Sunday, July 7, 2019
 
Columnist
Martin Hennecke

Impairment will push CLP into the red
 
21/06/2019
 
<p>CLP (0002) warned that it expects to record a loss for the first half, due to a reduction - likely in the range of HK$6 billion to HK$7 billion - in the goodwill attributable to its Ene rgyAustralia Retail business.</p><p>The impairment is a non-cash item and does not have an immediate impact on the group&#39;s cash flows and operations, CLP stressed. However, it will result in a significant decrease in its first-half earnings.</p><p>The group&#39;s interim net profit was about HK$7.44 billion in 2018, and its interim financial report this year will be announced in early August.</p><p>The impairment might bring some pressure on CLP&#39;s full-year performance, while it is not expected to affect the interim dividend declaration, as it is a non-cash item, said Tengard Fund Management investment manager Patrick Shum Hing-hung.</p><p>The goodwill impairment was because both the Australian Federal and Victoria State governments have finalized models for the proposed default offers which will be implemented from July 1 this year. These changes mandate lower regulated &quot;safety net&quot; retail tariffs for the markets.</p><p>In parallel, EnergyAustralia is promoting new simple, lower cost energy plans to existing customers. It is expected that these changes will result in its second half earnings before tax from the Retail segment falling in the order of HK$240 million to HK$300 million. This reduction will likely sustain into the future, CLP said.</p><p>Meanwhile, CLP said that the operating performance of EnergyAustralia has continued to be affected so far by lower electricity production due to coal supply issues affecting Mount Piper Power Station and maintenance requirements at the Yallourn Power Station.</p><p>In addition, prices for forward energy contracts have increased in the first half.</p><p>While this should benefit the business in the medium term, it has resulted in a significant non-cash negative change of the fair value of some energy derivatives used for economic hedges in CLP&#39;s portfolio.</p><p>The operating earnings from EnergyAustralia for the first five months of 2019 (before any impairment of goodwill) were HK$731 million, CLP said.</p>

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