Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
POWER ASSETS
HKEx Stock Code : 00006 
 
Corporate Profile
The principal activities are investment in power and utility related businesses outside Hong Kong and generation and supply of electricity to Hong Kong Island and Lamma Island.

Business Review - For the year ended December 31, 2012

Judicious global investments yield positive results

Over a decade ago, Power Assets made a strategic decision to seek growth in segments of expertise within stable, well-structured international markets. We therefore have focussed mainly on electricity and gas distribution, supplemented by a select portfolio of generation businesses. All of our networks yield stable revenues under government regulation, while the income from the majority of our power plants and wind farms is safeguarded by long-term power purchase agreements.

Power Assets Investments Limited, our international investment arm, jointly with our partners, has spearheaded our efforts in identifying and rigorously evaluating suitable opportunities against operational, financial, legal and risk parameters. Once on board, we join the managements of our associates to oversee performance and share best practice. The Group's low gearing ratio and A+ credit rating give us sufficient financial power to be agile while leveraging opportunities.

In 2012 our existing international investments performed well through a combination of increased revenues and operational efficiencies, despite an unfavourable global economic environment.

In the UK, strong fundamentals of our investments in electricity and gas distribution, namely UK Power Networks and Northern Gas Networks yielded satisfactory performance in 2012. UK Power Networks was commended for its faultless delivery of power to the London Olympics. The business won the Utility of the Year and Team of the Year awards for its impressive performance in building and operating the power network for the Olympic Park, without detraction from performance elsewhere. Northern Gas Networks delivered increased throughput and enhanced customer service standards. Seabank Power Limited, our generation business, achieved improved profits through operational efficiencies.

We made our second investment in the UK gas distribution market in October 2012 by acquiring a 30% stake in Wales and West Utilities Ltd, one of the eight major gas distribution networks in the UK.

In Australia, our businesses remained stable despite unfavourable weather conditions and an adverse economic environment. ETSA Utilities rebranded itself as SA Power Networks to reemphasise its identity as a network provider. CitiPower and Powercor were recognised for their commitment to excellent customer service through the receipt of the prestigious ˇ§Best of the Best Service Organisationˇ¨ award.

In September 2012, we forayed into renewable energy transmission in Australia through a new joint venture called Transmission Operations Australia which will construct, own and operate a power transmission link to transport renewable energy to Victoria's power grid.

In mainland China, overall earnings and total units sold declined, mainly because of relatively low demand for the coal-fired units. Our wind farms and coal generation plants focussed on delivering operating efficiencies and preparing to meet new, stricter emission targets scheduled for 2014.
Our operations in Canada, Thailand and New Zealand delivered weaker performances compared with 2011 levels.

Maintain operational and service excellence in Hong Kong

Profit from HK Electric remained stable at HK$4,542 million (2011: HK$4,480 million) for the year. Unit sales of electricity were slightly higher than in 2011.
Our tariff is competitive vis-a-vis other deregulated markets such as New York, Singapore or Sydney. Power costs account for only about 1.8% of household expenditure in Hong Kong, and are more affordable than in many metropolitan cities.

We consider it imperative to maintain high efficiency while complying with all regulatory requirements. We have undertaken regular upgrades, applied state-of-the art predictive and detective maintenance for generation, transmission and distribution equipment and commissioned sophisticated information technology control systems to meet supply reliability standards.

We consumed about 3.2 million tonnes of coal in 2012. The proportion of natural gas in the fuel mix remains at over 30%. We are now evaluating the installation of a new combined cycle gas turbine to take up the base-load generation role of an existing one in order to improve fuel efficiency and emission performance.

Our pioneering efforts to bring renewable energy to Hong Kong on a commercial scale continued. The one-full-year wind measurement at the proposed offshore wind farm at Southwest Lamma was completed in February 2013. The measurement results will be presented in the feasibility study report to be submitted to the HKSAR Government later this year. If approved, the project is scheduled for completion in 2017 when the green energy produced at the wind farm will represent around 1.5% of HK Electric's annual electricity output. It is expected to offset 62,000 tonnes of coal usage and 150,000 tonnes of carbon dioxide emissions annually.

In 2012, we almost doubled the capacity of the solar power system at Lamma Power Station to 934 kW, and maintained satisfactory generation levels at Lamma Winds.

Our efforts on corporate social responsibility and sustainability reporting are recognised at the global level and we are pleased to have been included in the Dow Jones Sustainability Asia Pacific Index and Global 500 Carbon Disclosure Leadership Index.

We will strive to continue to offer the ideal workplace and deploy best practices in recruitment, training, remuneration, communication, and career development. Besides, we continued to contribute to the community through a number of carefully chosen projects.

Business Outlook - For the year ended December 31, 2012

Investors with a long-term perspective will recognise that Power Assets has grown progressively in the last decade despite worldwide economic turmoil and tightening environmental requirements. Key indicators such as earnings and total assets have grown consistently over the past decade, and share performance has been strong. Our active yet prudent investment strategy outside Hong Kong has helped build a balanced portfolio of assets which now provide more than half of the Group's earnings and will continue to expand at a measured pace.

We believe that the volatility in the global economy will persist in 2013, together with periods of instability in the prices of coal and natural gas. The ever-increasing focus on minimising emissions will continue in the next five years, not only in Hong Kong but also in all our markets, which will necessitate continuous capital investment in green technology and processes.

However we remain confident of the continued effectiveness of our long-term strategy. Despite overall uncertainty we remain cautiously optimistic about the long-term stability of key markets, which will in turn ensure income growth and positive returns for the Group.

We will continue to utilise our capital in expanding our portfolio outside Hong Kong through systematic, timely and prudent investment. As ever, our asset choice will be guided by the principles of stable return and a predictable income stream.

In Hong Kong, our priority will be to maintain outstanding supply reliability, enhance operational and environmental performance, continue to excel in customer service while ensuring that tariff remains at an affordable level.

We will continue to control operating costs in our current businesses through stringent monitoring and delivery of efficiencies while meeting all environmental requirements.

As we embark on the interim review of the Scheme of Control Agreement with the HKSAR Government, we will maintain an ongoing and constructive dialogue with our stakeholders with a view to delivering sustainable and optimal performance for our shareholders, our customers and our environment.

Source: Power Assets (00006) Annual Results Announcement
Chairman FOK Kin Ning, Canning Issued Capital (shares) 2,134M
Par Value HKD 1 Market Capitalisation (HKD) 148,651M
 
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