Asia
Satellite
Telecommunications
Announces
Annual
Results
20 March 2014
Chairman’s Statement
A YEAR OF CHALLENGE AND OPPORTUNITY
After several consecutive years of record results, excluding the one-off impact of the Indian tax, AsiaSat produced relatively flat returns in 2013, due mainly to the renewal of contracts with an anchor customer at a lower rate and increased competition in the market.
Nevertheless, we made several significant new customer acquisitions during the year and positioned ourselves for growth with the planned launch of AsiaSat 6 and AsiaSat 8 to provide new C and Ku-band capacity in the second half of 2014.
These new satellites, along with our renowned service quality, will enable us to broaden our customer base and open up new markets in the years to come.
CONNECTING PEOPLE AND THE WORLD
We are a leader in the satellite industry in Asia and continue to be competitive in our markets. We are based in Hong Kong but have a significant customer presence in the Asia-Pacific region and the Middle East, with an established international clientele of broadcasters, service providers, governments and enterprises. These clients recognise AsiaSat’s service quality reliability and expertise that few of our competitors can match.
During the year, we reinforced our position as a premier satellite operator for broadcasting services in the region, for direct-to-home (DTH), television distribution, and occasional use services for live coverage of major sports tournaments and events to viewers across the Asia-Pacific. In February this year, AsiaSat supported the live transmission of the Winter Olympics in Sochi, Russia to the Asia-Pacific. We will continue this tradition in 2014 by delivering live television coverage of the world’s biggest and most viewed sporting event: the 2014 FIFA World Cup from Brazil.
During 2013 many news agencies and broadcasters relied upon AsiaSat to distribute breaking and special news from across the region. As media consumption patterns change with increased usage of mobile devices such as smartphones and tablets, we are well positioned to deliver instant access via mobile backhauling networks to sporting events, news and entertainment with superior connectivity.
TURNOVER
Turnover from continuing operations for 2013 was HK$1,499 million (2012: HK$1,780 million), representing a decrease of 16% from the previous year. The decline was primarily due to the previous year’s one-off revenue of HK$311 million resulting from the enactment of the Finance Act in India in May 2012, and a lower transponder lease rate for an anchor customer that became effective in 2013 which was partially offset by the short-term revenue generated from the leasing of AsiaSat 7. The turnover achieved was relatively flat when compared with the previous year if one-off revenue items are excluded.
OPERATING EXPENSES
Operating expenses in 2013, excluding depreciation, totalled HK$191 million (2012: HK$248 million), representing a decrease of 23% compared with 2012. The decrease was mainly the result of net exchange gains on the revaluation of bank deposits denominated in RMB, and Indian tax payable denominated in Indian Rupees. There was also a reduction in professional fees spent in the year and the reversal of impairment provisions previously made on certain customer debts, which we were able to recover during the year.
DEPRECIATION
Depreciation for continuing operations in 2013 was HK$437 million (2012: HK$345 million), representing an increase of HK$92 million resulting from the commencement of depreciation of AsiaSat 7 during the year.
PROFIT
Profit attributable to equity holders for 2013 was HK$748 million (2012: HK$914 million), a decrease of HK$166 million. The decline was substantially due to the one-time gain from discontinued operations of HK$119 million, arising from the disposal of SpeedCast Holdings Limited, our wholly-owned subsidiary, in 2012. In addition, the larger depreciation charge described above was only partially offset by a lower operating expense.
CASH FLOW
The Group generated a net cash outflow, including the movement in short-term deposits with maturities over three months, of HK$623 million in 2013 (2012: outflow of HK$165 million) after capital expenditure of HK$1,074 million (2012: HK$1,669 million). As of 31 December 2013, the Group had cash and bank balances of HK$1,501 million (31 December 2012: HK$2,105 million).
DIVIDENDS
The Board will recommend a final dividend of HK$0.80 per share (2012: HK$0.80 per share) and a special dividend of HK$1.50 per share (2012: HK$1.00 per share) in the forthcoming Annual General Meeting to be held on 19 June 2014. This together with the interim dividend of HK$0.12 per share (2012: HK$0.12 per share), gives a total dividend of HK$2.42 per share (2012: HK$1.92 per share) for the year ended 31 December 2013.
CORE BUSINESS PERFORMANCE
New contracts won during the review period amounted to a total value of HK$617 million (2012: HK$162 million), while renewed contracts were HK$658 million (2012: HK$2,434 million). Combined new and renewed contracts amounted to HK$1,275 million (2012: HK$2,596 million). As previously disclosed, the reduction in contract value was due to renegotiation of a major customer contract in 2012.
INDIAN FINANCE ACT
The Finance Act passed in India in May 2012 continued to affect our business. The Act taxes revenue generated from the provision of satellite transponder capacity to Indian customers and any non-Indian customers considered to have earned income from any business or source in India.
The Indian Government approved in its budget an increase of the royalty withholding tax rate from 10% to 25% effective from 1 April 2013.
Nevertheless, as stated in previous reports, the amount of AsiaSat’s revenue considered to be Indian sourced, and thus taxable in India, is still under discussion as of the date of this report.
The increase in the tax rate will have a negative impact on our future business, since to remain competitive in this market we may need to make pricing adjustments which could negatively impact our margins.
EX-IM BANK LOAN
In December 2013, AsiaSat signed an agreement for a long-term loan of up to US$345.5 million with the Export-Import Bank of the United States (“Ex-Im Bank”), an independent US government agency that provides low-interest loans to companies that purchase US products and services. The loan is to finance the construction and launch of AsiaSat 6 and AsiaSat 8 and has been partially drawn down during 2014.
This loan will enhance our capital structure and improve the Company’s return on equity while allowing us to maintain financial flexibility to build additional capacity or look for suitable merger and acquisition opportunities.
SATELLITES
Our fleet
AsiaSat’s existing fleet of four in-orbit satellites — AsiaSat 3S, AsiaSat 4, AsiaSat 5 and AsiaSat 7 — continues to provide exceptional service to millions of people across the Asia-Pacific region.
The planned launches of our new satellites AsiaSat 6 and AsiaSat 8 remain on schedule for the second quarter of 2014. Once in orbit, these satellites will provide us with additional capacity to serve existing growth markets and exploit new opportunities. AsiaSat 7, now in orbit, will fully replace AsiaSat 3S in the second quarter of 2014.
Future addition to our fleet
The preliminary design phase for AsiaSat 9 started in January 2014 and, when launched in 2017, will replace AsiaSat 4. AsiaSat 9 will introduce new services and coverage to the region and will enhance our position in the marketplace.
OUTLOOK FOR 2014
Despite the weak economic situation that is affecting some of our customers, we believe there continue to be growth opportunities in South Asia, Southeast Asia and the Middle East.
One of our strongest competitive advantages is AsiaSat’s reputation amongst broadcasters for quality and service. Potential customers see that AsiaSat carries globally-recognised brands in the broadcast and media sector, and this “neighbourhood” effect influences their decision to choose AsiaSat to deliver their services.
The addition of new HD customers such as Edge Sport HD, along with the HD service expansion of existing customers such as Phoenix Satellite TV, will continue to have a positive effect on our business. In addition, new opportunities exist in the market for Ku-band services in Southeast Asia in countries where supply lags behind demand.
In 2014, the launch of AsiaSat 6 and AsiaSat 8 will provide new revenue streams, as customers take advantage of the increased capacity which these powerful new satellites will bring.
Acquiring new business in 2014 will remain a top priority. Our expanding satellite fleet and reputation for providing quality and reliable satellite capacity together with our commitment to our customers puts us in an excellent position to develop new business opportunities. The market remains highly competitive, but I believe our able management team and our high-quality services will enable us to move the business forward in 2014.
ACKNOWLEDGMENTS
I would like to personally thank all of the AsiaSat management team and staff for their dedication and hard work in 2013. I would also like to thank our Board of Directors, some of whom retired during 2013, for their years of service.
Let me also take this opportunity to congratulate Mr. William WADE, our President and Chief Executive Officer, for the Satellite Executive of the Year in Asia-Pacific award he received in September from the Asia-Pacific Satellite Communications Council and I would like to acknowledge my predecessor, Mr. JU Wei Min, whose leadership and wisdom during his time as chairman of the Board were instrumental in guiding our Company forward.
Finally, I would like to thank our customers, suppliers and shareholders for their continued support and to assure them that the year ahead will be one of renewed business opportunities for AsiaSat.
Sherwood P DODGE
Chairman
Hong Kong, 20 March 2014
20 March 2014
Chairman’s Statement
A YEAR OF CHALLENGE AND OPPORTUNITY
After several consecutive years of record results, excluding the one-off impact of the Indian tax, AsiaSat produced relatively flat returns in 2013, due mainly to the renewal of contracts with an anchor customer at a lower rate and increased competition in the market.
Nevertheless, we made several significant new customer acquisitions during the year and positioned ourselves for growth with the planned launch of AsiaSat 6 and AsiaSat 8 to provide new C and Ku-band capacity in the second half of 2014.
These new satellites, along with our renowned service quality, will enable us to broaden our customer base and open up new markets in the years to come.
CONNECTING PEOPLE AND THE WORLD
We are a leader in the satellite industry in Asia and continue to be competitive in our markets. We are based in Hong Kong but have a significant customer presence in the Asia-Pacific region and the Middle East, with an established international clientele of broadcasters, service providers, governments and enterprises. These clients recognise AsiaSat’s service quality reliability and expertise that few of our competitors can match.
During the year, we reinforced our position as a premier satellite operator for broadcasting services in the region, for direct-to-home (DTH), television distribution, and occasional use services for live coverage of major sports tournaments and events to viewers across the Asia-Pacific. In February this year, AsiaSat supported the live transmission of the Winter Olympics in Sochi, Russia to the Asia-Pacific. We will continue this tradition in 2014 by delivering live television coverage of the world’s biggest and most viewed sporting event: the 2014 FIFA World Cup from Brazil.
During 2013 many news agencies and broadcasters relied upon AsiaSat to distribute breaking and special news from across the region. As media consumption patterns change with increased usage of mobile devices such as smartphones and tablets, we are well positioned to deliver instant access via mobile backhauling networks to sporting events, news and entertainment with superior connectivity.
TURNOVER
Turnover from continuing operations for 2013 was HK$1,499 million (2012: HK$1,780 million), representing a decrease of 16% from the previous year. The decline was primarily due to the previous year’s one-off revenue of HK$311 million resulting from the enactment of the Finance Act in India in May 2012, and a lower transponder lease rate for an anchor customer that became effective in 2013 which was partially offset by the short-term revenue generated from the leasing of AsiaSat 7. The turnover achieved was relatively flat when compared with the previous year if one-off revenue items are excluded.
OPERATING EXPENSES
Operating expenses in 2013, excluding depreciation, totalled HK$191 million (2012: HK$248 million), representing a decrease of 23% compared with 2012. The decrease was mainly the result of net exchange gains on the revaluation of bank deposits denominated in RMB, and Indian tax payable denominated in Indian Rupees. There was also a reduction in professional fees spent in the year and the reversal of impairment provisions previously made on certain customer debts, which we were able to recover during the year.
DEPRECIATION
Depreciation for continuing operations in 2013 was HK$437 million (2012: HK$345 million), representing an increase of HK$92 million resulting from the commencement of depreciation of AsiaSat 7 during the year.
PROFIT
Profit attributable to equity holders for 2013 was HK$748 million (2012: HK$914 million), a decrease of HK$166 million. The decline was substantially due to the one-time gain from discontinued operations of HK$119 million, arising from the disposal of SpeedCast Holdings Limited, our wholly-owned subsidiary, in 2012. In addition, the larger depreciation charge described above was only partially offset by a lower operating expense.
CASH FLOW
The Group generated a net cash outflow, including the movement in short-term deposits with maturities over three months, of HK$623 million in 2013 (2012: outflow of HK$165 million) after capital expenditure of HK$1,074 million (2012: HK$1,669 million). As of 31 December 2013, the Group had cash and bank balances of HK$1,501 million (31 December 2012: HK$2,105 million).
DIVIDENDS
The Board will recommend a final dividend of HK$0.80 per share (2012: HK$0.80 per share) and a special dividend of HK$1.50 per share (2012: HK$1.00 per share) in the forthcoming Annual General Meeting to be held on 19 June 2014. This together with the interim dividend of HK$0.12 per share (2012: HK$0.12 per share), gives a total dividend of HK$2.42 per share (2012: HK$1.92 per share) for the year ended 31 December 2013.
CORE BUSINESS PERFORMANCE
New contracts won during the review period amounted to a total value of HK$617 million (2012: HK$162 million), while renewed contracts were HK$658 million (2012: HK$2,434 million). Combined new and renewed contracts amounted to HK$1,275 million (2012: HK$2,596 million). As previously disclosed, the reduction in contract value was due to renegotiation of a major customer contract in 2012.
INDIAN FINANCE ACT
The Finance Act passed in India in May 2012 continued to affect our business. The Act taxes revenue generated from the provision of satellite transponder capacity to Indian customers and any non-Indian customers considered to have earned income from any business or source in India.
The Indian Government approved in its budget an increase of the royalty withholding tax rate from 10% to 25% effective from 1 April 2013.
Nevertheless, as stated in previous reports, the amount of AsiaSat’s revenue considered to be Indian sourced, and thus taxable in India, is still under discussion as of the date of this report.
The increase in the tax rate will have a negative impact on our future business, since to remain competitive in this market we may need to make pricing adjustments which could negatively impact our margins.
EX-IM BANK LOAN
In December 2013, AsiaSat signed an agreement for a long-term loan of up to US$345.5 million with the Export-Import Bank of the United States (“Ex-Im Bank”), an independent US government agency that provides low-interest loans to companies that purchase US products and services. The loan is to finance the construction and launch of AsiaSat 6 and AsiaSat 8 and has been partially drawn down during 2014.
This loan will enhance our capital structure and improve the Company’s return on equity while allowing us to maintain financial flexibility to build additional capacity or look for suitable merger and acquisition opportunities.
SATELLITES
Our fleet
AsiaSat’s existing fleet of four in-orbit satellites — AsiaSat 3S, AsiaSat 4, AsiaSat 5 and AsiaSat 7 — continues to provide exceptional service to millions of people across the Asia-Pacific region.
The planned launches of our new satellites AsiaSat 6 and AsiaSat 8 remain on schedule for the second quarter of 2014. Once in orbit, these satellites will provide us with additional capacity to serve existing growth markets and exploit new opportunities. AsiaSat 7, now in orbit, will fully replace AsiaSat 3S in the second quarter of 2014.
Future addition to our fleet
The preliminary design phase for AsiaSat 9 started in January 2014 and, when launched in 2017, will replace AsiaSat 4. AsiaSat 9 will introduce new services and coverage to the region and will enhance our position in the marketplace.
OUTLOOK FOR 2014
Despite the weak economic situation that is affecting some of our customers, we believe there continue to be growth opportunities in South Asia, Southeast Asia and the Middle East.
One of our strongest competitive advantages is AsiaSat’s reputation amongst broadcasters for quality and service. Potential customers see that AsiaSat carries globally-recognised brands in the broadcast and media sector, and this “neighbourhood” effect influences their decision to choose AsiaSat to deliver their services.
The addition of new HD customers such as Edge Sport HD, along with the HD service expansion of existing customers such as Phoenix Satellite TV, will continue to have a positive effect on our business. In addition, new opportunities exist in the market for Ku-band services in Southeast Asia in countries where supply lags behind demand.
In 2014, the launch of AsiaSat 6 and AsiaSat 8 will provide new revenue streams, as customers take advantage of the increased capacity which these powerful new satellites will bring.
Acquiring new business in 2014 will remain a top priority. Our expanding satellite fleet and reputation for providing quality and reliable satellite capacity together with our commitment to our customers puts us in an excellent position to develop new business opportunities. The market remains highly competitive, but I believe our able management team and our high-quality services will enable us to move the business forward in 2014.
ACKNOWLEDGMENTS
I would like to personally thank all of the AsiaSat management team and staff for their dedication and hard work in 2013. I would also like to thank our Board of Directors, some of whom retired during 2013, for their years of service.
Let me also take this opportunity to congratulate Mr. William WADE, our President and Chief Executive Officer, for the Satellite Executive of the Year in Asia-Pacific award he received in September from the Asia-Pacific Satellite Communications Council and I would like to acknowledge my predecessor, Mr. JU Wei Min, whose leadership and wisdom during his time as chairman of the Board were instrumental in guiding our Company forward.
Finally, I would like to thank our customers, suppliers and shareholders for their continued support and to assure them that the year ahead will be one of renewed business opportunities for AsiaSat.
Sherwood P DODGE
Chairman
Hong Kong, 20 March 2014