Chairman’s Statement The Year’s Results Profit after taxation attributable Town Gas Business to shareholders of the Group in Hong Kong The Group’s town gas business in for the year increased by 0.53 Hong Kong maintained stable The local economy grew slower per cent to HK$7,341 million, growth in 2016. Global economic in 2016 compared to 2015 amid an increase of HK$39 million fluctuations, slowdown in a challenging global economy. compared to 2015. Earnings economic growth in mainland During the year, tourism was hit per share for the year amounted China, further devaluation of the by a strong Hong Kong dollar to HK57.7 cents. renminbi and low international oil causing a decrease in the total prices during the year, however, During the year under review, the number of inbound visitors for the impacted the Group’s utility and Group invested HK$6,257 million second consecutive year and thus emerging environmentally-friendly in production facilities, pipelines, negatively impacting the food energy businesses on the plants and other fixed assets and beverage gas sales market. mainland. Nevertheless, the for the sustainable development Conversely, as the average Group endeavoured to maintain of its various existing and new temperature in Hong Kong in 2016 stability in its overall recurrent businesses in Hong Kong and was lower than in 2015, residential business results for 2016. mainland China. gas sales increased. Compared to 8 2015, total volume of gas sales in The Group’s development of Utility Businesses Hong Kong for 2016 increased emerging environmentally-friendly in Mainland China by 1.4 per cent to 28,814 million energy businesses in mainland The Group’s city-gas businesses MJ while appliance sales revenue China, including coalbed methane are progressing well. As at the end increased by 24.9 per cent to liquefaction, coal chemicals, of 2016, inclusive of Towngas HK$1,634 million with a total conversion and utilisation of China, the Group had a total of of 275,361 sets sold, mainly biomass, natural gas refilling 131 city-gas projects in mainland benefiting from newly completed stations, etc., through its cities spread across 23 provinces, residential projects. wholly-owned subsidiary ECO autonomous regions and Environmental Investments Limited As at the end of 2016, the number municipalities. The total volume of and the latter’s subsidiaries of customers was 1,859,414, an gas sales for these projects in 2016 (collectively known as “ECO”), is increase of 20,153 compared to was approximately 17,140 million progressing steadily. During 2016, 2015, slightly up by 1.1 per cent. cubic metres, an increase of international oil prices continued 10.3 per cent over 2015. As at the to fluctuate, falling at one time end of 2016, the Group’s mainland Business Development early in the year, to a 2003 low, gas customers stood at approximately in Mainland China leading to a drastic drop in prices 23.1 million, an increase of of energy products which The Group’s mainland businesses 11 per cent over 2015. The Group significantly affected ECO’s profits. continued to progress steadily continues to have a good Nevertheless, ECO’s self- during 2016. Overall, inclusive of reputation as a large-scale city-gas developed innovative technologies projects of the Group’s subsidiary, enterprise with outstanding progressed well in 2016. Gradual Towngas China Company Limited performance on the mainland. commercial application of ECO’s (“Towngas China”; stock code: new technologies is expected to 1083.HK), the Group had Due to uncertainties over the contribute to long-term business 241 projects on the mainland, policy direction of a number of growth of the Group. Additionally, as at the end of 2016, 19 more major global economies resulting international oil prices have than at the end of 2015, spread in poor growth momentum, become more stable since the end across 26 provinces, autonomous demand for commodities of 2016, and this will also help the regions and municipalities. These worldwide remained weak during Group’s income growth. projects encompass upstream, 2016, and, as a result, growth in the mainland economy slowed midstream and downstream Diversification and an increase in compared to 2015. Exports from natural gas sectors, water sectors, the number of projects have mainland China have now declined efficient energy applications and gradually transformed the Group for two consecutive years. Cutting exploration and utilisation of from a locally-based company in excessive capacity, destocking and emerging environmentally- Hong Kong centred on a single deleveraging have also reduced friendly energy, as well as town gas business into a sizable, industrial production. Thus, telecommunications. nation-wide, multi-business demand for energy across the corporation focused on country, including electricity, environmentally-friendly energy petroleum and natural gas, ventures and utility sectors. The Hong Kong and China Gas Company Limited ANNUAL REPORT 2016 9 CHAIRMAN’S STATEMENT recorded only slight growth in and Myanmar, together with a province, is in progress. Upon 2016. Furthermore, given low scheduled supply of piped natural completion, this facility will be international oil prices, prices for gas from Russia, as well as a rise in the first of its kind developed by other petroleum fuels also the sources of imported liquefied a city-gas enterprise on the declined. Nevertheless, in the natural gas (“LNG”), supply of mainland. Total storage capacity medium to long term, as natural natural gas on the mainland is will be approximately 460 million gas is still projected to be the becoming ample, which is standard cubic metres. clean energy of choice to best beneficial to market development. Completion of phase one of this reduce air pollution and improve With a number of mainland cities project, with a storage capacity of smoggy atmospheric conditions gradually advocating the use of 150 million standard cubic metres, on the mainland, long-term and natural gas to replace coal, natural is expected during the second steady growth in demand is still gas as a fuel for household quarter of 2017. This facility, which anticipated. The Chinese heating in winter is steadily will help the Group supplement government has also formulated growing. Thus, with increasing and regulate gas supplies during a natural gas utilisation policy to sources of gas supply, expanding the peak winter period for several strengthen preventative measures pipeline networks, rising living of its city-gas projects in eastern to combat air pollution and to standards and society’s aspiration China, is in line with the Chinese minimise the formation of smog, for greater environmental government’s policy of indicating an energy development protection, the Group anticipates advocating faster development trend inclining towards natural its mainland city-gas businesses of gas storage capacity, and will gas and environmentally-friendly will continue to thrive in future. support the Group’s business energy. The competitiveness of development in downstream Anhui Province Natural Gas natural gas relative to other city-gas markets. Development Co. Ltd., an energy sources was also enhanced associated company of the Group, The Group’s development of following reductions in the was listed on the Shanghai Stock natural gas vehicular refilling mainland’s non-residential natural Exchange on 10th January 2017. stations in mainland China, under gas city-gate prices at the end As a large-scale integrated the brand name “Towngas”, is of 2015. This favourable operator, its core business is the progressing well with 109 stations momentum will continue to construction and operation of now spread across different benefit the Group’s city-gas and long-haul natural gas pipelines provinces to date. Apart from natural gas businesses. in Anhui province, alongside a this, the Group is also proactively In addition, with gradual downstream distribution business. developing refilling projects for commissioning of large-scale Listing will help speed up the marine vessels and is currently national natural gas projects, company’s construction of natural investing in a joint venture including transmission pipelines gas pipelines and its development project, with six refilling sites, from Sichuan province to eastern of markets in the province. for barges along the Yangtze and southern China and the River in Jiangsu province. This is Construction of the Group’s West-to-East pipeline, and the country’s first, and largest natural gas storage facility in projects for importing piped project in terms of number of underground salt caverns in Jintan natural gas from Central Asia refilling sites, along this river. district, Changzhou city, Jiangsu 10 In September 2013, the joint constructing a plant in Suzhou in 2016, ECO’s aviation fuel facility venture constructed and put into Industrial Park to handle 500 tonnes provided a safe and reliable fuel service the country’s first floating of food waste, green waste supply to Hong Kong International LNG refilling station barge. and landfill leachate daily for Airport and contributed to ECO’s Classified by the government conversion into natural gas, oil steady profit growth. ECO’s LPG as a pilot project, this venture products, solid fuel and fertilizers, vehicular refilling station business represents the start of a new era under the “Hua Yan Water” had a steady operation and for the mainland’s marine industry brand; commissioning is expected satisfactory profit in 2016, in LNG applications. Given that in the third quarter of 2018 and providing a quality and reliable LNG is a form of clean energy will be the Group’s first project fuel supply to the territory’s taxi that is being actively promoted converting waste into high-value and minibus sectors. ECO’s by the Chinese government, products. landfill gas project in the North vehicular and marine refilling East New Territories, after Operation and management station businesses have good operating for several years, of businesses encompassing prospects for the Group.