable aged over three years.

See Note 8 for related party transactions.

— 260 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(15) Long-term loans

Long-term loans comprised (all were credit loans unless otherwise stated):

Long-term loans from shareholders and ultimate parent company (i) Long-term bank loans (ii) Other long-term loans (iii) Less: current portion of long-term loans	30th June, 2004 994,441,137 10,570,170,628 1,069,372,642 12,633,984,407 (2,074,884,244) 10,559,100,163	31st December, 2003 388,875,071 10,714,560,499 1,091,669,808
		12,195,105,378 (3,041,501,169)
		9,153,604,209

(i) Long-term loans from shareholders and ultimate parent company

Long-term loans from shareholders and ultimate parent company (including current portion) comprised:

30t Renminbi loans United States dollar loans Less: current portion of long-term loans	h June, 2004 800,000,000 194,441,137
	994,441,137 (194,441,137)
	800,000,000

— 261 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

As at 30th June, 2004, detailed information of the long-term loans from shareholders and ultimate parent company was as follow:

Lender 30th June, 2004 Loan period Interest rate per annum Renminbi loans Entrusted loans from Huaneng Group through Huaneng Finance 600,000,000 2004-2013 4.6% Entrusted loans from Huaneng Group through Huaneng Finance 200,000,000 2004-2013 3.78% Subtotal 800,000,000 United States dollar loans Loans from Bank of China on- lent by HIPDC* 194,441,137 1997-2004 LIBOR+0.9% 994,441,137	Lender 30th June, 2004 Loan period Interest rate per annum Renminbi loans Entrusted loans from Huaneng Group through Huaneng Finance 600,000,000 2004-2013 4.6% Entrusted loans from Huaneng Group through Huaneng Finance 200,000,000 2004-2013 3.78% Subtotal 800,000,000 United States dollar loans Loans from Bank of China on- lent by HIPDC* 194,441,137 1997-2004 LIBOR+0.9% 994,441,137	Current portion Terms — Nil — Nil — 194,441,137 Nil 194,441,137
	800,000,000 194,441,137 1997-2004 LIBOR+0.9%	— 194,441,137
	994,441,137

The foreign currency bank loans bore interest at the prevailing lending rates (both fixed and floating), prescribed by the loan contracts, which ranged from 3.60% to 3.62% per annum for the six months ended 30th June, 2004 (2003: 3.62% to 4.01%). These loans are repayable in accordance with the repayment schedules set by the banks.

The foreign-currency bank loans were previously borrowed by HIPDC for financing the construction of power plants. Upon the restructuring of the Company in 1994 or on the acquisition of the relevant power plants from HIPDC, all these outstanding long-term bank loans were restructured. HIPDC continued to borrow the loans from the banks and then on-lent the proceeds to the Company as shareholders loans. The existing terms of the loans including interest rates and repayment schedules remained intact after the restructuring.

(ii) Long-term bank loans

Long-term bank loans (including current portion) comprised:

	30th June, 2004
Renminbi bank loans	4,801,069,370
United States dollar bank loans	5,769,101,258
	10,570,170,628
Less: current portion of long-term bank loans	(1,412,050,757)
	9,158,119,871

— 262 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

As at 30th June, 2004, detailed information of the long-term bank loans was as follows:

		Loan	Interest rate	Current
Lenders	30th June, 2004	period	per annum	portion	Terms
Renminbi bank loans
China Construction Bank	20,000,000	2004-2007	4.94%	—	Nil
-Shantou branch*
China Construction Bank	20,000,000	2004-2009	5.02%	—	Nil
-Shantou branch*
China Construction Bank	30,000,000	1999-2005	5.76%	30,000,000	Guaranteed by the
-Weihai branch					Company
China Construction Bank	100,000,000	1999-2007	5.76%	—	Guaranteed by the
-Weihai branch*					Weihai Power
					Development
					Bureau (“ WPDB”)
Bank of China**	241,000,000	1999-2009	5.18%	—	Guaranteed by the
					Company
Bank of China	664,000,000	1999-2014	5.18%	—	Guaranteed by the
-Taicang branch*					Company
Bank of China	73,000,000	1999-2009	5.18%	—	Guaranteed by the
-Suzhou branch**					Company
China Commercial Bank	100,000,000	2003-2006	4.94%	—	Nil
-Nanjing branch*
China Development Bank	400,000,000	2003-2008	5.02%	—	Nil
-Jiangsu branch*
China Construction Bank	450,000,000	2004-2009	5.02%	—	Nil
- Huaian Branch*
China Construction Bank	740,000,000	2003-2019	5.18%	—	Guaranteed by the
-Jiyuan sub branch*					Company
China Construction Bank	125,000,000	2003-2019	5.18%	—	Guaranteed by
-Jiyuan sub branch*					Jiyuan Investment
					Company
China Construction Bank	200,000,000	2003-2019	5.18%	—	Guaranteed by
-Jiyuan sub branch*					Henan Investment
China Construction Bank	50,000,000	2000-2009	6.21%	—	Guaranteed by the
-Linzi sub branch*					Company
China Construction Bank	250,000,000	2001-2009	6.21%	—	Guaranteed by the
-Linzi sub branch*					Company
China Construction Bank	80,000,000	2002-2005	5.94%	80,000,000	Guaranteed by the
-Linzi sub branch					Company
China Construction Bank	120,000,000	2001-2004	5.94%	120,000,000	Guaranteed by the
-Linzi sub branch					Company
China Construction Bank	5,500,000	1994-2006	5.76%	—	Nil
-Yushe sub branch*
China Construction Bank	53,700,000	1991-2005	5.76%	32,000,000	Nil
-Yushe sub branch
Bank of China	920,000,000	2003-2019	5.17%		Nil
-Jinzhong branch*
China Construction Bank	30,000,000	2002-2005	4.94%	—	Guaranteed by the
-Yushe sub branch*					Company
China Construction Bank	49,869,370	2003-2005	4.78%	49,869,370	Nil
-Yushe sub branch
China Construction Bank	66,000,000	2003-2006	5.76%	—	Nil
-Yushe sub branch*

— 263 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

		Loan	Interest rate	Current
Lenders	30th June, 2004	period	per annum	portion	Terms
China Construction Bank-	13,000,000	2004-2007	4.94%	—	Nil
Yushe sub branch*
Sub-total of Renminbi bank	4,801,069,370			311,869,370
loans
United States dollar bank
loans
Bank of China	346,573,958	2002-2004	LIBOR+0.6%	346,573,958	Nil
Bank of Communications	5,630,129	2000-2005	LIBOR+1.1%	3,808,800	Nil
Bank of China-Taicang	76,183,384	1999-2006	Interest rate	24,867,000	Guaranteed by the
branch*			of foreign		Company
			currency loan
			prescribed by
			Bank of
			China-0.5%
	428,387,471			375,249,758
On-lent loans by
Bank of China
American I&E Bank	1,132,887,512	1997-2011	6.54%	145,230,033	Guaranteed by
					HIPDC
American I&E Bank	962,494,027	1995-2011	5.95%	128,332,534	Guaranteed by
					HIPDC
American I&E Bank	1,111,997,875	1997-2011	5.95%	148,269,339	Guaranteed by
					HIPDC
American I&E Bank	279,461,789	1997-2012	6.60%	32,877,859	Guaranteed by
					HIPDC
KFW Bank	720,765,158	1996-2012	6.60%	90,096,998	Guaranteed by
					HIPDC
Japan Fuji Bank	84,835,150	1996-2004	LIBOR	84,835,150	Guaranteed by
			+0.38%		HIPDC
On-lent loans by China
Construction Bank
KFW Bank	472,217,002	1999-2015	6.36%	42,871,249	Guaranteed by
					Huaneng Group
Citibank	576,055,274	1999-2015	LIBOR	52,418,467	Guaranteed by
			+0.075%		Huaneng Group
	5,340,713,787			724,931,629
Sub-total of US$ bank loans	5,769,101,258			1,100,181,387
Total	10,570,170,628			1,412,050,757

As at 30th June, 2004, these loans were not repayable within one year and therefore there were no current portion.
** In accordance with repayment schedules, these loans were not repayable within one year and therefore there was no current portion.

— 264 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(iii) Other long-term loans

Other long-term loans (including current portion) comprised:

	30th June, 2004
Renminbi loans	776,562,309
United States dollar loans	165,532,000
Japanese Yen loans	127,278,333
	1,069,372,642
Less: current portion of other long-term loans	(468,392,350)
	600,980,292

As at 30th June, 2004, other long-term loans comprised:

Lender
30th June, 2004
Loan
period
Annual
interest rate
Renminbi loans
WPDB
106,608,822
1994-2004
5.76%
Huaneng Finance
225,000,000
2002-2005
5.64%
Huaneng Finance
350,000,000
2003-2006
4.94%
Jiangsu International Trust
and Investment
Company
31,505,374
1997-2003
5.76%
Jiangsu Huaian Investment
Company
8,980,253
1997-2003
5.76%
Jiangsu Electric Power
Development Company
Limited*
19,467,860
1999-2003
5.76%
Huaneng Finance
35,000,000
2001-2004
5.22%
Subtotal of RMB loans
776,562,309
US$ loan:
On-lent foreign loans of
the Ministry of Finance
165,532,000
1996-2011
LIBOR+0.43%

Current
portion
Terms
106,608,822
Nil
225,000,000
Nil
—
Nil
31,505,374
Nil
8,980,253
Nil
19,467,860
Nil
35,000,000
Guaranteed by
the Company
426,562,309
23,647,422
US$15 million of
the loan were
guaranteed by
Hua Zhong
Power Group
Finance Company

— 265 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Lender 30th June, 2004 Loan period Annual interest rate Japanese Yen loan: On-lent foreign loans of the Ministry of Finance 127,278,333 1996-2011 LIBOR+0.3% Subtotal of foreign loans 292,810,333 Total 1,069,372,642	Lender 30th June, 2004 Loan period Annual interest rate Japanese Yen loan: On-lent foreign loans of the Ministry of Finance 127,278,333 1996-2011 LIBOR+0.3% Subtotal of foreign loans 292,810,333 Total 1,069,372,642	Current portion Terms 18,182,619 Rmb31,819,583 of the loan were guaranteed by Henan Investment 41,830,041 468,392,350
	292,810,333	41,830,041
	1,069,372,642

Pursuant to the related loan contracts, these loans were matured in 2003. However, Huaiyin Power Company had reached agreements with the lenders to extend these loans to later 2004.

(16) Share capital

1st January, 2004 4,250,000,000 4,250,000,000	Bonus shares 2,125,000,000 2,125,000,000	Conversion of capital surplus 2,125,000,000 2,125,000,000	Conversion of convertible notes — —	30th June, 2004 8,500,000,000 8,500,000,000
4,250,000,000	2,125,000,000	2,125,000,000 125,000,000 763,835,600 888,835,600	—	8,500,000,000
250,000,000 1,527,671,200	125,000,000 763,835,600		— 20,520	500,000,000 3,055,362,920
1,777,671,200	888,835,600		20,520	3,555,362,920

As mentioned in Note 6(19) (ii), the increase of share capital in this period mainly because of the shareholders had approved the profit distribution plan at their annual general meeting. According to the plan, the Company issued conversion shares and charged to capital surplus and surplus reserve, amounting to Rmb1,808,301,360 and Rmb1,205,534,240 respectively, and issued bonus shares amounting to Rmb3,013,835,600, on the basis of 6,027,671,200 ordinary shares as at the distribution date.

— 266 —

APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

(17) Capital surplus

Movement of capital surplus was as follow:

1st January, 2004 Conversion of convertible notes Conversion of capital surplus to share capital Share premium (i) 10,398,981,515 103,629 (1,808,301,360) Equity investment provision 4,247,846 — — 10,403,229,361 103,629 (1,808,301,360)	30th June, 2004 8,590,783,784 4,247,846
	8,595,031,630

(i) As mentioned in Note 6(19)(ii), the decrease of capital surplus in this period mainly because that the shareholders had approved the profit distribution plan at their annual general meeting. According to the plan, the Company issued conversion shares and charged to capital surplus amounting to Rmb1,808,301,360 on the basis of 6,027,671,200 ordinary shares as at the distribution date.

(18) Surplus reserves

	Statuary	Statuary	Discretionary
	capital surplus	public	surplus
	reserve fund	welfare fund	reserve fund	Total
1st January, 2004	2,896,464,697	1,460,700,799	17,502,692	4,374,668,188
Current period addition	—	—	1,599,770	1,599,770
Current period deduction	(1,205,534,240)	(1,599,770)	—	(1,207,134,010)
30th June, 2004	1,690,930,457	1,459,101,029	19,102,462	3,169,133,948

As mentioned in Note 6(19) (ii), the increase of share capital in this period mainly because that the shareholders had approved the profit distribution plan at their annual general meeting. According to the plan, the Company issued conversion shares and charged to surplus reserve amounting to Rmb1,205,534,240 on the basis of 6,027,671,200 ordinary shares as at the distribution date.

For the six months ended 30th June, 2004, the Company and its subsidiaries did not make appropriation to surplus reserves fund.

— 267 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(19) Unappropriated profit

	For the six months ended	For the six months ended
	30th June, 2004	30th June, 2003
Unappropriated profit brought forward	13,981,531,454	9,488,703,911
Add: Retrospective adjustments-cash dividends approved by
the general meeting of the shareholders subsequent to
the balance sheet date (Note 2)(i)	—	2,040,093,146
Adjusted unappropriated profit brought forward	13,981,531,454	11,528,797,057
Add: Net profit of the period	2,530,964,525	2,355,671,994
Less: Dividends payable to ordinary shareholders-cash
dividends of prior year approved by the general
meeting of the shareholders (i) (ii)	(3,013,835,600)	(2,049,408,208)
Dividends payable to ordinary shareholders-bonus share
approved the general meeting of the shareholders	(3,013,835,600)	—
Unappropriated profit carried forward	10,484,824,779	11,835,060,843

(i) As at 12th March, 2003, the Board of Directors proposed a dividend of Rmb0.34 per ordinary share for the year ended 31st December, 2002. As the outstanding ordinary shares of the Company was 6,000,273,960 as at 12th March, 2003, the Company recorded dividends payable amounted to Rmb2,040,093,146 in the financial statements of 2002. On 24th April, 2003, the noteholders converted the convertible notes with principal amount of US$20,000,000 to 6,84,931 ADSs (equivalent to 27,397,240 Overseas Listed Foreign Shares), resulted in the increase of ordinary shares from 6,000,273,960 to 6,027,671,200. As at 28th May, 2003, the shareholders approved the declaration of above dividends in the annual general meeting. As there were 6,027,671,200 shares outstanding on that date, the total dividends payable amounted to Rmb2,049,408,208.

As mentioned in Note 2, effective from 1 July, 2003, the Company has adopted the revised “Accounting Standards for Business Enterprise - Events Occurring After the Balance Sheet Date”. Cash dividends are recognized as a liability in the period in which a profit distribution plan is approved by the general meeting of the shareholders. The retrospective adjustments of the accounting changes were required upon the adoption of this standard and resulted in an increase of unappropriated profit amounting to Rmb2,040,093,146 as at 1st January, 2003.

(ii) Pursuant to the resolution of the Board of Directors on 16th March, 2004, on the basis of 6,027,671,200 ordinary shares outstanding as at 31st December, 2003, the directors proposed a cash dividend of Rmb5.0 (including tax) and 5 bonus shares for every 10 existing ordinary shares. In addition, on the basis of 6,027,671,200 ordinary shares outstanding as at 31st December, 2003, the Board of Directors proposed to convert part of the capital surplus and statutory surplus reserve fund into the share capital by issuing new shares to its shareholders on the basis of 5 new shares for every 10 existing ordinary shares (3 of which from capital surplus and 2 of which from statutory surplus reserve fund). On 11th May, 2004 the shareholders approved the profit distribution plan and declared the cash dividend and bonus shares amounting to 3,013,835,600 and 3,013,835,600 respectively, on the basis of 6,027,671,200 ordinary shares outstanding as at the distribution date.

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APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(20) Revenues from principal operations and costs of principal operations

				For the	six months	For the	six months
				ended 30th June, 2004		ended 30th June, 2003
				Revenues		Revenue
				from	Costs of	from	Costs of
				principal	principal	principal	principal
				operations	operations	operations	operations
Sales	of	electric	power	13,040,289,339	9,498,640,593	10,618,086,009	7,203,913,330

The Company and its subsidiaries have contractual arrangements for the sales of electric power with the provincial or regional grid companies.

For the six months ended 30th June, 2004 and 2003, the revenue from the five largest customers of the Company and its subsidiaries amounted to Rmb10,419,558,242 and Rmb8,626,328,328, representing 79.90% and 81.24% of the total revenue, respectively.

(21) Financial expenses

Interest expenses Less: Interest income Exchange losses Less: Exchange gain Others	For the six months ended 30th June, 2004 31st December, 2003 271,142,138 312,889,862 (26,242,330) (32,329,035) 1,000,525 580,720 (191,465) (3,312) 9,675,027 9,861,635 255,383,895 290,999,870	For the six months ended 30th June, 2004 31st December, 2003 271,142,138 312,889,862 (26,242,330) (32,329,035) 1,000,525 580,720 (191,465) (3,312) 9,675,027 9,861,635 255,383,895 290,999,870
		290,999,870

— 269 —

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(22) Investment income

Investment income on bonds Investment income on other debt investments Share of profit(loss) of associates accounted in equity method Dividend declared by investees accounted in cost method Amortization of equity investment differences	For the six months ended 30th June, 2004 31st December, 2003 4,392 430,794 — 9,152,305 119,297,358 62,233,380 22,541,980 585,342 (61,985,258) (30,285,297) 79,858,472 42,116,524	For the six months ended 30th June, 2004 31st December, 2003 4,392 430,794 — 9,152,305 119,297,358 62,233,380 22,541,980 585,342 (61,985,258) (30,285,297) 79,858,472 42,116,524
		42,116,524

There was no material restriction on the remittance of investment income of the Company and its subsidiaries.

(23) Other cash paid relating to operating activities

	For the six months
	ended 30th June,
	2004
Cash paid for repairs and maintenance expenses	402,319,841
Service fee paid to HIPDC	105,039,266
Payment of balance due to HIPDC	221,544,888
Others	762,548,689
	1,491,452,684

7. NOTES TO THE COMPANY ONLY FINANCIAL STATEMENTS

(1) Accounts receivable and other receivables
(i) Accounts receivable

		30th June,	31st December,
		2004	2003
Accounts	receivable	2,422,101,269	2,005,023,640

— 270 —

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FINANCIAL INFORMATION ON THE HUANENG GROUP

Aging of the accounts receivable was as follow:

Aging Within 1 year 1-2 years 2-3 years Over 3 years	30th June, 2004 Amount Percentage (%) 2,418,405,269 100 — — — — 3,696,000 — 2,422,101,269 100	31st December, 2003 Amount Percentage (%) 2,001,327,640 100 — — 3,696,000 — — — 2,005,023,640 100	31st December, 2003 Amount Percentage (%) 2,001,327,640 100 — — 3,696,000 — — — 2,005,023,640 100
			100

As at 30th June, 2004, the five largest accounts receivable of the Company amounted to Rmb2,015,856,369 (31st December, 2003: Rmb1,636,534,781), representing 83.23% of total accounts receivable (31st December, 2003: 81.62%).

(ii) Other receivables

Other receivables Less: bad debt provision	30th June, 31st December, 2004 2003 215,324,439 116,142,277 (22,171,785) (28,652,566) 193,152,654 87,489,711	30th June, 31st December, 2004 2003 215,324,439 116,142,277 (22,171,785) (28,652,566) 193,152,654 87,489,711
		87,489,711

Aging and bad debt provision for other receivables were as follows:

Aging Within 1 year 1-2 years 2-3 years Over 3 years	30th June, 2004 31st December, 2003 Amount Percentage Bad debt provision Amount Percentage Bad debt provision (%) (%) 164,465,787 77 (1,064,346) 65,168,643 56 (1,955,059) 4,428,386 2 (50,329) 7,931,460 7 (237,944) 2,614,391 1 (751,961) 9,896,662 8 (296,900) 43,815,875 20 (20,305,149) 33,145,512 29 (26,162,663) 215,324,439 100 (22,171,785) 116,142,277 100 (28,652,566)	30th June, 2004 31st December, 2003 Amount Percentage Bad debt provision Amount Percentage Bad debt provision (%) (%) 164,465,787 77 (1,064,346) 65,168,643 56 (1,955,059) 4,428,386 2 (50,329) 7,931,460 7 (237,944) 2,614,391 1 (751,961) 9,896,662 8 (296,900) 43,815,875 20 (20,305,149) 33,145,512 29 (26,162,663) 215,324,439 100 (22,171,785) 116,142,277 100 (28,652,566)	30th June, 2004 31st December, 2003 Amount Percentage Bad debt provision Amount Percentage Bad debt provision (%) (%) 164,465,787 77 (1,064,346) 65,168,643 56 (1,955,059) 4,428,386 2 (50,329) 7,931,460 7 (237,944) 2,614,391 1 (751,961) 9,896,662 8 (296,900) 43,815,875 20 (20,305,149) 33,145,512 29 (26,162,663) 215,324,439 100 (22,171,785) 116,142,277 100 (28,652,566)
		100	(28,652,566)

— 271 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

Breakdown of other receivables was as follows:

Receivables from employees for sales of staff quarters Petty cash Transmission fee refund receivable from Shandong Electric Power Corporation Due from HIPDC Others	30th June, 31st December, 2004 2003 10,304,165 10,272,586 6,519,680 8,566,762 — 19,067,120 93,184,330 — 105,316,264 78,235,809 215,324,439 116,142,277	30th June, 31st December, 2004 2003 10,304,165 10,272,586 6,519,680 8,566,762 — 19,067,120 93,184,330 — 105,316,264 78,235,809 215,324,439 116,142,277
		116,142,277

As at 30th June, 2004, the five largest other receivables of the Company amounted to Rmb111,069,097 (31st December, 2003: Rmb57,070,487), representing 51.58% of total other receivables (31st December, 2003: 49.14%).

As at 30th June, 2004 and 31st December, 2003, there were no accounts receivable and other receivables from shareholders who hold 5% or more of the equity interest in the Company, except for the receivable from HIPDC amounted to Rmb93,184,330 as at 30th June, 2004.

See Note 8 for related party transactions.

(2) Long-term equity Investments

Long-term equity investments Subsidiaries (i) Associates Equity investment difference Other long-term equity investments*	1st January, 2004 2,065,440,907 2,012,939,632 1,133,262,633 260,832,268 5,472,475,440	Current period additions 771,845,230 137,799,745 5,936,001 — 915,580,976	Current period deductions (340,138,283) (18,502,387) (61,985,259) (50,000) (420,675,929)	30th June, 2004 2,497,147,854 2,132,236,990 1,077,213,375 260,782,268
				5,967,380,487

* Please refer to Note 6 for details.

— 272 —

APPENDIX II

FINANCIAL INFORMATION ON THE HUANENG GROUP

(i) Long-term equity investments in subsidiaries

Name Investment period Weihai Power Company No specific terms Taicang Power Company No specific terms Huaiyin Power Company No specific terms Huaiyin II Power Company No specific terms Yushe Power Company No specific terms Qinbei Power Company 50 years Xindian II Power Company No specific terms Taicang II Power Company No specific terms	Investment cost movement 1st January, 2004 Current period additions 30th June, 2004 474,038,793 — 474,038,793 507,206,560 (37,500,000) 469,706,560 417,544,226 (76,368,000) 341,176,226 — 301,653,600 301,653,600 134,085,896 44,063,999 178,149,895 84,055,599 100,000,000 184,055,599 — 100,500,000 100,500,000 — 137,500,000 137,500,000 1,616,931,074 569,849,599 2,186,780,673	Investment cost movement 1st January, 2004 Current period additions 30th June, 2004 474,038,793 — 474,038,793 507,206,560 (37,500,000) 469,706,560 417,544,226 (76,368,000) 341,176,226 — 301,653,600 301,653,600 134,085,896 44,063,999 178,149,895 84,055,599 100,000,000 184,055,599 — 100,500,000 100,500,000 — 137,500,000 137,500,000 1,616,931,074 569,849,599 2,186,780,673
		2,186,780,673

	Accumulated equity pick-up movement	Accumulated equity pick-up movement	Accumulated equity pick-up movement	Accumulated equity pick-up movement
	1st January,	Current period	Profit	30th June,
Name	2004	profit/(loss)	appropriation	2004
Weihai Power Company	180,400,332	70,804,810	(120,349,935)	130,855,207
Taicang Power Company	228,945,075	75,157,706	(145,599,795)	158,502,986
Huaiyin Power Company	35,950,457	32,937,944	(63,440,000)	5,448,401
Huaiyin II Power Company	—	—	—	—
Yushe Power Company	3,795,726	17,159,170	(1,134,449)	19,820,447
Qinbei Power Company	(581,757)	(3,678,103)	—	(4,259,860)
Xindian II Power Company	—	—	—	—
Taicang II Power Company	—	—	—	—
	448,509,833	192,381,527	(330,524,179)	310,367,181
		Net carrying amount
	1st January,			30th June,
Name	2004			2004
Weihai Power Company	654,439,125			604,894,000
Taicang Power Company	736,151,635			628,209,546
Huaiyin Power Company	453,494,683			346,624,627
Huaiyin II Power Company	—			301,653,600
Yushe Power Company	137,881,622			197,970,342
Qinbei Power Company	83,473,842			179,795,739
Xindian II Power Company	—			100,500,000
Taicang II Power Company	—			137,500,000
	2,065,440,907			2,497,147,854

— 273 —

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(3) Long-term Debt Investments

Long-term entrusted loans to a subsidiary* Others Less: Current portion of long- term debt investments	1st January, 2004 Current period additions Current period deductions 470,662,956 — (200,000,000) 95,560 13,200 (34,400)	1st January, 2004 Current period additions Current period deductions 470,662,956 — (200,000,000) 95,560 13,200 (34,400)	1st January, 2004 Current period additions Current period deductions 470,662,956 — (200,000,000) 95,560 13,200 (34,400)	30th June, 2004 270,662,956 74,360
	470,758,516 (470,746,016)	13,200 —	(200,034,400) 200,034,400	270,737,316 (270,711,616)
	12,500	13,200	—	25,700

Long-term entrusted loans to a subsidiary

In order to finance the construction of Weihai Power Company Phase II, the Company had granted entrusted loans to Weihai Power Company through a financial institution in September 1995. These loans were unsecured, not guaranteed and bore interests at 6.21% per annum. As at 30th June, 2004, the entrusted loans will be matured within one year.

For the six months ended 30th June, 2004, the Company received interest income of approximately Rmb9.41 million (For the six months ended 30th June, 2003: Rmb17.24 million) from Weihai Power Company. As at 30th June, 2004, the outstanding entrusted loans, the related interest income and interest expense were eliminated in the consolidated financial statements.

(4) Revenues from principal operations

				For the six months ended	For the six months ended	For the six months ended	For the six months ended
				30th June, 2004		30th June, 2003
				Revenues from	Costs of	Revenue from	Costs of
				principal	principal	principal	principal
				operations	operations	operations	operations
Sales	of	electric	power	11,104,641,146	8,157,868,496	9,193,411,044	6,296,734,893

The Company has contractual arrangements for the sales of electric power with the provincial or regional grid companies.

For the six months ended 30th June, 2004 and 2003, the revenue from the five largest customers of the Company amounted to Rmb8,663,463,317and Rmb7,201,653,363, representing 78.02% and 78.33% of the total revenue of the Company, respectively.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(5) Investment income

Investment income on bonds Investment income on entrusted loans Investment income on other debt investments Share of profit of subsidiaries and associates accounted in equity method Dividend declared by investees accounted in cost method Amortization of equity investment differences	For the six months ended 30th June, 2004 31st December, 2003 4,392 430,794 9,410,230 17,237,506 — 9,152,305 311,678,885 232,902,038 22,541,980 585,342 (61,985,258) (30,285,297) 281,650,229 230,022,688

There was no material restriction on remittance of the investment income of the Company.

8. RELATED PARTY TRANSACTIONS

(1) Related parties that control/are controlled by the Company:

			Relationship
			with the	Type of	Legal
Name	Registered address	Principal activities	Company	enterprise	representative
Huaneng Group	40 Xueyuan	Investment in power	Ultimate parent	State-owned	Li Xiaopeng
	South Road,	stations, coal, minerals,	company	enterprise
	Haidian District,	railways, transportation,
	Beijing	petrochemical, energy-
		saving facilities, steel,
		timber and related
		industries and others
HIPDC	40 Xueyuan	Investment in power	Parent company	Sino-foreign	Li Xiaopeng
	South Road,	plants, development		equity limited
	Haidian District,	and investment in other		liability company
	Beijing	export-oriented
		enterprises
Weihai Power	No. 58	Power generation	A subsidiary of	Limited liability	Wu Dawei
Company	Haibu road,		the Company	company
	Economic
	Development
	Zone, Weihai,
	Shandong province
Taicang Power	Jinjihupan,	Power generation	A subsidiary of	Limited liability	Hu Jianmin
Company	Sanxing Road,		the Company	company
	Suzhou,
	Jiangsu province

— 275 —

FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

			Relationship
			with the	Type of	Legal
Name	Registered address	Principal activities	Company	enterprise	representative
Taicang II Power	Fuqiao town,	Power generation	A subsidiary of	Limited liability	Na Xizhi
Company	Jinlanglanggang		the Company	company
	village,
	Taicang,
	Jiangsu province
Huaiyin Power	No. 291	Power generation	A subsidiary of	Limited liability	Liu Guoyue
Company	Huaihai West Road,		the Company	company
	Huaian,
	Jiangsu province
Huaiyin II Power	No. 291	Power generation	A subsidiary of	Limited liability	Liu Guoyue
Company	Huaihai West Road,		the Company	company
	Huaian,
	Jiangsu province
Qinbei Power	Wulongkou town,	Power generation	A subsidiary of	Limited liability	Xiao An
Company	Jiyuan city,		the Company	company
	Henan Province
Yushe Power	Dengyu village,	Power generation	A subsidiary of	Limited liability	Na Xizhi
Company	Yushe county,		the Company	company
	Shanxi Province
Xindian II Power	Qilu Chemical	Power generation	A subsidiary of	Limited liability	Wu Dawei
Company	Industrial Park,		the Company	company
	Linzi district, Zibo,
	Shandong province

(2) Registered capital and changes in registered capital of related parties that control/are controlled by the Company:

		1st January,	Current period	30th June,
Name	Currency	2004	additions	2004
Huaneng Group	Rmb	1,900,000,000	100,000,000	2,000,000,000
HIPDC	US$	450,000,000	—	450,000,000
Weihai Power Company	Rmb	761,832,800	—	761,832,800
Taicang Power Company	Rmb	632,840,000	—	632,840,000
Taicang II Power
Company	Rmb	—	894,410,000	894,410,000
Huaiyin Power Company	Rmb	265,000,000	—	265,000,000
Huaiyin II Power
Company	Rmb	—	474,000,000	474,000,000
Qinbei Power Company	Rmb	10,000,000	—	10,000,000
Yushe Power Company	Rmb	80,000,000	—	80,000,000
Xindian II Power
Company	Rmb	—	100,000,000	100,000,000

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FINANCIAL INFORMATION ON THE HUANENG GROUP

(3) Equity shares and changes in equity shares held by parties that control/are controlled by the Company:

	1st January,	1st January,	Current		30th June,
Name	2004		period additions		2004
	Amount	%	Amount	%	Amount	%
Huaneng Group *	1,675,660,547	51.98	—	—	1,675,660,547	51.98
HIPDC **	2,554,840,000	42.39	2,614,840,000	0.49	5,169,680,000	42.88
Weihai Power Company	457,103,040	60	—	—	457,103,040	60
Taicang Power Company	474,630,000	75	—	—	474,630,000	75
Taicang II Power Company	—	—	670,807,500	75	670,807,500	75
Huaiyin Power Company	168,646,000	63.64	—	—	168,646,000	63.64
Huaiyin II Power Company	—	—	301,653,600	63.64	301,653,600	63.64
Qinbei Power Company	148,200,000	55	—	—	148,200,000	55
Yushe Power Company	48,000,000	60	—	—	48,000,000	60
Xindian II Power Company	—	—	95,000,000	95	95,000,000	95

Huaneng Group holds 51.98% equity interest in HIPDC.
** In accordance with a shareholders’ agreement entered into by certain founding shareholders, during the operating period of the Company, the voting rights of seven founding shareholders are given to HIPDC. Thus, HIPDC holds 70.09% voting rights in the shareholders’ meetings.
(4) Nature of related parties that do not control/are not controlled by the Company:

Name of related parties	Relationship with the Company
Huaneng Finance	A subsidiary of Huaneng Group
WPDB	Minority shareholder of Weihai Power Company
Henan Investment	Minority shareholder of Qinbei Power Company
China Huaneng International Trade Economics
Corporation (“CHITEC”)	A subsidiary of Huaneng Group
Shanghai Time Shipping Company (“Time Shipping”)	A joint venture company of Huaneng Group
Rizhao Power Company	An associate of the Company
SEG	An associate of the Company

(5) Related party transactions
a. On 30th June, 1994, the Company and HIPDC entered into a service agreement pursuant to which HIPDC provides transmission service and transformer facilities to some of the power plants of the Company and receives service fees. The agreement covers a period of 10 years. The total amount of service fees paid to HIPDC for the six months ended 30th June, 2004 were approximately Rmb105 million (for the six months ended 30th June, 2003: Rmb105 million).
b. In accordance with the leasing agreement entered into between the Company and HIPDC, the land use right of Shidongkou II Power Plant is leased to the Company for a period of 50 years from 30th June, 1997 at an annual rental payment of Rmb6 million.
c. Pursuant to a leasing agreement entered into amongst the Company, HIPDC and Nanjing Investment Company, the land use right of Nanjing Power Plant is leased to the Company for 50 years from 1st January, 1999 at an annual rental payment of Rmb1.334 million.

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FINANCIAL INFORMATION ON THE HUANENG GROUP

d. Pursuant to a leasing agreement between the Company and HIPDC, HIPDC agreed to lease its building to the Company as office at an annual rental of Rmb25 million for five years from 1st January, 2000.
e. Please refer to Note 6 (15)(i), in connection to certain bank loans were on-lent from HIPDC and drawn from Huaneng Group through Huaneng Finance, and as described in Note 6 (15)(iii), in connection to certain bank loans were drawn from WPDB and Huaneng Finance.
f. As at 30th June, 2004, Huaneng Finance had granted short-term loans amounted to Rmb1,005 million (31st December, 2003: Rmb1,130 million) to the Company and its subsidiaries, and Henan Investment had granted short-term loans amounted to Rmb 130 million (31st December, 2003: Rmb 130 million) to the Company and its subsidiaries. The interest rates for such loans have no material difference with the prevailing market interest rate (see Note 6(11)).
g. As at 30th June, 2004, long-term bank loans of approximately Rmb4,292 million, Rmb 1,048 million, Rmb100 million and Rmb232 million were guaranteed by HIPDC, Huaneng Group, WPDB and Henan Investment, respectively (31st December, 2003: Rmb4,648 million, Rmb1,096 million, Rmb280 million and Rmb34.49 million, respectively) (see Note 6(15)).
h. As described in Note 9, certain bank loans of Rizhao Power Company were guaranteed by the Company.
i. On 6th November, 2002, the Company entered into a management service agreement with Huaneng Group and HIPDC. Pursuant to which, the Company provides management services to certain power plants owned by Huaneng Group and HIPDC for five years. For the six months ended 30th June, 2004, the Company earned service fees amounted to Rmb16,647,400 from Huaneng Group (for the six months ended 30th June, 2003: Rmb16,647,400) and paid expenses on behalf of Huaneng Group’s power plants amounted to Rmb9,845,845 (for the six months ended 30th June, 2003: nil). In addition, the Company earned service fees amounted to Rmb8,652,600 from HIPDC (for the six months ended 30th June, 2003: Rmb8,652,600)and paid expenses on behalf of HIPDC’s power plants amounted to Rmb2,017,220 (for the six months ended 30th June, 2003: nil ). For the six months ended 30th June, 2004, the related cost incurred for the management service provided was approximately Rmb18,000,000 (for the six months ended 30th June, 2003: Rmb14,000,000).
j. For the six months ended 30th June, 2004, the Company and its subsidiaries paid approximately Rmb100.35 million for coal purchased from CHITEC (for the six months ended 30th June,2003: Rmb22.90 million).
k. For the six months ended 30th June, 2004, the Company and its subsidiaries paid approximately Rmb213 million for the fuel purchased and transportation services received from Time Shipping (for the six months ended 30th June,2003: Rmb166 million).
(6) Cash deposited with a related party

	30th June,	31st December,
	2004	2003
Deposited in Huaneng Finance:
— Current deposit	2,248,315,147	2,791,770,168

— 278 —

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FINANCIAL INFORMATION ON THE HUANENG GROUP

As at 30th June, 2004, the interest rates per annum for the current deposits placed with Huaneng Finance ranged from 0.72% to 1.71% (31st December, 2003: 0.72% to 1.44%).

(7) Receivables from/payables to related parties

	30th	June, 2004	31st December, 2003	31st December, 2003
	Amount	Percentage	Amount	Percentage
Other receivables
Other receivables from Huaneng
Group’s subsidiaries	2,854,545	0.98%	5,286,705	3.29%
Other receivables from HIPDC’s
subsidiaries	575,120	0.20%	575,120	0.36%
Other receivables from Huaneng
Group	6,991,300	2.41%	—	—
Other receivables from HIPDC	93,184,330	32.13%	—	—
Other receivables from Rizhao
Power Company	1,652,353	0.57%	—	—
Accounts payable
Accounts payable to CHITEC	(6,450,048)	0.92%	(14,484,416)	2.22%
Accounts payable to Time Shipping	(10,691,346)	1.53%	(11,434,522)	1.75%
Other Payable
Other payables to HIPDC	—	—	(87,507,580)	5.24%
Other payables to SEG	(50,000,000)	2.72%	—	—
Interest payables
Interest payables on loans from
Huaneng Finance	(18,607,163)	19.38%	(1,418,954)	1.51%

The balances with Huaneng Group’s subsidiaries, HIPDC’s subsidiaries, Huanneng Group, HIPDC, SEG, CHITEC and Time Shipping were unsecured, non-interest bearing and to be settled within one year.

9. CONTINGENT LIABILITY

								30th	June, 2004
								The Company and
Item								its subsidiaries	The Company
Guarantee	on	the	long-term	bank	loans	of	Rizhao Power Company	326,500,000	326,500,000
Guarantee	on	the	long-term	bank	loans	of	Weihai Power Company	—	30,000,000
Guarantee	on	the	long-term	bank	loans	of	Taicang Power Company	—	1,054,183,384
Guarantee	on	the	long-term	bank	loans	of	Qinbei Power Company	—	740,000,000
Guarantee	on	the	long-term	bank	loans	of	Yushe Power Company	—	65,000,000
								326,500,000	2,215,683,384

Guarantees on the long-term bank loans of Taicang Power Company, Rizhao Power Company, Weihai Power Company, Yushe Power Company and Qinbei Power Company by the Company had no significant financial impact on the Company’s operation.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

10. OBLIGATION AND COMMITMENTS

Commitments mainly relate to the construction of new power projects, certain complementary facilities and renovation projects for existing power plants and the purchase of coal. Expenditure which was contracted for but not incurred and thus was not recognized in the financial statements as at 30th June, 2004 amounted to approximately Rmb15.86 billion (31st December, 2003: Rmb12.07 billion).

The Company had various operating lease arrangements with HIPDC for land and buildings. Total future minimum lease payments under non-cancelable operating leases were as follow:

Land and buildings — within 1 year — 1-2 years — 2-3 years — after 3 years	30th June, 31st December, 2004 2003 19,839,250 32,334,000 7,336,250 7,334,000 7,334,000 7,334,000 295,361,000 299,028,000 329,870,500 346,030,000	30th June, 31st December, 2004 2003 19,839,250 32,334,000 7,336,250 7,334,000 7,334,000 7,334,000 295,361,000 299,028,000 329,870,500 346,030,000
		346,030,000

In addition, in accordance with a 30-year operating lease agreement signed by the Dezhou Power Plant and Shandong Land Bureau for the land occupied by Dezhou Power Plant Phase I and Phase II in June 1994, annual rental is approximately Rmb29,874,000 effective from June 1994 and is subject to revision at the fifth year since the contract date. Thereafter, the annual rental is subject to revision once every three years. The increment for each rental revision is restricted to no more than 30 percent of the previous annual rental amount. For the six months ended 30th June, 2004, the rental was Rmb14,975,227 (for the six months ended 30th June,2003: Rmb15,352,004).

11. INTEREST RATE SWAP CONTRACT

The Company entered into interest rate swap agreements with the Bank of China to convert certain floating rate bank loans into fixed rate debts of the same principal amounts and for the same maturities to hedge against interest rate risk. As at 30th June, 2004, the notional amount of the outstanding interest swap agreements were approximately US$10.25 million (31st December, 2003: US$20.50 million).

12. NET PROFIT AFTER DEDUCTING NON-RECURRING ITEMS

Net profit Add (Less): non-recurring items — Loss from disposal of fixed assets — Reversal of bad debit provision — Non-operating income — Non-operating expense Add: tax impact on non-recurring items Net profit after deducting non-recurring items	2,530,964,525 (1,076,961) (6,076,496) (409,420) 4,603,033 464,949
	2,528,469,630

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

13. SUBSEQUENT EVENTS

On 16th April, 2004, the Company entered into an agreement with Huaneng Group under which the Company agreed to acquire from Huaneng Group 40% equity interest in Hebei Hanfeng Power Generation Limited Liability Company, 90% equity interest in Jinggangshan Huaneng Power Generation Limited Liability Company (“Jinggangshan Power Company”), The total consideration for the acquisition of two power plants was Rmb1,949 million.

After obtaining all the necessary government approvals on the acquisitions and the payment of the purchase considerations, the Company took over the control or obtained a significant influence of the above power companies and power plants in July 2004.

14. RECLASSIFICATION OF COMPARATIVE FIGURES

Certain prior year comparative figures have been reclassified to conform to the current period presentation.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

6. NET PROFIT AND NET ASSETS RECONCILIATION AMONG PRC GAAP, AND IFRS

(Prepared on consolidation basis; amounts expressed in RMB unless otherwise stated)

The financial statements, which are prepared by the Company and its subsidiaries in conformity with the Accounting Standards for Business Enterprises and Accounting Systems for Business Enterprises (“PRC GAAP”), differ in certain respects from International Financial Reporting Standards (“IFRS”). Major differences among PRC GAAP and IFRS, which affect the net income and net assets of the Company and its subsidiaries, are summarized as follows:

Net Income

Six months ended 30th June

Net profit under PRC GAAP Impact of IFRS adjustments: Effect of recording deferred revenue (a) Difference in the basis of determining the amount of materials and supplies (b) Difference in the recognition policy on housing benefits to the employees of the Company (c) Difference in accounting treatment of the convertible notes (d) Difference in capitalization of borrowing costs (e) Difference in the recognition of financial liabilities (f) Applicable deferred tax impact on the above GAAP differences (g) Others Net profit under IFRS	2004 2,530,964,525 (52,844,749) 792,624 (12,826,849) (17,268) 26,539,580 573,746 4,823,755 (16,878,387) 2,481,126,977	2003 2,355,671,994 (76,509,744) 1,143,688 (13,244,487) (3,206,700) 7,179,863 4,206,206 6,451,513 3,512,919 2,285,205,252

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FINANCIAL INFORMATION ON THE HUANENG GROUP

APPENDIX II

Net Assets

As at
30th June,
As at
31st December,
2004
2003
34,304,353,277
34,787,100,203
(1,040,344,871)
(987,500,122)
(7,086,617)
(7,879,241)
50,899,207
63,726,056
—
17,268
127,633,367
101,093,787
(350,940)
(924,686)
12,392,101
7,568,346
(24,725,565)
(7,847,178)
33,422,769,959
33,955,354,433

(a) Recording of deferred revenue

Under the rate making process applicable to the Company and its subsidiaries except for certain power plants, major repair and maintenance expenses determined on the basis of 1% of the fixed asset cost is recovered through the current power rates. In a particular year, to the extent that the actual repair and maintenance expenses incurred is less than the amount determined on the above basis, the difference is recorded as deferred revenue under IFRS. For PRC statutory financial reporting purposes, in accordance with the requirements of PRC GAAP, no such amount is recorded and revenue is determined and recognized based on the actual amount of electricity transmitted to the grid and the prevailing approved power rates.

(b) Difference in the basis of determining the amount of materials and supplies

(c) Difference in the recognition policy on housing benefits to the employees of the Company

For PRC statutory reporting purposes, in accordance with the relevant regulations issued by the Ministry of Finance, the total housing benefits provided by the Company are charged to non-operating expenses. Under IFRS, the housing benefits provided by the Company are recognized on a straight-line basis over the estimated remaining average service lives of the employees.

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APPENDIX II FINANCIAL INFORMATION ON THE HUANENG GROUP

(d) Accounting treatment of convertible notes

Under PRC GAAP, the Company had accrued for the put premium liability together with the interest payable on the notes using the effective interest rate of 6.66% as at 21st May, 2002. As at 21st May, 2002, all accrued put premium of unredeemed notes was charged to the income statement as reversal of interest expense.

Under IFRS, the proceeds received on the issue of the convertible notes were allocated into liability and equity components. Upon initial recognition, the liability component represented the present value, at the issuance date, of the contractually determined stream of cash flows discounted at the market interest rate for instruments of comparable credit status providing substantially the same cash flows, on the same terms, but without the conversion option. The equity component was then determined by deducting the liability component from the proceeds received on the issue of the notes. Under PRC GAAP, the entire proceeds of the issue of convertible notes were recorded as liabilities without distinguishing between the equity and liability components.

(e) Capitalization of borrowing costs

Under PRC GAAP, the capitalization of interests is limited to specific borrowings. No interest can be capitalized on general borrowings. In accordance with IAS 23, the Company capitalized interests on general borrowings used for the purpose of obtaining a qualifying asset in addition to the capitalization of interests on specific borrowings. The GAAP difference of capitalized interests on general borrowing also causes the difference of depreciation expense of relevant fixed assets.

(f) Accounting treatment of financial liability

The Company enters into interest rate swap agreements with local banks to convert certain floating rate debts of the same principal amounts and for the same maturities to hedge against interest rate risk. As at 30th June, 2004, the notional amount of the outstanding interest rate swap agreement was approximately US$10.3 million. For the period ended 30th June, 2004, there was a gain amounted to approximately Rmb0.6 million arising from changes in the fair value of the interest rate swaps. Under PRC GAAP, such interest swap contracts are considered and disclosed as off balance sheet items. Under IFRS, derivative instruments are recorded as either assets or liabilities in the balance sheet at fair value, which is determined based on market conditions at each balance sheet date. Changes in the fair value of derivatives are recorded each period in current earnings or recognized directly in equity through the statement of changes in shareholder’s equity, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. Since the hedging relationship does not meet all of the conditions required for special hedge accounting as set out in IAS 39, such gain was credited to the income statement in current period.

(g) Deferred Tax Impact

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

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

1. LETTER FROM THE REPORTING ACCOUNTANTS

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the reporting accountants, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong.

==> picture [89 x 52] intentionally omitted <==

The Directors

Min Xin Holdings Limited 17/F, Fairmont House 8 Cotton Tree Drive Central Hong Kong

29 March 2005

Dear Sirs

We report on the unaudited pro forma financial information of Min Xin Holdings Limited (the “Company”) and its subsidiaries (collectively referred hereinafter as the “Group”) set out on pages 287 to 294 under the headings of unaudited pro forma consolidated balance sheet, unaudited pro forma consolidated profit and loss account and unaudited pro forma consolidated cash flow statement (collectively referred hereinafter as “unaudited pro forma financial information”) in Appendix III of the Company’s circular (the “Circular”) dated 29 March 2005 in connection with the very substantial acquisition and connected transaction for the proposed acquisition (referred hereinafter as “Revised Acquisition”) of 108,000,000 Domestic Shares of Huaneng Power International, Inc. pursuant to The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (referred hereinafter as “Listing Rules”). The unaudited pro forma financial information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Revised Acquisition might have affected the relevant financial information of the Group as at 30 June 2004 and for the six months then ended.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 4.29 of the Listing Rules.

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION

It is our responsibility to form an opinion, as required by paragraph 4.29 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our work with reference to the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company.

Our work does not constitute an audit or review in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such assurance on the unaudited pro forma financial information.

The unaudited pro forma financial information has been prepared on the basis set out on pages 287 to 294 for illustrative purpose only and, because of its nature, it may not be indicative of the financial position and results of the Group as at 30 June 2004 or for the six months then ended, or at any future dates or for any future periods.

Opinion

In our opinion:

a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE GROUP

The unaudited pro forma consolidated balance sheet of the Group as presented below has been prepared based on the published unaudited consolidated balance sheet of the Group as at 30 June 2004, and adjusted, where appropriate, to illustrate the effect of the Revised Acquisition.

Pursuant to the Supplemental Agreement, the purchase consideration of the Asset is equal to RMB373,896,000 (equivalent to approximately HK$353,432,000) and subject to the NAV Appreciation adjustment as set forth in the Letter from the Board on page 5 of the Circular. The Group intends to finance the costs of the Revised Acquisition by a new bank loan of HK$120,000,000 with the remaining balance from internal cash resources. As at the Latest Practicable Date, the Group has not obtained any bank borrowings or committed facility lines for the Revised Acquisition.

For the purpose of presenting the unaudited pro forma consolidated balance sheet of the Group as at 30 June 2004, it has been assumed that the Revised Acquisition took place on 30 June 2004 and the financial effect of the NAV Appreciation, if any, which is subject to the financial results of Huaneng, prospective or otherwise, for the year ended 31 December 2004 and thereafter (where applicable), has not been taken into account in the adjustments.

The unaudited pro forma consolidated balance sheet has been prepared for illustrative purposes only and, because of its nature and the fact that the financial effect of the NAV Appreciation, if any, has not been taken into account in the adjustments, may not give a true picture of the financial position of the Group as at 30 June 2004 or at any future dates.

NON-CURRENT ASSETS Fixed assets Jointly controlled entities Associates Held-to-maturity debt securities, unlisted Non-trading investments Other asset Deferred tax assets CURRENT ASSETS Properties held for sale Deferred acquisition costs Insurance debtors Claims recoverable from reinsurers	As at 30 June 2004 Unaudited Adjustments HK$ HK$ Note 120,651,008 516,209,468 71,040,329 5,007,242 — 354,332,000 (1) 58,050,000 1,331,292 772,289,339 ---------------- 20,452,979 9,478,312 17,903,955 19,308,253	Pro forma HK$ 120,651,008 516,209,468 71,040,329 5,007,242 354,332,000 58,050,000 1,331,292
		1,126,621,339 ---------------- 20,452,979 9,478,312 17,903,955 19,308,253

— 287 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

Dividend receivable from a jointly controlled entity Other debtors and prepayments Trading securities, listed Cash and bank balances CURRENT LIABILITIES Unearned premiums Unexpired risks Gross outstanding insurance claims Insurance liabilities Other creditors and accruals Current portion of a bank loan, secured Taxation NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Non-current portion of a bank loan, secured Deferred tax liabilities MINORITY INTERESTS NET ASSETS SHARE CAPITAL OTHER RESERVES RETAINED PROFITS SHAREHOLDERS’ FUNDS	As at 30 June 2004 Unaudited Adjustments HK$ HK$ Note 18,375,000 58,980,378 7,201,603 506,525,008 (234,332,000) (2)	Pro forma HK$ 18,375,000 58,980,378 7,201,603 272,193,008
	658,225,488 ---------------- 26,825,441 948,000 67,120,242 10,381,674 57,609,607 — 24,000,000 (2) 5,830,997 168,715,961 ---------------- ---------------------------------------------------------------- 489,509,527 ---------------- ---------------------------------------------------------------- 1,261,798,866 ---------------- — 96,000,000 (2) 3,930,234	423,893,488 ---------------- 26,825,441 948,000 67,120,242 10,381,674 57,609,607 24,000,000 5,830,997
		192,715,961 ---------------- ---------------------------------------------------------------- 231,177,527 ---------------- ---------------------------------------------------------------- 1,357,798,866 ---------------- 96,000,000 3,930,234
	3,930,234 ---------------- 16,007,394 ---------------- ---------------------------------------------------------------- 1,241,861,238	99,930,234 ---------------- 16,007,394 ---------------- ---------------------------------------------------------------- 1,241,861,238
	459,428,656 697,081,534 85,351,048	459,428,656 697,081,534 85,351,048
	1,241,861,238	1,241,861,238

— 288 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Notes:

(1) The adjustment reflects the increase in non-trading investments by the cost of the Revised Acquisition, which comprises RMB373,896,000 (equivalent to HK$353,432,000 translated at an exchange rate of HK$1 = RMB1.0579) and the estimated professional fees and charges directly related to the Revised Acquisition of approximately HK$900,000. The cost of the Revised Acquisition has not taken into account the NAV Appreciation, if any, and other insignificant transaction costs.
(2) The adjustments reflect the bank loan obtained and the decrease in cash and bank balances resulting from the proposed settlement arrangement of the Revised Acquisition costs as set forth in note (1) above as if the settlement had taken place on 30 June 2004. The Group intends to finance such amount by a 5-year term loan of HK$120,000,000 with the remaining balance of HK$234,332,000 from the Group’s internal cash resources. As at the Latest Practicable Date, the Group has not obtained any bank borrowings or committed facility lines for the Revised Acquisition. However, the Company has received an indicative proposal from a bank for a HK$120,000,000 term loan facility of which the granting will be further subject to the bank’s internal approval procedures.

According to the indicative proposal, certain of the Group’s fixed assets will be pledged to the bank as collateral for the facility. In addition, HK$24,000,000 of the loan will be repayable within 12 months from the effective date of the loan agreement. Therefore, such amount has been classified as current liabilities and the remaining balance of HK$96,000,000 has been classified as non-current liabilities in the unaudited pro forma consolidated balance sheet.

— 289 —

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

3. UNAUDITED PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT OF THE GROUP

The unaudited pro forma consolidated profit and loss account of the Group as presented below has been prepared based on the published unaudited consolidated profit and loss account of the Group for the six months ended 30 June 2004, and adjusted, where appropriate, to illustrate the effect of the Revised Acquisition as if the Revised Acquisition had taken place as at 1 January 2004.

The unaudited pro forma consolidated profit and loss account has been prepared for illustrative purposes only and, because of its nature, may not give a true picture of the results of the Group for the six months ended 30 June 2004 or any future periods.

For the six months ended 30 June 2004 Unaudited Adjustments Pro forma HK$ HK$ Note HK$ 71,307,549 (547,749) (1)(a) 70,759,800 86,545,321 24,974,512 (1)(a) & (b) 111,519,833 ---------------- ---------------- (27,673,378) (27,673,378) D (13,008,358) (13,008,358) (11,792,640) (11,792,640) (1,191,955) (1,191,955) (9,053,176) (9,053,176) (7,071,537) (7,071,537) (69,791,044) (69,791,044) ---------------- ---------------------------------------------------------------- ---------------- ---------------------------------------------------------------- 16,754,277 41,728,789 ---------------- ---------------- — (1,063,338) (2) (1,063,338) ---------------- ---------------- S 34,012,048 34,012,048 133,618 133,618 34,145,666 34,145,666 ---------------- ---------------------------------------------------------------- ---------------- ----------------------------------------------------------------	For the six months ended 30 June 2004 Unaudited Adjustments Pro forma HK$ HK$ Note HK$ 71,307,549 (547,749) (1)(a) 70,759,800 86,545,321 24,974,512 (1)(a) & (b) 111,519,833 ---------------- ---------------- (27,673,378) (27,673,378) D (13,008,358) (13,008,358) (11,792,640) (11,792,640) (1,191,955) (1,191,955) (9,053,176) (9,053,176) (7,071,537) (7,071,537) (69,791,044) (69,791,044) ---------------- ---------------------------------------------------------------- ---------------- ---------------------------------------------------------------- 16,754,277 41,728,789 ---------------- ---------------- — (1,063,338) (2) (1,063,338) ---------------- ---------------- S 34,012,048 34,012,048 133,618 133,618 34,145,666 34,145,666 ---------------- ---------------------------------------------------------------- ---------------- ----------------------------------------------------------------	For the six months ended 30 June 2004 Unaudited Adjustments Pro forma HK$ HK$ Note HK$ 71,307,549 (547,749) (1)(a) 70,759,800 86,545,321 24,974,512 (1)(a) & (b) 111,519,833 ---------------- ---------------- (27,673,378) (27,673,378) D (13,008,358) (13,008,358) (11,792,640) (11,792,640) (1,191,955) (1,191,955) (9,053,176) (9,053,176) (7,071,537) (7,071,537) (69,791,044) (69,791,044) ---------------- ---------------------------------------------------------------- ---------------- ---------------------------------------------------------------- 16,754,277 41,728,789 ---------------- ---------------- — (1,063,338) (2) (1,063,338) ---------------- ---------------- S 34,012,048 34,012,048 133,618 133,618 34,145,666 34,145,666 ---------------- ---------------------------------------------------------------- ---------------- ----------------------------------------------------------------
86,545,321 ---------------- (27,673,378) D (13,008,358) (11,792,640) (1,191,955) (9,053,176) (7,071,537) (69,791,044) ---------------- ---------------------------------------------------------------- 16,754,277 ---------------- — ---------------- S 34,012,048 133,618	24,974,512 (1)(a) & (b) (1,063,338) (2)	111,519,833 ---------------- (27,673,378 (13,008,358 (11,792,640 (1,191,955 (9,053,176 (7,071,537
		(69,791,044 ---------------- ---------------------------------------------------------------- 41,728,789 ---------------- (1,063,338 ---------------- 34,012,048 133,618
34,145,666 ---------------- ----------------------------------------------------------------

— 290 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

PROFIT BEFORE TAXATION TAXATION PROFIT AFTER TAXATION MINORITY INTERESTS PROFIT ATTRIBUTABLE TO SHAREHOLDERS BASIC EARNINGS PER SHARE	For the six months ended 30 June Unaudited Adjustments HK$ HK$ Note 50,899,943 (11,877,058) 39,022,885 (2,439,109) 36,583,776 HK CENTS HK CENTS 7.96 5.21 (3)	2004 Pro forma HK$ 74,811,117 (11,877,058) 62,934,059 (2,439,109) 60,494,950 HK CENTS 13.17

Notes:

(1) The adjustments reflect:
(a) the decrease in bank interest income of HK$547,749 attributable to the reduction in cash and bank balances of HK$234,332,000 for the settlement of the Revised Acquisition costs as if the payment had occurred as at 1 January 2004. The decrease in interest income is estimated based on the average interest rate of 0.4675% per annum earned by the Company on its bank balances denominated in Hong Kong dollars and United States dollars for the six months ended 30 June 2004; and
(b) the increase in dividend income of RMB27,000,000 (equivalent to HK$25,522,261 translated at an exchange rate of HK$1 = RMB1.0579) as a result of a dividend declared by Huaneng of RMB0.25 per Huaneng Share (adjusted for subsequent corporate events, details of which are set out in the announcement of Huaneng dated 16 March 2004) during the six months ended 30 June 2004 as if the Asset had been held by the Group since 1 January 2004.
(2) The adjustment reflects the interest expenses for the six months ended 30 June 2004 attributable to the Group’s intended bank loan of HK$120,000,000 for the Revised Acquisition as if the loan had been drawn down on 1 January 2004. As at the Latest Practicable Date, the Group has not obtained any bank borrowings or committed facility lines for the Revised Acquisition and the adjustment is estimated based on the interest rate as stated in an indicative proposal received from a bank for a HK$120,000,000 term loan facility. The interest rate is based upon a spread over the Hong Kong Interbank Offered Rate.
(3) The adjustment reflects the increase in the Company’s basic earnings per share based on the pro forma adjusted profit attributable to shareholders of HK$60,494,950 and the weighted average number of 459,428,656 shares in issue during the six months ended 30 June 2004. The Company has no dilutive potential ordinary shares in issue and therefore no diluted earnings per share is presented.

— 291 —

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

4. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE GROUP

The unaudited pro forma consolidated cash flow statement of the Group as presented below has been prepared based on the published unaudited consolidated cash flow statement of the Group for the six months ended 30 June 2004, and adjusted, where appropriate, to illustrate the effect of the Revised Acquisition as if the Revised Acquisition had taken place as at 1 January 2004.

The unaudited pro forma consolidated cash flow statement has been prepared for illustrative purposes only and, because of its nature, may not give a true picture of the cash flows of the Group for the six months ended 30 June 2004 or any future periods.

NET CASH INFLOW GENERATED FROM OPERATIONS Interest received Interest paid Tax paid NET CASH INFLOW FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of fixed assets Loans repaid by a jointly controlled entity Loans repaid by an associate Redeem of held-to-maturity debt securities Purchase of non-trading investments Placement of insurance regulatory related deposits Placement of deposits with maturity over three months Dividends received from an associate Dividend received from listed investments Dividends received from unlisted investments Interest income from debt securities Sale of fixed assets Sale of investment properties	For the six months ended 30 June Unaudited Adjustments HK$ HK$ Note 15,270,922 813,217 (547,749) (1) — (1,063,338) (2) (4,495,574)	2004 Pro forma HK$ 15,270,922 265,468 (1,063,338) (4,495,574) 9,977,478 --------------- (276,550) 15,432,172 6,108,764 4,000,000 (354,332,000) (729,771) (40,000,000) 4,205,400 117,760 25,522,261 93,703 194 5,164,660
	11,588,565 --------------- (276,550) 15,432,172 6,108,764 4,000,000 — (354,332,000) (3) (729,771) (40,000,000) 4,205,400 117,760 — 25,522,261 (4) 93,703 194 5,164,660	9,977,478 --------------- (276,550 15,432,172 6,108,764 4,000,000 (354,332,000 (729,771 (40,000,000 4,205,400 117,760 25,522,261 93,703 194 5,164,660

— 292 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

For the six months ended 30 June Unaudited Adjustments HK$ HK$ Note NET CASH OUTFLOW FROM INVESTING ACTIVITIES (5,883,668) --------------- ----------------------------------------------------------- NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 5,704,897 --------------- FINANCING Secured bank loan obtained — 120,000,000 (5) Dividend paid (18,377,146) Dividends paid to minority interests (2,881,329) Advances from minority interests 2,879,332 NET CASH (OUTFLOW)/INFLOW FROM FINANCING (18,379,143) --------------- ----------------------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (12,674,246) CASH AND CASH EQUIVALENTS AT 1 JANUARY 457,232,453 CASH AND CASH EQUIVALENTS AT 30 JUNE 444,558,207 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 506,525,008 (210,420,826) (6) Less: Deposits placed pursuant to insurance regulatory requirements (21,966,801) Deposits with original maturity of over three months (40,000,000) 444,558,207	For the six months ended 30 June Unaudited Adjustments HK$ HK$ Note NET CASH OUTFLOW FROM INVESTING ACTIVITIES (5,883,668) --------------- ----------------------------------------------------------- NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 5,704,897 --------------- FINANCING Secured bank loan obtained — 120,000,000 (5) Dividend paid (18,377,146) Dividends paid to minority interests (2,881,329) Advances from minority interests 2,879,332 NET CASH (OUTFLOW)/INFLOW FROM FINANCING (18,379,143) --------------- ----------------------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (12,674,246) CASH AND CASH EQUIVALENTS AT 1 JANUARY 457,232,453 CASH AND CASH EQUIVALENTS AT 30 JUNE 444,558,207 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 506,525,008 (210,420,826) (6) Less: Deposits placed pursuant to insurance regulatory requirements (21,966,801) Deposits with original maturity of over three months (40,000,000) 444,558,207	2004 Pro forma HK$ (334,693,407) --------------- ----------------------------------------------------------- (324,715,929) --------------- 120,000,000 (18,377,146) (2,881,329) 2,879,332 101,620,857 --------------- ----------------------------------------------------------- (223,095,072) 457,232,453 234,137,381 296,104,182 (21,966,801) (40,000,000) 234,137,381
	(18,379,143) --------------- ----------------------------------------------------------- (12,674,246) 457,232,453	101,620,857 --------------- ----------------------------------------------------------- (223,095,072 457,232,453
	444,558,207
	506,525,008 (210,420,826) (6) (21,966,801) (40,000,000)	296,104,182 (21,966,801 (40,000,000
	444,558,207

Notes:

(1) The adjustment reflects the decrease in cash inflow of HK$547,749 as a result of the decrease in bank interest income as detailed in note 1(a) to the unaudited pro forma consolidated profit and loss account.
(2) The adjustment reflects the cash outflow of HK$1,063,338 in relation to the bank loan interest as detailed in note 2 to the unaudited pro forma consolidated profit and loss account.
(3) The adjustment reflects the cash outflow of HK$354,332,000 arising from the acquisition of the Asset as detailed in note 1 to the unaudited pro forma consolidated balance sheet.

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

(4) The adjustment reflects the cash inflow of HK$25,522,261 arising from the dividend received from the Asset as detailed in note 1(b) to the unaudited pro forma consolidated profit and loss account.
(5) The adjustment reflects the cash inflow of HK$120,000,000 arising from the proposed bank loan to be obtained as detailed in note 2 to the unaudited pro forma consolidated balance sheet.
(6) The adjustment reflects the net decrease in cash and cash equivalents at the end of the pro forma period after taking into account the aforementioned pro forma cash flow adjustments.

— 294 —

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were as follows:

Authorised: 800,000,000 Shares of HK$1.00 each Issued and fully paid: 459,428,656 Shares of HK$1.00 each	HK$ 800,000,000
	HK$ 459,428,656

The Shares in issue are listed on the Stock Exchange. No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares or any other securities of the Company to be listed or dealt in on any other stock exchanges.

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GENERAL INFORMATION

APPENDIX IV

3. DISCLOSURE OF INTERESTS

(i) Directors’ interest and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of each Director and the chief executive of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) were required, pursuant to Section 352 of the SFO to be entered in the register referred to therein; or (c) were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”), to be notified to the Company and the Stock Exchange, were as follows:

			Approximate
			shareholding
Name of Director	Number	of Shares	percentage
	Long position	Short position
Mr. Ip Kai Ming	666,000	Nil	0.14%

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors or the chief executive of the Company were interested, or were deemed to be interested in the long and short positions in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

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GENERAL INFORMATION

APPENDIX IV

(ii) Persons who have interests or short positions which are discloseable under Divisions 2 and 3 of Part XV of the SFO

As at the Latest Practicable Date, so far as is known to any Director or the chief executive of the Company, the following parties (not being a Director or the chief executive of the Company), had interests or short positions in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

		Approximate
		shareholding
Name	Number of Shares	percentage
Samba Limited	144,885,000	31.54%
Papilio Inc. (Note 1)	169,125,000	36.81%
Vigour Fine Company Limited (Note 1)	192,764,600	41.96%
FITIC (Note 2)	192,764,600	41.96%

Notes:

Papilio Inc. and Vigour Fine Company Limited which were both substantial shareholders of Samba Limited were deemed to be interested in Samba Limited’s interest of 144,885,000 shares.
FITIC was deemed to be interested in Vigour Fine Company Limited’s interest of 192,764,600 shares by virtue of its controlling interests in Vigour Fine Company Limited.

Name	Name of subsidiary Nature of interest Percentage of interest in subsidiary Jinan Pacific Real Estate Development Co., Ltd. corporate 49%

Save as disclosed in this circular, as at the Latest Practicable Date, so far is known to any Director or chief executive of the Company, no other person had an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

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GENERAL INFORMATION

APPENDIX IV

(iii) Material interests

None of the Directors or the chief executive of the Company or expert named in paragraph 8 below has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2003, being the date to which the latest published audited financial statements of the Company were made up.

None of the Directors or the chief executive of the Company or expert named in paragraph 8 below is materially interested in any contract or arrangement entered into by the Company subsisting at the date of this circular which is significant in relation to the business of the Group.

4. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or the chief executive of the Company and their respective associates had any interest in a business which competes or may compete with the business of the Group.

5. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by any member of the Group within one year without payment of compensation, other than statutory compensation).

6. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within two years preceding the date of this circular and which are or may be material. At the time of execution, none of the transactions as contemplated under the following contracts were notifiable transactions under the Listing Rules.

(a) an agreement dated 16 October 2003 entered into between Sharp Star Limited (“Sharp Star”), a wholly owned subsidiary of the Company, and other parties pursuant to which Sharp Star disposed of certain floors of a building in Macau at a cash consideration of HK$28 million;
(b) an agreement dated 30 December 2003 entered into between Min Xin Properties Limited (“MXPL”), a wholly owned subsidiary of the Group, and a third party pursuant to which MXPL transferred its equity and debt interest in Changchun Changxin International Real Estate Development Co., Ltd. at a cash consideration of RMB22.15 million (equivalent to approximately HK$20.9 million); and
(c) an agreement dated 15 April 2004 entered into between Take Chance Company Limited (“Take Chance”), a wholly owned subsidiary of the Company, and a third party pursuant to which Take Chance disposed of its investment properties at a cash consideration of HK$52 million.

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GENERAL INFORMATION

APPENDIX IV

7. LITIGATION

So far as the Directors are aware, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was pending or threatened against the Company or any of its subsidiaries.

8. QUALIFICATION

The followings are the qualification of the experts who have given opinion or advice contained in this circular:

Qualifications

Name Qualifications Goldbond Capital a licensed corporation to carry out Types 1 and 6 regulated activities under the SFO PricewaterhouseCoopers Certified Public Accountants

As at the Latest Practicable Date, neither Goldbond Capital nor PricewaterhouseCoopers was beneficially interested in the share capital of any member of the Group or had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group and have any interest, either directly or indirectly, in any assets which have been, since the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

9. CONSENT

Goldbond Capital and PricewaterhouseCoopers have given and have not withdrawn their respective written consents to the issue of this circular with inclusion of their letters, reports and/or summary of their opinions (as the case may be) and references to their names in the form and context in which they respectively appear herein.

10. GENERAL

a) The secretary of the Company is Ms. Connie Yee Moy Chan, who is an associate member of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.
b) The qualified accountant of the Company is Mr. Chan Kwong Yu, who is a Certified Public Accountant and a Fellow of The Association of Chartered Certified Accountants.
c) The registered office of the Company is at 17th Floor, Fairmont House, 8 Cotton Tree Drive, Central, Hong Kong.

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GENERAL INFORMATION

APPENDIX IV

d) The share registrar of the Company is Standard Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
e) The English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the registered office of the Company at 17th Floor, Fairmont House, 8 Cotton Tree Drive, Central, Hong Kong from 29 March 2005 to 17 April 2005 (both days inclusive):

(a) the memorandum and articles of association of the Company;
(b) the annual report of the Company for each of the three years ended 31 December 2003;
(c) the Agreement;
(d) the Supplemental Agreement;
(e) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 20 of this circular;
(f) the letter of advice from Goldbond Capital to the Independent Board Committee, the text of which is set out on pages 21 to 39 of this circular;
(g) the letter issued by PricewaterhouseCoopers in connection with the unaudited pro forma consolidated balance sheet, unaudited pro forma consolidated profit and loss account and unaudited pro forma consolidated cash flow statement of the Group as set out in Appendix III;
(h) the contracts referred to in the section headed “Material contracts” in paragraph 6 of this appendix; and
(i) the written consents referred to in the section headed “Consent” in paragraph 9 of this appendix.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [74 x 44] intentionally omitted <==

MIN XIN HOLDINGS LIMITED

(incorporated in Hong Kong with limited liability)

(Stock Code: 222)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of Min Xin Holdings Limited (the “Company”) will be held at Island Ballroom, Level 5, Island Shangri-La, Pacific Place, Supreme Court Road, Central, Hong Kong on Monday, 18 April 2005 at 3:30 p.m. for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT the Supplemental Agreement (as defined in the circular of the Company dated 29 March 2005 despatched to the shareholders of the Company), a copy of which is tabled at the EGM and marked “A” and initialed by the chairman of the EGM for identification purpose, and the transactions contemplated under or incidental to the Supplemental Agreement be and is hereby approved and the directors of the Company be and are hereby authorized to take all steps necessary or expedient in their opinion to implement and/or give effect to the terms of the Supplemental Agreement.”

By Order of the Board Ding Shi Da Chairman

Hong Kong, 29 March 2005

Registered office:

17th Floor, Fairmont House

8 Cotton Tree Drive

Central Hong Kong

Notes:

A form of proxy for use at the EGM is enclosed.
Any member entitled to attend and vote at the EGM shall be entitled to appoint another person as his proxy to attend and vote in his stead. A member who is the holder of two or more shares may appoint one or two proxies to represent him and vote on his behalf at the EGM. A proxy need not be a member of the Company.

— 301 —

NOTICE OF EXTRAORDINARY GENERAL MEETING

The instrument appointing a proxy must be signed by a member or his attorney duly authorised in writing or, in the case of a corporation or institution, either under the common seal or under the hand of an officer or attorney duly authorised in writing.
To be valid, the instrument appointing a proxy and, if such proxy form is signed by a person under a power of attorney or other authority on behalf of the appointer, a notarially certified copy of that power of attorney or other authority, must be deposited at the Company’s registered office, 17th Floor, Fairmont House, 8 Cotton Tree Drive, Central, Hong Kong not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting thereof.
The register of members of the Company will be closed from 16 April 2005 to 18 April 2005, both days inclusive, during which period no share transfers will be registered. All transfer documents accompanied by the relevant share certificates must be lodged with the Company’s share registrar, Standard Registrars Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 4:00 p.m. on 15 April 2005. Only shareholders whose names appear on the register of members of the Company on 15 April 2005 are entitled to attend and vote at the EGM.
In the case of joint holders, any one of such holders may attend and vote at the EGM either personally or by proxy in respect of the shares as if he was solely entitled thereto, but if more than one of such joint holders be present at the EGM, the holder whose name stands first in the register of members shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose name any share stands shall for such purpose be deemed joint holders thereof.
The voting on the resolution will be conducted by way of a poll.
On a poll, every member present in person or by proxy shall have one vote for every share held by him.

— 302 —

AI assistant

Wanjia Group Holdings Limited — Proxy Solicitation & Information Statement 2005

49194_rns_2005-03-29_f6626ef6-8627-4cf5-8702-5a15d7cb37d9.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

MIN XIN HOLDINGS LIMITED

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

Independent financial adviser to the independent board committee of Min Xin Holdings Limited

Goldbond Capital (Asia) Limited

TABLE OF CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MIN XIN HOLDINGS LIMITED

Board of Directors

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

INTRODUCTION

LETTER FROM THE BOARD

THE SUPPLEMENTAL AGREEMENT

Date

Parties

Terms of the Supplemental Agreement

Consideration

LETTER FROM THE BOARD

Revised acquisition cost of each share in the Asset

Conditions precedent

LETTER FROM THE BOARD

INFORMATION ON THE GROUP

INFORMATION ON THE VENDOR

LETTER FROM THE BOARD

INFORMATION ON THE ASSET

INFORMATION ON THE HUANENG GROUP

Based on International Financial Reporting Standards:

Based on PRC Accounting Standards:

REASONS FOR THE ACQUISITION

LETTER FROM THE BOARD

REASONS FOR ENTERING INTO THE SUPPLEMENTAL AGREEMENT

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE REVISED ACQUISITION

RISKS IN RELATION TO THE ASSET

LETTER FROM THE BOARD

LETTER FROM THE BOARD

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

MANAGEMENT DISCUSSION AND ANALYSIS

For the year ended 31 December 2003

Results

Business review

Banking business

Insurance business

LETTER FROM THE BOARD

Toll road investments

Property investments

High-tech investments

Financial position

LETTER FROM THE BOARD

Employees and remuneration policy

For the year ended 31 December 2002

Results

Business review

Banking business

Insurance business

Toll road investments

Property investments

LETTER FROM THE BOARD

Financial position

For the year ended 31 December 2001

Results

Business review

Banking business

Insurance business

Toll road investments

Property investments

LETTER FROM THE BOARD

Financial position

GENERAL

THE INDEPENDENT BOARD COMMITTEE

LETTER FROM THE BOARD

THE EGM

POLL PROCEDURE

RECOMMENDATION

FURTHER INFORMATION

Wanjia Group Holdings Limited Proxy Solicitation & Information Statement 2005