Hutchison Whampoa reported a 12% rise in net profit to HK$14.17 billion in 2009, despite a 14% drop in revenue to HK$300.55 billion. Gains from property and asset sales offset losses in its energy and 3G businesses. While losses in 3G operations fell 67%, the division is still dragging on earnings. However, results from property completions and asset sales boosted profits.

1. Economics for Journalists
Week 4: Corporations, cont.
Jeffrey Timmermans
Monday, 18 February, 13

2. Why companies exist
✤ Allow individuals to pool capital and share risk
✤ To accomplish complicated tasks like international trade & creation of
complex products
✤ To make money (profit) for its owners
Monday, 18 February, 13

3. Costs
✤ Fixed costs
✤ Overhead (rent, equipment, etc.)
✤ Variable costs
✤ Raw materials
✤ Labor
Monday, 18 February, 13

4. Profit
✤ Profit is what’s left from revenue after all costs of doing business are
subtracted
✤ A public company’s main responsibility to shareholders is to
maximize profit
✤ Maximize revenue/minimize costs
✤ Because profit is what’s used to pay dividends and grow the business
Monday, 18 February, 13

5. Types of profit
✤ Gross profit: Just revenue minus cost of sales
✤ Operating profit: Profit from core operations
✤ EBIT & EBITDA: Earnings before interest, tax, etc.
✤ Net profit, or earnings: The bottom line
✤ The profit attributable to shareholders
✤ Dividend payments come from net profit
Monday, 18 February, 13

6. The importance of net profit
✤ Net profit, or earnings or profit attributable to shareholders, is the main
driver of share prices
✤ particularly expectations about net profit
✤ The definition is standard, so net profit is comparable across industries
✤ Net profit, after subtracting dividends, becomes working capital
Monday, 18 February, 13

7. Corporate disclosure
✤ Three main types:
✤ Profit & Loss Statement (also called P&L or income statement)
✤ Balance Sheet
✤ Cash Flow Statement
Monday, 18 February, 13

8. Profit & loss statement
✤ A roadmap that leads you from revenue (sales) to net profit
✤ Details the expenses that are incurred on the way to net profit
✤ Consolidated vs. company
✤ Always check the footnotes!
Monday, 18 February, 13

9. Hutchison Whampoa Limited
Consolidated Income Statement
for the year ended 31 December 2009
As restated
Note 1
2009 2008
Note HK$ millions HK$ millions
Company and subsidiary companies:
Revenue 2 208,808 235,478
Cost of inventories sold (74,275) (77,172)
Staff costs (28,309) (31,929)
Telecommunications customer acquisition costs (16,544) (22,926)
Depreciation and amortisation 2 (16,258) (24,876)
Other operating expenses (60,769) (66,001)
Change in fair value of investment properties 1,117 672
Profit on disposal of investments and others 3 12,472 3,458
Share of profits less losses after tax of:
Associated companies before profit on disposal of investments and others 5,927 12,522
Jointly controlled entities 3,677 5,286
Associated company's profit on disposal of an investment and others 3 - 3,122
2 35,846 37,634
Interest and other finance costs 4 (9,613) (17,286)
Profit before tax 26,233 20,348
Current tax charge 5 (4,588) (3,443)
Deferred tax credit 5 92 2,576
Profit after tax 21,737 19,481
Allocated as : Profit attributable to minority interests (7,569) (6,800)
Profit attributable to shareholders of the Company 14,168 12,681
Earnings per share for profit attributable to shareholders of the Company 6 HK$ 3.32 HK$ 2.97
Details of interim dividend paid and proposed final dividend payable to the shareholders of the Company are set out in note 7.
Monday, 18 February, 13

10. Balance sheet
✤ A snapshot at a particular time of a company’s assets (what it owns)
and liabilities (what it owes)
✤ Current assets can be turned into cash within one year
✤ (Current) Assets – (Current) Liabilities = Working capital
Monday, 18 February, 13

11. Current liabilities 157,260 130,581 187,680
Current liabilities Trade and other payables 10
Trade and other payables Bank and other debts 10 73,029 82,599 90,141
Bank and other debts Current tax liabilities 17,589 23,945 50,255
Hutchison Whampoa Limited Current tax liabilities 3,249 1,274 2,336
Consolidated Statement of Financial Position 93,867 107,818 142,732
at 31 December 2009 Net current assets
Net current assets 63,393 22,763 44,948
As restated As restated
Note 1 Note 1 Total assets less current liabilities
Total assets less current liabilities 597,530 560,363 647,776
31 December 31 December 1 January
Non-current liabilities
2009 2008
Non-current liabilities 2008
Bank and other debts
Note HK$ millions andHK$ millions HK$ millions
Bank other debts 242,851 234,141 260,086
Interest bearing loans from minority shareholders
ASSETS Interest bearing loans from minority shareholders 13,424 13,348 12,508
Deferred tax liabilities
Non-current assets Deferred tax liabilities 13,355 13,616 17,957
Pension obligations
Pension obligations 2,436 2,541 1,468
Fixed assets 171,399 173,246 181,342 Other non-current liabilities
Other non-current liabilities 4,520 4,586 5,929
Investment properties 42,323 41,282 43,680
Leasehold land 33,984 34,745 36,272 276,586 268,232 297,948
Telecommunications licences 70,750 72,175 91,897
Goodwill 28,858assets
Net 30,436 31,573 Net assets 320,944 292,131 349,828
Brand names and other rights 7,351 10,486 10,901
Associated companies 84,748
CAPITAL AND RESERVES75,545
76,478 CAPITAL AND RESERVES
Interests in joint ventures 51,568 capital 45,865
Share 39,725 Share capital 1,066 1,066 1,066
Deferred tax assets Reserves
14,657 13,248 17,619 Reserves 282,465 259,253 300,803
Other non-current assets 5,286 8,904 5,082
Liquid funds and other listed investments Total shareholders' funds
23,213 30,735 69,192 Total shareholders' funds 283,531 260,319 301,869
Minority interests Minority interests 37,413 31,812 47,959
534,137 537,600 602,828
Total equity Total equity 320,944 292,131 349,828
Current assets
Cash and cash equivalents 8 92,521 57,286 111,307
Trade and other receivables 9 48,146 54,767 55,374
Inventories 16,593 18,528 20,999 Appendix
157,260 130,581 187,680 HWL 2009 Annual Results
Current liabilities Page 3 of 27
Trade and other payables 10 73,029 82,599 90,141
Bank and other debts 17,589 23,945 50,255
Current tax liabilities 3,249 1,274 2,336
93,867 107,818 142,732
Net current assets 63,393 22,763 44,948
Total assets less current liabilities 597,530 560,363 647,776
Non-current liabilities
Bank and other debts 242,851 234,141 260,086
Interest bearing loans from minority shareholders 13,424 13,348 12,508
Deferred tax liabilities 13,355 13,616 17,957
Pension obligations 2,436 2,541 1,468
Other non-current liabilities 4,520 4,586 5,929
276,586 268,232 297,948
Net assets 320,944 292,131 349,828
CAPITAL AND RESERVES
Share capital 1,066 1,066 1,066
Monday, 18 February, 13
Reserves 282,465 259,253 300,803

12. The importance of cash
Profit is opinion, cash is fact
COMPANIES CAN LIE, BUT CASH CAN’T
Monday, 18 February, 13

13. Cash-flow statement
✤ Tracks the inflow and outflow of cash during the course of one
financial period
✤ Three sections: cash flow from operating activities, from investing
activities, from financing activities
Monday, 18 February, 13

14. Reporting on earnings
✤ Always focus on net profit, and how it changed from a year earlier
✤ Make sure to include revenue, so reader can judge the “quality” of
earnings
✤ Make sure to include year-earlier figures!
✤ Look for any dramatic year-on-year changes in figures in disclosure,
or big asset sales/purchases
✤ Is cash flow from operations positive, growing?
Monday, 18 February, 13

15. HK’s Hutchison Whampoa reports 12pct rise in profits
01-Apr-2010 | AFP | 7:01 AM
Hong Kong’s Hutchison Whampoa said Tuesday net profit rose 12 percent last year, as gains
from property sale and the sale of assets more than offset losses at its energy and 3G
technology units.
The port-to-telecoms conglomerate, headed by Hong Kong’s richest man Li Ka-shing, said in a
statement to the city’s stock exchange that net profit was 14.17 billion Hong Kong dollars (1.8
billion US) in 2009, up from 12.68 billion dollars in 2008.
The result was lower than the average forecast for a net profit of 15.54 billion dollars in a poll
of six analysts by Dow Jones Newswires.
The group’s total revenue dropped 14 percent to 300.55 billion dollars, mainly because of a
business slump at its Canada-listed affiliate Husky Energy resulted from sharp declines in oil
and gas prices last year, it said.
And income at its ports division dived 16 percent due to lower trading activity amid the global
financial crisis, the statement said.
Losses in its third-generation technology operations slumped 67 percent to 5.28 billion dollars,
primarily due to the merger of its 3 Australia with the Australian unit of British mobile phone
giant Vodafone.
Li said in the statement that its 3G results were expected to improve and make a positive
contribution to earnings.
The company was one of the world’s first to introduce 3G mobile business and has operations in
Italy, Britain, Ireland, Australia, Sweden, Denmark and Austria.
The group’s earnings have been dragged down since 2003 due to the cost of the 3G business.
But last year’s losses were partially offset by a 50 percent jump in profits from the completion
and sales of several residential projects.
The gains also came from a 12.47 billion Hong Kong dollar total profit from the disposal of
investments including its equity interest in three power plants in mainland China and its
telecoms assets in Israel and Indonesia.
Li said the company performed satisfactorily despite the challenging conditions last year and its
operations “are well placed to benefit from a recovering economic environment.”
Source: AFP via Intellasia
Monday, 18 February, 13