One of biggest downturns in Hong Kong corporate history reflects slump in Internet and telecoms sectors PCCW battered by $6.9b loss
Ben Kwok
03/29/2001
South China Morning Post
Page 1
(c) Copyright 2001 South China Morning Post Publishers. All Rights Reserved.
Richard Li Tzar-kai's Pacific Century CyberWorks has reported a loss of US$886 million (HK$6.9 billion), one of the largest in Hong Kong corporate history.
The huge losses - which beat even the most bearish estimates by analysts of $5.4 billion - reflected the dramatic downturn that companies in the Internet and telecoms sectors have faced during the past year.
In his opening remarks as the company revealed its annual results, Mr Li said the company's first priority this year was to reduce debt. "The next thing to do is to reduce operating cost through efficiency programmes," he said.
Mr Li, who last week admitted he did not graduate from Stanford University - contrary to statements in some company official literature - spoke to analysts but did not appear at the company's press conference.
The biggest loss in Hong Kong history is thought to have been made by Akai Holdings. The electronics company lost US$1.72 billion (HK$13.4 billion) in 1999.
The results revealed CyberWorks made a consolidated operating profit of $520 million. However, one-off provisions - largely on the reduced value of some of the company's investments - overwhelmed the profit and dragged the overall losses down to US$886 million.
In addition, CyberWorks wrote-off goodwill - which reflects the amount the company thinks intangible assets like brand name and management are worth - amounting to US$22 billion stemming from its purchase of Cable & Wireless HKT against reserves.
The write-off put CyberWorks in a position of negative shareholder equity totalling US$1.8 billion, the company admitted. That means its liabilities are greater than its assets.
CyberWorks , which borrowed US$9 billion to complete what was the biggest acquisition in Asia outside Japan, paid a total of $2.36 billion in interest alone last year.
"Last year was a year of transition in which we had to do a one-off write-off," said the company's deputy chairman, Francis Yuen Tin-fan. "We are more positive in year 2001."
Mr Li told analysts yesterday that turnover this year was likely to see high single-digit growth, with cash flow also improving. But he declined to say when it would break even.
Meanwhile, the core telecom divisions, on which the company now depended after acquisitions, were expected to be flat this year, according to Mr Li.
Mr Yuen added the company would see itself moving away from its dependence on international direct-dialling revenue, and relying much more on growth areas.
Most of the company's revenue was generated from its telecommunications business.
CLSA analyst Edison Lee said: "Business-to-business seems to be a bright spot, but the company had a worse than expected performance in almost every other area."
However, Mr Lee said this set of results, despite being below expectations, would have little effect on the market. But it was important for the company to articulate its future strategy.
The share price of CyberWorks fell 0.7 per cent yesterday - before the results were announced - to close at $3.475.
That is 77.4 per cent lower than the first-day closing of $15.35 after the takeover in August, leaving the market capitalisation of CyberWorks now standing at $76.4 billion.
Mr Li stressed the company would cut last year's capital expenditure of US$528 million by at least 10 per cent.
That expenditure will include US$300 million which the company will commit to the Cyber-Port project at Pokfulam - the first phase of which is expected to be completed in the last quarter of next year.
Mr Li said the company's rationalisation programme would involve staff cuts.
However, the executive director of CyberWorks , Jeff Bowden, later clarified the announcement and said the company would not be reducing the number of employees as it was expanding into other businesses.
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