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Hutchison Sees Earnings Soar in Europe

Iain Morris
8/25/2015

Hutchison Whampoa's European telecom business has reported a sharp increase in earnings over the first six months of the year despite a slight drop in sales.

3 Group Europe, as the division is called, saw EBITDA soar by 40%, to around HK$7.8 billion ($1 billion), compared with the same period in 2014, even though revenues dropped by 2%, to HK$30.6 billion ($4 billion).

The pan-European operator -- which maintains networks in the UK, Italy, Sweden, Denmark, Austria and Ireland -- blamed the sales decline on the weakness of European currencies, noting that revenues increased by 16% in local currency terms.

Earnings were boosted by a reduction in operating expenses, which fell by 6%, to HK$8.7 billion ($1.1 billion), over the same period, and by takeover activity in Ireland, where Hutchison last year completed the acquisition of O2 Ireland from Spain's Telefónica .

The company is looking to strengthen its position in existing markets through takeover activity and is currently hoping to complete a £10.25 billion ($16.1 billion) of Telefónica's UK business as well as a merger of its Italian unit with Wind, a mobile rival owned by Russia's VimpelCom Ltd. (NYSE: VIP). (See Telefónica Seals $15.2B O2 Sale to Hutchison and Hutchison's Wind of Change.)

Those deals would make 3 the biggest mobile operator by customer numbers in the UK and Italian markets.

Besides bulking up in Ireland, 3 also completed a takeover of Orange Austria Telecommunication GmbH. in early 2013, although it remains the smallest mobile network operator in what is now a three-player market, trailing market leader Telekom Austria Group and number-two player T-Mobile Austria .

Unlike many of its biggest mobile rivals, which have been expanding into the fixed broadband and TV sectors, 3 remains focused on providing mobile services to its customers and has previously expressed a degree of skepticism about the attractions of so-called quad-play bundles -- wrapping fixed voice, broadband, TV and mobile services into a single package.


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So far the company's mobile-only strategy appears to have paid off in most territories, including the UK, where 3 managed to increase revenues at a year-on-year rate of 10%, to around £1.1 billion ($1.7 billion), and grow subscriber numbers from 9.7 million to 10.5 million in the year to June.

The performance shows 3 is still flourishing next to its bigger rivals, whose metrics look far less impressive.

Market leader EE , for example, saw its overall number of mobile connections fall from 24.5 million to 24.2 million over the same period because of losses at its prepaid business, while its first-half turnover was unchanged from the year-earlier period, at £3.1 billion ($4.9 billion). (See EE Boasts Record Margin in H1.)

Vodafone UK , meanwhile, served around 18.3 million mobile customers in June, down from 19.6 million a year earlier, and made about £3 billion ($4.7 billion) in service revenue in the first half, compared with £2.9 million ($4.6 billion) in the first six months of 2014. (See BT Split Could Spur Vodafone to Invest in Fiber – Colao.)

3 Group Europe's overall customer base grew by 2% in the year to June 2015, giving 3 a total of 30.1 million subscribers in its six European markets at the end of the first half.

Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY) also reported a 2% increase in blended average revenue per user, to €21.31 ($24.31) per month, over that period, thanks largely to improvements in Austria and Italy.

In contrast to most of its competitors, Hutchison additionally reports average margin per user -- which, it says, is based on a calculation of monthly revenue minus direct variable costs -- and claims to have seen a 5% increase in this figure, to €14.55 ($16.60), since the first half of 2014.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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