Hutchison Whampoa profits take 3G hit

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Hutchison Whampoa, the Hong Kong conglomerate headed by Li Ka-shing, on Thursday reported a 5 per cent drop in 2004 pre-tax profits after continued heavy losses at the group's third generation mobile phone business.

But Mr Li, group chairman and Asia's richest man, said the higher-than-expected losses which at the net level rose from HK$10.6bn ($1.35bn) in 2003 to HK$25.3bn last year partly due to changes in accounting standards would narrow in 2005. Operating losses for 3G nearly doubled to HK$37.5bn.

?The losses will be much, much less this year,? Mr Li said, adding that the business was on track to break even before interest, tax, depreciation and amortisation this year and ?very possibly? to turn cash flow-positive in 2006.

The 3G losses contributed to a decrease in the company's pre-tax profit from HK$7bn in 2003 to HK$6.7bn in 2004.

Net income rose 38 per cent to HK$16.1bn after the company adopted new accounting standards and booked a HK$19.2bn profit from asset disposals. Earnings growth for this year would have been flat, excluding the accounting changes.

Hutchison has been selling businesses in the past few years to offset the negative impact of 3G on the rest of its port-to-retail operations. This included the sale of a 20 per cent stake in a China venture to its partner, Procter & Gamble, that yielded HK$13.8bn in May.

Mr Li said on Thursday the 3G business, which began service in 2003, would become self-financing in 2005-06. The group planned to realise the value of its $25bn investment by listing the Italian and UK businesses this year and next year respectively.

Hutchison has 3.56m 3G users in Italy and 3.02m in the UK, its largest markets.

Globally, the business had signed up more than 8m customers as of the end of March, compared with just over 1m a year ago. It added 1.7m new customers in the first quarter of this year.

Average spending per user in 2004 was ?52.43. It was ?47.17 in Italy and ?40.30 in the UK.

The company also said on Thursday its user acquisition cost, which fell from ?299 in the first half to ?271 in the second half, would continue to fall this year thanks to ?rapidly dropping average handset prices?.

Outside its 3G operation, Hutchison continued to see strong growth at its core port and retail divisions.

The company said on Thursday earnings before interest and taxes at its container port business rose 17 per cent to HK8.87bn, or 46 per cent of the group's ebit, which also increased 17 per cent to HK$19.37bn.

Group turnover rose 23 per cent to HK$179bn in 2004.

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