Owner of Northumbrian Water Group CK Infrastructure Holdings Ltd has been admitted to the Main Market of the London Stock Exchange.
Owner of Northumbrian Water Group CK Infrastructure Holdings Ltd has been admitted to the Main Market of the London Stock Exchange.
One of the world’s largest global infrastructure companies,CK Infrastructure Holdings Ltd has diversified investments in energy infrastructure, transportation infrastructure, water infrastructure, waste management, waste-to-energy, household infrastructure and infrastructure related businesses.
Listed on the Main Board of The Stock Exchange of Hong Kong, CKI’s market capitalisation was approximately £13.9 billion as of 12 August, 2024. For the six months ended 30th June, 2024, CKI reported profit attributable to shareholders of £430.2 million.
CKI has declared an interim dividend for 2024 of £0.072 per share, representing 1.4% growth over the corresponding period last year. Since its listing on the Hong Kong Stock Exchange in 1996, CKI has grown its dividends in each of the past 27 years. The report says the company's ability to pay dividends and fulfil its obligations depends, among other factors, on the ability of its portfolio businesses to distribute dividends, repay intercompany loans provided by the company or extend intercompany loans to the company.
In 2023, over 90% of CKI’s profit contribution and employees were from businesses outside Asia, and UK businesses comprised over 35% of CKI’s profit contribution. Richard Fagan, HSBC’s Head of UK Equity Capital Markets described the listing as a significant milestone for CKI, saying that given the UK’s profit contribution to CKI, a secondary listing on the London Stock Exchange is a natural progression and ensures a broader and deeper liquidity pool for trading its shares globally.
CKI’s secondary listing on the London Stock Exchange without any fundraising is described as a strategic move to maximise shareholder value.
Commenting on the listing on 21st August, Andrew Hunter, Deputy Managing Director of CKI said:
“I am very happy about today’s secondary listing on the Main Market of the London Stock Exchange. It marks an important milestone for CKI...
“The secondary listing of the Company’s shares on the London Stock Exchange will further enhance CKI’s reputation as one of the largest global infrastructure companies in the world and widen the shareholder base, providing access to a new and larger capital base of international investors. It will also create an opportunity for UK investors to invest in an international infrastructure portfolio, including well-known utilities in the UK, on their local stock exchange.”
Charlie Walker, Deputy CEO, London Stock Exchange plc said:
“We are delighted to welcome CK Infrastructure to the London Stock Exchange to celebrate their listing.
“Our markets offer companies the stage to raise their profile among one of the deepest and broadest institutional investor pools in the world and we look forward to supporting CK Infrastructure as it continues to expand its extensive global operations, including those in the UK.”
CKI’s UK Infrastructure Portfolio
Yesterday CK Infrastructure Holdings Ltd published its Interim Report for the six months ended 30th June 2024. The Group recorded profit attributable to shareholders of HK$4,311 million (£430.2 million), representing an increase of 2% as compared with the same period last year.
During the period under review, two acquisitions in the United Kingdom were made described in the Interim Report as “meaningful additions” which further strengthened the Group's portfolio.
Profit contribution from the United Kingdom was HK$1,865 million (£186.5 million), an increase of 17% as compared with the same period last year. The report says the positive growth can be mainly attributed to higher revenue, lower finance charges borne by the portfolio's businesses, and higher foreign currency exchange between the Pound Sterling and the Hong Kong Dollar.
The report says that in July 2024, Northumbrian Water received the draft determination for the regulatory period from 2025-2030, potentially providing for higher allowed returns and higher total expenditure allowances. The final determination will be announced at the end of the year. Possible investments over the next five-year period of more than £4.5 billion have been proposed by Northumbrian Water for upgrading the network to improve water quality, enhancing environmental performance, upgrading water treatment and monitoring, as well as ensuring reliable and resilient water supply.
Other UK infrastructure investments include UK Power Networks, which performed strongly despite the fact that results were negatively impacted by the commencement of the new regulatory period in April last year, the report says. During the period under review, UK Power Networks Services, the non-regulated arm of UKPN, acquired a 69 MW renewable energy portfolio, which consists of 70 renewable generation assets including 65 solar photovoltaic, four onshore wind and one hydro generation asset.
On 14th August, 2024 it was announced that a consortium comprising CKI, CK Asset and Power Assets, which will own 40%, 40% and 20% interests in the portfolio, respectively, had entered into an agreement to acquire a portfolio of operating onshore wind farms in the United Kingdom for a purchase price of approximately £350 million (approximately HK$3.5 billion), marking CKI's third acquisition in 2024. The transaction is expected to be completed during September. The portfolio comprises of 32 wind farms located in England, Scotland and Wales, totalling 175 MW in installed capacity and 137 MW in net attributable capacity. The report says the portfolio will provide immediate returns, stable cashflows and recurring profit contributions with revenues are generated from:
- government subsidies, which are inflation-linked
- power revenue, including from power purchase agreements as well as from selling power to the market.
With 90% of the revenue underpinned by long-term agreements and renewable subsidies from the United Kingdom government, the report describes the additional business as “poised to generate recurrent and stable returns and cashflows. It also expands the Group's renewable energy capacity - a much in demand commodity - in the country.”
The Group’s Northern Gas Networks and Wales & West Gas Networks reported solid earnings, benefitting from good operating performances and lower finance costs. - both companies are actively working on hydrogen-related projects.
At the end of April 2024, CKI, alongside strategic partners CK Asset and Power Assets, completed the acquisition of Phoenix Energy, the largest gas distribution network in Northern Ireland. The enterprise value of the entire transaction was approximately HK$7.4 billion. CKI owns 40% of the shareholding of this company. Phoenix Energy covers 78% of gas connections in Northern Ireland and serves 48% of the population there. Operating under a regulatory framework, Phoenix Energy provides CKI with stable cashflows, immediate yield and recurring profits, the report says.
CKI says it will also continue to study new investment opportunities that arise from global decarbonisation as part of the overall business development strategy.
Forward outlook
Commenting on the Group’s forward outlook, Chairman Victor T K Li said:
“Market uncertainties persist around the world as interest rates remain high and geopolitical tensions pervade headlines. With strong recurring income and predictable cashflow, CKI has shown its resilience during difficult financial times.
“Despite the challenging backdrop, CKI is in an advantageous position to explore new acquisitions with its strategic partners within the CK Group, including CK Asset and Power Assets, who also have very solid financials. Given the higher interest rate environment and tightened liquidity, the barriers to entry in the infrastructure sector are expected to be heightening, benefitting existing players with operational experience and financial strength like ourselves.
“As we broaden the diversity of our infrastructure portfolio in terms of industry sector and geographic location, the Group is also focused on driving organic growth, nurturing more synergies within our business units, and pursuing other meaningful growth opportunities that arise from the ever-changing environment.”
Infrastructure portfolio focus on regulated businesses in power and infrastructure sector
The Group has historically focused, and continues to focus, its portfolio on regulated businesses in the power and infrastructure sectors. Describing the infrastructure market as highly regulated, the report says:
“Many of the Group's regulated businesses have recently been undergoing challenging regulatory resets with lower permitted return and restrictions on shareholders' distribution under certain circumstances. Interest and inflation rates, high energy cost, energy windfall tax, cap on the energy retail prices in certain markets as well as tougher stances adopted by regulators may affect the returns of the Group's infrastructure businesses.
“Any operational practices that are significantly out of step with community expectations can lead to concerns with regulators or local or national governments, and may ultimately lead to more stringent regulatory resets, regulatory oversight as well as negative publicity that could also have a reputational impact.
Capex investment
The report also comments on capex investment plans for regulated business, cautioning:
“Aggressive targets could require huge capital investment in a short period of time. That would cause concerns on: affordability of the customers for the increase in tariff; construction is constrained by the availability of labour and resources. Excess demand would further drag up capital investment project costs, which might cause cost of funding not being able to be justified by the weighted average cost of capital (WACC) return allowed by the regulator.”
It also highlights the fact that a significant amount of capital expenditure is also required for the Group to maintain the assets of its existing businesses, saying:
“While the relevant asset companies have their own asset management plans, there is a risk that due to unforeseen events, capital expenditure required for the replacement of assets could exceed budgeted amounts and hence affect the businesses, financial condition, results of operations or growth prospects of the Group.”
Privatised companies - “political, regulatory and media attention has increased significantly”
The report also draws attention to the fact that political, regulatory and media attention has increased significantly towards privatised companies in countries in which the Group operates.
The report states:
“Regulators in some of these countries have warned of increasingly onerous regulatory resets, and some major political parties are promoting policies to bring energy, water and railways back into public ownership, which could potentially have serious and material consequences for the Group if such regulations and policies are enacted.
“Group companies are responding to these risks by focusing on their core strategies of delivering and outperforming regulatory outputs such as safety, reliability and customer service, at the lowest cost possible; by conveying the positive benefits to customers of the services they provide; and by engaging collaboratively with regulators and politicians to demonstrate the advantages of private ownership.”
Group may incur significant additional costs as a result of current and future environmental regulations
The report says the Group believes that it and its businesses have obtained all material environmental approvals currently required to operate their facilities. However, it warns that the Group and its businesses may incur significant additional costs as a result of current and future environmental regulations and requirements to obtain approvals.
The report states:
“In addition, there can be no assurance that the requirements to obtain such approvals may not become more stringent in the future and that such approvals would be renewed when they expire. Furthermore, there is a risk that some environmental agencies may seek to retroactively alter certain permitting conditions, particularly in cases where certain practices were established and agreed upon in principle but were not documented….
“Failure to comply with environmental laws and regulations could result in the imposition of civil or criminal liabilities, the imposition of liens or fines and additional expenditures to bring the facilities into compliance, which would have a material adverse effect on the Group's business, financial condition, results of operations or growth prospects.”
Reputational risks
The Report also points out that the Group's portfolio is primarily comprised of regulated businesses, and maintaining trust in the Group is critical to its ability to maintain strong relationships with the relevant regulators as well as investors and employees. The report states:
“Damage to the Group's reputation can therefore cause significant harm to its business and prospects.
“In addition, any failure or perceived failure of any of the Group's portfolio businesses to deliver appropriate standards of service and quality or to handle or use confidential information appropriately can result in user or regulators' dissatisfaction, litigation and heightened regulatory scrutiny, all of which can lead to lost turnover, higher operating costs and harm to the Group's and its businesses' reputation.
“Adverse publicity or negative information posted on social media regarding the Group or its businesses, whether or not true, may result in reputational harm, and have a material adverse effect on the Group's business and prospects. Should any of these or other events or factors that can undermine the Group's reputation occur, there is no assurance that the additional costs and expenses that it may need to incur to address the issues giving rise to the reputational harm could not adversely affect its business and results of operations.”
Click here to download the Interim Report in full
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