AsiaSat Reports 2015 Interim Results

27 August 2015 -

Asia Satellite Telecommunications Holdings Limited announced its 2015 interim results for the six months ended 30 June 2015.

AsiaSat’s Chairman, Gregory M. Zeluck, said, “The first six months of 2015 were challenging for AsiaSat and the satellite sector as a whole. The Company does not expect significant positive change in the market environment in the second half. Due to delays in licensing approvals, it is taking longer than expected to lease out the transponder capacity of AsiaSat 6 and AsiaSat 8 while the depreciation of both satellites will commence in the second half of the year. A modest percentage of the Company revenues are denominated in RMB. Should the recent volatility of the RMB continue, it will have a negative impact on the second half performance. In addition, the added interest expenses arising from the AsiaSat 6 and 8 Ex-Im loans and the bank loan raised for the special interim dividend payment will impinge on the earnings of the Company in the second half of the year.”

“Despite these challenges, we are optimistic about our prospects for the future, as we operate in one of the world’s growth markets. We remain vigilant in developing effective business strategies in a rapidly evolving market, where AsiaSat, with its new capacity on line continues to be well-positioned to capture the region’s various growth opportunities. Our reputation as a trusted provider of premium satellite services is firmly established in the region. With the support of a new major shareholder, the Company continues to focus on incorporating new technologies and applications while offering comprehensive solutions to our valued clients. Operating under a vibrant new brand that is more attuned to developing trends, the Company is committed to maintaining and growing AsiaSat’s strong position in the region while delivering improved returns to our shareholders,” Mr. Zeluck added.

Chairman’s Statement
The first six months of 2015 were a period of significant evolution in the structure and organisation of AsiaSat, as we prepared ourselves for our future growth and development. While operating in a very challenging market environment, the Company has undergone a number of important changes. In the first half of the year, we welcomed a new substantial shareholder, refreshed our brand, took action to reshape our capital structure and restructured parts of our organisation. Nevertheless, despite these changes, we have retained the core strengths that have made us what we are today: Asia’s premier satellite operator.

INTERIM RESULTS
Turnover
For the first half of 2015, turnover was HK$641 million (2014: HK$694 million), representing a decrease of 8% as compared with the same period last year.
The Company’s core operations continued to see pressure across various markets, with business performance negatively affected by the early termination or non-renewal of contracts by some customers due to the challenging economic conditions in their markets. However, the primary factor for the turnover decrease was the lower short-term revenue generated in the current period, compared with that of the corresponding period last year.

Contracts on Hand
As at 30 June 2015, the value of contracts on hand remains relatively stable at HK$3,645 million (31 December 2014: HK$3,514 million).

Operating Expenses
Operating expenses were closely controlled in the first half of 2015. Excluding depreciation, they totalled HK$126 million (2014: HK$127 million), approximately the same as compared to the corresponding period of last year.

Finance Expenses
Finance expenses on the Ex-Im bank loan amounted to HK$39 million (2014: HK$18 million), of which HK$26 million (2014: HK$15 million) was capitalised as part of the cost of AsiaSat 6 and AsiaSat 8. We also secured a US$240 million loan on normal commercial terms mainly to pay a special interim dividend to shareholders on 30 July 2015, of which US$225 million of the loan was drawn down in July 2015.

Depreciation
Depreciation in the first half of 2015 was HK$220 million (2014: HK$234 million), representing a decrease of HK$14 million, as AsiaSat 3S was fully depreciated in April 2015, so that we incurred only four months’ depreciation charge compared with the full six months' charge in the prior period. Pending completion of the licensing requirements for the commencement of their operation, depreciation of AsiaSat 6 and 8 had not commenced in the first half of 2015.

Profit
Profit attributable to equity holders for the first half of 2015 was HK$250 million (2014: HK$283 million). The decline, which was mainly the result of lower revenue, partially mitigated by the lower depreciation charge.

Cash Flow
For the first six months of 2015, the Group generated a net cash outflow of HK$10 million (2014: cash inflow of HK$1,905 million), including a final drawdown from the Ex-Im bank loan secured last year of HK$189 million (2014: HK$1,780 million), capital expenditure of HK$441 million (2014: HK$423 million) and an Ex-Im loan repayment of HK$144 million (2014: Nil). As of 30 June 2015, the Group had cash and bank balances of HK$3,336 million (31 December 2014: HK$3,346 million).

Dividend
The Board has declared an interim dividend of HK$0.18 per share (2014: HK$0.18 per share). The interim dividend will become payable on or about 4 November 2015 to equity holders on the share register as at 9 October 2015. The share register will be closed from 2 to 9 October 2015 (both days inclusive).

As a result of the share purchase agreement completed on 12 May 2015, the Board resolved on 24 June 2015 to declare a special dividend of HK$11.89 per share. The dividend was paid by way of cash on 30 July 2015 to registered shareholders at the close of business on Thursday, 23 July 2015.

CORPORATE DEVELOPMENT
Share purchase agreement
The share purchase agreement announced in our 2014 annual report proceeded as planned, with an affiliate entity of The Carlyle Group acquiring all the shares in the Company formerly held indirectly by General Electric Company, one of our former indirect controlling shareholders. (Details are set out in our Statutory Announcement of 12 May 2015). Notwithstanding the change in shareholding, AsiaSat continues to function as a publicly listed company on the Stock Exchange of Hong Kong Limited.

Board and Senior Management
Following the transfer of shares, I replaced Mr. Sherwood P. Dodge as Chairman of the Board of AsiaSat. Mr. Julius M. Genachowski also joined the Board as a non-executive Director and a member of the Compliance Committee together and Mr. Alex S. Ying joined as a non-executive Director, a member of the Nomination Committee and a non-voting member of the Audit Committee.

To reflect the changing market dynamics and to refocus the Company’s efforts on key Asian and global markets, management restructured the sales and marketing team. A Global Accounts team was formed to handle key global strategic accounts and the sales and business development teams were combined to drive business activities in the Asian markets.

Rebranding of AsiaSat
In 2014, the Company began a rebranding exercise to address the new market conditions. This initiative included launch of a new logo, a new tagline and a revamped website in March 2015.

So far, we have received very positive feedback from our customers, industry peers and business partners as well as our own staff. The refreshed brand has created a more vibrant and up-to-date image coupled with new initiatives for changing our philosophy and internal culture to improve our way of serving our customers.
The rebranding exercise is continuing and the momentum for change will, we believe continue to improve our services to clients.

SATELLITES
Our fleet of six in-orbit satellites continued to provide reliable service to our customers across the Asia Pacific throughout the first six months of 2015.
AsiaSat 3S, which has been replaced by AsiaSat 7 at 105.5 degrees East, was redeployed during the review period to generate short-term revenue. It is currently at a new slot for the provision of service to a new partner later this year.

AsiaSat 4, located at 122 degrees East, continued to provide our customers with broadband and data services across the Asia Pacific region. AsiaSat 4 hosts a wide array of customers offering private networks, cellular backhaul and maritime services.
Located at 100.5 degrees East, AsiaSat 5 continued to serve as Asia’s prime distribution platform for major sporting and news events during the review period. These events included the Southeast Asia Games in Singapore, the Australian Open Tennis tournament and ICC Cricket World Cup 2015. It also carried major news coverage of the earthquake in Nepal and world summits such as the Asian African Conference in Jakarta and Bandung Indonesia.

AsiaSat 7, which replaced AsiaSat 3S in April 2014 at 105.5 degrees East, continued to take the lead in delivering premier content from South Asia, East Asia and global TV networks.

With 28 new C-band transponders, AsiaSat 6 is at a new orbital location of 120 degrees East. Fifty percent of the capacity was taken by Thaicom Public Company Limited (Thaicom) of Thailand under an agreement concluded in December 2011. The remaining 14 transponders are being reserved for the requirements of the China market.
AsiaSat 8, with 24 Ku-band transponders at 105.5 degrees East, is collocated with AsiaSat 7, where it is designed to provide high-powered capacity for a wide range of services in China, India, the Middle East and Southeast Asia.
During the review period, negotiations were still underway to provide new high-value applications in key Asian markets on both AsiaSat 6 and 8, pending licensing approvals. We will announce further developments with regard to these satellites in due course.

Construction of AsiaSat 9, which will ultimately replace AsiaSat 4 and add additional capacity, remains on track for completion in the fourth quarter of 2016.

New customers and renewals
In the first half of 2015, we secured renewals and new customers for television and radio programme distribution and VSAT network services across the Asia-Pacific region. Among these were agreements with: BT to deliver BBC World Service Asia feed of 33 radio channels in 21 languages; TV5MONDE Style HD, a new lifestyle channel; Global Broadcasting Corporation for distributing Peace TV's HD and SD services in Asia; ANTRIX Corporation Limited; Star India Private Limited; ZEE TV; Sahara TV; B4U; and Sun Television Cybernetworks Enterprise Limited.
The overall utilisation rate for the period ended 30 June 2015 was 72% as compared with 75% as of 31 December 2014.

MARKET REVIEW
The Market
In an economic environment of continuing uncertainty, the market for satellite services remained highly competitive. During the review period, excess capacity and flattening demand in certain markets put downward pressure on pricing that will likely persist into the near future until that capacity is absorbed.
Despite the challenges of this market environment, we are able to leverage on our reputation as a provider of premium services and particularly for the value we can add to our customers’ businesses. To drive growth, we are focusing on customers who are key market drivers and exploring partnership opportunities to bring these customers sophisticated new technologies such as Ultra High Definition Television (UHDTV).
We are also exploring opportunities for expansion through organic growth and acquisitions wherever it is appropriate to do so.

Advancing technology
During the review period, we continued to focus on the development of new technologies.

Although much of Asia is still in the process of converting from the Standard Definition (SD) to High Definition (HD) broadcasting standard, we are beginning to see interest in UHD which has four times the resolution of HD. While we are unlikely to see any near term impact from UHD, in order to stay abreast of this developing technology, we recently announced the opening of a UHD Research Laboratory at our Tai Po Earth Station in Hong Kong. This initiative is designed to evaluate and incubate UHD solutions with the aim of showcasing UHDTV content from various partners using a C-band transponder on AsiaSat 4.

Additionally, mobile and Wi-Fi services available on board aircraft are now becoming increasingly common in Europe and the U.S. These are two examples of new technologies and applications we are currently working on to expand within our markets.

Industry Events
To increase our presence in the industry, during the review period we continued to participate in industry events in order to demonstrate and share our expertise in satellite broadcasting and communications.
Highlights included our participation at CommunicAsia, one of Asia’s leading ICT exhibitions; and the CASBAA Satellite Industry Forum.
We also organised in-country activities, such as seminars and workshops, in order to understand our customers and their needs better. These included broadcasting and satellite technology workshops in Myanmar for the telecom and TV sectors as well as a workshop for the Bangladesh TV sector.

OUTLOOK
The first six months of 2015 were challenging for AsiaSat and the satellite sector as a whole. The Company does not expect significant positive change in the market environment in the second half. Due to delays in licensing approvals, it is taking longer than expected to lease out the transponder capacity of AsiaSat 6 and AsiaSat 8 while the depreciation of both satellites will commence in the second half of the year. A modest percentage of the Company revenues are denominated in RMB. Should the recent volatility of the RMB continue, it will have a negative impact on the second half performance. In addition, the added interest expenses arising from the AsiaSat 6 and 8 Ex-Im loans and the bank loan raised for the special interim dividend payment will impinge on the earnings of the Company in the second half of the year.
Despite these challenges, we are optimistic about our prospects for the future, as we operate in one of the world’s growth markets. We remain vigilant in developing effective business strategies in a rapidly evolving market, where AsiaSat, with its new capacity on line continues to be well-positioned to capture the region’s various growth opportunities. Our reputation as a trusted provider of premium satellite services is firmly established in the region. With the support of a new major shareholder, the Company continues to focus on incorporating new technologies and applications while offering comprehensive solutions to our valued clients. Operating under a vibrant new brand that is more attuned to developing trends, the Company is committed to maintaining and growing AsiaSat’s strong position in the region while delivering improved returns to our shareholders.

ACKNOWLEDGEMENTS
I would like to take this opportunity as the new Chairman of AsiaSat to thank my predecessor, Mr. Sherwood P. Dodge, for his exemplary service to the Company, as well as past Board members Mr. John F. Connelly and Ms. Nancy Ku for their valuable contributions. In addition, I would like to welcome Mr. Julius M. Genachowski and Mr. Alex S. Ying as new members of the AsiaSat Board.

Finally, I would like to extend my appreciation to our customers for entrusting their business to us, to our management team and staff for their commitment and hard work and to our shareholders for their continuing confidence in our company.
I look forward to serving the company as the new Chairman and working with the staff of AsiaSat to take the company to the next stage of its development.
Gregory M. Zeluck
Chairman

Notes
1.
Independent review
The unaudited condensed consolidated interim financial information of the Company and its subsidiaries for the six months ended 30 June 2015 have been reviewed by the Company’s independent auditor, PricewaterhouseCoopers, in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. The auditor’s independent review report will be included in the Interim Report to shareholders.
2,
Basis of preparation
This condensed consolidated interim financial information for the six months ended 30 June 2015 has been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34, “Interim financial reporting”. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”).
As at 30 June 2015, the Group's current liabilities exceeded its current assets by approximately HK$1,967,021,000 (31 December 2014: net current assets of HK$2,788,944,000). The current liabilities mainly consisted of a dividend payable of HK$4,803,880,000 (31 December 2014: Nil) which was fully paid in July 2015 and funded by the Group's internal resources and available banking facilities (as detailed in Note 11). The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current resources and facilities. Based on these forecasts and projections, the directors have a reasonable expectation that the Group will have adequate resources to continue its operations and to meet its financial obligations as and when they fall due in the next twelve months from the date of this condensed consolidated interim financial information. The Group therefore continues to adopt the going concern basis in preparing its condensed consolidated interim financial information.


Segment information
The chief operating decision-maker has been identified as the President and Chief Executive Officer of the Group. The President and Chief Executive Officer considers the business from a product perspective which is the operation, maintenance and provision of satellite telecommunication systems for broadcasting and telecommunication. As the Group has only one operating segment qualified as reporting segment under HKFRS 8 and the information regularly reviewed by the President and Chief Executive Officer for the purposes of allocating resources and assessing performance of the operating segment is the financial statements of the Group, no separate segmental analysis is presented in the condensed consolidated interim financial information.
Revenue reported in Note 4(a) above represented transactions with third parties and are reported to the President and Chief Executive Officer in a manner consistent with that in the condensed consolidated statement of comprehensive income.
The Group is domiciled in Hong Kong. Revenue from customers in Hong Kong and the Greater China region for the six months ended 30 June 2015 were HK$98,242,000 (six months ended 30 June 2014: HK$107,038,000) and HK$149,910,000 (six months ended 30 June 2014: HK$148,664,000) respectively, and the total revenue from customers in other countries were HK$393,132,000 (six months ended 30 June 2014: HK$437,862,000). For the purpose of classification, the geographical source of revenue is determined based on the place of incorporation of the customers instead of the footprint of the satellites of the Group which may involve transmission to multiple geographical areas under a single satellite transponder capacity arrangement.
The amounts provided to the President and Chief Executive Officer with respect to total assets and total liabilities are measured in a manner consistent with that in the condensed consolidated statement of financial position. All assets and liabilities are related to the only operating segment of the Group whose operation is domiciled in Hong Kong.

Income tax expense
A significant portion of the Group’s profit is treated as earned outside Hong Kong and is not subject to Hong Kong profits tax. Hong Kong profits tax has been provided at the rate of 16.5% (six months ended 30 June 2014: 16.5%) on the estimated assessable profit for the period. Taxation on overseas profits has been calculated on the estimated assessable profit for the period at the rates of taxation, that range from 7% to 43.26% (six months ended 30 June 2014: 7% to 43.26%), in the countries where the profit is earned.