Power Assets Holdings Limited M MA DO INL G AN KIN D D C E HI IT NA UN H O L N A G G U K T O R N O G P POWERING GROWTH & N E D T H N E DIVERSITY A R L I L A A N H D T S Annual Report 2015 A CA LI N A A TR DA S AU NEW ZEALAND Annual Report 2015 A STRATEGIC M MA DO INL G AN KIN D D C E HI IT NA UN H O L N A G G GLOBAL U K T O R N O G P POWERING GROWTH & N E D T H N E DIVERSITY A R L I L A A INVESTOR IN N H D T S Annual Report 2015 A CA LI N A A TR DA S THE ENERGY AU SECTOR NEW ZEALAND Power Assets is a global investor in power and utility-related businesses, with interests in the generation of thermal and renewable power, the transmission of electricity as well as the POWERING distribution of electricity and gas. GROWTH & From our origins in Hong Kong over a century ago, our operations today span global markets DIVERSITY including the United Kingdom, Australia, New The image on the cover of our 2015 Zealand, mainland China, the Netherlands, annual report is a stylised combination of Canada, Thailand and Portugal. In 2015, with two familiar graphics – a power button the acquisition of a wind energy developer in and globe. It has been chosen to depict the two facets of the Power Assets Group Portugal, we have signifi cantly expanded our that make us unique – our specialisation presence in the renewable energy sector. in the power sector, and our global presence. Power Assets’ investments comprise primarily of acquisitions, supplemented by green-fi eld The colourful and diverse photographs development activities. We follow an active yet that border the circle represent our prudent strategy for sustainable growth over activities in each country we are present in. They have been selected to showcase the long term by concentrating on companies the breadth of our operations. operating in well-regulated and mature markets that are able to deliver predictable and reliable income streams. Power Assets is listed on The Stock Exchange of Hong Kong and is one of the constituent shares of the Hang Seng Index and Hang Seng Corporate Sustainability Index, as well as one of only nine Hong Kong companies included in the Dow Jones Sustainability Asia Pacifi c Index. CONTENTS 2 Performance Highlights 3 Long-term Development Strategy 4 Chairman’s Statement 6 Year at a Glance 8 CEO’s Report 10 United Kingdom 14 Hong Kong 16 Australia 18 Mainland China, Thailand 20 Netherlands, New Zealand, Portugal, Canada 22 Environmental, Social and Governance Report 30 Board of Directors and Senior Management 34 Corporate Governance Report 53 Risk Management 54 Risk Factors 56 Financial Review 59 Report of the Directors 61 Independent Auditor’s Report 62 Consolidated Statement of Profi t or Loss 63 Consolidated Statement of Comprehensive Income 64 Consolidated Statement of Financial Position 65 Consolidated Statement of Changes in Equity 66 Consolidated Cash Flow Statement 67 Notes to the Financial Statements 123 Five-Year Group Profi t Summary and Group Statement of Financial Position 124 Corporate Information Financial Calendar and Share Information PERFORMANCE HIGHLIGHTS 2015 2014 Financials HK$ million HK$ million Change Profi t attributable to shareholders 7,732 61,005 -87% Partial sale of HK Electric Investments/ HK Electric Spin-off (532) 52,928 Investment in HK Electric Investments/ HK Electric 1,364 1,780 -23% Investments outside Hong Kong 6,408 6,408 – Others 492 (111) N/A Profi t excluding partial sale of HK Electric Investments/HK Electric Spin-off 8,264 8,077 +2% Earnings per share $3.62 $28.58 -87% Dividends per share $2.70 $2.68 +1% 2015 Profi t Contribution by Reportable Business Segment Power Assets Operations 4% 4% 18%* Number of Customers 11% Generation Capacity 17,322,000 11,366MW Power Network Gas Pipeline Length Length 380,800km 95,500km 63% United Kingdom Hong Kong Australia * Excluded partial sale of Mainland China HK Electric Investments Others 2 POWER ASSETS HOLDINGS LIMITED LONG-TERM DEVELOPMENT STRATEGY Over a century of operations, Power Assets has grown from a Hong Kong electricity supplier to a global player with investments in energy generation, transmission and distribution across four continents, serving millions of customers with power and heating. Underpinning our growth and future development are three key principles. The Group aspires to deliver long-term earnings growth through investing in a portfolio of carefully selected global companies. Supported by our loyal base of Grow committed shareholders who share this ethos, Power Assets pursues this goal by addressing itself to sectors shareholder where it has a natural expertise, within stable, well- value in fi elds of structured international markets: namely, renewables, expertise electricity, and gas infrastructure businesses. We target enterprises that yield steady revenues under government regulation, or in generation assets whose income is safeguarded by long-term power purchase agreements. Power Assets’ approach to expanding its portfolio is active but disciplined. First we identify and rigorously evaluate suitable opportunities that operate in stable, well-regulated Pursue energy markets around the world to deliver progress global with minimal impact on investor risk. Our due diligence diversifi cation process ensures that the technologies, sources of fuel and while minimising customer base of potential investments are proven and risks sustainable. The Group is active in Europe, North America, Asia and Australia to minimise exposure to the economic cycles of any one single market. Maintain Power Assets believes that a strong balance sheet is a strong balance the foundation of sustainable growth. Our A- credit rating and strong cash position give us suffi cient sheet as a fi nancial power to be agile while pursuing appropriate foundation for opportunities. agility ANNUAL REPORT 2015 3 CHAIRMAN’S STATEMENT launched a public consultation during the year in order to set the regulatory environment after 2018. In Australia as well as New Zealand, our regulated electricity and gas distribution networks participated in the regulatory reset process. Results and dividends The Group’s 2015 audited profi ts attributable to shareholders amounted to HK$7,732 million including a loss of HK$532 million from a partial disposal of HKEI in June 2015 (2014: HK$61,005 million, including a one-time gain of HK$52,928 million from the spin-off of the Hong Kong electricity business in January 2014). Earnings per share was HK$3.62 (2014: HK$28.58). The Directors will recommend a fi nal dividend of HK$2.02 per share, payable on 27 May 2016 to those persons registered as shareholders on 18 May 2016. This, together with the interim dividend of HK$0.68 per share takes the Prudent investment to deliver total dividend for the year to HK$2.70 per share (2014: sustained growth HK$2.68 per share). I am pleased to report that stability in both revenues and Entering the wind energy business profi tability was maintained for the Power Assets Group in 2015. in Europe The acquisition of a 50% stake in Portuguese wind energy We remained selective in our approach to new developer Iberwind for a consideration of EUR144 million opportunities. With fi nancial discipline playing a central was an important milestone for the Group during the year. part in our strategy, we continued to focus on well- Following the completion of the transaction in November regulated and mature markets that can deliver predictable 2015, the Power Assets Group and our joint venture and reliable income streams. To achieve organic growth, partner Cheung Kong Infrastructure Holdings Limited each we developed and strengthened our operations in existing hold a 50% stake in the company. markets, notably through network expansion in Australia. Operating 31 wind farms with a total capacity of 684 MW, A key achievement during the year was our acquisition Iberwind is considered a pioneer in the production of of Iberwind, a major wind energy developer in Portugal. renewable energy, whose output offset over 1 million tons The investment is especially signifi cant as Iberwind will of carbon dioxide emissions in 2015. As such it will form serve as a key component of our wind energy portfolio, an important part of our renewable energy portfolio. The alongside the wind farms in Dali and Laoting in mainland output of Iberwind’s wind farms is governed by a regulated China. Following this transaction our presence spans North tariff for the next 13 years, aligning with the Group’s America, Europe, Asia, Australia and New Zealand, with preference for stable, long term income streams. nine power generation companies and eight transmission/ distribution companies across the electricity and gas sectors. Progress across the portfolio The operating results of all Group companies were in In June we disposed of a 16.53% stake in HK Electric line with expectations for the year. The solid and stable Investments and HK Electric Investments Limited performance enabled us to deliver on our promise of (collectively known as "HKEI") to an investment holding sustained shareholder returns. company wholly-owned by Qatar Investment Authority, for an aggregate consideration of over HK$7.681 billion. In the UK, results were satisfactory amidst an economic Notwithstanding the disposal, we remain HKEI’s single recovery that was slower than expected. Interest rates, GDP and largest shareholder with a 33.37% stake. infl ation remained low. The focus of the four Group companies in the UK was on delivering performance enhancement The regulatory environment for the global energy sector is through innovation, improved effi ciencies, and excellence in constantly evolving.