i-CABLE COMMUNICATIONS LIMITED
Interim Results Announcement
RESILIENT PERFORMANCE IN WEAK ECONOMY
Pay TV – World Cup & anti-piracy measures spurred recovery
Internet & Multimedia – Market expansion moderated by competition
i-CABLE Reports Resilient Performance in a Weak Economy
(Hong Kong, August 20, 2002) i-CABLE Communications Limited reported a 20% growth in turnover to HK$1.1 billion, a 34% growth in net profit to HK$103 million and an interim dividend of 1.5 cents for the first half of 2002, the leading integrated communications company in Hong Kong announced today.
Releasing the Group’s interim results for 2002, Chairman and CEO of i-CABLE, Mr Stephen T.H. Ng, said they underlined the comparative resilience of the Group’s primarily subscription-based business in a weak economy.
He said the Group’s two core businesses operated in different market conditions and returned contrasting results. “The Pay TV business continued a gradual process of recovery from the decline last year caused by pirate activities to report a turnover growth of 9%. The Broadband business harvested a turnover growth of 86% from the rapid growth last year but began to encounter keener competition since the beginning of this year,” he added.
Mr Ng noted that the high point in the first half of 2002 was CABLE TV’s month-long live and exclusive coverage of the hugely popular 2002 FIFA World Cup. “It not only helped to break viewership, subscription and airtime sales records for us, but also put us more firmly on the broadcasting map. Our next challenge is to capitalise on that momentum in this weak economy to protect that base and to build further from it,” he added.
He said anti-piracy measures continued, and were enhanced, in the first half of this year ahead of World Cup. Mr Ng said they had proven to be effective in arresting the decline in ARPU and revenue to enable Pay TV subscription revenue to recover to its previous peak in the first quarter of 2001 by the first quarter of 2002. That momentum continued into the second quarter amidst the World Cup fever.
During the first half, the subscriber base grew to 600,000 for a net gain of about 40,000 in the preceding 6 months and 63,000 in the preceding 12 months. First half ARPU recovered to HK$244 from HK$239 a year ago.
Pay TV turnover in the first half of 2002 increased by 9% over the first half of 2001 to HK$877 million with World Cup-related revenues more than compensating for the softness in non-World Cup commercial airtime sales. Net operating expenses increased by 22% to HK$581 million, primarily because of World Cup-related items which are not expected to recur. EBITDA declined by 9% to HK$297 million (with an EBITDA margin of 34%) and depreciation held steady at HK$143 million. Operating profit declined by 17% to HK$154 million. Mr Ng expected additional upside from the World Cup to accrue in subsequent periods.
Migration to the new digital encryption platform accelerated during the first half. In addition to providing better security against unauthorised viewing, the new technology also expanded network capacity to deliver many more channels to subscribers. “We have begun to use the expanded capacity and expanded choice to enhance subscriber satisfaction and to create new revenue opportunities,” he added
On Broadband service, Mr Ng said in less than two years after its launch, this core business returned a satisfactory operating profit for the Group – an accomplishment few operators around the world could achieve.
Year-on-year growth was strong due to the rapid growth last year but growth within the first half moderated as competition became keener, Mr Ng said. The Broadband subscriber base increased to 192,000 as at June 30, for a net gain of about 32,000 in the preceding 6 months and 92,000 in the preceding 12 months. ARPU declined to HK$213 from HK$225 a year ago.
In the first half of 2002, Internet & Multimedia turnover increased by 86% to HK$246 million compared to 2001 and net operating expenses were stable at HK$119 million to illustrate the high operating leverage this business enjoys. EBITDA increased to HK$127 million (from HK$13 million) for an EBITDA margin of 52% and depreciation increased by 50% to HK$96 million. An operating profit of HK$31 million was reported, representing a significant improvement of HK$82 million from the HK$51 million loss reported a year ago.
Mr Ng expected the pressure from competition to become keener. “But our early mover advantage has given us a significant headstart and we will in addition adjust our development and marketing strategies to protect our advantage,” he said.
He added that by the end of June, over 1.78 million households in about 10,000 buildings throughout the territory were already covered by the Group’s Broadband network, an infrastructure that can only be matched by the incumbent telephone operator’s. “Furthermore, the very favourable incremental cost structure of this core business continues to provide a comfortable margin for the Group to compete with,” he said.
Looking ahead, Mr Ng said the Group needed to be alert to the challenges ahead and navigate around a weak economy and an environment of keen competition carefully.
But he said the 2002 FIFA World Cup had firmly entrenched the Group’s leading sports programme position. The Group has also upgraded its carriage agreement for the STAR Group’s sports channels to exclusive status. “Together with other exclusive rights that have been negotiated, the Group is very well placed to fend off competition from any new Pay TV operator, particularly in the area of sports, in at least the medium term, “ he added.
Furthermore, he said the Group’s expanded network capacity brought about by digitisation has enabled it to introduce new channels and tiering packages to penetrate more broadly and more deeply into specific target segments of the market. “By allowing more variety of individual packages, it is hoped that our pace of market penetration could be sustained,” he said.
He also said the pressure on Broadband subscriber and revenue growth is expected to become keener but the Group will continue to come up with innovative marketing campaigns to withstand the challenges. “Early mover advantage and a favourable cost structure will enable us to compete effectively,” Mr Ng added.
He said the weak economy is obviously affecting consumer sentiments and consumption. “In such an operating environment, the Group is fortunate to have established a strong market position, a large subscriber base, a significant operating margin, a healthy cash position and robust recurring cashflow to stay very competitive. We remain confident about the future when the economic uncertainties begin to clear up,” he said.