Pound weakness takes shine off Power Assets, CK Infrastructure results

Exchange rate fallout following the UK’s decision to leave the EU have taken some of the shine of otherwise solid operating performances by two of the companies controlled by Hong Kong billionaire Li Ka-shing.

After market close on Tuesday, Power Assets Holdings booked a 17 per cent decline in net profit to HK$6.4bn on revenue of HK$1.3bn in the year to December 31, which it said was “primarily due to the weakening of the pound sterling” as well as a smaller UK deferred tax credit adjustment compared to the previous year and the reduction in its shareholding in HK Electric Investments. The bulk of PAH’s profit comes from its holdings in other Li Ka-shing investments. Analysts expected net profit of HK$7.6bn on revenue of HK$1.3bn.

Cheung Kong Infrastructure, which also said it intends to tweak its name to CK Infrastructure, holds a 38.9 per cent stake in PAH and partners with it in many infrastructure investments globally.

The company reported a 12.4 per cent decline in net profit to $10.2bn on turnover of HK$27.3bn for the 12 months ended December 31. That compared to analyst estimates for a HK$10.6bn net profit. CKI cited similar reasons as PAH for its drop in profit.

In early trade in Hong Kong, CKI shares were down 1 per cent and PAH shed 0.9 per cent, compared to a 1.1 per cent drop for the benchmark Hang Seng.

PAH management said the impact of the Brexit decision was “limited to reported earnings”, while CKI said the fundamentals of its UK business were “not affected”.

CKI generated 40.9 per cent of its revenue in the UK in 2016, according to Bloomberg data, while PAH generated 43.2 per cent of its revenue there. The pair count UK Power Networks, Northern Gas Networks and Wales & West Gas Networks among their businesses.

Aside from their UK exposure, both companies have been in the spotlight for other reasons this year. The two paid C$1.2bn ($0.8bn) last April for a 65 per cent stake in some of the oil storage assets of Canada-based Husky Energy, which is also owned by Mr Li.

CKI and PAH, as well as another of Mr Li’s vehicles, Cheung Kong Property Holdings, this January agreed to the A$7.37bn ($5.45bn) acquisition of DUET Group, which has investments in gas pipelines and electricity distribution networks in Australia and New Zealand.

Also, PAH turned a few heads when in January the board approved the payment of the company’s first special dividend in more than a decade. That move was of particular benefit to the company’s biggest shareholder, Mr Li’s CK Hutchison Holdings, which has long tried to unlock some $8bn in cash sitting at PAH.