AsiaSat Reports Final Results for the Financial Year Ended 31 December 2016


CHAIRMAN’S STATEMENT

Introduction

In 2016, AsiaSat laid the groundwork for the prospect of improved revenues in 2017 as we move into a period of more efficient use of satellite bandwidth and increasing demand for media and data services across Asia. Although disappointing, this year’s outcome should be viewed against a backdrop of globally unstable market conditions and the impact of disruptive new technologies.

The market instability resulted from a global oversupply of satellite capacity of all kinds and generally uncertain economic conditions. We recognise the need to continue to manage closely the pricing pressures on data services as well as compression improvements for video distribution which to some extent neutralise the benefits of the increased demand generated by mobility applications and video format upgrades.

Financial Performance

Despite 2016’s challenging market environment, the Company continues to invest in streamlining its sales structure amid changing market conditions and rapidly evolving customer needs.

Revenue

Revenue for 2016 was HK$1,272 million (2015: HK$1,311 million), a decrease of 3% from 2015 primarily attributable to the full-year impact of reduced short-term revenues as compared to the previous year and challenging conditions for customers and markets.

While the decline of revenue is disappointing, if the short-term non-recurring AsiaSat 3S revenue is excluded, in 2016 AsiaSat experienced approximately 3% growth over the previous year.

Operating Expenses

Operating expenses in 2016, excluding depreciation, were HK$244 million (2015: HK$253 million) reflecting our on-going commitment to keep expenses under tight control.

Finance Expenses

Finance expenses were HK$133 million (2015: HK$103 million) of which HK$79 million (2015: HK$26 million) was capitalised to the costs of our new satellite AsiaSat 9. The increase in finance expenses is due to the full-year effect (2015: partial year) of the bank borrowings for the payment of the special interim dividend in July 2015. Net finance expenses after capitalisation
for 2016 were HK$54 million, HK$23 million lower than in the previous year (2015: HK$77 million), due to the increase in finance expenses eligible for capitalisation on the higher level of capital expenditure of the new satellite.

Depreciation
Depreciation in 2016 was HK$522 million (2015: HK$469 million), an increase of HK$53 million, reflecting a full-year of depreciation of AsiaSat 6 and AsiaSat 8, which became operational in the second half of 2015.

Taxation
Tax expenses for 2016 were HK$27 million (2015: HK$92 million), representing a reduction of HK$65 million, or 71%, due to the reversal of a provision made in previous years following agreement with tax authorities on the treatment of certain revenue and expenses.

Profit
Profit attributable to owners for 2016 was HK$430 million (2015: HK$440 million), a decrease of HK$10 million, or 2%, mainly due to lower revenue and higher depreciation charges. This reduction was mitigated by lower net finance expenses and lower income tax charges.

Cash Flow
The Group generated a net cash inflow of HK$3 million in 2016 (2015 outflow: HK$3,101 million). As of 31 December 2016, the Group's cash and bank balances stood at HK$241 million (31 December 2015: HK$238 million).

Cash inflow in 2016 predominantly comprised net cash generated from the operating activities of HK$991 million (2015: HK$875 million), while 2015 also included net proceeds from bank borrowings of HK$1,896 million with no new borrowing raised in 2016.

Cash outflow for the year included capital expenditures of HK$406 million (2015: HK$692 million) and repayment of bank borrowings of HK$523 million (2015: HK$328 million). 2015's cash outflow also included payment of HK$4,874 million for interim and special interim dividends. No dividend payments were made in 2016.

Dividend
For the year ended 31 December 2016, the Board will recommend a final dividend of HK$0.20 per share (2015: HK$Nil per share) in the forthcoming Annual General Meeting to be held on 14 June 2017. No interim dividend was paid for the year 2016.

For the year ended 31 December 2015, a total of HK$12.07 per share was paid, comprising the interim dividend of HK$0.18 per share and the special interim dividend of HK$11.89 per share.

Overall Business Performance
The Group won new contracts during the year totaling HK$1,439 million (2015: HK$533 million), including a significant agreement with Spacecom for the four-year utilisation of the entire AsiaSat 8 Ku-band payload and an increase in capacity taken by new and existing customers across the AsiaSat fleet. Renewed contracts amounted to HK$431 million (2015: HK$777 million), while combined new and renewed contracts amounted to HK$1,870 million (2015:

HK$1,310 million). As at 31 December 2016, the value of contracts on hand amounted to HK$4,067 million (2015: HK$3,517 million).

AsiaSat 6 carries 14 C-band transponders specially designed for the China video market. In January 2016, we were particularly pleased to re-enter the China video market via AsiaSat 6, following full regulatory approval in China after our exit in 2007. It is our belief that the acquisition of our new customer Shanghai Interactive Television (SiTV), signalled further support for the development of High Definition (HD) broadcasting in China, which is becoming a new industry standard.

The Fleet
With 99 C-band and Ku-band transponders utilised in 2016 the AsiaSat fleet of five in-orbit satellites (AsiaSat 4, AsiaSat 5, AsiaSat 6, AsiaSat 7 and AsiaSat 8) performed according to full technical specifications while AsiaSat 3S is able to provide service in inclined orbit.
As of 31 December 2016 the fleet utilisation rate, excluding AsiaSat 8, stood at 67%, down from 72% at year-end 2015, largely due to the addition of newly available transponders on AsiaSat 6 which entered commercial service in early 2016.

During the year we acquired new video and data network customers from China, South Asia and Southeast Asia, as well as leading international TV networks from Europe, Asia and around the world.

AsiaSat 9 is expected to launch in late 2017. We believe this satellite, which carries 28 C-band and 32 Ku-band transponders, along with a Ka-band payload is ideally positioned to exploit the growth in both HD and Ultra HD (UHD) video content and advanced broadband networks. AsiaSat 9 will be a replacement for AsiaSat 4 at 122 degrees East with additional capacity delivering enhanced power and greater coverage for Direct-to-Home (DTH), regional video distribution, private networks and broadband services within our footprint running from New Zealand to the Middle East.

In the meantime, as part of the four-year utilisation agreement with Spacecom signed in December 2016 we re-located AsiaSat 8 to 4 degrees West to assist Spacecom with its capacity shortfall.

In Orbit Capacity
AsiaSat 3S located at 146 degrees East remains operational and is able to provide services to customers for short-term contracts before it is retired.

AsiaSat 4 at 122 degrees East provides TV broadcast distribution, DTH and broadband services across our Asia Pacific footprint. In 2016 a growing number of broadcasters used AsiaSat 4 as a platform for TV distribution including UHD video content via the “4K-SAT” channel, pioneered by AsiaSat in late 2015 to promote UHD broadcasting via satellite in Asia.

AsiaSat 5 at 100.5 degrees East remains our primary distribution platform for live sports and news from around the world targeting Asia Pacific viewers. Events covered in 2016 included the Rio Olympics, the Australian Open and Wimbledon tennis championships, the 2016 Dakar Rally, the Masters Golf Tournament and a number of European soccer competitions, along with live news feeds and events such as the presidential election and the MTV Movie Awards in the United States. In addition, AsiaSat 5 is a primary vehicle for the delivery of a number of innovative VSAT services for aviation and telecom customers.

AsiaSat 6 at 120 degrees East received full licensing approval in early 2016, creating a high value platform for HDTV services across China.

AsiaSat 7 at 105.5 degrees East is the regional platform of choice for premium content distribution from South Asia, East Asia and global TV networks. Among new customers acquired during 2016 were Sony Pictures Networks India along with KBZ Gateway and SEANET in Myanmar for nationwide VSAT networks providing broadband data connectivity services. Global TV networks such as Japan International Broadcasting Inc. and Deutsche Welle also expanded their reach via AsiaSat 7 for their English language HD services across the Asia-Pacific.

AsiaSat 8 at 4 degrees West carries high-powered Ku-band capacity and a Ka-band payload. Following an utilisation agreement concluded with Spacecom in December 2016 for the use of the entire Ku-band payload for a minimum of four years, the satellite was relocated from 105.5 degrees East to 4 degrees West and commenced service at February 2017 after satisfactory completion of verification testing.

AsiaSat 9, the replacement satellite for AsiaSat 4 at 122 degrees East, is expected to launch in late 2017 allowing the Company to address new markets not presently covered by AsiaSat 4. The company is now actively engaged in advance marketing of this satellite.
Excluding AsiaSat 8 (under the Spacecom agreement, it no longer serves AsiaSat customers directly), as of 31 December 2016 the number of transponders utilised by the Company was 99, as compared with 96 as of 31 December 2015.

The AsiaSat Advantage
In the longer term the Company retains a distinctive market advantage with our deep Asian roots and close customer relationships. A further plus is our leadership in future technology, commitment to the quality and reliability of our service and our knowledge of Asian economic and cultural dynamics.

An additional AsiaSat asset is our understanding of the end-user services which remain a primary beneficiary of the region’s continued overall economic development. The Asian demographic, where many markets feature populations with more than 40% under 35 years of age, continues to drive consumption of communications and information services.

Notwithstanding this positive outlook for video and related entertainment services, the rapid expansion of the VSAT sector within emerging markets in Asia is now an essential element within any regional data network and AsiaSat’s flexible, mutually beneficial relationships with long-term customers such as SpeedCast, Panasonic Avionics and Telstra are delivering strong results.

Other positives for the Company include the impact of technology shifts only just beginning to be felt, including numerous deployments of OTT (Over the Top) services providing greater opportunities for the Company’s broadband plans, Internet of Things (IoT) connectivity and the early roll-outs of 5G mobile video networks served by satellite backhaul that will create demand for more bandwidth connectivity.

Outlook 2017
In the coming year, the Board of Directors is cautiously optimistic on the economic prospects for the region, which, despite relatively flat indicators for some markets continues to invest in new telecommunications and media infrastructure, as well as renewing and updating existing facilities.

New DTH platforms focused on smaller emerging markets remain attractive, especially given the need for relevant local-language services.

In order to address the ever-increasing, long-term demand for new data transmission capacity AsiaSat will continue to evaluate opportunities to develop its HTS Ka-band capabilities, carefully monitoring and benefiting from the technical and commercial progress of deployments of IoT, UHD and other consumer driven services.

With regional economic prospects as estimated by the IMF, World Bank and EIU that range from 6.8% GDP growth for China in 2017, 7.3% for India and forecasts that hover around 6% for the majority of South and Southeast Asia (with Myanmar outstanding at 8.5%), as an innovative service provider AsiaSat has a positive commercial outlook despite the short-term negatives such as the current capacity over-supply.

Acknowledgments
The final quarter of 2016 was a time of transition for the Company as well as for our industry when Mr. William Wade retired as our President and Chief Executive Officer and was appointed as Senior Advisor until March 2017. On behalf of the Board of Directors, I express our sincere gratitude to Mr. Wade for his many years of dedicated and exceptional service to the Company.

We were delighted to welcome Mr. Andrew Jordan as the new President and Chief Executive Officer of the company. Mr. Jordan is a highly-respected industry veteran with extensive experience, knowledge and contacts across the satellite communications, broadcast and telecom industries and he brings a strategic vision that we are confident will drive the company’s next phase of growth.

Finally, I would like to thank the Board, the management team and the staff for their tireless work and support during 2016.

JU Wei Min Chairman

Hong Kong, 15 March 2017