PCCW reports 2003 final results

  • Consolidated revenue up 12 percent to HK$22.55 billion (US$2.89 billion)
  • Residence Bel-Air contributed HK$4.11 billion (US$527 million) revenue after successful sales of first and second phases
  • Operating profit, before net gains on investments and one-time charges HK$4.339 billion (US$556 million)
  • EBITDA down 9 percent to HK$7.37 billion (US$945 million)
  • Recurring operating cash flow increased to HK$1.43 billion (US$184 million)
  • Provisions of HK$6.95 billion (US$892 million) for impairment of the Group's interests in REACH and in various assets. This resulted in a loss attributable to shareholders of HK$6.1 billion (US$782 million).
  • Continuing major improvements in financial flexibility achieved, with net debt down 11 percent to HK$29.131 billion (US$3.735 billion) at end-2003 from HK$32.919 billion (US$4.22 billion) a year earlier
  • Revenue from telecom services down in difficult economic and competitive environment. However, fixed-line losses reduced by 25 percent in H2 compared to H1 due to significant uptake of new generation fixed line (NGFL) services
  • The Company anticipates that it would be in a position to consider dividend payment after technical matters are resolved end-2004. Management are actively addressing the technical matters.

HONG KONG, March 4, 2004 - PCCW Limited increased consolidated revenue by 12 percent in 2003 as strong property sales and a buoyant broadband business helped offset the adverse economic impact of SARS and continued intense competition in the fixed-line market.

Consolidated revenue rose to HK$22.55 billion (US$2.89 billion) from HK$20.112 billion (US$2.578 billion) in 2002, with very successful pre-sales at the Residence Bel-Air property development in Cyberport contributing HK$4.11 billion (US$527 million).

Operating profit, before net investment gains and one-time charges, totaled HK$4.339 billion (US$556 million), compared with HK$5.212 billion (US$668 million), while EBITDA fell by 9 percent to HK$7.37 billion (US$945 million).

The second half of the year was marked by the launch of innovative products and services that have resulted in significantly improved retention rates in the Company's traditional services and a further boost in its broadband customer base. Because of the timing of these roll-outs, their benefits are not fully reflected in the 2003 results.

The Company also addressed the structure of its balance sheet in 2003, significantly reducing debt and making prudent provisions for impairment of various assets, including its stake in REACH Ltd.

A major initiative was taken to establish a broadband business in the UK, while the Group's IT businesses in Hong Kong and China were consolidated into a single integrated operation, called Unihub.

"In a year of great challenges, we have focused on revitalizing our product line and stabilizing our core business, while further reducing debt and addressing our balance sheet. The revenues from our new services may not yet be fully visible but our strategies are working. Month by month, we have been knocking down the rate of line loss," said PCCW Group Managing Director Jack So.

Subscriptions to NGFL services far ahead of target, line loss dramatically down

Revenue in the Telecommunications Services division fell 8 percent to HK$16.572 billion (US$2.125 billion) from HK$18.007 billion (US$2.309 billion), pressured by strong competition in the Hong Kong market and other adverse operating conditions particularly in the first half, when the already weak Hong Kong economy was affected by the SARS outbreak.

However, the launch in July of PCCW's new generation fixed line (NGFL) services helped bring about a dramatic reduction in line loss in the last few months of the year. Net average line loss was down 25 percent in the second half compared with the first.

The NGFL services have seen far greater than expected demand, winning 655,000 customers in less than six months. The numbers have more than doubled the Company's original forecast of 300,000 subscribers and have even surpassed the Company's revised end-2003 target of 600,000 -- the original goal for end-2004. PCCW is now targeting 1 million lines by the end of 2004.

Continued debt reduction and balance sheet reorganization

The Company significantly reduced debt in 2003, with net debt at December 31, 2003 down 11 percent to HK$29.131 billion (US$3.735 billion) from HK$32.919 billion (US$4.22 billion) a year earlier, and average maturity extended to approximately seven years.

In the light of changing market conditions and the Group's focus on its core business, decisions have been taken to make provisions totaling HK$6.95 billion (US$892 million) for impairment of PCCW's interests in various assets. These impairment provisions are non-recurring, non-cash flow related items and do not affect the Company's cash flow, which remains strong.

The biggest provision relates to REACH Ltd, a 50:50 joint venture with Telstra, in which the Company is writing down its entire stake of HK$4.159 billion (US$533 million). There will be no further equity pick up required by the Group for any future losses from REACH.
As a result of these impairment provisions, the Company has reported for 2003 a net loss attributable to shareholders of HK$6.1 billion (US$782 million), compared to a loss of HK$7.762 billion (US$995 million) in 2002.

Management committed to paying dividend

The Company is on track to meeting its objectives of reducing debt and securing a stronger credit rating for HKTC. A reorganization of the balance sheet and other technical matters are being addressed so that PCCW can pay a dividend to its shareholders. Management anticipates these formalities to be completed by the end of 2004, in order to permit the payment of dividends when the Board considers it appropriate in the future.

Mr. So said the impairment provisions the Company has booked this year are a prudent move and will not hinder our objective of paying a dividend to our shareholders. "We are committed to achieving our dividend goals," he said.

Cash flow remains strong

Recurring operating cash flow after interest, taxes, capital expenditure, and investment in Cyberport increased to HK$1.432 billion (US$184 million) in 2003 from HK$902 million (US$116 million) a year earlier.

The increase in cash flow was partly due to the need for less investment in the Cyberport project. Residence Bel-Air has seen very strong pre-sales after its launch in February 2003. All 1,204 units in the first and second phases have now been sold.

Broadband services continue to show substantial growth

PCCW's broadband services in Hong Kong continued to surge ahead in 2003. The total number of broadband access lines rose 26 percent to 703,000 at the end of December 2003 from 559,000 at the end of 2002.

now Broadband TV, launched in September 2003, has seen a dramatic uptake, with 205,000 subscribers signing up within four months as the number of channels grow. Major new channels are being announced this week, including Disney Channel, Disney Playhouse, HBO, Cinemax and DMX Music channels. The target for end-2004 is 480,000 subscribers.

Milestone year for PCCW

"This has been a milestone year for PCCW. We have aggressively defended our market share with the introduction of many innovative products and services that have been incredibly well received. We will continue to invest in innovative solutions that reinforce our quality and product differentiation -- we believe this will allow us to win and retain customers," said PCCW Chief Operating Officer Mike Butcher.

"Our growth strategies also include initiatives in China and the UK. Our new Unihub IT services unit is poised to capitalize on the further expansion of the region's IT market," Mr. Butcher said.

"The UK market is promising and we will take our proven Netvigator service to the UK, with a soft launch scheduled for the second quarter of 2004," he said.

PCCW acquired 13 wireless broadband licences in the UK by auction and has since purchased another two licences to give the Company nationwide coverage. Household broadband penetration in the UK is very low, at 11 percent and the Company sees major growth opportunities in this market.

PCCW also continues to invest in Hong Kong's broadband infrastructure. extending its "Fiber To The Premises" (FTTP), a 25Mbs VDSL service for business customers, to Grade B and C buildings as well as Grade A.

Core business to stabilize in 2004, with growth in broadband, IT; strict cost controls to continue

"Looking to 2004, we expect our core business to stabilize and our broadband and IT businesses to continue to grow. At the same time, we will continue to maintain a regime of strict cost control and further improve our operating efficiency," said Mr. So.

In 2003, the Group EBITDA margin, excluding pre-sales of Residence Bel-Air, remained steady at 40 percent, backed by cost savings from various strategic realignment plans and efficiency programs implemented in 2002.

Operating costs before depreciation and amortization decreased 4 percent to HK$6.448 billion (US$827 million), with operating costs in the Telecommunications Services division falling to HK$4.493 billion (US$576 million).

2003 Annual Results Announcement [pdf - 132KB]

Webcast of Annual Results Announcement
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2003 Annual Results Presentation [pdf - 2.09MB]

About PCCW

PCCW Limited (SEHK: 0008, ADR-NYSE: PCW) is the largest communications provider in Hong Kong and one of Asia's leading IT&T players. Hong Kong's image as a center of technology excellence continues to be enhanced by PCCW's innovation, especially in new generation fixed-line telephony, broadband, IT, wireless and delivery of home entertainment. Internationally, PCCW provides cutting-edge technical services to network operators, and enables organizations to bring their business to Asia and take Asian business to the rest of the world. The Company's English name was changed in 2002 from "Pacific Century CyberWorks Limited" to "PCCW Limited".

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