(Original title: How much is the loss of British Li Ka-shing)
On the east side of the lively London's main commercial street, Regent Street, the 400-year-old St James Market in London has been refurbished to bring people back to the past.
On the side of a number of luxury kitchens and yachts, there is a Danish restaurant called Aquavit that is quietly located in the corner, waiting to be opened. The person in charge of the restaurant who happened to be in the same office building as the First Financial News London reporter saw the Chinese face of the reporter. He excitedly blurted out: "Li Ka-shing, do you know? It is the richest man in Asia, Li Ka-shing, who also invested in us. The restaurant, but only a little." The person in charge made a "slightly" meaning with the thumb and forefinger. The reporter is surprised, Li Ka-shing will even vote for this "small money"? This Danish restaurant has branches in New York and Tokyo.
Next to the Battersea Park in Betsey West, London, with a five-story Hutchison House just a stone's throw from the Thames. At least 15 of the more than 50 companies operating at this address are under the name of Li Ka-shing’s Yangtze River Hutchison Industrial Co., Ltd. (hereinafter referred to as “Changhe Industrialâ€) or Changjiang Infrastructure Group Co., Ltd. (hereinafter referred to as “Changjiang Infrastructureâ€). British Co., Ltd. concentrates on telecom communications, real estate development, financial services, etc. Li Ka-shing's operations in the UK's main industry. These companies are low-key, generally in Yinghua
They are rarely seen in the activities of people's corporate companies.
According to relevant information, Li Ka-shing’s investment in the UK and other Commonwealth countries has been increasing over the past few years. Even in the few days after the British referendum decided to leave the European Union, Li Ka-shing's shares of Cheung Kong Infrastructure (01038. HK), Changhe Industrial (00001.HK) and Power Industry (00006.HK) plummeted, and public opinion yelled "Li Ka-shing Under the circumstance of losing money, and “shrinking RMB 7.3 billion overnightâ€, his investment in the UK continues to expand.
Since a large part of the profit sources of the two listed companies of the Yangtze River Infrastructure and Power Industry is the UK business, whether the industry invested in the UK will be negatively affected by the Brexit, which will drag down the overall profit of Li Ka Shing's industry and become a common concern. focus.
How much is the investment in the UK?
How much is Li Ka-shing investing in the UK? It is difficult to fully count. According to media reports, his investment in the UK is estimated to be more than 52 billion pounds, making it the largest single overseas investor in the UK.
Changjiang Infrastructure and Power Industry's investment in UK power includes UK Power Networks Holdings Limited, one of the UK's largest distributors. This is the origin of Li Ka-shing's UK investment portfolio – the business consists of three regional networks, distribution services covering London, southern and eastern England. In addition, they are also engaged in non-regulated operations that provide distribution services for private facilities in the form of commercial contracts. These businesses cover London, South and East England, with more than 8.2 million users, and Changjiang Infrastructure and Power Industry each account for 40%. From the latest public information available, the UK grid company's financial results from the end of 2014 to March 2016 showed that revenues of up to 1.9 billion pounds and pre-tax profit margins of 1.3 billion pounds, a significant year-on-year increase.
Seabank Power Limited is another power project that Changjiang Infrastructure completed in June 2010. According to Changjiang Infrastructure's official website, “Coast Power owns and operates a coastal power station located near Bristol. The electricity generated is awarded to the UK's largest energy company SSE Scotland and Southern Energy Company under a long-term power supply contract with a total installed capacity of approximately 1140 trillion. Wah. The Yangtze River Infrastructure and Power Industry each account for 25% of the equity, and the other 50% is owned by SSE."
1 The reporter found in the survey that there are currently two combined cycle gas generator sets in the Coast Power Company. The previous proposal to build a third station, I do not know why it was put on hold in 2014, there is no sign of starting. The mid-term earnings report released on the SSE website until September 30, 2016 showed that SSE's pre-tax adjusted profit reached 475.8 million pounds, down 13.3% from the same period last year. SSE wholesale and retail profits have declined, mainly due to climate factors and the number of users, as well as the upgrading of technical equipment to increase costs. The company expects its 2016/2017 profit to resume growth. At the same time, SSE also announced an additional investment of 1.85 billion pounds in the UK and Ireland to further develop infrastructure that guarantees safe, sustainable and low-carbon energy in the future. In addition, SSE also confirmed that it will return the profit of the shares held by SGN Natural Gas to the equity holders and further invest in a new wind power project.
Looking at the hydraulics, there are two British water resources projects invested by Cheung Kong Infrastructure, one is Northumbrian Water Group Limited and the other is Southern Water Services Limited. The former is one of the ten regulated drinking water and wastewater treatment companies in England and Wales, providing drinking water and sewage treatment services to the northeast of England, serving 4.6 million people in the region, and the Yangtze River Infrastructure Company accounts for up to 40% of the company's equity; It provides water and sewage services to 2.4 million people in southeast England. However, the Yangtze River Infrastructure accounted for only 4.75% of the Southern Hydro Service Company's equity.
According to the March 2016 financial report of Northumberland Hydraulics, the previous 15 months of revenue was £813.8 million, a decrease of £180 million from the same period in 2015. The main reason was that in 2014, the implementation of the water supervision department lowered the price of clean water and sewage charges with reference to the retail price index pricing principle. According to the financial report, Southern Water Services' turnover in 2015/2016 was £083.7 million, and operating profit was £284.5 million, down from the same period last year, but the total fiscal year profit was £119.9 million, compared to £93.6 million in the same period last year. Has risen.
Natural gas also accounts for a large proportion of the Yangtze River infrastructure investment portfolio. Northern Gas Net-Works Limited is one of the UK's eight major gas distribution networks, serving 6.7 million people in the UK. Changjiang Infrastructure and Power Industry hold 47.1% and 41.3% equity respectively. According to the company's financial report, the operating profit from April 2015 to March 2016 was 200 million pounds; from January 2014 to March 2015, the operating profit was 265 million pounds. Revenue in 2015/2016 (Revenue) was higher than the same period last year, mainly based on subsidies from the UK Electricity and Natural Gas Regulatory Office (OFGEM); the increase in costs was due to depreciation. Wales & West Gas Networks (Holdings) Limited provides gas distribution services to 7.5 million people in Wales and southwest England. Changjiang Infrastructure and Power Industry hold 30% of the shares respectively. Unfortunately, the company's earnings report was not published on its official website and was only disclosed to registered investors.
Finally, let's take a look at Eversholt Rail, the latest investment project of Yangtze River Infrastructure. This was in March 2015, which was led by Cheung Kong Infrastructure to lead the Yangtze River Industrial Co., Ltd. (half equity) to complete the acquisition for £2.5 billion. The acquisition was called “new business area†by Li Zezhen. Eversholt Rail is one of the three largest rail car rental companies in the UK. Its main business is the rental of short-haul and high-speed passenger trains, as well as freight locomotives and trucks. The trains are leased on long-term contracts. Currently, the company is still in the stage of additional investment after the acquisition.
At the beginning of 2016, the Yangtze River Infrastructure invested another 490 million pounds. It signed contracts with British Arriva and Spanish CAF to build, purchase and lease 281 train cars by operating lease. All trains are equipped with the most modern equipment such as air conditioning, audio and video. These new trains will be commissioned in 2019 and will be leased to the British Arriva Public Transport Company, which is controlled by the German state-owned railway. This is another large-scale investment after purchasing and leasing 173 new trains in March and July 2015 with an operating lease of £360 million. Li Zezhen and other senior officials of the Yangtze River Infrastructure have expressed their opinions on the growth of EversholtRail. I believe that it will bring stable income to the company. According to Eversholt's 2016 first-half financial report, the company's total net income was 12.604 million pounds, double the 5.979 million pounds in the same period in 2015.
1 The reporter asked the Eversholt Railway Company to ask the company's chief operating officer, Andy Course, for more information about the latest company. It was never seen by its press officer Wendy Filer. I have declined the experience of similar interviews.
Is there a loss in the UK investment?
After the announcement of the Brexit results by the British referendum, the Yangtze River Infrastructure added the content of “the potential risk of the UK leaving the EU referendum†in its official website “Investment Risk Alertâ€: “On June 23, 2016, the UK left the European Union. The result of the referendum was to leave the EU. The financial market and the British pound exchange rate immediately responded. The Group's UK business is protected by relevant regulatory systems or long-term payment contracts and is essential for basic services (including electricity, drinking water and sewage treatment, Natural gas and transportation), the continuing uncertainty of Brexit may adversely affect the local economy and the pound, but the long-term impact of Brexit remains to be seen. The significant and continued depreciation of the pound may affect the Group's spillovers. And the ability to maintain a continuous increase in dividends for shareholders."
In the first half of 2016, Changjiang Infrastructure reported that the profit of the UK business increased by 6.6% in the local currency sterling, among which the four regulated businesses included the UK Power Grid, Northumbrian Hydraulics, Northern Gas Network and Wales and Western Gas Networks. The “Regulatory Amendment†was recently completed. The performance of each business is ideal. The financial report clearly stated that during the period covered by the financial report, the exchange rate of the British pound dropped significantly, and the performance of the Group’s profit in Hong Kong dollars was affected. “In addition, the recent decline in the exchange rate of the British pound may lead to high inflation in the future. Therefore, these regulated businesses of the Group In the future, it will benefit from the inflation-linked charging regulations and generate higher returns."
1 The reporter learned from a number of investment banking industry investment analysts that the impact of the UK referendum on the withdrawal of Li Ka-shing in the UK has already appeared. In the near term, it should focus on the sharp fall in the pound against the US dollar. Simon Paul, director of UBS Utilities Research Department, clearly pointed out in the interview response that according to his research report, “a drop in every percentage point of the pound means that the decline of 0.65% of the profit of Changjiang Industry means that the power industry is 0.5% profitable. decline."
Evan Li, head of HSBC's Asia-Pacific utilities division, wrote to investors that if the pound continues to fall, dividends from Britain to Hong Kong will be affected to some extent. He also predicted that the Yangtze River Infrastructure and Power Industry will reduce revenue by 6% to 8% when the pound depreciated by 15% against the US dollar. In his July 29 report, it was also mentioned that Yangtze River Infrastructure's core profit fell in the first half of 2016, and adjusted profit fell by 13% year-on-year, mainly due to the depreciation of national currencies. In the UK, the UK business profit, which accounts for 48% of the Yangtze River infrastructure's profit, rose 0.2% year-on-year (excluding the profit contribution of the Power Industry). This is because the newly acquired British Railway Company in April 2015 is still in the expansion phase; Power and gas companies began to update their contracts in the second quarter of 2015; another major reason was the depreciation of the pound against the US dollar. If it was calculated in pounds sterling, the UK business profit should increase by 7% year-on-year instead of 0.2 above. %. In the electric energy industry, the profit of the UK business, which accounted for 64% of the total profit of the electric energy industry, fell by 4% compared with the same period of last year, and the exchange rate factor became the biggest scourge. Before the report was released, the pound had fallen by 6%. If it was calculated in pounds sterling, the profit not only did not fall but rose by 2%.
As of this publication, the pound has fallen 16% against the US dollar, and it has reached the lowest of 1.18 in 31 years since the referendum. Therefore, the income of Li Ka-shing’s investment in the UK has been negatively affected by the exchange rate.
However, as mentioned in the Yangtze River Infrastructure Financial Report, Simon Paul also believes that Brexit may also make up for the loss of income caused by exchange rate exchange on the other hand. Simon Paul explained: "Changjiang Industrial has a number of infrastructure investment projects in the UK, including water, electricity, gas, railways, etc.; the power industry has electricity and natural gas. In general, it belongs to public utilities. In my opinion, public utilities are relatively low-risk investments with relatively stable capital flows and return on investment. The companies that invest in the UK, the price agitating factors are generally mainly inflation, because according to the principle of utility price management, Allowing prices to fluctuate with the retail price index, that is, if inflation rises, the profits of these utilities will rise. I don't agree that these companies are losing money. These companies are actually some profitable businesses. In addition, it is worth mentioning that it should be reasonable to say that since the acquisition of these companies, the value of the company has increased, on the grounds that in the economic environment with low interest rates, we find investors in infrastructure projects, such as Some large state-owned investment funds are very willing, even at high prices to acquire these businesses. If Cheung Kong Holdings and Power Assets want to get rid of those investment projects in the UK (of course this is impossible), too, it is able to sell a higher purchase price than in the past a lot of good price. "
When a reporter asked, "In the context of Brexit, will Li Ka-shing's UK investment strategy change?" Paul said that this is a very difficult question to answer. “Brexit has definitely caused uncertainty, but it depends on how bad the pound is. At present, Changjiang Industrial and Power Industry are seeking more investment opportunities in the UK.â€
Luo Hao, a fund manager in London, also agrees with Paul's point of view. "I don't think Li Ka-shing's investment in the UK is not a loss or a wrong investment strategy. He invests in infrastructure and utilities. This is not a general power generation, but Some regulated assets such as power grids and gas grids. Therefore, these are highly regulated and are related to inflation rate. If the pound is very low, there will be currency exchange losses, which is difficult to avoid, but This does not mean that the rate of return declines, nor does it mean that the rate of return denominated in pounds sterling will fall. Because if inflation rises, it is necessary to increase the selling price, which is a kind of protection for enterprises."
Luo Hao believes that if an enterprise investing abroad does not use local currency settlement, the exchange rate loss suffered by currency depreciation is not a cash loss. In other words, it is a loss on the "paper", and the financial report will be ugly. For the investors, even the investors who hold the Hong Kong dollar investment must look at the profitability. Of course, the depreciation of the currency may also be eased through central bank policy intervention. These utility products are all necessities of life and will not reduce demand due to poor economic conditions. Therefore, in the long run, there is not much problem in investing in the UK such as the Yangtze River Infrastructure. Moreover, the UK inflation rate may rise from the current 0.9% to 2% or 3% next year. Before we saw global asset prices rise, we will see commodity prices rise. In this case, there is no problem with this kind of investment in public utilities. â€
Continue to advance into the UK market
Shortly after the results of the British referendum came out, people were skeptical about Li Ka-shing’s mistakes in investing in the UK. Li Ka-shing seemed to be very disapproving of his sights on British investment projects.
On October 4th, Bloomberg reported that although the EU vetoed Changhe Industrial's tens of billions of pounds to acquire British telecommunications company o2 at the beginning of this year, Changhe Industrial's interest in the UK's wireless communications business continues unabated and will continue to seek to expand this aspect. business.
On October 21st, the British Standard Evening News reported that Li Ka-shing had joined the £1 billion bid to acquire the British smart meter company Calvin Capital.
The competition for the acquisition of the National Grid and the natural gas business was launched shortly after the British referendum decided to leave the European Union. However, 1 reporter learned from Simon Paul that Changhe Industrial is unlikely to succeed this time.
Paul said: "I don't think they can succeed in the bidding. The main reason is that they already have two natural gas companies in the UK. The regulatory authorities are likely to consider security and other aspects. It is unlikely that they will acquire four more. The natural gas business, otherwise, will make them have 6 of the 8 natural gas companies in the UK. Of course, this is only speculation. And I think the auction will be very intense. In any case, these indicate the Yangtze River infrastructure and electricity. Industry continues to be optimistic about the assets of the UK. I believe that their strategy has been very successful so far, mainly focusing on the Commonwealth countries, which have strict laws and are invested in those industries with low risk and high supervision. ."
However, just as Li Ka-shing can't predict the situation of Brexit when he is fully committed to investing in the UK, he can't judge that the far-reaching influence of Brexit is not fully realized, and the future of its commercial layout in the Commonwealth countries. How many uncertainties.
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