Hong Kong company reporting season

Li Ka-shing’s flagship CK Hutchison posts 4pc interim profit growth

PUBLISHED : Thursday, 03 August, 2017, 5:38pm
UPDATED : Thursday, 03 August, 2017, 10:52pm

CK Hutchison, Hong Kong tycoon Li Ka-shing’s listed flagship, posted a slightly lower than expected 4 percent interim profit growth, driven by the merger of its Italian telecommunications business despite being partially offset by the weaker British pound, the currency that contributes a major portion of its profits.

The Hong Kong-based conglomerate recorded a net profit of HK$15.89 billion, excluding investment disposals and other non-recurring items, for the first six months, up from HK$15.23 billion in the same period last year.

The profit compares to the HK$16 billion estimate by Praveen Choudhary, head of Asian gaming, conglomerates and Hong Kong property research at Morgan Stanley. Another analyst had tipped HK$16.13 billion, according to Reuters.

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When gains and losses from disposals and one-off items are included, net profit grew 7 per cent to HK$15.92 billion.

Earnings before interest and taxes (ebit) increased 2 per cent to HK$30 billion.

“There have been increasing signs in the first half of a modest recovery in business and consumer

confidence in most major economies,” chairman Li Ka-shing said in a filing to Hong Kong’s bourse after the market closed on Thursday. “However, geopolitical risks, renewed uncertainty on commodity prices outlook and market concerns on interest rates and currencies movements, together with the acceleration of technological advancements, continue to pose considerable challenges to the operating environment of the group’s businesses globally.

“I am cautiously optimistic about the group’s future prospects.”

First-half net profit amounted to 46 per cent of the average full-year net profit estimate of HK$34.72 billion by 13 analysts polled by Reuters.

An interim dividend of 78 HK cents was proposed, up from last year’s 73.5 cents.

Excluding the impact of foreign currency conversions, ebit rose 7 per cent.

There have been increasing signs in the first half of a modest recovery in business and consumer confidence in most major economies
Li Ka-shing, CK Hutchison chairman

A 12 per cent depreciation of the British pound, from which it sourced 31 per cent of its earnings before interest, taxes, depreciation and amortisation (ebitda), was the main drag on earnings growth despite being offset by completion of its mobile telecommunications unit in Italy, Choudhary said in a note ahead of the results.

A 3 per cent decline of the euro against the Hong Kong dollar also played a part. Europe excluding Britain contributed 26 per cent of ebitda, the company said.

First-half revenue increased 5 per cent year on year to HK$190 billion.

CK Hutchison’s profit growth was mainly driven by the 21.8 billion (US$25.8 billion) merger last November of its 3 Italia telecommunications operation with that of Amsterdam-based VimpelCom’s Wind Telecomunicazioni.

The deal, which established Italy’s largest mobile network operator by subscribers, helped lift CK Hutchison’s first-half European telecommunications ebit by 39 per cent year on year to HK$7.5 billion.

CK Hutchison and VimpelCom join forces to pursue €7bn in Italian investments

Ebit of non-European telecoms operations dropped 65 per cent to HK$611 million.

Infrastructure was the biggest profit contributor, accounting for 40 per cent of the company’s total ebit, while telecommunications was the second largest accounting for 27 per cent.

If foreign currency conversion impact is excluded, infrastructure ebit increased 4 per cent, while that of retail grew 1 per cent and that of port operations was flat.

Its Canadian oil and gas unit Husky Energy saw ebit grow 37 per cent thanks to higher oil prices and increased output from more lucrative projects in Canada and China.

In recent years, Li’s companies have sold numerous properties and other assets in Hong Kong and mainland China and stepped up investment in infrastructure and energy-related firms that provide relatively stable returns in developed overseas markets.

Since January this year, CK companies have unveiled at least three such acquisitions in Europe, Australia and Canada totalling HK$102.8 billion.

CK Hutchison shares closed 0.9 per cent higher at HK$108.5 on Thursday ahead of the results, versus a 0.3 per cent decline in the Hang Seng Index.