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Investor Presentation
March 2015 - 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 FY14 Revenue 3,695
FY14 EBITDA 1,313
Market Value (as at March 9, 2015) 9,785
Growth
businesses
Media FY14 Revenue 414
FY14 EBITDA 58
Solutions
FY14 Revenue 432
FY14 EBITDA 80
PCPD FY14 Revenue 40
FY14 EBITDA (21)
(100%) (100%)
(63.07%)
Figures in brackets represent ownership by PCCW as at March 9, 2015.
(70.80%)
Solid Telecom Business Media & Solutions Businesses – Growth Focus
FY14 Revenue 4,266
FY14 EBITDA 1,326
Market Value (as at March 9, 2015) 4,587
Trends in Motion – A Digital Global World
It will be an increasingly mobile-centric world
Consumers are looking to
• Consume content – anytime and anywhere
• Quality of experience
Telecom to move away from ‘basic communications pipe’
Enterprises will increasingly engage with their customers digitally
Businesses will have to deal with massive quantities of complex data
Market uncertainty, new business models, technology disruptions and
cyber security will impact all businesses
3
● Expand content creation and
co-production
● Establish global distribution
platform
● Differentiate with Industry- specific
solutions
● Targeted acquisitions to expand
business globally
● Value-added services
● IP/assets for global markets
● Extend OTT service with focus
on Entertainment and Music
● Global partnerships
● Roll out Digital Platform and
Services
● Enhance Digital Transformational
capabilities
● World-class communications
and networks
● Customer experience
“Globalize our IT Services, provide Digital Platforms to Enterprises,
Expand the reach of our Media Content and Distribution on OTT, and
Enhance our Local and Global Connectivity to deliver Digital Lifestyle
and Experience.”
Aspiration – A Global Leader in Digital Lifestyle World
4
5
Media – Strategic Direction
Build on Hong Kong Leadership Position
Expand Content Creation and Co-production
Expand Global Partnerships
Build and Extend OTT Platform with focus on
Entertainment and Music
Leading Asian Digital Media and Entertainment
Service Provider
6
Solutions – Strategic Direction
Integrate software and services to build Digital Platforms and Solutions
Develop and acquire industry-specific and innovative technologies to deliver solutions for
global customers
Extend Industry Expertise in
Mainland China
“We will Enable our Customers to Transform their Businesses
into Digital Enterprises.”
Expand into New Markets
Build Up Intellectual Property & Software Assets
Integrate Software & Services
Broaden Technology & Sales
Partnerships
New Geo focus - US and
Western Europe
7
Smart Workforce
• Strengthen recognition
and performance based
pay culture and practices
• Build global reward
structure taking into
account local market
practices
• Increase visibility for high
performing employees
Building a Global
Brand
Employer of Choice
Developing Leaders
and Nurturing Talent
Recognizing and
Rewarding Performance
Connecting with
Employees
• Build awareness of
PCCW as a global
company
• Establish ties with top
colleges and universities
to attract strong talent by
participating in research
initiatives, seminars,
development programs
• Enhance development
programs for top leaders
• Build cross functional
expertise, establish
tailored development
and exposure for growth
• Participative work
culture that welcomes
and respects employee
ideas and suggestions
• Deploy multiple
communication
channels
8
Media Business
9
(US$ million) Media Revenue
• Revenue continue to rise by 7% underpinned
by consecutive years of solid subscription and
advertising revenue growth in our Core Media
business
• Growth in new media revenue (e.g. MOOV)
323 347 372
37 40
42
2012 2013 2014
360 387
414
+ 7% + 7%
Core Media
Business
New Initiatives
61 63 61
2 2
(3) 2012 2013 2014
• Core Media business EBITDA and margin reflected full-year impact of BPL costs
• Investments for new initiatives including upgraded MOOV platform, expansion of now
player and preparation for free TV business
Media EBITDA
63 65 58
Steady Pay TV Performance
Investing in Digital Growth
Core Media
Business
EBITDA Margin 19% 18% 17%
818
882 927
953 992 1001
1028 1039 1088
1140 1165 1183 1204
1237 1269 1285
125
153
169 171 171 174
169 165 167 169
172 173 174
187 191
195
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2
Installed Base Installed base ARPU (HK$/ month)
10
Continued Market Leadership in Pay TV
2007 2008 2009 2010 2011 2012 2013 2014
Thousands
now TV continued to grow customer base whilst increasing ARPU through consistent
up-selling of its wide range of content and services
Content and Brand Leadership (1)
• Independent study shows overall rating of 68.80, a significant 5.13 points increase
• Downloads of now TV apps topped both Apple and Android stores #
• Total now TV app downloads have now reached 4 million
Total Channel Apr-14 Jul-14 Oct-14 Compared with
previous rating
1 now TV 64.84 63.67 68.80 +5.13
2 Cable TV 67.69 66.97 67.37 +0.40
3 TVB 68.36 65.07 63.23 -1.84
4 ATV 58.78 58.95 59.08 +0.13
2014 TV Programme Appreciation Index Survey (3rd Stage),
conducted by Public Opinion Programme, HKU
11
now TV has established itself as a leading local HK news provider
4M app download
Users enjoy now TV contents via now apps in
HK
# HK - overall free app - No. 1 : iOS: 4-6 Oct / Android: 9-11 Oct
HK - news free app - No. 1 : iOS: 4-8 Oct, 15-18 Oct / Android: 30 Sep - 4 Nov
News Leadership:
Content and Brand Leadership (2)
New Productions in the Pipeline
舉世無雙
• Co-production of a new TV drama series with Ciwen Media (慈文傳媒)
• A 40-episode ancient Chinese drama series on the romance of the Emperor Taizong
of Tang (唐太宗李世民) and the Empress Zhangsun (長孫皇后). Production will start
in 2Q 2015 at Hengdian World Studios (橫店影視城)
• We will continue to scale up our production pipeline which will allow us to
differentiate now TV’s service offering
Successful First TV Drama Series Production
衛子夫 (The Virtuous Queen of Han)
• Co-production with Huace Film & TV
• Reached more than 38 million TV viewers in China* with total online accumulated hits of over 2.38 billion
since first broadcast
• Distributed widely in Overseas Markets incl. Taiwan, Malaysia, Singapore, Vietnam, Thailand, Cambodia,
the Philippines, Sri Lanka, Japan, South Korea, Australia, New Zealand and North America
12
* Gross viewership based on ratings from the first week of telecast. Source: 28 Aug 14 China Prime Time Satellite TV Series Ratings from CSM
Increasing Entertainment Production:
Continued Expansion of International Footprint
13
Established important affiliate partnerships to distribute now TV channels across Asia
and North America
Latest addition to footprint
now Baogu movie channel launched in Taiwan on Taiwan Broadband
Communications Cable TV service, reaching 800K subs
Territory Affiliates
Malaysia Telekom Malaysia HyppTV
Singapore StarHub Limited
Thailand CTH Public Co. Ltd.
Indonesia Big TV (First Media)
USA Dish Network Corp
Canada
Fairchild TV
Telus Optik TV
Rogers Communications
Bell Fibe TV
Vietnam Viettel
Taiwan Taiwan Broadband Communications (TBC) new now Baogu movies on TBC
While maintaining its edge as HK’s
leading and award-winning music service, Moov
continues to expand into China:
Continued Expansion of MOOV Footprint
14
• Following a successful launch in Guangdong,
MOOV is expanding its footprint to Fujian,
Shanghai and Xinjiang via exclusive
cooperation with BesTV
• MOOV continues to strengthen its breadth and
depth of content for mainland China market
including International repertoire, Kpop, and
popular local Chinese music label.
Marketing Excellence Award 2014
Mob –Ex 2015
Best App: Social (Gold)
Best App: Creative Design (Gold)
IT Solutions Business
15
199 225 225
119
155 207
2012 2013 2014
16
(US$ million) Solutions Revenue
• Solid recurring revenue base
• Strong growth in project based revenue
driven by successful execution of projects
• Overall data center occupancy rate
remained high at 85%
Recurring
Project
Based
• EBITDA grew by 20% to US$80M
• Margin maintained at 18%
EBITDA
Margin
40 43 47
16 24
33
2012 2013 2014
Solutions EBITDA
56
67
80
18% 18% 18%
Stable Base Recurring Revenue
Continued Growth Momentum
2010 2011 2012 2013 2014
Revenue + 14% + 8% + 12% + 20% + 14%
EBITDA + 42% + 35% + 14% + 20% + 20%
318
380
432
Notable Contract Wins in H2 2014
IT Services Market Leader
17
• Replace and upgrade the Hong Kong Vessel Traffic Services System
for Marine Department
• Long-term infrastructure services for an healthcare organization
• Core banking solution for Chengdu Rural Commercial Bank
Secured order of US$730 million as of December 31, 2014
• Market leadership in Hong Kong
• Continue to win significant and long-term contracts
from public sector and large enterprises
Revenue by Industry and Services
18
Telecom 27%
Public Sector (HK) 34%
Hi-Tech and Media 18%
Travel & Hospitality
7%
BFSI 6%
Retail & Manufacturing
5%
Others 3%
FY2014 Revenue by Industry
Enterprise Applications
22%
Cloud Solutions &
Infrastructure 25%
Application Development
& Maintenance
23%
Technical Services
23%
Business Process
Outsourcing 7%
FY2014 Revenue by Services
Strong penetration into the telecom and banking industries in China:
● Strong footprint in top telecom operators
● Expanded core banking to Auto finance and Peer-to-peer finance
Successfully replicate our expertise to diversified industries, including:
● Retail
● Manufacturing
● Media & Entertainment
● Healthcare
Continued Investment in China
19
Data Center Expansion
● Officially unveiled 202,000 sq.ft., 16-storey Powerb@se
MCX10 Data Center in Kwai Chung
Uptime Institute Tier III Certificate
LEED Platinum Certificate
● Expand the platform to deliver a full spectrum of IT
services
● Drive innovative applications development and adoption
via Enterprise Solutions Superstore Alliance (ESSA)
platform and ESSA incubation program
● Provide cross-border data center service to facilitate
MNCs to enter China, and Chinese companies to expand
into overseas markets
20
MCX 10
Hong Kong
Guangzhou
Data center
Rich Solutions Portfolio
21
Cloud Solutions
● Full spectrum of cloud services – ranging from infrastructure, platform, software,
content to process
● The only SAP certified provider of cloud and hosting services in Hong Kong and
China
● Helped SOLERS upgrade existing SAP Business One system to SAP Business
All-in-One cloud solution
Industry-specific Software Assets
● Launched the international version of iVisionBanking suites:
VisionBanking Suite – the core banking solution tailored for banks
VisionFinance Suite for finance institutions
● Tianjin Great Wall Binyin Automotive Finance and Chengdu Rural Commercial Bank
have deployed iVisionBanking
Telecom Business
22
HKT EBITDA
1,313
1,013 983
2012 2013 2014
HKT Revenue
3,695
(US$ million)
2,927 2,703
Mobile
Eliminations
TSS Others
Others
International
Local Telephony
Local Data
23
Solid Performance
Mobile and Broadband Leading Growth
• Adjusted Funds Flow up 16% yoy to US$430 million
• PCCW to receive a total distribution of approx. US$271 million from HKT for FY14
Mobile
Others
TSS
2012 2013 2014
HKT
EBITDA
Margin US$ million
2013
Pro-forma *
2014 YoY
Growth
Mobile Revenue 1,072 1,147 + 7%
Mobile EBITDA 376 403 + 7%
* Pro-forma to include the proportionate share of CSL FY13 results
36% 35% 36%
(25) (27) (34)
927 912
944
673 860 898
Broadband
Network
+ 6% 776 828 862
436 440 447
395 340 346
(56)
88
(77) 72 88
(61)
International
+ 4%
391 432
1,147
96 113
403
24 24
Adjusted Funds Flow
Adjusted Funds Flow for the year 343 372 430 + 16%
Adjusted Funds Flow before tax paid, net finance costs
paid and changes in working capital 519 554 632
Capital expenditures (244) (254) (322)
(US$ million) 2012 2013 2014 YoY
Adjusted Funds Flow per Share Stapled Unit (HK cents) * 41.64 45.21 44.30
+ 30%
Adjusted for:
Tax payment (26) (42) (51)
Net finance costs paid (93) (88) (102)
Changes in working capital (57) (52) (49)
+ 14%
Interim Distribution (HK cents) 20.06 21.00 21.00
Final Distribution (HK cents) 21.58 24.21 23.30
Total Distribution for the year (HK cents) 41.64 45.21 44.30
Adjusted Funds Flow per Share Stapled Unit (HK cents) based on the weighted average number of Share Stapled Units during the year
39.99 43.43 47.32
Less cash outflows in respect of:
Customer acquisition costs and licence fees (220) (205) (359)
EBITDA 983 1,013 1,313
+ 9%
* Calculated by dividing the adjusted funds flow for the period
by the number of Share Stapled Units in issue at period end
Mobile Business Underpinned by Rapid Progress
on CSL Integration
25
● Total customer base of 4.585M
– Post-paid customer base of 3.178M
* Figures stated as at December 31, 2014 or for the year ended December 31, 2014
● Post-paid exit ARPU of HK$219
● Mobile data represents 68% of total services revenue
● IDD and roaming represent 19% of total services revenue
● 79% of post-paid customers are smart device users
● Post-paid churn rate was 1.5%
Strong Performance in Mobile Business across All Areas
Delivering on CSL Integration
26
Branding
Rationalized Retail Channels
Revamped Pricing Plans
Network Enhancement
Network Integration
Branding
27
Three-brand strategy allows full coverage of the market according to
customers’ affordability and service requirements
Rationalized Retail Channels
28
9 Shops 29 Shops
41 Shops 55 Shops
Strengthening sales proposition
by consolidating retail channels and extending shop reach
* Shop numbers as at January 23, 2015
Revamped Pricing Plans
29
● CSL plans retained although a number
of low volume plans have been
removed; PCCW-HKT mobile tariffs
have been aligned
● New tariff plans introduced with the
launch of iPhone 6/6 Plus
● MTR / Tunnel / Mobile
Licence / Admin fee
increased from
HK$12 to HK$18
Adjusted Tariff Plans Simplified Pricing Structure
● Fixed price
● Choice of bandwidth
– No speed limitation
● Unlimited voice
● Unlimited Wi-Fi
● Value added services
Mobile Network Improvements after CSL Acquisition
30
U900 MOCN Activation for HKT Customers Quick Win 1
Quick Win 5 U2100 MOCN Activation for CSL Customers
Quick Win 2 Backhaul Upgrade to CSL Cell Sites
Quick Win 3 Coverage Enhancement for HKT and CSL Customers
Quick Win 4 Micro-cell Coverage for CSL Customers
Quick Win 6 Expansion of MTR Capacity for CSL Customers
network enhancements (Quick Wins) applied since CSL acquisition
to combine the strengths of HKT and CSL networks and
improve overall customer experience
Network Integration Plan
31
• Choose the best sites from both HKT and CSL networks to remove surplus
sites and enhance coverage 2014 Q4
2015 Q1
2015 Q2
2015 Q3
2015 Q4
Key Targets
• Upgrade CSL’s cell site transmission by HKT’s 1000Mbps fiber lines
• Upgrade 4G network to LTE-A supporting faster mobile broadband network
speed of up to 300Mbps
Divide Hong Kong into clusters and
grouped into zones
Network will be upgraded in different
zones according to plan
Target to complete entire network
integration by end 2015
Progress of Cell Site Integration
32
No of Sites activated
Green Zone Before After
For HKT Customers 620
780 For CSL Customers 540
Total 1160
● No of sites served HKT customers increased by 160
● No of sites served CSL customers increased by 240
● Total 380 sites in process of site termination
(i.e. about 33% of cell-sites closed)
International Business Continues to Strengthen
33
Data
Voice
Balanced mix of voice and data revenue
with focus on higher margin,
higher growth data business
51%* 49%
* Excl. retail IDD revenue
Asia
Americas
Europe and Africa
Others
Data business – Well diversified
business geographically
7%
38%
28%
27%
Stable Fixed-line Business
34
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 2014
Business Lines
Residential Lines(’000)
Solid Customer Base Maintained Since 2004
Consolidated Position in Broadband
35
Consolidated broadband market position with churn rate of around 1%
Market conditions became more challenging in H2’14 because of economic slowdown, reduced
spending in the market and competitors’ price discounting
(‘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 1,404
104107
110 113 113 114 114115
116119 122 126 128 130 131 136
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 142 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 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 H1
2014
H2
Wide Availability of our Fiber Network
36
* 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
FTTH-ready
(80.8%)** (supporting speeds up to
1000Mbps)
(as of January 2015)
FTTB-ready (87%)* (supporting speeds of up to
100Mbps)
1.5M or above
(98%)
Continued Growth of Fiber Customers
37
Fiber-To-The-Home (FTTH) service continued to attract new
customers and existing customers for service upgrade
504K customers enjoying FTTH service as of Dec 2014,
grew 20% vs. Dec 2013
(‘000)
57
144
226
304
362
419 462
504
Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14
Growing fiber customer base creates future upgrade
opportunity to higher speed, higher price service plans
618K customer enjoying high speed service (FTTH and
VDSL) as of Dec 2014
Financial Overview
38
Profit for the year 392 599 + 53%
Effective tax rate 6% 15%
Associates and JVs 18 7
39
Summary P&L
(US$ million) 2013 2014
Revenue 3,502 4,266 + 22%
Cost of sales (1,681) (1,942)
Operating expenses (791) (998)
Depreciation & Amortization (586) (808)
Gain on disposal of property, plant and equipment 1 –
Net other gains 88 348
Non-controlling interests (150) (175)
Profit attributable to equity holders of the Company 242 424 + 76%
EBITDA 1,030 1,326 + 29%
Earnings per share (in HK cents) 25.98 45.14
Net finance costs (132) (171)
Income tax (27) (103)
Profit before income tax 419 702 + 68%
40
• Opex grew by 29% in 2014 and the opex to revenue ratio was 22%
• Increase in opex primarily at HKT, largely due to enlarged Mobile business
and one-off CSL integration expenses
15 11 9
394 432 463
149 165
351 89
96
98
28 29
26
2012 2013 2014
Core Operating Expenses
733 675
947
(US$ million)
TSS
Mobile
Media
Solutions
Others
22% 21% 22%
2012 2013 2014
Core Opex to Revenue Ratio
Opex Growth Driven by Enlarged Mobile Business
Unlocking Synergies in the Coming Periods
With CSL
23 27 32
198 202 191
40 46
123 15
26
21
14 32
43
2012 2013 2014
41 41
Demand-Driven Core Capex
333
290
• HKT’s increase in capex
due to CSL integration
• Increase in Solutions capex
mainly for data center
expansion
• Maintain 10% capex to
revenue ratio guidance
410
9.4% Core Business
Capex to Revenue Ratio: 9.8% 9.7%
(US$ million)
TSS
Mobile
Media
Solutions
Others
HKT
324 (78%)
42 42
Solid Financial Position
(US$ million)
Gross Debt (1)
Gross Debt / EBITDA(2) 3.4x 3.7x
(HKT) 3,093 3,157
(HKT)
4,724
(HKT)
3,403 3,853
5,379
2012 2013 2014
(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 period end divided by PCCW FY13 EBITDA and CSL FY13 EBITDA
(5) Based on net debt as at period end divided by PCCW FY13 EBITDA and CSL FY13 EBITDA
(HKT)
Cash Balance (US$ million) 584 706 1,018
Net Debt / EBITDA(3) 2.8x 3.1x 2.9x (5)
3.6x (4)
500 500 500300559
154
1,500
711 300
315
38
2015 2016 2017 2018 2019 2020 2022 2023 2030
500500
500300
711
559154
1,500
300
315
38
2015 2016 2017 2018 2019 2020 2022 2023 2030
43 43
• Proactively extended the maturity profile to 2030 through issuance of a 15-year, zero coupon US$300 million bond by HKT,
allowing us to lock in long-term funding at attractive cost
• Refinancing plan to extend maturity to 6 years
• Current liquidity of US$1.7 billion in undrawn facilities across the entire group
• Effective interest rate further improved from 3% to 2.7% in 2014
Debt Maturity Profile
As at February 11, 2015
(US$ million)
Target after Refinancing
Refinancing Plan Refinancing
Plan
(US$ million)
US$ million
Cash
Balance *
Undrawn
Facilities
HKT 463 842
PCCW 239 632
PCPD 316 200
Total 1,018 1,674
* Cash balance as at December 31, 2014
HKT Bank Loans
HKT US$ Bonds
PCCW Bank Loans
PCCW US$ Bonds
44
Sustainable Dividend Policy
Interim 5.51 6.35 6.99
Final 13.55 13.85 13.21
Total 19.06 20.20 20.20
Payout Ratio
(Core NPAT) 87% 81% 78%
DPS (HK cents)
Final Dividend
Interim Dividend
(HK cents)
2012 2013 2014
13.55
5.51 6.35
13.85
6.99
13.21
• Maintain full-year dividend at
20.20 HK cents per share