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Sandy Li

Hutchison Whampoa expects to book a one-off gain of 230 million euros (about HK$1.94 billion) this year from the sale of its four-year-old European water business to Nestle, the world's biggest food company.

Analysts said the deal could give a strong boost to the Hong Kong company's earnings.

AS Watson (ASW), the conglomerate's retail arm, has agreed to sell the Powwow Group to Nestle Waters for 560 million euros settled in cash and debt. ASW will continue to operate its Asian water businesses, but decided to pull out of the European trade after a review of businesses in the wake of a major move into the continent's pharmacy sector.

Five months ago ASW paid 1.3 billion euros for Netherlands-based Kruidvat group and became the world's third-largest pharmacy chain by outlets.

'While ASW has decided to sell its Powwow business to focus on the expansion of its health and beauty retail businesses in Europe, it will continue its Asian water and beverage businesses,' managing director Ian Wade said.

Analysts and markets reacted positively. Deutsche Bank Securities analyst Emilie Chau said: 'Generating exceptional gains in some hidden assets is one of the qualities investors are looking for in Hutchison. This is another example of how Hutchison creates value for its shareholders.'

Hutchison shares rose as high as HK$49.70 in early trade yesterday after the group disclosed details of the deal, particularly that the gain would be booked this year. But the counter lost momentum in the afternoon and finished at HK$48.60, down 0.81 per cent on the day.

Last year, Powwow generated turnover of 120 million euros. It began its 'home-office' water delivery business in September 1998, and developed in western Europe through a series of acquisitions and organic growth over the past three years.

It employs 1,500 people in France, Germany, the Netherlands, Britain, Denmark, Italy and Portugal.

Hutchison group managing director Canning Fok Kin-ning said: 'This deal represents the realisation of significant value to the shareholders.'

The proceeds will be used for general purposes.

Daiwa Institute of Research (Hong Kong) head of research Jonas Kan believed the exceptional gain would help to lift Hutchison's earnings for the current year to December by more than 10 per cent. Before the announcement of the deal, he forecast the group's profit for the year would be about HK$11 billion.

ING Financial Services analyst Cusson Leung estimated, however, that the deal would add about 50 HK cents net asset value per share to Hutchison, not a significant lift to the Hong Kong conglomerate given its huge size.

'This could be a beginning of a series of disposal programmes in the run up to third-generation [3G] services,' he said.

Hutchison has committed to invest about US$16.7 billion to develop 3G mobile phone services in Europe, particularly in Britain and Italy.

'There could be more of such exercises to generate more exceptional profits and smooth out earnings,' Mr Leung said.

At ASW, Mr Wade said water would remain important in Asia. 'We have the world's largest distilled water production plant in Hong Kong and three plants in Guangzhou, Shanghai and Beijing. We are always looking for ways to accelerate growth, either through investment in existing companies, or acquisition of complimentary businesses.'



Hutchison taps $1.9b gain