HNP Huaneng Power International Inc

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HUANENG POWER

THE OBJECTIVES

OF THE COMPANY

As a power company, devoted to providing sufficient, reliable and eco-friendly energy to the community; as a listed company, devoted to creating long-term, stable and increasing returns for shareholders; and as a first class power producer, devoted to having excellency in operation, becoming a leading power enterprise in China and an advanced enterprise internationally.

CONTENTS

PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

INTERIM RESULTS

The Board of Directors of Huaneng Power International, Inc. (the “Company”) announces the unaudited operating results for the six months ended 30 June 2020 and a comparison with the operating results for the same period of last year. For the six months ended 30 June 2020, the Company and its subsidiaries recorded consolidated operating revenue of RMB79.127 billion, representing a decrease of 5.35% compared to the same period of last year. The net profit attributable to equity holders of the Company was RMB5.441 billion, representing an increase of 58.10% compared to the same period of last year. The earnings per share was RMB0.30. The net asset (excluding equity interests attributable to minority shareholders) per share was RMB5.46.

Please refer to the unaudited financial information below for details of the operating results.

BUSINESS REVIEW FOR THE FIRST HALF OF THE YEAR

In the first half of the year, the Company firmly focused on the production and operation, reform and development as well as the annual work plan, made every effort to cope with the outbreak of COVID-19 epidemic, actively promoted the resumption of work and production, seized the market opportunities, implemented each project, thus achieved the major production and operating performance targets, laying a solid foundation for the comprehensive and high-quality completion of the goals and tasks of the year.

In the first half of the year, the Company’s total power generation by the power plants within China on consolidated basis amounted to 179.650 billion kWh, representing a decrease of 8.05% over the same period last year. Total electricity sold by the Company amounted to 172.125 billion kWh, representing a decrease of 6.98% over the same period last year. The utilisation hours reached 1,718 hours, representing a decrease of 182 hours over the same period last year.

The decrease in the Company’s power generation was mainly attributable to: 1. affected by the epidemic in the first quarter, the national economic growth slowed down, and the Company’s power generation decreased significantly year-on-year; 2. since the second quarter, the domestic epidemic situation has been effectively controlled, and the progress of resumption of production in various industries has accelerated. The Company seized the opportunity to actively strive for planned power, and at the same time strengthened power supervision, reduced unit backup, and increased effective generation, realizing a positive year-on-year growth of the Company’s power generation in the second quarter, and narrowing the decline in power in the first quarter.

In the first half of the year, due to COVID-19 outbreak, safety inspection, shortage of hydro-power generation and other factors, the price pivot has generally moved downward despite the significant fluctuation in the coal prices. In the first half of the year, the CCI5500 index which reflected the price level of thermal coal at ports around the Bohai Rim region averaged at RMB540/tonne, representing a decrease of RMB70/tonne compared to the same period last year. The Company scientifically researched and judged the market trend, flexibly adjusted its procurement strategy and played a supplementary supply role for imported coal, resulting in an overall stable coal supply and a significant decrease in the unit price of standard coal purchase compared to the same period last year. The unit fuel cost of the Company’s domestic power plants throughout the first half of the year incurred for sales of power was RMB206.51/MWh, representing a decrease of 7.73% compared to the same period last year.

In the first half of the year, the Company made steady progress in implementing the three-year action plan for safety production special rectification, wastewater treatment in key areas and closure of coal yards, which resulted in the continuous improvement of the safety, economic and environmental protection operation of power generation units and continuing to maintain the Company’s leading position in the industry in terms of pollutant emission concentration and energy-consumption index. The average emissions of sulfur dioxide, nitrogen oxides and soot from thermal generating units were all superior to the ultra-low emission standard.

In the first half of the year, the Company proceeded smoothly in the construction of power generation projects. The capacity of the commissioned units was 1,438.42 MW, including gas turbine generation units with a capacity of 472.52 MW, wind generation units with a capacity of 480 MW and photovoltaic generation units with a capacity of 485.9 MW. In the meantime, some of the power plants invested or controlled by the Company underwent changes in capacity. As of 30 June 2020, the Company had a controlled generation capacity of 108,111 MW and an equity-based generation capacity of 94,878 MW. The proportion of the installed capacity of clean energy sources (gas turbine, hydro, wind, photovoltaic and biomass power generation) reached 18.16%.

In the first half of the year, the accumulated power generation of Tuas Power Ltd. (“Tuas Power”), a wholly-owned subsidiary of the Company in Singapore, accounted for a market share of 21.5%, representing an increase of 1.0 percentage point compared to the same period last year. The sales revenue was RMB5.633 billion, representing a decrease of 11.84% compared with RMB6.390 billion of the same period last year. The net profit attributable to the equity holders of the Company from its operations in Singapore was RMB25 million.

The Sahiwal 2×660MW coal-fired power plant project in Pakistan is one of the projects which was given priority for implementation under the framework of the China-Pakistan Economic Corridor Energy Project Implementation Agreement. It is the first large-scale coal-fired power plant put into operation in the China-Pakistan Economic Corridor. It greatly eased the power shortage in Pakistan. In the first half of the year, the Pakistan project recorded profit before tax of RMB347 million.

PROSPECT FOR THE SECOND HALF OF 2020

Currently, China’s economy has shown a momentum of recovery growth and gradually returned to stability, which fully demonstrate the strong resilience and ample room for manoeuvers of Chinese economy. Meanwhile, with the spread of the epidemic globally and the increasing complexity of the international situation, it has a greater impact on Chinese economic and social development and brings uncertainty to the growth of electricity generation and consumption. In the second half of the year, the Company will follow the general principle of making progress while maintaining stability, adhere to the new development idea and promote better coordination in epidemic prevention and control as well as economic and social development. The Company will adhere closely to the general direction of supply-side structural reform as the main line, strive to deepen reform and opening-up, firmly grasp the strategic base of expanding domestic demands, promote the high quality economic development and maintain overall social stability, making every efforts to achieve this year’s economic and social development goals and tasks. Based on the work in the first half of the year, the Company will continue to take various effective measures to deal with various risk challenges and complete work tasks of the whole year in relation to risk prevention and control, quality and efficiency improvement, green development, technological innovation, deepening reform, corporate culture construction, etc.

In terms of the power market, the national electricity reform will be accelerated, the general industrial and commercial electricity prices will be fully opened up, the responsibility for renewable energy consumption will be implemented, and the promotion of spot pilot projects will be accelerated in the second half of the year. The Company will continue to adapt to the changes in the market and anticipate the dynamics of the national economy and reforms in power market system, actively participate in the construction of power market in China and the places where the Company operated, timely adjust the operation strategies and exert its own advantages to consolidate and expand the market shares. Meanwhile, the Company will uplift the capability of responding to the market and manage market risks, and strengthen the Company’s core competitiveness.

In terms of the coal market, on the demand side, the resilience of hydro-power output increased, the installation of new energy continued to grow rapidly, and thermal power generation further squeezed by clean energy generation, resulting in certain suppression on the demand for thermal coal. On the supply side, driven by the policy of increasing production and supply from relevant national ministries and commissions, coal production organizations were strengthened in various regions and supply would remain steady growth. In addition, environmental protection and safety production standards of domestic coal mines have been greatly improved, and the impact of various inspections on the normal production of coal mines has gradually weakened, and the domestic coal supply would be in a relatively sufficient state. In general, the coal market will maintain a balance between supply and demand in the second half of the year, and the thermal coal price are expected to remain relatively stable with a narrow range of fluctuation. The Company will continue to intensify its efforts to develop new resources, and will strive for railway capacity support for transportation. We will also strive to ensure the performance of the long-term cooperation contracts and full delivery of coal supplies and on site procurement thereunder, optimize imported coal and firmly control the fuel procurement cost.

In terms of the capital market, in the first half of the year, in response to the epidemic, the Central Bank comprehensively adopted a variety of monetary policy tools, stepped up counter-cyclical adjustment, lowered interest rates in the financial market, and the capital market was generally loose. The current economic situation is still severe and complex, with great instability and uncertainty. In the second half of the year, the monetary policy will be more flexible, moderate and precise, maintaining the rational growth of money supply and social financing scale, and reducing the comprehensive financing cost significantly. The Company expects that the capital market will continue to maintain a “moderately loose”, and will pay close attention to the capital market, actively manage and prevent risks and reduce capital costs.

In the second half of the year, the Company will hold on to the safety bottom line, focus on preventing fatal and equipment accidents, so as to ensure the safety of infrastructure, production, flood control, and epidemic prevention; go all out to achieve the annual operating tasks, focus on improving quality and efficiency, and continue to reduce financial costs, emphasize improving quality and efficiency of the equity participating enterprises, focus on enhancing the operating performance of Tuas Power, and strive to achieve the annual goal of “resolving stagnant enterprises and enterprises with difficulties”; do its best to push forward transformation development, promote the construction of regional renewable energy, and emphasize the Company’s “Fourteenth Five-Year” development planning; do its best to push forward technological innovation, making a greater breakthroughs for some key and difficult science and technical projects and increase the research and development investment; do its best to deepen internal reform and continuously improve the corporate governance system; do its best to develop corporate culture, and continue to bring long-term, stable and increasing returns to the shareholders of the Company.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Prepared under International Financial Reporting Standards (“IFRS”))

General

Based on preliminary statistics of the Company, for the second quarter of 2020, the Company’s total power generation by power plants within China on consolidated basis amounted to 94.949 billion kWh, representing an increase of 3.73% over the same period last year. Total electricity sold by the Company amounted to 91.473 billion kWh, representing an increase of 5.41% over the same period last year. For the first half of 2020, the Company’s total power generation by the power plants within China on consolidated basis amounted to 179.650 billion kWh, representing a decrease of 8.05% over the same period last year. Total electricity sold by the Company amounted to 172.125 billion kWh, representing a decrease of 6.98% over the same period last year. For the first half of 2020, the Company’s average on-grid electricity settlement price for its power plants within China amounted to RMB416.65 per MWh, representing a decrease of 0.68% over the same period last year. For the first half of 2020, the Company’s market based electricity sold amounted to 84.06 billion kwh, with a ratio of 49.89% comparing to the corresponding total electricity sold, representing an increase of 2.84 percentage points over the same period last year.

The decrease in the Company’s power generation was mainly attributable to:

The power generations (in billion kWh) of the Company, by regions, are listed below:

For the first half of 2020, the power generation of Tuas Power Limited in Singapore, which is wholly-owned by the Company, accounted for a market share of 21.6% in Singapore, representing an increase of 1.6 percentage point compared to the same period of last year. The accumulated power generation for the first half year accounted for a market share of 21.5%, representing an increase of 1.0 percentage point compared to the same period of last year.

For the first half of 2020, the net profit attributable to equity holders of the Company was RMB5.441 billion, representing an increase of 58.10% over RMB3.442 billion for the same period last year. The net profit attributable to equity holders of the Company from domestic operations was RMB5.281 billion, representing an increase of 48.89%over the same period last year. The increase was primarily attributable to decline in fuel prices. The net profit attributable to equity holders of the Company from its operations in Singapore was RMB25 million. The net profit attributable to equity holders of the Company from its operations in Pakistan was RMB135 million.

Operating revenue mainly consists of revenue from electricity sold. For the first half of 2020, the consolidated operating revenue of the Company and its subsidiaries amounted to RMB79.127 billion, representing a decrease of 5.35% from RMB83.603 billion for the same period last year. The operating revenue from domestic operations of the Company decreased by RMB3.350 billion over the same period of last year, while the operating revenue generated from newly acquired entities and newly operated generating units was RMB1.354 billion.

The operating revenue from the operations of the Company in Singapore decreased by RMB0.757 billion over the same period of last year. The operating revenue from the operations of the Company in Pakistan was RMB2.148 billion.

Tax and levies on operations mainly consist of surcharges of value-added tax. According to relevant administrative regulations, these surcharges include City Construction Tax and Education Surcharges calculated at prescribed percentages on the amounts of the value-added tax paid. For the first half of 2020, the tax and levies on operations of the Company and its subsidiaries were RMB0.887 billion, representing a decrease of RMB37 million from RMB0.924 billion for the same period of last year.

For the first half of 2020, the total operating expenses of the Company and its subsidiaries was RMB65.812 billion, representing a decrease of 8.85% from the same period last year. The operating expenses in domestic operations of the Company decreased by RMB4.960 billion, or 7.75%, from the same period last year, which was primarily attributable to decline of fuel price, while the operating expenses of the newly acquired entities and newly operated entities were RMB0.641 billion.

The operating expenses from the operations in Singapore decreased by RMB1.031 billion, or 16.05%, from the same period last year. The operating expenses from the operations in Pakistan was RMB1.393 billion.

Fuel costs account for the majority of the operating expenses for the Company and its subsidiaries. For the first half of 2020, fuel costs of the Company and its subsidiaries decreased by 13.71 percentage point to RMB40.831 billion. The fuel costs from domestic operations of the Company and its subsidiaries decreased by RMB5.812 billion, which was primarily attributable to the decline of fuel price. The fuel costs of the newly acquired entities and new generating units were RMB0.301 billion. Fuel costs in Singapore decreased by RMB675 million from the same period last year.

For the first half of 2020, depreciation expenses of the Company and its subsidiaries increased by RMB151 million to RMB10.843 billion from the same period last year. The depreciation expenses of domestic operations increased by RMB0.129 billion compared to the same period last year, of which the depreciation costs incurred by the newly acquired entities and new generating units was RMB240 million. The depreciation expenses of the operations in Singapore increased by RMB21 million compared to the same time last year.

Labor costs consist of salaries to employees and contributions payable for employees’ housing funds, medical insurance, pension and unemployment insurance, as well as training costs. For the first half of 2020, the labor costs of the Company and its subsidiaries amounted to RMB5.566 billion, representing an increase of RMB637 million from RMB4.929 billion for same period last year.

For the first half of 2020, the maintenance expenses of the Company and its subsidiaries amounted to RMB1.647 billion, representing a decrease of RMB48 million from RMB1.695 billion for the same period last year. The maintenance expenses of the Company’s domestic operations decreased by RMB37 million compared to the same period last year. The maintenance expenses of operations in Singapore decreased by RMB11 million compared to the same period last year.

Other operating expenses include environmental protection expenses, land fee, insurance premiums, office expenses, amortization, Tuas Power’s electricity power purchase costs, impairment losses, government subsidies and net losses on disposal of properties, plant and equipment. For the first half of 2020, other operating expenses of the Company and its subsidiaries was RMB6.925 billion, representing a decrease of RMB644 million from RMB7.569 billion for the same period last year. The other operating expenses from the Company’s domestic operations increased by RMB126 million. Other operating expenses of the newly acquired entities and new generating units were RMB39 million. Other operating expenses of the operations in Singapore decreased by RMB368 million compared to the same period last year. Other operating expenses of the operations in Pakistan was RMB1.384 billion, representing a decrease of RMB402 million compared to the same period last year..

The consolidated net financial expenses of the Company and its subsidiaries for the first half of 2020 amounted to RMB4.934 billion, representing a decrease of RMB0.689 billion from RMB5.623 billion for the same period last year, which is mainly due to the decrease of borrowings. The financial expenses of domestic operations decreased by RMB0.542 billion, of which RMB0.166 billion is attributable to newly operated generating units. The financial expenses of the Company’s operations in Singapore decreased by RMB89 million. The financial expenses of the Company’s operations in Pakistan was RMB431 million.

The share of profits less losses of associates and joint ventures of the Company and its subsidiaries for the first half of 2020 was RMB1.049 billion, representing an increase of RMB310 million from RMB739 million for the same period last year. This was mainly attributable to increased profits of the associates and joint ventures of the Company, including Shenzhen Energy.

For the first half of 2020, the Company and its subsidiaries registered consolidated income tax expenses of RMB1.895 billion, representing an increase of RMB0.548 billion from RMB1.347 billion for the same period last year. The income tax expenses for the domestic operations increased by RMB0.490 billion over the same period last year mainly due to the increased profitability of domestic operations during the period.

The net profit attributable to equity holders of the Company for the first half of 2020 amounted to RMB5.441 billion, representing an increase of 58.10% over RMB3.442 billion for the same period last year. The net profit attributable to equity holders of the Company from its domestic operations was RMB5.281 billion, representing an increase of 48.89% over the same period last year. The increase is mainly due to decline in fuel prices. The net profit attributable to equity holders of the Company from its operations in Singapore was RMB25 million. The net profit attributable to equity holders of the Company from its operations in Pakistan was RMB135 million

As of June 30, 2020, consolidated total assets of the Company and its subsidiaries were RMB439.352 billion, representing an increase of 2.59% from RMB428.250 billion as of December 31, 2019. Total liabilities amounted to RMB289.324 billion, representing a decrease of 2.87% from RMB297.871 billion as at the end of 2019. The gearing ratio was 65.85%.

Calculation formula of the financial ratios:

Ratio of liabilities to shareholders’ equity = balance of liabilities at the end of the period/balance of shareholders’ equity (excluding non-controlling interests) at the end of the period

Current ratio = balance of the current assets at the end of the period/balance of current liabilities at the end of the period

Quick ratio = (balance of current assets at the end of the period – net amounts of inventories at the end of the period)/balance of current liabilities at the end of the period

Multiples of interest earned = (profit before tax + interest expenses)/interest expenditure (including capitalized interest)

The ratio of liabilities to owner’s equity decreased compared with the beginning of the year, mainly due to the increase in the company’s owner’s equity. The current ratio and the quick ratio increased from the beginning of the year, mainly due to the decrease in short-term interest-bearing debts of the company, which led to an decrease in current liabilities. Multiples of interest earned has increased compared to the same period of last year, mainly due to the increase in profit before tax.

As of June 30, 2020, the Company and its subsidiaries had net current liabilities of RMB70.183 billion. Based on the successful financing history of the Company, the undrawn banking facilities available to the Company and its good credit rating, the Company believes it would be able to meet its liabilities as and when they fall due and secure the funds required for operations.

The net cash provided by operating activities of the Company for the first half of 2020 was RMB15.836 billion, representing an decrease of 5% over the same period last year, which mainly due to the fact that electricity generation has declined in comparison to the same period last year, and the settlement scale of bills has increased this year, which results in a decrease of cash received from product selling and labor services by 10 percent.

Net cash used in investing activities of the Company was RMB15.845 billion, representing An increase of 58% from the same period last year, which was mainly due to increased capital expenditure on renewable energy projects.

The financing activities of the Company were principally debt financings. For the first half of 2020, the Company drew down new loans of RMB85.075 billion, issued super short-term notes of RMB8 billion and long-term bonds of RMB4.218 billion, and repaid loans of RMB90.971 billion, super short-term bonds of RMB15 billion and long-term bonds of RMB0 billion upon maturity.

As of 30 June 2020, cash and cash equivalents of the Company and its subsidiaries denominated in RMB and Singapore dollar, U.S. dollar, Japanese Yen and Pakistan Pupee, each of which is measured at RMB equivalent, were RMB12.709 billion, RMB1.594 billion, RMB0.130 billion,  RMB0.3279 million and RMB0.475 billion, respectively.

The capital expenditure for construction and renovation projects of the Company for the first half of 2020 was RMB14.328 billion, including RMB1.649 billion for Liaoning Clean Energy, RMB1.349 billion for Puyang Clean Energy, RMB1.146 billion for Shengdong Rudong Offshore Wind, RMB1.092 billion for Shanxi Integrated Energy, RMB844 million for Pinghu Offshore Wind, RMB760 million for Mengcheng Wind, RMB629 million for Guanyun Clean Energy, RMB562 million for Ruijin Power, RMB452 million for Sheyang New Energy, RMB418 million for Shandong Power Generation, RMB398 million Jiangyin Turbine Engine, RMB389 million for Jilin Power Generation, RMB360 million for Anyang Energy, RMB312 million for Sihong New Energy, RMB254 million for Heilongjiang Power Generation, RMB205 million for Guigang Clean Energy, RMB196 million for Dongguan Turbine Engine and Co-generation, RMB194 million for Lianping Wind Power, RMB187 million for Dalian Thermal Power, RMB165 million for Guanling New Energy, RMB162 million for Diandong Energy, RMB159 million for Xayi Wind Power, RMB142 million for Shidongkou First Plant, and RMB133 million for Diandong Yuwang. The infrastructure and renovation expenditure of other units was RMB2.172 billion.

The above capital expenditures are sourced mainly from internal capital, cash flows provided by operating activities, and debt financing. The Company expects to have significant capital expenditures in the next few years. During the course, the Company will make active efforts to improve project planning process on a commercially viable basis. The Company will also actively develop new projects to pave the way for its long-term growth. The Company expects to finance the above capital expenditures through internal capital, cash flows provided by operating activities, and debt and equity financing.

The Company expects to finance its capital expenditure and acquisition costs primarily from internal capital, cash flows from operating activities, and debt and equity financings.

Good operating results and sound credit status provide the Company with strong financing capabilities. As of June 30, 2020, the undrawn banking facilities available to the Company and its subsidiaries amount to more than RMB316.0 billion from, among others, Bank of China, China Construction Bank and Industrial and Commercial Bank of China.

The Company issued unsecured super short-term bonds with face value of RMB2 billion, RMB2 billion, RMB2 billion and RMB2 billion bearing annual interest rates of 1.70%, 1.50%, 1.20% and 1.20% on February 1, 2020, February 2, 2020, April 3, 2020 and May 4, 2020, respectively. Such bonds are denominated in RMB, issued at face value and mature in 90 days, 60 days,60 days and 90 days, respectively.

The Company issued two installments of corporate bonds of USD300 million each, with coupon rate of 2.25% and 2.625%, respectively. Each installment of the bonds is issued at par value in USD with maturity in 5 and 10 years after issuance, respectively.

As of June 30, 2020, the Company and its subsidiaries had outstanding short-term loans of RMB61.515 billion (RMB67.119 billion as of the end of 2019), of which borrowings from banks were charged at annual interest rates ranging from 0.00% to 4.92% (0.00% to 14.58% at the end of 2019).

As of June 30, 2020, the Company and its subsidiaries had outstanding short-term bonds of RMB2.003 billion (RMB9.026 billion at the end of 2019).

As of June 30, 2020, the Company and its subsidiaries had total long-term borrowings (including long-term borrowings maturing within one year) of RMB134.147 billion (end of 2019: RMB134.023 billion), of which RMB borrowings were RMB114.432 billion (end of 2019: RMB110.947 billion), USD borrowings were approximately $1.543 billion (end of 2019: $1.431 billion), euro borrowings of approximately €13 million (end of 2019: €15 million), Singapore dollar borrowings of S$1.679 million (end of 2019: S$2.479 million), and Japanese yen borrowings of ¥2.317 billion (end of 2019: ¥2.372 billion). US dollar and Singapore dollar borrowings are floating rate borrowings and all other foreign currency loans are fixed rate loans. As of June 30, 2020, the annual interest rate on long-term bank borrowings ranged from 0.75% to 6.55% (end of 2019: 0.75% to 6.82%).

The Company will maintain close watch on fluctuations of exchange rate and interest rate markets, and prudently assess currency and interest rate risks.

In addition to meeting cash requirements from operations, constructions and acquisitions in its ordinary course, the Company, along with due consideration of overall development of power generation industry and growth of the Company, will make efforts to control financing costs and financial risks, establish an optimal capital structure for effective financial management activities, with the view to providing sustainable and stable returns to its shareholders.

The objective of the Company is to bring long-term, consistent and growing returns to its shareholders. In line with this objective, the Company follows a proactive, stable and balanced dividend policy. Upon the approval from the annual general meeting of the shareholders for the year 2019 held on June 24, 2020, the Company declared a cash dividend of RMB0.135 per ordinary share (inclusive of tax), with total dividends of approximately RMB2.119 billion. The Company has not made payment of the dividends as of June 30, 2020.

The Company acquired 25% equity interests in Shenzhen Energy Group (“Shenneng Group”) with payment of RMB2.390 billion on April 22, 2003. In 2011, Shenneng Group divided into a remainder company Shenneng Group and a new company Shenneng Energy Management Company, and the Company holds 25% equity interests in each of the two successors. The Company acquired 200 million shares from Shenzhen Energy Corporation (“Shenzhen Energy”), a subsidiary of Shenneng Group, in December 2007. Shenzhen Energy allotted shares with its capital surplus in 2011. In February 2013, Shenzhen Energy merged Shenzhen Energy Management Company through the combination of directional seasoned offering and cash payment to the shareholders of Shenzhen Energy Management Company. After the merger, the Company directly held 991,741,659 shares of Shenzhen Energy, representing 25.02% of its equity interests. These investments brought a net profit attributable to the equity holders of the Company of RMB741 million for the Company for the first half of 2020 under IFRS. This investment is expected to provide steady returns to the Company.

The Company held 60% direct equity interests in Sichuan Hydropower as of December 31, 2006. In January 2007, Huaneng Group increased its capital investment in Sichuan Hydropower by RMB615 million, thus reducing the Company’s equity interests in Sichuan Hydropower to 49% and making Huaneng Group the controlling shareholder of Sichuan Hydropower. This investment brought to the Company a net profit attributable to the equity holders of the Company of RMB78 million for the first half of 2020 under IFRS. This investment is expected to provide steady returns to the Company.

As of June 30, 2020, the Company and its subsidiaries had 57,415 employees. During this reporting period, there was no significant change regarding remuneration policies and training programs of the Company.

As of June 30, 2020, the Company provided guarantees of approximately RMB12.216 billion for the long-term bank loans and long-term bonds of Tuas Power; Huaneng Heilongjiang Power Co., Ltd., a subsidiary of the Company, provided guarantee of approximately RMB350 million, RMB866 million and RMB335 million for the long-term bank loans of its subsidiaries Huaneng Daqing Cogeneration Co., Ltd., Daqing Lvyuan Wind Power Co., Ltd., and Huaneng Tongjing Wind Power Co., Ltd., respectively; Huaneng Daqing Cogeneration Co., Ltd., a subsidiary of the Company, provided guarantee of RMB194 million for the long-term bank loans of its subsidiary, Huaneng Yichun Cogeneration Power Co., Ltd; Huaneng Shandong Power Generation Co., Ltd., a subsidiary of the Company, provided guarantee of RMB1.416 billion for Huaneng Shandong Ruyi (Hong Kong) Energy Co, Ltd.

As of June 30, 2020, the details of secured loans of the Company and its subsidiaries are as follows:

As of June 30, 2020, the restricted bank deposits of the Company and its subsidiaries were RMB481 million (RMB863 million at the end of 2019).

As of June 30, 2020, the discounted or endorsed un-matured accounts receivable have a book value of RMB1.626 billion (RMB2.396 billion at the end of 2019).

As of June 30, 2020, the Company and its subsidiaries had no material contingent liability.

According to China Electricity Council’s report, Electricity growth nationwide experienced slowdown by 1.3% for the first half of 2020 and expectedly increase by 2%-3% for the whole year of 2020 due to COVID-19 outbreak. Unpredictable Climate, wind and water conditions and accelerated installation and operation of renewable energy facilities add uncertainty to the power generation market which is under increasingly intensified competition as a result of continued market reform, liberalization of business power generation sector and enlarged trading in various provinces and regions within China. The Company will overcome the unfavorable factors such as slowdown of power demand, further implement national policies to increase power generation capacity, make in-depth analysis of market supply and demand, proactively participate in the construction of the spot market, strengthen market analysis and judgment, enhance marketing management, and strictly control power market risks.

In addition, Liberalization of the business power generation and consumption market will contribute to considerable growth of market-based electricity transaction. Rapid development of the spot market has resulted in electricity prices in pilot provinces generally lower than the prices under annual agreement, with prices in certain provinces even lower than the variable cost of power generation, the Company’s average settlement price is expected to be exposed to continued decline. The Company will closely follow the development of government policies and power market reform, strengthen communication with central and local price authorities, actively cooperate with the government to establish reasonable, fair and regulated market conditions, take initiatives to respond to market changes, effect timely adjustment to pricing strategies, and make efforts to prevent and control the risks affecting electricity prices.

To mitigate air pollution from emissions, the power plants of the Company have completed ultra-low-emissions renovations which are on par with or exceed applicable national standards, but are still exposed to the risk of sporadic non-compliance with emission requirements due to breakdown of environmental protection facilities. To contain discharge of waste water and by coal mines and ash yards, the Company has arranged renovations by investment for wastewater treatment, coal yard closure and ash yard treatment in power plants in strategically important regions, while the weakness of existing facilities in some of these plants could subject those plants to environmental risks before completion of the renovation efforts.

The first half of 2020 witnessed significant fluctuation of coal prices due to COVID-19 outbreak, safety inspections, and shortage of hydropower generation. The market is expected to be exposed to the following risks during the second half of the year: first, the investigation of irregularities in Inner Mongolia’s coal sector for the past 20 years would add pressure on coal production; secondly, the increased uncertainty in international energy market, coupled with exchange rate fluctuations, would have considerable impact on the supply of imported coal; thirdly, the potential widespread recurrence of COVID-19 outbreak could affect coal supply and demand. The Chinese government has implemented a series of policies to maintain supply and stabilize prices, which would help to manage supply risk and control prices. Coal supply during the second half of 2020 is expected to be generally stable with slight price change. The Company will closely monitor changes in policies and domestic and international coal markets, strengthen cooperation with competitive large mines to ensure strict compliance with long term contracts; continue to explore new coal supply channels and carry out spot bidding in procurement; strengthen inventory management with reinforced and efficient storage in off-peak season, intensify mixed use of economic coal, and make various efforts to reduce fuel procurement costs.

In terms of RMB debt, in the first half of the year, in response to the epidemic, the People’s Bank of China comprehensively adopted a variety of monetary policy tools, stepped up counter-cyclical adjustment, lowered interest rates in the financial market, and the capital market was generally loose in order to cope with the epidemic. The current economic situation is still severe and complex, with great instability and uncertainty. In the second half of the year, the monetary policy of the People’s Bank of China will be more flexible, moderate and precise, maintaining the rational growth of money supply and social financing scale, and reducing the comprehensive financing cost significantly. The Company expects that the capital market will continue to maintain a “moderately loose”. Regarding foreign currency debt, the global COVID-19 outbreak is not under effective control, The interest rates of major currencies such as the US dollar are expected to decline slightly during the second half of 2020. The fluctuation of interest rates of foreign currency debts, which account for an insignificant proportion of our total debts, will have limited impact on the Company. The Company will pay close attention to changes in the domestic and overseas capital markets. While ensuring meeting funding requirements, the Company will focus on controlling financing costs by making timely adjustment to financing strategy, maintaining reasonably selected financing portfolios, and reducing the risk of interest rate fluctuations.

SHARE CAPITAL STRUCTURE

As at 30 June 2020, total issued share capital of the Company amounted to 15,698,093,359 shares, of which 10,997,709,919 shares were domestic shares, representing 70.06% of the total issued share capital of the Company, and 4,700,383,440 shares were foreign shares, representing 29.94% of the total issued share capital of the Company. In respect of foreign shares, Huaneng Group through its wholly-owned subsidiaries China Hua Neng Group Hong Kong Limited and China Huaneng Group Treasury Management (Hong Kong) Limited, held 472,000,000 and 131,956,000 shares, representing 3.01% and 0.84% of the total issued share capital of the Company, respectively. In respect of domestic shares, Huaneng International Power Development Corporation (“HIPDC”) owned a total of 5,066,662,118 shares, representing 32.28% of the total issued share capital of the Company, while Huaneng Group held 1,555,124,549 shares, representing 9.91% of the total issued share capital of the Company. Through its controlling subsidiary China Huaneng Finance Corporation Limited, Huaneng Group held 61,194,199 shares, representing 0.39% of the total issued share capital of the Company. Other domestic shareholders held a total of 4,314,729,053 shares, representing 27.49% of the total issued share capital.

PURCHASE, SALE OR REDEMPTION OF SHARES

The Company and its subsidiaries did not sell any other types of securities and did not purchase or redeem its own shares or other securities in the first half of 2020.

DISCLOSURE PURSUANT TO RULE 14A.63 OF THE LISTING RULES

Reference is made to the announcement of the Company dated 1 April 2020 (the “Announcement”).

As disclosed in the Announcement, Huaneng Group guaranteed that the audited actual net profit for 2017, 2018 and 2019 for each of Huaneng Laiwu Power Generation Limited, Huaneng Jiaxiang Power Generation Limited, Huaneng Jining Canal Power Generation Limited, Huaneng Liaocheng Thermal Power Limited and Huaneng Yantai Power Generation Limited (being certain subsidiaries of Huaneng Shandong Power Generation Limited as acquired by the Company) (collectively, “Profit Forecast Companies”, and individually, “Each Profit Forecast Company”) would not be less than the forecasted net profit. In 2019, the forecasted net profit for Each Profit Forecast Company was as follows:

According to the Specific Audit Report on Situation Description of the Differences Between Actual Net Profit/(Loss) and the Forecast Net Profit, which was audited by Ernst & Young Hua Ming LLP, the aggregate difference between the actual net profit/(loss) (net of the non-recurring items) and the forecasted net profit for 2019 for the Profit Forecast Companies was RMB693.8797 million. As the Actual Net Profit of Each Profit Forecast Company for 2019 fell short of the forecasted net profit and according to the terms and compensation formula set out in the Profit Forecast Compensation Agreement (the “Profit Forecast Compensation Agreement”) entered into between Huaneng Group and the Company on 14 October 2016, Huaneng Group should compensate the Company. The Profit Forecast Companies’ total cash compensation for 2019 was RMB457.727 million. The compensation, which shall be payable by way of cash by Huaneng Group to the Company within 20 working days from the date of disclosure of the specific audit report.

The Company has received the abovementioned cash compensation from Huaneng Group in April 2020. The independent non-executive Directors of the Company were of the opinion that Huaneng Group has fulfilled the payment obligation for its undertaking on 2019 result compensation under the Profit Forecast Compensation Agreement.

Note:

Save as stated above, as at 30 June 2020, in the register required to be kept under Section 336 of SFO, no other persons were recorded to hold any interests or short positions in the shares or underlying shares of the equity derivatives of the Company.

DIRECTORS’ AND SUPERVISORS’ RIGHT TO PURCHASE SHARES

The Company has adopted a code with the standard not lower than that of the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Listing Rules”). Following enquiries made by the Company, all Directors and Supervisors confirmed that they have complied with the Code throughout the first half of 2020.

As at 30 June 2020, none of the directors, chief executive officer or supervisors of the Company had any interest or short position in the shares, underlying shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the definition of Part XV of the Securities and Futures Ordinance (“SFO”) which was required to be notified to the Company and the Stock Exchange of Hong Kong Limited (“Hong Kong Stock Exchange”) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest and short position which any such Director, chief executive officer or Supervisor is taken or deemed to have under such provisions of the SFO) or which was required to be entered in the register required to be kept by the Company pursuant to Section 352 of the SFO or which was otherwise required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as contained in Appendix 10 to the Listing Rules.

PUBLIC FLOAT

As at the date of this announcement, the Company has maintained the prescribed public float under the Listing Rules and as agreed with the Hong Kong Stock Exchange, based on the information that is publicly available to the Company and within the knowledge of the directors of the Company.

DIVIDENDS

It was resolved by the Board not to distribute dividends for the first half of 2020.

DISCLOSURE OF MATERIAL EVENTS

The “Proposal on the Election of the Chairman of the Board of Directors and Chairman of the Strategy Committee of the Company and the Appointment of the Honorary Chairman” was considered and unanimously passed at the 26th meeting of the ninth session of the Board of Directors of the Company convened on 5 March 2020, whereby the election of Mr. Zhao Keyu as the Chairman of the ninth session of the Board of Directors and the chairman of the Strategy Committee of the Company was approved. Mr. Shu Yinbiao resigned as the Chairman and Director of the Company due to work requirements. In view of the significant contributions made by Mr. Shu Yinbiao to the Company during his term as the Chairman of the Company, the Board of Directors decided to appoint Mr. Shu Yinbiao as the honorary chairman of the Company.

The Company held the annual general meeting, the meeting of the Supervisory Committee and the Board meeting on 16 June 2020, respectively, to complete the election on change of session of each of the Board of Directors and the Supervisory Committee.

Members of the new session of the Board of Directors of the Company are as follows: Zhao Keyu (Chairman), Zhao Ping, Huang Jian, Wang Kui, Lu Fei, Teng Yu, Mi Dabin, Cheng Heng, Guo Hongbo, Lin Chong, Xu Mengzhou (Independent Director), Liu Jizhen (Independent Director), Xu Haifeng (Independent Director), Zhang Xianzhi (Independent Director) and Xia Qing (Independent Director).

Members of the new session of the Supervisory Committee of the Company are as follows: Li Shuqing (Chairman of the Supervisory Committee), Mu Xuan (Vice Chairman of the Supervisory Committee), Ye Cai, Gu Jianguo, Zhang Xiaojun and Xu Jianping.

The Company has reviewed and approved the Proposal on Appointment of the President of the Company at the 26th meeting of the ninth session of the Board of Directors held on 5 March 2020, and agreed to appoint Mr. Zhao Ping as the President of the Company. Mr. Zhao Keyu resigned as president of the Company.

CORPORATE GOVERNANCE

The Company always places emphasis on corporate governance. After years of experience and practice, the Company has gradually formed a standardised and enhanced governance structure, thereby establishing a sound and effective system that is appropriate to the Company’s own development requirements. The Company persists on maximising the benefits of the Company and its shareholders as a whole, treating all of its shareholders fairly and striving for the long-term, stable and increasing returns for shareholders of the Company.

During the reporting period, the Company has complied with the relevant provisions of Corporate Governance Code and Corporate Governance Report set out in Appendix 14 of the Listing Rules.

In recent years, the Company adopted the following measures in order to strengthen corporate governance and enhance the Company’s operation quality:

In addition to complying with the provisions of the applicable laws, as a public company listed in three markets both domestically and internationally, the Company is subject to the regulations of the securities regulatory authorities of the three listing places and the supervision of investors at-large. Accordingly, our fundamental principles are to adopt a corporate governance structure that balances and coordinates the decision-making powers, supervisory powers and operating powers, to act with honesty and integrity, and to operate in accordance with laws and regulations.

Over the years, the Board has formulated and implemented the Rules and Procedures of the General Meetings; Rules and Procedures of the Board of Directors Meetings; the Rules and Procedures of the Supervisory Committee Meetings; the Detailed Rules on the Work of the General Manager; the Detailed Rules on the Work of the Strategy Committee of the Board of Directors; the Detailed Rules on the Work of the Audit Committee of the Board of Directors; the Detailed Rules on the Work of the Nomination Committee of the Board of Directors; the Detailed Rules on the Work of the Remuneration and Appraisal Committee of the Board of Directors; the System on Work of Independent Directors, the System on Work of Independent Directors on the Annual Report and the Work Regulations on Annual Report for the Audit Committee, and amended relevant regulations and systems according to the applicable laws and the development needs of the Company.

The Board of Directors of the Company always regards the enhancement of corporate governance and the regulation of the three meetings as its own responsibility, continuously strengthens its own construction, and operates in compliance with laws and regulations, laying a solid foundation for the Company’s sustained and healthy development. In 2020, the Board of Directors of the Company has continuously led the Company to adhere to strategic leadership, enhanced development planning. In line with the Company’s strategic goals of “Six New Enhancements” and “Two Greater Breakthroughs”, the Company thoroughly implemented the new development concept and implemented the new energy safety strategy of “Four Reforms, One Cooperation” to deepen the supply-side structural reform and conduct the three critical battles, to achieve new improvements in green development, operational excellence, technological innovation, international operations, intrinsic safety, and the quality of party-building works, and make major breakthroughs in structural adjustments and the work of “resolving stagnant enterprises and enterprises with difficulties” thus to accelerate the pace of establishing a world-class listed power company with global competitiveness. At the same time, the Company will strictly abide by the “Guidelines for the Governance of Listed Companies”, with the fundamental aim of maximizing the interests of shareholders, treat all shareholders fairly, maintain a positive, balanced and stable dividend policy, and manage well the relationship between its long-term development of the Company and the short-term benefits of its investors.

All members of the Board jointly perform the duty of corporate governance. During the reporting period, the Board has included the followings in its scope of duties and authority:

The Company stresses on the importance of external information disclosure. The Company has established the Information Disclosure Committee which comprises the secretary to the Board of Directors, the chief accountant, managers of each functional department to be responsible for reviewing the Company’s regular reports. The Company has implemented the system of holding regular information disclosure meetings every Monday chaired by the secretary to the Board of Directors who will report on the Company’s important matters of the week, thereby ensuring the Company’s performance of the relevant information disclosure obligations. The Company has successively formulated and implemented the relevant information disclosure system, and has made timely amendments thereto according to regulatory requirements. The current functioning systems include the Measures on Information Disclosure Management, the Measures on Connected Transaction Management, Management Measures on Insiders, the Measures on Investor Relations Management, the Detailed Rules on the Work of the Information Disclosure Committee, Management Measures for Pursuing Responsibility regarding Material Errors in Information Disclosure of Annual Report, etc. The above measures and system ensure the regulated operation of the Company, strengthen the truthfulness, accuracy, completeness and the timely disclosure of information, and at the same time enhance the quality as well as transparency of the information disclosure.

Relevant departments of the Company compiled answers (and subsequent updates) to questions regarding the hot topics of market concerns, and the Company’s production, operation and operating results in a timely manner. The replies shall become the basis of external communication upon the approval of the Company’s management and the authorised representatives of the Information Disclosure Committee. In addition, the Company engages professional personnel to conduct specialized training for the staff of the Company who are responsible for information disclosure on an irregular basis in order to continuously enhance their expertise.

In 2020, the Company adheres to its principle of good faith and fair treatment to its shareholders and makes a lot of detailed work in preparing the financial reports and connected practice standard and on aspect of internal controls. The credibility of a listed company, to a large extent, relates to the quality of the preparation of financial statements and a regulated operation of financial activities. In order to regulate its financial management, the Company has completed a large amount of specific and detailed work, including:

The Company has formulated a comprehensive system, thereby achieving systematic management. The Company has comprehensively sort out internal and external risks and various business processes, and completed the “Internal Control Manual”, the fifth version of which in use detailed 23 business processes and organisational structures including income, material procurement, fuel management and fund management, and 19 soft elements including human resources management, antifraud and risk management in terms of five areas including environment control, risk assessment, process control, information and communication, and monitoring, thereby comprehensively elaborating the Company’s guiding principles and policies, work procedures and job duties of various posts, regulating the standard procedures of various business processes and realising a streamlined system. Currently, the Company is revising the current version, and intends to publish and implement the sixth version of the “Internal Control Manual” by the end of 2020.

The Company has compiled the “Internal Control Evaluation Handbook” specifying the three-tier internal control evaluation management system, the internal control evaluation mode comprised of routine evaluation and supervision on key area, regulating the internal control evaluation procedures, evaluation methods, defect defining procedures and standards in order to realize standardisation of internal control evaluation. The Company conducts annual assessment on the applicability and effectiveness of the above system and regularly conducts revision and perfection in order to realise dynamic maintenance of the internal control system.

For the purpose of risk identification, the “Internal Control Manual” stipulates the corresponding control measures and defines key control points. Through the implementation of the “one post for one item system” at each control point, the control responsibility is divided to every post at various levels so that internal control and job responsibilities are combined and all members of staff can participate in the construction of internal control. The Company has implemented the internal control routine evaluation mechanism, set up the post of internal control evaluators in each department and subordinate unit respectively, conducted monthly internal control evaluation, and established a three-tier evaluation quality supervision mechanism respectively at the three levels of the Company, regional offices and basic level units by way of the internal control management system in order to conduct real-time tracking of the implementation of internal control. During the first half of 2020, the Company has successfully completed a six-month internal control routine evaluation, thus effectively protecting and promoting the sustained and healthy development of the businesses of the Company and realising the stable operation of the internal control system. The Company has combined the new requirements and new changes in business and management and constantly advanced experience and common issues, and launched comprehensive and multilevel internal control training each year, and widely publicised internal control concepts and knowledge, thus continuously optimising the internal control environment.

The internal control and management departments, internal audit department and external auditors regularly report the internal control work situation to the Audit Committee of the Board of Directors respectively, thus ensuring the continued and effective operation of the internal control system. The Company constantly improves the internal control review system, formulated the “Internal Control Review and Evaluation Management Regulations”, regularly conducts internal control target reviews on an annual basis, thus realizing the review results in a timely manner, effectively guiding the units at all levels to focus on the quality of internal control work and practically realising of the deep level objective of management enhanced by internal control.

Upon full assessment, the management of the Company is of the opinion that the internal control system of the Company is sound and effective.

As the Company is listed in three jurisdictions, the Company has strictly complied with the relevant restrictive provisions on securities transactions by directors imposed by the regulatory authorities of the US, Hong Kong and China and we insist on the principle of complying with the strictest provision, that is, abiding by the strictest provision among three jurisdictions. We have adopted a set of standards not less exacting than the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules as the model code for securities dealings by directors of the Company, namely, Management Rules regarding the Company’s Securities Information and Trading. The Company has also formulated and implemented the Management Rules in respect of the Shares of the Company held by the Directors, Supervisors and Senior Management of Huaneng Power International, Inc. The model codes for the trading of securities by the Company’s directors include: trading the Company’s shares strictly in accordance with the Companies Law and relevant regulations, prohibiting those who are in possession of securities transaction inside information using inside information in securities trading; and setting out detailed rules for those who are in possession of inside information. Following a specific enquiry on all the directors, supervisors and senior management of the Company, all the directors, supervisors and senior management currently do not hold any shares of the Company and there is no material contract in which the directors and senior management directly or indirectly have material interests.

The Board of Directors of the Company comprises of 15 members. Of the members of the tenth session of the board of directors, Mr. Zhao Keyu as the Chairman; Mr. Zhao Keyu and Mr. Zhao Ping as the Executive Directors; Mr. Huang Jian, Mr. Wang Kui, Mr. Lu Fei, Mr. Teng Yu, Mr. Mi Dabin, Mr. Cheng Heng, Mr. Guo Hongbo and Mr. Lin Chong as the Non-executive Directors; and Mr. Xu Mengzhou, Mr. Liu Jizhen, Mr. Xu Haifeng, Mr. Zhang Xianzhi and Mr. Xia Qing as the Independent Non-executive Directors of the Company.

The Board of Directors of the Company has held ten meetings during the reporting period, including regular meetings and ad hoc meetings. For details, please see the relevant announcements.

Details of the attendance of directors at the board meetings are as follows: