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Hutchison Whampoa on Thursday promised that its €18bn ($22bn), five-year foray into third-generation mobile phones would finally pay off this year, saying the business would be able to survive on its own profits after a final €1bn investment.
The end of Hutchison’s funding for 3G would be a milestone for the ports-to-retail conglomerate, whose financial health has been repeatedly called into question over its move into mobiles.
However, analysts warned that the ability of Hutchison, controlled by Asia’s richest tycoon Li Ka-shing, to reap a return on 3G would depend on meeting its profit targets and listing the Italian operations this year to beat rising competition.
Frank Sixt, Hutchison’s finance director, said 3G would need a further €600m-€1bn, to come from the company’s cash resources, before being able to fund itself. Ending 3G funding, which began in 2000-2001 when Hutchison spent an estimated $12bn buying 3G licences across the world, would enable it to repay debt and devote resources to other parts of the group such as ports and retail.
On Thursday Mr Li said he expected the 3G business, with operations in eight countries in Europe and Asia, to break even on an underlying basisin the second half of the fiscal year.
In the six months to June, 3G reported a loss before interest and taxation of HK$10.6bn ($1.4bn) compared with HK$14.3bn in the same period last year. However, this year’s result was flattered by a HK$9.4bn exceptional profit on Hutchison’s purchase of minority interests in its UK business.
Canning Fok, managing director, reiterated the company’s plan to spin off 25 per cent of the Italian business – with more than 4.5m customers – in Milan this year.
Analysts estimate the initial public offering could raise €1bn-€1.5bn.
Mr Fok suggested the IPO would prompt analysts to increase their valuations of the the 3G business, delivering a boost to Hutchison’s share price.
Mr Sixt delivered a blistering attack on a Citigroup research reprort that suggested increased competition in the UK would hurt 3G’s finances.
Mr Sixt said the analysis by Anil Daswani, whose advise to investors to sell Hutchison prompted a fall in its shares this week, was “factually tremendously incorrect” and failed to include a large part of the revenues in the UK business
His comments came as Hutchison reported an 8 per cent decrease in pre-tax profit to HK$7.8bn – from HK$8.5bn in the same period last year – in the six months to June on turnover of HK$109bn, from HK$82.2bn last year. The company declared an unchanged interim dividend of HK$0.51 per share payable from earnings per share of HK$2.77 (HK$2.52).
●Separately, Mr Sixt, who is also chairman of Mr Li’s internet vehicle Tom Group, confirmed a recent press report about the company’s talks over the purchase of Formula One from the entrepreneur Bernie Ecclestone but said no deal was imminent.
“Tom Group has a sports division . . . they have had some discussion with Formula One but there is no transaction on the table at this hour,” he said.