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Lower Container Throughput Hits Hutchison Port Trust’s Earnings

Wednesday, 25 July 2018 | 00:00

Revenue and other income for the quarter was HK$2,789.3 million, HK$105.0 million or 3.6% below last year. Combined container throughput of HIT(a), COSCO-HIT(b) and ACT(c) (collectively “HPHT Kwai Tsing”) decreased by 7.2% as compared to the same quarter in 2017, primarily due to the decline in transshipment cargoes. The container throughput of YICT(d) decreased by 4.1% as compared to the same quarter in 2017, primarily driven by the drop in empty cargoes but partially offset by increase in the US and transshipment cargoes. Average revenue per TEU for Hong Kong was above last year, mainly attributed to write-back of agency fee provision following the finalisation of tariff negotiation. For China, the average revenue per TEU was above last year, primarily attributed to RMB appreciation but was partially offset by certain revisions to tariffs following the M&A of some liners in 2nd half of 2017 and increased transshipment mix.

Cost of services rendered was HK$1,006.4 million, HK$6.2 million or 0.6% above last year. The increase was attributed to general cost inflations, including the increase in external contractors' costs, fuel price and RMB appreciation, but partially offset by lower throughput handled and saving arising from cost saving initiatives. Staff costs were HK$72.9 million, HK$0.6 million or 0.8% above last year. Depreciation and amortisation was HK$767.3 million, HK$31.6 million or 4.3% above last year mainly due to West Port Phase II being put into full operation in January 2018. Other operating income was HK$50.1 million, HK$45.6 million or 1,013.3% above last year. The increase was largely due to YICT's receipt of an award in 2018 and government subsidies largely for its railway business deferred from 2017.

Other operating expenses were HK$156.1 million, HK$20.4 million or 15.0% above last year. The increase was primarily due to the exchange loss arising on revaluation of YICT's net-Renminbi denominated monetary assets.

As a result, total operating profit was HK$836.7 million, HK$118.2 million or 12.4% below last year.

Interest and other finance costs were HK$252.0 million, HK$42.2 million or 20.1% above last year, primarily due to higher HIBOR/ LIBOR applied on the bank loans' interest rates.

Share of profits less losses after tax of associated companies was a loss of HK$22.4 million, HK$2.5 million or 10.0% better than last year, mainly due to improved performance of HICT attributed to higher gross profit, but partially offset by higher depreciation and interest expenses as it became fully operational after its completion of construction in October 2017.

Share of profits less losses after tax of joint ventures was HK$12.4 million, HK$9.4 million or 43.1% below last year mainly due to weaker combined results of COSCO-HIT and ACT resulting from lower throughput handled.

Taxation was HK$101.8 million, HK$78.5 million or 43.5% below last year, mainly due to lower profit and timing difference on tax savings from YICT Phase III as it qualified as “High and New Technology Enterprise” in December 2017 which allows a preferential corporate income tax rate for 3 years with effect from 1 January 2017. Moreover, YICT's West Port Phase II berth #5 and #6 were put into operation in January 2018 and started enjoying preferential corporate income tax treatment.

Overall profit for the quarter was HK$472.9 million, HK$88.8 million or 15.8% below last year. Profit attributable to unitholders of HPH Trust was HK$170.0 million, HK$99.1 million or 36.8% below last year.

Consolidated income statement (01/01/2018-30/06/2018 vs 01/01/2017-30/06/2017)
Revenue and other income for the period was HK$5,456.6 million, HK$15.7 million or 0.3% below last year. Combined container throughput of HPHT Kwai Tsing decreased by 3.3% as compared to the same period in 2017, primarily due to lower transshipment cargoes. The container throughput of YICT increased by 1.8% as compared to the same period in 2017, primarily driven by the growth in the US and transshipment cargoes, but was partially offset by decrease in empty cargoes. Average revenue per TEU for Hong Kong was below last year, mainly attributed to certain revisions to tariffs following the M&A of some liners in 2nd half of 2017. Average revenue per TEU for China was comparable to last year, mainly due to RMB appreciation which fully offsets certain revisions made to tariffs following the M&A of some liners in 2nd half of 2017 and the increased transshipment mix.

Cost of services rendered was HK$1,998.6 million, HK$79.9 million or 4.2% above last year. This was attributed to general cost inflations, including the increase in external contractors' costs, fuel price and RMB appreciation but partially offset by savings arising from cost saving initiatives. Staff costs were HK$150.0 million, HK$2.7 million or 1.8% above last year. Depreciation and amortisation was HK$1,543.6 million, HK$72.0 million or 4.9% above last year mainly due to West Port Phase II being put into full operation in January 2018. Other operating income was HK$104.0 million, HK$97.0 million or 1,385.7% above last year. The increase was largely due to receipt of dividends from River Ports Economic Benefits deferred from 2017, exchange gain arising on revaluation of YICT's net-Renminbi denominated monetary assets and YICT's receipt of an award in 2018 and government subsidies for its railway business deferred from 2017.

Other operating expenses were HK$268.8 million, HK$9.0 million or 3.2% below last year mainly due to savings in HIT's rent and rates from lower 2017/2018 rateable value and the receipt of government's rent and rates refund.

As a result, total operating profit was HK$1,599.6 million, HK$64.3 million or 3.9% below last year.

Interest and other finance costs were HK$481.0 million, HK$77.1 million or 19.1% above last year, primarily due to higher HIBOR/ LIBOR applied on the bank loans' interest rates.

Share of profits less losses after tax of associated companies was a loss of HK$56.3 million, more than last year by HK$2.2 million or 4.1%, primarily due to higher depreciation and interest expenses of HICT as it became fully operational after its completion of construction in October 2017 but partially offset by higher gross profit.

Share of profits less losses after tax of joint ventures was HK$20.9 million, HK$17.9 million or 46.1% lower than last year mainly due to weaker combined results of COSCO-HIT and ACT resulting from lower throughput handled.

Taxation was HK$189.0 million, HK$118.1 million or 38.5% below last year, primarily due to lower profit and timing difference on tax savings from YICT Phase III as it qualified as “High and New Technology Enterprise” in December 2017 which allows a preferential corporate income tax rate for 3 years with effect from 1 January 2017. Moreover, YICT's West Port Phase II berth #5 and #6 were put into operation in January 2018 and started enjoying preferential corporate income tax treatment.

Overall, profit was HK$894.2 million, HK$43.4 million or 4.6% below last year. Profit attributable to unitholders of HPH Trust was HK$315.4 million, HK$120.6 million or 27.7% below last year.

Material changes in statement of financial position and statement of cash flows

10. Where a forecast, or a prospect statement, has been previously disclosed to unitholders, any variance between it and the actual results.

No forecast statement for the financial year 2018 has been disclosed.

11. Commentary on the significant trends of the competitive conditions of the industry in which the Group operates and any known factors or events that may affect the Group in the next reporting quarter and the next 12 months.

The prospects for global trade for 2018 face an almost unprecedented level of uncertainty, particularly in consequence of increasing trade tensions and disputes between the United States and both China and the European Union.

The level of uncertainty in political and economic relations as it pertains to trade has increased significantly over the course of the year to date and shows little sign of abating. The impact of measures which may arise out of the trade disputes, especially those between the United States and China, on the performance of HPH Trust for the remainder of the year cannot readily be quantified given the level of uncertainty that currently prevails as to both the specific nature; extent; and timing of such measures and the consequent precise impact they may have on local and global trade flows and, as such, HPH Trust's business.

From an industrial standpoint, and as noted before, consolidation of ownership within the shipping industry continues and with it the deployment of mega vessels intended to promote fleet and capacity optimisation and drive cost efficiencies. A further significant industry trend will be increasing emphasis placed on security in the light of cyber attacks and threats of cyber attacks on companies generally.

Against this background, the Trustee-Manager remains both vigilant and cautious about expected cargo volume for 2018, particularly in the light of the trade and geopolitical tensions referred to above and will continue to adhere to strict financial discipline.

That said, HPH Trust has continued to position its business to support and complement the changing structural requirements of the container shipping industry through its exemplary mega vessel handling capabilities at YICT, its ongoing investment in state-of-the-art equipment and facilities and its possession of a strategic transshipment hub in Hong Kong.

Full Report

Source: Hutchison Port Holdings Trust

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