AsiaSatellite Telecommunications Announces Interim Results

21 August 2014

Asia Satellite Telecommunications Holdings Limited (‘AsiaSat’ – SEHK: 1135), Asia’s leading satellite operator, today announced its 2014 interim results for the six months ended 30 June 2014

AsiaSat’s Chairman, Sherwood P. Dodge, said, “2014 would be a transition year for the Company. The replacement of AsiaSat 3S with AsiaSat 7 and the addition of AsiaSat 6 and AsiaSat 8 to our fleet will provide the Group with incremental power, coverage and capacity. Some of the factors which have adversely affected our results for the first half of 2014 will continue to have an effect in the second half of the year. At the same time, we remain confident that the cumulative effect of the actions taken this year has better positioned the Group for future growth.”
“Longer term, AsiaSat 9 will be launched in late 2016 or early 2017 and will replace AsiaSat 4 with improved performance and added capacity to further expand our capabilities to meet the growing demand for satellite capacity across the region.”

ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(Incorporated in Bermuda with limited liability)
Stock Code: 1135
Announcement of Unaudited Results for the Six Months Ended 30 June 2014
Chairman’s Statement
2014 is a period of transition for AsiaSat. In April, we replaced AsiaSat 3S with AsiaSat 7, which will provide us higher power and improved coverage. In August, we launched AsiaSat 8 to serve our South Asia market and at the end of August we will be launching AsiaSat 6 mainly to serve the China market.

Profitability for AsiaSat during the first half of 2014 was below the previous year as indicated in our profit warning on 16 July. The decline was related to a number of items more fully described below, including a reduction in turnover, incremental depreciation on AsiaSat 7 and an increase in operating expenses.

Some of these factors will affect our results for the second half of 2014, and the commencement of depreciation on AsiaSat 6 and 8 during this period will put additional pressure on our profit. However, the incremental capacity and market coverage provided by AsiaSat 6, 7 and 8 will position us to capture growth opportunities commencing in 2015.

INTERIM RESULTS
Turnover
Turnover for the first half of 2014 was HK$694 million (2013: HK$767 million), representing a decrease of 10% as compared to the same period last year. The drop in turnover was primarily attributable to a July 2013 agreement with a major customer which resulted in a significant extension of the contract, as well as the termination of several contracts associated with the reduction in U.S. military activity in the Middle East.

Contracts on Hand
As at 30 June 2014, the value of contracts on hand amounted to HK$4,236 million (31 December 2013: HK$3,820 million). A substantial portion of the increase was from a contract signed with a customer providing Direct-to-Home (DTH) television services in Indonesia.

Operating Expenses
Operating expenses in the first half of 2014, excluding depreciation, totalled HK$127 million (2013: HK$96 million). The increase resulted mainly from an exchange loss of HK$6 million, due to the depreciation of the Renminbi and the appreciation of the Indian Rupee in which Indian tax payable is denominated, as compared with an exchange gain of HK$9 million in the previous interim period. Excluding the exchange rate effect, the operating expense increase of approximately HK$16 million was primarily the result of an increase in staff costs in 2014 as compared to a reversal of a bonus provision in 2013.

Finance Expenses
Finance expenses from the Ex-Im bank loan incurred from March 2014 amounted to HK$18 million, of which HK$15 million was capitalised as part of the cost of AsiaSat 6 and AsiaSat 8 (2013: Nil).

Depreciation
Depreciation in the first half of 2014 was HK$234 million (2013: HK$203 million), representing an increase of HK$31 million, due to a full six months depreciation provision for AsiaSat 7.

Profit
Profit attributable to equity holders for the first half of 2014 was HK$283 million (2013: HK$401 million). The decline was the result of the factors referred to above.

Cash Flow
AsiaSat’s cashflow is strongly affected by the timing and financing of capital expenditure related to the building of new satellites. For the first six months of 2014, the Group generated a net cash inflow of HK$1,905 million (2013: HK$9 million) including the proceeds from the Ex-Im bank loan of HK$1,780 million (2013: Nil) and after capital expenditure of HK$423 million (2013: HK$584 million). As of 30 June 2014, the Group had cash and bank balances of HK$3,406 million (31 December 2013: HK$1,501 million).

Dividend
The Board has declared an interim dividend of HK$0.18 per share (2013: HK$0.12 per share), increased from 2013 in order to create a better balance between interim and final dividends. The interim dividend will become payable on or about 4 November 2014 to equity holders on the share register as at 8 October 2014. The share register will be closed from 3 to 8 October 2014 (both days inclusive).

SATELLITES
AsiaSat’s existing fleet of in-orbit satellites — AsiaSat 3S, 4, 5 and 7 — continued to provide outstanding service to millions of people across the Asia-Pacific region. During the first half of the year, we prepared for the launches of AsiaSat 6 and AsiaSat 8 and began building AsiaSat 9.

AsiaSat 3S was replaced by AsiaSat 7 in April 2014 and is presently being used to secure the 120 degrees East slot in advance of the launch of AsiaSat 6. Following the launch, AsiaSat 3S will be deployed in inclined orbit in a number of applications to provide temporary service to customers and contribute additional short term revenue to the Group.

AsiaSat 5 proved to be the preferred distribution platform for sporting events such as the Winter Olympics in Sochi and, more recently, the 2014 FIFA World Cup in Brazil where we brought football fans in Asia the first-ever live telecast of this sporting event in 4K or Ultra High Definition (UHDTV) along with its regular full High Definition (HDTV) coverage of all 64 World Cup matches.

AsiaSat 5 also attracted customers during the first half of 2014 based on our market reputation for delivering a reliable premium service. New customers included:
 beIN SPORTS, a HDTV channel featuring a range of sports content that includes the Italian Serie A, French Ligue 1, and other world sports tournaments such as the ATP World Tour 250 series.
 VIVA+, a new DTH service for Indonesia.
 ARQIVA LIMITED for C-band capacity to distribute an array of elite sporting events, such as football, cricket, volleyball and tennis, throughout Asia and Australia.

AsiaSat 7 is now providing service at the orbital location of 105.5 degrees East after replacing AsiaSat 3S in April 2014. AsiaSat 7 acquired Pakistan’s Pashto entertainment channel, Pashto 1, as a new customer during this period. The Pashto 1 channel provides service to the large Pashto-speaking population in Pakistan, Afghanistan, the Middle East, and other regions, expanding our line-up of local language television services.

After several scheduling delays, AsiaSat 6 and 8 were rescheduled for a launch from Cape Canaveral, Florida in August 2014. AsiaSat 8 was successfully launched on 5 August and is presently undergoing in-orbit testing before being moved into its final orbital position. AsiaSat 8 will offer incremental Ku band capacity at 105.5 degrees East as it will be collocated with AsiaSat 7. AsiaSat 8 was designed to provide service to South Asia, the Middle East and Southeast Asia. In these markets, there are growing opportunities for AsiaSat 8 to meet capacity demand for DTH, distance education, distance medicine and diagnosis, in-flight internet connectivity, high speed rail broadband access, mobile backhaul for 3G/4G, and maritime communications.

We are awaiting the launch of AsiaSat 6 later this month. AsiaSat 6 will add additional C band capacity at a new orbital location of 120 degrees East. As announced earlier, AsiaSat 6 will be located at this new orbital location under a cooperation arrangement with Thaicom (Thaicom Public Company Limited) of Thailand. AsiaSat 6 will be mainly used to service growing requirements in the China market.

Construction is on track for the launch of AsiaSat 9 by late 2016 or early 2017. It will replace AsiaSat 4 at 122 degrees East where it will continue serving existing customers. Additional Ku-band transponders on this satellite will also enable us to serve markets in China, Australia and emerging markets such as Mongolia and Indonesia.
The recent satellite replacement programs follow our long-standing strategy of launching early in order to have another launch opportunity should we suffer a failure. AsiaSat 7 was launched two years before the end of the life of AsiaSat 3S in order to ensure the continuity of our existing customers’ businesses and protect our revenue in the event of a launch failure. This will also be the case with AsiaSat 9, which will replace AsiaSat 4 two and half years before that satellite’s anticipated end of life. In both of these cases, we can use the remaining two or three years of life of the satellites to generate incremental revenue.

The number of transponders leased or sold as of 30 June 2014 was 101, as compared to 97 as of 31 December 2013 and the overall utilisation rate for the period ending 30 June 2014 was 76% as compared with 74% as of 31 December 2013.

MARKET REVIEW
Our business is region-wide and covers a vast geographical area comprised of many governments, regulators and geopolitical environments. Operating in these markets presents a variety of challenges and opportunities:

The Regulatory Perspective
Governments throughout the region have initiated regulations which have created new growth opportunities for satellite services. As an example, in countries such as India, Thailand and the Philippines regulators have introduced Digital Terrestrial Television to digitise the television sector. Existing DTH platforms are now requiring more capacity to introduce new services such as interactive TV and HDTV in order to compete.
In addition, DTH services continue to grow in Asia as the governments in certain countries issue new licences to make possible a broader range of services to pay television consumers. These new DTH licenses are creating additional demand for satellite capacity in countries such as Pakistan, Myanmar, Sri Lanka, Bangladesh and Indonesia.

These developments are increasing the need for satellite capacity and creating a growth opportunity for AsiaSat.

The Technology Perspective
The availability of more advanced compression technologies, such as MPEG-4 and higher modulation DVB-S2, has reduced the bandwidth requirements for Standard Definition (SDTV) and HDTV channels. Such technology advances lower the entry costs for new program providers in the market, thus expanding the number and type of potential customers requiring satellite services. In addition existing programmers and platform providers find it more affordable to launch new SDTV or HDTV services allowing them to expand their product offering more economically. The resulting drive by existing customers and new entrants to seek capacity for their expansion needs will open up potential new market opportunities for AsiaSat.

We are also paying close attention to the next wave in broadcasting technology — 4K or UHDTV — which delivers four times the resolution of the existing HDTV. Although much of our customer base is still using SDTV, we believe 4K will eventually be widely adopted. 4K and UHDTV transmissions utilise considerably more bandwidth than SDTV or HDTV, thus requiring more satellite capacity. At a recent industry event, we participated in a demonstration of this technology showing how satellites will be used to distribute 4K content.

Another technology, Satellite IP, will allow users to watch television programming across a variety of personal devices such as smartphones and tablets. We are continually exploring the role that we can play in providing expanded content delivery to our customers through Satellite IP and other technologies.

Fibre continues to be a potential threat to some satellite services as governments in our market seek to improve their infrastructural development by deploying nationwide fibre networks and trans-oceanic fibre links. While this trend has continued over the past several years and has reduced our participation in traditional telecoms point-to-point services, satellite still has a unique advantage over fibre for broadcast type communications owing to its ubiquitous coverage and point-to-multipoint delivery capabilities.

The Market Demand Perspective
There is a growing demand from terrestrial and pay TV operators for content that differentiates their service offerings. The rising number of channels across Asia offering greater content variety, more local languages, and higher resolution with better viewing quality, will spur content development. We have positioned AsiaSat to provide these channels with the capacity they need to distribute their new services.

There is also growing demand for increased connectivity in certain markets and countries, where the infrastructure for telecom, mobile and broadband is underdeveloped. Satellite, with its ability to reach remote regions and outlying islands, is well accepted in these markets, particularly for mobile backhaul and VSAT services.
Other sources of market demand which we are seeking to satisfy include the need for added capacity to carry inflight and maritime communications. In addition, telecommunications companies upgrading to 3G and 4G networks also require greater bandwidth to provide better connectivity and nationwide coverage even in remote areas. Again, AsiaSat is in a position to fulfil these growing bandwidth requirements.

OUTLOOK
We recognised in our 2013 annual report that 2014 would be a transition year for the Company. The replacement of AsiaSat 3S with AsiaSat 7 and the addition of AsiaSat 6 and AsiaSat 8 to our fleet will provide the Group with incremental power, coverage and capacity. Some of the factors which have adversely affected our results for the first half of 2014 will continue to have an effect in the second half of the year. At the same time, we remain confident that the cumulative effect of the actions taken this year has better positioned the Group for future growth.

Longer term, AsiaSat 9 will be launched in late 2016 or early 2017 and will replace AsiaSat 4 with improved performance and added capacity to further expand our capabilities to meet the growing demand for satellite capacity across the region.
With our growing satellite fleet, strong team and established market reputation for providing reliable service, we are well placed to capitalise on new business opportunities.

ACKNOWLEDGEMENTS
The first half of the year has been very active with preparation for two satellite launches and a new satellite procurement, as well as the more typical business acquisition activities in a dynamic and competitive environment. I would like to take this opportunity to extend my appreciation to our customers for entrusting us with their business. I also want to thank our management team and staff for their dedication and hard work during the first half of 2014. And I want to thank my fellow Board members for their continued active guidance and counsel.
Sherwood P. Dodge
Chairman
21 August 2014