In 2018, the net profit and loss of each business segment and their respective ratio of contribution to the total net profit were as follows:
net profit from hydropower was RMB849,881,000 (51.91%, 2017: 113.20%);
net profit from wind power was RMB215,612,000 (13.17%, 2017: 2.32%);
net profit from photovoltaic power was RMB406,843,000 (24.85%, 2017: 15.10%);
net profit from coal-fired power was RMB517,335,000 (31.60%, 2017 (restated): -14.98%); and
unallocated net loss was RMB352,486,000 (-21.53%, 2017 (restated): -15.64%).
As compared with 2017, the changes in net profit were mainly due to the following factors:/p>
Revenue from coal-fired power increased by RMB2,293,959,000, which was attributable to the increase in sales and rise of the average on-grid tariff of coal-fired power as compared with the previous year;
Revenue from wind power and photovoltaic power increased by RMB1,146,191,000 in aggregate due to the commencement of commercial operation of various new power generating units and the consolidation of newly acquired project companies;
Revenue from hydropower decreased by RMB231,335,000 as a result of lower hydropower electricity sales and the decrease in average on-grid tariff of hydropower as compared with the previous year;
Fuel costs increased by RMB1,470,717,000 as a result of the increase in unit fuel cost of RMB6.43/MWh and the increase in fuel consumption attributable to the growth in sales of coal-fired power during the year;
Depreciation of plant and equipment and staff cost increased by RMB677,984,000 in aggregate as a result of business expansion, newly acquired project companies and addition of power generating units; and
Finance costs increased by RMB722,651,000 as a result of the increase in total debts level and overall interest rates.
Revenue
The revenue of the Group was mainly derived from sales of electricity to regional and provincial power grid companies and provision of power generation and related services while the Group recognized its revenue when the Group satisfied a performance obligation. In 2018, the Group recorded a revenue of RMB23,175,626,000, representing an increase of 16.07% as compared with RMB19,966,811,000 of the previous year.
The increase in revenue was mainly attributable to the year-on-year increase of RMB2,293,959,000 in revenue from coal-fired power as a result of the combined effect of the year-on-year increases of 11.96% and 3.65% in its sales and average on-grid tariff respectively. The revenue of wind power and photovoltaic power have also recorded significant increases due to the commencement of commercial operation of various new power generating units and the consolidation of newly acquired project companies.
Segment Information
The reportable segments identified by the Group are now the “Generation and sales of coal-fired electricity”, “Generation and sales of hydropower electricity”, “Generation and sales of wind power electricity”, and “Generation and sales of photovoltaic power electricity”.
Operating Costs
Operating costs of the Group mainly consist of fuel costs for coal-fired power generation, repair and maintenance expenses for power generating units and facilities, depreciation and amortization, staff costs, consumables and other operating expenses.
In 2018, the operating costs of the Group amounted to RMB19,421,256,000, representing a rise of 13.17% as compared with RMB17,161,571,000 of the previous year. Operating costs increased mainly due to the rising fuel cost, and the increase in depreciation and staff costs resulting from the commencement of operation of various new power generating units and the consolidation of newly acquired project companies.
As the fuel cost constituted the majority of the total operating costs, control of fuel cost has always been an important task for coal-fired power generating enterprises. During the year under review, amid the significant growth in demand for coal and lower-than-expected production, in its best effort to curb the increase of fuel cost, the Group continued to enhance its coal purchase management and increase the scale of its centralized procurement through a wholly-owned subsidiary as the Group’s procurement platform. It has strengthened the management of long-term coal contracts and control over the fulfilment of annual contracts to increase the realization rate of long-term coal contracts. By way of strengthening market analysis and implementation of staggered procurement, the Group adjusted its coal inventory level in response to the market changes in a timely manner as well as commenced coal reservation for winter in advance. It has explored various new coal supply channels and maintained active communication with coal enterprises to improve its bargaining power and reduce the fuel cost.
Operating Profit
In 2018, the Group’s operating profit was RMB4,414,341,000, representing an increase of 42.01% as compared with the operating profit of RMB3,108,454,000 of the previous year. The increase in operating profit was mainly due to the substantial increase in gross profit of the coal-fired power business attributable to the increase in the electricity sales and the rise of average on-grid tariff of coal-fired power, and the profit contributions from the continuous expansion of the wind power and photovoltaic power businesses.
Finance Costs
In 2018, the finance costs of the Group amounted to RMB2,578,254,000, representing an increase of 38.94% as compared with RMB1,855,603,000 of the previous year. Among which, the interest expenses increased due to the rise of debts level and lending interest rates. Exchange gains decreased drastically due to the decline in the exchange rate of RMB against USD. Challenged by the interest rate hike of borrowings and capital cost for infrastructure investment, the Group put more efforts to improve the efficiency of capital utilization, expedited financing among various business units internally and simplified the procedures of internal fund transfer to control the amount and actual interest rate of borrowings.
Share of Profits of Associates
In 2018, the share of profits of associates was RMB114,461,000, representing a decrease of RMB108,169,000 or 48.59% as compared with the share of profits of RMB222,630,000 of the previous year. The decrease in profits was mainly due to the decrease in both electricity sold and average on-grid tariff from some coal-fired power plants. In order to maintain profitability, Changshu Power Plant (the principal associate of the Group engaging in coal-fired power generation) completed the upgrade and expansion of the heat supply system of four generating units during the year under review. The maximum heat supply of each unit increased by 150%, which significantly boosted heat supply capacity.
Share of (Loss)/Profits of Joint Ventures
In 2018, the share of loss of joint ventures was RMB6,446,000, representing a decrease in profits of RMB51,189,000 or 114.41% as compared with the share of profits of RMB44,743,000 of the previous year. The decrease in profits was mainly due to the relocation of some major heat consumers in the industrial park where Xintang Power Plant (the principal joint venture of the Group engaging in coal-fired power generation and heat supply) is located, and the rise in coal price which led to an increase in fuel costs, resulting in a significant reduction in net profit.
Income Tax Expense
In 2018, income tax expense of the Group was RMB432,763,000, representing an increase of RMB152,833,000 as compared with RMB279,930,000 of the previous year.
For the year ended 31 December 2018, certain subsidiaries of the Group were either exempted from PRC Enterprise Income Tax or entitled to the preferential tax rates of 7.5%, 10%, 12.5% or 15% (2017: 7.5%, 12.5% or 15%).
Earnings per Share and Final Dividend
In 2018, the basic and diluted earnings per share for profit for the year attributable to owners of the Company were RMB0.11 (2017: RMB0.10) and RMB0.11 (2017: RMB0.10) respectively.
At the Board meeting held on 21 March 2019, the Board recommended the payment of a final dividend for the year ended 31 December 2018 of RMB0.11 (equivalent to HK$0.1292 at the exchange rate announced by the PBOC on 21 March 2019) per ordinary share (2017: RMB0.081 (equivalent to HK$0.1006) per ordinary share), totaling RMB1,078,757,000 (equivalent to HK$1,267,050,000) (2017: RMB794,358,000 (equivalent to HK$986,573,000)), which is based on 9,806,886,321 shares (2017: 9,806,886,321 shares) in issue on 21 March 2019 (2017: 22 March 2018).
The Group announced a revised dividend policy in January 2019. According to the policy, the Company may declare and distribute annual cash dividends to its shareholders in an amount representing not less than 50% (previously 25%) of the profit attributable to owners of the Company in any financial year, subject to the criteria set out in the policy.
In addition, the Company intends to maintain a relatively stable dividend per share for the next three years starting from 2018 at a level not lower than that in 2017 in principle barring unforeseeable circumstance in the Group’s operating environment and results.
EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
As at 31 December 2018, the carrying amount of equity instruments at fair value through other comprehensive income was RMB3,083,174,000, accounting for 2.47% of total assets, including listed equity securities of RMB2,942,667,000 and unlisted equity investments of RMB140,507,000.
Listed equity securities represented the equity interests in Shanghai Power held by the Group. As at 31 December 2018, the Group held 13.88% of the issued share capital of Shanghai Power, the A shares of which are listed on Shanghai Stock Exchange. Fair value of such equity interests decreased by 11.38% as compared with RMB3,320,491,000 as at 31 December 2017.
In August 2018, Shanghai Power acquired assets from its holding company by way of issue of consideration shares, which led to an increase in its registered capital. As a result, the Group’s shareholding in Shanghai Power diluted from 15.08% to 13.88%.
Unlisted equity investments represented the Group’s investment in equity of some unlisted companies principally engaging in financial services, coal production, water supply and electricity trading services respectively. Upon the application of HKFRS 9 on 1 January 2018, the Group’s unlisted equity investments are measured at fair value, instead of measuring at cost less impairment as previously required. As at 31 December 2018, the aggregate fair value of unlisted equity investments owned by the Group was RMB159,706,000 (including an unlisted equity investment in PRC as part of a disposal group classified as held for sale), representing a decrease of 8.97% from RMB175,442,000 measured at cost less impairment as at 31 December 2017.
MATERIAL ACQUISITIONS AND DISPOSALS
In October 2017, the Company entered into Acquisition Agreements with CPI Holding and SPIC respectively, pursuant to which the Company agreed to acquire 100% of equity interest in various companies principally engaging in clean energy power generation, including Guangdong Company (excluding CPI Qian Zhan Gang Dian Company Limited), Guangxi Company, China Power (Sihui) Cogeneration Company Limited, Anhui Company, Hubei Company, Shandong Company and Shouxian Company. Upon completion of the transactions, the Company would further hold a higher proportion of clean energy assets including large-scale hydropower, wind power, natural gas power, and centralized and distributed photovoltaic power generation projects, which would enhance the Group’s assets and business coverage and improve its overall market competitiveness. For details, please refer to the announcement of the Company dated 9 October 2017.
In May and November 2018, the Company completed the acquisitions of the entire interests in Guangxi Company, Shandong Company, Anhui Company, Hubei Company and Shouxian Company respectively. Upon completion, all of the five companies became wholly-owned subsidiaries of the Group. For details, please refer to the announcements of the Company dated 31 May 2018 and 23 December 2018. The Group will closely monitor the progress on the approval from the relevant authorities for the acquisition of the remaining companies.
In February 2018, Shanxi Shentou entered into the Joint Venture Agreement with five other external companies to form the Joint Venture in Shanxi Province of the PRC. Shanxi Shentou will make contribution by way of cash and assets injection. The Company will use its interests in a non-wholly-owned subsidiary (i.e. 80% interests in CP Shentou, which is now as a disposal group classified as held for sale) as Shanxi Shentou’s second tranche of contribution to the Joint Venture. In August 2018, one of the external companies decided to withdraw from the cooperation. As a result, Shanxi Shentou entered into a new Joint Venture Agreement with the remaining four external companies. Upon completion of the relevant procedures of equity change, CP Shentou will cease to be a subsidiary of the Company. For details, please refer to the announcements of the Company dated 6 February 2018 and 14 September 2018.
In October 2018, Wu Ling Power, Huabao Trust, ABC Financial and Yuanjiang Company entered into the Yuanjiang Capital Injection Agreement. Pursuant to which, Huabao Trust and ABC Financial agreed to acquire approximately 34.32% and 6.86% of the equity interest in Yuanjiang Company respectively. Wu Ling Power’s equity interest in Yuanjiang Company would be diluted from 100% to approximately 58.82% after the completion of the Yuanjiang Capital Injection. For details, please refer to the announcement of the Company dated 24 October 2018.
In October 2018, Guangxi Company, ICBC Financial, ABC Financial and SPIC Changzhou entered into the Changzhou Capital Injection Agreement. Pursuant to which, ICBC Financial and ABC Financial agreed to acquire approximately 23.38% and 11.69% of the equity interest in SPIC Changzhou respectively. SPIC Guangxi’s equity interest in SPIC Changzhou would be diluted from 100% to approximately 64.93% after the completion of the Changzhou Capital Injection. For details, please refer to the announcement of the Company dated 24 October 2018.
In November 2018, Guangxi Company, Ziyuan County Danxia Ecological Energy Company Limited, ABC Financial and SPIC Jinzishan entered into the Jinzishan Capital Injection Agreement. Pursuant to which, ABC Financial agreed to acquire approximately 44.32% equity interest in SPIC Jinzishan. SPIC Guangxi’s equity interest in SPIC Jinzishan would be diluted from 90.83% to approximately 50.57% after the completion of the Jinzishan Capital Injection. For details, please refer to the announcement of the Company dated 22 November 2018.
Save as disclosed above, the Group did not have any other material acquisition or disposal during the year under review.
LIQUIDITY, CASH FLOWS AND FINANCIAL RESOURCES
As at 31 December 2018, cash and cash equivalents of the Group were RMB1,853,044,000 (31 December 2017: RMB4,577,786,000). Current assets amounted to RMB8,793,641,000 (31 December 2017: RMB9,319,946,000), current liabilities amounted to RMB26,012,138,000 (31 December 2017: RMB28,821,524,000) and current ratio was 0.34 (31 December 2017: 0.32).
In 2016, the Company entered into a 3-year financial services framework agreement with SPIC Financial. According to the agreement, the deposit services to be provided by SPIC Financial to the Group would be on normal commercial terms or better (similar to or more favorable than those offered by other major commercial banks in China for the provision of comparable services), and the annual cap in respect of the maximum daily balance of deposit (including accrued interests) placed by the Group with SPIC Financial should not exceed RMB3 billion during the term of the agreement. During the period from 1 January 2018 to 31 December 2018, the Group deposited funds with SPIC Financial at the average deposit rate higher than PBOC’s benchmark interest rates for saving deposits and not lower than the agreed interest rates for saving deposits provided by major commercial banks in China for the same period. For the year ended 31 December 2018, the maximum amount of daily deposit placed by the Group with SPIC Financial was approximately RMB2.98 billion. In order to ensure that the relevant business is in compliance with the terms of the financial services framework agreement, the Company had designated personnel to monitor the funds deposited with SPIC Financial, performed daily real-time inquiries on the funds deposited with SPIC Financial, and collected deposit rates offered by major domestic commercial banks for comparison with the deposit rates offered by SPIC Financial on a monthly basis.
In addition to the deposit offers as agreed in the above agreements, SPIC Financial also provides internal fund management platform, cross-border fund allocation platform and other financial services to the Group through its own financial resources, such as the business information system and cross-border fund allocation channels. Such platforms enable the real-time monitoring of account balances as well as income and expenditure, thereby safeguarding against funding risks. At the same time, they facilitate flexible and efficient fund allocation across borders, which gives rise to more flexible capital flow at home and aboard, broadens financing channels for domestic subsidiaries and reduces uncertainties in inbound and outbound fund flows due to changes in foreign exchange regulations.
During the year under review, the Group recorded a net decrease in cash and cash equivalents (including cash and cash equivalents as part of a disposal group classified as held for sale) of RMB2,723,522,000 (2017: net increase of RMB2,829,558,000). For the year ended 31 December 2018:
net cash generated from operating activities amounted to RMB2,784,456,000 (2017: RMB3,132,196,000).
net cash used in investing activities amounted to RMB12,184,593,000 (2017: RMB6,284,724,000), which mainly represented the payment for the acquisition of Guangxi Company as well as cash outflow of capital expenditure on the Group’s property, plant and equipment and prepayments for construction of power plants.
net cash generated from financing activities amounted to RMB6,676,615,000 (2017: RMB5,982,086,000). The increase in cash inflow as compared with last year was mainly attributable to the new capital injections from non-controlling shareholders of some subsidiaries.
The financial resources of the Group were mainly derived from cash inflow from operating activities, borrowings from banks and related parties, project financing, and issuance of medium-term notes and super short-term commercial papers.
The net proceeds from the rights issue in 2017 in the amount of RMB3,734,047,000 was used in settling the consideration for the acquisition of Guangxi Company of RMB3,594,652,000 in 2018. The remaining proceeds from the rights issue of approximately RMB139 million will be used to settle the consideration payables for the designated acquisitions in 2019. For the relevant details of the designated acquisitions, please refer to the announcement of the Company dated 9 October 2017.
DEBTS
As at 31 December 2018, total debts of the Group amounted to RMB64,917,976,000 (31 December 2017: RMB51,640,030,000). All debts of the Group are denominated in RMB, Japanese Yen (“JPY”) or United States Dollars (“USD”).
As at 31 December 2018, the Group’s gearing ratio, calculated as net debt (being total debts less cash and cash equivalents) divided by total capital (being total equity plus net debt), was approximately 60% (31 December 2017: approximately 56%). The Group’s gearing ratio remained stable.
As at 31 December 2018, the amount of borrowings granted by SPIC Financial was approximately RMB2.15 billion (31 December 2017: approximately RMB1.36 billion).
The details of the Group’s debt as at 31 December 2018 and 2017 are set out as follows:
| |
2018
RMB'000 |
2017
RMB'000 |
| Bank borrowings, secured |
11,093,776 |
13,516,324 |
| Bank borrowings, unsecured |
20,014,944 |
27,115,082 |
| Borrowings from related parties |
25,592,295 |
8,892,906 |
| Medium-term notes issued by the Company |
2,000,000 |
- |
| Corporate bonds issued by Wu Ling Power |
999,959 |
999,544 |
| Obligations under finance leases |
5,192,002 |
1,116,174 |
| Other borrowings |
25,000 |
- |
| |
|
|
| |
64,917,976 |
51,640,030 |
The above debts were repayable as follows:
| |
2018
RMB'000 |
2017
RMB'000 |
| Within one year |
15,335,483 |
22,027,954 |
| In the second year |
7,861,437 |
5,694,607 |
| In the third to fifth year |
22,270,880 |
12,728,865 |
| After the fifth year |
19,450,176 |
11,188,604 |
| |
|
|
| |
64,917,976 |
51,640,030 |
Among the above debts, approximately RMB24,297,951,000 (31 December 2017: approximately RMB18,160,768,000) are subject to fixed interest rates, and the remaining debts denominated in RMB are subject to adjustment based on the relevant rules of the PBOC and bearing interest rates ranged from 4.17% to 5.23% (2017: ranged from 3.92% to 5.10%) per annum.
SIGNIFICANT FINANCING ACTIVITIES
In September 2018, the Company received confirmation in relation to the acceptance of its application for the issuance of medium-term notes in the PRC in the aggregate principal amount of RMB2 billion, with an effective registration period of 2 years and to be issued in tranches within the effective registration period. On 12 October 2018, the Company completed the issuance of the 2018-first-tranche of the medium-term note in a principal amount of RMB2 billion, at the interest rate of 4.15% per annum and with a term of three years. The proceeds were fully used for repayment of bank borrowings.
In March and April 2018, Wu Ling Power, a subsidiary of the Company, issued super short-term commercial papers in the PRC of RMB300,000,000 with an interest rate of 4.93% per annum and of RMB500,000,000 with an interest rate of 4.78% per annum, respectively, both with maturity periods of 180 days. The proceeds were fully used for repayment of bank borrowings and the relevant super short-term commercial papers were fully redeemed by the end of 2018.
CAPITAL EXPENDITURE
In 2018, the capital expenditure of the Group was RMB11,563,878,000 (2017: RMB8,501,931,000). In particular, the capital expenditure for clean energy segments (hydropower, wind power and photovoltaic power) was RMB7,672,993,000 (2017: RMB4,675,024,000), which was mainly applied for the construction of new power plants and power stations; whereas the capital expenditure for coal-fired power segment was RMB3,730,637,000 (2017: RMB3,666,377,000), which was mainly applied for the construction of new coal-fired power generating units and technical upgrade for the existing power generating units. These expenditures were mainly funded by project financing, funds generated from business operations and borrowings from related parties.
PLEDGE OF ASSETS
As at 31 December 2018, the Group pledged certain property, plant and equipment and prepaid lease payments with a net book value of RMB533,096,000 (31 December 2017: RMB561,001,000) to certain related parties to secure borrowings from related parties (31 December 2017: bank borrowings) in the amount of RMB227,820,000 (31 December 2017: RMB257,820,000). In addition, certain bank borrowings, borrowings from related parties and obligations under finance leases totaling RMB20,301,015,000 (including bank borrowings as part of a disposal group classified as held for sale) (31 December 2017: RMB13,267,104,000) were secured by the rights on accounts receivable of certain subsidiaries of the Group. The accounts receivable secured under these borrowings amounted to RMB1,580,203,000 (including accounts receivable as part of a disposal group classified as held for sale) (31 December 2017: RMB1,125,299,000).
CONTINGENT LIABILITIES
As at 31 December 2018, the Group had no material contingent liabilities.
