Sun Hung Kai Propert : SmarTone Telecommunications Holdings Limited 2011 / 2012 Interim Results Announcement
02/21/2012| 05:27am US/Eastern
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SmarTone Telecommunications Holdings Limited
(Incorporated in Bermuda with limited
(Stock code: 315)
2011 / 2012 INTERIM RESULTS ANNOUNCEMENT
(All references to "$" are to the Hong
Service revenue increased 31%, driven by continuing
growth in both customer number and ARPU
Increasing competitiveness through quality and
Data revenue increased 54%
EBITDA increased 52%
Net profit increased 48% to $475 million
Interim dividend of $0.46 per share with a scrip
I am pleased to report the results of the Group for the
six months ended 31 December 2011.
The Group achieved significant improvements in financial
results in the period under review with continuing strong
growth in service revenue, driven by increase in both customer
number and ARPU, as well as increasing usage of data services.
These drivers, together with improved operating leverage,
resulted in an EBITDA growth of 52% and net profit growth of
48% over the same period last year.
Total revenue increased by 83% to $5,060 million, with
a 31% growth in service revenue. EBITDA increased by 52% to
$1,406 million. Interim profit attributable to equity holders
increased by 48% to $475 million. Interim earnings per share
increased to 46 cents, compared with 31 cents (adjusted for
the bonus issue in April 2011) in the same period last
In line with the Group's dividend policy of full
distribution of profit attributable to equity holders
excluding extraordinary items, your Board declares an interim
dividend of 46 cents per share, which shareholders have the
option to receive new and fully paid shares in lieu of cash
under a scrip dividend scheme.
SmarTone continued to generate strong growth in service
revenue, from both increased customer number and ARPU, in the
period under review, reflecting our increased competitiveness
through quality and innovation, and thereby providing better
value for customers.
Service revenue grew 31%, compared to the same period
last year, amidst a highly competitive market. Customer
number increased by 12% to 1.62 million, of which 70% were
higher value postpaid customers. Postpaid mobile churn rate
maintained at a healthy level of 1.1%. Fully blended ARPU,
defined as service revenue divided by number of SIM cards in
issue across all service portfolios, increased by 15% to
$277, driven by increasing customer adoption of data services
using smart devices.
To maintain its leadership in providing a superior
mobile broadband experience, the Company continued to invest
to improve network quality and coverage. The 850 MHz HSPA+
network is being rolled out to further increase network
capacity and enhance in-building coverage. The network
modernisation program to upgrade to the new generation of
multi-mode multi-band base stations is also well on its way
to be completed by the middle of 2012. This modernisation
program will enable a flexible and efficient implementation
of LTE which the Company will implement on the 1800 MHz
frequency band for its superior in-building penetration radio
characteristics and cost effectiveness.
SmarTone continues to innovate through proprietary
services to better engage customers, further differentiate in
the market, and to generate additional revenue. Call Guard, a
cloud service, enables our smartphone customers to easily
collaborate through an app to screen out intrusive
unsolicited marketing calls that have become increasingly
prevalent in Hong Kong. Customers have come to value the
dramatic reduction in these disturbances. Our HK Credit Card
Privileges app enables a customer to find out instantly all
the dining, shopping and lifestyle promotional offers
available on the credit cards that the customer owns - this
is proving to be a boon to the more value conscious
customers. A new model of HomePhone+ telephone was introduced
for our wireless fixed-line service, incorporating new
service features including HelpNow. HelpNow provides 24x7
access to a trained HelpNow operator for instant advice and
help in all household emergencies, including calling and
assisting emergency services where required. Recently,
SmarTone introduced its own PockeTabTM homescreen software to
launch with the Samsung Galaxy Note. This has helped in
selling SmarTone's services and apps, deepening
engagement, and has generated favourable response from
Your Company continues to invest in improving its
customer care across all touch- points, including our stores,
customer hotlines and online, further enhancing customer
engagement and satisfaction.
With improving operations, SmarTone Macau registered
growth in both revenue and profit in the period under
Amidst the weak global economic environment, the Hong
Kong economy is faced with increasing uncertainties and
The Group will continue to focus on delivering more
valuable experiences to customers and further extending its
leadership in network performance, proprietary services and
SmarTone is well positioned to capitalise on the
increasing adoption of smart devices and data services. Your
Group will continue to expand network capacity in a cost
effective way through implementing 850 MHz HSPA+,
re-allocating network resources from wireless fixed broadband
to the higher margin mobile business, and launch LTE at the
1800 MHz frequency band.
The Group expects to launch its LTE network within 2012
when Release 9 LTE
handsets become available.
Your Group's balance sheet remains strong,
providing flexibility in a competitive market as well as
allowing us to capture new opportunities, bringing value to
both customers and shareholders.
I would also like to take this opportunity to express my
gratitude to our customers and shareholders for their
continuing support, my fellow directors for their guidance as
well as our staff for their dedication and hard work.
Raymond Ping-luen Kwok
Hong Kong, 21 February 2012
MANAGEMENT DISCUSSION AND ANALYSIS Review of financial
During the period under review, the Group achieved
continued growth in service revenue, EBITDA and net profit.
Service revenue grew by 31% to $2,807 million (first half of
2010/11: $2,145 million). EBITDA rose by 52% to $1,406 million
(first half of 2010/11: $927 million). Profit attributable to
equity holders of the Company increased by 48% to $475 million
(first half of 2010/11: $321 million).
Revenues rose by $2,301 million or 83% to $5,060
million (first half of 2010/11:
Service revenue rose by $662 million or 31% to
$2,807 million (first half of 2010/11: $2,145
million) driven by customer growth and increase in
The Group achieved a 12% year-on-year growth in its Hong
Kong customer base. Hong Kong blended ARPU rose by 15% to
$277 (first half of 2010/11:
$241) driven primarily by data services, with increasing
subscriptions to high price point data bundled plans by
both new and existing customers.
Cost of inventories sold and services provided rose by
$1,674 million or 1.9 times to $2,540 million (first half of
2010/11: $866 million) largely due to higher cost of
Operating expenses rose by $129 million or 13% to
$1,095 million (first half of
2010/11: $966 million). The increase in operating expenses
scaled less than the growth in service revenue, resulting in
improved operating leverage. Network costs rose by 10% as the
Group continued to enhance its network capacity, quality and
coverage. Staff costs grew by 25% as a result of headcount
growth, general salary inflation and share-based payments.
Sales and marketing expenses remained broadly stable. Other
operating expenses, including rental and utilities, rose by
15% collectively driven by cost increases to support the
growth in business volume.
Impairment loss of financial investments of $20 million
(first half of 2010/11: nil) arose from the decline in the
fair value of the available-for-sale financial assets.
Depreciation and loss on disposal increased by $27
million or 12% to $261 million (first half of 2010/11: $233
million). Handset subsidy amortisation rose by $220 million
to $463 million (first half of 2010/11: $242 million) as a
result of increased customer acquisitions and upgrades using
subsidised handsets, in particular smart devices. Mobile
licence fee amortisation rose by $5 million to $41 million
(first half of 2010/11: $36 million).
Finance income fell by $3 million to $15 million (first
half of 2010/11: $18 million). Finance costs rose by $22
million to $74 million (first half of 2010/11: $52 million)
mainly due to higher bank charges for credit card instalment
in respect of handset bundle subscriptions. Accretion
expenses or deemed interest on mobile licence fee liabilities
and interest on bank borrowings increased by $8 million
Income tax expense amounted to $97 million (first half
of 2010/11: $57 million).
Macau operations reported an operating profit of $42
million (first half of 2010/11: $16 million). Revenues rose
by 35% to $179 million (first half of 2010/11: $132 million)
driven by higher revenue from both local and roaming
services. Cost of inventories sold and services provided rose
by 22%. Operating expenses remained broadly stable. EBITDA
rose by $40 million to $71 million (first half of 2010/11:
Capital structure, liquidity and financial
During the period under review, the Group was financed by
share capital, internally generated funds and short-term bank
borrowings. The Group's cash resources remained robust with
cash and bank balances (including pledged bank deposits) and
investments in held-to-maturity debt securities of $1,878
million as at 31 December 2011 (30 June 2011: $1,653 million).
The Group had short-term bank borrowings of $650 million as at
31 December 2011 (30 June 2011: $550 million).
The Group had arranged committed 12-month Hong Kong
dollar denominated revolving credit facilities from certain
banks totalling $650 million, of which a sum of $650 million
was utilised as at 31 December 2011.
The Group had net cash generated from operating
activities and interest received amounted to $1,671 million
and $18 million respectively during the period ended 31
December 2011. The Group's major outflows of funds during
the period were payments for additions of handset subsidies,
purchase of fixed assets, mobile licence fees and 2011 final
The Group's current liabilities exceeded its
current assets by $634 million as at 31 December 2011 (30
June 2011: $593 million). The growth in subscriptions of
handset bundled plans resulted in corresponding increases in
handset subsidies included in non-current assets, and
non-refundable customer prepayments included in current and
non-current liabilities. Both handset subsidy and
non-refundable customer prepayment will reduce gradually over
the contract term of each subscription. Excluding the
non-refundable customer prepayments of $796 million (30 June
2011: $641 million) included in current liabilities, the
Group would have net current assets of $161 million as at 31
December 2011 (30 June 2011: $48 million).
The directors are of the opinion that the Group can
fund its capital expenditures and working capital
requirements for the financial year ending 30 June 2012 with
internal cash resources and short-term bank
The Group invests its surplus funds in accordance with a
treasury policy approved from time to time by the board of
directors. Surplus funds are placed in bank deposits or
invested in investment grade debt securities. Bank deposits are
principally maintained in Hong Kong and United States dollars.
Investments in debt securities are denominated in either Hong
Kong dollar or United States dollar, and having a maximum
maturity of three years. The Group's policy is to hold its
investments in debt securities until maturity.
The Group is required to arrange for banks to issue
performance bonds and letter of credit on its behalf. The
Group may partially or fully collateralise such instruments
by cash deposits to lower the issuance costs. Pledged bank
deposits amounted to $109 million as at 31 December 2011 (30
June 2011: $411 million).
Functional currency and foreign exchange
The functional currency of the Group is the Hong Kong
dollar. All material revenues, expenses, assets and
liabilities, except for the Group's United States dollar
bank deposits and debt securities are denominated in Hong Kong
dollar. The Group therefore does not have any significant
exposure to foreign currency gain or loss other than from its
United States dollar denominated bank deposits and debt
securities. The Group does not currently undertake any foreign
Contingent assets and liabilities
Fixed-mobile interconnection charge
As at 31 December 2011, the Group had contingent assets
and liabilities in respect of fixed-mobile interconnection
charge of up to $351 million (30 June 2011: $285 million) and
$243 million (30 June 2011: $197 million) respectively as
disclosed in note 13 to this results announcement.
Certain banks, on the Group's behalf, had issued
performance bonds to the telecommunications authorities of
Hong Kong and Macau in respect of obligations under mobile
licences issued by those authorities. The total amount
outstanding as at 31 December 2011 under these performance
bonds was $709 million (30 June 2011: $658 million).
Lease out, lease back arrangement
A bank, on the Group's behalf, had issued a letter
of credit to guarantee the Group's obligations under a
lease out, lease back arrangement entered into during the
year ended 30 June 1999. This letter of credit is fully cash
collateralised using surplus cash deposits. The directors are
of the opinion that the risk of the Group being required to
make payment under this guarantee is remote.
Employees and share option scheme
The Group had 2,024 full-time employees as at 31 December
2011 (30 June 2011: 1,951), with the majority of them based in
Hong Kong. Total staff costs were $317 million for the period
ended 31 December 2011 (first half of 2010/11: $253
Employees receive a remuneration package consisting of
basic salary, bonus and other benefits. Bonus payments are
discretionary and depend, inter-alia, on both the Group's
performance and the individual employee's performance.
Benefits include retirement schemes, medical and dental care
insurance. Employees are provided with both internal and
external training appropriate to each individual's
The Group has a share option scheme under which the
Company may grant options to participants, including
directors and employees, to subscribe for shares of the
Company. During the period under review, 1,642,500 new share
options were granted; 1,393,000 share options were exercised;
and 675,000 share options were cancelled or lapsed.
38,766,000 (30 June 2011: 39,191,500) share options were
outstanding as at 31 December 2011.
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