growth through energy - hub power company6.1 31,731,794 31,856,615 6.1 (rs. '000s) (rs....

growth through energy

THE HUB POWER COMPANY LIMITED

UNAUDITED QUARTERLY FINANCIAL STATEMENTS

FOR THE SECOND QUARTER ENDED DECEMBER 31, 2007

CONTENTS

Company Information 2

Report of the Directors 4

Auditors’ Review Report to the Members 5 Profit & Loss Account 6

Balance Sheet 7 Cash Flow Statement 8 Statement of Changes in Equity 9 Notes to the Financial Statements 10

2

COMPANY INFORMATION

BOARD OF DIRECTORS: Mr. Mohamed A. Alireza H.I. Chairman Mr. Masood Ahmed,

Dr. Fereydoon Abtahi Mr. Robin A. Bramley Mr. Malcolm P. Clampin

Mr. Taufique Habib Mr. Vince R. Harris, OBE Mr. Arif Ijaz Mr. Qaiser Javed Mr. Ali Munir Mr. Javed Mahmood Chief Executive Mr. S. Ali Raza Mr. S. Nizam A. Shah

M. Ashraf Tumbi Mr. Yutaka Ueda

MANAGEMENT: Javed Mahmood Chief Executive William Burrough Chief Operations Officer

Abdul Nasir Chief Financial Officer Huma Pasha Chief Internal Auditor

Arshad A. Hashmi Company Secretary Wasif Mustafa Khan Head of Projects

S. Hasnain Haider Sr. Manager Special Assignments Lesley A. Middlecoat Sr. Manager HR & PR

Shamsul Islam Treasurer PRINCIPAL BANKERS National Bank of Pakistan, Karachi (ICA) Accounts Banks: Citibank N.A. Karachi.

MCB Bank Limited Standard Chartered Bank (Pakistan) Ltd., Karachi

Sumitomo Mitsui Banking Corp. Europe Ltd., London United Bank Limited INTER-CREDITOR AGENT: National Bank of Pakistan, Karachi

3

COMPANY INFORMATION

REGISTERED OFFICE: C/o. Ferguson Associates (Pvt) Limited, 27, Capital Shopping Centre, First Floor, G-11 Markaz, Islamabad HEAD OFFICE: 3rd Floor, Islamic Chamber of Commerce Bldg; ST-2/A, Block 9, Clifton, P. O. Box No. 13841, Karachi-75600 Email : [email protected] Website: http://www.hubpower.com LEGAL ADVISORS: Rizvi, Isa, Afridi & Angell, Karachi

Kabraji & Talibuddin, Karachi Linklaters & Alliance, London

AUDITORS: M. Yousuf Adil Saleem & Co. REGISTRAR: Ferguson Associates (Pvt) Limited SLAMABAD OFFICE: Sardar M. Yusuf Khan, Corporate Affairs Advisor House No. 20-G, Street No. 10, Sector F-8/3,

Islamabad

4


REPORT OF THE DIRECTORS FOR THE QUARTER ENDED DECEMBER 31, 2007

The Directors have pleasure in presenting the financial statements (un-audited) for the second quarter ended December 31, 2007. These have been subject to review by our External Auditors and their Review Report is annexed. The principal activities of the Company are to own, operate and maintain an oil-fired power station with a net capacity of 1,200 MW located at the Hub River estuary in Balochistan and also to carry out the business of power generation at other places in Pakistan. During the review period the plant operated at an average load factor of 62% and an average complex availability (ACA) of 78%. The first planned major overhaul of Unit No. 4 commenced on October 7, 2007 and it is expected that this Unit will return to service by the end of February. The plant is operated to the highest international standards and is supplying electricity to WAPDA, our only customer. The Company earned a net profit of Rs. 733 million during the quarter resulting in earnings per share of Rs. 0.63, compared to a net profit of Rs. 526 million and earnings per share of Rs. 0.45 in the corresponding quarter last year. The increase in profit is mainly because of higher electricity generation in the calendar year ending December 2007 resulting in a generation bonus under the Power Purchase Agreement (PPA). The directors would like to draw your attention to the last paragraph of the Auditors’ Review Report relating to note 9.2 to the financial statements. The Company is pursuing opportunities for expansion in the energy sector which will add shareholder value and contribute towards the economic development of the country. (Note No 9.1 of the Accounts refers). In all our activities, we continue to receive support from all our bankers. Hubco continues its Social Action Programme including its health care initiatives and eye clinics. Our TCF School HUBCO/IPGD Campus is providing quality education to the children living near the plant. International Power, our O&M Contractor, participated in all these activities. The Directors have pleasure in declaring an Interim Dividend of Rs. 1.15 per share.

By Order of the Board

Javed Mahmood Chief Executive

February 13, 2008

5

AUDITORS’ REPORT TO THE MEMBERS ON REVIEW OF INTERIM FINANCIAL INFORMATION

Introduction We have reviewed the accompanying balance sheet of The Hub Power Company Limited (“the Company”) as at December 31, 2007 and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof (here-in-after referred to as “interim financial information”), for the six months period then ended. Management is responsible for the preparation and presentation of this interim financial information in accordance with approved accounting standards as applicable in Pakistan. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information as at and for the six months period ended December 31, 2007 is not prepared, in all material respects, in accordance with approved accounting standards as applicable in Pakistan. Without qualifying our review report, we draw attention to the matters described in note 9.2 to the financial statements. The ultimate outcome of this contingency cannot presently be determined and accordingly, no provision for any liability that may result has been made in the financial statements. M. Yousuf Adil Saleem & Co. Chartered Accountants Karachi Dated: February 13, 2008


3 months ended 6 months ended 3 months ended 6 months endedNote Dec. 2007 Dec. 2007 Dec. 2006 Dec. 2006

Turnover 13,595,150 26,786,384 8,001,073 19,726,503

Operating costs 4 (12,335,276) (24,421,774) (7,105,532) (17,743,868)

GROSS PROFIT 1,259,874 2,364,610 895,541 1,982,635

Other income 17,149 31,872 45,767 108,235

General and administration expenses (72,936) (138,004) (61,074) (131,973)

Finance costs (471,381) (918,649) (354,185) (710,610)

Workers' profit participation fund 5 - - - -

PROFIT FOR THE PERIOD 732,706 1,339,829 526,049 1,248,287

Basic and diluted earnings per share (rupees) 0.63 1.16 0.45 1.08

The annexed notes from 1 to 14 form an integral part of these financial statements.

Javed Mahmood Qaiser JavedChief Executive Director

PROFIT AND LOSS ACCOUNT (UNAUDITED)FOR THE SECOND QUARTER ENDED DECEMBER 31, 2007

(Rs. '000s)(Rs. '000s)

6

THE HUB POWER COMPANY LIMITEDBALANCE SHEET (UNAUDITED)

EM AS AT DECEMBER 31, 2007

Dec. 2007 June 2007Note (Rs. '000s) (Rs. '000s)

ASSETS

NON-CURRENT ASSETSFixed Assets

Property, plant and equipment 6 31,731,794 31,856,615 Intangibles 3,277 5,170

Stores and spares 612,870 612,870 Long term deposits and prepayments 4,797 6,020

CURRENT ASSETS

Inventory of fuel oil 2,450,139 2,563,757 Trade debts 7 13,730,044 7,936,783 Advances, prepayments and other receivables 1,409,973 1,269,439 Cash and bank balances 945,261 742,861

18,535,417 12,512,840

TOTAL ASSETS 50,888,155 44,993,515

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVE

Share CapitalAuthorised 12,000,000 12,000,000

Issued, subscribed and paid-up 11,571,544 11,571,544

Revenue Reserve

Unappropriated profit 16,969,101 17,480,719

28,540,645 29,052,263

NON-CURRENT LIABILITIESLong term loans 7,781,629 8,271,160 Deferred liability - Gratuity 9,645 18,411

CURRENT LIABILITIESCurrent maturity of long term loans 979,062 979,062 Short term borrowings 8 8,952,813 2,090,000 Trade and other payables 3,884,587 3,937,899 Interest / mark-up accrued 739,774 644,720

14,556,236 7,651,681

COMMITMENTS AND CONTINGENCIES 9 - -

TOTAL EQUITY AND LIABILITIES 50,888,155 44,993,515

The annexed notes from 1 to 14 form an integral part of these financial statements.Diff -


7

THE HUB POWER COMPANY LIMITEDCASH FLOW STATEMENT (UNAUDITED)

6 months ended 6 months endedDec. 2007 Dec. 2006

(Rs. '000s) (Rs. '000s)

CASH FLOWS FROM OPERATING ACTIVITIES

Profit for the period 1,339,829 1,248,287

Adjustments for:Depreciation 832,594 826,034 Amortisation 1,893 2,743 (Gain) / Loss on disposal of fixed assets (626) 142 Staff gratuity 4,779 6,053 Interest income (20,030) (103,252) Interest / mark-up 890,619 683,712

Operating profit before working capital changes 3,049,058 2,663,719

Working capital changes (6,062,819) 694,044

Cash (used in) / from operations (3,013,761) 3,357,763

Interest received 19,835 101,984 Interest / mark-up paid (795,565) (731,218) Staff gratuity paid (13,545) (10,109)

Net cash (used in) / from operating activities (3,803,036) 2,718,420

CASH FLOWS FROM INVESTING ACTIVITIESFixed capital expenditure - net (708,851) (66,999) Proceeds from disposal of fixed assets 1,704 360 Stores and spares - (15,072) Long term deposits and prepayments 1,223 (1,033)

Net cash used in investing activities (705,924) (82,744)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of long term loans (489,531) (489,531) Dividends paid (1,661,922) (2,134,825) Finance under mark-up arrangement - new project 662,813 -

Net cash used in financing activities (1,488,640) (2,624,356)

Net (decrease) / increase in cash and cash equivalents (5,997,600) 11,320

Cash and cash equivalents at the beginning of the period (1,347,139) 3,363,306

Cash and cash equivalents at the end of the period 11 (7,344,739) 3,374,626 5,384,516




8


(Rs. '000s) (Rs. '000s)

Issued capitalBalance at the beginning of the period 11,571,544 11,571,544

Balance at the end of the period 11,571,544 11,571,544

Unappropriated profit

Balance at the beginning of the period 17,480,719 18,413,661

Profit for the period 1,339,829 1,248,287

Total recognised income and expenses for the period 1,339,829 1,248,287

(1,851,447) (2,140,736)

Balance at the end of the period 16,969,101 17,521,212

Total equity 28,540,645 29,092,756



@ Rs. 1.60 (2005-2006: Rs. 1.85) per share

THE HUB POWER COMPANY LIMITEDSTATEMENT OF CHANGES IN EQUITY (UNAUDITED)


Final dividend for the fiscal year 2006-2007

9

6

1.

2. SIGNIFICANT ACCOUNTING POLICIES

3. BASIS OF PREPARATION

3 months ended 6 months ended 3 months ended 6 months endedDec. 2007 Dec. 2007 Dec. 2006 Dec. 2006

4. OPERATING COSTS

Residual Fuel Oil 11,188,234 22,276,091 6,136,144 15,854,374 Operation & Maintenance - relating to an associated company 440,228 898,959 367,602 770,586 Insurance 83,001 167,234 92,327 184,653 Depreciation 413,137 826,393 410,498 820,683 Amortisation 737 1,543 1,218 2,584 Miscellaneous 209,939 251,554 97,743 110,988

12,335,276 24,421,774 7,105,532 17,743,868

5. WORKERS' PROFIT PARTICIPATION FUND

Provision for Workers' profit participation fund 36,635 66,991 26,302 62,414 Payment of Workers' profit participation fund recoverable from WAPDA (36,635) (66,991) (26,302) (62,414)

- - - -

6. PROPERTY, PLANT AND EQUIPMENTDec. 2007 June 2007

Note (Rs. '000s) (Rs. '000s)

Operating property, plant and equipment 31,021,658 31,832,770 Capital work-in-progress

Plant betterments 22,067 22,800 New project development 688,069 1,045

710,136 23,845 6.1 31,731,794 31,856,615

6.1

(Rs. '000s) (Rs. '000s)

The Company is required to pay 5% of its profit to the workers' profit participation fund (the "Fund"). However, such payment will notaffect the Company’s overall profitability because after payment to the Fund, the Company will bill this to WAPDA as a pass through itemunder the Power Purchase Agreement (PPA).

THE HUB POWER COMPANY LIMITEDNOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)FOR THE SECOND QUARTER ENDED DECEMBER 31, 2007

The Hub Power Company Limited (the "Company") was incorporated in Pakistan on August 1, 1991 as a public limited company under theCompanies Ordinance, 1984 (the "Ordinance"). The shares of the Company are listed on the Karachi, Lahore and Islamabad StockExchanges and its Global Depository Receipts are listed on the Luxembourg Stock Exchange. The principal activities of the Company are toown, operate and maintain an oil-fired power-station with four generating units with an installed net capacity of 1,200 MW in Tehsil Hub,District Lasbella, Balochistan and to carry out the business of power generation, distribution and sale at other places in Pakistan.

The accounting policies and methods of computation followed for the preparation of these financial statements are same as those applied inpreparing the financial statements for the year ended June 30, 2007.

THE COMPANY AND ITS OPERATIONS

These financial statements are unaudited but subject to limited scope review by auditors and are being submitted to the shareholders asrequired under Section 245 of the Companies Ordinance, 1984 and have been prepared in accordance with the requirements of theInternational Accounting Standard 34 "Interim Financial Reporting" as applicable in Pakistan.

Additions to property, plant and equipment during the period were Rs. 708.851 million and disposals therefrom at net book valuewere Rs.1.078 million.

10

Dec. 2007 June 2007Note (Rs. '000s) (Rs. '000s)

7. TRADE DEBTS - Secured

Considered good 7.1 13,730,044 7,936,783

7.1

8. SHORT TERM BORROWINGS - SecuredDec. 2007 June 2007

Note (Rs. '000s) (Rs. '000s)

Finances under mark-up arrangements 8.1 8,290,000 2,090,000 Finance under mark-up arrangement - new project 8.2 662,813 -

8,952,813 2,090,000

8.1

8.2

9. COMMITMENTS AND CONTINGENCIES

9.1

9.2

The facilities for running finance available from various banks amounted to Rs. 10,000 million (June 2007: Rs. 6,000 million) at a

mark-up ranging between -0.10% to +0.25% per annum above one month's KIBOR. The mark-up on the facilities is payable on

monthly/quarterly basis in arrears. The facilities will expire during the period from February 28, 2008 to December 31, 2008. These

facilities are secured by way of charge over the trade debts and stocks of the Company pari passu with the existing charge. Any late

payment by the Company is subject to an additional payment of 2% per annum above the normal mark-up rate.

This includes an overdue amount of Rs. 9,521 million (June 2007: Rs. 4,437 million) from WAPDA. The trade debts are secured by aletter of credit from WAPDA and a guarantee from the Government of Pakistan under the Implementation Agreement.

In connection with the development of the new project, the facility for running finance available from a bank amounted to Rs. 720million (June 2007: Rs. Nil) at a mark-up of one month KIBOR plus 0.25% per annum. The mark-up is payable on quarterly basis inarrears. The facility will expire on May 31, 2008. The facility is secured by way of charge over the trade debts and stocks of theCompany pari passu with the existing charge. Any late payment by the Company is subject to an additional payment of 2% perannum above the normal mark-up rate.

In connection with the development of the new project, to reserve the manufacture of power plant equipment and achieve a

commercial operation date of March 31, 2010, the Company has entered into a Reservation Agreement (RA) under which it is

committed to execute contracts for supply, installation and commissioning of a new power plant. Under the RA, an amount of Rs.

663 million has been paid which will be applied towards the contracts once these are executed.

(i) The Deputy Commissioner of Income Tax (DCIT) made assessments (under section 52/86 of the Income Tax Ordinance, 1979[ITO,79]) amounting to Rs. 1,896 million stating that the Company did not withhold tax at the time of issue of shares to sponsorsagainst project development costs incurred by them. The Company deposited tax amounting to Rs. 297 million against the aboveassessments in accordance with the departmental procedures. Appeals filed by the Company before the Commissioner of Income Tax(Appeals) [the "CIT(A)"] and thereafter with the Income Tax Appellate Tribunal (the "ITAT") were decided against the Company.Against the decision of the ITAT the Company filed appeals before the Lahore High Court (the "LHC") which are pendingadjudication. The LHC granted a stay of demand for the outstanding tax liability which according to the provisions of section 136 ofthe ITO,79 expired on August 2, 1999. However, the LHC directed the DCIT not to institute recovery measures without itspermission.

11

10. TRANSACTIONS WITH RELATED PARTIES / ASSOCIATED UNDERTAKINGS


Note (Rs. '000s) (Rs. '000s)

Amounts paid for services rendered 10.1 1,039,304 832,332

Reimbursement of expenses and others 870 1,345

Mark-up on short term borrowings 42,512 -

Remuneration to key management personnelSalaries, benefits and other allowances 23,471 12,572 Retirement benefits 1,580 1,465 Termination benefits - 14,726

10.2 25,051 28,763

Fees 10.3 750 1,807

Contribution to staff retirement benefit plans 7,813 8,578

10.1

10.2

10.3

10.4

These include transactions with principal shareholders of the Company under various service agreements.

Transactions with key management personnel are carried out under the terms of their employment. Key management personnel arealso provided with the use of Company maintained automobiles.

Pending the resolution of the matters stated above, no provision has been made in the financial statements.

(ii) On the unpaid tax demands referred in (i) above, further assessment orders were issued for Rs. 50 million (Rs. 29 million being

additional tax and Rs. 21 million being penalty). Against these orders, the Company filed appeals before the CIT(A), who has deleted

the amount of additional tax levied of Rs. 29 million and reduced the penalty of Rs. 21 million by Rs. 6 million. Against the decision

of the CIT(A), the Company and Income Tax Department filed further appeals before the ITAT which had upheld the decision of the

CIT(A). Against this, the Company moved reference application to the ITAT to refer the issue to the LHC, which stands rejected by

the ITAT. The management and their tax advisors are of the opinion that if the LHC decides the appeals against assessments made

under section 52/86 of the ITO,79 in favour of the Company, the penalty would also be deleted.

The transactions with associated companies are made under normal commercial terms and conditions.

This represents fee to three independent directors.

The management and their tax and legal advisors are of the opinion that the position of the Company is sound on technical basis andeventual outcome will be in favour of the Company.

Without prejudice to the appeals before the LHC, the Company filed an application for the resolution of the matter under the

Alternate Dispute Resolution (ADR) provided under section 134A of the Income Tax Ordinance, 2001 with the Central Board of

Revenue (CBR). The Alternate Dispute Resolution Committee (ADRC) made certain recommendations to the CBR which required

the Company to pay a total of Rs. 380 million (including Rs. 297 million already paid). However, the Company informed the CBR

that the recommendation of the ADRC was not maintainable under the law because ADRC had gone beyond their mandate. The

CBR, after reviewing the recommendations of the ADRC and the Company, decided not to agree with the recommendation of the

ADRC and let the dispute be decided by the LHC before which the appeal is pending.

12

11. CASH AND CASH EQUIVALENTS6 months ended 6 months ended

Dec. 2007 Dec. 2006 (Rs. '000s) (Rs. '000s)

Cash and bank balances 945,261 3,374,626 Finances under mark-up arrangements (8,290,000) -

(7,344,739) 3,374,626

12. DIVIDEND

13. DATE OF AUTHORISATION

These financial statements were authorised for issue by the Board of Directors on February 13, 2008.

14. GENERAL

Figures have been rounded off to the nearest thousand rupees.


The Board of Directors declared an interim dividend for six months ended December 31, 2007 of Rs. 1.15 per share, amounting to Rs.1,330.728 million, at their meeting held on February 13, 2008.

13

growth through energy - hub power company6.1 31,731,794 31,856,615 6.1 (rs. '000s) (rs....

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