Citic Pacific returns to profit with HK$2.5b net
Embattled Citic Pacific, hit by massive losses from wrong-way currency bets last year, returned to profitability in the first half and resumed paying a dividend, even though earnings declined 43 per cent year on year.
The steel-to-property conglomerate also finalised its first co-operation agreement with its state-owned parent, Citic Group, which rescued Citic Pacific. The new arrangement would allow the Hong Kong-listed arm to take a 20 per cent stake in new mainland property projects developed by the parent, said new chairman Chang Zhenming.
Mr Chang said the two companies would share knowledge, market information and other resources, and Citic Pacific could also leverage off the vast sales network of the parent's property unit.
The two firms are evaluating several projects, including in Guangzhou, Shenzhen, Dalian, Tianjin and the northeast.
From January to June, Citic Pacific reported a net profit of HK$2.47 billion, down from a restated HK$4.36 billion the same period last year as the global recession hurt demand for its special-steel products. Sales declined 32 per cent to HK$18.1 billion.
The company declared an interim dividend of 15 HK cents a share.
The blue-chip company reported a HK$12.66 billion loss for last year after it booked a HK$14.63 billion loss from Australian currency derivatives trading.
It failed to pay a dividend for the first time since it went public in almost 20 years. The full-year loss was its first in almost two decades and led to the departure in April of then-chairman Larry Yung Chi-kin.
Citic Pacific restructured all of its remaining leveraged foreign exchange contracts this year. Earlier, as part of the bailout, Citic Pacific paid about HK$9.1 billion to Citic Group to compensate its parent for assuming two-thirds of the contracts.
The recent gains of the Australian dollar against the US dollar had been reflected in the company's equity in terms of reserves, according to deputy managing director Peter Lee Chung-hing.
The company's reserves increased about HK$5 billion in the first half. Most came from the rebound of the Australian dollar, after deducting the company's first-half profit, Mr Lee said.
During the period, profit at Citic Pacific's special-steel business, its biggest earnings contributor, fell 72 per cent to HK$524 million from a restated HK$1.84 billion because of weak demand and falling steel prices amid the global downturn.
Mr Chang said prospects for special steel were excellent and the company had agreed to buy the 20 per cent stake in Jiangyin Xingcheng Special Steel held by its management, for 1.5 billion yuan (HK$1.7 billion), in order to take full control of the mill.
He reiterated that special steel, iron ore mining and mainland property development would be the company's future business focus and it would continue to develop and invest in such sectors.
In the first half, earnings contribution from its property business increased 6.6 per cent to HK$483 million. Earnings from iron ore mining amounted to HK$284 million, compared with a loss of HK$14 million.
The company, which earlier this month said it had agreed to sell a 14.5 per cent stake in Cathay Pacific for HK$7.35 billion, would continue its restructuring by selling its non-core assets and direct resources to the core ones.
However, Mr Chang said the firm would retain a 2.98 per cent stake in Cathay and did not have any immediate plan to sell it, adding that it was not in talks to sell its tunnel assets.