3 Group posts 20% EBITDA rise; Hutchison Asia EBITDA drops 18% on forex

26 Aug 2015

Hong Kong-based conglomerate CK Hutchison Holdings (CKHH), which was formed via the merger of Hutchison Whampoa and Cheung Kong Holdings on 3 June 2015, has reported its financial results for the six months ended 30 June, including its telecoms divisions 3 Group (Europe), Hutchison Asia Telecommunications (HAT), Hutchison Telecommunications Hong Kong Holdings (HTHKH) and Hutchison Telecommunications Australia (HTAL, which owns a 50% share of Vodafone Hutchison Australia). CKHH pro forma results for the six months assume that the reorganisation of the group was effective as at 1 January 2015.

3 Group’s registered 3G/4G customer base in Europe totalled over 30.1 million at 30 June 2015, of which ‘approximately 25.5 million’ were reported as ‘active’, compared to 26.9 million ‘registered’ and approximately 22.6 million ‘active’ claimed at mid-2014. Weakness of European currencies was blamed for a pro forma 2% year-on-year drop in 3 Group’s revenue to HKD30.573 billion (USD3.944 billion) in January-June 2015, while six-month EBITDA and operating profit (EBIT) grew by 20% and 116% to HKD7.778 billion and HKD4.924 billion respectively. In local currency terms 3 Group’s revenue and EBITDA increased y-o-y by 16% and 40% respectively. 3 Group also notes that its European operations reported improved underlying EBITDA performances, particularly at 3 Ireland following the acquisition of O2 Ireland (in July 2014) and at 3 UK from the continued improvements in net customer service margin. On a six months pro forma basis, EBIT in local currencies across the 3 Group improved by 153%, reflecting both strong EBITDA growth and lower depreciation and amortisation resulting from the rebasing of telecommunication assets under the CKHH group reorganisation.

Meanwhile, 3 Group is awaiting the completion of two significant transactions, which if approved will see it become the largest mobile operator by users in both the UK and Italy. In March 2015 the former Hutchison Whampoa agreed to acquire O2 UK from Telefonica for GBP9.25 billion (USD14.57 billion) cash and deferred upside interest sharing payments of up to GBP1 billion upon achievement of agreed financial targets. Subsequently, in May 2015 the Hong Kong group entered into agreements with five institutional investors who will acquire approximately 32.98% interest in the combined business of 3 UK and O2 UK for a total of GBP3.1 billion. These investments are conditional on and will occur concurrently with completion of the acquisition of O2 UK, itself subject to regulatory approval. Furthermore, on 6 August 2015 CKHH agreed with Vimpelcom to form an equal joint venture merging 3 Italy and rival Italian operator Wind Telecomunicazioni, subject to regulatory approval.

Asian division HAT reported that as of 30 June 2015 it had an active mobile customer base of approximately 62.6 million across Indonesia, Vietnam and Sri Lanka, a 15% increase from the end of 2014 and a 35% gain compared to the roughly 46.5 million customers it reported at end-June 2014. Despite the swelling user base, in reported currency HAT’s total six-month revenue decreased 9% year-on-year to HKD3.179 billion and EBITDA fell 18% to HKD411 million over the same period, adversely impacted by foreign currency translation mainly due to the decline of the Indonesian Rupiah. In local currency terms, HAT’s EBITDA decrease was 10% y-o-y in the first six months of 2015.

HTHKH, the holding group for CKHH’s Hong Kong and Macau operations, announced a 57% pro forma y-o-y increase in profit attributable to shareholders to HKD508 million, reflecting improvements in mobile business performance. At 30 June 2015, the 3-branded divisions in Hong Kong and Macau reported a combined total of approximately 2.9 million active mobile customers, as the group continues to churn lower-value user accounts, with the reported total dropping from 3.6 million at mid-2014.

HTAL, owner of 50% of Vodafone Hutchison Australia, announced a 14% y-o-y widening of losses attributable to shareholders, to AUD90 million (USD64.7 million) in January-June 2015, blamed on ‘higher handset costs, higher variable content costs and higher finance costs due to the stronger US dollar’, partly offset by lower operating expenses. The losses came despite HTAL announcing total six-month revenue of AUD887 million, up 3% y-o-y.