stronger as one - hkbn · post jos completion, we look forward to welcoming mark lunt –group...
TRANSCRIPT
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Presentation by:
NiQ Lai, Co-Owner & Chief Executive Officer
William Yeung, Co-Owner & Executive Vice-chairman
24 October 2019
Stronger as ONEFY19 Annual Results Presentation for 12 months ended 31 August 2019
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Disclaimer
2
These materials have been prepared by HKBN Ltd. (the “Company”) solely for use at this presentation and have not beenindependently verified. No representations or warranties, express or implied, are made as to, and no reliance should be placedon, the fairness, accuracy, completeness or correctness of the information or opinions presented or contained in these materials.
It is not the intention to provide, and you may not rely on these materials as providing, a complete or comprehensive analysis ofthe financial or trading positions or prospects of the Company. None of the Company or any of their respective directors, officers,employees, agents, affiliates, advisers or representatives accepts any liability whatsoever in negligence or otherwise for any losshowsoever arising from any information or opinions presented or contained in these materials or otherwise arising in connectionwith these materials. The information presented or contained in these materials is subject to change without notice and itsaccuracy is not guaranteed.
Statements that are not historical facts, including statements about the beliefs and expectations of the Company, are forward-looking statements. These statements are based on current plans, estimates and projections, and undue reliance should not beplaced on them. Forward-looking statements speak only as of the date they are made, and the Company has no obligation toupdate any of them publicly in light of new information or future events. Forward-looking statements involve inherent risks,uncertainties and assumptions. The Company cautions that if these risks or uncertainties ever materialize or the assumptionsprove incorrect, or if a number of important factors occur or do not occur, actual results of the Company may differ materially fromthose expressed or implied in any forward-looking statement.
This document does not constitute, and should not be construed as constituting or forming part of, any advertisement of, or anyoffer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any shares of the Company or of anyof its controlled entities or affiliates, in any jurisdiction. Neither this document, nor any part of it, shall form the basis of or may berelied upon in connection with, any contract, investment decision or commitment whatsoever, nor does it constitute arecommendation regarding the shares or securities of the Company.
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3
Business & Financial Review
NiQ LaiCo-Owner & Chief Executive Officer
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Executive Summary
Financial Highlights:
Solid Financial Performance
AFF: $750mn
+30%
EBITDA (New*): $1,709mn +45%
EBITDA (Old*): $1,477mn +25%
Service Revenue: $4,797mn
+31%
^ FY19 consolidates 4 months of WTT results since May-19
* EBITDA (New) adopts HKFRS15 and EBITDA (Old) adopts HKAS18
# HKBN, Ex-WTT excluded WTT figures in FY19
AFF: $688mn
+19%
EBITDA (New*): $1,447mn +23%
EBITDA (Old*): $1,247mn +6%
Service Revenue: $4,089mn
+12%
DPS: 70 HK Cents
+25%
HKBN Group^ HKBN, Ex-WTT#
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5
Executive Summary
Residential Business:
Multi-play driving ARPU growth
Enterprise Business^:
Strong position post-WTT Integration
878kBroadband
subscriptions
+2%
$185Residential
ARPU
+5%
$2,473mnService Revenue
+9%
103kEnterprise
Customers
+81%
$2,324mnService Revenue
+69%
$1,742*Enterprise
ARPU
+15%
^ FY19 consolidates 4 months of WTT results since May-19
* Enterprise ARPU was $1,742 for LTM Aug-19 and $2,356 for the month of Aug-19
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Consecutive Growth in Dividend
# The dividend policy of the Company is to pay dividends in an amount of not less than 90% of the Adjusted Free Cash Flow with an intention to pay 100% of the Adjusted Free
Cash Flow in respect of the relevant full year period, after adjusting for potential debt repayment, if required. For the shares of 1,005,666,666 existed immediately before the WTT
Merger, the Company has recommended to pay 100% of the Adjusted Free Cash Flow for the full year dividend. The dividend on the 305,932,690 newly issued consideration
shares and the amount payable to the vendor loan note shall be funded by cash and cash equivalent held by WTT as of completion date and the Adjusted Free Cash Flow
contributed by WTT for FY19.
20 2022 23
26
30
3436
FY16 1H FY16 2H FY17 1H FY17 2H FY18 1H FY18 2H FY19 1H FY19 2H
FY19: 70 DPS
(+25% YoY)
FY18: 56 DPS
(+24% YoY)
FY17: 45 DPS
(+13% YoY)
FY16: 40 DPS
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FY19 Dividend Payout Summary
Financials in HK$mn, unless otherwise stated
Due to the mid-year merger, dividend for the 473m newly issued shares (including unconverted
vendor loan note) is primarily funded by surplus cash at WTT
7
(‘m) 1H2019 2H2019 FY19
No. of shares# (‘m) 1,479 1,479 1,479
DPS (Cents) 34 36 70
Dividend payment (‘m) 503 532 1,035
As funded by:
AFF 299 451 750
WTT surplus cash n/a n/a 285
Total n/a n/a 1,035
# Including HKBN existing shares, new shares issued and unconverted vendor loan notes, at ex dividend date
Included 4 months of WTT AFF
from May to Aug-19
WTT had “locked box” cash and
cash equivalent of $355m as of
30 April 2019
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HKBN’s Total Returns since IPO
8
HKBN
HSI
60
80
100
120
140
160
180
200
Performance of HKBN vs. Hang Seng1
+80.6%
+11.5%
69.1%
Excess
return
Source: HKBN’s disclosure, FactSet
Note: Based on market data as of Oct 23, 2019; 1 Both of HKBN share price and Hang Seng Index were rebased to 100 on Mar 12, 2015; 2 Includes accumulated DPS based on actual timing of dividends
payment; 3 Hang Seng Index reflects cash dividend or distribution in the total return index counterpart as reinvestment on the ex-date
(Rebased) HKBN (with dividends)2
Hang Seng Index3
Current(Oct 2019)
IPO(Mar 2015)
2016 2017 2018
LaunchedOTT
Announced NWT acquisition
Launched MVNO
2019
Announced HKBN-WTT merger
Regulatory approval on HKBN-WTT merger
Announced JOS acquisition
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Solid Growth in EBITDA & AFF
3,232
3,949
5,108
FY17 FY18 FY19
1,041 1,180
1,709
1,477
FY17 FY18 FY19HKFRS15
(New)
FY19HKAS18
453
578
750
FY17 FY18 FY19
9
EBITDA*
Financials in HK$mn, unless otherwise stated
Adjusted Free Cash Flow (AFCF)#
FY19 consolidates 4 months of WTT results since May-2019
* Under HKAS 18, customer acquisition and retention cost were expensed as incurred. Under HKFRS 15, such costs were capitalized and amortised over the expected
customer relationship period and was excluded from calculation of EBITDA.
# Excluded property related transactions
+45% +30%
Revenue
+29%
+22%+13%
+28%
+25%
HKBN
4,400
(+11%)
WTT
262
HKBN
1,447
(+23%)
WTT
230
HKBN
1,247
(+6%)
WTT
62
WTT
708
HKBN
688
(+19%)
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Industry Leading Revenue GrowthFinancials in HK$mn, unless otherwise stated
• Residential – driven by ARPU increment and broadband subscription growth
• Enterprise – included 4 months of WTT financial performance
+16%
+14%
+342%
3,232
3,949+22%
+9%
+69%
+7%
5,108+11%
+8%
+17%
+7%
Excluding WTT
4,400
1,958 2,278 2,473 2,470
1,208 1,379
2,324 1,619 66
292
311
311
FY17 FY18 FY19 FY19
Residential Revenue Enterprise Revenue Product Revenue
+29%
FY19 consolidates 4 months of WTT results since May-2019
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Enterprise Solutions:
Over 5x Growth on Service Revenue in 5 Years
423 476
811
1,2081,379
2,324
FY14 FY15 FY16 FY17 FY18 FY19
WTT
705
+69%
Merger WithAcquired Acquired Acquired
+14%
+49%
+70%+12%
FY19 consolidates 4 months of WTT results since May-2019
HKBN
1,619
(+17%)
11
Enterprise Service Revenue (HK$mn)
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Residential Solutions:
Growth in ARPU & Subscriptions
Service Revenue grew by 9% YoY to HK$2,473mn
860 864878
36% 36% 36%
Aug-18 Feb-19 Aug-19
Residential Broadband Subscriptions ('000)
$168 $176
$185
FY17 FY18 FY19
Residential ARPU
Residential Broadband Subscriptions :Residential ARPU1
12
Service Revenue grew by 9% YoY to HK$2,473mn
+5%
Note:
1) Residential ARPU refers to historical full base residential ARPU for the period.
2) Acquisition and renewal contract ARPU refers to ARPU of the new acquisition and renewal subscriptions for the specific month. Such ARPU was $189 in August 2018 and $192 in August 2019.
3) Market share is calculated by dividing the number of residential broadband subscriptions by the latest available total number of residential broadband subscriptions published by the Office of the
Communications Authority “OFCA”. The latest available OFCA statistics for residential broadband services is as of 30 June 2019.
+1%+2%
+5%
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13
Manageable Debt Profile
13
3.4 3.4 3.0
4.2
FY16 FY17 FY18 FY19
Net Debt to EBITDA (x)
@
All financial figures are rounded to nearest HK$ million. The interest margin will be subject to a margin grid determined by reference to the net leverage ratio.
*10% optional redemption completed on 13 September 2019. Another 10% optional redemption available from 23 November 2019.
@ Based on the total debt post WTT merger net of cash over HKBN and WTT’s last twelve month (“LTM”) EBITDA with proforma synergies in FY19, computed in accordance
with the terms of the Group’s relevant banking facilities.
Debt Maturity (HK$mn)
$5,232
$3,900
$580
Nov-22 May-23 Oct-23
US$670m
Senior note
Senior note
Loan
Loan
Optional redemption in FY20
via cheaper financing*
Net Debt to EBITDA Ratio
• Interest margin will be uplifted in FY20 due to
increase in Net Debt to EBITDA ratio in FY19
post-WTT merger
• Expect to deleverage to below 4x through
synergy to achieve interest savings
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“Best of Breed” Management Diversity
Table: Profile of HKBN’s top 64 executives (top 1.4% of the Company) i.e. Associate Directors and above.
14
Company of Origin Total % of Team
HKBN
More than 5 years with HKBN 29 45%
5 years or less with HKBN 7 11%
WTT 16 25%
NWT 5 8%
Y5Zone 3 5%
ICG 4 6%
Total 64 100%
Note: Excluding JOS, which is expected to be completed in Dec 2019
Management positions earned based on MINDSET and
CAPABILITY instead of where they are from
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15
Broad-based Co-Ownership
with skin in the game
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16
Business Outlook
William YeungCo-Owner & Executive Vice-chairman
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On Track for “Invest and Harvest” Roadmap
Note – The above was first shown in HKBN FY17 interim results announcement
^ AFF refers to FY19-21 total Cumulative Adjusted Available Cash per Share for Distribution17
DPS HK$0.40 DPS HK$0.45 DPS HK$0.56
Co-Ownership III+ KPI period for cumulative HK$2.53
to HK$3.03 AFF^
DPS HK$0.70
FY16 Actual FY17 Actual FY18 Actual FY19 Actual FY20 FY21
Broadband + Fixed
VoiceInvest Harvest Harvest Harvest Harvest Harvest
• Content Overlay Invest Invest Harvest Harvest Harvest Harvest
• Mobile Overlay N/A Invest Invest Harvest Harvest Harvest
Enterprise
Solutions
Integrate
NWT
Integrate
NWTHarvest
HarvestHarvest
Harvest WTT
Integration
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18
1-HKBN – The Completed Puzzle
18
▪ The proposed acquisition is AFF accretive to HKBN
▪ Post JOS completion, we look forward to welcoming
Mark Lunt – Group Managing Director, Eric Or –
Managing Director, JOS Greater China and Stanley
Chiu – JOS Group Financial Controller as Co-Owners
and pain/GAIN participantsVertical expansion
for service capability
Horizontal expansion for network and customer scale
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WTT Synergy on Track
✓ 20 senior WTT Talents have indicated interests to convert their
completion bonus into CO3+
✓ Realigned incentive with pain/GAIN
Over HK$300m total synergies by FY21
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Set Sail on our 1-HKBN Journey
All-Talent Townhall Meeting on 20 May 2019
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Appendix
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Operational Highlights – Enterprise Solutions
FY18 FY19YoY
Changes
Commercial building coverage (‘000) 2.4 7.2 >100%
Subscriptions ('000)
- Broadband 57 116 >100%
- Voice 140 454 >100%
Market share
- Broadband 19.2% 36.5% +17.3pp
- Voice 7.7% 25.3% +17.6pp
Enterprise customers ('000) 57 103 +81%
Broadband churn rate 1.2% 1.3% +0.1pp
Enterprise ARPU $1,510 $1,742 +15%
Market share is calculated by dividing the number of residential broadband subscriptions by the latest available total number of residential broadband subscriptions published
by the Office of the Communications Authority “OFCA”. The latest available OFCA statistics for residential broadband services is as of 30 June 2019.
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Operational Highlights – Residential Solutions
FY18 FY19YoY
Changes
Residential homes passed ('000) 2,297 2,360 +3%
Subscriptions ('000)
- Broadband 860 878 +2%
- Voice 500 500 -0%
Market share
- Broadband 36.1% 35.8% -0.3pp
- Voice 21.8% 21.9% +0.1pp
Residential customers ('000) 1,017 1,019 +0%
Broadband churn rate 1.1% 0.9% -0.2pp
Residential ARPU $176 $185 +5%
Total full-time talents 2,981 4,131 +39%
Market share is calculated by dividing the number of residential broadband subscriptions by the latest available total number of residential broadband subscriptions published by the
Office of the Communications Authority “OFCA”. The latest available OFCA statistics for residential broadband services is as of 30 June 2019.
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Consolidated Income Statement(HK$ million, unless otherwise stated) FY18 FY19 YoY Changes
Residential Revenue 2,278 2,473 +9%
Enterprise Revenue 1,379 2,324 +69%
Product Revenue 292 311 +7%
Turnover 3,949 5,108 +29%
Other net income 22 30 +36%
Network costs and cost of services (974) (1,552) +59%
Costs of inventories (273) (289) +6%
Advertising and marketing expenses (605) (614) +1%
Talent costs (490) (693) +42%
Other operating expenses (1,023) (1,422) +39%
Finance cost (117) (259) >100%
Profit before taxation 489 309 -37%
Income tax (92) (94) +3%
Profit for the period 397 215 -46%
Amortisation of intangible assets 130 284 >100%
Deferred tax arising from amortisation of intangible assets (20) (46) >100%
Originating fee for banking facility expired 49 - n/a
Transaction costs in connection with business combination 2 76 >100%
Transaction costs in connection with proposed business
combination18 10 -45%
Adjusted Net Profit 575 538 -6%
The Group recognizes cumulative effect of the initial application of HKFRS 15 as an adjustment to the opening balance of equity at 1 September 2018.
Comparative information is not restated under this method prescribed by HKFRS 15.
All financial figures are rounded to nearest HK$ million
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Consolidated Balance Sheet (Summary)
25
(HK$ million, unless otherwise stated)At 31 August 2018
(Restated)
At 28 February
2019At 31 August 2019
Non-current assets 5,622 6,427 18,635
Current assets 954 1,065 1,747
Current liabilities 908 966 1,745
Total assets less current liabilities 5,668 6,526 18,637
Non-current liabilities 4,631 5,218 11,180
Net assets 1,037 1,308 7,457
Capital and Reserves 1,037 1,308 7,457
Additional Info:
Goodwill and intangible assets 3,255 3,164 13,427
Property, plant and equipment 2,294 2,577 4,342
Cash and cash equivalents 373 421 663
Bank loans 3,874 4,451 4,454
Senior notes - - 5,169
The Group recognizes cumulative effect of the initial application of HKFRS 15 as an adjustment to the opening balance of equity at 1 September 2018.
Comparative information is not restated under this method prescribed by HKFRS 15.
All financial figures are rounded to nearest HK$ million
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Reconciliation of EBITDA and Adjusted Free Cash Flow
(HK$ million, unless otherwise stated) FY18 FY19 YoY Changes
Profit/ (loss) for the year 397 215 -46%
Finance costs 117 259 >100%
Interest income (2) (4) >100%
Income tax 92 94 +3%
Depreciation 425 535 +26%
Amortisation of intangible assets 130 284 >100%
Amortisation of customer acquisition and retention costs # - 241 n/a
Transaction costs in connection with business combination 2 76 >100%
Transaction costs in connection with proposed business combination 18 10 -45%
EBITDA # 1,180 1,709 +45%
Service EBITDA Margin 32.3% 36.0% +3.7pp
Capital expenditure ^ (395) (414) +5%
Net interest paid (102) (277) >100%
Other non-cash items 1 4 >100%
Income tax paid (116) (117) +1%
Customer acquisition and retention costs - (232) n/a
Changes in working capital 10 77 >100%
Adjusted Free Cash Flow 578 750 +30%
Dividend 563 1,035 >100%
DPS (HK cents) 56 70 +25%
# The Group recognizes cumulative effect of the initial application of HKFRS 15 as an adjustment to the opening balance of equity at 1 September 2018. Comparative information is not restated under
this method prescribed by HKFRS 15. The initial application of HKFRS 15 requires the capitalization of customer acquisition and retention costs and amortised over the expected customer relationship
period. This amortization expense is excluded from the EBITDA calculation in FY19. Prior to the adoption of HKFRS 15, such costs were expensed as incurred.
Excluded $191 million payment for the purchase of properties in Shatin and excluded $296 million paid on acquisition of Cosmo True Limited, a property holding company holding the two network
centres currently occupied by the Group, which were completed in September 2018
All financial figures are rounded to nearest HK$ million
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Impact of New Accounting Standard
The impact of the initial application of HKFRS 15 is summarized as follows:
FY19 (HK$mn) Presented by
old accounting
standard
HKAS 18
Presented by
new accounting
standard
HKFRS 15
Impact Remarks
Revenue 5,108 5,108 No impact
EBITDA 1,477 1,709 +232
Under HKAS 18, customer acquisition and
retention cost were expensed as incurred.
Under HKFRS 15, such costs were
capitalized and amortised over the
expected customer relationship period and
was excluded from calculation of EBITDA.
AFF 750 750 No impactThe change in treatment of customer
acquisition and retention cost has no cash
impact
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HKBN & WTT Key Financial Indicators
(HK$ million, unless
otherwise stated)
FY18
(Reported)
FY19
(HKBN)
FY19*
(WTT)
FY19
(Reported)
YoY
Changes
(HKBN)
YoY
Changes
(Reported)
Residential Revenue 2,278 2,470 3 2,473 +8% +9%
Enterprise Revenue 1,379 1,619 705 2,324 +17% +69%
Product Revenue 292 311 - 311 +7% +7%
Turnover 3,949 4,400 708 5,108 +11% +29%
EBITDA (HKFRS15) # - 1,447 262 1,709 +23% +45%
EBITDA (HKAS18) # 1,180 1,247 230 1,477 +6% +25%
Adjusted Free Cash Flow^ 578 688 62 750 +19% +30%
28
# The Group recognizes cumulative effect of the initial application of HKFRS 15 as an adjustment to the opening balance of equity at 1 September 2018. Comparative information is not restated under
this method prescribed by HKFRS 15. The initial application of HKFRS 15 requires the capitalization of customer acquisition and retention costs and amortised over the expected customer relationship
period. This amortization expense is excluded from the EBITDA calculation in FY19. Prior to the adoption of HKFRS 15, such costs were expensed as incurred.
Excluded $191 million payment for the purchase of properties in Shatin and excluded $296 million paid on acquisition of Cosmo True Limited, a property holding company holding the two network
centres currently occupied by the Group, which were completed in September 2018
* FY19 consolidates 4 months of WTT results since May-19
All financial figures are rounded to nearest HK$ million