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Investor Presentation
September 2014 - Hong Kong
This presentation may contain “forward-looking statements” that are not
historical in nature. These forward-looking statements, which include,
without limitation, statements regarding PCCW's future results of
operations, financial condition or business prospects, are based on the
current beliefs, assumptions, expectations, estimates, and projections of the
directors and management of PCCW about the business, the industry and
the markets in which PCCW operates. These statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors, some of which are beyond PCCW's control and are difficult to
predict. Actual results could differ materially from those expressed, implied
or forecasted in these forward-looking statements for a variety of factors.
Forward-Looking Statements
1
2
(US$ million)
Core Businesses
Solid EBITDA
& cash flow
HKT FY13 Revenue 2,927
FY13 EBITDA 1,013
Market Value (as at Sep 12, 2014) 9,203
Growth
businesses
Media FY13 Revenue 387
FY13 EBITDA 65
Solutions
FY13 Revenue 380
FY13 EBITDA 67
PCPD FY13 Revenue 86
FY13 EBITDA (12)
(100%) (100%)
(63.07%)
Figures in brackets represent ownership by PCCW as at Sep 12, 2014.
(71.69%)
Solid Telecom Business Media & Solutions Businesses – Growth Focus
FY13 Revenue 3,502
FY13 EBITDA 1,030
Market Value (as at Sep 12, 2014) 4,770
3
Diverse Global Workforce
Diverse global workforce fosters business growth and innovation
and best serves our customer needs worldwide
• Approximately 23,000 people work within the PCCW Group worldwide
after the successful integration of CSL
• Diversity of Nationalities
• 50 Nationalities are represented in our workforce
• Gender Balance
• Women and Men accounted for approximately 35% and 65% of the
total workforce respectively
Figures stated as at June 30, 2014
4
Media Business
81
63 65
29 23
FY 2011 FY 2012 FY 2013 H1'13 H1'14
347 360 387
167 191
FY 2011 FY 2012 FY 2013 H1'13 H1'14
5
Consolidating Leadership Position
(US$ million) Media Revenue
• Media revenue up 14% in H1’14 underpinned by
subscription and advertising revenue growth • Softening in EBITDA and margin in H1’14
reflecting the full six-month impact of the
costs associated with BPL. In addition,
investments were made for service
enhancement and business development
Media EBITDA
EBITDA
Margin 17%
12%
23%
17% 17%
818
882927
953992 1001
1028 10391088
11401165 1183
12371204
1269
125
153
169165 167 169
172 173
187
169 171 171 174174
191
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
Installed Base Installed base ARPU (HK$/ month)
6
Continued Market Leadership in Pay TV
2007 2008 2009 2010 2011 2012 2013 2014
Thousands
now TV continued to excel over competitors and recorded expansion in subscription
base and ARPU in H1’2014
Apart from BPL, the broadcast of World Cup on now TV platform
in June, reinforced Now TV as the ultimate choice for soccer fans,
and brought forward sports subscription before new BPL season
kick-off
Unique interactive TV features (including Now Player, VOD, Live
Timeshift, and Network Recording functions) plus the upgrade of all
15 sports channels in HD* amplify service differentiation over
competitive services substantiating premium positioning
* now Sports (632-637), now BPL (621-625), Fox Sports (670-672) and Eurosports (676) will be all
upgraded to HD / Super HD in H2’14
Soccer Fans Base Continues to Expand
Interactive Features Amplify Service Differentiation
Unique features amplify service differentiation
Soccer Tennis Basketball Golf Others
now Super
Sports Pack
15 World Class Channels in HD quality
7
Successful First TV Drama Series Production
8
“The Virtuous Queen of Han” Cast : Wang Luo Dan , Raymond Lam, Niki Chow (top actors in Mainland and Hong Kong)
Director / Scriptwriter :
Lau Gar Ho, Mui Siu Ching (highly regarded talented
directors / scriptwriters, best known for directing top-rated
TV dramas in Hong Kong)
Successful completion and launch of Now TV’s first 38-episode
TV drama co-production “The Virtuous Queen of Han”.
Global distribution of the series is well underway
Major Mainland distribution deals have been reached
Top satellite TV stations - Zhejiang Satellite TV and
Anhui TV Station
Major online video platform - Tencent Video
First broadcasting in late August in Mainland has achieved
remarkable result. According to CSM (索福瑞媒介研究有限公司),
the only governmental recognized viewership company, it
became the no. 1 rated drama.* The quality of our production
and creativity of our talents and writers is well recognized
More deals in other territories concluded:
Reached distribution agreement with broadcasters in
Singapore, Malaysia, Vietnam, Japan, Korea,
Philippines, Cambodia, Sri Lanka, Australia & New
Zealand
Production of the second & third TV dramas is in the pipeline
* The viewership data was collected from CSM with 120 million of television viewer units as base.
Established important affiliate partnerships to distribute now TV channels
across Asia and North America
Latest addition to footprint
Viettel of Vietnam and Bell’s Fibe TV of Canada
Debuted Chef Corner & Junior Chef Corner co-production projects with StarHub in
Singapore and Fairchild TV in Canada proving success of our home grown formats
Chef Corner
(Singapore) Territory Affiliates
Malaysia Telekom Malaysia HyppTV
Singapore StarHub Limited
Thailand CTH Public Co. Ltd.
Indonesia Big TV (First Media)
USA Dish Network Corp
Canada
Canada
Fairchild TV
Telus Optik TV
Rogers Communications
Bell Fibe TV
Vietnam Viettel
Junior Chef Corner
(Vancouver)
Continual Expansion of International Footprint
9
Total Overseas
Subscribers
>500K
new
Launch of Brand New MOOV App
to Capture OTT Music Market
ENJOY Music Visual driven UI,
1 click to favorite &
download songs Discover 1st in HK Playlist
Central with 20+
Music Gurus to curate
1000+ playlists
Share Patent-pending
LyricSnap merges
music, lyrics and photos
with social media
KPOP Library HK’s Largest KPOP
library with 100+
music labels direct
distribution
• Digital Music Industry Revenue in HK
grew over 50% between 2010 to 2013*
• In line with our overall OTT strategy –
brand new version of MOOV offer an
open-to-all Hong Kong music service
to attract mobile and connected device
users with new features and enhanced
content library
• Following the launch in Guangdong,
we further reached agreement with
BesTV to roll-out MOOV nationally in
mainland China throughout its IPTV
markets as exclusive music partner
3.3M app download.
Users enjoy now TV contents via now apps in HK
* IFPI’s Recording Industry in Numbers Apr 2014
Unique features in new MOOV App
10
IT Solutions Business
11
49
56
67
28 30
FY 2011 FY 2012 FY 2013 H1'13 H1'14
283
318
380
179 187
FY 2011 FY 2012 FY 2013 H1'13 H1'14
12
Demonstrates Continued Growth
(US$ million) Solutions Revenue
• Revenue growth of 5% in H1’14 driven by timely execution of
projects and continued demand for data center capacity
• Secured order increased by 16% yoy to US$774 million as at
Jun 30, 2014
• Overall data center occupancy rate at 87% as at Jun 30, 2014
Solutions EBITDA
• EBITDA growth of 7% and stable margin
in H1’14 driven by recurring service
revenue and maintaining staff and data
center utilization levels
EBITDA
Margin 16% 16% 17% 18% 18%
Significant Contract Wins
Project Implementation
• Re-design and implement the
education information system
for Education Bureau
• Supply, installation and re-
commissioning of extra-low
voltage solutions systems for
Venetian Macau Serviced
Apartment
13
Outsourcing
• Provide IT managed services
including IT workplace support
and data center management
services for MTR
• Provide frontline support &
maintenance service for the
control centre at Hong Kong
International Airport
Data Center Services
• Design, plan and provide
data center services for a
government department
• Provide data center
services for a well-known
European financial
institution
China
• New wins from existing customers
including in China Unicom and
China Mobile
• Vanda Group - New wins in
complementary industries such as
auto finance
• New SAP wins in the logistics and
manufacturing industries
Secured Orders increased by 16% yoy to US$774m
Expanding Data Center Capacity
A new world-class data center in Kwai Chung
with gross floor area of 202,000 sq.ft. and
maximum electricity capacity of up to 8,000 kW
has been opened in phases. Around 73,000 sq.ft.
became available in H1 2014
14
Customers including government departments and
financial solutions provider will move-in in H2 2014
MCX 10
Key Organic Growth Drivers
Secured orders from Cloud Computing
15
Cloud Computing – Healthy growth engine
• Implemented a Central Hosting
Infrastructure supporting more than
100 e-government services for the
Office of the Government Chief
Information Officer
China Business – Connecting China to the world
• Bringing in world-class technologies
and successfully built high-tech digital
theater systems at Dunhuang Mogao
Caves Visitor Center and Beijing
Planetarium
+38%
y-o-y
Revenue from China
+21%
y-o-y
Telecom Business
16
17
A Solid Performance
And the Return of CSL • Adjusted Funds Flow up 7% yoy to US$204 million in H1’14
• Interim distribution of 21 HK cents per SSU
• Enlarged mobile business with return of CSL – Mobile revenue and EBITDA increased by 63% and 113% respectively in H1’14. Mobile
revenue represented 23% of total HKT revenue (16% in H1’13) and mobile EBITDA accounted for 22% of total HKT EBITDA (12% in H1’13)
• TSS delivering steady growth – TSS revenue and EBITDA increased by 4% and 2% respectively in H1’14, underpinned by the broadband and
international businesses
HKT EBITDA HKT Revenue (US$ million)
Mobile
Eliminations
TSS Others
Others
International
Local Telephony
Local Data
Mobile
Others
TSS
(13) (25) (27) (17) (18)
897 912 927
450 461
66 96 113
59 124
FY 2011 FY 2012 FY 2013 H1'13 H1'14
567 492
950 983
104 88 88 41 37
426 395 340 149 151
436 436 440
215 216
728 776 828
403 415
538 673
860
413 444
341 391
432
229 373
(31) (56) (61) (31) (31)
FY 2011 FY 2012 FY 2013 H1'13 H1'14
1,605 1,419
2,542 2,703
2,927 1,013 16%
29% 28%
15% 23%
28% 26%
13%
11%
1% 1%
9% 12%
91%
-3%
22%
81%
-3%
Stable Fixed-line Business
18
1,144 1,164 1,180 1,183 1,195 1,182 1,183 1,228 1,238 1,242 1,245
1,423 1,400 1,407 1,407 1,408 1,406 1,407 1,408 1,408 1,409 1,409
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1'14
Business Lines
Residential Lines(’000)
Solid Customer Base Maintained Since 2004
Consolidated Position in Broadband
19
Consolidated broadband market position with churn rate of around 1%
Industry dynamic has shifted from market share gain to value creation and ARPU growth
(‘000)
1,005 1,060 1,099 1,126 1,136 1,146 1,148 1,215 1,285
1,363 1,385 1,410 1,408 1,408 1,408
104107
110 113 113 114 114115
116119 122 126 128 130 131
Series 1 Series 2 Series 3 Series 4 Series 5 Series 6 Series 7 Series 8 Series 9 Series 10 Series 11 Series 12 Series 13 Series 14 Series 15
Wholesale
Business
Consumer
1,237 1,275 1,302 1,305 1,297 1,298
1,367 1,437
1,518
1,176
1,540 1,567 1,567 1,567
2007
H1 H2 H1 H2 H1 H2 H1 H1 H1 H2 H2
2008 2009 2010 2011 2012
H1
2013
H2 H2
1,567
H1
2014
Wide Coverage of our Fiber Network
20
* FTTB-ready means FTTH service can be available within 29 days of receiving a service order, building management access permitting
** FTTH-ready means FTTH service can be available within 4 days of receiving a service order
(as of July 2014)
FTTB-ready (86.9%)* (supporting speeds of up to
100Mbps)
1.5M or above
(98%)
FTTH-ready
(79.9%)** (supporting speeds up to
1000Mbps)
Continued Growth of Fiber Customers
21
Fiber-To-The-Home (FTTH) Service continued to attract new
customers and existing customers for service upgrade
462K customers enjoying FTTH service as of Jun 2014,
grew 28% vs. Jun 2013
(‘000)
57
144
226
304
362
419 462
Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14
Growing fiber customer base creates future upgrade
opportunity to higher speed, higher price service plans
583K customers enjoying high speed service (FTTH and
VDSL) as of Jun 2014
International Business Continues to Grow
22
Our Mobile Business Now
23
● Total customer base of 4.512M
– Post-paid customer base of 3.183M
CSL Acquisition Completed on May 14, 2014
* Figures stated as at June 30, 2014 or for the six months ended June 30, 2014
● Post-paid exit ARPU of HK$216
● Mobile data represents 68% of total services revenue
● 76% of post-paid customers are smart-device users
● IDD and roaming represent 18% of total services revenue
Staff Integration Complete
– CSL staff acceptance rate of over 94%
Launched Multi-Brand Strategy
– Three-brand strategy allows full coverage of the market according to customer’s affordability
and service requirements
Rationalized Shop Networks
Started Network Integration
– Deploying “Multiple Operator Core Network” technology to integrate the networks, with an
initial focus on the 900MHz network
– Most CSL cell sites located at MTR stations have already been upgraded to fiber backhaul
Unified and Simplified Service Plans and Pricing
– CSL plans retained although a number of low volume plans have been removed
– PCCW-HKT mobile tariffs have been aligned
– Unified pricing plans reduced complication while still offering significant choice for
customers based on their requirements
Integration Process Well Underway
24
25
Investing Prudently for Growth
• Opex grew by 16% in H1’14 and the
opex to revenue ratio was 23%
• Increase in opex in H1’14 primarily
at HKT, largely due to the CSL
acquisition; expect the synergies
realized from increased scale and
rationalization of the operations to
manifest more evidently over the
course of the next 18-24 months
• Media & Solutions opex also
increased in H1’14 but was
mitigated by operational efficiency
achieved at Group level
(US$ million) Core Operating Expenses
Media, Solutions & Others
HKT
547 562 617
299 354
113 113 116
61 63
FY 2011 FY 2012 FY 2013 H1'13 H1'14
360
660
417
675 733
Core Business
Opex to Revenue Ratio: 23% 22% 23% 21% 22%
205 249 260
130 147
36
41 73
23 40
FY 2011 FY 2012 FY 2013 H1'13 H1'14
26
(US$ million)
26
Demand-Driven Core Capex
290
241
Media, Solutions & Others
HKT
• HKT’s increase in capex
in H1’14 due to CSL
integration but synergies
expected
• Increase in Media,
Solutions & Others capex
in H1’14 mainly for data
center expansion of
Solutions business
• Maintain 10% capex to
revenue ratio guidance
187 153
333
8% Core Business
Capex to Revenue Ratio: 9% 10% 10% 9%
27 27
Solid Financial Position
(US$ million)
Gross Debt (1)
Gross Debt / EBITDA(2) 3.4x 3.7x
(HKT) 3,093 3,157
(HKT)
5,727
(HKT) 4,724
(HKT)
3,403 3,853
6,423
5,573
2012 2013 H1'14
(1) Gross debt refers to the principal amount of short-term and long-term borrowings
(2) Based on gross debt as at period end divided by EBITDA for the 12-month period
(3) Based on net debt as at period end divided by EBITDA for the 12-month period
(4) Based on gross debt as at July 31, 2014 divided by PCCW FY13 EBITDA and CSL FY13 EBITDA
(5) Based on net debt as at July 31, 2014 divided by PCCW FY13 EBITDA and CSL FY13 EBITDA
(6) Includes cash and cash equivalents of disposal group classified as held for sale
(7) Based on the cash balance as at June 30, 2014 adjusted for the HKT Rights Issue
(HKT)
5.9x
Post the HKT Rights Issue
Cash Balance (US$ million) 584 706 1,162 (6)
Net Debt / EBITDA(3) 2.8x 3.1x 4.9x
3.8x (4)
676 (6),(7)
3.3x (5)
Jul’14
500 500300
500
447
1,011
559154
2,602
2014 2015 2016 2017 2018 2019 2022 2023
As at July 31, 2014
28 28
• HKT refinanced the commercial banking facility in relation to the CSL acquisition by way of the
drawdown of US$1.5 billion in 5-year banking facilities and the US$1 billion proceeds raised from the
HKT’s rights issue
• Ample liquidity of approx. US$1.7 billion in undrawn facilities across the entire group as of July 31, 2014
• Effective interest rate fell to around 3% in H1’14
Debt Maturity Profile
(1) Based on the cash balance as at June 30, 2014 adjusted for the HKT Rights Issue
(2) Includes cash and cash equivalents of disposal group classified as held for sale
(US$ million)
Bank Loans
US$ Bonds
US$ million
Cash
Balance (1) Debt
Undrawn
Facilities
HKT 320 4,724 542
PCCW 251 657 781
PCPD 105 (2) 192 392
Total 676 5,573 1,715
1,602
US$1 billion
proceeds from
Rights Issue
PCCW 255
PCPD 192
PCCW 102
29
Shareholder Focused Dividend Policy
• 2014 interim dividend per share
of 6.99 HK cents, representing
an increase of 10% over the
same period last year
Interim 5.51 6.35 6.99
Final 13.55 13.85
Total 19.06 20.20
Payout Ratio 83% 78%
DPS (HK cents)
Final Dividend
Interim Dividend
(1))Based on PCCW closing price of HK$3.72 on Feb 27, 2013
(2) Based on PCCW closing price of HK$3.60 on Feb 27, 2014
Yield: 5.1% (1) 5.6% (2)
(HK cents)
2012 2013 H1’14
13.55
5.51 6.35
13.85
6.99
Appendix
30
Free TV Preparation Underway
31
We continue to make progress with the Government
on the final terms of our free TV license. Consistent
with the government policy on spectrum allocation
in the interest of public benefit, we urge the
Government for equal access to broadcast spectrum
to new entrants
Preparation underway - Production capabilities and
expertise established, acquisition of pay and free TV
content rights for sports, TV series and other
programming in good progress
News
Lifestyle
& Entertainment
Sports
The HK$300M Independent Production Scheme,
set up upon license granted in-principle to encourage
outstanding independent productions, has received
encouraging response from the creative industry. A
number of outstanding proposals for TV movies,
dramas, mini-series are confirmed
Movies / Drama
32
Summary P&L
Effective tax rate 8% 6% NA 19%
Profit for the year / period 329 392 185 210 + 14%
Associates and JVs (3) 18 4 1
Profit before income tax 359 419 174 260 + 50%
Income tax (30) (27) 11 (50)
(US$ million) FY 2012 FY 2013 H1’13 H1’14
Revenue 3,246 3,502 1,707 1,880 + 10%
Cost of sales (1,515) (1,681) (813) (870)
Operating expenses (733) (791) (388) (449)
Depreciation & Amortization (566) (586) (291) (323)
Disposal (loss)/gain on property, plant and equipment (2) 1 1 -
Net other gains 48 88 25 88
Net finance costs (116) (132) (71) (67)
Non-controlling interests (116) (150) (75) (74)
Profit attributable to equity holders of the Company 213 242 110 136 + 24%
EBITDA 998 1,030 506 561 + 11%
Earnings per share (in HK cents) 22.87 25.98 11.79 14.57
Adjusted Funds Flow for the year / period 343 372 190 182 204 + 7%
33 33
Adjusted Funds Flow
Adjusted for:
Tax payment (26) (42) (14) (28) (10)
Net finance costs paid (93) (88) (31) (57) (47)
Changes in working capital (57) (52) (39) (13) (62)
Adjusted Funds Flow before tax paid, net finance costs
paid and changes in working capital 519 554 274 280 323 + 18%
(US$ million) FY 2012 FY 2013 H1’13 H2’13 H1’14 YoY
EBITDA 983 1,013 492 521 567 + 15%
Less cash outflows in respect of:
Customer acquisition costs and licence fees (220) (205) (91) (114) (98)
Capital expenditures (244) (254) (127) (127) (146)
Adjusted Funds Flow per Share Stapled Unit (HK cents) 41.64 45.21 23.13 22.08 24.78 /
21.00 *
* Based on an enlarged basis of 7,571,742,334 Share Stapled Units
in issue after the Rights Issue
Distribution per Share Stapled Unit (HK cents) 41.64 45.21 21.00 24.21 21.00 *