Hutchison Whampoa Full-Year 2008 Profits Plunge 42%

Hutchison Whampoa's full-year 2008 net profits have shown a 42% slump, falling to HK$17.7 billion (US$2.3 billion), from HK$30.6 billion in 2007. However, the Hong Kong-based conglomerate beat analyst's expectations, with a Bloomberg survey of analysts predicting an average profit drop of 53% for the year. Total revenue for the group rose 13% in full-year 2008 to HK$348.4 billion, from HK$308.8 billion in 2007, while earnings (EBIT excluding the profits on property revaluation and disposal of investments) grew 19% to HK$44.7 billion in 2008, up from HK$37.6 billion in the previous year.

However, Hutchison Whampoa was able to report the losses narrowed at its 3 Group mobile phone operations, narrowing by 39% to HK$10.8 billion in full-year 2008, down from HK$17.9 billion in 2007. Total revenue for the 3 Group increased 1% to HK$60,372 million, while all its operations achieved improved revenues and reduced losses, with the exception of 3 Italia. The 3 Group’s registered 3G customer base increased 17% during 2008, and currently stands at over 20.7 million customers. This figure includes over 2.5 million mobile broadband access customers, where 3 saw a healthy 305% during 2008. Hutchison says it expects the 3 Group's earnings to break even during 2009. The 3 Group's ARPU declined by 16% during 2008 to €33.50 (US$45.22), something which the company blamed on increased regulation in Europe and the growth of mobile broadband customers.

Hutchison's other telecoms unit HTIL announced revenues for the year were up 16% to HK$23.7 billion, while profits dropped to HK$1.9 billion, from HK$66.9 billion in 2007, when they were boosted by a gain from the disposal of its Indian operations of HK$69.3 billion. At the end of 2008, HTIL had a consolidated mobile customer base of 12.1 million, a 28% increase over the comparable base last year.

Outlook and Implications

• Hutchison's Telecoms Units on the Rise: Tycoon Li Ka-shing, head of the Hutchison Whampoa empire, stated: "In 2009, the group is facing the most challenging environment in recent times, with growth slowing in most markets and many of the world's major economies in recession." However, the company's telecoms businesses were performing well, with HTIL, the emerging market arm of Hong Kong conglomerate Hutchison Whampoa, recently reporting an increase of 16.3% year-on-year (y/y) in total turnover for 2008, driven by strong growth in its mobile customer base and increased revenue from operations in Hong Kong and Israel (see Asia-Pacific: 5 March 2009: Hutchison Telecom 2008 Operating Profit Turns Positive, Company to Spin Off Hong Kong, Macau Operations). Hutchison continues to expand in key Asian markets (see Hong Kong: 28 January 2009: Hutchinson, Genius, and China Mobile Join CSL in Hong Kong Wireless Broadband Licence Wins), but is showing a healthy scepticism (see World: 27 October 2008: Hutchison Whampoa to Review Investment Plans amid Economic Downturn) as it redraws its investment plans in order to reduce risk during the continuing global uncertainty.

• 3 Group Investment Begins to Pay Off: Hutchison's 3 Group, which owns units in the United Kingdom, Italy, Australia, Austria, Ireland, Sweden and Denmark, was able to report it had significantly narrowed its losses. Hutchison has invested heavily on its 3G networks, and the company is predicting the group will report positive earnings before interest and tax this year. Ka-shing added that sales of 3G phones, particularly Skype phones, had been "encouraging", and that "profitability of the 3G business should improve as network costs come down." The 3 Group's percentage of contract customers rose 8%, to 55% at the end of 2008, from 47% in 2007—showing a stronger business base and improved penetration into its markets.

• U.K. and Ireland: 3's U.K. & Ireland revenues grew 19% to £1.56 billion (US$2.28 billion) in 2008. In December 2007, 3 U.K. announced a deal to combine its mobile-phone networks with that of Deutsche Telekom’s T-Mobile, in a move aimed at lowering costs (see United Kingdom: 18 December 2007: T-Mobile, 3 to Merge UK 3G Network Access Operations). However, this deal has since been eclipsed by a similar deal between the country's two largest operators, Vodafone and O2, and 3 U.K. continues to struggle against strong competition from the four major European operators in the United Kingdom. In December 2007, 3 Ireland was awarded a contract under the National Broadband Initiative, to roll-out HSDPA-based broadband services to areas of the country without access to the technology (see Ireland: 26 November 2008: 3 Ireland Wins Rural Broadband Expansion Contract). The contract was a significant boost for 3 Ireland, but the unit is still struggling to achieve major growth as the recession deepens.

• Italy: 3 Italia revenues fell 11% to 1.73 billion euro, the only group region which showed a drop. The unit faces significant competition, not least from the dominant Telecom Italia's mobile units, and 3 Italia has recently had to deny speculation that its assets could be spun off to its rivals (see Italy: 21 November 2008: Hutchison's 3 Italia Denies Plans for Asset Split). However, the speculation reflects a continuing frustration from 3 Italia, faced with a dominant incumbent, government resistance to foreign investment and increased domestic and European regulatory pressures.

• Australia: 3 Australia's revenues grew 27% to A$1.47 billion (US$1.03 billion) in 2008. Hutchison last month announced that it will merge its 3G operations in Australia with the local wireless unit of the Vodafone Group, to cut costs and expand coverage of the country (see Australia: 9 February 2009: Hutchison and Vodafone to Merge Australian Businesses). While was speculation this network-sharing deal may spread beyond 3's Australian market, the company has recently lost out to Telefonica in the U.K. – and 3 would be advised to seek further network-sharing deals with other operators if it hopes to avoid the worst of the global economic downturn.

• Scandinavia and Austria: 3 Group's revenues in Sweden & Denmark grew 27% to 4.56 billion Swedish Kronor (US$563.48 million), while in Austria they rose 4% to 169.9 million euro. 3 Scandinavia has recently received 830 million Danish kroner (US$154.9 million) from Hutchison, to continue the rollout of its 3G network in Denmark (see Denmark: 22 December 2008: 3 Scandinavia to Invest US$150 Million in 3G Network—Report), but 3G wireless competition is strong in these advanced markets. In Austria, 3 still faces competition form the dominant incumbent mobilkom austria (see Austria: 24 March 2009: Mobilkom Austria Claims First European Launch of HSPA+ Mobile Broadband); however, the threat of regulation and the sell-off of the government's remaining stake in the incumbent means this dominance could soon be challenged.