CLP looks to cut Australian capacity as profits drag
Power producer misses targets after excess supply drags on profits
CLP Holdings may temporarily cut or mothball some of its generation capacity in Australia to counter an industry oversupply that dragged down the power producer's first-half profit.
The sole supplier of electricity to Kowloon, the New Territories and Lantau posted a 12.2 per cent year-on-year net profit gain to HK$3.77 billion for the year's first six months. This compares with analysts' estimates of gains of 19 per cent to 24 per cent.
Its Hong Kong business, protected by a guaranteed return regime on asset value, recorded a 5.5 per cent rise in profit to HK$3.42 billion as fixed-asset values rose.
Despite concerns its return rate may be cut after the current regime expires in 2018, chief executive-designate Richard Lancaster said CLP had started talks with the government and would approach the issue with a "constructive mindset".
Calling the firm's results in Australia and India "disappointing", chief executive Andrew Brandler said he did not see a turnaround in Australia in the next six months, while the Indian operation should improve significantly in the second half.
"The whole [Australian power] industry is affected by high retail competition and low wholesale prices," he said. "Shareholders will need to be patient as it will take time to wash [the hiccups] out of the system."
CLP suffered a first-half recurring operating loss in Australia of HK$45 million, compared with a profit of HK$268 million in the year-earlier period.
An 11 per cent fall in power retail sales could not be made up by a 4 per cent rise in gas sales. Residential users have cut usage by 4 per cent after tariffs doubled in the last six years.
Industrial and commercial sales fell 14 per cent as the high Australian dollar made some heavy industries uncompetitive.
On the power generation side, Brandler said wholesale tariffs had fallen "dramatically", adding the industry needed to shut down old and inefficient plants both on a temporary and permanent basis for tariffs to return to sustainable levels.
CLP's Indian operation saw a first-half net loss of HK$212 million, up from HK$19 million in the year-earlier period.
Both its gas-fired plant and coal-fired plant there suffered from low utilisation, due to high gas prices and coal shortages.
CLP said supply of "reasonably priced" gas remained a concern, but utilisation of the coal-fired plant rose to 75 per cent in July from 40 per cent in the first half, and was expected to stay at 75 to 80 per cent before year-end.
Sanford Bernstein senior analyst Michael Parker wrote in a note that CLP faced difficulties in passing on the higher costs of cleaner-burning natural gas in Hong Kong, while the Australian market was "structurally weak."