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RISK FACTORS
Risks and uncertainties can affect the Group’s business,
financial condition, operating results or growth prospects
leading to a divergence from expected or historical results.
Key risk factors affecting the Group are outlined below.
In dealing with these, the Group remains in touch with its
stakeholders with the aim of understanding and addressing
their concerns.
These factors are not exhaustive or comprehensive, and
there may be other risks in addition to those shown below
which are not known to the Group or which may not be
material now but could become material in the future.
GLOBAL AND HONG KONG ECONOMIC
ENVIRONMENT
Global economic growth remains slow with subdued
demand in major economies. The outcomes of the UK
referendum and the US presidential election heightened
uncertainties in the world economy and global financial
market. Growth in the Hong Kong economy remains modest
with weak exports, slow retail sales and declines in visitor
arrivals.
The prevailing global uncertainty may materially and
adversely affect the business of customers or potential
customers, or cause a slowdown in economic activities in
Hong Kong, which, in turn, may lead to a lower demand
for electricity and related services in Hong Kong. This may
adversely affect the Group’s financial position, potential
income, asset value and liabilities.
To address uncertainty in the global and Hong Kong
economies, the Group pursues prudent and pragmatic
strategies in financial management and capital investment.
The Group also strives for efficiency and cost effectiveness
in all aspects of its operations to enhance its financial
performance.
INTEREST RATES AND CURRENCY MARKETS
The Group is exposed to interest rate risk on its interest-
bearing assets and liabilities. The US Federal Reserve (“FED”)
raised interest rate in its December 2016 FOMC meeting,
presented a more hawkish view than anticipated and
projected to have three hikes in 2017 although the new US
presidency might create uncertainty on the deliberation of
the targeted increases. The Group is exposed to currency
risk that mainly arises from the import of fuel and capital
equipment, and from its debt issuances in capital markets.
The Group’s treasury policy guides the measures it
undertakes to manage these exposures. Details of the
Group’s current practices to manage interest rate and
currency risks are in the Financial Review on pages 55 to 57.
ELECTRICITY MARKET
The operations of the Group’s electricity business in Hong
Kong are subject to a Scheme of Control Agreement
(“SCA”) with the Government, which provides for a
permitted level of earnings based principally on average net
fixed assets for electricity-related operations.
The current SCA was renewed in 2008 for a term of ten
years commencing 1 January 2009 with an option for the
Government to extend it for a further term of five years.
The implementation of the 2014-2018 Development Plan
under the SCA, the structure and regulation of the power
industry in Hong Kong upon the expiry of the current SCA,
and the Government’s policies on air quality, climate change
mitigation, fuel mix and electricity market competition
for the medium to long term are all factors affecting the
Group’s results and growth.
The Group has established a mechanism to review these
factors on a regular basis and continuously engages in
discussions with the Environment Bureau as well as various
stakeholders on electricity market and regulatory issues.
HEALTH AND SAFETY
The nature of the Group’s operations exposes it to a range
of health and safety risks.
Major health and safety incidents resulting in fatalities or
injuries to members of the public or employees could have
significant consequences. These may include widespread
distress and harm or significant disruption to the Group’s
operations, and could result in regulatory action, legal
liability, material costs and damage to the Group’s
reputation.
The Group has in place a Health and Safety Management
System to manage its exposure and protect its employees,
customers, contractors and the public by conducting
its business in a safe and socially responsible manner.
Improvements are continually made to strengthen the
organisation’s culture and commitment to health and safety.
RELIABILITY OF SUPPLY
The Group can be exposed to risks in relation to supply
interruptions. A severe earthquake, storm, flood, landslide,
fire, sabotage, terrorist attack, failure of critical information
and control systems that support the power system, extreme
weather phenomena due to climate change or any other
unplanned event could lead to a prolonged and extensive
power outage.
2016 ANNUAL REPORT
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