PURPOSEFUL PROFITS FY18 Annual Results Presentation for the Year - - PowerPoint PPT Presentation

Achieving

PURPOSEFUL PROFITS

FY18 Annual Results Presentation for the Year Ended 31 August 2018 Presentation by Co-Owners: William Yeung, Co-Owner & Executive Vice-chairman NiQ Lai, Co-Owner & Chief Executive Officer 1 November 2018

These materials have been prepared by HKBN Ltd. (the “Company”) solely for use at this presentation and have not been independently verified. No representations or warranties, express or implied, are made as to, and no reliance should be placed on, the fairness, accuracy, completeness

• r 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 of the 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 loss howsoever arising from any information or

• pinions presented or contained in these materials or otherwise arising in connection with these materials. The information presented or

contained in these materials is subject to change without notice and its accuracy 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 be placed on them. Forward-looking statements speak only as of the date they are made, and the Company has no obligation to update 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 assumptions prove incorrect, or if a number of important factors occur or do not occur, actual results of the Company may differ materially from those 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 any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any shares of the Company or of any of its controlled entities

• r affiliates, in any jurisdiction. Neither this document, nor any part of it, shall form the basis of or may be relied upon in connection with, any

contract, investment decision or commitment whatsoever, nor does it constitute a recommendation regarding the shares or securities of the Company.

Disclaimer

2

Business & Financial Review

NiQ Lai Co-Owner & Chief Executive Officer

3

4

Pursue Purposeful Profits

If we deliver our Core Purpose, profits will follow

60 80 100 120 140 160 180

Performance of HKBN vs. Hang Seng1

5

HKBN’s Outstanding Total Returns since IPO

+45.2% +5.0%

40.2% Excess return

Source: HKBN’s disclosure, FactSet Note: Based on market data as of 31 Oct 2018; 1 Both of HKBN share price and Hang Seng Index were rebased to 100 on 12 Mar, 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 2018)

IPO

(Mar 2015)

2016 2017 2018

Launched OTT Acquired NWT Launched MVNO Acquired ICG WTT merger announcement

Executive Summary

Industry-leading YoY growth:

• Revenue, EBITDA, and DPS year-on-year growth of 22%, 13% and 24%
• DPS at 56 HK cents in FY18 (45 HK cents in FY17)

Residential Business:

• Harvesting our expansion into OTT and Mobile 2-3 years ago with 16%

YoY growth in residential service revenue

• Residential ARPU grew from $168 in FY17 to $176 in FY18

Enterprise Solutions Business:

• Solid growth since FY17 with 14% YoY service revenue growth to

HK$1,379mn

6

24% Growth in DPS to 56 HK Cents

7

Maintained >95% core Adjusted Free Cash Flow (AFCF) payout ratio in full year declared dividend in 3 successive years

DPS HK cents (Core AFCF Payout ratio) FY16 FY17 FY18 Interim 20 (109%) 22 (116%) 26 (110%) Full Year # 40 (99%) 45 (100%) 56 (97%)

# 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%

• f the Adjusted Free Cash Flow in respect of the relevant year/period, after adjusting for potential debt repayment, if required.

Property Purchase for Core Network Planning

8

Property Status Remarks Sha Tin Industrial Building (1 floor) Completed in Sep-18 Facilitate the planning for future network upgrades TAC + Mita (2 floors + rooftop) Completed in Sep-18

• Securing ownership of existing

Network Centers

• Rooftop for chillers
• For our long-term strategic core network planning
• No DPS impact as the related payment is excluded from AFCF

Reconciliation (HK$mn) FY18 EBITDA 1,180 AFCF (before adjusting property transactions) 506 Capital expenditure on Shatin Property # 39 Deposit paid on acquisition of Cosmo True Limited * 33 AFCF (after adjusting property transactions) 578

All financial figures are rounded to nearest HK$ million # Represent $39 million partial payment for the purchase of a property in Shatin, which was completed in September 2018.

* Represent deposit of $33 million paid on acquisition of Cosmo True Limited, a property holding company holding the two network centres currently occupied by the Group, which was

completed in September 2018.

Industry-leading Growth in FY18

2,784 3,232 3,949

FY16 FY17 FY18

Revenue 1,006 1,041 1,180

FY16 FY17 FY18

EBITDA 406 453 578 #

FY16 FY17 FY18

AFCF

9

EBITDA

Financials in HK$mn, unless otherwise stated

Adjusted Free Cash Flow (AFCF)

All financial figures are rounded to nearest HK$ million # Exclude property related transactions

+3%

+13%

+12%

+28%

Revenue

+16%

+22%

• Residential – driven by ARPU increment through quad-play and mobile business expansion
• Enterprise – harvesting the synergy of full NWT integration

Across-the-board Revenue Growth

1,815 1,958 2,278 811 1,208 1,379 158 66 292

FY16 FY17 FY18

Residential Revenue Enterprise Revenue Product Revenue

10

Financials in HK$mn, unless otherwise stated

2,784

+22%

+16% +14% +342%

3,232 3,949

+16%

+8% +49%

• 58%

All financial figures are rounded to nearest HK$ million

857 871 860 37% 37% 36%

Aug-16 Aug-17 Aug-18

Residential Broadband Subscriptions ('000) Residential Broadband Market Share

Harvesting Residential Business: Growth in Service Revenue and ARPU

$ 173 $ 168 $ 176

FY16 FY17 FY18

Residential ARPU

Residential Broadband Subscriptions : Churning price sensitive customers Residential ARPU1

11

Service Revenue grew by 16% YoY to HK$2,278mn

• 3%

+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 $194 in August 2017 and $189 in August 2018. 3) Market share is calculated by dividing the number of residential broadband subscriptions by the total number of residential broadband subscriptions recorded by the Office of the Communications Authority (OFCA) at the same point in time. The latest available OFCA statistics in broadband services for residential business is as of 31 July 2018. 4) In FY18 interim report, residential ARPU in 1H FY18 is $173

+2%

• 1%

12

FY18 : HK$1,379mn FY17 : HK$1,208mn FY18 : HK$1,510 FY17 : HK$1,463

14% 3% 6%

FY18 : 57k FY17 : 54k

Enterprise Solutions Business : Promising Growth

Revenue

50 54 57

Aug-16 Aug-17 Aug-18

$1,234 $1,463 $1,510

FY16 FY17 FY18

Enterprise Customers (‘000) Enterprise ARPU

+6% +3%

• Sustaining growth momentum on both number of customer and ARPU

Note: 1) Enterprise ARPU refers to historical full base enterprise ARPU for the period. 2) In FY18 interim report, Enterprise ARPU in FY18 1H is $1,526

13

+8% +19%

Enterprise Solutions Business: Going Strong post NWT Full Integration

811 1208 1379

FY16 FY17 FY18

Enterprise Service Revenue (HK$mn)

NWT acquisition completed in n Ap Apr1 r16 +49% +14%

NWT NWT full ull integratio ion

Manageable Debt Profile

14

3.4 3.4 3.0 FY16 FY17 FY18

Net Debt to EBITDA (x)

• In Oct-18, a new term loan of $580mn is completed with similar terms as existing loan. The net debt to

EBITDA ratio will return to 3.5x level as a result.

Amount (HK$mn) Maturity Interest Rate

(Nov-16 to Aug-18)

Debt - fixed portion # 2,635 May 2020 1.45% + Margin Debt - floating portion 1,265 May 2023 HIBOR + Margin Total debt (Aug-18) 3,900 New Debt - floating portion (from Oct 18) * 580 Oct 2023 n/a Total debt 4,480

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. # After August 2018, the interest rate will be at 2.26% + margin per annum. Margin was 1.05% as at 31 August 2018 with leverage below 3.5x. * The interest rate of the new term loan of $580m will be HIBOR plus interest margin per annum (subject to a margin grid determined by reference to the net leverage ratio)

• Manageable debt profile post NWT acquisition

130+ Managers Listen to Our Customer Calls

15

Management trip to Guangzhou contact centres 19 to 21 March 2018

Rapid iteration enabled by a team of 130+

Management Talents through a systematic and user-oriented approach.

3 strategic priorities derived in 3 days,

resulting in enhanced experience for both customers and Talents.

Check out Pages 26 & 27 of our FY18 Interim Report: https://reg.hkbn.net/WwwCMS/upload/pdf/en/HKBN_FY18%20Interim%20Report_e101.pdf

Konnichiwa from 250 Top HKBN Performers

16

Incentive trip to Tokyo 30 August to 3 September 2018

Rewarding excellence for top performers

from all front-line and back-end departments.

Check out: https://reg.hkbn.net/WwwCMS/upload/web/en/Engagement-news-201809-Tokyo-Incentive-Trip-web.html

17

From Vietnam to Sri Lanka

Inspired by John Wood’s talk at

• ur FY18 management

experiential trip in Vietnam … … a group of HKBNers and their family members volunteered to visit the literacy program and new library implemented in Sri Lanka

Check out: https://reg.hkbn.net/WwwCMS/upload/web/en/Engagement-news-201810-HKBNers-off-to-SriLanka-web.html

HKBN Talent Efficiency (HK$mn) FY15 FY16

(NWT Acquisition)

FY17 FY18 CAGR FY15-18 Remarks Service Revenue 2,232 2,626 3,166 3,657 17.9% Non advertising & marketing expenses 429 542 531 522 6.8% Mostly support functions and

• verheads, mainly fixed

Talent costs included in advertising & marketing expenses 254 295 385 440 20.1% Mostly marketing and sales related, mainly variable Talent Costs 683 837 916 962 12.1% Advertising & Marketing Talent Expense % 37% 35% 42% 46% 7.2% Improving mix towards more variable (more upside and alignment) Total Permanent Full Time Talents 2,430 3,024 2,888 2,981 7.0% Revenue / Talent Cost (x) 3.27 3.14 3.46 3.80 5.2% WIN:WIN with Revenue/Talent efficiency for shareholders & … Talent Cost / Talent (HK$/year) 281,070 276,786 317,175 322,710 4.7% … Higher pay per Talent

Source: HKBN annual reports

Talent Efficiency

18

Business Outlook

William Yeung Co-Owner & Executive Vice-chairman

19

On Track for “Invest and Harvest” Roadmap

Note – The above was first shown in HKBN FY17 interim announcement ^ AFF refer to FY18-20 total Cumulative Adjusted Available Cash per Share for Distribution # Suspended and subject to revamp after WTT closing * Subject to regulatory approval and shareholder approval

20

DPS HK$0.40 DPS HK$0.45 Co-Ownership III KPI period for cumulative HK$2.1 to HK$2.4 AFF^# FY16 Actual FY17 Actual FY18 Actual FY19 FY20 Broadband + Fixed Voice Invest Harvest Harvest Harvest Harvest

• Content Overlay

Invest Invest Harvest Harvest Harvest

• Mobile Overlay

N/A Invest Invest Harvest Harvest

Enterprise Solutions Integrate NWT Integrate NWT Harvest Harvest/ Integrate WTT* Harvest/ Integrate WTT*

myTV SUPER Partnership Coming to Fruition

21

• Within 2 to 3 years, we have achieved our committed target on

myTV OTT boxes

• myTV SUPER of TVB has turned profitable in 1H FY18 and expected

further growth in FY18 *

myTV SUPER OTT (on accumulative basis) Launch Date Aug-17 Aug-18

• No. of boxes ordered

Apr 2016 526k 835k myTV SUPER Apps (bundle with HKBN mobile plan) FY17 1H 82k 212k

* Source from Television Broadcasts Limited FY18 interim results announcement on 22 August 2018

Continual Growth in Mobile Business

22

• Residential mobile activated subscriptions increased from 147k

in FY17 to 265k in FY18

Residential Mobile FY17 FY18 Activated Subscriptions 147k 265k

• Mobile ARPU increased in FY18 after introduction of high usage

data plans

Mobile ARPU FY17 FY18 Mobile (without broadband services) $119 $147 Mobile (with broadband services) $268 $321

23

Bright Future in Times of Recession

We are well positioned in an economic downturn

• Our service nature makes us recession resilient
• We provide great value for money

While others are at pain in times of recession, we THRIVE

Thank You from 2,981 Talents*

24

GZ Management Trip 19-21 March 2018

* 2,981 permanent full-time talents as at 31 August 2018

25

Appendix

Operational Highlights – Residential

26

FY17 FY18 YoY

• Y

Changes Residential homes passed ('000) 2,249 2,297 +2% Subscriptions ('000)

• Broadband

871 860 860

• 1%
• Voice

518 500 500

• 3%

Market share

• Broadband

37.0% 36.3%

• 0.7pp
• Voice

22.2% 21.8%

• 0.4pp

Residential customers ('000) 994 1,017 +2% Broadband churn rate 0.9% 1.1% +0.2pp Residential ARPU $168 $176 +5%

Our market share in broadband or voice services in Hong Kong, for residential or enterprise business, is calculated by dividing the number of broadband or voice subscriptions we have at a given point in time by the total number of corresponding broadband or voice subscriptions recorded by the Office of the Communications Authority (OFCA) at the same point in time. The latest available OFCA statistics in broadband and voice for residential business is as of 31 July 2018.

Operational Highlights – Enterprise Solutions

27

FY17 FY18 YoY

• Y

Changes Commercial building coverage 2.3 2.4 +4% Subscriptions ('000)

• Broadband

53 57 57 +8%

• Voice

132 140 140 +6% Market share

• Broadband

18.9% 19.3% +0.4pp

• Voice

7.2% 7.7% +0.5pp Enterprise customers ('000) 54 57 57 +6% Broadband churn rate 1.7% 1.2%

• 0.5pp

Enterprise ARPU $1,463 $1,510 +3%

Our market share in broadband or voice services in Hong Kong, for residential or enterprise business, is calculated by dividing the number of broadband or voice subscriptions we have at a given point in time by the total number of corresponding broadband or voice subscriptions recorded by the Office of the Communications Authority (OFCA) at the same point in time. The latest available OFCA statistics in broadband and voice for residential business is as of 31 July 2018.

Consolidated Income Statement (YoY)

(HK$ million, unless otherwise stated) FY17 FY18 YoY Changes Residential Revenue 1,958 2,278 +16% Enterprise Revenue 1,208 1,379 +14% Product Revenue 66 292 +342% Turnover 3,232 3,949 +22% Other net income 11 22 +100% Network costs (665) (974) +46% Costs of inventories (45) (273) +507% Advertising and marketing expenses (569) (605) +6% Talent costs (499) (490)

• 2%

Other operating expenses (997) (1,023) +3% Finance costs (211) (117)

• 45%

Profit before taxation 257 489 +90% Income tax (86) (92) +7% Profit for the period 171 397 +132% Amortisation of intangible assets 129 130 0% Deferred tax arising from amortisation of intangible assets (20) (20)

• Originating fee for banking facility expired

73 49

• 33%

Transaction costs in connection with proposed business combination

• 18

n/a Transaction costs in connection with business combination

• 2

n/a Loss on disposal of properties 24

• n/a

Adjusted Net Profit 378 575 +52%

28

All financial figures are rounded to nearest HK$ million

Consolidated Balance Sheet (Summary)

29 (HK$ million, unless otherwise stated) At 31 August 2017 At 31 August 2018 Non-current assets 5,708 5,627 Current assets 878 954 Current liabilities 762 915 Total assets less current liabilities 5,823 5,666 Non-current liabilities 4,694 4,629 Net assets 1,129 1,037 Capital and Reserves 1,129 1,037 Additional Info: Goodwill and intangible assets 3,385 3,260 Property, plant and equipment 2,290 2,294 Cash and cash equivalents 385 373 Bank loans 3,831 3,874

All financial figures are rounded to nearest HK$ million

Reconciliation of EBITDA and Adjusted Free Cash Flow

(HK$ mi mill llio ion, un unles ess ot

• therw

herwise e stated ted) FY FY17 17 FY FY18 18 YoY

• Y Ch

Chang nges Profit/ fit/ (loss ss) ) for

• r the

he year 171 171 397 397 +132 132% Finance costs 211 117

• 44%

Interest income (2) +200% Income tax 86 92 +7% Depreciation 420 425 +1% Amortisation of intangible assets 129 130 0% Transaction costs in connection with proposed business combination

• 18

n/a Transaction costs in connection with business combination

• 2

n/a Loss on disposal of properties 24

• 100%

EBI BITDA 1, 1,041 041 1, 1,180 180 +13 13% EBITDA margin 32.2% 29.9%

• 2.30pp

Capital expenditure * (404) (395)

• 2%

Net interest paid (108) (102)

• 5%

Other non-cash items 7 1

• 81%

Income tax paid (123) (116)

• 5%

Changes in working capital # 39 10

• 74%

Adj djuste sted Fr Free ee Ca Cash Fl Flow

• w

453 453 578 578 +28 28% Divid iden end 453 453 563 563 +24 24% DPS (HK cents) 45 56 +24% Dividend Payout Ratio 100% 97% n/a

30

All financial figures are rounded to nearest HK$ million * Excluded $39 million partial payment for the purchase of a property in Shatin, which was completed in September 2018.