Li Ka-shing’s CK Hutchison Sees First Profit Drop Since 2015

CK Hutchison Holdings Ltd. posted its first annual profit decline since 2015, as the flagship firm of Hong Kong billionaire Li Ka-shing got battered by the coronavirus pandemic.

It reported a 27% fall in net income of HK$29.1 billion ($3.8 billion), compared with HK$39.8 billion in 2019, according to an exchange filing Thursday. The profit was in line with the average analyst estimate of HK$29.4 billion. Total revenue fell 8% to HK$403.85 billion.

The CK Group, founded by Li, has businesses spanning ports, retail, telecommunications and property, and expects to rebound in 2021. It warned investors about a dim outlook on profits last year and sold assets, as it faced multiple headwinds in Hong Kong’s anti-Beijing protests, the pandemic and the continuing U.S.-China strife, especially after the imposition of a new national security law in the city.

The group’s real estate arm, CK Asset Holdings Ltd., announced Thursday a plan to buy four companies holding stakes in infrastructure firms from the Li Ka Shing Foundation -- Li’s charity -- for HK$17 billion. To fund this purchase, CK Asset will issue new shares along with a share buyback to avoid stake dilution. It plans to buy back more than 333 billion shares at HK$51 each, according to a statement.

“We will definitely continue to look at new investment projects, especially assets with fixed income,” Li’s first son Victor Li, chairman of CK Hutchison and CK Asset, told reporters Thursday. With ample cash flow in CK Asset, Li said the group had begun “looking at new acquisition opportunities.”

CK Asset surged as much as 6.4% on Friday morning in Hong Kong after announcing the acquisition and share buyback plan, its biggest jump since November. CK Hutchison fell as much as 2.9%.

More Vulnerable

CK Hutchison, part of the global business empire built by 92-year-old Li Ka-shing, generates more than half of its revenue in Europe. That means recovery in one region could be offset by slowdown and lockdowns elsewhere during the pandemic.

This also leaves the group more vulnerable to geopolitical tensions. It has suffered some setbacks in recent years, including failed bids for assets in Australia and a contract in Israel, making CK Group a test case on how international companies are going to navigate the dynamics of what many view as the new Cold War.

Although economic recovery in the second half last year benefited some units hit hardest in the first half -- such as the retail and ports businesses -- it wasn’t enough to recover all the lost ground, Li said in the filing.

But the Group’s debt ratios will improve after completing the announced asset sales, Li said, adding that the conglomerate is now “in a strong financial position and expects a solid performance in 2021.”

Cross-Sector Hit

Revenue (HK$ billion)20202019Growth
Ports and related services32.935.4-7%
Retail159.6169.2-6%
Infrastructure52.851.2+3%
Energy31.247.6-35%
Telecommunications99.8102.5-3%
Finance, investments and others27.633.9-19%

Source: CK Hutchison Filing

The group is seeing challenges across its other firms too. CK Asset reported HK$16.3 billion in profit for last year, compared with HK$29.7 billion a year before, according to a separate filing Thursday.

The infrastructure deal with Li Ka Shing Foundation will enable the company to pay higher annual dividends per share for 2021 and 2022, the firm said in the filing for the acquisition. The deal can help boost CK Asset’s share prices with better returns for shareholders, Li said at the post-earnings call.

Its sister firm, CK Infrastructure Holdings Ltd., saw a 30% fall in full-year profit to HK$7.3 billion amid tightening global regulatory environments and the impact from the pandemic. The company also warned of “significant uncertainties” ahead but expects businesses to rebound without specifying a time line.

CK Hutchison, whose shares have climbed 16% this year, announced a full-year dividend of HK$2.3 per share for 2020, compared with HK$3.2 in 2019. CK Asset proposed a full-year dividend of HK$1.8 per share.

After a pandemic-induced oil price crash, CK Hutchison and a Li family trust agreed in October last year to sell part of their 70% stake in Husky Energy Inc., a loss-making Canadian asset, in a $2.9 billion all-stock deal. The conglomerate also agreed to sell its Europe tower assets in November for almost $12 billion to strengthen its cash flow for expansion, share buyback and debt reduction.

The group’s year-end net debt to net total capital ratio of 22.2% is expected to fall after the various asset sales are completed in 2021, according to the filing.

©2021 Bloomberg L.P.

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