i-CABLE Communications Limited 2000 Results Announcement
i-CABLE Achieves Net Profit One Year Earlier than Expectation
i-CABLE Communications Limited (i-CABLE) announced today (March 22) that the Group had achieved a consolidated net profit for 2000, a year earlier than expectation.
Reviewing the Group’s 2000 results, i-CABLE’s Chief Executive Officer, Mr Stephen T.H. Ng, noted that the Pay Television division had started to report a healthy operating profit in the second quarter of the year, which was particularly gratifying because no television broadcaster in Hong Kong other than the perennial dominant operator had been profitable in the history of television since it became a mass medium.
Mr. Ng also noted that the Internet and Multimedia division had on an incremental basis started to report positive EBITDA within nine months from starting a Broadband Internet access service, notwithstanding that it was two years behind the incumbent telephone company and at the same time as five other competitors entered the market.
On a consolidated basis, Mr Ng reported that the Group made a net profit of HK$20 million in 2000, an improvement of HK$257 million over 1999. It had been widely expected that i-CABLE would not become profitable until 2001.
Describing 2000 as a milestone year, Mr Ng noted that the Group had completed another year of significant continual growth in spite of new competition, to once again meet or surpass all operational, financial and developmental targets.
“This was made possible by the Group’s bold, early investment to build brand equity, distribution infrastructure, marketing, sales, fulfillment and servicing infrastructure, and relevant content, resulting in its tremendous First or Early Mover Advantage. This was also made possible by the Group’s high operating leverage delivering high value video, data and voice services over the same infrastructure with a very low variable cost,” he added.
The Group announced today that total turnover for the year was HK$1,649 million (an increase of HK$303 million or a 23% growth over 1999). Turnover from Pay Television grew by 18% to reach HK$1,541 million and from Multimedia grew by 189% to reach HK$109 million. Total operating expenses were maintained at HK$1,207 million (1999: HK$1,120 million). As a result, total EBITDA increased by 97% to HK$443 million, with EBITDA margin growing from 21% to 32% for Pay Television and from 17% to 27% overall.
“This attractive coupling of revenue growth and margin growth again validates the Group’s robust subscription business model and high operating leverage. Between 1996 and 2000, turnover grew at the compound rate of 25% per annum, and operating expenses only rose at the compound rate of 1% per annum. This represents a profit improvement of over HK$1,000 million in only 4 years,” Mr Ng said.
He added that the Group’s balance sheet remained strong. The ratio of net debt to total assets as at December 31, 2000, was 10%. Current ratio was 197%, with current assets of HK$1,728 million against current liabilities of HK$877 million. “With net cash on hand of HK$1,533 million, and positive free cashflow generated from operations after paying for capital expenditure, the Group will be well endowed to fund its pursuit of new services and investment opportunities,” he said.
Reviewing the performance of the Group’s core businesses, Mr Ng noted that its Pay Television subscriber base grew by 15% during the year to pass the milestone of 520,000 before the end of the year. He added that a healthy operating profit started to be reported in the second quarter of the year, at least a year earlier than had been expected, and gave rise to a cumulative operating profit of HK$73 million for the full year, even before allocating out up to HK$100 million of costs for shared infrastructure or services.
He further said the Group’s Broadband Internet access subscribers grew from a standing start in late March to pass the milestone of 50,000 before the end of the year, taking up an estimated share of about 25% in the residential market and firmly establishing i-CABLE as one of two clear market leaders. Revenue from this core business grew by 189% to HK$109 million when compared to 1999, validating its potential as a new growth engine for the Group.
By the end of 2000, over 900,000 homes in about 4,600 buildings throughout Hong Kong, Kowloon and the New Territories had been covered by the Group’s Broadband service. The milestone of 1,000,000 was reached two months later, doubling the Group’s licence commitment to the Government. Mr Ng noted that this represented one of the fastest, if not the fastest, rollouts of cable modem services in any major city in the world.
He said the momentum of growth accelerated for the Broadband Internet access service in the first quarter of 2001 with the rapid expansion of service coverage and as valuable sales and service experience was gained. Mr Ng expected that this core business would in its first full year of operation in 2001 grow at an even faster pace to become an increasingly important contributor to the Group’s growth.
Mr Ng also reported that early results from a telephony trial started in December using voice-over-IP (VoIP) technology to further leverage the Group’s historical investment had confirmed a commercial rollout latest by next year would be viable.
On content development, Mr Ng said the Group had enhanced its portal (www.i-cable.com) and launched two multimedia portals on news (inews.i-cable.com) and sports (isports.i-cable.com) which are rich with video contents. Continued enhancement of the sites has brought significant increase in pageviews since the beginning of this year.
Meanwhile, enhancement of the Group’s television programming continued with the conclusion or renewal of exclusive multi-year carriage with major satellite channel operators such as HBO, Cinemax, CNN, AXN and Sun TV, validating the Group’s solid customer base and network coverage.
He also noted that 2000 was a successful year for commercial airtime sales for the Pay Television service with a significant 58% growth in revenue over 1999, attributable to the Euro 2000 football tournament and the introduction of more innovative sponsorship packages. A new subsidiary, Global Media in Force Limited was formed during the year to add value for clients advertising on the television service through the web.
On network development, Mr Ng said the Group is well on course to substantially complete its two-way Hybrid Fibre Coaxial (HFC) network by the end of this year to cover over 90% of the homes in Hong Kong. In the meantime, the Group will begin to migrate its television service to digital broadcasting before the end of this year.
“We shall be the first local broadcaster to broadcast in digital and the new initiative will again place us in a good position to introduce interactive television as the technology develops,” he added.
Looking ahead, Mr Ng observed the regulatory uncertainties that had previously been a major concern of the industry had largely been removed. “The initially perceived threat of over-competition has not so far materialised. The operating environment has turned out to be a lot less hostile than had been perceived and the Group is confident that its first or earlier mover advantage would continue to enable its services to prevail over the competition,” he added.
“All of our key businesses have been progressing and performing at or above target, operationally, financially and developmentally, since our listing in November 1999. As the focused and only fully integrated communications company in Hong Kong with significant first or early mover advantage and the most favourable incremental cost structure, the Group is confident that it will continue to connect its growing customer base with its growing portfolio of services to enhance its customers’ lifestyles. In doing so, the Group is confident it will continue to outperform present and future competition,” Mr Ng said.
i-CABLE is listed on both the Hong Kong Stock Exchange (stock code 1097) and NASDAQ (symbol ICAB). It is 79.4 per cent held by The Wharf (Holdings) Limited, which is also listed on the Hong Kong Stock Exchange (stock code 0004).