(Extracted From Annual Report 2023)
In 2023, businesses raced towards recovery after the pandemic - regaining their financial footing, adapting with agility to new circumstances and resuming more usual operations. However, lingering inflation, high interest rates and geopolitical volatility exacerbated existing challenges.
In this environment, HPH Trust's adaptability and commitment to prudent financial management has enabled it to maintain a robust financial position. The Trust is well-equipped to handle emergin challenges and seize new opportunities in 2024.
Silver Lining As Throughput Contraction Eases
The past year was tough for port operators. Weak consumer spending, high inflation and excess warehouse inventory in destination countries led to weak exports, especially in the first half of the year. During the first six months of 2023, throughput at HPH Trust's ports dropped 15% compared to the same period in 2022, and outbound cargoes to the European and US markets declined by 6% and 18% respectively.
The situation improved in the second half of the year, with YANTIAN's overall performance recovering steadily. In full year 2023, exports to European markets recorded a 6% increase compared to 2022. At the same time, the year-on-year drop in outbound cargoes to the US narrowed to 2%. As a result, over the entire year, throughput at HPH Trust's ports was 21.3 million TEUs, with the drop in throughput narrowing to 6% compared to 2022.
Despite the easing of COVID precautionary measures and cross-border controls, cargo volumes in Hong Kong have not yet substantially recovered from pandemic levels. Even though the Hong Kong government has been actively promoting Hong Kong, economic activity remains subdued especially when compared to other cities in the region. HPH Trust is actively lobbying both Hong Kong government and policymakers as well as the Central government advocating for increased collaboration within the Greater Bay Area and sector-specific support. In the medium term, HPH Trust is exploring initiatives to better integrate its assets between Hong Kong and Yantian to further protect its interests within the region.
Average revenue per TEU for YANTIAN slid below the level recorded in 2022. This was mainly attributable to lower storage income and the depreciation of the Renminbi. Meanwhile, average revenue per TEU at the Kwai Tsing Terminals was below the 2022 level due to lower storage income. Across the year, revenue and other income totalled HK$10,635.5 million - a decrease of 13% compared to the HK$12,166.3 million in 2022.
Mixed Results In A Complex Environment
The cost of services rendered in 2023 was HK$3,624.8 million, a 13% drop from HK$4,174.6 million in 2022, due to lower throughput. The discontinuance of closed loop arrangements at YANTIAN followed the easing of pandemic control measures, efficiencies created by the Hong Kong Seaport Alliance and other cost-control initiatives partially offset general cost inflation.
Staff costs of HK$258.4 million marked a decrease of 3% compared with 2022, primarily due to lower headcount. Depreciation and amortisation totalled HK$2,894.8 million, a 4% drop from the previous year.
Other operating income in 2023 was HK$67.4 million, a 54% drop from HK$146.2 million in 2022. The decrease was mainly due to lower government subsidies received in 2023. Other operating expenses totalled HK$604.8 million. This was a 3% increase against HK$587.3 million in 2022, which was mainly attributable to general cost inflation and loss on disposal of fixed assets.
Total operating profit was HK$3,320.1 million - a decrease of HK$960.8 million or 22% compared to 2022. Profit for the year was HK$1,481.5 million, a decrease of HK$1,038.2 million or 41% compared to 2022. Profit attributable to HPH Trust unitholders was HK$233.5 million, representing a decrease of HK$865.5 million or 79% compared to 2022.
Financial Strategies
Despite the complex global economic environment and the inflationary pressures, HPH Trust has maintained a good financial position. At the end of 2023, HPH Trust had a total cash balance of HK$8.2 billion.
During the year, to further deleverage its balance sheet and confront challenges posed by recent interest rate hikes, HPH Trust continued its debt repayment programme implemented since 2017, to repay a minimum of HK$1 billion of debt annually. Total borrowings decreased by HK$1.4 billion to HK$25.7 billion as at 31 December 2023, down from HK$27.1 billion at the end of 2022. As a result, the net attributable debt of HPH Trust was HK$19.8 billion by year end, a 2% decrease against 2022.
While the US Federal Funds Rate hikes in recent years had a wideranging impact on economies and business worldwide, their impact on HPH Trust was limited as more than 60% of the Trust's debt had a fixed interest rate as at 31 December 2023. During the year, the Trust obtained new loans of approximately HK$4.4 billion and repaid bank loans of approximately HK$5.8 billion.
HPH Trust has recommended a total payout of HK$1,149.9 million for 2023, which results in a distribution per unit of 13.2 HK cents. Based on the US$0.148 market price as at 31 December 2023, the distribution yield stands at 11.4%.
Outlook
The transition from stringent pandemic preventive measures to pre-COVID normalcy has been bumpy. The global supply chain and port industry collectively experienced financial recovery of businesses lagging behind the revival in operations.
To navigate through the next year, HPH Trust will continue to pursue operational excellence that is underpinned by meticulous capital management and robust financial practices. The Trust is endeavouring to unravel complexities in global supply chains by implementing smart technologies, including digitalisation and automation. This is expected to deliver substantial value to stakeholders. With its robust financial foundation and sound management, HPH Trust is set to fully capitalise on emerging opportunities and shape a sustainable future.