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Chapter 4 Conclusions
4.1 Reserved the Cash before Crisis coming
Before the Sub-Prime crisis 2007 happened in 2007, the HWL had stopped its entire expansion plan and waited for the next development. Its overall investment had decreased obviously since year 2007 and early half year of 2008. Unlike a series of acquisitions prevailing form year 2000 to 2005, such as, acquiring Savers of British in 2001, Krudivat of Europe in 2002, Drogas of Latvia and Lithuania in 2004, Dirk Rossmann of German in 2004 , Cosmo Shop of Turkey and Marionnaud which is the prestigious perfume and cosmetic retailers of French. There were no any acquisition activities after 2007, no matter its Retails or Ports business. Same as the HWL assets business, comparing with the year between 2004 with 2007, its activities on purchasing lands had decreased clearly; the others were mostly focusing on certain important areas like Pudong Shanghai, Wuhan and Chong Qing. Instead of blind expansion, HWL choose to raise the profits-making capability of its current assets, meanwhile, its cash reserve was increased with its slow down operation, but also incur the market doubts by its conservative capital mobilization. However, with the economic crisis that happened in year 2008, the HWL has become one of few successful corporate that could survive and recover in a very short time. All these can be attributed to its abundant cash reserved.
4.2 Expansion on new business model through financial-operation
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Since 2007, the Husky Energy, acquired by HWL and Li Ka-shing for 3.2 billion HKD in 1986 has become the biggest profits income and source of cash flow within the HWL group. In addition to the joint development of the oil mine extraction, and Indonesia project with China National Offshore Corp, the HWL also took two items of oil fields extraction in ice land. More importantly, on March 2008, it signed the agreement with British Petroleum (BP) to set up a joint venture entity aiming at the oil fields extraction and the downstream oil refinement. Only the second quarter of 2008, it had issued the dividends 0.5 Canada dollars. According to the estimation, the HWL that hold 34.6% shares had 1.136 billion HKD cash flow incomes and 1.182 billion incomes for Li Ka-shing who owned 36% shares. The Energy business played a key role when the 3 G business was still losing money, the HWL could compensate the loss with the aid of its grand profits.
Although the falling oil pieces lead to the poor performance of the Husky in 2009 and cannot meet the expectation of the market, however, the loss of the 3G business has improved. More importantly, it has started generating the positive cash flow, which the EBIT was 176 million HKD and LBIT had substantially narrowed down to 8,922 million HKD.
Without counting the Deprecation and Amortization of the License, the 3G business finally made profits for the group. Again, it proves the success of the business allocation strategy of the HWL, which was using the profits of one business to make up the loss of the other immature business. To wrap it up, as if our topic, that is the typical case of incorporating the cash flow in the Corporate Strategy that HWL tends to
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create more cash flow through the financial operation , like acquiring the matured corporation but could bring in stable and consecutive cash flow in.
Likewise, it gradually turns its expanding target on new business model, such as distribution, channel operation or self-own branding and so on so forth. The present HWL has not only put emphasis on business complementary, but gradually step into a new business model, which could collect the cash more directly.
4.3 Reference for Taiwan Industries
According to the financial statement, its free cash flow in 2009 has reached 83,502 million HKD. Bases on the experience, the HWL would not tolerate that there is too much cash on the account but without any expansion or said lacking of activates to achieve another growth in the future. Hence, in future, it could be expected that there might be a new movement of the HWL, especially after attach by the Economic Crisis, many of its assets are underestimated, that makes them so attractive and HWL was the one which survived by having abundant cash reserved.
The business diversification strategy of the HWL directly reflect the philosophy that, `` Crisis is the opportunity of another Expansion’’ made by Li Ka-shing. In brief, its business model is ensuring the stable cash flow through a series of business and reinvests on those new rising quasi- monopolized business with longer return periods and capital-intensive.
Besides, it casually uses irregular profits to smooth the fluctuations of business by selling the assets like the Orange case after Asia Economic
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crisis. On the other hand these profits again being used for supporting those quasi-monopolized business such as harbor and Mobile Telecommunication at the low tide after economic crisis. When these new investing items need more money, but selling of assets no longer satisfy the needs, the HWL spin off the business of each project and go to IPO. In that way, not only the each project should afford its own cash flow, the HWL could acquire more benefits and avoid the under-estimated of its stock price by market. This cycle shows its capability on controlling the risks before dong any investments or expansion, which could be a good reference not only for the single business but also for the whole Taiwan industry with the inspiration of its cash flow management and global expansion. Especially, the HWL successful change its old business model to new profile, which dominate the distribution, channel and self-owned brand business through a series of planned merger and acquisition, it not only allows HWL has more capitals supporting for developing another new business but also lowering its capital cost , and avoiding the cash flow risk. Recently, we can find the prestigious Fubon Corporation in Taiwan is duplicating the similar business by acquiring the business like TV-purchasing channel, telecommunication business and so on so forth.
All them share a very same character that have frequent and abundant cash flow in, by having the cheap capital supporting, Fubon could remain its another expansion in a very short , and moving further to dominate the market. Therefore, we can predict that how to incorporate the cash flow management in expansion will be a critical issue to Taiwan companies in the near future, and the wisdom of HWL will be an excellent reference.
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