(Extracted From Annual Report 2018)
The tide of mergers and acquisitions and the restructuring of global alliances within the shipping industry over these past few years have resulted in adjustments to shipping routes and call patterns. Transshipment traffic and volume, particularly in Hong Kong, have been impacted as a result, calling for more extensive measures to restructure the business operations and adapt to the changing landscape. Against this development, HPH Trust remains focused on its efforts to explore new strategies to bolster its revenue streams, while implementing new systems and adopting new technologies to achieve greater operational efficiency and cost savings.
Mixed Throughput Performance Amidst Shipping Industry Consolidation
The consolidation of the shipping industry and related changes in call patterns resulted in lower transshipment volume in Kwai Tsing Terminals. On the other hand, Yantian experienced an increase in US and transshipment cargoes, particularly in the fourth quarter of 2018, driven by the frontloading of cargoes in anticipation of the 25% tariff implementation originally scheduled in January 2019 by the US to Chinese exports. These measures adopted by shippers, combined with the overall US economic growth momentum in 2018, resulted in an increase in the outbound cargoes to US, though this was counterbalanced by the softening of outbound cargoes to Europe.
Consequently, the Trust recorded a 1% decrease in revenue and other income in 2018 to HK$11,482.6 million, from HK$11,551.0 million in 2017, due to a 1.0% reduction in total throughput to 24.0 million TEU in 2018. Combined container throughput at its Kwai Tsing Terminals experienced a 6.6% reduction to 10.6 million TEU, offset by a 3.6% increase in container throughput to 13.2 million TEU at Yantian. Despite the throughput reduction, average revenue per TEU at its Kwai Tsing Terminals was higher than last year mainly due to the write-back of agency fee provision following the finalisation of tariff negotiation. At Yantian, average revenue per TEU was below that of 2017 largely attributed to the increased transshipment mix.
Operational Rationalistion Bringing Efficiency Gains And Cost Benefits
Cost of services increased marginally to HK$4,143.5 million in 2018, compared to HK$4,131.6 million in 2017, due to general cost inflations, including the increase in external contractors’ costs, higher fuel prices and Renminbi appreciation, but were largely offset by savings arising from cost control initiatives and lower throughput. Furthermore, the implementation of remote-controlled RTGC operations at HIT Terminal 9 North also drove some efficiency gains and cost savings in 2018.
Total operating profit decreased mildly by 1% in 2018 to HK$3,551.8 million, compared to HK$3,601.5 million in 2017.
As a result of the volatilities and uncertainties in the global economic climate coupled with structural changes in the shipping line industry and the inevitable challenging trading environment sparked by the continuing trade tensions in China, the Trust recognised one-off noncash impairment losses of HK$12,289.0 million in 2018. Given its noncash nature, the write-down did not affect the cash flows and hence the distributions of the Trust. Nonetheless, this impacted the accounting results recognised by the Trust resulting in a NLAT of HK$10,246.0 million and a NLAT attributable to unitholders of HK$11,551.3 million.
Excluding the impairment impact, NPAT in 2018 was HK$2,043.0 million, a decrease of 8% from the previous year, while NPAT attributable to unitholders was HK$737.7 million, a 22% decline from the previous year, largely reflecting the increase in interest and other finance costs resulting from the higher HIBOR/LIBOR rates.
Managing Headwinds And Navigating Challenges With Prudent Capital Management
During 2018, HPH Trust continued to implement its strategy of reducing its finance costs through its five-year debt repayment plan that commenced in 2017. Total borrowings have decreased from HK$32,699.5 million as at 31 December 2017 to HK$31,689.5 million as at 31 December 2018. During the year, the Trust has drawn down new bank loans totalling US$650 million to redeem US$500 million guaranteed notes due in 2018 and refinanced bank borrowings of US$150 million.
At the end of 2018, the Trust had a total cash balance of HK$6,566.4 million, HK$201.7 million lower than the previous year. Net debt closed at HK$25,123.1 million at the end of 2018, a 3% decrease from the previous year.
With the recommended distributable payout of HK$1,480.9 million for 2018, unitholders will be entitled to a DPU of 17.0 HK cents, which translates to a distribution yield of approximately 8.9%, based on the unit’s closing market price of US$0.245 as at 31 December 2018.
While the container terminal business continues to face the challenges arising from shipping industry consolidation, competitive pressures and geopolitical headwinds, the Trust will ride through these impending risks and volatilities by focusing on operational cost control. Through re-engineering its business structure, implementing new systems for efficiency gains, streamlining work flows for cost savings as well as exercising prudent capital management to strengthen its balance sheet, it is confident of leading its business forward.
Furthermore, with the formation of Hong Kong Seaport Alliance between its Kwai Tsing Terminals and that of Modern Terminals Limited announced in January 2019, the Trust will continue to drive further cost synergies and efficiencies in its operations.