CK Hutchison : Cheung Kong Infrastructure Holdings Limited - Interim results for 2016

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長江基建集團有限公司

(Incorporated in Bermuda with limited liability)

For the interim period ended 30th June, 2016, Cheung Kong Infrastructure Holdings Limited ("CKI", the "Company" or the "Group") recorded unaudited profit attributable to shareholders of HK$5,511 million. Compared to the corresponding period in 2015, this represents a 4.9% increase. Two major factors attributed to this result: (i) a one-off gain generated by the sale of the Group's interest in Spark Infrastructure; and (ii) the translation impact caused by the weakness of the British pounds, Australian dollars and New Zealand dollars when results were converted into Hong Kong dollars.

The underlying performance of the Group's businesses for the period was good. Apart from Mainland China Infrastructure and Infrastructure Materials, the Group's asset portfolios in the United Kingdom, Australia, Canada, New Zealand and Continental Europe all recorded growth in their respective local currencies. Proft contribution from Power Assets also reported an increase.

The Board of Directors of CKI (the "Board") has declared an interim dividend for 2016 of HK$0.63 per share (2015: HK$0.6 per share), a 5% increase over the corresponding period in 2015. This extends CKI's sequence of continuous growth in dividends in the two decades since listing. The interim dividend will be paid on Friday, 9th September, 2016 to shareholders whose names appear on the Register of Members of the Company at the close of business on Wednesday, 31st August, 2016.

Power Assets

Profit contribution from Power Assets was HK$1,351 million for the six months ended 30th June, 2016, an increase of 7.4% compared to the corresponding period in 2015.

Three major factors led to this result: (i) an increased contribution from Portugal Renewable Energy which was acquired at the end of 2015; (ii) an accounting loss incurred from the sale of HK Electric Investments ("HKEI") shares in June 2015; and (iii) a lower contribution from HKEI following the share sale.

UK Portfolio

Profit contribution from the United Kingdom portfolio rose 6.6% for the period in local currency (in Hong Kong dollars: the increase was 0.2% with profit contribution being HK$3,187 million).

CKI's four regulated businesses in the United Kingdom - UK Power Networks, Northumbrian Water, Northern Gas Networks and Wales & West Gas Networks - have all completed their regulatory resets recently; this provides a high degree of predictability of revenue in the medium term. During the period under review, all of the businesses reported satisfactory results.

UK Rails, which was acquired in 2015, performed in line with expectations. Since the acquisition, the business has entered into contracts to acquire rolling stock worth a total of GBP971 million, underpinned by long term leases.

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. Nonetheless, the underlying performance of the Group's various businesses in the country performed well. 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.

Australian Businesses

Profit contribution from the Australian businesses increased 178.5% in local currency when compared with the same period in 2015 (in Hong Kong dollars: the increase was 162% with profit contribution being HK$1,436 million). The increase was largely attributable to the sale of a minority interest in Spark Infrastructure in June, which generated a one-off profit of A$136 million (HK$781 million). Excluding this one-off contribution, a year-on-year growth of 27% in local currency (in Hong Kong dollars: 19%) was achieved.

SA Power Networks and Victoria Power Networks commenced new regulatory resets on 1st July, 2015 and 1st January, 2016 respectively. These new regulatory regimes are expected to provide a stable and predictable framework for the duration of the regulatory periods.

Regulatory resets for Australian Gas Networks' operations in South Australia and Queensland were completed during the first half. This provides a high degree of predictability of revenue for the future.

Other Infrastructure Businesses

CKI's other infrastructure businesses include projects in Mainland China, Canada, New Zealand, the Netherlands and Portugal.

Profit contribution from Mainland China's toll road projects dropped 4% in local currency. Due to a one-off gain recorded in 2015 in regards to the sale of Jiangmen Jiangsha Highway and a weaker renminbi exchange rate, the entire Mainland China portfolio declined 22.3% as compared to the same period last year when reported in Hong Kong dollars.

In Canada, profit contribution increased 30.9% in local currency as compared to the corresponding period in 2015 (in Hong Kong dollars: the increase was 21.2%). The growth is attributable to good performance at Canadian Power and Park'N Fly.

In New Zealand, Wellington Electricity and EnviroNZ both performed in line with expectations. Profit contribution during the period under review was slightly higher in local currency compared to the same period last year (in Hong Kong dollars: the result is a decline of 8.2%).

In Continental Europe, Portugal Renewable Energy generated its first full six months' contribution in 2016. Profit contribution from the Group's portfolio rose by 168% in local currency as compared to the corresponding period in 2015 (in Hong Kong dollars: the increase was 166%).

Infrastructure Materials

The contribution from the Group's materials businesses decreased 26.2% (in Hong Kong dollars) in the first half due to a reduction in selling price in Mainland China as a result of increased competition.

CKI, alongside Power Assets, acquired 65% of the Husky midstream business. This business comprises 1,900 km of oil pipelines, two storage facilities and ancillary assets in Canada. The acquisition is CKI's first investment in oil pipelines and storage, and further enriches our Canadian portfolio.

Given the 20-year offtake contract and various protections stipulated in the joint venture agreement, this investment is expected to generate secure and predictable returns for CKI.

Completion has taken place in the middle of July.

CKI will continue to monitor and maintain its strong financial position as it seeks to expand its infrastructure portfolio through the acquisition of new assets. CKI is committed to being financially prudent and conservative in managing risks.

Given the breadth of its international portfolio, CKI recognises the importance of foreign currency management, and has historically adopted a prudent and consistent strategy. Operating companies borrow in their local currency, or otherwise hedge any foreign currency borrowings back into their respective local currency. As for equity investments, CKI generally hedges them against currency movements at the time of acquisition, thus providing protection for the Group against currency volatility. The benefit of this protection, though not reflected in the Consolidated Income Statement, has its value embedded in the reserve and would be fully revealed only when the equity investments are monetised. In addition, the underlying operating fundamentals of our businesses are not materially affected by currency movements. Our portfolio comprises regulated and contracted assets that have provided stable and predictable returns in the past, and are expected to continue to do so in the future.

In March 2016, as part of our treasury strategy, the Group guaranteed the issuance of US$1.2 billion of 5.875% fixed rate perpetual capital securities. During the period, the Group also repaid the US$1.0 billion of 6.625% fixed rate perpetual capital securities issued in 2010.

As at 30th June, 2016, the Group had cash on hand of HK$11 billion and a net debt to net total capital ratio of 5%. CKI is well-positioned to make more acquisitions when opportunities arise.

It is expected that uncertainty and volatility in the global markets will persist in 2016. For CKI, the weak economic environment may present further growth opportunities as more attractive opportunities may arise. CKI is ideally positioned to take advantage of such opportunities given its robust cash position, its strong financial capabilities, and its capable and experienced management team.

We will continue to seek expansion and growth opportunities both in existing geographical markets and industries, as well as in new countries and in new business sectors. As practised in the past, we will not approach these opportunities with a "must-win" mentality. Each and every new acquisition must meet CKI's stringent investment criteria.

I would like to take this opportunity to thank the Board, management and staff for their continued efforts, as well as our shareholders for their support.

Chairman

Hong Kong, 28th July, 2016