Cheung Kong profit hit by weak pound

The Hong Kong-based infrastructure firm believes the British currency's slide may lead to higher inflation, propping up revenues at its UK regulated businesses.

Cheung Kong Infrastructure (CKI), the Hong Kong-based group, has registered nearly flat UK profit growth in its reporting currency despite posting strong activity in its largest market during the first half of 2016.

“The value of the British pounds fell significantly during the period under review, and this affected the group’s profit contribution figures when the results were converted into Hong Kong dollars,” said Victor Li, CKI’s chairman, as part of CKI's interim statement. “Nonetheless, the underlying performance of the group’s various businesses in the country performed well.”

The firm said profit contribution from its UK portfolio, in British pounds, rose 6.6 percent for the period. In Hong Kong dollars, however, the UK's share of profit only rose 0.2 percent, totalling HKD3.19 billion ($411 million; €358 million). 

With UK assets generating as much as 58 percent of CKI's H1 total profit, currency movements had a sobering effect on the group's overall earnings.

But CKI said that its four regulated businesses in the UK, comprising UK Power Networks, Nothumbrian Water, Northern Gas Networks and Wales & West Gas Networks, have all completed regulatory resets recently, providing a high degree of revenue predictability in the medium term. 

“Incidentally, the recent deterioration of the British pounds may lead to higher inflation in the future, which may in time translate to higher revenues for regulated businesses that have inflation-linked tariffs,” Li added. 

CKI recorded a 178.5 percent increase in profit contribution from Australia, thanks to the A$136 million ($103 million; €92.7 million) one-off profit it pocketed from the sale of its minority stake in Spark Infrastructure in June. Excluding this transaction, the market posted year-on-year growth of 27 percent in Australian currency, translating into a 19 percent rise in Hong Kong dollars. 

CKI is reportedly participating in the auction of Ausgrid, Australia's largest electricity network, competing against state-owned utility State Grid Corporation of China. 

With HKD11 billion cash on hand, the company, controlled by tycoon Li Ka-shing, said it is “well-positioned to make more acquisitions when opportunities arise”. Persistent uncertainty and volatility in global markets, CKI added, could help bring about interesting deals as asset prices start to reflect the weaker economic outlook.