AsiaSat Reports Full Year 2014 Results

26 March 2015

Asia Satellite Telecommunications Holdings Limited, Asia’s leading satellite operator, today announced its 2014 annual results for the year ended 31 December 2014.

AsiaSat’s Chairman, Sherwood P. Dodge, said, “2014 was a year of transition for AsiaSat. The challenges we faced in a competitive market will continue into 2015. With the launches of AsiaSat 6 and AsiaSat 8 in 2014, we expanded our geographic reach and our product offerings. These enhancements will enable us to better serve our key markets of South Asia and China.”

Final Results for the Financial Year Ended 31 December 2014
Chairman’s Statement
A YEAR OF TRANSITION AND CHALLENGE
2014 was a year of transition for AsiaSat. We launched two new satellites, AsiaSat 6 and AsiaSat 8, which increased our fleet from four to six and our transponder capacity by 22%. These satellites support our strategy by adding high power C and Ku-band capacity in the key growth markets of South Asia and China and enhancing our ability to address new technologies and applications. We look forward to receiving the required licences and putting them into service in 2015. Highlights of the year included our support of major sporting events, ranging from the Winter Olympics in Sochi to the FIFA World Cup in Brazil, as well as the role we played as a key member of an Asian satellite industry group preparing for the World Radiocommunication Conference to be held this year.

It was also a challenging year, in which we contended with an increasingly competitive market and deferred revenues resulting from the delays in the launches of AsiaSat 6 and AsiaSat 8.

Challenges for the Industry
In 2014, the world economy remained sluggish across many of our markets and government support for telecommunications and broadcasting projects weakened, particularly in the Middle East. In addition, the surplus capacity created by increased supply and government cutbacks caused prices to soften in most of the major markets we serve.

FINANCIAL PERFORMANCE
Turnover
Turnover for 2014 was HK$1,365 million (2013: HK$1,499 million), representing a decrease of 9% from the previous year. As described in the interim report, the decline was mainly due to a renewal and extension in 2013 of agreements with a major customer which resulted in a significant reduction in rates with the full-year impact not being felt until 2014, as well as the termination of several contracts associated with the reduction in U.S. military activity in the Middle East. In addition, the short-term revenue generated by AsiaSat 7 prior to its replacing AsiaSat 3S was substantially less in 2014 than in 2013.

Operating Expenses
Operating expenses in 2014, excluding depreciation, totalled HK$260 million (2013: HK$191 million), representing an increase of 36% compared with the previous year. The increase was mainly the result of an exchange loss arising from conversion of Renminbi compared with a conversion gain in the previous year, a larger impairment charge on trade debtors and higher professional fees incurred during the year. Excluding these three factors, operating expenses increased by approximately 5% as compared to 2013.

Finance Expenses
Finance expenses from the Ex-Im bank loans incurred from March 2014 amounted to HK$50 million (2013: Nil), of which HK$47 million (2013: Nil) was capitalised as part of the cost of AsiaSat 6 and AsiaSat 8.

Depreciation
Depreciation was HK$467 million (2013: HK$437 million), representing an increase of HK$30 million mainly resulting from the full year depreciation of AsiaSat 7 during 2014.

Profit
Profit attributable to owners of the Company for 2014 was HK$559 million (2013: HK$748 million), a decrease of HK$189 million. The decline was due to the lower turnover, higher depreciation and higher operating expenses mentioned above.

Cash Flow
The Group generated a net cash inflow, including the movement in short-term bank deposits with maturities over three months, of HK$1,849 million in 2014 (2013: outflow of HK$623 million). The most significant elements of the 2014 cashflow were the proceeds of drawdowns of the Ex-Im bank loans totalling HK$2,173 million (2013: Nil), net cash from operations of HK$1,012 million (2013: HK$1,203 million), reimbursement from Thaicom for their share of capacity of AsiaSat 6 of HK$636 million (2013: Nil), capital expenditures of HK$1,024 million (2013: HK$1,074 million) and dividends of HK$969 million (2013: HK$750 million). As at 31 December 2014, the Group had cash and bank balances of HK$3,346 million (31 December 2013: HK$1,501 million). With the cash and bank balances exceeding the bank borrowings, the Group had a net cash position of HK$1,163 million as at 31 December 2014 (31 December 2013: HK$1,501 million).

Dividends
For the year 2014 the Board will recommend a final dividend of HK$0.39 per share (2013: a final dividend of HK$0.80 per share and a special dividend of HK$1.50 per share) in the forthcoming Annual General Meeting to be held on 24 June 2015. This, together with the interim dividend of HK$0.18 per share (2013: HK$0.12 per share), gives a total 2014 dividend of HK$0.57 per share (2013: HK$2.42 per share) for the year ended 31 December 2014.

Core Business Performance
New contracts won during the year amounted to a total value of HK$357 million (2013: HK$617 million). The decline in new contracts was the result of intense competition and our lack of capacity in relation to some customer requirements. Renewed contracts were HK$575 million (2013: HK$658 million). Combined new and renewed contracts amounted to HK$932 million (2013: HK$1,275 million).

POSSIBLE NEW LOANS FOR A SPECIAL INTERIM DIVIDEND
On 23 December 2014, it was announced that a fund managed by Carlyle Asia Partners IV (Carlyle) would acquire General Electric’s (GE) stake in the Company.

As mentioned in the joint announcement, subject to the approval of the Board in due course, the Company will pay a special interim dividend out of the Company's retained reserves not to exceed US$600 million or HK$11.89 per share to the shareholders following the completion of this acquisition. It is proposed that the Company enters into a dividend facility with a syndication of banks for an amount of not to exceed US$240 million to fund a portion of this special interim dividend.

SATELLITES
AsiaSat’s fleet of satellites continued to perform well throughout the year.
With the launches of two new satellites in 2014, the Company’s existing fleet of in-orbit satellites now stands at six — AsiaSat 3S, AsiaSat 4, AsiaSat 5, AsiaSat 6, AsiaSat 7 and AsiaSat 8. AsiaSat 6 and AsiaSat 8 have not been commissioned for service as appropriate licences have not been issued for their intended operations.
Customers of AsiaSat 3S were successfully transferred at the end of March 2014 to AsiaSat 7 at the orbital location of 105.5 degrees East. Having reached the end of its scheduled life, AsiaSat 3S has the potential to last another six to seven years in inclined orbit, providing continued but limited service.

AsiaSat 5 continued to be the preferred distribution platform for sporting events such as the Winter Olympics in Sochi and the Asian Games in Incheon, Korea, the Nanjing Youth Olympic Games, the Australian Open tennis tournament and the 2014 FIFA World Cup in Brazil. For this latter event, we brought football fans in Asia the first-ever live telecast of this sporting event in 4K or Ultra High Definition Television (UHDTV) along with full High Definition Television (HDTV) coverage of all 64 World Cup matches.

Although the launches of AsiaSat 6 and AsiaSat 8 were delayed, both satellites were successfully put into orbit on 7 September and 5 August 2014 respectively. These new satellites will provide additional C and Ku-band capacity enabling us to better serve existing markets in China and South Asia, and will offer opportunities for growth in new markets.

AsiaSat 6 has new 28 C-band transponders at a new orbital location of 120 degrees East. In December 2011, we concluded an agreement with Thaicom Public Company Limited (Thaicom) of Thailand, which will take up 50% of the capacity of this satellite. The primary use of the remaining 14 C-band transponders will be to service the requirements of the China market.

AsiaSat 8 offers 24 additional Ku-band transponders at 105.5 degrees East and is collocated with AsiaSat 7. AsiaSat 8 is designed to provide high-powered capacity for services in China, India, the Middle East and Southeast Asia, and will address the market demand for DTH, as well as distance learning and medicine, in-flight internet connectivity, mobile broadband access and maritime communications.

AsiaSat 9 remained on track for completion by late 2016 or early 2017. It will replace AsiaSat 4 at 122 degrees East, where it will serve existing customers whilst increasing capacity at that orbital slot. The additional Ku-band transponders on this satellite will enable us to serve markets in China, Australia, Mongolia and Indonesia.

The total number of transponders leased or sold as at 31 December 2014 increased to 100 from 97 as at 31 December 2013. The overall utilisation rate for the year increased to 75% as at 31 December 2014 (2013: 74%). The utilisation rate excludes AsiaSat 6 and AsiaSat 8 which are not yet in service.

New Customers
During the year, AsiaSat secured a number of new customers which broadcast sporting events, deliver multiple radio channels and offer television services in various languages to a region which stretches from the Middle East to Australasia. We were also able to secure contracts with Chinese customers in 2014 including telecom operators, VSAT service providers, public utilities, oil and gas companies, securities and finance firms and government agencies.
MARKET REVIEW
The Regulatory Perspective
We operate in multiple countries and markets across the region. In some markets, we face challenges from the national satellite operators who benefit from their domestic telecom and tax regulations. These regulations create competitive headwinds. However regulations are improving in some countries and licences for new television and telecommunications applications are being issued.
The Technology Perspective
AsiaSat is well placed to benefit from the continuing advancement in satellite technology. HDTV usage continues to grow in the more affluent markets of Asia. Our fleet of satellites offers high power Ku-band coverage over key television markets, enabling us to meet the increasing demand for HDTV services across the region.
4K, or UHDTV, is another promising new technology. We believe 4K will come to Asia over the next three to four years, driven mainly by advances in television, cameras and other consumer electronic hardware.

Users are viewing and downloading more high quality video content and more bandwidth applications are emerging requiring higher throughput and faster speeds. Consequently, we are experiencing a growing need for satellites to provide increased bandwidth. One solution for addressing this need is the deployment of High Throughput Satellites (HTS).
We are evaluating this technology for our market, particularly for enterprise services such as maritime, mining and mobile applications, as well as private networks with a need for high throughput. Although the market potential of HTS is not clear at the present time, HTS will eventually come to Asia and will ultimately have a significant impact on satellite delivery.

The Industry Perspective
Industry conferences and exhibitions allow AsiaSat to showcase our satellite expertise and skill-set. During the year, we continued to be very active in industry conferences, exhibitions and speaking engagements organised by leading international and regional industry associations including CASBAA, Asia-Pacific Broadcasting Union (ABU) and the International Telecommunication Union (ITU).

We also played a prominent role at the various preparatory meetings and workshops in advance of the World Radiocommunication Conference at the ITU in Geneva later in 2015. The World Radiocommunication Conference meets every four years to help form policies that will determine the allocation of frequencies used for television, satellite, Wi-Fi, mobile, aviation, maritime and other communications.

REBRANDING OF ASIASAT
In 2014, we undertook an extensive rebranding exercise, during which we examined our position in the marketplace, our existing communications and our values and mission as a company. This is the first rebranding exercise since our establishment in 1988.
The refreshed brand was rolled out in the first quarter of 2015. It debuts in this report and features a new look and logo that will appear in all of our corporate materials and on our website.

OUTLOOK FOR 2015
As I noted earlier, 2014 was a year of transition for AsiaSat. The challenges we faced in a competitive market will continue into 2015. With the launches of AsiaSat 6 and AsiaSat 8 in 2014, we expanded our geographic reach and our product offerings. These enhancements will enable us to better serve our key markets of South Asia and China.
We also look forward to welcoming our new shareholder in 2015. Carlyle has agreed to acquire the stake in the Company currently held by GE. Under the new arrangement, Carlyle will nominate three new directors to replace the same number of directors from GE after the completion of share purchase by Carlyle.

ACKNOWLEDGMENTS
I would like to thank personally the AsiaSat management team and staff and the AsiaSat Board for their dedication and hard work in 2014. The launch of two new satellites with the same launch provider in consecutive months was a unique and significant accomplishment. These launches, coupled with the rebranding exercise, AsiaSat 9 procurement, the Ex-Im loans and the announcement of the Carlyle acquisition, made 2014 a year of significant achievement for the Company.
I would also like to thank our customers, suppliers and shareholders for their continued support of the Company.

Finally, as we expect the Carlyle transaction to be completed, I wish to thank the outgoing GE directors for their dedication and support of the Company since 2007. As one of the departing directors, it has been an honour to serve on the AsiaSat Board, including several terms as your Chairman, over the last six years. I will miss the active engagement with management and with other board members as we sought to improve the Company.

Sherwood P. DODGE
Chairman
Hong Kong, 26 March 2015