062 Income Statements 063 Consolidated Balance Sheet 065 Balance Sheet 066 Consolidated Statement of Changes in Equity 067 Statement of Changes in Equity 068 Consolidated Cash Flow Statement 070 Cash Flow Statement 072 Notes to the Financial Statements 132 Statement by Directors 132 Statutory Declaration 133 Report of the Auditors The Directors are pleased to submit their annual report to the members together with the audited financial statements of the Group and the Company for the financial year ended 30 June 2004. PRINCIPAL ACTIVITIES The principal activities of the Company are investment holding and the provision of administrative and technical support services. The principal activities of the subsidiary companies are set out in Note 23 to the financial statements. FINANCIAL RESULTS Group Company RM RM Net profit attributable to shareholders 613,049,151 339,673,429 Unappropriated profit brought forward 2,335,607,892 1,922,972,030 Dividends paid for the financial year ended 30 June 2003 (324,742,340) (324,742,340) Unappropriated profit carried forward 2,623,914,703 1,937,903,119 The Directors wish to draw your attention that in arriving at the results above, the Group has incorporated certain accounting adjustments to comply with applicable approved accounting standards in Malaysia. The adjustments are as follows: a The Group has on 11 July 2001, issued USD150 million nominal value 2.5% Exchangeable Guaranteed Unsecured Bonds ('Exchangeable Bonds') at 100% nominal value. The details of the Exchangeable Bonds are provided in note 15(C) to the financial statements. Should the Exchangeable Bonds not be exchanged by their holders to ordinary shares of the Company by 11 July 2006, the Exchangeable Bonds will be redeemed by the Group at 124.86% of their principal amounts. Up to 30 June 2004, the Group has recognised on an accrual basis the cumulative premium on redemption of the Exchangeable Bonds amounting to RM 71.4 million. This adjustment is also in compliance with MASB 24 "Financial Instruments: Disclosure and Presentation" which defines liability under the Exchangeable Bonds to be that amount payable under conditions that are potentially unfavourable. In last year's Directors Report, the Directors have expressed the view that the premium on redemption (premium) represents a contingent liability, as the payment of the premium is contingent upon the Exchangeable Bonds being redeemed by the Group. Accordingly, the Directors are of the view that the application of MASB 24 may not lead to an appropriate presentation of the Consolidated Income Statement. If MASB 24 is not applied and the consolidated premium is treated as a contingent liability, the Groups profit after taxation and minority interests for the year ended 30 June 2004 would increase by RM21.1 million. Cumulative premium accrued to-date was RM 71.4 million. The cumulative effect of non-provision of premium on redemption would have increased net tangible assets by RM71.4 million. 052 : YTL POWER INTERNATIONAL BERHAD annual report 04 Directors' Report for the financial year ended 30.06.2004 b As from 1 July 2002, the Group has applied MASB 25 Income Taxes to recognise fully the temporary differences arising out of the Group's operations in the United Kingdom (UK). The UK subsidiaries recognise their deferred tax liabilities on a discounted basis as permitted by applicable accounting standard in the UK. Discounting of deferred tax is specifically prohibited under MASB 25. Accordingly, an additional provision for deferred tax of RM118.6 million has been recognised in arriving at the Group results above. Cumulative provision to-date was RM 186.8 milllion. The principal activities of the Group's subsidiaries in the UK are the provision of water supply and waste water services. The property, plant and equipment of these subsidiaries comprise mainly of infrastructure assets and related equipment, which are required to be maintained to perpetuity. As the potential cash outflow arising in relation to these temporary differences is beyond the foreseeable future, the Directors are of the view that discounting of the deferred tax liabilities as allowed under the applicable accounting standards in the UK would be more representative of the value of the deferred tax liabilities as at 30 June 2004. If, on consolidation, discounting had been applied to the deferred tax liabilities of these subsidiaries, the Group's profit after taxation and minority interests for the financial year ended 30 June 2004 would have increased by RM118.6 million. The cumulative effect of the discounting of deferred tax liabilities as at 30 June 2004 would have increased net tangible assets by RM1,409.8 million. c During the financial year, the Group changed its accounting policy on post-employment benefit obligations to comply with the new MASB Standard 29 Employee Benefits. In the previous and current financial years, the UK subsidiaries have accounted the cost of providing defined benefits as a charge to the income statement on a basis designated to spread the cost over the average service lives of employees. Differences between the amount funded and amount charged to the income statement are treated either as provisions or prepayments in the balance sheet. To comply with MASB 29, the Group has now changed its accounting policy on defined benefit obligations whereby the deficit arising in respect of post-employment defined benefit obligations on first adoption of MASB 29 on 1 July 2003 is recognised retrospectively in accordance with the transitional provision of MASB 29. Accordingly, an additional provision for post employment defined benefit cost of RM 15.3 million has been recognised in arriving at the Group results above. Cumulative provision to-date was RM 202.2 milllion. The cumulative effect of non-provision of post-employment defined benefit cost (inclusive of of foreign exchange fluctuation reserve) would have increased net tangible assets by RM248.9 million.The Directors are of the view that the accounting treatments adopted by the UK subsidiaries would be more representative of the operating cost of the Group. 04 annual report YTL POWER INTERNATIONAL BERHAD : 053 If the premium arising on the Exchangeable Bonds and post employment defined benefit costs are not provided for and if discounting of deferred tax liabilities of the Groups UK subsidiaries is allowed, the Groups profit after taxation and minority interests and net tangible assets for the financial year ended 30 June 2004 would be as follows: Excluding the effects of accrual for premium, post Based on employment cost and these including discounting of financial deferred tax liabilities statements Profit after taxation and minority Interests (RMmillion) 768.0 613.0 Net tangible assets (RMmillion)# 5,849.9 4,119.8 Net tangible assets per share * (RM) 2.63 1.85 * This is calculated based on net tangible assets of the Group over the number of outstanding shares in issue and fully paid as at 30 June 2004 of 2,224,773,896 ordinary shares. # Inclusive adjustment on foreign exchange fluctuation reserve. DIVIDEND Dividend paid since the end of the Companys previous financial year was as follows: RM In respect of the financial year ended 30 June 2002, as recommended in the Directors Report of that financial year, a first and final gross dividend of 20 sen per share, less income tax, paid on 17 January 2003 325,611,016 In respect of the financial year ended 30 June 2003, as recommended in the Directors Report of that financial year, a first and final gross dividend of 20 sen per share, less income tax, paid on 9 January 2004 324,742,340 The Directors now recommend the payment of a first and final dividend of 20 sen per share less income tax of 28%, amounting to RM320,367,441 for the financial year ended 30 June 2004 subject to the approval by the shareholders at the forthcoming Annual General Meeting. RESERVES AND PROVISIONS All material transfers to or from reserves and provisions during the financial year are shown in the financial statements. 054 : YTL POWER INTERNATIONAL BERHAD annual report 04 Directors Report for the financial year ended 30.06.2004 SHARE CAPITAL The issued and fully paid up share capital of the Company was increased from RM2,288,671,847 to RM2,306,254,911 following the conversion of USD13.65 million of the USD150 million 2.5% Exchangeable Guaranteed Unsecured Bonds into 17,583,044 new ordinary shares of RM1 each at an exercise price of RM2.95 per share and the exercise of 20 warrants of RM1 each at an exercise price of RM2.91 per warrant on the basis of one (1) new ordinary share for every one (1) warrant exercised. The new ordinary shares of RM1 each rank parri passu in all respects with the existing issued shares of the Company. The total number of unexercised warrants as at 30 June 2004 amounted to 572,159,824. TREASURY SHARES The shareholders of the Company, by a resolution passed in the 6th Annual General Meeting held on 11 December 2003, approved the Companys plan to repurchase its own shares. The Directors of the Company are committed to enhancing the value of the Company for its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders. During the financial year, the Company repurchased 53,586,600 of its issued share capital from the open market. The average price paid for the shares repurchased was RM3.49 per share. The repurchase transactions were financed by internally generated funds. The shares repurchased are being held as treasury shares in accordance with Section 67A of the Companies Act, 1965. EMPLOYEES SHARE OPTION SCHEME At the Extraordinary General Meeting of the Company held on 16 October 2001, the shareholders of the Company approved an Employees Share Option Scheme (ESOS or Scheme) for employees and Executive Directors of the Company and its subsidiaries who meet the criteria of eligibility for participation in the ESOS. The main features of the Scheme are as follows: i The ESOS shall be in force for a period of ten (10) years, effective from 30 November 2001. ii The maximum number of shares which may be made available under the Scheme, shall not exceed ten per cent (10%) of the total issued and paid up share capital of the Company at the time of offering the option. 04 annual report YTL POWER INTERNATIONAL BERHAD : 055 iii Any employee (including Executive Directors) of the Group shall be eligible to participate in the Scheme if, as at the date of offer for an option (Offer Date) the employee: a has attained the age of eighteen (18) years; b is employed by and on payroll of a company within the Group; and c has been in the employment of the Group for a period of at least one (1) year of continuous service prior to and up to the Offer Date, including service during the probation period, and is confirmed in service. The options committee may, at its discretion, nominate any employee (including Executive Directors) of the Group to be an eligible employee despite the eligibility criteria under clause 4.1(iii) of the by-laws not being met, at any time and from time to time. iv The price payable for shares under the Scheme shall be based on the 5-day weighted average market price of the underlying shares at the time the option is granted, with a discount of not more than 10%, if deemed appropriate. v Subject to Clause 14, the options committee may, at any time and from time to time, before or after an option is granted, limit the exercise of the option to a maximum number of new ordinary shares of the Company and/or such percentage of the total ordinary shares of the Company comprised in the option during such period(s) within the option period and impose any other terms and/or conditions deemed appropriate by the options committee in its sole discretion including amending/varying any terms and conditions imposed earlier. Notwithstanding the above, and subject to Clause 11 and 12, the option can only be exercised by the grantee three (3) years after the Offer Date, by notice in writing to the Company, provided however that the options committee may at its discretion or upon the request in writing by the grantee allow the option to be exercised at any earlier or other period. vi The grantee shall be prohibited from disposing the ordinary shares of the Company so allotted to him for a period of twelve (12) months from the date on which the option is exercised. However, the options committee may at its discretion or upon request in writing by the grantee allow the disposal of such ordinary shares of the Company at any earlier or other period. On 13 December 2002, the shareholders approved the amendments to the existing by-laws governing the ESOS. The amendments were made to extend the ESOS to employees of Wessex Water Limited, a subsidiary of the Company following its acquisition on 21 May 2002. The movements during the financial year in the number of options over the shares of the Company are set out in Note 12(A) to the financial statements. 056 : YTL POWER INTERNATIONAL BERHAD annual report 04 Directors Report for the financial year ended 30.06.2004 The Company has been granted exemption by the Companies Commission of Malaysia from having to disclose in this report the name of the persons who have been granted less than 500,000 number of options and details of their holdings. The names of persons who are not Directors who have been granted with options totalling 500,000 and above are as follows: Number of options over ordinary shares of RM1 each in the Company At 1 July At 2003 Granted Exercised Lapsed 30 June 2004 Andrew Randle 0 700,000 0 0 700,000 The names of the persons who are Directors who have been granted options totalling 500,000 have been disclosed in the Directors interests in shares. ESOS holders can exercise the options 3 years after the ESOS is granted to them. Hence, ESOS is only exercisable in 2005 until the date of expiration, which is 10 years after ESOS is granted. DIRECTORS The Directors who have held office during the period since the date of the last report are as follows: Tan Sri Dato' Seri (Dr) Yeoh Tiong Lay Tan Sri Dato' (Dr) Francis Yeoh Sock Ping, JP Tan Sri Dato' Seri Dr. Md. Noordin bin Md Sopiee Dato' Yeoh Seok Kian Dato' (Dr) Yahya bin Ismail Mej. Jen. (B) Dato' Haron bin Mohd Taib Dato' Lau Yin Pin @Lau Yen Beng Dato Yeoh Soo Min Dato' Yeoh Seok Hong, JP Dato' Michael Yeoh Sock Siong Yeoh Soo Keng Dato' Mark Yeoh Seok Kah Syed Abdullah bin Syed Abd. Kadir 04 annual report YTL POWER INTERNATIONAL BERHAD : 057 DIRECTORS' INTERESTS IN SHARES According to the Register of Directors' shareholdings, particulars of interests of Directors who held office at the end of the financial year in shares and options over shares in the Company and its related corporations are as follows: Number of ordinary shares of RM1 each in the Company At At 1 July 2003 Addition Disposal 30 June 2004 SHAREHOLDINGS IN THE NAME OF THE DIRECTOR Tan Sri Dato' Seri (Dr) Yeoh Tiong Lay 301,134 0 0 301,134 Tan Sri Dato' (Dr) Francis Yeoh Sock Ping, JP 1,085,805 0 0 1,085,805 Tan Sri Dato Seri Dr Md Noordin bin Md Sopiee 10,000 0 0 10,000 Dato' Yeoh Seok Kian 257,728 0 0 257,728 Dato' (Dr) Yahya bin Ismail 287,487 0 0 287,487 Mej. Jen. (B) Dato' Haron bin Mohd Taib 48,960 0 0 48,960 Dato' Lau Yin Pin @ Lau Yen Beng 12,240 0 0 12,240 Dato Yeoh Soo Min 222,937 0 0 222,937 Dato' Yeoh Seok Hong, JP 187,328 0 0 187,328 Dato' Michael Yeoh Sock Siong 158,514 0 0 158,514 Yeoh Soo Keng 186,170 0 0 186,170 Dato' Mark Yeoh Seok Kah 813,007 0 0 813,007 Syed Abdullah bin Syed Abd. Kadir 188,480 0 0 188,480 SHARES HELD BY YTL CORPORATION BERHAD (HOLDING COMPANY) 1,369,008,304 116,721,932 (120,000,000) 1,365,730,236 SHARES HELD BY YEOH TIONG LAY & SONS HOLDINGS SDN BHD 47,260,716 0 0 47,260,716 (ULTIMATE HOLDING COMPANY) SHARES HELD BY YTL POWER SERVICES SDN BHD 353,868 0 (27,000) 326,868 (WHOLLY-OWNED SUBSIDIARY OF YTL CORPORATION BERHAD) By virtue of their substantial interests in Yeoh Tiong Lay & Sons Holdings Sdn Bhd, which has a substantial interest in YTL Corporation Berhad, Messrs Tan Sri Dato' Seri (Dr) Yeoh Tiong Lay, Tan Sri Dato' (Dr) Francis Yeoh Sock Ping, JP, Dato' Yeoh Seok Kian, Dato Yeoh Soo Min, Dato' Yeoh Seok Hong, JP, Dato' Michael Yeoh Sock Siong, Dato' Mark Yeoh Seok Kah and Yeoh Soo Keng are deemed to have interests in the shares of the Company held by YTL Corporation Berhad and Yeoh Tiong Lay & Sons Holdings Sdn Bhd. 058 : YTL POWER INTERNATIONAL BERHAD annual report 04 Directors Report for the financial year ended 30.06.2004 Number of ordinary shares of 50 sen each YTL Corporation Berhad At At (Holding Company) 1 July 2003 Addition Disposal 30 June 2004 DIRECT Tan Sri Dato' Seri (Dr) Yeoh Tiong Lay 5,064,351 0 0 5,064,351 Tan Sri Dato' (Dr) Francis Yeoh Sock Ping, JP 9,269,482 0 0 9,269,482 Dato' Yeoh Seok Kian 3,183,760 0 0 3,183,760 Dato' (Dr) Yahya bin Ismail 409,416 0 (100,000) 309,416 Dato Yeoh Soo Min 3,671,696 0 0 3,671,696 Dato' Yeoh Seok Hong, JP 3,153,460 0 0 3,153,460 Dato' Michael Yeoh Sock Siong 2,750,623 0 0 2,750,623 Yeoh Soo Keng 3,180,156 0 0 3,180,156 Dato' Mark Yeoh Seok Kah 1,637,108 0 0 1,637,108 Syed Abdullah bin Syed Abd. Kadir 2,448 0 0 2,448 Tan Sri Dato Seri Dr Md. Noordin Bin Md. Sopiee 44 0 0 44 SHARES HELD BY YEOH TIONG LAY &SONS HOLDINGS 687,498,057 100,000 0 687,598,057 SDN BHD IN THE HOLDING COMPANY By virtue of their substantial interests in Yeoh Tiong Lay & Sons Holdings Sdn Bhd, Messrs Tan Sri Dato' Seri (Dr) Yeoh Tiong Lay, Tan Sri Dato' (Dr) Francis Yeoh Sock Ping, JP, Dato' Yeoh Seok Kian, Dato Yeoh Soo Min, Dato' Yeoh Seok Hong, JP, Dato' Michael Yeoh Sock Siong, Dato' Mark Yeoh Seok Kah and Yeoh Soo Keng are deemed to have interests in the shares of the holding company held by Yeoh Tiong Lay & Sons Holdings Sdn Bhd. Number of options over ordinary shares of RM1 each in the Company At At 1 July 2003 Granted Exercised Lapsed 30 June 2004 OPTIONS IN THE NAME OF THE DIRECTOR Tan Sri Dato Seri (Dr) Yeoh Tiong Lay 3,500,000 0 0 0 3,500,000 Tan Sri Dato (Dr) Francis Yeoh Sock Ping, JP 3,500,000 0 0 0 3,500,000 Dato Yeoh Seok Kian 1,500,000 0 0 0 1,500,000 Dato Yeoh Soo Min 1,500,000 0 0 0 1,500,000 Dato Yeoh Seok Hong, JP 2,500,000 0 0 0 2,500,000 Dato Michael Yeoh Sock Siong 1,500,000 0 0 0 1,500,000 Dato Mark Yeoh Seok Kah 1,500,000 0 0 0 1,500,000 Yeoh Soo Keng 1,500,000 0 0 0 1,500,000 Syed Abdullah Bin Syed Abd Kadir 1,500,000 0 0 0 1,500,000 None of the other Directors in office at the end of the financial year held any interest in shares, options over shares and debentures in the Company and its related corporations during the financial year. 04 annual report YTL POWER INTERNATIONAL BERHAD : 059 DIRECTORS' BENEFITS Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than Directors' remuneration disclosed in Note 7 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest except that certain Directors received remuneration from the Company's ultimate holding company. Neither during nor at the end of the financial year was the Company a party to any arrangement whose object was to enable the Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other corporate body, other than the Companys Employees Share Option Scheme. STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS Before the income statements and balance sheets were made out, the Directors took reasonable steps: a to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and b to ensure that any current assets which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of the Group and the Company had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances: a which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and the Company inadequate to any substantial extent; or b which would render the values attributed to current assets in the financial statements of the Group and the Company misleading; and c which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and the Company misleading or inappropriate. No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet its obligations when they fall due. 060 : YTL POWER INTERNATIONAL BERHAD annual report 04 Directors Report for the financial year ended 30.06.2004 At the date of this report, there does not exist: a any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liability of any other person; or b any contingent liability of the Group and of the Company which has arisen since the end of the financial year. At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading. In the opinion of the Directors: a the results of the Groups and the Companys operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and b there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group and the Company for the financial year in which this report is made. ULTIMATE HOLDING COMPANY The Directors regard Yeoh Tiong Lay & Sons Holdings Sdn Bhd, a company incorporated in Malaysia, as the Company's ultimate holding company. AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. Signed on behalf of the Board of Directors in accordance with their resolution dated 28 October 2004. TAN SRI DATO' SERI (DR) YEOH TIONG LAY Director TAN SRI DATO' (DR) FRANCIS YEOH SOCK PING, JP Director 28 October 2004 04 annual report YTL POWER INTERNATIONAL BERHAD : 061 Group Company 2004 2003 2004 2003 Note RM RM RM RM REVENUE 5 3,386,920,292 3,166,578,157 499,746,344 659,216,543 COST OF SALES (1,766,857,606) (1,822,798,177) 0 0 GROSS PROFIT 1,620,062,686 1,343,779,980 499,746,344 659,216,543 OTHER OPERATING INCOME: Gain on redemption of preference shares 0 0 0 249,900,000 in a subsidiary company Profit from disposal of investments 3,571,439 3,451,953 2,880,654 3,451,953 Others 16,013,314 15,378,155 4,469 196,800 ADMINISTRATIVE EXPENSES (133,754,388) (134,067,984) (8,199,428) (8,758,873) OTHER OPERATING EXPENSES (48,815,292) (53,133,946) (10,876,466) (16,650,762) PROFIT FROM OPERATIONS 7 1,457,077,759 1,175,408,158 483,555,573 887,355,661 FINANCE COST 8 (621,158,569) (613,960,813) (28,387,750) (18,303,182) SHARE OF RESULTS OF ASSOCIATED COMPANIES 26 733,878 705,024 0 0 PROFIT BEFORE TAXATION 836,653,068 562,152,369 455,167,823 869,052,479 TAXATION Company and subsidiaries (223,383,842) (115,669,638) (115,494,394) (102,442,906) Associated companies (220,075) (211,507) 0 0 9 (223,603,917) (115,881,145) (115,494,394) (102,442,906) NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 613,049,151 446,271,224 339,673,429 766,609,573 BASIC EARNINGS PER ORDINARY SHARE (SEN) 10 27.25 19.73 DILUTED EARNINGS PER ORDINARY SHARE (SEN) 10 26.21 19.61 DIVIDEND PER ORDINARY SHARE (SEN) 11 20.00 20.00 The above cash flow statement is to be read in conjunction with the notes to the financial statements on pages 72 to 131. Auditors Report - Page 133 062 : YTL POWER INTERNATIONAL BERHAD annual report 04 Income Statements for the financial year ended 30.06.2004 Group 2004 2003 Note RM RM CAPITAL AND RESERVES Share capital 12 2,306,254,911 2,288,671,847 Reserves 13 2,254,235,387 2,081,255,643 4,560,490,298 4,369,927,490 MINORITY INTEREST 1 1 DEFERRED AND LONG TERM LIABILITIES Deferred taxation 14 2,301,955,313 2,121,649,065 Bonds 15 6,517,107,408 4,086,285,708 Borrowings 16 5,083,206,640 5,595,666,883 Post-employment benefit obligations 17 393,072,680 339,309,000 Deferred income 18 145,320,482 137,890,398 Payables 19 28,186,425 24,662,737 19,029,339,247 16,675,391,282 Represented by: Property, plant and equipment 20 13,975,542,835 12,510,746,787 Intangible assets 21 440,699,862 440,699,862 Development expenditure 22 8,332,350 0 Associated companies 26 517,334 501,661 Investments 27 445,436,347 263,333,217 14,870,528,728 13,215,281,527 04 annual report YTL POWER INTERNATIONAL BERHAD : 063 Consolidated Balance Sheet as at 30.06.2004 Group 2004 2003 Note RM RM CURRENT ASSETS Inventories 28 145,785,262 132,337,204 Receivables, deposits and prepayments 29 1,086,725,094 904,489,237 Short term investments 31 40,837,453 98,676,330 Fixed deposits 32 4,419,874,547 4,270,177,843 Cash and bank balances 33 12,822,991 51,791,777 5,706,045,347 5,457,472,391 CURRENT LIABILITIES Payables and accrued expenses 34 783,133,007 596,459,687 Provision for liabilities and charges 35 28,388,729 24,612,702 Post-employment benefit obligations 17 319,578 278,035 Amount owing to immediate holding company 36 90,785 0 Amounts owing to related companies 30 17,294,602 20,667,741 Taxation 42,173,516 23,854,191 Bonds 15 125,000,000 125,000,000 Borrowings 16 550,834,611 1,206,490,280 1,547,234,828 1,997,362,636 NET CURRENT ASSETS 4,158,810,519 3,460,109,755 19,029,339,247 16,675,391,282 The above consolidated balance sheet statement is to be read in conjunction with the notes to the financial statements on pages 72 to 131. Auditors Report - Page 133 064 : YTL POWER INTERNATIONAL BERHAD annual report 04 Consolidated Balance Sheet as at 30.06.2004 Company 2004 2003 Note RM RM CAPITAL AND RESERVES Share capital 12 2,306,254,911 2,288,671,847 Reserves 13 3,626,175,714 3,763,994,336 5,932,430,625 6,052,666,183 DEFERRED AND LONG TERM LIABILITIES Bonds 15 747,544,643 746,562,500 Borrowings 16 870,837,615 868,840,320 7,550,812,883 7,668,069,003 Represented by: Property, plant and equipment 20 2 324 Development expenditure 22 8,332,350 0 Subsidiary companies 23 5,311,101,847 5,259,231,847 Associated companies 26 4,930 4,930 Investments 27 19,130,496 23,957,106 5,338,569,625 5,283,194,207 CURRENT ASSETS Tax recoverable 2,353,324 2,331,994 Receivables, deposits and prepayments 29 49,606,192 56,451,553 Amounts owing by subsidiary companies 25 222,559,212 497,263,397 Short term investments 31 40,837,453 98,676,330 Fixed deposits 32 2,565,980,519 2,306,620,766 Cash and bank balances 33 1,383,013 49,974,199 2,882,719,713 3,011,318,239 CURRENT LIABILITIES Payables and accrued liabilities 34 4,036,341 5,565,798 Amount owing to immediate holding company 36 90,785 34,846 Amount owing to a subsidiary companies 25 666,297,549 614,653,138 Amounts owing to related companies 30 51,780 3,041,167 Taxation 0 3,148,494 670,476,455 626,443,443 NET CURRENT ASSETS 2,212,243,258 2,384,874,796 7,550,812,883 7,668,069,003 The above cash flow statement is to be read in conjunction with the notes to the financial statements on pages 72 to 131. Auditors Report - Page 133 04 annual report YTL POWER INTERNATIONAL BERHAD : 065 Balance Sheet as at 30.06.2004 Non-Distributable Distributable Merger and Treasury Retained Share Share other reserves shares earnings capital premium (Note 13a) (Note 13b) (Note 13c) Total Group Note RM RM RM RM RM RM At 1 July 2002 as previously reported 2,288,671,843 1,919,112,520 (2,134,972,777) (71,756,275) 2,246,696,486 4,247,751,797 prior year adjustment 41 0 0 0 0 (29,748,802) (29,748,802) 2,288,671,843 1,919,112,520 (2,134,972,777) (71,756,275) 2,216,947,684 4,218,002,995 Gains not recognised in the income statement: Foreign currency translation differences 13 0 0 37,598,222 0 0 37,598,222 Net profit for the financial year 0 0 0 0 446,271,224 446,271,224 Exercise of share warrants 12 4 7 0 0 0 11 Dividends paid for the financial year ended 30 June 2002 11 0 0 0 0 (325,611,016) (325,611,016) Shares repurchased 13 0 0 0 (6,333,946) 0 (6,333,946) Transfer to capital redemption reserve 13 0 0 2,000,000 0 (2,000,000) 0 At 30 June 2003 2,288,671,847 1,919,112,527 (2,095,374,555) (78,090,221) 2,335,607,892 4,369,927,490 At 1 July 2003 as previously reported 2,288,671,847 1,919,112,527 (2,086,190,531) (78,090,221) 2,522,531,902 4,566,035,524 prior year adjustment 41 0 0 (9,184,024) 0 (186,924,010) (196,108,034) restated 2,288,671,847 1,919,112,527 (2,095,374,555) (78,090,221) 2,335,607,892 4,369,927,490 Gains not recognised in the income statement: Foreign currency translation differences 13 0 0 37,422,644 0 0 37,422,644 Net profit for the financial year 0 0 0 0 613,049,151 613,049,151 Exercise of share warrants 12 20 38 0 0 0 58 Conversion of bonds 12 17,583,044 34,286,956 0 0 0 51,870,000 Dividends paid for the financial year ended 30 June 2003 11 0 0 0 0 (324,742,340) (324,742,340) Shares repurchased 13 0 0 0 (187,036,705) 0 (187,036,705) At 30 June 2004 2,306,254,911 1,953,399,521 (2,057,951,911) (265,126,926) 2,623,914,703 4,560,490,298 The above consolidated statement of change in equity is to be read in conjunction with the notes to the financial statements on pages 72 to 131. Auditors Report - Page 133 066 : YTL POWER INTERNATIONAL BERHAD annual report 04 Consolidated Statement of Changes in Equityfor the financial year ended 30.06.2004 Non-Distributable Distributable Treasury Retained Share shares earnings Share capital premium (Note 13b) (Note 13c) Total Company Note RM RM RM RM RM At 1 July 2002 2,288,671,843 1,919,112,520 (71,756,275) 1,481,973,473 5,618,001,561 Net profit for the financial year 0 0 0 766,609,573 766,609,573 Exercise of share warrants 12 4 7 0 0 11 Dividends paid for the financial year ended 30 June 2002 11 0 0 0 (325,611,016) (325,611,016) Shares repurchased 13 0 0 (6,333,946) 0 (6,333,946) At 30 June 2003 2,288,671,847 1,919,112,527 (78,090,221) 1,922,972,030 6,052,666,183 At 1 July 2003 2,288,671,847 1,919,112,527 (78,090,221) 1,922,972,030 6,052,666,183 Net profit for the financial year 0 0 0 339,673,429 339,673,429 Exercise of share warrants 12 20 38 0 0 58 Conversion of bonds 12 17,583,044 34,286,956 0 0 51,870,000 Dividends paid for the financial year ended 30 June 2003 11 0 0 0 (324,742,340) (324,742,340) Shares repurchased 13 0 0 (187,036,705) 0 (187,036,705) At 30 June 2004 2,306,254,911 1,953,399,521 (265,126,926) 1,937,903,119 5,932,430,625 The above statement of change in equity is to be read in conjunction with the notes to the financial statements on pages 72 to 131. Auditors Report - Page 133 04 annual report YTL POWER INTERNATIONAL BERHAD : 067 Statement of Changes in Equity for the financial year ended 30.06.2004 2004 2003 RM RM CASH FLOWS FROM OPERATING ACTIVITIES Net profit attributable to shareholders 613,049,151 446,271,224 Adjustments for: Taxation 223,603,917 115,881,145 Depreciation of property, plant and equipment 503,421,805 447,271,208 Loss on disposal of property, plant and equipment 3,819,996 2,401,728 Unrealised loss on foreign exchange 997,547 1,218,668 Unrealised gain on foreign exchange (13,443,748) (3,196,884) Amortisation of bond arrangement and underwriting fee 16,928,990 10,374,213 Share of results of associated companies (733,878) (705,024) Interest expense 621,158,569 613,960,813 Interest income (111,468,532) (102,246,493) Dividend income (79,564,455) (65,374,508) Gain on disposal of investments (3,571,439) (3,451,953) Deferred income (5,282,335) (5,156,726) Provision for restructuring costs 5,172,526 1,507,531 Development expenditure written off 6,796,538 8,942,666 Defined contribution plan 974,177 1,298,035 Provision for retirement benefits 50,984,010 252,059,225 1,832,842,839 1,721,054,868 Changes in working capital: Receivables, deposits and prepayments (138,551,685) (58,586,868) Payables and accrued expenses 88,375,972 (31,716,776) Amount owing to immediate holding company 55,939 (82,015) Amounts owing to related companies (3,350,414) 7,779,123 Inventories (11,094,059) (26,709,144) Cash generated from operations 1,768,278,592 1,611,739,188 Payment to a retirement benefits scheme (29,795,850) (28,944,600) Taxation paid (167,073,503) (97,135,911) Interest paid (478,463,740) (563,612,713) Net cash flow from operating activities 1,092,945,499 922,045,964 068 : YTL POWER INTERNATIONAL BERHAD annual report 04 Consolidated Cash Flow Statement for the financial year ended 30.06.2004 2004 2003 Note RM RM CASH FLOWS FROM INVESTING ACTIVITIES Development expenditure incurred (15,128,888) (8,942,666) Additions of property, plant and equipment (1,063,996,786) (743,561,900) Proceeds from sale of property, plant and equipment 12,454,003 6,040,450 Grants received in respect of infrastructure assets 38,443,983 29,547,613 Acquisition of subsidiary companies 0 (308) Acquisition of preference shares in associated company (190,000,000) 0 Interest received 111,883,223 100,113,400 Purchase of investments (59,290) (98,789,760) Purchase of short term investments (264,894,318) (76,039,511) Proceeds from sale of investments 335,639,672 4,634 Dividends received 1,405,072 66,072,152 Net cash flow from investing activities (1,034,253,329) (725,555,896) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 58 11 Proceeds from issue of bonds 2,282,757,878 0 Repayment of bonds (125,000,000) (125,000,000) Dividends paid to shareholders (324,742,340) (325,611,016) Drawdown of term loan 2,245,632,238 3,487,348,858 Drawdown of revolving credit 79,455,600 761,904,365 Drawdown of hire purchase 1,076,994 0 Repayment of other bank loans (3,835,192,766) (3,491,680,066) Term loan arrangement and underwriting fee 0 (5,991,508) Finance lease creditors paid (30,715,251) (63,111,288) Repurchase of own shares (187,036,705) (6,333,946) Net cash flow from financing activities 106,235,706 231,525,410 INCREASE IN CASH AND CASH EQUIVALENTS 164,927,876 428,015,478 Currency translation differences (26,464,878) (5,210,178) CASH AND CASH EQUIVALENTS AT START OF FINANCIAL YEAR 4,245,430,306 3,822,625,006 AT END OF FINANCIAL YEAR 33 4,383,893,304 4,245,430,306 The above consolidated cash flow statement is to be read in conjunction with the notes to the financial statements on pages 72 to 131. Auditors Report - Page 133 04 annual report YTL POWER INTERNATIONAL BERHAD : 069 2004 2003 RM RM CASH FLOWS FROM OPERATING ACTIVITIES Net profit attributable to shareholders 339,673,429 766,609,573 Adjustments for: Taxation 115,494,394 102,442,906 Depreciation of property, plant and equipment 322 2,525 Amortisation of term loan arrangement and underwriting fee 2,979,438 831,828 Interest expenses 28,387,750 18,303,182 Interest income (76,507,784) (98,320,960) Dividend income (423,094,560) (560,751,585) Gain on disposal of investments (2,880,654) (3,451,953) Gain on disposal of property, plant and equipment (1,924) 0 Development expenditure written off 6,050,490 8,702,546 Gain on redemption of preference shares 0 (249,900,000) (9,899,099) (15,531,938) Changes in working capital: Receivables, deposits and prepayments 585,114 (5,841,472) Payables and accrued expenses (36,701) (9,554,354) Amount owing to immediate holding company 55,939 (31,949) Amounts owing to related companies (2,991,507) 3,032,548 Amounts owing by subsidiary companies (69,589,243) (28,074,712) Cash used in operations (81,875,497) (56,001,877) Interest received 75,954,911 95,831,158 Taxation paid (18,878,972) (25,180,524) Dividends received 322,737,335 482,836,808 Interest paid (23,541,672) (7,228,290) Net cash flow from operating activities 274,396,105 490,257,275 070 : YTL POWER INTERNATIONAL BERHAD annual report 04 Cash Flow Statement for the financial year ended 30.06.2004 2004 2003 Note RM RM CASH FLOWS FROM INVESTING ACTIVITIES Development expenditure incurred (14,382,840) (8,702,546) Repayment of advances from a subsidiary company 395,937,839 0 Proceeds from sale of property, plant and equipment 1,924 0 Investments in subsidiary companies 0 (1,573,999,520) Purchase of investments (26,400) (3,777,436) Purchase of short term investments (264,894,318) (76,039,511) Proceeds from sale of investments 331,515,244 4,634 Proceeds from redemption of investment in preference shares of a subsidiary company 0 251,900,000 Net cash flow from investing activities 448,151,449 (1,410,614,379) CASH FLOW FROM FINANCING ACTIVITIES Increase in share capital 58 11 Dividends paid to shareholders (324,742,340) (325,611,016) Repurchase of own shares (187,036,705) (6,333,946) Proceeds from loan 0 874,000,000 Term loan arrangement and underwriting fee 0 (5,991,508) Proceeds from bond 0 982,143 Net cash flow from financing activities (511,778,987) 537,045,684 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 210,768,567 (383,311,420) CASH AND CASH EQUIVALENTS AT START OF FINANCIAL YEAR 2,356,594,965 2,739,906,385 AT END OF FINANCIAL YEAR 33 2,567,363,532 2,356,594,965 The above cash flow statement is to be read in conjunction with the notes to the financial statements on pages 72 to 131. Auditors Report - Page 133 04 annual report YTL POWER INTERNATIONAL BERHAD : 071 1 GENERAL INFORMATION The principal activities of the Company are investment holding and the provision of administrative and technical support services. The principal activities of the subsidiary companies are set out in Note 23 to the financial statements. The number of employees at the end of the financial year amounted to 2,026 (2003: 1,911) employees in the Group and 1 (2003: 1) employee in the Company. The immediate holding company is YTL Corporation Berhad and the ultimate holding company is Yeoh Tiong Lay & Sons Holdings Sdn Bhd, both of which are incorporated in Malaysia. The Company is a limited liability company, incorporated and domiciled in Malaysia, and listed on the Main Board of Bursa Malaysia. The address of the registered office of the Company is as follows: 11th Floor, Yeoh Tiong Lay Plaza 55, Jalan Bukit Bintang 55100 Kuala Lumpur The address of the principal place of business of the Company is as follows: 7th Floor, Yeoh Tiong Lay Plaza 55, Jalan Bukit Bintang 55100 Kuala Lumpur 2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Groups activities expose it to a variety of financial risks, including foreign currency exchange risk, interest risk, market risk, credit risk, liquidity and cash flow risk. The Groups overall financial risk management objective is to ensure that the Group creates value for its shareholders. The Group focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Financial risk management is carried out through risk reviews, internal control systems and adherence to Group financial risk management policies. The Board regularly reviews these risks and approves the treasury, which covers the management of these risks. 072 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Foreign currency exchange risk The Groups exposure to currency risk as a result of foreign currency transactions is limited because its subsidiaries trade and obtain borrowings predominantly in their respective functional currency. Where necessary, the Group enters into forward foreign currency exchange contracts to limit its exposure on foreign currency receivables and payables, and on cash flows generated from anticipated transactions denominated in foreign currencies. Interest rate risk The Groups income and operating cash flows are substantially independent of changes in market interest rates. Interest rate exposure arises from the Groups borrowings, deposits and short term investment, and is managed through the use of fixed and floating rate debts and derivative financial instruments. Derivative financial instruments are used, where appropriate, to generate the desired interest rate profile. Market risk The Group operates substantially under a business regime of contractual sales or price regulation in its business segments of Power Generation and Water and Sewerage. The Group considers its market risk to be minimal as the tariff rates applicable to these business segments are either protected by agreement or set by industry regulators. For key product purchases, the Group establishes floating and fixed priced levels that the Group considers acceptable and enters physical supply or derivative agreements, where necessary to achieve these levels. The Group does not face significant exposure to risk from changes in debt and equity prices. Credit risk Credit risk is the potential financial loss resulting from the failure of a counter party to settle their obligations to the Group. Credit risk of the Group arises mainly from trade receivables, fixed deposits, short term investments and interest rate swaps. The Group seeks to invest cash assets safely and profitably with creditworthy institutions. All derivative financial instruments are executed with creditworthy counter parties with a view to limit the credit risk exposure of the Group. In the Groups Power Generation business, trade receivables are solely from its offtaker, a national electricity utility company and the counter party risk is considered to be minimal. As for the Groups Water and Sewerage business, the credit risk of receivables is mitigated through strict collection procedures. In addition, the Directors are of the view that credit risk arising from the Water and Disposal of Waste Water businesses is limited due to its large customer base. The Group considers the risk of material loss in the event of non-performance by a financial counter party to be unlikely. 04 annual report YTL POWER INTERNATIONAL BERHAD : 073 Liquidity and cash flow risk Prudent liquidity risk management implies maintaining sufficient and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims at maintaining flexibility by keeping committed credit lines available. 3 BASIS OF PREPARATION The financial statements of the Group and of the Company have been prepared under the historical cost convention except as disclosed in Note 4 to the financial statements. The financial statements of the Group and of the Company comply with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. The preparation of financial statements in conformity with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported financial year. Actual results could differ from those estimates. 4 SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements except for the adoption of a new accounting standard MASB 29 Employee Benefits. The effect of the change in accounting policy is shown in Note 41. Subsidiary companies Subsidiary companies are those companies in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities. Subsidiary companies are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The Group adopts both the acquisition and merger methods of consolidation. The consolidated income statement and balance sheet includes the financial statements of the Company and its subsidiary companies made up to the end of the financial year. Intercompany transactions and resulting unrealised profits or losses are eliminated fully on consolidation and the consolidated financial statements reflect external transactions only. 074 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Acquisition method Under the acquisition method of accounting, the results of subsidiary companies acquired or disposed off during the financial year are included from the date of acquisition up to the date of disposal. At the date of acquisition, the fair values of the subsidiary companies net assets are determined and these values are reflected in the consolidated financial statements. The excess of the cost of acquisition over the fair value of the Groups share of the subsidiary companies identifiable net assets at the date of acquisition is reflected as goodwill on consolidation. Goodwill is retained in the consolidated balance sheet at cost and an impairment loss is recognised when the Directors are of the opinion that there is a diminution in its value. The excess of the fair value of the Groups share of the subsidiary companies identifiable net assets over the cost of acquisition at the date of acquisition is reflected as capital reserve on consolidation and taken to reserves. Merger method Acquisition of a subsidiary company, YTL Power Generation Sdn Bhd, is accounted for using merger accounting principles. Under the merger method of accounting, the results of the subsidiary company are presented as if the merger had been effected throughout the current and previous financial years. On consolidation, the difference between the carrying value of the investment in the subsidiary company over the nominal value of the shares acquired is taken to merger reserve. The Group has taken advantage of the exemption provided under MASB Standard 21 Business Combinations to apply the standard prospectively. Accordingly, business combinations entered into prior to 1 July 2001 have not been restated with this standard. Joint ventures Jointly controlled entities Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of control by the Group with one or more parties. The Groups interests in jointly controlled entities are accounted for in the consolidated financial statements by the equity method of accounting. Equity accounting involves recognising in the income statement the Groups share of the results of jointly controlled entities for the financial year. The Groups investments in jointly controlled entities are carried in the balance sheet at an amount that reflects its share of the net assets of the jointly controlled entities and includes goodwill on acquisition. Unrealised gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the Groups interest in the jointly controlled entities; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Where necessary, in applying the equity method, adjustments are made to the financial statements of jointly controlled entities to ensure consistency of accounting policies with those of the Group. 04 annual report YTL POWER INTERNATIONAL BERHAD : 075 Jointly controlled operations When a group company is party to a joint arrangement, that company accounts directly for its part of income and expenditure, assets, liabilities and cash flows. Such arrangements are reported in the consolidated financial statements on the same basis. Associated companies Investments in associated companies are accounted for in the consolidated financial statements by the equity method of accounting. Associated companies are companies in which the Group exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the associated companies but not control over those policies. Equity accounting involves recognising in the income statement the Groups share of the results of associated companies for the financial year. The Groups investments in associated companies are carried in the balance sheet at an amount that reflects its share of the net assets of the associated companies and includes goodwill (net of accumulated amortisation) on acquisition. Equity accounting is discontinued when the carrying amount of the investment in an associated company reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associated company. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Groups interest in the associated companies; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Where necessary, in applying the equity method, adjustments are made to the financial statements of associated companies to ensure consistency of accounting policies with those of the Group. Property, plant and equipment All property, plant and equipment are stated at historical cost less accumulated depreciation, except for infrastructure assets. Short term leasehold land is amortised in equal instalments over a period of twenty five (25) years. All other property, plant and equipment, except for infrastructure assets, are depreciated on a straight line basis to write off the cost of each asset over the expected useful lives of the assets concerned at the following annual rates: % Buildings 2 1 /2 to 10 Plant and machinery 4 to 20 Mains and lines 5 Office equipment 10 to 20 Computers 20 Furniture and fittings 10 Motor vehicles and aircraft 10 to 20 Gas turbine major overhaul cost 25 Depreciation on assets under construction commences when the assets are ready for their intended use. 076 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Infrastructure assets comprise a network of systems of mains and sewers, impounding and pumped raw water storage reservoirs, dams, sludge pipelines, sea outfalls and infrastructure investigations and studies. Expenditure on infrastructure assets relating to enhancements of the network is treated as additions, which are included after deducting connection charges and grants. The system or network is required to be maintained in perpetuity and on this basis is deemed to have no finite useful economic life. Accordingly, no depreciation is charged to the income statement in relation to the use of the infrastructure assets due to its immateriality. Maintenance costs incurred in respect of infrastructure assets are charged to the income statement as incurred. Where an indication of impairment exists for the infrastructure and other assets, the carrying amounts of the assets are assessed and written down immediately to their recoverable amounts. Leased assets Where assets are financed by leasing arrangements which transfer substantially all the risks and rewards of ownership of an asset to the lessee (finance leases), the assets are treated as if they had been purchased and the corresponding capital cost is shown as an obligation to the lessor. Leasing payments are treated as consisting of a capital element and finance costs, the capital element reducing the obligation to the lessor and the finance charge being written off to the income statement over the period of the lease in reducing amounts in a constant rate in relation to the outstanding obligations. The assets are depreciated in accordance with the relevant accounting policy for property, plant and equipment. All other leases are regarded as operating leases. Rental costs arising under operating leases are written off in the financial year they are incurred. Development expenditure Development expenditure incurred is capitalised when it meets certain criterias that indicate that it is probable that the costs will give rise to future economic benefits and are amortised over the period of the projects. They are written down to their recoverable amounts when there is insufficient certainty that future economic benefit will flow to the enterprise. Investments Investments in subsidiary companies, jointly controlled entities and associated companies are shown at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. Short term investments are carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investment. Cost is derived on the weighted average basis. Market value is calculated by reference to stock exchange quoted selling prices at the close of business on the balance sheet date. Increases or decreases in the carrying amount of short term investments are credited or charged to the income statement. On disposal of an investment, the difference between net disposal proceeds and its carrying amount is charged or credited to the income statement. 04 annual report YTL POWER INTERNATIONAL BERHAD : 077 Impairment of assets Property, plant and equipment and other non-current assets, including intangible assets, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an assets net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flow. Government grants Government grants relating to the purchase of non-infrastructure assets are included in non-current liabilities as deferred income and are credited to the income statement on a straight line basis over the expected lives of the related assets. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Restructuring provision Restructuring provision mainly comprises employee termination payments, and is recognised in the financial year in which the Group becomes legally or constructively committed to the payment. Employee termination benefits are recognised only either after an agreement is in place with the appropriate employee representatives specifying the terms of redundancy and the number of employees affected, or after individual employees have been advised of the specific terms. Costs related to the on-going activities of the Group are not provided in advance. Any property, plant and equipment that are no longer required for their original use are transferred to current assets and carried at the lower of its carrying amount and estimated net realisable value. Foreign currencies Foreign entities The Groups foreign entities are those operations that are not an integral part of the operations of the Company. Income statements of foreign entities are translated into Ringgit Malaysia at average exchange rates for the financial year and the balance sheets are translated at exchange rates ruling at the balance sheet date. Exchange differences arising from the retranslation of the net investment in foreign entities and of borrowings that hedge such investments are taken to Foreign currency translation differences in shareholders equity. On disposal of the foreign entity, such translation differences are recognised in the income statement as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the Company and are translated accordingly at the exchange rate ruling at the date of the transaction. 078 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Foreign currency transactions Foreign currency transactions in Group companies are accounted for at exchange rates prevailing at the transaction dates, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Foreign currency monetary assets and liabilities are translated at exchange rates prevailing at the balance sheet date, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the income statement. Closing rates The principal closing rates used in translation of foreign currency amounts are as follows: 30 June 2004 30 June 2003 Foreign currency RM RM 1 Hong Kong Dollar 0.4872 0.4873 1 Australian Dollar 2.6173 2.5356 1 US Dollar 3.8000 3.8000 1 Euro 4.5933 4.3463 1 Great Britain Pound 6.8719 6.2835 1 Thai Baht 0.0928 0.0905 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis. Inventories comprise primarily of items held for operation and maintenance purposes. The cost of work in progress comprises raw materials, direct labour, other direct costs and an appropriate portion of overheads. Revenue recognition Revenue from sales of electricity is recognised upon performance of services based on the invoiced value of sales net of discounts allowed and also includes an estimate of the value of services provided between the last meter reading date and the financial year end. Revenue from supply of clean water and treatment and disposal of waste water represents the amounts (excluding value added tax, where applicable) derived from the provision of goods and services to third party customers. Other revenues earned by the Group are recognised on the following bases: Dividend income when the shareholders right to receive payment is established. Interest income on an effective yield basis. Management fees when services are rendered and invoiced, net of service taxes. 04 annual report YTL POWER INTERNATIONAL BERHAD : 079 Income taxes Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits, including withholding taxes payable by a foreign subsidiary, associate or joint venture on distributions of retained earnings to companies in the Group. Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised. Deferred tax is recognised on temporary differences arising on investments in subsidiaries, associates and joint ventures except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax. Trade and other receivables Trade and other receivables are carried at original invoiced amounts less an estimate made for doubtful debts based on a review of all outstanding amounts at the financial year end. Bad debts are written off when identified. Dividends Dividends on ordinary shares are recognised as liabilities when proposed or declared before the balance sheet date. A dividend proposed or declared after the balance sheet date is not recognised as a liability in the balance sheet. Upon the dividend becoming payable, it will be accounted for as a liability. Employee benefits Short term employee benefits Wages, salaries, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. 080 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Post-employment benefits The Group has various post-employment benefit schemes in accordance with local conditions and practices in the countries in which it operates. These benefit plans are either defined contribution or defined benefit plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that defines an amount of pension benefit to be provided, usually as a function of one or more factors such as age, years of service or compensation. Defined contribution plan The Groups contributions to a defined contribution plan are charged to the income statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations. Defined benefit plan The liability in respect of a defined benefit plan is the present value of the defined benefit obligation at the balance sheet date minus the fair value of plan assets, together with adjustments for actuarial gains or losses and past service cost. The Group determines the present value of the defined benefit obligation and the fair value of any plan assets with sufficient regularity such that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the balance sheet date. The defined benefit obligation, calculated using the projected unit credit method, is determined by independent actuaries, considering the estimated future cash outflows using market yields at balance sheet date of government securities which have currency and terms to maturity approximating the terms of the related liability. Plan assets in excess of the defined benefit obligation are subject to the asset limitation specified in MASB 29. Actuarial gains and losses arise from experience adjustments and changes in actuarial assumptions. The amount of net actuarial gains and losses recognised in the income statement is determined by the corridor method in accordance with MASB 29 and is charged or credited to income over the average remaining service lives of the related employees participating in the defined benefit plan. Upon initial adoption of MASB 29 on 1 July 2003, the increase in defined benefit liability is recognised retrospectively. Equity compensation benefits Details of the Groups Employee Share Option Scheme are set out in Note 12(A) to the financial statements. The Group does not make a charge to the income statement in connection with share options granted. When share options are exercised, the proceeds received, net of any transaction costs, are credited to share capital and share premium. 04 annual report YTL POWER INTERNATIONAL BERHAD : 081 Borrowings Borrowings are initially recognised based on the proceeds received, net of transaction costs incurred, including underwriting expenses. In subsequent financial years, borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. Financial instruments Financial instruments carried on the balance sheet include cash and bank balances, investments, receivables, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item, where applicable. The Group and the Company are also parties to financial instruments that comprise interest rate swap agreements. These instruments are not recognised in the financial statements on inception except that amounts paid on inception are recognised as prepaid interest and amortised as a component of interest expense over the period of the contract. The Group has taken advantage of the exemption provided by MASB 24 Financial Instruments: Disclosure and Presentation not to reclassify compound instruments issued by the Group prior to 1 July 2003 into liability and equity components. These instruments (together with their associated interest) continue to be classified according to their legal form. Interest rate swap contracts Any differential to be paid or received on an interest rate swap contract is recognised as a component of interest income or expense over the period of the contract. Gains and losses on early termination of interest rate swaps or on repayment of the borrowings are taken to the income statement. Fair value estimation for disclosure purposes The fair value of publicly traded derivatives and securities is based on quoted market prices at the balance sheet date. The fair value of interest rate swaps is calculated at the present value of the estimated future cash flows. In assessing the fair value of non-traded derivatives and financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are used for long term debt. Other techniques, such as estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments. In particular, the fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar instruments. The face values of financial assets (less any estimated credit adjustments) and financial liabilities with a maturity period of less than one year are assumed to approximate their fair values. 082 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Segment reporting Segment reporting is presented for enhanced assessment of the Groups risks and returns. Business segments provide products or services that are subject to risk and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those components operating in other economic environments. Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expense, assets and segment liabilities are determined before intragroup balances and intragroup transactions are eliminated as part of the consolidation process, except to the extent that such intragroup balances and transactions are between group enterprises within a single segment. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, bank overdrafts and deposits held at call with financial institutions that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. For the purpose of the cash flow statement, cash and cash equivalents are presented net of bank overdrafts. Deposits held as pledged securities for bank guarantee are not included in cash and cash equivalents. 5 REVENUE Group Company 2004 2003 2004 2003 RM RM RM RM Sale of electricity 1,155,332,239 1,264,392,063 0 0 Sale of water and the treatment and disposal of waste water 2,037,141,468 1,735,136,692 0 0 Interest income 104,914,238 92,314,006 76,507,784 98,320,960 Dividends: unquoted investment in subsidiary company 0 0 421,570,000 559,392,188 unquoted investment outside Malaysia 77,731,660 63,950,751 0 0 quoted investments in Malaysia 1,524,560 1,359,395 1,524,560 1,359,395 Management services 10,276,127 9,425,250 144,000 144,000 3,386,920,292 3,166,578,157 499,746,344 659,216,543 04 annual report YTL POWER INTERNATIONAL BERHAD : 083 6 SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions. The related party transactions described below were carried out on negotiated terms. Group 2004 2003 Entity Relationship Type of transaction RM RM YTL Power Services Sdn Bhd Subsidiary of immediate Fees paid and payable under 65,902,559 53,994,287 holding company the Operation and Maintenance Agreement dated 20 November 2002 Amount owing to YTL Power Services Sdn Bhd included in Note 30 17,241,022 17,538,420 7 PROFIT FROM OPERATIONS Group Company 2004 2003 2004 2003 RM RM RM RM PROFIT FROM OPERATIONS IS STATED AFTER CHARGING: Depreciation of property, plant and equipment 503,421,805 447,271,208 322 2,525 Rental of land and building 2,056,927 1,608,801 0 0 Directors' remuneration fees 331,776 571,776 331,776 571,776 other emoluments 7,701,850 5,951,050 0 0 Auditors' remuneration statutory audit fees paid to PwC 107,700 101,800 59,200 55,600 statutory audit fees paid to other audit firms 1,276,926 1,541,725 59,200 55,600 other audit fees paid to PwC 21,000 20,000 21,000 20,000 other audit fees paid to other audit firms 66,213 0 0 0 Staff costs wages, salaries and bonus 176,504,510 149,551,381 91,670 201,469 defined contribution plan 974,177 1,298,035 0 0 defined benefit plan 50,984,010 252,059,225 0 0 Realised loss on foreign exchange 1,286,400 3,653 0 3,653 Unrealised loss on foreign exchange 997,547 1,218,668 0 0 Development expenditure written off 6,796,538 8,942,666 6,050,490 8,702,546 Rental of plant and machinery 10,016,140 12,060,250 0 0 Allowance for doubtful debts 45,024,840 19,899,413 0 0 Provision for restructuring costs 5,172,526 1,507,531 0 0 Loss on disposal of property, plant and equipment 3,821,920 2,647,225 0 0 084 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Group Company 2004 2003 2004 2003 RM RM RM RM and crediting: Gain on disposal of property, plant and equipment 1,924 245,497 1,924 0 Realised gain on foreign exchange 5,023 548 4,469 0 Unrealised gain on foreign exchange 13,443,748 3,196,884 0 0 Gain on sale of investments 690,785 0 0 0 Dividends from quoted shares in Malaysia 308,236 64,362 0 0 Interest income 6,554,294 9,932,487 0 0 8 FINANCE COST Group Company 2004 2003 2004 2003 RM RM RM RM Interest on borrowings 621,158,569 613,960,813 28,387,750 18,303,182 9 TAXATION Taxation charge for the financial year: Group Company 2004 2003 2004 2003 RM RM RM RM Current tax Malaysian tax 153,191,305 127,668,012 115,494,394 102,442,906 Foreign tax 27,357,884 (115,650,294) 0 0 Deferred tax (Note 14) 43,054,728 103,863,427 0 0 223,603,917 115,881,145 115,494,394 102,442,906 CURRENT TAX Current financial year 178,679,727 124,830,966 116,960,341 102,271,601 Under/(over) accrual in prior year 1,869,462 (112,813,248) (1,465,947) 171,305 DEFERRED TAX Originating and reversal of temporary differences 43,054,728 103,863,427 0 0 223,603,917 115,881,145 115,494,394 102,442,906 04 annual report YTL POWER INTERNATIONAL BERHAD : 085 The explanation of the relationship between tax expense and profit from ordinary activities before tax is as follows: Group Company 2004 2003 2004 2003 RM RM RM RM NUMERICAL RECONCILIATION BETWEEN TAX EXPENSE AND THE PRODUCT OF ACCOUNTING PROFIT MULTIPLIED BY THE MALAYSIAN TAX RATE Profit from ordinary activities before tax 836,653,068 562,152,369 455,167,823 869,052,479 Tax calculated at the Malaysian tax rate 28% 234,262,859 157,402,663 127,446,990 243,334,694 Different tax rates in other countries 5,263,088 5,159,290 0 0 Expenses not deductible for tax purposes 34,430,655 25,518,558 8,661,858 8,005,871 Income not subject to tax (39,505,470) (30,069,016) (19,148,507) (149,068,964) (Over)/under accrual in previous years (10,847,215) (42,130,350) (1,465,947) 171,305 Average effective tax expenses 223,603,917 115,881,145 115,494,394 102,442,906 10 EARNINGS PER ORDINARY SHARE Basic earnings per share of the Group is calculated by dividing the net profit attributable to shareholders of RM613,049,151 (2003: RM446,271,224) by the weighted average number of ordinary shares outstanding, adjusted by the number of ordinary shares bought back during the financial year of 2,249,747,110 (2003: 2,261,758,893). As at 30 June 2004, the Company has 572,159,824 (2003: 572,159,844) warrants, whose terms of conversion are set out in Note 12, still unexercised. MASB 13 Earnings per share prescribes that warrants are dilutive when they are issued for no consideration or when they would result in the issue of ordinary shares for less than fair value. The weighted average number of ordinary shares after adjustment for exercise of warrants during the financial year is 2,338,767,845 (2003: 2,275,381,746). 086 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 11 DIVIDENDS Group and Company Dividends proposed in respect of the financial year ended 30 June 2004 are as follows: 2004 2003 Gross Amount of Gross Amount of dividend dividend, dividend dividend, per share net of tax per share net of tax Sen RM Sen RM Proposed final 20 320,367,441 20 325,551,950 Paid final 20 324,742,340 A first and final gross dividend in respect of the financial year ended 30 June 2004 of 20 sen per share (2003: 20 sen per share) amounting to RM320,367,441 (2003: RM325,551,950) was recommended for shareholders approval at the forthcoming Annual General Meeting. These financial statements do not reflect this final dividend which will be accrued as a liability in the financial year ending 30 June 2005 when approved by shareholders. 12 SHARE CAPITAL 2004 2003 Group and Company No. of shares RM No. of. shares RM AUTHORISED: Ordinary shares of RM1 each 11,365,000,000 11,365,000,000 11,365,000,000 11,365,000,000 ISSUED AND FULLY PAID-UP: Ordinary shares of RM1 each As at 1 July 2,288,671,847 2,288,671,847 2,288,671,843 2,288,671,843 Conversion of bonds 17,583,044 17,583,044 0 0 Exercise of share warrants 20 20 4 4 As at 30 June 2,306,254,911 2,306,254,911 2,288,671,847 2,288,671,847 04 annual report YTL POWER INTERNATIONAL BERHAD : 087 The issued and fully paid up share capital of the Company increased from RM2,288,671,847 to RM2,306,254,911 following the conversion of USD13.65 million of the USD150 million 2.5% Exchangeable Guaranteed Unsecured Bonds into 17,583,044 new ordinary shares of RM1 each at an exercise price of RM2.95 per ordinary share and the exercise of 20 warrants of RM1 each at an exercise price of RM2.91 per warrant on the basis of one (1) new ordinary share for every one (1) warrant exercised. The new ordinary shares of RM1 each rank pari passu in all respects with the existing issued shares of the Company. As indicated in Note 15(B) to the financial statements, the Company had on 11 January 2000 issued RM750,000,000 nominal value of seven year 7% Redeemable Non-Guaranteed Unsecured Bonds 2001/2007 with 572,166,338 detachable Warrants (Warrants). The Warrants were constituted under a deed poll dated 13 March 2000 and each Warrant entitles its registered holder to subscribe for one (1) new ordinary share of RM1.00 each in the Company at the initial exercise price of RM2.75 payable in cash. This initial exercise price of the Warrants will be increased annually by four (4) sen from the first anniversary to the ninth anniversary of the date of issue. The initial exercise price is also subject to adjustments in accordance with the basis set out in the deed poll. The Warrants may be exercised at any time or before 8 January 2010. Any Warrants which have not been exercised at date of maturity will lapse and cease to be valid for any purpose. The new ordinary shares allotted and issued upon exercise of the Warrants shall be fully paid and rank pari passu with the then existing ordinary shares of the Company. The Warrant holder will not have any voting rights in any general meeting of the Company unless the Warrants are exercised into new ordinary shares and registered prior to the date of the general meeting of the Company. The total number of warrants that remain unexercised are as follows: Group 2004 2003 RM RM At beginning of the year 572,159,844 572,159,848 Exercise of warrants (20) (4) Warrants exercised pending issuance of ordinary shares (8,929) 0 At end of the year 572,150,895 572,159,844 The trading of shares was temporarily suspended by Bursa Malaysia Securities Berhad as at year end in connection with the subsidiaries of shares. The ordinary shares in respect of the exercise of warrants were allocated and issued on 1 July 2004 as Bursa Malaysia Depository Sdn Bhd was unable to credit the ordinary shares to the respective shareholders account before 1 July 2004. Of the total 2,306,254,911 (2003: 2,288,671,847) issued and fully paid ordinary shares at 30 June 2004, the Company holds 81,481,015 (2003: 27,894,415) shares as treasury shares. As at 30 June 2004, the number of outstanding shares in issue and fully paid is 2,224,773,896 (2003: 2,260,777,432) ordinary shares of RM1 each. 088 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 A Employees Share Option Scheme The Company implemented an Employee Share Option Scheme (ESOS) which came into effect on 30 November 2001 for a period of 10 years. The ESOS is governed by the by-laws which were approved by the shareholders on 16 October 2001. i The maximum number of shares, which may be made available under the Scheme, shall not exceed ten per cent (10%) of the total issued and paid up share capital of the Company at the time of offering the option. ii Any employee (including Executive Directors) of the Group shall be eligible to participate in the Scheme if, as at the date of offer for an option (Offer Date) the employee: a has attained the age of eighteen (18) years; b is employed by and on payroll of a company within the Group; and c has been in the employment of the Group for a period of at least one (1) year of continuous service prior to and up to the Offer Date, including service during the probation period, and is confirmed in service. The options committee may, at its discretion, nominate any employee (including Executive Directors) of the Group to be an eligible employee despite the eligibility criteria under clause 4.1(iii) of the by-laws not being met, at any time and from time to time. iii The price payable for shares under the Scheme shall be based on the 5-day weighted average market price of the underlying shares at the time the Option is granted, with a discount of not more than 10%, if deemed appropriate. iv Subject to Clause 14, the options committee may, at any time and from time to time, before or after an option is granted, limit the exercise of the option to a maximum number of new ordinary shares of the Company and/or such percentage of the total ordinary shares of the Company comprised in the option during such period(s) within the option period and impose any other terms and/or conditions deemed appropriate by the options committee in its sole discretion including amending/varying any terms and conditions imposed earlier. Notwithstanding the above, and subject to Clause 11 and 12, the option can only be exercised by the grantee three (3) years after the Offer Date, by notice in writing to the Company, provided however that the options committee may at its discretion or upon the request in writing by the grantee allow the option to be exercised at any earlier or other period. v The grantee shall be prohibited from disposing the ordinary shares of the Company so allotted to him for a period of twelve (12) months from the date on which the option is exercised. However, the options committee may at its discretion or upon request in writing by the grantee allow the disposal of such ordinary shares of the Company at any earlier or other period. On 13 December 2002, the shareholders approved the amendments to the existing by-laws governing the ESOS. The amendments were made to extend the ESOS to employees of Wessex Water Limited, a subsidiary of the Company following its acquisition on 21 May 2002. 04 annual report YTL POWER INTERNATIONAL BERHAD : 089 The movements during the financial year in the number of options over the shares of the Company are as follows: Number of shares At start of At end of Exercise financial financial price year Granted Exercised Lapsed year Grant date Expiry date RM/share 000 000 000 000 000 YEAR ENDED 30 JUNE 2004 16.10.2002 29.11.2011 2.29 20,765 0 0 (15) 20,750 13.12.2002 29.11.2011 2.64 11,800 0 0 (200) 11,600 26.12.2002 29.11.2011 2.78 18,580 0 0 (502) 18,078 12.12.2003 29.11.2011 3.06 0 1,650 0 (100) 1,550 12.12.2003 29.11.2011 3.40 0 3,421 0 (1,324) 2,097 51,145 5,071 0 (2,141) 54,075 YEAR ENDED 30 JUNE 2003 16.10.2002 29.11.2011 2.29 0 20,792 0 (27) 20,765 13.12.2002 29.11.2011 2.64 0 12,700 0 (900) 11,800 26.12.2002 29.11.2011 2.78 0 22,004 0 (3,424) 18,580 0 55,496 0 (4,351) 51,145 There were no share options vested at the balance sheet date (2003: Nil). 13 RESERVES Group Company 2004 2003 2004 2003 RM RM RM RM Share premium 1,953,399,521 1,919,112,527 1,953,399,521 1,919,112,527 Merger and other reserves (2,057,951,911) (2,095,374,555) 0 0 Treasury shares (265,126,926) (78,090,221) (265,126,926) (78,090,221) Retained earnings 2,623,914,703 2,335,607,892 1,937,903,119 1,922,972,030 2,254,235,387 2,081,255,643 3,626,175,714 3,763,994,336 090 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 A Merger and other reserves Group 2004 2003 RM RM NON-DISTRIBUTABLE Capital redemption reserve 20,000,000 20,000,000 Merger reserve (2,138,533,328) (2,138,533,328) Foreign exchange fluctuation reserve 60,581,417 23,158,773 (2,057,951,911) (2,095,374,555) The movement in each category of reserves are as follows: Group 2004 2003 RM RM CAPITAL REDEMPTION RESERVE* At 1 July 20,000,000 18,000,000 Transfer from retained earnings on redemption of preference shares of a subsidiary company 0 2,000,000 At 30 June 20,000,000 20,000,000 FOREIGN EXCHANGE FLUCTUATION RESERVE At 1 July 23,158,773 (14,439,449) Foreign currency translation differences 37,422,644 37,598,222 At 30 June 60,581,417 23,158,773 * Capital redemption reserve has been set up for purposes of redemption of preference shares in a subsidiary company. B Treasury shares The Shareholders of the Company, by a resolution passed in the 6th Annual General Meeting held on 18 December 2003, approved the Companys plan to repurchase its own shares. The Directors of the Company are committed to enhancing the value of the Company for its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders. During the financial year, the Company repurchased 53,586,600 of its issued share capital from the open market. The average price paid for the shares repurchased was RM3.49 per share. The repurchase transactions were financed by internally generated funds. The shares repurchased are being held as treasury shares in accordance with Section 67A of the Companies Act, 1965. C Retained earnings Subject to the agreement by Inland Revenue Board, the Company has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and tax exempt income to frank the payment of net dividends amounting to approximately RM892,000,000 (2003: RM785,000,000) out of its retained earnings at 30 June 2004 without incurring additional tax liabilities. The extent of the retained earnings not covered at that date amounted to RM1,046,000,000 (2003: RM1,138,000,000). 04 annual report YTL POWER INTERNATIONAL BERHAD : 091 14 DEFERRED TAXATION Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet: Group 2004 2003 RM RM Deferred tax liabilities 2,301,955,313 2,121,649,065 Group 2004 2003 RM RM At 1 July 2,121,649,065 1,896,326,002 Charged/(credited) to income statement: Property, plant and equipment 72,079,859 280,729,014 Retirement benefits 19,412,989 (57,606,990) Advance Corporate Tax (49,659,750) (121,808,525) Others 1,221,630 2,549,928 Exchange differences 137,251,520 121,459,636 At 30 June 2,301,955,313 2,121,649,065 SUBJECT TO INCOME TAX Deferred tax assets before offsetting: Retirement benefits 98,488,757 108,484,628 Advance Corporate Tax 220,587,990 154,574,100 Others 6,174,402 6,805,032 325,251,149 269,863,760 Offsetting (325,251,149) (269,863,760) 0 0 Deferred tax liabilities before offsetting: Property, plant and equipment 2,627,206,462 2,391,512,825 Offsetting (325,251,149) (269,863,760) 2,301,955,313 2,121,649,065 092 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 15 BONDS Group Company 2004 2003 2004 2003 RM RM RM RM CURRENT Fixed Rate Bonds [Note 15 (A)] 125,000,000 125,000,000 0 0 NON CURRENT Fixed Rate Bonds [Note 15 (A)] 437,500,000 562,500,000 0 0 7% Redeemable Non-Guaranteed Unsecured Bonds [Note 15 (B)] 747,544,643 746,562,500 747,544,643 746,562,500 2.5% Exchangeable Guaranteed Unsecured Bonds [Note 15 (C)] 584,664,706 613,091,555 0 0 5.875% Redeemable Guaranteed Unsecured Bonds [Note 15 (D)] 1,320,156,225 1,220,714,396 0 0 Guaranteed Variable Coupon Bonds Due 2009 [Note 15 (E)] 687,190,000 612,515,580 0 0 3.52% Retail Price Index Guaranteed Bonds [Note 15 (F)] 370,897,154 330,901,677 0 0 5.75% Guaranteed Unsecured Bonds [Note 15 (G)] 2,369,154,680 0 0 0 6,517,107,408 4,086,285,708 747,544,643 746,562,500 TOTAL Fixed Rate Bonds [Note 15 (A)] 562,500,000 687,500,000 0 0 7% Redeemable Non-Guaranteed Unsecured Bonds [Note 15 (B)] 747,544,643 746,562,500 747,544,643 746,562,500 2.5% Exchangeable Guaranteed Unsecured Bonds [Note 15 (C)] 584,664,706 613,091,555 0 0 5.875% Redeemable Guaranteed Unsecured Bonds [Note 15 (D)] 1,320,156,225 1,220,714,396 0 0 Guaranteed Variable Coupon Bonds Due 2009 [Note 15 (E)] 687,190,000 612,515,580 0 0 3.52% Retail Price Index Guaranteed Bonds [Note 15 (F)] 370,897,154 330,901,677 0 0 5.75% Guaranteed Unsecured Bonds [Note 15 (G)] 2,369,154,680 0 0 0 6,642,107,408 4,211,285,708 747,544,643 746,562,500 Group Company Fair value Fair value Fair value Fair value 2004 2003 2004 2003 RM RM RM RM Fixed Rate Bonds 633,869,664 780,361,955 0 0 7% Redeemable Non-Guaranteed Unsecured Bonds 847,638,551 801,338,411 913,612,578 801,338,411 2.5% Exchangeable Guaranteed Unsecured Bonds 646,952,660 637,000,000 0 0 5.875% Redeemable Guaranteed Unsecured Bonds 1,347,350,527 1,311,594,417 0 0 Guaranteed Variable Coupon Bonds Due 2009 673,675,263 653,884,383 0 0 3.52% Retail Price Index Guaranteed Bonds 401,662,555 355,646,100 0 0 5.75% Guaranteed Unsecured Bonds 2,328,680,753 0 0 0 6,879,829,973 4,539,825,266 913,612,578 801,338,411 The bonds issued by the subsidiary companies are on a non-recourse basis to the Company except for the 2.5% Exchangeable Guaranteed Unsecured Bonds issued by YTL Power Finance (Cayman) Limited. 04 annual report YTL POWER INTERNATIONAL BERHAD : 093 A Fixed Rate Bonds The Fixed Rate Bonds were issued pursuant to a subscription agreement dated 30 October 1993 and bear interest at a rate of 10% per annum. The principal amount of the bonds issued under the subscription agreement was RM1,500,000,000. The Fixed Rate Bonds are secured by fixed and floating charges over all assets of a subsidiary company, YTL Power Generation Sdn Bhd, both present and future. The Fixed Rate Bonds are repayable in half-yearly equal instalments commenced from the year 1999. B 7% Redeemable Non-Guaranteed Unsecured Bonds In 2001, the Company issued RM750,000,000 nominal value of seven year 7.0% Redeemable Non-Guaranteed Unsecured Bonds 2001/2007 (RNGU Bonds) with 572,166,338 detachable Warrants. The RNGU Bonds were constituted under a Trust Deed dated 5 January 2000. The details of the Warrants are set out in Note 12. The principal features of the RNGU Bonds are as follows: a The RNGU Bonds bear interest at 7.0% per annum, payable semi-annually on 11 July and 11 January of each financial year. The Company entered into an associated interest rate swap agreement as set out in Note 40(a). b The RNGU Bonds are redeemable on 11 July 2007 (Maturity Date) at one hundred percent (100%) of its nominal value. Unless previously redeemed, repurchased, cancelled or otherwise satisfied by the Company, the Bonds will be redeemed in full by the Company on the Maturity Date at one hundred percent (100%) of its nominal value together with all accrued interest on the surrender of the Bond Certificate. The nominal value of the 7 year 7.0% RNGU Bonds 2001/2007 with 572,166,338 detachable warrants amounted to RM750,000,000 and remained outstanding as at 30 June 2004, net of amortised fees and discount. The proceeds received by the Company from the issue of the RM750,000,000 RNGU Bonds on 11 January 2000 is currently placed under fixed deposits with licensed financial institutions pending investments in power generation assets. C 2.5% Exchangeable Guaranteed Unsecured Bonds YTL Power Finance (Cayman) Limited, a wholly owned subsidiary company of the Company had on 11 July 2001 issued USD150,000,000 nominal value 5 years Exchangeable Guaranteed Bonds at 100% nominal value (Exchangeable Bonds). Each Exchangeable Bond entitles its registered holder to exchange for fully paid ordinary shares of the Company with a par value of RM1.00 each at an initial exchange price of RM3.12 per share at a fixed exchange rate of US$1.00 = RM3.80. The exercise price has been adjusted to RM2.95 per share in accordance with the basis set out in the Trust Deed. The proceeds received by YTL Power Finance (Cayman) Limited, a wholly- owned subsidiary of the Company, from the issue of the USD150,000,000 2.5% Exchangeable Guaranteed Bonds Due 2006 on 11 July 2001 has been utilised by the Company for the investment in YTL Utilities Limited, a wholly-owned subsidiary incorporated in Cayman Islands. YTL Utilities Limited in turn holds the entire issued and paid-up share capital of YTL Utilities (UK) Limited, which acquired the entire issued and paid-up share capital of Wessex Water Limited. The approval of the Securities Commission to extend the purpose for the use of proceeds for this investment was received vide its letter dated 15 April 2002. 094 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 The principal features of the Exchangeable Bonds are as follows: a The bonds bear interest at 2.50% per annum, payable semi-annually on 11 July and 11 January of each financial year. b The bonds are redeemable on 11 July 2006 (Maturity Date) at 124.86% of their principal amounts in US Dollar. The subsidiary company may redeem all the bonds after 11 July 2004 at their accreted principal amount. The nominal value of the 5 year 2.5% Exchangeable Bonds amounted to USD150,000,000 and USD136,350,000 remained outstanding as at 30 June 2004, net of amortised fees and discount. D 5.875% Redeemable Guaranteed Unsecured Bonds On 30 March 1999, Wessex Water Services Finance Plc (Issuer), a subsidiary company of the Group, issued GBP300,000,000 nominal value of 5.875% Redeemable Guaranteed Unsecured Bonds due 2009 (RGU Bonds) unconditionally and irrevocably guaranteed by Wessex Water Services Limited (Guarantor), a subsidiary company of the Group. The RGU Bonds are constituted under a Trust Deed dated 30 March 1999. The nominal value of RGU Bonds issued amounted to GBP300,000,000 and GBP192,109,348 remained outstanding as at 30 June 2004, net of amortised fees and discount. The net proceeds of the RGU Bonds were used for refinancing existing financial indebtedness and for general corporate purposes. The principal features of the RGU Bonds are as follows: a The RGU Bonds bear interest at 5.875% per annum, payable annually on 30 March of each financial year. b Unless previously redeemed, repurchased, cancelled or otherwise satisfied by the Issuer, the bonds will be redeemed in full by the Issuer on 30 March 2009 at their nominal value together with all accrued interest on the surrender of the RGU Bonds. c The Issuer may, at any time, purchase the RGU Bonds in any manner and at any price. If purchases are made by tender, tenders must be available to all bondholders alike. All RGU Bonds purchased by the Issuer will forthwith be cancelled. d The Issuer, by giving the appropriate notice and in accordance with the conditions laid out in the offering circular, may purchase the RGU Bonds if there is a change in tax legislation or if it wishes to do so at a price determined by an agreed formula. 04 annual report YTL POWER INTERNATIONAL BERHAD : 095 e The bondholders may put the RGU Bonds to the Issuer if: i Wessex Water Services Limited loses its Appointment; ii the Issuer ceases to be a subsidiary of Wessex Water Services Limited; or iii a Restructuring Event occurs which results in the RGU Bonds being downgraded below investment grade. Appointment refers to the Instrument of Appointment dated 1 September 1989 under Section 11 of the Water Act 1989 (now Section 6 of the Water Industry Act, 1991) appointing the Guarantor as a water undertaker and sewerage undertaker for the areas described therein. Restructuring Event refers to either: a any material rights, benefits or obligations of Wessex Water Services Limited under the Appointment or any material terms of the Appointment are modified; or b any legislation is enacted removing, reducing or qualifying the duties or powers of the Secretary of State for the Environment and/or the Director General of Water Services. E Guaranteed Variable Coupon Bonds Due 2009 On 30 March 2001, GBP100,000,000 nominal value of the RGU Bonds were redeemed by the issue of GBP100,000,000 Guaranteed Variable Coupon Bonds (GVC Bonds) due 2009 by Wessex Water Services Finance Plc unconditionally and irrevocably guaranteed by Wessex Water Services Limited. The nominal value of GVC Bonds issued remained outstanding as at 30 June 2004 (2003: GBP100,000,000). Interest payable on the GVC Bonds is calculated by reference to ratings assigned to the bonds. The GVC Bonds are unsecured and the interest rate since issuance of the Bonds was 5.875% payable semi-annually in arrears on 30 September and 30 March of each financial year. Other features of the GVC Bonds remain similar to that of the RGU Bonds mentioned previously. 096 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 F 3.52% Retail Price Index Guaranteed Bonds On 10 December 2001, Wessex Water Services Finance Plc (Issuer) issued GBP 50,000,000 nominal value of 3.52% Guaranteed Retail Price Index with Zero Floor Bonds due 2023 (RPIG Bonds) unconditionally and irrevocably guaranteed by Wessex Water Services Limited (Guarantor). The RPIG Bonds were constituted under a Trust Deed dated 10 December 2001 and are unsecured. The principal features of the RPIG Bonds are as follows: a The RPIG Bonds bear interest semi-annually on 30 January and 30 July at an interest rate of 3.52% initially, indexed up by the inflation rate every year. The effective interest rate as at 30 June 2004 is 6.05% (2003: 6.17%). b Unless previously redeemed, repurchased, cancelled or otherwise satisfied by the Issuer, the RPIG Bonds will be redeemed in full by the Issuer on 30 July 2023 at their indexed value together with all accrued interest on the surrender of the Bonds. c The Issuer may, at any time, purchase the RPIG Bonds in any manner and at any price. If purchases are made by tender, tenders must be available to all bondholders alike. All RPIG Bonds purchased by the Issuer will forthwith be cancelled. d The Issuer, by giving the appropriate notice and in accordance with the conditions laid out in the offering circular, may purchase the RPIG Bonds if there is a change in tax legislation or if it wishes to do so at a price determined by an agreed formula. e The bondholders may put the RPIG Bonds to the Issuer if: i Wessex Water Services Limited loses its Appointment; ii the Issuer ceases to be a subsidiary of Wessex Water Services Limited; or iii a Restructuring Event occurs which results in the RPIG Bonds being downgraded below investment grade. Appointment refers to the Instrument of Appointment dated 1 September 1989 under Section 11 of the Water Act 1989 (now Section 6 of the Water Industry Act, 1991) appointing the Guarantor as a water undertaker and sewerage undertaker for the areas described therein. Restructuring Event refers to either: a any material rights, benefits or obligations of Wessex Water Services Limited under the Appointment or any material terms of the Appointment are modified; or b any legislation is enacted removing, reducing or qualifying the duties or powers of the Secretary of State for the Environment and/or the Director General of Water Services. The nominal value of RPIG Bonds issued of GBP50,000,000 remained outstanding as at 30 June 2004, net of amortised fees and discount. The net proceeds of the RPIG Bonds were used to fund the capital investment programme of Wessex Water Services Limited. 04 annual report YTL POWER INTERNATIONAL BERHAD : 097 G 5.75% Guaranteed Unsecured Bonds On 15 October 2003, Wessex Water Services Finance Plc (Issuer), a subsidiary company of the Group, issued GBP350,000,000 nominal value of 5.75% Guaranteed Unsecured Bonds due 2033 (GU Bonds) unconditionally and irrevocably guaranteed by Wessex Water Services Limited (Guarantor), a subsidiary company of the Group. The GU Bonds are constituted under a Trust Deed dated 15 October 2003. The nominal value of GU Bonds issued amounted to GBP350,000,000 and GBP344,759,772 remained outstanding as at 30 June 2004, net of amortised fees and discount. The net proceeds of the GU Bonds were used for refinancing of existing financial indebtedness and for general corporate purposes. The principal features of the GU Bonds are as follows: a The bonds bear interest at 5.75% per annum, payable annually on 14 October of each financial year. b Unless previously redeemed, repurchased, cancelled or otherwise satisfied by the Issuer, the bonds will be redeemed in full by the Issuer on 14 October 2033 at their nominal value together with all accrued interest on the surrender of the GU Bonds. c The Issuer may, at any time, purchase the GU Bonds in any manner and at any price. If purchases are made by tender, tenders must be available to all bondholders alike. All GU Bonds purchased by the Issuer will forthwith be cancelled. d The Issuer, by giving the appropriate notice and in accordance with the conditions laid out in the offering circular, may purchase the GU Bonds if there is a change in tax legislation or if it wishes to do so at a price determined by an agreed formula. e The bondholders may put the GU Bonds to the Issuer if: i Wessex Water Services Limited losses its Appointments; ii the Issuer ceases to be a subsidiary of Wessex Water Services Limited; or iii a Restructuring Event occurs which results in the GU Bonds being downgraded below investment grade. Appointment refers to the Instrument of Appointment dated 1 September 1989 under Section 11 of the Water Act 1989 (now Section 6 of the Water Industry Act, 1991) appointing the Guarantor as a water undertaker and sewerage undertaker for the areas described therein. Restructuring Event refers to either: a any material rights, benefits or obligations of Wessex Water Services Limited under the Appointment or any material terms of the Appointment are modified; b any legislation is enacted removing, reducing or qualifying the duties or powers of the Secretary of State for the Environment and/or the Director General of Water Services. Wessex Water Services Limited (Issuer), a subsidiary company of the Group, entered into interest rate swap agreement as set out in Note 40(c). 098 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 16 BORROWINGS Group Company 2004 2003 2004 2003 RM RM RM RM CURRENT Revolving credit [Note 16 (A)] 0 979,800,450 0 0 Committed bank loans [Note 16 (C)] 3,947,781 0 0 0 Uncommitted bank loans [Note 16 (D)] 82,119,205 143,577,975 0 0 Finance lease [Note 16 (E)] 15,471,382 6,572,541 0 0 Bank overdrafts [Note 16 (F), Note 33] 48,804,234 76,539,314 0 0 Medium Term Notes [Note 16 (G)] 400,000,000 0 0 0 Hire purchase liabilities [Note 16 (H)] 492,009 0 0 0 550,834,611 1,206,490,280 0 0 NON CURRENT Revolving credit [Note 16 (A)] 661,547,293 611,071,229 0 0 Term loans [Note 16 (B)] 2,485,734,115 2,345,462,820 870,837,615 868,840,320 Committed bank loans [Note 16 (C)] 417,657,026 2,346,158,364 0 0 Finance lease [Note 16 (E)] 618,492,615 292,974,470 0 0 Medium Term Notes [Note 16 (G)] 899,190,606 0 0 0 Hire purchase liabilities [Note 16 (H)] 584,985 0 0 0 5,083,206,640 5,595,666,883 870,837,615 868,840,320 5,634,041,251 6,802,157,163 870,837,615 868,840,320 TOTAL Revolving credit [Note 16 (A)] 661,547,293 1,590,871,679 0 0 Term loans [Note 16 (B)] 2,485,734,115 2,345,462,820 870,837,615 868,840,320 Committed bank loans [Note 16 (C)] 421,604,807 2,346,158,364 0 0 Uncommitted bank loans [Note 16 (D)] 82,119,205 143,577,975 0 0 Finance lease [Note 16 (E)] 633,963,997 299,547,011 0 0 Bank overdrafts [Note 16 (F)] 48,804,234 76,539,314 0 0 Medium Term Notes [Note 16 (G)] 1,299,190,606 0 0 0 Hire purchase liabilities [Note 16 (H)] 1,076,994 0 0 0 5,634,041,251 6,802,157,163 870,837,615 868,840,320 04 annual report YTL POWER INTERNATIONAL BERHAD : 099 Group Company 2004 2003 2004 2003 % % % % WEIGHTED AVERAGE EFFECTIVE INTEREST RATE Revolving credit 4.30 3.77 0 0 Term loans 3.58 3.76 1.87 2.02 Committed bank loans 4.70 4.30 0 0 Uncommitted bank loans 4.56 3.70 0 0 Finance lease 3.20 3.08 0 0 Bank overdrafts 4.84 3.75 0 0 Medium Term Notes 3.62 0 0 0 Hire purchase liabilities [Note 16 (H)] 3.50 0 0 0 GROUP BORROWINGS: Later than 1 year but Not later not later than Later than than 1 year 5 years 5 years RM RM RM AT 30 JUNE 2004 Revolving credit [Note 16 (A)] 0 661,547,293 0 Term loans [Note 16 (B)] 0 1,409,594,575 1,076,139,540 Committed bank loans [Note 16 (C)] 3,947,781 386,873,730 30,783,296 Uncommitted bank loans [Note 16 (D)] 82,119,205 0 0 Finance lease [Note 16 (E)] 15,471,382 96,111,377 522,381,238 Bank overdrafts [Note 16 (F)] 48,804,234 0 0 Medium Term Notes [Note 16 (G)] 400,000,000 0 899,190,606 Hire purchase liabilities [Note 16 (H)] 492,009 584,985 0 550,834,611 2,554,711,960 2,528,494,680 AT 30 JUNE 2003 Revolving credit [Note 16 (A)] 979,800,450 611,071,229 0 Term loans [Note 16 (B)] 0 1,361,466,720 983,996,100 Committed bank loans [Note 16 (C)] 0 2,324,895,000 21,263,364 Uncommitted bank loans [Note 16 (D)] 143,577,975 0 0 Finance lease [Note 16 (E)] 6,572,541 92,706,759 200,267,711 Bank overdrafts [Note 16 (F)] 76,539,314 0 0 1,206,490,280 4,390,139,708 1,205,527,175 The borrowings obtained by the subsidiary companies are on a non-recourse basis to the Company. 100 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 The carrying amounts of borrowings of the Group and Company at the balance sheet date approximated their fair values. A Revolving credit Non-current revolving credit due is secured by fixed deposits of YTL Utilities Finance Limited (Note 33). The facility bears an interest rate of LIBOR plus 0.10%. The initial amount drawn down was GBP110,000,000 (RM690,871,679) with final maturity on 20 March 2006 and was used by a subsidiary company in the United Kingdom. This revolving credit facility is renewable at the option of the Group on a monthly basis. It is the intention of the Group to rollover GBP96,300,000 (RM661,547,293) of this facility during the next twelve months. B Term loans Term loans comprise of the following: Group Company 2004 2003 2004 2003 RM RM RM RM Term loans denominated in Great Britain Pounds [Note 16(B)(i)] 1,614,896,500 1,476,622,500 0 0 Term loan denominated in US Dollars [Note 16(B)(ii)] 870,837,615 868,840,320 870,837,615 868,840,320 2,485,734,115 2,345,462,820 870,837,615 868,840,320 i Term loans denominated in Great Britain Pounds Term loans of RM1,202,582,500 (GBP175,000,000) (2003: RM1,099,612,500 (GBP175,000,000)) are unsecured loans of Wessex Water Services Limited and are guaranteed by Wessex Water Limited. The loans are repayable in full at GBP78,400,000 on 7 December 2005, GBP21,600,000 on 15 December 2009 and GBP75,000,000 on 15 June 2011. The loans bear interest rates of LIBOR plus 0.12%, LIBOR plus 0.15% and LIBOR plus a variable margin respectively. Wessex Water Services Limited entered into interest swap agreements in relation to the term loans of GBP78,400,000 and GBP21,600,000 (2003: GBP78,400,000 and GBP21,600,000) as set out in Note 40(b). On 31 January 2003, Wessex Water Services Limited entered into a new term loan agreement. The loan of RM412,314,000 (GBP60,000,000) (2003: RM377,010,000 (GBP60,000,000)) was drawn down in full on 3 April 2003 and is unsecured. The loan is repayable in full on 31 January 2011. The loan bears interest at a rate of LIBOR plus 0.90%. ii Term loans denominated in US Dollars In February 2003, the Company had drawn down an unsecured term loan of USD230,000,000. The loan is repayable in full on 18 February 2006. The loan bears an interest rate of LIBOR plus 0.70% margin. 04 annual report YTL POWER INTERNATIONAL BERHAD : 101 C Committed bank loans A committed bank loan of RM20,743,174 (EUR4,587,718) (2003: RM21,263,364 (EUR4,873,600) is a senior unsecured loan of SC Technology Nederland BV, a subsidiary of the Group, guaranteed by Wessex Water Limited. 70% of the loan is repayable in quarterly instalments of EUR95,294 ending 1 October 2011 and 30% of the loan is repayable in full on the same date. The loan bears an interest rate of EURO base rate plus 0.60% and varies depending on the credit rating of Wessex Water Limited. A new committed bank loan of RM29,779,035 (EUR6,568,469) which is a senior unsecured loan, was granted to SC Technology Nederland BV, a subsidiary of the Group, guaranteed by Wessex Water Limited. 70% of the loan is repayable in quarterly instalments ending 1 July 2013 and 30% of the loan is repayable in full on the same date. The loan bears an interest rate of EURO base rate plus 0.60% and varies depending on the credit ratings of Wessex Water Limited. Senior unsecured loan facilities of RM2,748,760,000 (GBP400,000,000) (2003: RM2,824,895,458 (GBP449,573,559)) were granted to Wessex Water Services Limited. These are Revolving Credit Facilities of which GBP320,000,000 expires on 31 December 2008 and GBP80,000,000 expires on 31 January 2009. As at 30 June 2004, the drawn down committed bank loans amounted to RM371,082,600 (GBP54,000,000) (2003: RM2,324,895,500 (GBP370,000,000)). The Facilities bear interest rates ranging from LIBOR plus 0.5% to 0.65% (2003: LIBOR plus 0.55% to 0.625%). Each Facility contains financial covenants governing minimum interest cover of 2.25 times and maximum debt to Regulatory Asset Base (RAB) of 75%. D Uncommitted bank loans The uncommitted bank loans of RM82,119,205 (GBP11,950,000) (2003: RM143,577,975 (GBP22,850,000)) are unsecured loans of Wessex Water Services Limited. The loans are drawn under facilities which expire on demand. The facilities bear an interest rate of LIBOR plus an agreed margin at the time of draw down. E Finance lease The finance lease as at 30 June 2004 is an unsecured obligation of Wessex Water Services Limited. The principal amount of RM633,963,997 (GBP92,254,543) (2003: RM299,547,011 (GBP47,287,325)) is repayable in instalments until 30 June 2019. The finance lease bears an interest rate of LIBOR minus 0.48% derived from the annual lease rental payable. 2004 2003 RM RM Minimum hire purchase payments Not later than 1 year 47,337,064 21,514,195 Later than 1 year but not later than 5 years 214,230,098 95,338,305 Later than 5 years 666,174,542 336,173,015 Future finance charges on finance lease (293,777,707) (153,478,504) Present value of finance lease 633,963,997 299,547,011 102 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 F Bank overdrafts Bank overdrafts of RM48,804,234 (GBP7,102,000) (2003: 76,539,314 (GBP12,181,000)) are unsecured loans of Wessex Water Services Limited, Wessex Water Limited and SC Technology Netherland BV. The overdrafts are repayable in full on demand. The overdrafts of SC Technology Nederland BV and Wessex Water Limited bear interest of Base Rate plus 1% whereas that of Wessex Water Services Limited bears interest of LIBOR plus 0.75%. G Medium Term Notes The RM1,300,000,000 Medium Term Notes (MTN) are unsecured loans payable ranging between 1 year to 11 years were issued by YTL Power Generation Sdn Bhd, a wholly-owned subsidiary, pursuant to a Facility Agreement dated 16 July 2003. Interest is payable semi- annually. The Facility bears interest rates ranging from 3.20% to 4.05%. A principal amount of RM400,000,000 was repaid on 16 July 2004. H Hire purchase liabilities Hire purchase liabilities were obtained by a subsidiary company during the financial year. 2004 RM Minimum hire purchase payments not later than 1 year 543,372 later than 1 year but not later than 5 years 645,990 1,189,362 Future finance charges on hire purchase liabilities (112,368) Present value of hire purchase liabilities 1,076,994 Present value of hire purchase liabilities not later than 1 year (current) 492,009 later than 1 year but not later than 5 years (non-current) 584,985 Present value of hire purchase liabilities 1,076,994 04 annual report YTL POWER INTERNATIONAL BERHAD : 103 17 POST-EMPLOYMENT BENEFIT OBLIGATIONS Defined Defined benefit plan contribution plan United Kingdom Malaysia Total RM RM RM 2004 Group Current 0 319,578 319,578 Non-current 393,072,680 0 393,072,680 393,072,680 319,578 393,392,258 2003 Current 0 278,035 278,035 Non-current 339,309,000 0 339,309,000 339,309,000 278,035 339,587,035 A Defined contribution plan Group companies incorporated in Malaysia contribute to the Employees Provident Fund, the national defined contribution plan. Once the contributions have been paid, the Group has no further payment obligations. B Defined benefit plan The Group operates final salary defined benefit plans for its employees in the United Kingdom, the assets of which are held in separate trustee - administered funds. The most recent actuarial valuation of the plan in the United Kingdom was carried out at 31 December 2001. This valuation was updated as at 30 June 2004 using revised assumptions. 104 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 The movements during the financial year in the amounts recognised in the consolidated balance sheet are as follows: Defined benefit plan United Kingdom RM AT 1 JULY 2002 98,295,360 Charged to income statement 252,059,225 Contributions and benefits paid (28,944,600) Currency translation differences 17,899,015 AT 30 JUNE 2003 339,309,000 Charged to income statement 50,984,010 Contributions and benefits paid (29,795,850) Currency translation differences 32,575,520 AT 30 JUNE 2004 393,072,680 The amounts recognised in the consolidated balance sheet may be analysed as follows: Defined benefit plan United Kingdom 2004 2003 RM RM Present value of funded obligations 1,806,622,510 1,579,671,900 Fair value of plan assets (1,449,970,900) (1,240,362,900) Status of funded plan 356,651,610 339,309,000 Unrecognised actuarial gain 36,421,070 0 Liability in the balance sheet 393,072,680 339,309,000 04 annual report YTL POWER INTERNATIONAL BERHAD : 105 The expense recognised in the consolidated income statement may be analysed as follows: Defined benefit plan United Kingdom 2004 2003 RM RM Current service cost 35,755,020 26,532,550 Interest cost 88,063,290 75,979,575 Expected return on plan assets (73,496,430) (75,376,563) Actuarial losses recognised 0 220,702,575 Past service cost 662,130 4,221,088 Total, included in staff costs (Note 7) 50,984,010 252,059,225 Actual return on plan assets 221,526,340 112,924,009 2004 2003 RM RM The charge to the income statement was included in the following line items: cost of sales 43,728,957 211,492,223 administrative expenses 7,255,053 40,567,002 50,984,010 252,059,225 The principal actuarial assumptions used in respect of the Groups defined benefit plan were as follows: Defined benefit plan United Kingdom 2004 2003 % % Discount rate 5.80 5.30 Expected rate of increase in pension payment 3.00 2.60 Expected rate of salary increases 4.00 3.60 Price inflation 3.00 2.60 106 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 18 DEFERRED INCOME Group 2004 2003 RM RM At 1 July 137,890,398 131,831,424 Currency translation differences 12,712,420 11,215,700 Transfer to income statement (5,282,336) (5,156,726) At 30 June 145,320,482 137,890,398 Deferred income represents government grants in respect of specific expenditure on non-infrastructure assets. 19 PAYABLES Group 2004 2003 RM RM At 1 July 24,662,737 20,994,733 Currency translation differences 2,353,749 1,895,148 Received during the financial year 1,169,939 1,772,856 At 30 June 28,186,425 24,662,737 Payables comprise deposits received from developers of housing development in relation to the provision of water and sewerage infrastructure. 04 annual report YTL POWER INTERNATIONAL BERHAD : 107 20 PROPERTY, PLANT AND EQUIPMENT The details of property, plant and equipment are as follows: Land and Infrastructure Plant and Mains Office buildings assets machinery and lines equipment Group RM RM RM RM RM 2004 COST At 1 July 2003 3,717,795,594 4,204,918,200 5,098,204,184 22,699,942 208,821,152 Currency translation differences 270,694,860 399,005,669 253,809,304 0 20,019,116 Additions 185,255,422 177,115,811 553,042,554 0 40,937,975 Disposals (7,329,580) 0 (66,774,202) 0 (63,439) Grants and contribution 0 (38,443,983) 0 0 0 At 30 June 2004 4,166,416,296 4,742,595,697 5,838,281,840 22,699,942 269,714,804 ACCUMULATED DEPRECIATION At 1 July 2003 340,961,532 0 953,108,539 9,647,475 49,369,240 Charge for the financial year 116,858,019 0 343,111,433 1,134,997 34,237,798 Currency translation differences 9,384,308 0 28,365,172 0 4,933,394 Disposals (3,605,867) 0 (54,374,056) 0 (55,260) At 30 June 2004 463,597,992 0 1,270,211,088 10,782,472 88,485,172 NET BOOK VALUE 30 June 2004 3,702,818,304 4,742,595,697 4,568,070,752 11,917,470 181,229,632 108 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 04 annual report YTL POWER INTERNATIONAL BERHAD : 109 Motor Assets Furniture vehicles and under Computers and fittings aircraft construction Total RM RM RM RM RM 9,337,486 798,038 41,933,163 574,940,250 13,879,448,009 0 0 784,453 57,464,645 1,001,778,047 87,512 0 11,750,929 95,806,583 1,063,996,786 0 (18,206) (3,436,806) 0 (77,622,233) 0 0 0 0 (38,443,983) 9,424,998 779,832 51,031,739 728,211,478 15,829,156,626 8,044,386 513,822 7,056,228 0 1,368,701,222 478,629 75,734 7,525,195 0 503,421,805 0 0 156,124 0 42,838,998 0 (18,206) (3,294,845) 0 (61,348,234) 8,523,015 571,350 11,442,702 0 1,853,613,791 901,983 208,482 39,589,037 728,211,478 13,975,542,835 Land and Infrastructure Plant and Mains Office buildings assets machinery and lines equipment Group RM RM RM RM RM 2003 COST At 1 July 2002 3,343,720,990 3,706,313,281 4,479,896,816 22,699,942 104,568,579 Currency translation differences 218,963,392 318,907,194 182,784,725 0 11,974,303 Additions 99,031,050 131,456,725 308,890,019 0 65,142,708 Disposals (603,013) 0 (19,899,413) 0 (1,809,038) Transfer 56,683,175 77,788,613 146,532,037 0 28,944,600 Grants and contribution 0 (29,547,613) 0 0 0 At 30 June 2003 3,717,795,594 4,204,918,200 5,098,204,184 22,699,942 208,821,152 ACCUMULATED DEPRECIATION At 1 July 2002 241,836,630 0 649,406,760 8,512,478 13,699,942 Charge for the financial year 96,792,496 0 306,473,003 1,134,997 35,155,570 Currency translation differences 2,935,419 0 9,892,039 0 1,719,753 Disposals (603,013) 0 (12,663,263) 0 (1,206,025) At 30 June 2003 340,961,532 0 953,108,539 9,647,475 49,369,240 NET BOOK VALUE 30 June 2003 3,376,834,062 4,204,918,200 4,145,095,645 13,052,467 159,451,912 110 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 04 annual report YTL POWER INTERNATIONAL BERHAD : 111 Motor Assets Furniture vehicles and under Computers and fittings aircraft construction Total RM RM RM RM RM 9,200,184 776,518 39,259,377 423,826,464 12,130,262,151 0 0 401,669 41,365,511 774,396,794 137,302 21,520 6,655,803 419,696,700 1,031,031,827 0 0 (4,383,686) 0 (26,695,150) 0 0 0 (309,948,425) 0 0 0 0 0 (29,547,613) 9,337,486 798,038 41,933,163 574,940,250 13,879,448,009 7,540,728 437,072 3,651,491 0 925,085,101 503,658 76,750 7,134,734 0 447,271,208 0 0 50,674 0 14,597,885 0 0 (3,780,671) 0 (18,252,972) 8,044,386 513,822 7,056,228 0 1,368,701,222 1,293,100 284,216 34,876,935 574,940,250 12,510,746,787 Land and buildings of the Group are as follows: Short term leasehold Freehold land Land Buildings Total RM RM RM RM COST At 1 July 2003 7,549,022 43,984,500 3,666,262,072 3,717,795,594 Currency translation differences 0 4,122,474 266,572,386 270,694,860 Additions 0 5,497,081 179,758,341 185,255,422 Disposals 0 0 (7,329,580) (7,329,580) At 30 June 2004 7,549,022 53,604,055 4,105,263,219 4,166,416,296 ACCUMULATED DEPRECIATION At 1 July 2003 2,868,629 0 338,092,903 340,961,532 Charge for the financial year 301,960 0 116,556,059 116,858,019 Currency translation differences 0 0 9,384,308 9,384,308 Disposals 0 0 (3,605,867) (3,605,867) At 30 June 2004 3,170,589 0 460,427,403 463,597,992 NET BOOK VALUE 30 June 2004 4,378,433 53,604,055 3,644,835,816 3,702,818,304 COST At 1 July 2002 7,549,022 40,474,560 3,295,697,408 3,343,720,990 Currency translation differences 0 3,509,940 215,453,452 218,963,392 Additions 0 0 155,714,225 155,714,225 Disposals 0 0 (603,013) (603,013) At 30 June 2003 7,549,022 43,984,500 3,666,262,072 3,717,795,594 ACCUMULATED DEPRECIATION At 1 July 2002 2,566,668 0 239,269,962 241,836,630 Charge for the financial year 301,961 0 96,490,535 96,792,496 Currency translation differences 0 0 2,935,419 2,935,419 Disposals 0 0 (603,013) (603,013) At 30 June 2003 2,868,629 0 338,092,903 340,961,532 NET BOOK VALUE 30 June 2003 4,680,393 43,984,500 3,328,169,169 3,376,834,062 112 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Office Furniture Motor equipment Computers and fittings vehicles Total Company RM RM RM RM RM 2004 COST At 1 July 2003 34,815 24,742 38,731 964,052 1,062,340 Disposals 0 0 (18,206) 0 (18,206) At 30 June 2004 34,815 24,742 20,525 964,052 1,044,134 DEPRECIATION At 1 July 2003 34,493 24,742 38,730 964,051 1,062,016 Charge for the financial year 321 0 1 0 322 Disposals 0 0 (18,206) 0 (18,206) At 30 June 2004 34,814 24,742 20,525 964,051 1,044,132 NET BOOK VALUE 30 June 2004 1 0 0 1 2 2003 COST At 1 July 2002 / 30 June 2003 34,815 24,742 38,731 964,052 1,062,340 DEPRECIATION At 1 July 2002 34,169 24,742 36,529 964,051 1,059,491 Charge for the financial year 324 0 2,201 0 2,525 At 30 June 2003 34,493 24,742 38,730 964,051 1,062,016 NET BOOK VALUE 30 June 2003 322 0 1 1 324 04 annual report YTL POWER INTERNATIONAL BERHAD : 113 The property, plant and equipment of a subsidiary company have been pledged as security for its bonds by way of fixed and floating charges as follows: Group 2004 2003 RM RM NET BOOK VALUES OF ASSETS PLEDGED AS SECURITY FOR BONDS [NOTE 15(A)] Short term leasehold land 4,378,433 4,680,393 Buildings 583,935,926 616,838,919 Plant and machinery 1,757,848,237 1,857,835,498 Mains and lines 11,917,470 13,052,467 Office equipment 981,765 1,107,390 Computers 901,983 1,293,100 Furniture and fittings 208,481 284,216 Motor vehicles and aircraft 28,300,697 29,755,028 2,388,472,992 2,524,847,011 The net book value of plant and machinery of the Group held under finance leases amounted to RM662,451,160 (2003: RM318,573,450). During the financial year, a subsidiary company acquired motor vehicles amounting to RM1,625,113 by means of hire purchase. The net book value of these motor vehicles at the balance sheet was RM1,361,943. 21 INTANGIBLE ASSETS Group 2004 2003 RM RM GOODWILL ON CONSOLIDATION: At 1 July / 30 June 440,699,862 440,699,862 114 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 22 DEVELOPMENT EXPENDITURE Group Company 2004 2003 2004 2003 RM RM RM RM At 1 July 0 0 0 0 Capitalised during the financial year 8,332,350 0 8,332,350 0 At 30 June 8,332,350 0 8,332,350 0 Development expenditure principally comprises expenditure directly attributable to an investment project where it is reasonably anticipated that the costs will be recovered through future commercial activity. 23 SUBSIDIARY COMPANIES Company 2004 2003 RM RM Unquoted shares, at cost: Ordinary shares 4,957,959,347 4,906,089,347 Preference shares 353,142,500 353,142,500 5,311,101,847 5,259,231,847 During the financial year, the Company increased its investment in YTL Power Finance (Cayman) Ltd (YTLPFC) by subscribing to 10,000 ordinary shares in YTLPFC at a value of USD1,365 each. PREFERENCE SHARES The rights attaching to the preference shares are as follows: a 150,000,000 preference shares of 20 sen each in YTL Power Generation Sdn Bhd, a wholly-owned subsidiary company of the Company. i Each preference share shall confer on the holder thereof the right to receive a preferential dividend on the nominal amount paid up thereon at the rate which is four (4) times the rate of dividend payable on each ordinary share; and ii The redemption terms of these preference shares are set out in the Articles of Association of the subsidiary company. 04 annual report YTL POWER INTERNATIONAL BERHAD : 115 b 845,000 preference shares of USD0.01 each in YTL Power Australia Limited, a wholly-owned subsidiary company of the Company. i The redeemable preference shareholders shall be entitled to 99% of all dividends declared and paid by the company in priority to the holders of any other issued shares in the capital of the company. The preference shares shall rank for dividends pari passu amongst each other. ii The preference shares are redeemable at the option of the holders at any time on terms as agreed between the company and the holders thereof at the time of the exercise of such option. The subsidiary companies are as follows: Group's effective interest Country of 2004 2003 Name of company incorporation % % Principal activities YTL Power Generation Sdn. Bhd. Malaysia 100 100 Developing, constructing, completing, maintaining and operating power plants YTL Power International Holdings Limited * Cayman Islands 100 100 Investment holding YTL Power Australia Limited * Cayman Islands 100 100 Investment holding YTL Power Finance (Cayman) Limited * Cayman Islands 100 100 Investment holding YTL-CPI Power Limited ** Hong Kong 51 51 Dormant YTL Utilities Limited * Cayman Islands 100 100 Investment holding YTL Utilities Finance Limited * Cayman Islands 100 100 Investment holding YTL Utilities (UK) Limited * England and Wales 100 100 Investment holding YTL Events Limited * England and Wales 100 100 Providing public entertainment, events and public relations services 116 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 04 annual report YTL POWER INTERNATIONAL BERHAD : 117 Group's effective interest Country of 2004 2003 Name of company incorporation % % Principal activities Wessex Water Limited * England and Wales 100 100 Investment holding Wessex Water Services Limited *# England and Wales 100 100 Water supply and waste water services Wessex Water BV *# Netherlands 100 100 Financial services SC Technology AG *# Switzerland 100 100 Waste treatment processes SC Technology Nederlands BV # Netherlands 100 100 Waste treatment processes SC Technology Deutschland GmbH *# Germany 100 100 Waste treatment processes S.A. SC Technology France *# France 100 100 Waste treatment processes SC Technology Denmark ApS *# Denmark 100 100 Waste treatment processes Wessex Water Services Finance Plc *# England and Wales 100 100 Issue of bond Wessex Water Enterprises Limited *# England and Wales 100 100 Water supply and waste water services Wessex Water Commercial Limited *# England and Wales 100 100 Dormant Wessex Property Services Limited *# England and Wales 100 100 Dormant Wessex Water Trustee Company Limited *# England and Wales 100 100 Dormant Wessex Water Engineering Services Limited *# England and Wales 100 100 Dormant Group's effective interest Country of 2004 2003 Name of company incorporation % % Principal activities YTL Services Limited *# England and Wales 100 100 Dormant Avalon Billing Services Limited *# England and Wales 100 100 Dormant Wessex Spring Water Limited *# England and Wales 100 100 Dormant Aquator Limited *# England and Wales 100 100 Dormant Wessex Logistics Limited *# England and Wales 100 100 Dormant UK Water International Limited *# England and Wales 100 100 Dormant Water Management International Limited *# England and Wales 100 100 Dormant YTL Engineering Limited *# England and Wales 100 100 Dormant Wessex Water Pension Scheme Trustee Limited *# England and Wales 100 100 Dormant Dwr Gwalia Cyfyngedig *# England and Wales 100 100 Dormant Wessex Engineering Services Limited * England and Wales 51 51 Engineering Services * Not audited by PricewaterhouseCoopers ** Audited by PricewaterhouseCoopers, Hong Kong # Subsidiary companies of Wessex Water Limited In compliance with the licence requirement, additional financial information to that contained in its statutory accounts have been prepared by Wessex Water Services Limited for its water and waste water business in accordance with guidance issued by the Director General of Water Services in the United Kingdom. These accounts measure profitability on the basis of real financial capital maintenance in the context of assets which are valued at the current cost value to the business. Specifically modern equivalent asset values arising from the latest periodic review are incorporated into the regulatory financial statements. Assets acquired and in operational use are valued at the replacement cost of their operating capability. Therefore, the tangible fixed asset value as at 31 March 2004 as disclosed in the current cost balance sheet of Wessex Water Services Limited was RM67,029 million (9,754 million) [2003: RM59,851 million (2003: 9,525 million)]. 118 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 24 JOINT VENTURES The joint ventures mentioned below are held by a subsidiary company, Wessex Water Limited. a Jointly controlled operations The Group also has a 50% interest in a joint arrangement, Bristol Wessex Billing Services Limited, which was incorporated in England and Wales. On 28 June 2001, Wessex Water Limited and Wessex Water Services Limited entered into a joint arrangement with a third party, under which the billing and customer services of both groups were transferred to Bristol Wessex Billing Services Limited. The Groups share of the assets, liabilities and expenses of the jointly controlled operations has been accounted for in the books of the relevant subsidiary companies as follows: Group 2004 2003 RM RM Current assets 22,677,270 10,681,950 Current liabilities (24,738,840) (10,681,950) Net assets (2,061,570) 0 Expenses 58,929,570 47,034,975 25 AMOUNTS OWING BY/(TO) SUBSIDIARY COMPANIES The amounts owing by/(to) subsidiary companies receivable within 12 months are unsecured and interest free. The amounts receivable within 12 months are in respect of interests receivable on advances and operational expense payments made on behalf of a subsidiary company. The amounts payable within 12 months are in respect of advances and operational expenses payment made by subsidiary companies on behalf of the Holding Company. 04 annual report YTL POWER INTERNATIONAL BERHAD : 119 26 ASSOCIATED COMPANIES Group Company 2004 2003 2004 2003 RM RM RM RM Unquoted shares at cost 11,183 11,183 4,930 4,930 Groups share of post-acquisition profits 506,151 490,478 0 0 Share of net assets 517,334 501,661 4,930 4,930 a The Group's share of the assets and liabilities of the associated companies are as follows: Group 2004 2003 RM RM Current assets 19,584,981 5,770,784 Current liabilities (19,067,647) (5,269,123) Net assets 517,334 501,661 b The associated companies are as follows: Group's effective interest Country of 2004 2003 Name of company incorporation % % Principal activities Jimah Power Generation Sdn Bhd Malaysia 49 49 Developing, constructing, completing, maintaining and operating power plants. The company has not commenced operations Teknologi Tenaga Perlis (Overseas) Consortium Sdn Bhd Malaysia 30 30 Dormant ElectraNet Transmission Services Pty Ltd Australia 33.5 33.5 Principal electricity transmission network service provider Aquator Services Limited England and Wales 10 10 Marketing membrane technology 120 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 27 INVESTMENTS Group Company 2004 2003 2004 2003 RM RM RM RM At cost: Shares quoted in Malaysia 25,825,985 31,872,442 19,130,496 23,957,106 Shares in unquoted corporations preference shares 417,050,000 227,050,000 0 0 Shares quoted outside Malaysia 2,560,362 4,410,775 0 0 445,436,347 263,333,217 19,130,496 23,957,106 At market value: Shares quoted in Malaysia 32,067,702 34,032,749 26,347,157 26,381,656 Shares quoted outside Malaysia 13,048,410 14,108,792 0 0 The Directors are of the opinion that it is not practicable within the constraints of cost to estimate the fair value of shares in unquoted corporations reliably. However, it is the Directors view that the carrying value of investment in unquoted corporations approximated its fair value at balance sheet date as the investee company is profitable and is in a net tangible asset position. 28 INVENTORIES Inventories comprise: Group 2004 2003 RM RM At cost: Spare parts 101,176,452 81,993,743 Spare parts in transit 20,881,785 22,651,064 122,058,237 104,644,807 Raw materials 10,383,441 8,759,199 Work in progress 13,343,584 18,933,198 145,785,262 132,337,204 04 annual report YTL POWER INTERNATIONAL BERHAD : 121 29 RECEIVABLES, DEPOSITS AND PREPAYMENTS Group Company 2004 2003 2004 2003 RM RM RM RM Trade receivables 503,319,004 405,613,111 0 0 Less: Allowance for doubtful debts (107,751,392) (19,899,413) 0 0 395,567,612 385,713,698 0 0 Amounts recoverable from a supplier# 188,363,245 188,363,245 0 0 Other receivables 297,971,916 122,847,828 30,729,180 31,606,436 Accrued income 165,759,010 138,559,180 0 0 Fixed deposit interest receivable 3,501,816 2,656,874 2,562,968 2,010,095 Deposits 205,880 240,832 4,700 26,562 Amounts receivable from a related company 12,121 0 2,120 0 Prepayments* 35,343,494 66,107,580 16,307,224 22,808,460 1,086,725,094 904,489,237 49,606,192 56,451,553 Credit terms of trade receivables range from 30 to 180 days (2003: 30 to 180 days). The Group has no significant concentration of credit risk other than that related to its power generation business whereby it supplies to a single customer and acquires gas supply from a single supplier, both of which are credit worthy entities. As at 30 June 2004, 21% of trade receivables was due from a customer in relation to the sale of electricity. The amount was fully settled after the financial year end. Concentration of credit risk also exists in respect of an amount recoverable from a supplier described below. # A subsidiary of the Company entered into a Gas Supply Agreement (GSA) on 15 March 1993. Under this agreement, the price of gas to be supplied is calculated by reference to a market price-related formula. However, since 1 May 1997, the Government of Malaysia has fixed the price of gas. Accordingly, the market price-related formula applicable under the GSA has not been used. As a consequence, a dispute exists over whether a discount provided for under the market price-related formula is applicable under the GSA. The subsidiary has accounted for the price discount paid up to 30 June 2001 as an amount recoverable from the supplier. The Directors are confident that the amount is fully recoverable. * Included in prepayments is an amount of RM15,847,083 (2003: RM22,185,916) being prepaid interest in relation to the interest rate swap for the RM750,000,000 7% Redeemable Non-Guaranteed Unsecured Bonds. The amount is amortised over a period of 7 years commencing from January 2000 (Note 40(a)). 122 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 30 AMOUNTS OWING TO RELATED COMPANIES The amounts owing to related companies are unsecured, interest free and have no fixed terms of repayment. The amount owing to related companies principally relates to operation and maintenance expenses of power plant of a subsidiary company and expenses paid on behalf of the Company. 31 SHORT TERM INVESTMENTS Group Company 2004 2003 2004 2003 RM RM RM RM Unquoted debt securities of corporations in Malaysia At cost 40,837,453 98,676,330 40,837,453 98,676,330 Short term investments comprise of commercial papers which would mature within the next financial year or are renewable on a monthly basis. 32 FIXED DEPOSITS Group Company 2004 2003 2004 2003 RM RM RM RM Deposits with licensed banks 3,892,142,408 3,895,405,703 2,108,035,294 2,034,828,516 Deposits with licensed finance companies 491,632,139 332,804,508 457,945,225 271,792,250 Deposit with discount houses 36,100,000 41,967,632 0 0 4,419,874,547 4,270,177,843 2,565,980,519 2,306,620,766 The weighted average interest rates of deposits that were effective as at balance sheet date are as follows: Group Company 2004 2003 2004 2003 % % % % Deposits with licensed banks 2.78 2.98 2.78 2.85 Deposits with licensed finance companies 2.78 2.98 2.78 2.85 Deposits of the Group and Company have an average maturity of 30 days (2003: 30 days). Bank balances are deposits held at call with banks. 04 annual report YTL POWER INTERNATIONAL BERHAD : 123 33 CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the consolidated cash flow statements of the Group and Company comprise the following: Group Company 2004 2003 2004 2003 RM RM RM RM Fixed deposits (Note 32) 4,419,874,547 4,270,177,843 2,565,980,519 2,306,620,766 Cash and bank balances 12,822,991 51,791,777 1,383,013 49,974,199 Bank overdraft (Note 16) (48,804,234) (76,539,314) 0 0 4,383,893,304 4,245,430,306 2,567,363,532 2,356,594,965 Less: Fixed deposits pledged to a licensed bank (704,439,419) (745,272,720) 0 0 3,679,453,885 3,500,157,586 2,567,363,532 2,356,594,965 The fixed deposit pledged to a licensed bank is in respect of a revolving credit facility drawn down by YTL Utilities Finance Limited (Note 16(A)). 34 PAYABLES AND ACCRUED EXPENSES Group Company 2004 2003 2004 2003 RM RM RM RM Trade payables 58,525,221 81,853,884 0 0 Duties and taxes payable 8,176,251 6,669,975 648 648 Accrued expenses 427,766,710 342,591,963 3,383,276 4,933,817 Receipts in advance 186,363,605 73,884,686 0 0 Other payables 102,301,220 91,459,179 652,417 631,333 783,133,007 596,459,687 4,036,341 5,565,798 Credit term of trade payables granted to the Group averages at 35 days (2003: 35 days). 124 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 35 PROVISION FOR LIABILITIES AND CHARGES Group 2004 2003 RM RM Restructuring costs: At 1 July 24,612,702 38,161,728 Currency translation differences 2,358,437 2,629,576 Charge to income statement 5,172,526 1,507,531 Payment (3,754,936) (17,686,133) At 30 June 28,388,729 24,612,702 The restructuring costs relate to the scaling down of operations of certain subsidiary companies of the Group. The provision is expected to be utilised within the next financial year. 36 AMOUNT OWING TO IMMEDIATE HOLDING COMPANY The amount owing to the immediate holding company relates to expenses paid on the Groups behalf and is unsecured, has no fixed terms of repayment and is interest free. 37 COMMITMENT Group Company 2004 2003 2004 2003 RM RM RM RM Contracted, but not provided for 762,134,444 868,396,289 0 0 Authorised, not contracted for 456,294,160 228,719,400 0 0 The above commitments comprise purchase of spare parts and property, plant and equipment. 04 annual report YTL POWER INTERNATIONAL BERHAD : 125 38 CONTINGENT LIABILITY - UNSECURED A subsidiary company has provided performance guarantees on behalf of its subsidiary in respect of tendering for contracts. The maximum liability as at 30 June 2004 amounted to RM7,881,389 (2003: RM8,796,900). 39 SEGMENTAL INFORMATION The Group is organised into three main business segments: Investment holding Power generation Sales of water and disposal of waste water a Primary reporting business segments Sales of water and Investment Power disposal of holding generation waste water Group RM RM RM RM 30 June 2004 Revenue 183,188,356 1,155,332,239 2,048,399,697 3,386,920,292 RESULTS Segment result (external) 179,109,279 488,163,473 786,233,569 1,453,506,321 Unallocated income 3,571,438 Profit from operations 1,457,077,759 Finance cost (621,158,569) Share of results of associated companies 733,878 0 0 733,878 Profit from ordinary activities before tax 836,653,068 Tax (223,603,917) Profit from ordinary activities after tax 613,049,151 126 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 Sales of water and Investment Power disposal of holding generation waste water Group RM RM RM RM At 30 June 2004 OTHER INFORMATION Segments assets 5,117,701,618 2,964,305,888 12,494,566,569 20,576,574,075 Segment liabilities 17,200,704 657,163,595 3,046,746,788 3,721,111,087 Unallocated liabilities 12,275,071,665 Total liabilities 15,996,182,752 Capital expenditure 10,816,707 6,941,331 1,046,238,748 1,063,996,786 Depreciation 235,577 143,315,350 359,870,878 503,421,805 30 June 2003 Revenue 167,049,401 1,264,392,064 1,735,136,692 3,166,578,157 RESULTS Segment result (external) 129,492,371 586,296,252 457,644,334 1,173,432,957 Unallocated income 1,975,201 Profit from operations 1,175,408,158 Finance cost (613,960,813) Share of results of associated companies 705,024 0 0 705,024 Profit from ordinary activities before tax 562,152,369 Tax (115,881,145) Profit from ordinary activities after tax 446,271,224 04 annual report YTL POWER INTERNATIONAL BERHAD : 127 Sales of water and Investment Power disposal of holding generation waste water Group RM RM RM RM At 30 June 2003 OTHER INFORMATION Segments assets 4,716,181,800 3,093,034,223 10,863,537,895 18,672,753,918 Segment liabilities 20,728,289 676,580,506 2,395,966,727 3,093,275,522 Unallocated liabilities 11,013,442,871 Total liabilities 14,106,718,393 Capital expenditure 904,318 60,483,409 969,644,100 1,031,031,827 Depreciation 2,525 133,606,305 313,662,378 447,271,208 b Secondary reporting format geographical segments Although the Groups business segments are managed on a worldwide basis, they operate in two main geographical areas: Malaysia power generation activity United Kingdom sale of water and disposal of waste water activities Sales Total assets Capital expenditure 30.6.2004 30.6.2003 30.6.2004 30.6.2003 30.6.2004 30.6.2003 RM RM RM RM RM RM Malaysia 1,232,109,262 1,332,919,980 5,652,138,068 5,631,244,647 6,941,331 60,483,409 United Kingdom 2,048,399,697 1,735,136,692 12,494,566,569 10,863,537,895 1,046,238,748 969,644,100 Other countries 106,411,333 98,521,485 2,429,869,438 2,177,971,376 10,816,707 904,318 3,386,920,292 3,166,578,157 20,576,574,075 18,672,753,918 1,063,996,786 1,031,031,827 128 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 40 FINANCIAL INSTRUMENTS Interest rate swaps Under the interest rate swaps, the Group and Company agree with other parties to exchange, the differences between interest amounts calculated by reference to the agreed notional principal amounts and payment terms. The interest rate swap contracts outstanding as at 30 June 2004 are as follows: a In respect of the 7% RNGU Bonds Note 15(B), the Company entered into an associated interest rate swap agreement with a financial institution to reduce the annual coupon rate of 7% per annum to an annual coupon rate of 0.725% per annum. b In respect of certain term loans Note 16(B), a subsidiary company entered into interest rate swap agreements with financial institutions for a total notional principal amount of GBP70,800,000 (2003: GBP70,800,000) and with expiry periods ranging from 2 to 6 years. Average floating interest rates ranged from 3.51% to 4.72% (2003: 3.51% to 4.06%) per annum payable quarterly as compared to fixed interest rates of 5.37% to 5.95% (2003: 5.76%) per annum payable semi-annually as a result of the swap agreements. c In respect of the 5.75% Guaranteed Unsecured Bonds, a subsidiary company entered into an interest rate swap agreement with a financial institution for a notional principal amount of GBP250,000,000 with an expiry date of 30 April 2005. The average floating interest rate was 5.20% per annum payable quarterly as compared to a fixed interest rate of 5.75% receivable annually as a result of the swap agreement. The Group Contract or notional principal amount Favourable Unfavourable RM RM RM Interest rate swaps At 30 June 2004 2,954,505,520 7,470,279 (5,192,572) At 30 June 2003 3,771,106,800 155,031,137 (106,580,000) 41 PRIOR YEAR ADJUSTMENT a Financial year ended 30 June 2004 During the financial year, the Group changed its accounting policy on post-employment benefit obligations to comply with the new MASB Standard 29 Employee Benefits. 04 annual report YTL POWER INTERNATIONAL BERHAD : 129 In the previous financial years, the cost of providing defined benefits is charged to the income statement on a basis designated to spread the cost over the average service lives of employees. Differences between the amount funded and amount charged to the income statement are treated either as provisions or prepayments in the balance sheet. The Group has now changed its accounting policy on defined benefit obligations whereby the deficit arising in respect of post- employment defined benefit obligations on first adoption of MASB 29 on 1 July 2003 is recognised retrospectively in accordance with the transitional provision of MASB 29 the details of which are provided in Note 4 to the financial statements. b Financial year ended 30 June 2003 During the financial year ended 30 June 2003, the Group applied the accounting policy with respect to the recognition of deferred tax assets and liabilities in compliance with MASB Standard 25 Income Taxes. Prior to this, deferred tax was recognised for all timing differences. The Group has applied the accounting policy to recognise deferred tax on temporary differences, the details of which are provided in Note 4 to the financial statements. This application of the accounting policy had been accounted for retrospectively. The effects of the changes on the Groups financial statements are as follows: Effects of change in policy Post- As employment previously benefit As reported obligations restated RM RM RM At 30 June 2003 Postemployment benefit obligations (59,598,998) (279,710,002) (339,309,000) Retained earnings (2,522,531,902) 186,924,010 (2,335,607,892) Foreign exchange fluctuation reserve (32,342,797) 9,184,024 (23,158,773) Deferred taxation (2,205,251,033) 83,601,968 (2,121,649,065) Year ended 30 June 2003 Deferred taxation 170,797,815 (66,934,388) 103,863,427 Post-employment benefits 27,949,629 224,109,596 252,059,225 At 30 June 2002 Deferred taxation (1,909,075,488) 12,749,486 (1,896,326,002) Postemployment benefit obligations (55,797,072) (42,498,288) (98,295,360) Retained earnings (2,246,696,486) 29,748,802 (2,216,947,684) Total prior year adjustment to other reserves as at 30 June 2003 is RM9,184,024. 130 : YTL POWER INTERNATIONAL BERHAD annual report 04 Notes to the Financial Statements for the financial year ended 30.06.2004 42 POST BALANCE SHEET EVENT The Company undertook the subdivision of the existing 2,306,254,911 ordinary shares of RM1.00 each into 4,612,509,822 ordinary shares of 50 sen each following an ordinary resolution passed at an Extraordinary General Meeting held on 8 June 2004 (Subdivision of Shares). Consequently 572,159,824 additional warrants were issued to the subdivision of shares. The Subdivision of Shares took effect from 1 July 2004 and on 12 July 2004, the Subdivision of Shares was completed with the listing of the subdivided shares on Bursa Malaysia Securities Berhad. The proforma effect of the subdivision on issued and paid-up capital, earnings per share and net tangible assets per share are as follows: After subdivision As at 30 June 2004 of shares Shares of RM1.00 Shares of RM0.50 each each Issued and paid-up share capital 2,306,254,911 4,612,509,822 Earnings per share (basic) (sen) 27.25 13.63 Earnings per share (diluted) (sen) 26.21 13.11 Net tangible assets per share (RM) 1.85 0.93 43 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 28 October 2004. 04 annual report YTL POWER INTERNATIONAL BERHAD : 131 We, Tan Sri Dato' Seri (Dr) Yeoh Tiong Lay and Tan Sri Dato' (Dr) Francis Yeoh Sock Ping, JP, two of the Directors of YTL Power International Berhad, state that, in the opinion of the Directors, the financial statements set out on pages 62 to 131 are drawn up so as to give a true and fair view of the state of affairs of the Group and Company as at 30 June 2004 and of the results and the cash flows of the Group and Company for the financial year ended on that date in accordance with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. Signed on behalf of the Board of Directors in accordance with their resolution dated 28 October 2004. TAN SRI DATO' SERI (DR) YEOH TIONG LAY Director TAN SRI DATO' (DR) FRANCIS YEOH SOCK PING, JP Director 28 October 2004 Statutory Declaration pursuant to Section 169(16) of the Companies Act, 1965 I, Tan Sri Dato' (Dr) Francis Yeoh Sock Ping, JP, the Director primarily responsible for the financial management of YTL Power International Berhad, do solemnly and sincerely declare that the financial statements set out on pages 62 to 131 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960. TAN SRI DATO' (DR) FRANCIS YEOH SOCK PING, JP Director Subscribed and solemnly declared by the abovenamed Tan Sri Dato' (Dr) Francis Yeoh Sock Ping, JP at Kuala Lumpur on 28 October 2004, before me. SOH AH KAU, AMN Commissioner for Oaths 132 : YTL POWER INTERNATIONAL BERHAD annual report 04 Statement by Directors pursuant to Section 169(15) of the Companies Act, 1965 We have audited the financial statements set out on pages 62 to 131. These financial statements are the responsibility of the Company's Directors. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved auditing standards in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion: a the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and applicable approved accounting standards in Malaysia so as to give a true and fair view of: i the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and ii the state of affairs of the Group and Company as at 30 June 2004 and of the results and cash flows of the Group and Company for the financial year ended on that date; and b the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. The names of the subsidiary companies of which we have not acted as auditors are indicated in Note 23 to the financial statements. We have considered the financial statements of these subsidiary companies and the auditors report thereon. We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the Company's financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors' reports on the financial statements of the subsidiary companies were not subject to any qualification and did not include any comment made under subsection (3) of Section 174 of the Act. PRICEWATERHOUSECOOPERS DATO AHMAD JOHAN BIN MOHAMMAD RASLAN (AF: 1146) (1867/09/06 (J)) Chartered Accountants Partner Kuala Lumpur 28 October 2004 04 annual report YTL POWER INTERNATIONAL BERHAD : 133 Report of the Auditors for the financial year ended 30.06.2004 Form of Proxy I/We (full name as per NRIC/company name in block capitals) NRIC/Company No. (new and old NRIC Nos) CDS Account No. (for nominee companies only) of (full address) being a member of YTL POWER INTERNATIONAL BERHAD hereby appoint (full name as per NRIC in block capitals) NRIC No. (new and old NRIC Nos) of (full address) or failing him/her, the Chairman of the Meeting as my/our proxy to vote for me/us on my/our behalf at the 8th Annual General Meeting of the Company to be held at Starhill 2, Level 4, JW Marriott Hotel Kuala Lumpur, 183 Jalan Bukit Bintang, 55100 Kuala Lumpur on Thursday, 9 December 2004 at 3.30 p.m. and any adjournment thereof. My/Our proxy is to vote as indicated below: No. Resolutions For Against 1 Receipt of Reports and Audited Financial Statements 2 Declaration of First and Final Dividend 3 Re-election of Y Bhg Tan Sri Dato Seri Dr Md Noordin Bin Md Sopiee 4 Re-election of Y Bhg Dato Lau Yin Pin @Lau Yen Beng 5 Re-election of Tuan Syed Abdullah Bin Syed Abd. Kadir 6 Re-appointment of Y Bhg Tan Sri Dato Seri (Dr) Yeoh Tiong Lay 7 Re-appointment of Y Bhg Dato (Dr) Yahya Bin Ismail 8 Re-appointment of Y Bhg Mej Jen (B) Dato Haron Bin Mohd Taib 9 Approval of the payment of Directors fees 10 Re-appointment of Messrs PricewaterhouseCoopers as Company Auditors 11 Authorisation for Directors to Allot and Issue Shares 12 Proposed Share Buy-Back Authority 13 Proposed Mandate for Recurrent Related Party Transactions Signature of No. of Dated this day of 2004 shareholder shares held Notes 1 A member entitled to attend and vote at the meeting may appoint a proxy to vote in his stead. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. A member shall not be entitled to appoint more than one proxy to attend and vote at the same meeting and where such member appoints more than one proxy to attend and vote at the same meeting, such appointment shall be invalid. 2 This form of proxy and the Power of Attorney or other authority (if any) under which it is signed or notarily certified an office copy thereof must be lodged at the Registered Office, 11th Floor, Yeoh Tiong Lay Plaza, 55 Jalan Bukit Bintang, 55100 Kuala Lumpur not less than 48 hours before the time appointed for the Meeting. 3 In the case of a corporation, this proxy should be executed under its Common Seal or under the hand of some officer of the corporation duly authorised in writing on its behalf. 4 Unless voting instructions are indicated in the spaces provided above, the proxy may vote as he thinks fit. The Company Secretary YTL POWER INTERNATIONAL BERHAD 11th Floor Yeoh Tiong Lay Plaza 55 Jalan Bukit Bintang 55100 Kuala Lumpur Malaysia affix stamp here 1st fold 2nd fold