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Sandy Li

The sale of Hutchison Whampoa's European water business to Nestle for 560 million euros (about HK$4.78 billion) has the market wondering if the Hong Kong company's Asian water unit is also a target.

Sentiment is mixed. But some feel Hutchison's water delivery business to homes and offices in Asia is not as attractive as the European business it just sold.

Chris Atkins, general manager of Watsons Water, a wholly owned subsidiary of Hutchison's retail arm AS Watson, said the group was eyeing acquisition targets in Asia and had no immediate intention of selling its Asian water business.

'We will continue to invest and grow our Asian business. We may even develop further our business if the right acquisition opportunities arise,' he said. 'The markets in Asia and Europe have different opportunities and it's difficult to compare the two.'

Asia's growth prospects remained strong and exciting.

By contrast, Hutchison's Powwow Group in Western Europe grew rapidly through a combination of organic growth and a series of acquisitions. Last week's sale of Powwow Group was a result of market consolidation, a phenomenon that has not emerged yet in Asia, analysts said.

Hutchison said it expected to book a one-off gain of 230 million euros this year from the sale of Powwow, owned by AS Watson.

AS Watson has been producing distilled water in Hong Kong since 1903. It has since expanded its operations outside Hong Kong to include China, Taiwan, Malaysia and Singapore.

Its distilling water plant in the Tai Po Industrial Estate, the world's largest, has a maximum annual production capacity of 576 million litres.

'One of our major filling lines can handle about 2,800 carboys [18-litre bottle] per hour, operating for 10 to 16 hours a day, from 850 carboys hourly back in 1992,' Mr Atkins said.

Watsons Water also has three distilled water manufacturing plants in Guangzhou, Shanghai and Beijing.

Daiwa Institute of Research (Hong Kong) head of research Jonas Kan believes Hutchison's water business accounted for less than 1 per cent of its earnings before interest and tax.

He said Nestle's decision to buy Powwow, its former competitor, was prompted by its desire to become the market leader in Europe's 'home-office' water delivery market.

The nature of Watsons water business was different from Powwow's because it was engaged mainly in the manufacture and distribution of distilled water for Asians, Mr Kan said. Europeans, on the other hand, preferred drinking mineral instead of distilled water.

'Hutchison has retained its Asian water business probably because it has not received any attractive purchase offers,' he said.

ING Financial Services analyst Cusson Leung is doubtful that global players interested in the Asian water market consider the difference in water-drinking habits. 'Most Asians still prefer drinking boiled tap water instead of bottled water,' he said.

He said Watsons Water was already a household name and its long-established business in Hong Kong should be more easily managed than the European operation.

'So it sold the European water unit when it received an attractive offer,' he said.

Analysts said it was difficult to assess the performance of Hutchison's 'home-office' water delivery business because the transparency of the operation was low.

Mr Atkins refused to disclose the company's market share in Hong Kong, but said Watsons Water was the leader in the 'home-office' water delivery and consumer pack markets.

He said the company was one of the few players to own manufacturing plants that produced distilled water in bottles and controlled a fleet of 100 trucks for door-to-door delivery.

Watsons Water's full production capacity is more than twice that of Hong Kong's 265 million litres of overall water consumption last year, down 1 per cent from 2001, according to figures provided by Watsons Water.

Last year, 90 per cent of overall water consumption was distilled water and the rest was mineral water.



No plans to sell Hutchison's Asian water unit