Pccw Limited · HKEX:8

Pccw — H1 2003 Earnings Presentation

39 slides from Pccw's earnings presentation, Aug 28, 2003

1. Slide 1: 2003 Interim Results

   2003 INTERIM RESULTS For the six months ended June 30, 2003 Hong Kong, August 28, 2003

2. Slide 2: Overview

   OVE RVIE W Jack So Deputy Chairman and Group Managing Director

3. Slide 3: Return to profit, debt further reduced

   • Return to profit, debt further reduced • Cost control continues, exit non-core business • Prospect for top line stabilization/ growth positive because • Major marketing campaign through new product launches • Government reviewing regulatory restrictions • Existing regulatory restriction on PCCW ou

4. Slide 4: Focus on Hong Kong, eye on Mainland market

   • Focus on Hong Kong, eye on Mainland market • A good start has been made • New technology: • Over 200 Wi-Fi hot spots in Hong Kong • Low cost option on wireless broadband in U.K. • Medium term goal to pay dividend, face challenges ahead with confidence 4

5. Slide 5: 轉虧為盈，負債減少

   ƒ 轉虧為盈，負債減少 ƒ 控制成本，出售非核心業務 ƒ 營業額將有穏定／㆖升趨勢，因為 ƒ 新產品推出配合大型推廣活動 ƒ 港府將檢討現有之規管限制 ƒ 現有對電盈之規管已過時 ƒ 阻碍投資意欲及科技發展 ƒ 違反公正和自由市場精神 5

6. Slide 6: 業務以香港為中心

   ƒ 業務以香港為㆗心，而大陸市場發展已 有良好開端 ƒ 新科技發展包括 ƒ 在港已設立㆓百多個Wi-Fi㆖網熱點 ƒ 以低成本取得在英國無線寛頻的發展權 ƒ 目標在不久將來派息，以信心迎接挑戰 6

7. Slide 7: Financial Review

   FINA NCIA REV L IEW Alex Arena Executive Director and Group Chief Financial Officer

8. Slide 8: Financial Highlights Reflect Our Operating Success

   Financial Highlights Reflect Our Operating Success Revenue 5% EBITDA Margin 2% To 42%, excluding Bel-Air Net Profit US$90m From loss in H1’02 Operating Cash Flow(1) US$57m From US$1m in H1’02 Net debt 8% Adjusted for July share placement PCCW Has Delivered in Difficult Market Conditions (1) After in

9. Slide 9: Solid Financial Results Through Difficult Market Conditions

   Solid Financial Results Through Difficult Market Conditions Change % (US$m) H1’02 H2’02 H1’03 HoH YoY Revenue 1,308 1,270 1,375 +8% +5% Total Ex-Residence Bel-Air 1,308 1,270 1,189 -6% -9% Depreciation and Amortization (180) (183) (184) Operating Profit 349 319 302 -5% -13% Before Net Gains/(Losses)

10. Slide 10: Reach Results Reflect Difficult Market Conditions

    Reach Results Reflect Difficult Market Conditions (US$m) (HKGAAP) H1’02 H1’03 ƒ Reach continues to be: Revenue 636 452 ƒ Asian market leader ƒ Strategic asset for EBITDA 209 37 both shareholders ƒ Financial restructuring Profit/(Loss) Before Tax 99 (99) completed ƒ Operations are being PCCW Share of

11. Slide 11: EBITDA Margin and Core Operating Cash Flow Are Strong

    EBITDA Margin and Core Operating Cash Flow Are Strong Core Operating EBITDA Cash Flow(1) (US$m) (US$m) 600 530 511 45% 500 495 127 124 400 43% 42% 300 40% 40% 41% 200 39% 100 0 37% H1’02 H2’02 H1’03 H1’02 H1’03 EBITDA EBITDA Margin (1) Before pre-sales proceeds from Residence Bel-Air received, net o

12. Slide 12: We Have Significantly Strengthened Our Balance Sheet

    We Have Significantly Strengthened Our Balance Sheet (US$m) $1,154 $1,000 $956 $450 $481 $54 $385 $456 $250 $1,100 $96 $500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2031 (See appendix for detailed legend) Debt Profile Recent Events ƒ No short-term debt ƒ HKTC ratings: ƒ Average maturit

13. Slide 13: Improving Credit Fundamentals

    Improving Credit Fundamentals 7.8 Debt/EBITDA(1) 6.5 Net Debt 5.7 5.1 5.6 4.4 (US$ m) 4.1 3.4 3.4 3.4 3.1 2.0 6,000 5,176 5,039 5,000 Adjusted Adjusted 4,430 H1’03(3) H1’03(3) H1’01 H2’01 H1’02 H2’02 H1’03 H1’01 H2’01 H1’02 H2’02 H1’03 901 1319 4,220 4,280 639 4,000 592 3,888 1304 3,000 EBITDA/Inter

14. Slide 14: Group Cash Flow

    Group Cash Flow (US$m) H1’02 H1’03 127 124 57 1 -67 -126 Core Operating Cash Flow* Investment In Cyberport Operating Cash Flow After Investment In Cyberport We Expect Cyberport To Be On Track To Return Cash *Before pre-sales proceeds from Residence Bel-Air received, net of monies applied to construc

15. Slide 15: Outlook

    Outlook • Expect stabilization in core revenue Revenues • Cyberport sales to resume in second half • Core business margins should continue to be strong Margins • Cost reduction has been effective • Some initial impact from new services • Overall margins will be impacted by Residence Bel-Air sales •

16. Slide 16: Robert Lee

    Robert Lee Executive Director and Chairman - PCCW Infrastructure

17. Slide 17: Cyberport Residential Residence Bel-Air Financial Recap

    Cyberport Residential Residence Bel-Air Financial Recap ƒ Investment through H1’03 ƒ US$566m in total ƒ Expected PCCW investment in Cyberport in 2003: ƒ In March ’03 projected $100-125m ƒ Actual spend US$67m to June ‘03 ƒ Expected maximum of US$70m full year 17

18. Slide 18: Residence Bel-Air Sales

    Cyberport Residential Residence Bel-Air Sales 100% of 544 units sold as of Sales Update August 25, 2003 Sales Achieved US$490m Pricing Above breakeven point Cover all of 2003 construction costs & Sales Proceeds 80% of 2004 construction costs Sales Financial Results Future Sales 50 units 100% of ‘04

19. Slide 19: The Next Phase of Sales Is Approaching

    The Next Phase of Sales Is Approaching Future Outlook Positive ƒ Positive economic signals and improving market sentiment ƒ Supply of new luxury flats on Hong Kong Island remains limited ƒ Substantial liquidity and continued low rates Continued Strong Sales Program Will Accelerate Return of Cash to

20. Slide 20: Operational & Strategic Review

    OPE STR RATION ATE GIC AL & REV IEW Mike Butcher Executive Director and Chief Operating Officer

21. Slide 21: PCCW is Focused on Creating Long-Term Value

    PCCW is Focused on Creating Long-Term Value 2000 2001 2002 2003 2004 2005 2006 GOALS ƒ “A” rating at HKTC Integrate HKTC and Strengthen ƒ Substantial deleveraging Capital Structure ƒ Dividends ƒ Top quartile operating PCCW metrics HKT Restructure ƒ “Best In Class” opex and capex Merger Operations ƒ

22. Slide 22: Challenging Environment in 2003

    Challenging Environment in 2003…. Hong Kong Industry ƒ Economic weakness ƒ Narrowband market ƒ Impact of SARS contracting ƒ Broadband market ƒ Unbalanced regulatory expanding regime ƒ Intense competition in all market segments PCCW Has Delivered Solid Results Despite These Challenges 22

23. Slide 23: Solid Results: We Reduced Our Narrowband Line Loss

    Solid Results: We Reduced Our Narrowband Line Loss ƒ 5% fewer total lines lost in H1’03 vs. H2’02 ƒ Focused on selected customer segments ƒ Highly targeted promotion strategy ƒ 16% fewer business lines lost in H1’03 vs. H2’02 ƒ Aggressive sales efforts ƒ New corporate product offerings ƒ New generat

24. Slide 24: Solid Results: Broadband Growth Has Continued

    Solid Results: Broadband Growth Has Continued at Above 10,000 Lines per Month 629 Key Results (‘000) 559 487 460 ƒ Market share of new lines greater 424 305 402 385 than 50% 311 231 ƒ Premium ARPUs holding and strong ƒ Annual customer growth over 20% H1:01 H2:01 H1:02 H2:02 H1:03 Total Broadband Acc

25. Slide 25: Solid Results: Margins Continue to Improve

    Solid Results: Margins Continue to Improve Group EBITDA Margin(1) TSS EBITDA Margin 55% 51% 50% 47% 49% 50% 46% 50% 42% 45% 45% 40% 40% 40% H1:01 H2:01 H1:02 H2:02 H1:03 40% 35% 35% 33% Group Operating Costs 30% 500 496 492 453 450 406 409 25% H1:01 H2:01 H1:02 H2:02 H1:03 350 250 H1:01 H2:01 H1:02

26. Slide 26: 2003 - Operating Strategy: Defend, Innovate, Grow

    2003 - Operating Strategy Defend Innovate Grow ƒ Aggressively defend ƒ New generation ƒ New products & services market share fixed-line ƒ Fixed-line ƒ Premium pricing ƒ New value propositions ƒ Broadband ƒ Value differentiation ƒ Convergent platforms ƒ New products ƒ Regulatory initiatives ƒ Broadba

27. Slide 27: Defend

    Defend Defend Competitive Significant Regulatory Position Progress ƒ Focus on customers to ƒ Unbundling review under maintain premium pricing way for narrowband and and market position broadband ƒ Provide best value for money ƒ Non-dominant status with premium support & applications under way servic

28. Slide 28: Innovate: New Generation Fixed Line Launch

    Innovate New Generation Fixed Line Launch….. Fixed Line SMS Personal Assistant Auto Receptionist Our Customers Sign Up for 350,000 Lines in Just 6 Weeks 28

29. Slide 29: New Generation Fixed-Line Services Exceeded Targets

    Innovate New Generation of Fixed-Line Services Have Dramatically Exceeded All of Our Targets New Generation 180,000 Residential Lines Fixed-Line Success ƒ Activation rate above 70% ƒ Winback up 125% since ƒ Information popular launch of New Generation (Lottery, News, Weather) Fixed-Line ƒ Over 80% a

30. Slide 30: Grow

    Grow ƒ Broadband Is a Key Growth Driver ƒ Today We Announce Our Innovative Value-Added Broadband Services ƒ Expect: ƒ Substantial take up ƒ Premium ARPUs ƒ Increasing overall market share New Broadband Services to be Unveiled Immediately Following Q&A 30

31. Slide 31: Future Looks Better Than For Some Time

    Future Looks Better Than For Some Time ƒ Operating Costs Dramatically Reduced With Ongoing Programs in Place PCCW Restructured ƒ New work practices and Reorganized ƒ Greater variable costs ƒ Pension plan restructured to limit liabilities ƒ Dramatic Uptake of New Generation Fixed-Line Narrowband ƒ St

32. Slide 32: Summary

    Summary PCCW Is Well Placed For The Future ƒ New generation fixed-line redefines narrowband business dynamics ƒ Broadband initiatives will increase our market leadership and provide significant new ARPUs ƒ Residence Bel-Air sales well ahead of plan ƒ Cost control continues to improve margins and fre

33. Slide 33: Forward Looking Statements

    Forward Looking Statements The statements included in this presentation that are not historical in nature are “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. These forward-looking statement

34. Slide 34: Questions & Answers

    Questions & Answers 34

35. Slide 35: Appendix

    Appendix 35

36. Slide 36: PCCW Consolidated Debt Maturity Profile

    PCCW Consolidated Debt Maturity Profile US$m 1 2 Feb 2001 $2,300 Debt to EBITDA = (6,550 / 790) = 8.29X $1,500$1,475 Rating $375 $900 $375 $1,100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2031 $1,475$1,991 3 Dec 2001 Debt to EBITDA = (6,138 / 948) = 6.47X $375 $900 $1,000 $1,100 $375 $2

37. Slide 37: HKTC Debt Maturity Profile

    HKTC Debt Maturity Profile US$m 1 $2,300 HKTC Debt to EBITDA = (4,700 / 1,123) = 4.19X $1,500 Feb 2001 $900 Rating 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2031 $1,991 HKTC Debt to EBITDA = (4,141 / 1,203) = 3.44X Dec 2001 $900 $1,000 $250 2003 2004 2005 2006 2007 2008 2009 2010 2011 2

38. Slide 38: Hong Kong Telephony Remains Competitive While Data and Broadband Growing Strongly

    Hong Kong Telephony Remains Competitive While Data and Broadband Growing Strongly Local Exchange Lines Broadband Customers (‘000) (‘000) 3,926* 629 3,842* 3,813* 3,489 559 3,138 487 2,933 460 424 402 385 2,019 1,802 305 311 1,667 231 1,470 1,336 1,266 2001 2002 H1’03 H1’01 H2’01 H1’02 H2’02 H1’03 Bu

39. Slide 39: Metrics

    Metrics TSS Revenue TSS Operating Drivers 6 months period ended H1’02 H2’02 H1’03 Local Telephony ('000) H1’02 H2’02 H1’03 H1’03 (US$ m) H1’03 Exchange lines in service 3,354 3,138 2,933 Local Telephony Services 449 430 394 1,419 1,336 1,266 (Direct Exchange Lines, Business lines 1,935 1,802 1,667 i

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