AsiaSat Reports 2015 Annual Results

16 March 2016 -

Asia Satellite Telecommunications Holdings Limited announced its 2015 annual results for the year ended 31 December 2015.

AsiaSat’s Chairman, JU Wei Min, said, “The year ahead will be a very challenging one for AsiaSat and the satellite industry as a whole. Competition in our markets will continue to intensify, particularly from some of the global operators seeking new business as their key markets mature. In the meantime, other regional operators are actively looking for opportunities to expand in Asian markets as well.”
“Despite these challenges, new mobile applications such as broadband to automobiles, public transportation, maritime and aviation are growing. DTH services in the region continue to expand while broadcasters progress from Standard Definition (SD) to High Definition (HD) and UHD/4K. At the beginning of 2016, we began generating revenue from AsiaSat 6 for distributing video services in China. We also enjoy an excellent reputation in the industry for quality service and strong technical capabilities, highlighted by our growing expertise in UHD TV broadcasting,” Mr. JU added.

Chairman’s Statement
Introduction
AsiaSat had a transformative year in 2015, during which the Company prepared itself for the challenges and opportunities that lie ahead.

During the year, a subsidiary of The Carlyle Group ("Carlyle") acquired all the shares in the Company previously owned by General Electric Company ("GE"), one of our former major shareholders. The Company’s capital structure was changed following the payment of a special dividend to all shareholders. Late in the year, we regained access to Chinese video market after an absence of nine years. Additionally, we undertook a major rebranding exercise and re-organised our sales teams to enhance further our proactive approach to customer service.

During the year, customers continued to trust us with providing excellent coverage of major news, sporting and political events across the region. These included the FA Cup, the Australian Open Tennis and the Southeast Asian Games in Singapore as well as the Asian African Conference in Indonesia and the 2015 APEC Economic Leaders' Meeting in the Philippines.

As we announced in November 2015 and anticipated in our 2014 annual and 2015 interim reports, the Company’s financial results were affected in 2015 by a number of factors. During the year, we were faced with depreciation and interest expenses for our new AsiaSat 6 and AsiaSat 8 satellites, as well as the additional costs of financing the special dividend paid. As a result of delays in receiving required licences for new satellites to operate in certain key markets, these additional costs were not mitigated as the Company was unable to commence providing services to the expected new customers for our new satellites during the year.

Nevertheless, with the licence granted at the beginning of 2016, we secured a new customer to use AsiaSat 6 to provide video services in China. This new contract has begun to generate revenues for 2016. Additionally, with our first Ultra HD (“UHD”) television channel launched on AsiaSat 4 in October 2015, we announced the launch of the second channel, which will help lay the groundwork for the future development of UHD in Asia and on AsiaSat 4.

Challenges for the Industry
In 2015, the environment for the satellite broadcasting industry was very competitive. Excess capacity in the region, slowing demand in some markets and increasing competition among global and regional operators exerted downward pressure on transponder pricing.

Some governments in developing countries continued the trend of launching satellites for their local markets, increasing supply and in some cases restricting market access for foreign satellite operators.

We also began to see changes in the industry as customers in established markets began to explore the use of terrestrial networks for certain content and data delivery.

All of these trends will continue to have an impact on our business and the industry at large in 2016.

FINANCIAL PERFORMANCE
Revenue
Revenue for 2015 was HK$1,311 million (2014: HK$1,365 million), representing a decrease of 4% from the previous year. The decline was primarily attributable to non-renewals of contracts by several customers due to challenging conditions in their markets and downward pressure on transponder pricing.

Operating Expenses
Operating expenses in 2015, excluding depreciation, totalled HK$253 million (2014: HK$260 million), representing a decrease of 3% compared with the previous year. The decrease was mainly the result of lower legal and professional fees, recovery of certain impaired debts and lower satellite operating expenses. Nevertheless, the increased exchange loss due to the revaluation of the RMB offset the savings mentioned above.

Finance Expenses
Finance expenses in 2015 were HK$77 million, an increase of HK$74 million, compared to HK$3 million in the previous year. The finance expenses represented the interest associated with the Ex-Im loan and the dividend loan. The increase was in line with the increased level of borrowing during the year and included the effect of a lower interest expense being capitalised in the cost of AsiaSat 6 and AsiaSat 8, when compared to 2014.

Depreciation
Depreciation in 2015 was HK$469 million (2014: HK$467 million), remaining stable compared to the previous year. Despite AsiaSat 3S being fully depreciated in April 2015, the savings resulting from this were largely offset by the commencement of depreciation for AsiaSat 6 and AsiaSat 8 in the second half of the year.

Profit
Profit attributable to equity holders for 2015 was HK$440 million (2014: HK$559 million), a decrease of HK$119 million, or 21%. The decrease was due to lower revenue, increased interest expense and the lack of finance income generated in the prior year.

Cash Flow
The Group generated a net cash outflow, including the movement in short-term deposits with maturities over three months, of HK$3,101 million in 2015 (2014: inflow of HK$1,849 million). As of 31 December 2015, the Group had cash and bank balances of HK$238 million (31 December 2014: HK$3,346 million). The cash inflow mainly comprised the net cash from operations of HK$875 million (2014: HK$1,012 million) and the proceeds from the bank borrowings of HK$1,896 million (2014: HK$2,173 million). The cash outflow mainly comprised the payment of dividends of HK$4,874 million (2014: HK$969 million) including a special interim dividend of HK$4,651 million (2014: Nil), payment of capital expenditures of HK$692 million (2014: HK$1,024 million) and the repayment of bank borrowings of HK$328 million (2014: Nil).

Dividends
Having regard to the significant dividend already paid in 2015, the Board does not recommend a final dividend (2014: a final dividend of HK$0.39 per share). For the year ended 31 December 2015, a total dividend of HK$12.07 per share (2014: HK$0.57 per share) was paid, comprising the interim dividend of HK$0.18 per share (2014: HK$0.18 per share) and the special interim dividend of HK$11.89 per share (2014: Nil).

Core Business Performance
New contracts won during the year amounted to a total value of HK$533 million (2014: HK$357 million). Contracts with a single customer for the short-term use of AsiaSat 3S accounted for a majority of the increase and, excluding this, the value of new contracts showed only a modest increase reflecting the continued intense competition in the market. Renewed contracts were HK$777 million (2014: HK$575 million). The Group negotiated with certain key customers and succeeded in renewing their contracts in advance. Combined new and renewed contracts amounted to HK$1,310 million (2014: HK$932 million).

SALES AND MARKETING
A new brand and renewed energy for AsiaSat
During the year, AsiaSat underwent a comprehensive rebranding exercise, the first such exercise since the Company’s establishment in 1988. Following a thorough evaluation of our market position, communications, core values and mission, we rolled out our refreshed brand in the first quarter of 2015.

This new brand is the foundation for all marketing and promotions materials and activities. So far, the feedback we have received from internal and external stakeholders has been very positive with the new website winning a W3 Silver Award (Home page category), judged by the Academy of Interactive and Visual Arts. As the rebranding is an ongoing exercise, we will continue to adjust and upgrade to maintain the momentum of improving ourselves to provide ever better services to our customers.

Sales Solutions team
The rebranding exercise is more than just about the introduction of a new visual look for the Company but an entirely new way of anticipating and serving the needs of customers. To that end, we restructured our Sales team creating a Global Accounts group and a new Sales Solutions team. This restructuring better positions our sales team to focus on key international clients while playing an expanding role in supporting the requirements of customers.

SATELLITES
AsiaSat’s fleet of six in-orbit satellites — now comprising AsiaSat 3S, AsiaSat 4, AsiaSat 5, AsiaSat 6, AsiaSat 7 and AsiaSat 8 — continued to perform well during the year.

AsiaSat 3S remains currently operational and is being leased to customers for short-term use before its retirement.

AsiaSat 4, at the orbital location of 122 degrees East provides leading-edge satellite solutions to clients for connectivity and broadband services across the Asia-Pacific. During the year, this satellite also became the platform for our new UHD channels, “4K-SAT” and “4K-SAT2”, as well as for serving maritime, oil and gas, enterprise and media businesses of our telecom customers.

AsiaSat 5, in addition to being one of the key video distribution satellites in Asia, remained the occasional use (OU) platform of choice for international sporting events, such as the Australian Open Tennis, the Southeast Asian Games in Singapore, the ICC Cricket World Cup 2015 jointly hosted by Australia and New Zealand and the Chinese Football Association Super League. In 2016, we will be involved in the provision of broadcasting services in Asia for the Olympic Games in Rio de Janeiro.

AsiaSat 6, launched on 7 September 2014, provides additional C-band capacity for exploiting new opportunities and serving existing growth markets. At the end of 2015, we received permission for AsiaSat 6 to carry out video services in China for Shanghai Interactive Television, Co., Ltd. (SiTV) via CITICSat. The permit was awarded on 1 January 2016 and the contract with SiTV has been generating revenue since. This is a significant progress for AsiaSat as it allows us to re-enter video market where we had no access since 2007.

AsiaSat 7, the premier satellite for video services in Asia serving many of the world’s top program providers, continued to deliver premium content across its Asia-wide footprint.
AsiaSat 8, launched on 5 August 2014, is collocated with AsiaSat 7 at 105.5 degrees East. This satellite provides incremental Ku-band capacity at that orbital slot and is designed to fill the demand for services such as DTH, in-flight internet connectivity, mobile broadband and maritime communications.

Since the beginning of 2015, we had expected to secure a key deal with a leading customer in the region that would have taken up nearly all of AsiaSat 8’s capacity. However, due to certain regulatory issues, it did not proceed as originally planned by all parties involved in the deal. We are now in the process of actively seeking new customers for this satellite.

AsiaSat 9 is on track to complete its construction by late 2016 or early 2017 to replace AsiaSat 4 at 122 degrees East, where it will serve existing customers as well as new clients with additional Ku-band capacity and service beams. A major construction milestone was reached during the year with the installation of the bi-propellant tanks in September. This satellite’s additional Ku-band transponders will open up new opportunities to serve markets in China and Australia as well as emerging markets such as Mongolia, Myanmar and Indonesia.

The total number of transponders leased or sold as of 31 December 2015 was 96, a slight decrease from 100 as of 31 December 2014. The overall utilisation rate for the year decreased to 72% as at 31 December 2015 (2014: 75%). The utilisation rate excludes AsiaSat 6 and AsiaSat 8, which, at the year-end, were not yet serving customers.

New Customers
For AsiaSat, 2015 was an encouraging year in terms of new customer acquisitions. Many of these new customers are leading broadcasters in the region, delivering news, entertainment and sports programming in a wide range of languages, VSAT service providers for land/sea/air communications, telecom companies and providers of in-flight entertainment and connectivity services for airlines.

We also continued to explore opportunities for providing DTH services, which continue to drive satellite market growth throughout the region.

MARKET REVIEW
Technology Leadership
As a pioneer in satellite broadcasting technology in Asia, we are among the leaders in advancing UHD in the region. We believe UHD is the future of television broadcasting as more and more consumers replace their existing TV sets with UHD models and program providers produce more content in UHD format.

To bring this technology forward, we formed a business partnership with Germany’s Rohde & Schwarz (R&S), one of the leading suppliers of digital TV transmission systems in the world.

Working with R&S enabled us to launch the first true 10 bit color depth UHD channel in Asia, “4K-SAT” on AsiaSat 4 in October 2015. This new UHD channel is available free-to-air (FTA) across more than 50 countries and regions, broadcasting full produced UHD videos featuring fashion, lifestyle and documentaries.

The partnership with R&S not only gives us the ability to evaluate the UHD technology but also the hands-on expertise that customers are looking for when launching their own UHD channels.

In March 2016, we launched the second UHD channel “4K-SAT2” on AsiaSat 4, offering NASA TV as well as a broad range of enriched and compelling content to Asian TV operators and home viewers.

With the launch of these new UHD channels, we now have a showcase for demonstrating the quality of this technology and our expertise.

Industry Events
During the year, we continued to play an active role in the industry by participating in conferences, through exhibitions and speaking engagements. These included major international and regional events in the Middle East, India, Singapore, China, Myanmar and Turkey, as well as taking key roles in CommunicAsia — Asia’s leading ICT event held in Singapore, Asia Pacific Satellite Communications Council (APSCC) conference, the Asia-Pacific Broadcasting Union (ABU) General Assembly and CASBAA’s Satellite Industry Forum and Annual Convention.

As noted in last year’s annual report, we also played an important role at the World Radiocommunication Conference (WRC-15) in Geneva during November. Meeting every four years, this Conference is where policies on the allocation of frequencies used for television, satellite, Wi-Fi, mobile, aviation, maritime and other communications are determined.

At WRC-15, we helped lead the initiative to oppose changes in the allocation of existing C-band satellite frequencies for new applications such as Broadband Wireless Access and Mobile Telecommunications. As a result of industry efforts, many vital satellite communications services will be protected from interference, which is especially important for developing or sparsely populated countries that rely on C-band satellite services for their economic development.

OUTLOOK FOR 2016
The year ahead will be a very challenging one for AsiaSat and the satellite industry as a whole. Competition in our markets will continue to intensify, particularly from some of the global operators seeking new business as their key markets mature. In the meantime, other regional operators are actively looking for opportunities to expand in Asian markets as well.

Despite these challenges, new mobile applications such as broadband to automobiles, public transportation, maritime and aviation are growing. DTH services in the region continue to expand while broadcasters progress from Standard Definition (SD) to High Definition (HD) and UHD/4K. At the beginning of 2016, we began generating revenue from AsiaSat 6 for distributing video services in China. We also enjoy an excellent reputation in the industry for quality service and strong technical capabilities, highlighted by our growing expertise in UHD TV broadcasting.

As my predecessor mentioned in our 2015 interim report, this has been a transformative period for AsiaSat. Not only did we bring two new satellites into service, welcome new major shareholder and obtain approval to provide video services in China, we also refreshed our image and core values through the rebranding exercise and re-organised our sales teams. I would like to take this opportunity to thank our Board, management and staff for their hard work and support during this period.
I would also like to express my appreciation to our customers, partners, suppliers and shareholders for their confidence in us and continuous support for our business.
Lastly, I would like to thank my predecessor, Mr. Gregory M. Zeluck of Carlyle, who stepped in to complete Mr. Sherwood P. Dodge’s tenure as Chairman, following the acquisition of GE’s shareholding by Carlyle, according to a biannual rotation arrangement.

I am glad to serve AsiaSat as Chairman for the next two years and work closely with the management and Board to take the Company forward.