net profit from hydropower was RMB1,449,809,000 (113.20%, 2016: 58.06%);
net profit from wind power was RMB29,759,000 (2.32%, 2016: 0.36%);
net profit from photovoltaic power was RMB193,354,000 (15.10%, 2016: 1.82%); and
net loss from coal-fired power was RMB392,215,000 (-30.62%, 2016: 39.76%).
As compared with 2016, the decrease in net profit was mainly due to the following factors:
an increase in fuel costs of RMB3,023,070,000 due to the surge in unit fuel cost by RMB54.78/MWh as a result of the sustained high coal prices during the year; and
a decrease in share of profits of associates and joint ventures by totaling RMB423,138,000.
However, the decrease in profit for the year under review was partly offset by the following factors:
driven by a rise in electricity sold and the average on-grid tariff of coal-fired power, there is an increase in revenue of the coal-fired power of RMB1,238,656,000;
with continuous efforts to control operating costs, other operating expenses decreased by RMB270,383,000; and
the decrease in income tax expense by RMB458,711,000.
Revenue
The revenue of the Group was mainly derived from the sales of electricity. In 2017, the Group recorded a revenue of RMB19,966,811,000, representing an increase of 5.83% as compared with RMB18,866,153,000 of the previous year. The increase in revenue was mainly attributable to the increases in electricity sold and average on-grid tariff for coal-fired power as compared with the previous year, and the commencement of operation of a number of wind power plants and photovoltaic power stations during the year.
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". During the year ended 31 December 2017, management has concluded that the "Generation and sales of wind and photovoltaic power electricity" segment should be reported separately, namely "Generation and sales of wind power electricity" and "Generation and sales of photovoltaic power electricity", which are both high potential growth businesses of the Group and therefore, are assessed and monitored separately by the chief operating decision maker. The comparative figures have been restated to reflect such change.
Operating Costs
Operating costs of the Group mainly consist of fuel costs for coal-fired power generation, repairs and maintenance expenses for power generating units and facilities, depreciation and amortization, staff costs, consumables and other operating expenses.
In 2017, the operating costs of the Group amounted to RMB17,161,571,000, representing a rise of 18.91% as compared with RMB14,432,405,000 of the previous year. The increase in operating costs was mainly driven by the rapidly increase in coal prices during the second half of 2016 which maintained at high levels throughout 2017, resulting in a significant surge in fuel costs year-on-year. Under the Group's efforts to strengthen cost management, optimize resource allocation and stringently control expenses, the other operating costs other than fuel costs and depreciation fell, partly offsetting the negative effects brought by the increase in fuel costs.
Operating Profit
In 2017, the Group's operating profit was RMB3,108,454,000, representing a decrease of 41.90% as compared with the operating profit of RMB5,350,578,000 of the previous year. The decrease in operating profit was mainly due to the significant surge in fuel costs for coal-fired power.
Finance Costs
In 2017, the finance costs of the Group amounted to RMB1,855,603,000, representing a decrease of 10.27% as compared with RMB2,067,966,000 of the previous year. The Group strived to increase capital efficiency and actively replaced high-interest rate debts, while devoting efforts to monitor over the debt's interest rates level by utilizing the funding platform provided by SPIC Financial, making the actual interest rate of debts similar to that of 2016.
Share of Profits of Associates
In 2017, the share of profits of associates was RMB222,630,000, representing a decrease in profits of RMB317,723,000 or 58.80% as compared with the share of profits of RMB540,353,000 of the previous year. The decrease in profits was mainly because of the decreased profit contribution from an associate, Changshu Power Plant (principally engaged in coal-fired power generation and heat supply).
Share of Profits of Joint Ventures
In 2017, the share of profits of joint ventures was RMB44,743,000, representing a decrease in profits of RMB105,415,000 or 70.20% as compared with the share of profits of RMB150,158,000 of the previous year. The decrease in profits was mainly attributable to the significant decrease in profit contribution from a joint venture, Xintang Power Plant (principally engaged in cogeneration of heat and power).
Income Tax Expense
In 2017, income tax expense of the Group was RMB279,930,000, representing a decrease of RMB458,711,000 as compared with RMB738,641,000 of the previous year. The decrease was mainly due to the decline in operating profit.
For the years ended 31 December 2017 and 2016, certain subsidiaries of the Group were either exempted from PRC Enterprise Income Tax or entitled to the preferential tax rates of 7.5%, 12.5% or 15%.
Earnings per Share and Final Dividend
In 2017, the basic and diluted earnings per share for profit attributable to owners of the Company were RMB0.10 (2016 (Restated): RMB0.30) and RMB0.10 (2016 (Restated): RMB0.30) respectively.
At the Board meeting held on 22 March 2018, the Board recommended the payment of a final dividend for the year ended 31 December 2017 of RMB0.081 (equivalent to HK$0.1006 at the exchange rate announced by PBOC on 22 March 2018) per ordinary share (2016: RMB0.160 (equivalent to HK$0.1805) per ordinary share), totaling RMB794,358,000 (equivalent to HK$986,573,000) (2016: RMB1,176,826,000 (equivalent to HK$1,327,607,000)), which is based on 9,806,886,321 shares (2016: 7,355,164,741 shares) in issue on 22 March 2018 (2016: 23 March 2017).
AVAILABLE-FOR-SALE FINANCIAL ASSETS
The Group recognizes its shareholding in Shanghai Power as "Available-for-sale financial assets". As at 31 December 2017, the Group had interest in 15.08% of the issued share capital of Shanghai Power, whose A-shares were listed on the Shanghai Stock Exchange.
In December 2017, Shanghai Power issued consideration shares for acquisition of assets from its parent company, resulting in an increase in its registered capital, and thus the percentage of equity interest held by the Group in Shanghai Power was diluted from 16.98% to 15.08%.
As at 31 December 2017, the fair value of the shareholding held by the Group was RMB3,320,491,000, representing a decrease of 24.71% from that of RMB4,410,367,000 as at 31 December 2016.
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 Qian Zhan), Guangxi Company, Sihui Company, Anhui Company, Hubei Company, Shandong Company and Shouxian Company. The transactions would enlarge the Group's assets and business coverage and enhance its overall market competitiveness (please refer to the Company's announcement dated 9 October 2017 and circular dated 23 October 2017). 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 projects. At present, the acquisitions are in the final stage for delivery, and the Group will expedite its completion and delivery of assets as soon as possible.
On 9 October 2017, the Company also announced that the Board had resolved not to proceed with the letter of intent dated 18 January 2016 regarding the proposed acquisition of 100% of the equity interest in SPIC Henan Electric Power Co., Ltd. (國家電投集團河南電力有限公司) from SPIC.
During the year under review, the Group did not have any other material acquisition or disposal.
LIQUIDITY, CASH FLOWS AND FINANCIAL RESOURCES
As at 31 December 2017, cash and cash equivalents of the Group were RMB4,577,786,000 (31 December 2016: RMB1,809,415,000). Current assets amounted to RMB9,319,946,000 (31 December 2016: RMB6,843,420,000), current liabilities amounted to RMB28,821,524,000 (31 December 2016: RMB22,271,150,000) and current ratio was 0.32 (31 December 2016: 0.31).
In 2016, the Company entered into a 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 PRC 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 2017 to 31 December 2017, the Group deposited funds with SPIC Financial at the deposit rates higher than PBOC's benchmark interest rate for saving deposits and not lower than the agreed interest rate for saving deposits provided by major commercial banks in China for the same period on average, and the daily balance of deposit together with accrued interests did not exceed RMB3 billion. For the year ended 31 December 2017, the maximum amount of deposit placed by the Group with SPIC Financial was approximately RMB1.99 billion. In order to ensure that the relevant business is in compliance with the terms of the financial services framework agreement, the Company designated personnel to monitor the funds deposited with SPIC Financial and performed daily real-time inquiries on the funds deposited with the SPIC Financial, and also collected deposit rates offered by major domestic commercial banks for comparison with the deposit rates offered by SPIC Financial on a monthly basis.
During the year under review, the Group recorded a net increase in cash and cash equivalents of RMB2,829,558,000 (2016: RMB303,864,000), and its working capital is sufficient. In 2017, the details of changes in net cash of various activities were as follows:
Net cash generated from operating activities amounted to RMB3,132,196,000 (2016: RMB6,116,849,000).
Net cash used in investing activities amounted to RMB6,284,724,000 (2016: RMB8,438,661,000), which mainly represented the 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 RMB5,982,086,000 (2016: RMB2,625,676,000). The significant increase in cash inflow, as compared with the previous year, was mainly attributable to (i) the increase in net cash inflow from debts, and (ii) the proceeds of RMB3,734,047,000 (net of expenses) from the Company's financing by way of Rights Issue made on 15 December 2017.
As at 31 December 2017 and up to the date of this annual report, the net proceeds raised from the Company's Rights Issue have not yet been utilized and are now deposited with certain banks in Hong Kong. It is designated to be applied towards the acquisitions of companies with clean energy projects from CPI Holding and SPIC as mentioned in the section "Material Acquisitions and Disposals" above. Such use is consistent with the intended use of proceeds from the Rights Issue as disclosed in the announcement and prospectus of the Company dated 8 November 2017 and 24 November 2017 respectively.
The financial resources of the Group were mainly derived from cash inflow from operating activities, borrowings from banks and related parties, project financing, issuance of bonds and short-term debentures/ commercial paper and the Rights Issue.
DEBTS
As at 31 December 2017, total debts of the Group amounted to RMB51,640,030,000 (31 December 2016: RMB47,734,850,000). All debts of the Group are denominated in RMB, Japanese Yen ("JPY") or United States Dollars ("USD").
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), as at 31 December 2017 was 56% (31 December 2016: 57%). The Group's gearing ratio remained stable.
In May 2014, the Company issued the corporate bonds of RMB2,000,000,000 for a term of three years at an interest rate of 4.50% per annum. In May 2017, the Company had fully redeemed and settled the principal amount of the bonds and the accrued interest as of the maturity date.
In October 2016, the Company issued the short-term commercial paper of RMB2,000,000,000 for one year at an interest rate of 2.80% per annum. In October 2017, the Company had fully redeemed and settled the principal amount of the short-term commercial paper and the accrued interest as of maturity date.
According to the above-mentioned financial services framework agreement which the Company entered into with SPIC Financial in 2016, the loan 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 PRC for the provision of comparable services), which would be beneficial to further enhancing the efficiency of fund management and controlling finance costs of the Group. As at 31 December 2017, the amount of borrowings granted by SPIC Financial was approximately RMB1.36 billion.
Set out below are details of the debts of the Group as at 31 December 2017 and 2016:
| |
2017
RMB'000 |
2016
RMB'000 |
| Bank borrowings, secured |
13,516,324 |
13,915,815 |
| Bank borrowings, unsecured |
27,115,082 |
19,594,595 |
| Borrowings from related parties |
8,892,906 |
5,463,511 |
| Corporate bonds and short-term commercial paper issued by the Company |
– |
4,000,000 |
| Corporate bonds and short-term debentures issued by Wu Ling Power |
999,544 |
1,498,514 |
| Commercial notes |
– |
2,081,100 |
| Obligations under finance leases |
1,116,174 |
1,181,315 |
| |
|
|
| |
51,640,030 |
47,734,850 |
The above debts were repayable as follows:
| |
2017
RMB'000 |
2016
RMB'000 |
| Within one year |
22,027,954 |
16,318,561 |
| In the second year |
5,694,607 |
10,605,704 |
| In the third to fifth year |
12,728,865 |
9,579,743 |
| After the fifth year |
11,188,604 |
11,230,842 |
| |
|
|
| |
51,640,030 |
47,734,850 |
Among the above debts, approximately RMB18,160,768,000 (31 December 2016: approximately RMB18,301,175,000) are subject to fixed interest rates, and the remaining debts denominated in RMB are subject to adjustment based on the relevant rules of PBOC and bearing interest rates ranged from 3.92% to 5.10% (2016: ranged from 3.92% to 5.39%) per annum.
SIGNIFICANT FINANCING ACTIVITIES
In the fourth quarter of 2017, the Company conducted the Rights Issue on the basis of one rights share for every three then existing shares. Upon completion of the Rights Issue, existing shares of the Company increased by 2,451,721,580 shares, with the total number of issued shares increased to 9,806,886,321 shares and raised net of expenses proceeds of RMB3,734,047,000. The proceeds will be used for the acquisitions of companies with clean energy projects from CPI Holding and SPIC as mentioned in the section "Material Acquisitions and Disposals" above.
As at 31 December 2017 and up to the date of this annual report, the net proceeds raised from the Company's Rights Issue have not yet been utilized and are now deposited with certain banks in Hong Kong. The intended use of the proceeds of the Rights Issue remains consistent with that disclosed in the announcement dated 8 November 2017 and the prospectus dated 24 November 2017 of the Company respectively.
Please refer to the announcements of the Company dated 9 October, 8 November and 14 December 2017 in relation to the acquisitions and the Rights Issue for details.
CAPITAL EXPENDITURE
In 2017, the capital expenditure of the Group was RMB8,501,931,000 (2016: RMB7,630,700,000). Among which, the capital expenditure for clean energy segment (hydropower, wind power and photovoltaic power) was RMB4,675,024,000, which was mainly used for construction of new power plants and power stations; whereas the capital expenditure for coal-fired power segment was RMB3,666,377,000, which was mainly used for construction of new environmental friendly coal-fired power generating units with large capacity and technical upgrade for the existing power generating units. Sources of funds were mainly derived from project financing, issuance of bonds and short-term commercial paper, funds generated from business operation and borrowings from related parties.
PLEDGE OF ASSETS
As at 31 December 2017, the Group pledged certain property, plant and equipment and prepaid lease payments with a net book value of RMB561,001,000 (31 December 2016: RMB604,248,000) to certain banks to secure bank borrowings in the amount of RMB257,820,000 (31 December 2016: RMB286,820,000). In addition, certain bank borrowings and borrowings from a related party totaling RMB13,267,104,000 (31 December 2016: RMB13,338,395,000) were secured by the rights on accounts receivable of certain subsidiaries of the Group. The accounts receivable secured under these borrowings amounted to RMB1,125,299,000 (31 December 2016: RMB1,125,880,000). As at 31 December 2016, bank deposit of RMB300,000,000 of a subsidiary of the Group was pledged as security for bank borrowings of RMB300,000,000. There was no such balance as at 31 December 2017.
CONTINGENT LIABILITIES
As at 31 December 2017, the Group had no material contingent liabilities.
RISK MANAGEMENT
The Group has implemented all-rounded risk management, and has established a systematic and comprehensive risk management mechanism and internal control system. The Group sets up the Risk Management Committee which is accountable to the Board and responsible for assisting the Board in providing leadership, direction and oversight with regard to the overall risk appetite and tolerance and risk management framework of the Group, including risk policies, processes and controls. The Group also has the Internal Audit Department in place for execution and implementation of risk management measures. The details of the Group's risk management report for the year 2017 are set out in the section headed "Risk Management Report" of this annual report.
FOREIGN EXCHANGE RATE RISKS
The Group principally operates its businesses in Mainland China with most of its transactions denominating in RMB. Apart from certain bank and other borrowings as well as cash and cash equivalents, the Group's assets and liabilities are mainly denominated in RMB. The Group held commercial notes denominated in USD during the year and held borrowings denominated in JPY and USD at the end of 2017. The volatility of RMB exchange rate against USD and JPY increases the exchange rate risks of the Group, thus affecting its financial position and operating results.
In order to manage exchange rate risks, the Group entered into two option contracts in an aggregate amount of USD296,778,000 with Bank of America to sell RMB for USD at a fixed exchange rate in 2015 so as to hedge against the foreign exchange rate risk brought by USD denominated commercial notes. In June 2017, the option contracts were terminated and the Group had realized an accumulated pre-tax gain of RMB56,167,000.
As at 31 December 2017, the Group's borrowings denominated in foreign currencies amounted to RMB3,864,606,000 (31 December 2016: RMB2,520,170,000). The Group will continue to keep track on the exchange rate movements and, if necessary, take responsive measures to avoid excessive foreign exchange rate risks.
FUNDING RISKS
With the Group's efforts to strengthen its development of all kinds of power projects, funding adequacy will have an increasing impact on the Group's operations and development. The financing market is affected by a number of factors such as the liquidity of the lending market and the economic environment, which in turn may also affect the effectiveness and costs of the Group's borrowing.
The Group has always leveraged its capability of accessing Mainland China and overseas markets to optimize its funding sources, increase the credit facilities and lower its financing costs. Cost-saving and efficiency enhancement initiatives have also been adopted in the Group's business management to lower administrative and operating expenses. Management reports annually to the Board on the working capital budget for the year at the beginning of each year and estimates the required amount of annual credit facilities and facilities reserves to ensure that the Group has obtained adequate financial resources to support the continued operation and development of projects for the foreseeable future. Management will also review the situation regularly to make contingency measures. As at 31 December 2017, the Group had available unutilized facilities (from banks, a related party and short-term commercial paper) amounting to RMB34,725,200,000.
