Design for China light power

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Design for China light power

  1. 1. Contents 1 Financial Highlights 2 Chairman’s St atement 6 Directors and Senior Management How are we performing? 10 CEO’s Review 14 Assets / Investments About this Annual Report 18 Financial Review • CLP Holdings Limited is the holding company 38 Business Performance and Outlook for the CLP Group of companies. It is listed on the Hong Kong Stock Exchange and is one of the largest investor-owned power businesses How do we engage our Stakeholders? in Asia. The Annual Report is just one of the numerous channels through which we report 69 Shareholders to our shareholders and stakeholders. 76 Lenders • This Annual Report 79 Customers focuses on the financial 84 Employees and operational performance of CLP in 88 Environment 2008 and our outlook. 90 Community Our Sustainability Report (SR) issued alongside the Annual How do we govern our Company? Report describes our plans and performance in managing the 93 Values social and environmental dimensions of our 94 Corporate Governance Report activities. 109 Risk Management Report • Our website, which is regularly updated, 120 Audit Committee Report contains a wealth of detailed information about CLP. example, our social and 122 Remuneration Report environmental reporting includes a 130 Directors’ Report comprehensive on-line sustainability report (which is lively and informative – well worth a look). What is in our Accounts? • To help readers, we have highlighted those 138 Independent Auditor’s Report areas of this Annual Report where further 139 Financial Statements information is available in the SR or on our website, by using the *** symbols and +++. 209 Five-year Summaries • Shareholders can support charity and help the environment by choosing to receive CLP’s 212 How can you contact us? corporate communications, including the Annual Report, in electronic form – details on the inside back cover. • Finally, with the current financial turmoil, this has been a challenging year for many. We decided, in the circumstances, to brighten and lighten up our Annual Report this year.
  2. 2. Chairman’s Statement In a challenging year, CLP continued to meet its obligations to our stakeholders. The Hon. Sir Michael Kadoorie REGULATORY REGIME We have previously reported fully to shareholders on the terms of the new SoC Agreement. In essence, the previous SoC, which ran for a 15-year term to 2008, allowed shareholders a permitted annual return on average net fixed assets of 13.5% for those investments financed by borrowings and 15% for those financed by shareholders’ funds. Under the new I am pleased to report that, in a challenging economic climate, the responsible stewardship of CLP’s business and assets SoC, the permitted return has been reduced to 9.99%. This means that, on a like for like basis (i.e. assuming no change resulted in a satisfactory financial performance for 2008. The Group’s operating earnings in 2008 were up by 4.6% to in the asset base or in gearing and interest rate levels) shareholder earnings from the Hong Kong electricity business will HK$9.7 billion. Total earnings for the year were HK$10.4 billion, representing only a 1.7% decline against the previous be reduced by around 30%. Because of the size of that business within our overall operations this will have a material year, despite the significant reduction in the permitted return to shareholders from our Hong Kong electricity business, impact on Group earnings – in 2007, the last full year of the previous SoC, earnings from Hong Kong represented about following the coming into effect of a new SoC Agreement with the Hong Kong SAR Government on 1 October 2008. 70% of the Group’s total earnings. The duration of the new SoC is 10 years, with Government having the right to extend by fi ve years on the same terms The Board has been able to recommend a final dividend for 2008 of HK$0.92 per share. This, together with the three to 30 September 2023, by giving notice before 1 January 2016. Government has the right to introduce market changes interim dividends paid during the year, would result in a total dividend of HK$2.48 per share, the same as in 2007. after 2018, taking into account factors such as supply reliability and environmental standards. If this occurs, CLP is entitled to earn the permitted return until 2023 on all investments previously approved. The underlying operational and financial performance of our various business streams is more fully described in the following sections of this Annual Report. In order to explain the implications of the current economic slowdown in greater Hong Kong Government detail to shareholders and stakeholders, the CEO’s Review and the Risk Management Report respectively explain the As I remarked in my Chairman’s Statement in last year’s Annual Report, while the signifi cant reduction in return is impact until now on CLP of the economic downturn and, looking ahead, the various measures that we have in place to unwelcome, the new SoC does provide clarity as to the basis on which we can continue to invest in Hong Kong’s mitigate the risks that unfavourable business conditions may create or exacerbate. electricity infrastructure for the next 10 years. This point is demonstrated by the approval by the Hong Kong Government in September 2008 of the Development Plan covering the period from October 2008 to December 2013 under the new In this Chairman’s Statement, I wish to focus on political and regulatory developments in the past 12 months which have SoC Agreement. About HK$40 billion of new capital investment will need to be made over the five-year period to ensure borne upon our Hong Kong electricity business and which have consequences for that business going forward. During the that the current world-class standards of electricity supply will be maintained. past year, this business continued to contribute the lion’s share of overall Group earnings. I believe that this will continue to be the case for the foreseeable future. For that reason the Board pays particular attention to matters which have a Maintaining the quality of Hong Kong’s electricity infrastructure means that we as a society must move forward, in a material impact on that business. methodical, balanced and focused way with the development of a long-term energy strategy. Without such a strategy, and its implementation in a timely, skilled and farsighted manner, our community will face the risk of an electricity service 4 CLP Holdings Limited 2009 Annual Report 5
  3. 3. Chairman’s Statement (Continue) How are we ng to the Legislative Council on 30 June 2008, Government had acknowledged the importance of commencing the Performing? planning process for the LNG project in ensuring that a replacement gas supply was in place by 2013. The MOU was, therefore, a new development – one which represents a significant change in the policy of the Central 10 CEO’s Review People’s Government and Hong Kong Government in relation to Hong Kong’s energy and fuel supply. Previously, we had been consistently advised that Hong Kong should be responsible for meeting its own energy needs, as China wrestled 14 Assets / Investments with the very real challenge of securing reliable gas supplies for the fast growing cities and provinces across the Mainland. 18 Financial Review We had also been advised that domestic demands for gas in the Mainland exceeded the available supply and that little, if any, gas could be made available to CLP. In addition, we understood that the certainty of the supply was questionable Business Performance and Outlook and the timing for delivery was unsure. We believe that the change in policy to include Hong Kong in overall gas supply 38 Hong Kong planning by the Central People’s Government is attributable to recent successes in securing new gas supplies, including those from Central Asia. 44 Australia 52 Chinese Mainland None of these sources is yet in place. As electricity demand grows through the next decade and a higher level of gas-fired 59 India generation is required in order to lower emissions, our needs for gas are so substantial that we will require not one or two of the three sources contemplated by the MOU to be brought on stream, but all three. 63 Southeast Asia and Taiwan The Hon. Sir Michael Kadoorie Hong Kong, 26 February 2009 6 CLP Holdings Limited
  4. 4. CEO’s Review A resilient business, positioned for growth. Andrew Brandler Group Earnings (HK$M) 2008 will remain long in people’s memories as a year of economic slowdown, uncertainty and loss of confi dence. 10,608 2007 Earnings The impact of the initial collapse of the U.S. mortgage market quickly spread into the wider fi nancial sector and then, -40 Electricity business in Hong Kong +377 business inevitably, through into what is often referred to as the “real economy”. Worldwide, commentators have likened events -17 Energy in Australia to those of the Great -89 Power projects in Chinese mainland Depression in 1929 and, here in Asia, the expression “Financial Tsunami” has had a particular resonance. That comparison -293 Electricity business in India +466 Power projects in Southeast Asia and Taiwan and that description may have their weaknesses, but both convey the speed and scale with which events have occurred -618 Other earnings and the fear and uncertainty which they have created. +29 Other one-off income, net 41 49 57 61 66 Unallocated expenses / finance costs There will be few, if any, readers of this Annual Report who have not been affected in some way, directly or indirectly 10,423 2008 Earnings by these events – be it in terms of the value of their investments, the security of their employment, access to credit and, Electricity business in Hong Kong Power projects in Southeast Asia and Taiwan Energy business in Australia Other earnings potentially, the availability and pricing of goods and services. Power projects in Chinese mainland Other one-off income, net Electricity business in India In this CEO’s review, I want to address, head on, the implications of the economic downturn so far on CLP. In the Risk Management Report, which is on page 109 of this Annual Report, I have asked our Chief Financial Offi cer to explain the disciplines, mechanisms and means that we are using to manage and mitigate the risks to CLP’s business going forward which may arise from continued volatile and diffi cult economic conditions. If approved, this would mean that the total dividend per share for 2008 will have been maintained at the same level, in absolute terms, as those in the preceding 12 months. SHAREHOLDER RETURNS The durability of CLP’s earnings and the strength of our balance sheet has meant that shareholders’ interests have been EARNINGS safeguarded in challenging times. During 2008, CLP’s share price held fi rm, falling only 1%, whilst the Hang Seng Index CLP’s earnings for 2008 have stood up well to the challenges posed by the economic slowdown. Total earnings were fell 48%. This made CLP the best performing stock in the Hang Seng Index in 2008, refl ecting our status as an essentially HK$10,423 million, compared to HK$10,608 million in the previous year, a decline of only 1.7%. defensive stock and the market perception of CLP as a sound business, managed on a prudent and long-term basis. In In Hong Kong, our earnings were subject to the reduced permitted rate of return allowed under the new SoC Agreement line with our commitment to provide shareholders with a substantial and stable dividend stream, we have been able to as from 1 October 2008. Nonetheless, this business still delivered HK$7,549 million to the Group’s earnings, falling by propose for shareholders’ approval in the forthcoming Annual General Meeting a final dividend of HK$0.92 per share. only 0.5% from the previous year. 8 CLP Holdings Limited 2009 Annual Report 9
  5. 5. Financial Review How can you approach our Financial Statements? THE INCOME STATEMENT AND THE BALANCE SHEET— THE TWO ESSENTIAL COMPONENTS OF FINANCIAL STATAMENTS FINANCIAL STATEMENTS DECODED The purpose of financial statements is to communicate the Group’s financial information to its stakeholders. In this Financial Review, we try to explain these in a way that will be accessible to those readers who do not have an accounting background. Of course, the definitions and explanations of the financial statements in this Review are for guidance purposes only. For comprehensive and authoritative definitions and explanations, readers should turn to the relevant accounting standards. The financial statements comprise two essential components: • Income statement – a representation of the Group’s financial performance; and • Balance sheet – a representation of the Group’s financial position. The income statement summarises the flows of economic resources to and from the Group (revenue and expenses) over Balance Sheet a period of time, in this case, for the year 2008. It also represents how the Group has moved from its financial position of last year to the current year (as illustrated on pages 24 and 25). The income statement is further analysed on pages 26 and 27. The balance sheet summarises the Group’s economic resources (non-current assets and working capital), obligations and owners’ equity (debts and other non-current liabilities, and equity respectively) at a particular point of time, in this case, Income Statement our year end at 31 December 2008. It also shows how the economic resources contributed by lenders and shareholders are deployed in the business. Further analysis is set out on pages 28 to 32. FINANCIAL STATEMENTS ILLUSTRATED The diagram opposite illustrates the relationship between the income statement and the balance sheet, as well as their links with the Group’s stakeholders. Non-current On the one hand, the Group earns revenue from customers through the deployment of non-current assets and working Assets Revenue capital; on the other hand, it pays operating expenses to suppliers of goods and services. The net balance of revenue Customers and operating expenses is the operating profit available for payment to lenders (interest expenses) and for distribution to shareholders (dividends) in return for their contribution of funds to the Group in the form of debt and equity. Another key component of the financial statements, not depicted opposite, is the cash flow statement which summarises Profit the Group’s operating, investing and financing cash flows. These cash flows are further explained on page 33. = Working Revenue Capital Non-current Assets – Operating Assets which are held long term either for use in operations or for investment (such as fixed assets and investments in jointly Expenses controlled entities). They are not expected to be consumed or sold within the normal operating cycle (usually 12 months). – Interest Equity Expense Debts and Other Comprises current assets and current liabilities which are continuously circulating in the business operations (such as bank balances, trade receivables and payables). Interest Non-current Expense Liabilities Debts and Other Non-current Liabilities Operating Lenders Expenses Funds borrowed from lenders which the Group has obligations to repay and other liabilities (such as deferred tax liabilities) Suppliers which the Group is obliged to settle after the next 12 months. of Good & Services Equity Profit Equity Dividends Funds contributed by shareholders either as capital or as profits retained in the Group. This is the residual interest in the Shareholders Group’s assets after all of the Group’s liabilities have been paid off. 10 CLP Holdings Limited 2009 Annual Report l CLP Holdings Limited 11
  6. 6. Financial Review (Continue) Debts and Other Finanical Results Non-current Assets Working Capital Equity Non--current Liabilites Fixed Assets, Leasehold Land and Land Use Rights The considerable rise in income tax expense is in line with Fixed Assets, Leasehold Land and Against the adverse economic environment and the negative factors we identifi ed in the previous pages, Land Use Rights by Geographical Location higher operating earnings this year, notably from Australia. CLP’s earnings remained robust at HK$10.4 billion, close to the HK$10.6 billion in 2007. An overview of 2% The end of a tax holiday enjoyed by GPEC in India also earnings from different business streams is on pages 24 and 25 of this Financial Review. 15% contributed to the increase. Partly offsetting the increase 1% 18% is the decrease in the profits tax rate in Hong Kong from 2008 17.5% to 16.5%, coupled with a write-back of deferred Increase / (Decrease) tax of HK$327 million in Hong Kong owing to this reduced 2007 Financial Results Accounting Policy Notes to the 2009 HK$M 2008 HK$M HK$M % profi ts tax rate. 81% Revenue 8 3 54,297 50,789 3,508 6.9 83% Expenses (41,717) (39,607) 2,110 5.3 Other income 5 727 2,122 (1,395) (65.7) Hong Kong Australia Others Finance costs 21 7 (4,245) (5,041) (796) (15.8) Share of results of jointly controlled entities, net of income tax 11 15 2,624 3,024 (400) (13.2) Goodwill and Other Intangible Assets Income tax expense 22 8 (1,349) (837) 512 61.2 In the Chinese mainland and Ho-Ping in Taiwan, our performance in 2008 continued to be affected by our not being allowed to make timely increases in tariffs to offset surging coal prices. This largely accounted for the drop of 13% to HK$2.6 billion in our share of the results of jointly controlled entities. Total Assets Total Assets by Geographical Location The considerable rise in income tax expense is in line with Interests in Jointly Controlled Entities higher operating earnings this year, notably from Australia. 35% Outside The Group’s Major Jointly Controlled Entities Hong Kong The considerable rise in income tax expense is in line with The end of a tax holiday enjoyed by GPEC in India also 21% Australia 2008 higher operating earnings this year, notably from Australia. contributed to the increase. Partly offsetting the increase The end of a tax holiday enjoyed by GPEC in India also is the decrease in the profits tax rate in Hong Kong from 2007 contributed to the increase. Partly offsetting the increase 17.5% to 16.5%, coupled with a write-back of deferred 36% 35% 36% 38% is the decrease in the profits tax rate in Hong Kong from tax of HK$327 million in Hong Kong owing to this reduced 65% Hong Kong 7% Chinese Mainland 17.5% to 16.5%, coupled with a write-back of deferred profi ts tax rate. 5% India tax of HK$327 million in Hong Kong owing to this reduced profi ts tax rate. 14% 15% 2% Southeast Asia & Taiwan 13% 13% CAPCO GNPJVC and PSDC OneEnergy Others Deferred Tax Assets In the Chinese mainland and Ho-Ping in Taiwan, our performance in 2008 continued to be affected by our not being allowed to make timely increases in tariffs to offset surging coal prices. This largely accounted for the drop of 13% to HK$2.6 billion in our share of the results of jointly controlled entities. Against the adverse economic environment and the negative factors we identifi ed in the previous pages, CLP’s earnings remained robust at HK$10.4 billion, close to the HK$10.6 billion in 2007. An overview of earnings from different business streams is on pages 24 and 25 of this Financial Review. 12 CLP Holdings Limited 2009 Annual Report 13
  7. 7. Business Environment and Strategy HONG KONG The global economic slowdown will inevitably affect consumer behaviour, corporate profi tability and the labour market • Ongoing operating excellence, characterised by world-class supply reliability, a strong safety record, excellence in in Hong Kong. Notwithstanding the support of the Central People’s Government and the Hong Kong SAR Government’s environmental performance and enhanced customer service. aim to boost the local economy through the launch of 10 major infrastructure projects, the local economic outlook is not encouraging over the near term. Business contraction will eventually, and inevitably, lead to slower growth in electricity Throughout 2008, we worked hard on: sales, perhaps even to a decline in the coming months. • meeting Hong Kong’s electricity demand in a reliable, cost-effi cient and environmentally responsible manner; • moving forward with the capital investment required to maintain the quality of Hong Kong’s electricity infrastructure; In the longer term, Hong Kong’s economic growth is predicted to be moderate and in line with that of the advanced and economies. Electricity sales growth in the coming decade may remain low at slightly less than 2% per annum, service- • delivering earnings to the CLP Group. based economy means that electricity demand growth is no longer closely aligned with underlying economic growth. The Chairman’s Statement discusses the implications of the new SoC, which came into effect on 1 October 2008, and of Under the 11th 5-year Plan, Guangdong Province has planned a sizeable amount of new generating capacity by 2010 as the MOU between the Central People’s Government and the Hong Kong SAR Government on the continued supply of well as the transfer of more power from the western provinces. The supply and demand balance is likely to improve in the nuclear energy and natural gas to Hong Kong. near future. Consequently, demand from Guangdong for electricity from CLP may reduce over the medium term. MEETING THE DEMAND FOR ELECTRICITY Although the new SoC Agreement took effect on 1 October 2008, the development of the local electricity market, after the end of its initial 10-year term, remains uncertain. CLP will engage actively with the public on the development of a 2009 long-term policy for the power sector. Number of Sales Increase Average annual customers Electricity sales / (Decrease) change over At present, CLP faces competition from other fuels, such as town gas, liquefied petroleum gas and diesel which can Sector (‘000) (GWh) 2008 (%) 2004-2009 (%) Notes to 2009 performance be used in end-use applications in homes, businesses and other facilities. Competition with other energy providers for commercial customers remains keen. Residential 1,989 7,890 2.2 1.9 Colder weather experienced in winter and warmer weather in CLP’s strategy for Hong Kong electricity as follows: autumn • Pursue expeditiously the energy supply options contemplated by the MOU; • Careful management of fuel procurement to minimise costs and resulting tariff pressure; Commercial 183 12,312 1.4 2.8 Moderate economic growth • Strong overall control of costs to minimise impact on tariff and the risk of lower electricity sales; Infrastructure and 92 7,661 (0.2) 1.0 Growth offset by energy y and • Continued financial prudence in all aspects of our business; public services conservation efforts • Active and informed contribution to the evolution of policy and environmental regulations regarding Hong Kong’s electricity industry; Manufacturing 27 2,202 (8.9) (5.1 ) sales, particularly in the, • Strengthened relationship management locally and in the Mainland, particularly in Guangdong and Beijing, in line clothing and sectors with the growing integration of Hong Kong with neighbouring Guangdong Province and with the Mainland as a whole; and Total local sales 2,291 30,065 0.3 1.4 14 CLP Holdings Limited 2009 Annual Report 15
  8. 8. How do we engage our stake holders? CLP and Our Shareholders CLP and our Shareholders 69 CLP and our Lenders 76 The value we deliver to our shareholders comes in two forms: share price appreciation and dividends. Together these CLP and our Customers 79 constitute the total returns enjoyed by CLP’s shareholders. CLP and our Employees 84 CLP and our Environment 88 OUR SHAREHOLDERS CLP and our Community 90 We had 19,467 registered shareholders as at 31 December 2008. The actual number of investors in CLP shares is likely to be considerably greater, due to ownership of shares being held through nominees, investment funds and the Central Size of Registered No. of % of % of Issued Shareholdings Share-holders Share-holders No. of Shares Share Capital Shareholding by Category 2% 500 or below 1,944 9.99 535,249 0.02 15% 501 – 1,000 3,410 17.51 2,545,984 0.11 1,001 – 10,000 9,186 47.19 38,701,108 1.61 10,001 – 100,000 4,378 22.49 127,025,702 5.28 100,001 – 500,000 441 2.27 86,965,615 3.61 73% 1 Above 500,000 108 0.55 2,150,369,742 89.37 Interests associated with the Kadoorie Family Total 19,467 100.00 406,143,400 2 100.00 Institutional investors Retail investors Notes: 1. Information on the ten largest registered shareholders in the Company is set out on our website. 2. 48.7% of all our issued shares were held through CCASS. As at 31 December 2008, the market capitalisation of CLP Holdings was HK$127 billion, ranking us as the 16th largest company out of the 1,087 issuers listed on the Main Board of the Hong Kong Stock Exchange. The Company’s shares are a constituent of the Hang Seng Index (HSI) – the index of Hong Kong’s leading listed companies, representing 2.87% by weighting of that Index. CLP is also part of the Hang Seng Utilities Index (HSUI) along with Hongkong Electric Holdings and Hong Kong and China Gas, representing 46.98% by weighting of that Index. From publicly available information and as far as our Directors are aware, CLP Holdings has maintained a suffi cient public float of its share capital in the Hong Kong stock market throughout the fi nancial year ended 31 December 2008 and has continued to maintain such a fl oat as at 26 February 2009.
  9. 9. CLP and Our Shareholders (Continue) CLP and Our Shareholders (Continue) CREATION OF SHAREHOLDER VALUE – SHARE PRICE PERFORMANCE CREATIONand Dividends (1999-2008) Earnings OF SHAREHOLDER VALUE – DIVIDENDS Earnings and Dividends Per Share (1999-2008) HK$M HK$ CLP shares sharply outperformed the HSI while the Hong Kong equities market experienced a bear run in the first half of CLP’s longstanding policy is to provide consistent increases in ordinary dividends, linked to the underlying earnings 12,000 6.0 2008. The global credit crisis had a huge impact on the HSI in the second half of 2008. CLP shares dropped along with performance of the business. The following two charts explain how steady increases in earnings have been translated into 5.5 10,000 5.0 all other stocks on the HSI, but CLP shares were one of the least-hit stocks in this financial turmoil, making CLP the best- corresponding growth in the ordinary dividends paid to our shareholders. 4.5 performing stock on the HSI in 2008. CLP shares closed at a historic high (also intra-day high) of HK$70.50 on 30 May 8,000 4.0 2008, but ended down 1.22% for the whole year. The HSI fell 48.27% during 2008. Our average closing share price was 3.5 Earnings and Dividends (1999-2008) Earnings and Dividends Per Share (1999-2008) 6,000 3.0 HK$60.59, with a lowest closing price of HK$42.85 recorded on 27 October 2008. HK$M HK$ 2.5 12,000 6.0 2.0 4,000 5.5 1.5 10,000 5.0 1.0 2,000 4.5 0.5 Relative Performance – CLP vs Local Benchmark Indices (1 Jan 2008 - 26 Feb 2009) (Base: 31 December 2007 = 1.0) 8,000 4.0 0.0 0 99 00 01 02 03 04 05 06 07 08 3.5 99 00 01 02 03 04 05 06 07 08 1.5 1.4 Total dividends 3.0 Operating earnings 1.3 6,000 1.2 Operating earnings Ordinary dividends 2.5 Ordinary dividends 1.1 Note: Earnings for 2002 to 2005 have been restated for the effect of the Note: Earnings for 2002 to 2005 have been restated for the effect of the 1.0 4,000 2.0 adoption of HKFRS-Int 4. adoption of HKFRS-Int 4. 0.9 1.5 0.8 0.7 2,000 1.0 0.6 0.5 0.5 0.4 0.0 0 0.3 99 00 01 02 03 04 05 06 07 08 99 00 01 02 03 04 05 06 07 08 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 26 Feb 09 Total dividends Operating earnings CLP Holdings HSI HSUI Source: Bloomberg and MSCI Operating earnings Ordinary dividends Ordinary dividends Note: Earnings for 2002 to 2005 have been restated for the effect of the Note: Earnings for 2002 to 2005 have been restated for the effect of the adoption of HKFRS-Int 4. adoption of HKFRS-Int 4. Whilst some investors predominantly measure CLP’s share price performance against other Hong Kong stocks, other shareholders will review CLP’s performance against that of other utility companies, both in Asia and worldwide. CLP has Creation of Shareholder Value – Total Returns delivered a strong share price performance over the past 10 years relative to benchmark utilities indices. Since 2002, when Over the past fi ve years, CLP provided stable growth in total returns when compared with both the HSI and the HSUI. investor confi dence in utilities weakened, CLP has consistently outperformed these indices, perhaps refl ecting our policy During the period from 2004 to 2008, CLP provided an annualised rate of return of 12.47%, versus 6.27% and 10.66% on steady dividend payments. Generally speaking, and especially during the past year, CLP’s share performance has been for the HSI and the HSUI respectively. CLP’s total return exceeded both indices during 2008. Among the HSI Constituents strong in economic downturns, reflecting the defensive nature of CLP stock. CLP provided the highest total return in 2008 and is one of the only two stocks which offered a positive total return. Relative Performance – CLP vs Benchmark Indices (1 Jan 1999 - 26 Feb 2009) (Base: 31 December 1998 = 1.0) Total Returns – CLP vs HSI and HSUI (2004-2008) (Base: 31 December 2003 = 0%) % 3.0 200 2.5 180 160 2.0 140 120 1.5 100 80 Total Returns – CLP vs HSI and HSUI (2004-2008) (Base: 31 December 2003 = 0%) 1.0 60 % 40 0.5 200 20 180 0 0.0 160 -20 99 00 01 02 03 04 05 06 07 08 26 Feb 09 140 04 05 06 07 08 CLP Holdings MSCI All Country World Utilities Index 120 CLP Holdings HSI HSUI MSCI All Country Asia Utilities Index MSCI All Country World Utilities Index Source: Bloomberg and MSCI 100 Source: Bloomberg 80 60 40 20 0 -20 04 05 06 07 08 18 CLP Holdings Limited 2009 Annual Report 19 CLP Holdings HSI HSUI Source: Bloomberg
  10. 10. Values Central to CLP’s success over the past century has been Of course, here and there, events had moved on and our a firm commitment to a set of business principles and business environment had evolved – as it always has and ethics that help drive the Company forward. These always will. We recognised this and made a few changes principles extend to all aspects of our operations. They to the Value Framework to refl ect this and the input cover how we treat our own people and our relationships from our stakeholders, such as the increasing emphasis with investors, business partners and governments, the on managing the long-term environmental implications wider communities in which we operate and the natural of our activities, especially with regard to climate change, environment. In 2003 we issued “From Vision to Reality”, and the growing awareness of helping our employees CLP’s Value Framework, in order to present our corporate maintain a proper work-life balance. Other elements of values in a comprehensive and structured way. the Value Framework, notably our Code of Conduct, remained right on target and required almost no change. Five years on, we have revisited the Value Framework to see whether it has stood the test of time and whether The result was a renewal, not a replacement, of the How do we it still reflects the standards we expect of ourselves and values we expressed in 2003. The Value Framework is which others would expect of us. To ensure that this a continuing statement of what CLP wants to be and govern our company? review was critical and objective, we consulted internal the values, policies, commitments and Code of Conduct and external stakeholders, such as staff, academics which all of us must respect – no matter where we work and non-governmental organisations. The feedback or whatever our individual roles may be. we received was positive, encouraging and valuable – 93 Values including new ideas and advice on how better to express This section of the Annual Report describes how we 94 Corporate Governance Report some of our existing values. It was clear, however, that govern our Company, in line with our Value Framework. the Value Framework continued to represent and express 109 Risk Management Report the right commitments to business principles and ethics, 120 Audit Committee Report as well as the right vision of what we wanted to be as a 122 Remuneration Report business and as people. 130 Directors‘ Report Vision What do we want to be? What benefits will we bring to Mission our stakeholders? Values What ideals guide us in our mission? Commitments What must we do to uphold our values? Policies & Codes What must we do to meet our commitments 2009 Annual Report 21 2009 Annual Report l CLP Holdings Limited 21
  11. 11. Independent Auditor’s Report What is in To the Shareholders of CLP Holdings Limited our accounts? (incorporated in Hong Kong with limited liability) We have audited the consolidated financial statements of CLP Holdings Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on pages 139 to 204, which comprise the consolidated and company balance sheets as at 31 December 2008, and the consolidated income statement, the consolidated and company statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors’ responsibility for the financial statements 138 Independent Auditor’s Report The directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated 139 Consolidated Income Statement Tells you about our earnings for the year financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute 140 Consolidated Balance Sheet of Certified Public Accountants, and the Hong Kong Companies Ordinance. This responsibility includes designing, 142 Balance Sheet Shows our financial resources and obligations implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial 143 Consolidated Statement of Changes in Equity statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate 144 Statement of Changes in Equity accounting policies; and making accounting estimates that are reasonable in the circumstances. 145 Consolidated Cash Flow Statement These are the ins and outs of our cash 146 Significant Accounting Policies Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report 156 Our policy choices and practices when we apply the accounting Critical Accounting Estimates and Judgments standards our opinion solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this 159 Notes to the Financial Statements Areas of management judgments or estimates whose effects are significant report. 159 Segment Information 162 Revenue Opinion 167 Fixed Assets, Leasehold Land and Land Use Rights In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and 178 Derivative Financial Instruments of the Group as at 31 December 2008 and of the Group’s profit and cash flows for the year then ended in accordance 183 Bank Loans and Other Borrowings with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong 186 Obligations Under Finance Leases Companies Ordinance. 195 Related Party Transactions 198 Financial Risk Management More on risk management, with figures 205 Scheme of Control Statement Here you can learn more about the new SoC effective 1 October 2008 208 Five-year Summary: CLP Group PricewaterhouseCoopers Financial & Operating Statistics Certified Public Accountants 210 Five-year Summary: Scheme of Control Hong Kong, 26 February 2009 Financial & Operating Statistics 2009 Annual Report 23
  12. 12. Consolidated Income Statement Consolidated Income Statement For the year ended 31 December 2009 For the year ended 31 December 2009 2009 2008 2009 2008 Note HK$M HK$M Note HK$M HK$M Revenue 5 982,161 749,861 Revenue 5 982,161 749,861 Other income 6 97,051 81,825 Other income 6 97,051 81,825 Purchases of and changes in inventories (85,272) (65,023) Purchases of and changes in inventories (85,272) (65,023) Depreciation and amortisation (97,456) (81,393) Depreciation and amortisation (97,456) (81,393) Operating lease rental expense (267,675) (234,674) Operating lease rental expense (267,675) (234,674) Other operating expenses 7 (185,489) (149,816) Other operating expenses 7 (185,489) (149,816) Gain on disposal of subsidiaries 27(a) 57,984 — Gain on disposal of subsidiaries 27(a) 57,984 — Expenses 5 982,161 749,861 Expenses 5 982,161 749,861 Purchases of electricity, gas and distribution services 97,051 81,825 Purchases of electricity, gas and distribution services 97,051 81,825 Operating lease and lease service payments (85,272) (65,023) Operating lease and lease service payments (85,272) (65,023) Staff expenses 27(a) 57,984 — Staff expenses 27(a) 57,984 — Operating profit 353,911 171,947 Operating profit 353,911 171,947 Finance income 8 2,186 10,677 Finance income 8 2,186 10,677 Profit before income tax 356,097 182,624 Profit before income tax 356,097 182,624 Income tax expense 10 (53,332) (24,686) Income tax expense 10 (53,332) (24,686) Profit for the year 302,765 157,938 Profit for the year 302,765 157,938 Attributable to equity holders of the Company 302,765 157,938 Attributable to equity holders of the Company 302,765 157,938 Earnings per share for profit attributable to equity holders Earnings per share for profit attributable to equity holders of the Company during the year of the Company during the year (expressed in HK$ per share) (expressed in HK$ per share) — Basic 11 4.97 2.59 — Basic 11 4.97 2.59 — Diluted 11 N/A N/A — Diluted 11 N/A N/A 24 CLP Holdings Limited 2009 Annual Report 25

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