Annual Results Summary!!!!
Taken from the South China Morning Post- March 26, 1998.
Friday March 27 1998
Li group hard hit by
slump
PEGGY SITO and ANDREW CHETHAM
Severe corrections in stock and property markets
took their toll on Li Ka-shing's empire as Cheung
Kong (Holdings) and Hutchison Whampoa made a
huge combined provision of $3.68 billion for the
year to December 31.
In what has been seen as an unusual move, the two
companies provided a total of $1.5 billion for the
decline in value of a residential site in Hunghom
bought in an equal venture in June.
The provision represented about 25 per cent of the
$6.06 billion they paid for the site just nine months
ago.
Mr Li, who chairs both Cheung Kong and
Hutchison, yesterday said the provision for the
property project was encouraged by the decline in
property prices.
"We may make a loss on the investment assuming
that we build the project and sell it at the current
market level," he said.
Mr Li said it was the only land site in the group's
portfolio that was criticised as "expensive".
The provision would improve the company's
property portfolio, he said.
Mr Li said the group would only make selective
investments in the property market in future and
was not interested in buying expensive land sites.
On the securities investment front, Mr Li said
Cheung Kong and Hutchison each made a
provision of $600 million against shares they held in
Hongkong Land Holdings and Jardine Matheson
Holdings.
The total provision made by Cheung Kong on share
investments amounted to $1.26 billion while the
total by Hutchison was $920 million.
Despite the huge provisions and decreases in
property sales, Cheung Kong's net profit rose 27.9
per cent to $17.6 billion last year, thanks to
substantial exceptional gains from an asset reshuffle
within the group made in March last year.
The restructuring and transfer of assets also helped
Hutchison to report a 2 per cent rise in profit to
$12.26 billion.
Analysts said it was unusual for a developer to
make a provision for the decrease in land value,
adding the move made by Cheung Kong and
Hutchison was a deliberate attempt to streamline
their earnings performance for next year.
Credit Suisse First Boston analyst Terry Ip said
Cheung Kong took advantage of strong growth in
earnings this year to make a sizeable provision,
aimed at reducing fluctuations in profitability.
DBS analyst Walter Kong said: "Hutchison's plan
seems to be to get all the bad news out of the way
with the '97 numbers, assuming that investors focus
not on history but the future. It looks better for '98
earnings if '97s are lower."
Merrill Lynch property analyst Carol Lai yesterday
welcomed the move, saying the developer would
find it easier to break even from the development
after the group reduced the land cost.
However, some analysts said investors might be
concerned other developers would follow suit,
which could affect short-term earnings in property
companies.
Mr Li anticipated his two companies would not
make any provisions this year as property prices
have reached bottom.
He said the group would not write back the land
value even if property prices rebounded this year.
Mr Li said more than 90 per cent of the listed
securities in Cheung Kong's portfolio were
Hutchison shares.
Excluding Hutchison shares, the value of Cheung
Kong's stock portfolio was about $4 billion at the
end of last year. The value has risen since then to
about $4.5 billion.
Mr Li said Cheung Kong made a profit on its
treasury portfolio of almost $1 billion after
provisions, and Hutchison made a profit of $800
million after provisions. |
