PCCW loses $1.8bn in 'year of transition'
Mar 29 13:12
Dow Jones Newswires
Undershooting even the most cautious of market forecasts, Hong Kong's Pacific Century CyberWorks Ltd on Wednesday reported a net loss of $HK6.91 billion ($1.8 billion) for the 2000 fiscal year.
After writing off the entire $HK172.0 million goodwill from its high-profile merger with Hong Kong's largest telecom operator, Cable & Wireless HKT, in August, PCCW is left with negative equity on its books. While the writeoff was largely discounted by the market, it still could send the company's battered share price yet lower in early Thursday trading, some observers said.
In 1999, the company reported a small profit of $HK347 million, although this was before the merger with Cable & Wireless, making it meaningless for comparison.
At a joint analyst and media briefing, chairman Mr Richard Li did what he could to shake off the telecom and internet company's flagging reputation by projecting "high, single-digit growth" in revenues this year.
One Hong Kong analyst noted that the underlying operations look okay, especially in connection with the company's pledge to focus on cutting costs.
Another analyst, who follows PCCW for an international bank, said it would be virtually impossible to realise such revenue growth.
"Even 5.1 per cent would be a challenge," he said, noting that telecom services, which saw a 7 per cent decline in revenue in 2000, is still accounting for almost all of the group's revenues when assuming Cable & Wireless HKT had been consolidated from January 1," the analyst said. "HKT doesn't show real signs of growth going forward and fixed lines are still the core of its operations."
The main reason for last year's eye-catching shortfall was the larger-than-expected $HK4.89 billion provision for the declining value of the group's investments. This was taken after a "thorough review" of the investment portfolio with the aim of preserving cash flow going forward, the company said.
"It's a very prudent move, and I think analysts will see it as such, but whether the market will too is hard to say," one Hong Kong analyst noted.
Six analysts surveyed by Dow Jones Newswires had projected a net loss of $HK2.27 billion, while expectations of investment write-downs ranged from $HK1 billion to $HK4.3 billion.
Revenues from telecom services are expected to be largely flat in 2001, compared with the $HK20.23 billion in 2000, Mr Li said, but operations like business-to-consumer and total solutions services are expected to form a larger part of the group's revenue going forward.
The Business eSolution division, for example, posted 25 per cent growth in revenue last year to $HK1.20 billion and is expected to grow by more than 50 per cent this year, said Mr William Cheung, group chief operating officer.
PCCW was unable to benefit in full from the strong growth in some of former C&W HKT's business units, since they were included only for the 4.5 months after the merger was completed.
Total revenues rose to $HK7.29 billion from $HK152 million in 1999, but would have jumped to $HK20.69 billion had the telecom assets been included for the year as a whole, PCCW said. Still, this would have been up only 1 per cent compared with similar proforma figures for 1999.
Calling the past 12 months a "year of transition" in which there were many one-off items to address, deputy chairman Mr Francis Yuen said the company is now in a stable position to develop its existing businesses.
There is a lot of uncertainty ahead, however, including the competitive mobile environment and the challenge posed by the introduction of third generation mobile technology, said the Hong Kong analyst.
"But I think the management can handle the challenge and still generate growth," he said, predicting that cost costs as well as increased productivity will help boost the bottom line.
As part of the cost cutting exercise, Mr Li projected that capital expenditures would fall by at least 10 per cent this year from $HK528 million in 2000, and Mr Yuen added that it may also sell investment properties that are not building the return it wants.
Whether this will be enough to revive the company's share price, which closed 88 per cent below its year-ago peak at $HK3.475 Wednesday, remains to be seen, especially since Cable & Wireless plc is still looming in the background trying to sell half its 15.3 per cent stake, analysts said.
The negative equity position, however, is not much to worry about in the longer term, they said.
It "shows that the company paid a lot for a business without a lot of assets, perhaps overpaid", one analyst said. "But it is an accounting thing, it doesn't mean the company is insolvent."
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