Hong Kong PCCW 1st Half Net Loss HK$713 Million; Analysts Expected HK$585 Million
biz.yahoo.com
HONG KONG -(Dow Jones)- PCCW Ltd. said Thursday it swung to a loss of HK$713 million in the first half of the year because of accounting charges stemming from its sale of a mobile phone unit.
That was below forecasts of an average interim net loss of HK$584.6 million, culled from nine analysts polled by Dow Jones Newswires. The forecasts ranged between Bank of America's HK$825 million net loss figure and JP Morgan's HK$376 million net loss forecast.
Operating profit at Hong Kong's dominant fixed-line telephony provider slid to HK$2.69 billion from HK$3.22 billion in the six months to June 30 as revenue slipped to HK$10.20 billion from HK$11.31 billion.
The company said its operating profit was pulled down by weaker fixed-line operations, but pointed to a 6% rise in earnings before interest, tax, depreciation and amortization to HK$4.13 billion from HK$3.91 billion. "This considerable increase in the margin was a result of cost reductions through an improved operating structure," it said in a statement.
The biggest blow to first-half earnings was a HK$1.81 billion accounting loss recorded in PCCW's sale of its 40% stake in a joint- venture mobile phone company, marketed as CSL, to its venture partner, Telstra Corp. , for HK$ 4.79 billion. The HK$1.81 billion accounting loss resulted from the restatement of goodwill, previously written off against reserves as a cost of disposal.
Before such exceptional items, the company's net profit was HK$1.10 billion, up from HK$935 million a year earlier.
PCCW reduced its debt by 17% compared with a year earlier, cutting its net finance costs to HK$1.07 billion from HK$1.77 billion in the year-earlier period.
Chairman Richard Li said he expected to see free cash-flow of more than US$500 million, or HK$3.9 billion, a year by 2004. In the first half, cash flow improved from a negative HK$508 million to a positive HK$1.24 billion before investment payments of HK$987 million for its Cyberport development.
PCCW will use the expanded cash-flow for debt repayment and new businesses, Li said. Also, he added, the company will see positive retained earnings and "be in shape" to pay dividends within 24 months.
Directors recommended no dividend be paid for the first half as the company lost 3.11 HK cents a share in the period, compared with earnings per share of 4.22 HK cents a year earlier.
During the six months, the group's share of Hong Kong's fixed-line market - its core source of earnings - fell to 87% from 92%, as it was hit by increased competition.
"We're not uncomfortable with our market share or our line losses - this is an aspect of deregulation," said Chief Operating Officer Mike Butcher. "Over time, our market share will decline further."
He reiterated earlier comments that the company couldn't guarantee that there wouldn't be further layoffs. "Our official position is we have no intention to do so now," he said.
Earlier in the day, Standard & Poor's raised its ratings outlook on PCCW's wholly owned unit PCCW-HKT Telephone Ltd. to positive from stable, and affirmed its triple-'B' corporate credit rating on the company.
Initially, PCCW had said it would only give out a dividend once it achieved an A-rating, but Thursday said it will do so in two years regardless, although it noted it was confident of a ratings upgrade by then.
"Based on the current earnings trend, we will be able to attain positive retained earnings within 24 months, and by then, we will seriously consider payment of a dividend," said Chairman Richard Li. "We are committed to our stated plan of attaining a Single A rating, but given the strength of our free cash flow towards 2004, it is possible to consider payment of a dividend without disrupting the plan."
Deputy Chairman Francis Yuen said that given pre-exceptional net profits had grown 17% in the first-half, barring any one-offs, profits in the second half should lead to profitability for the full year. "Profits will be even higher if we can dispose of some non-core property assets," he said.
Looking ahead, growth, the company said, would come from its information- technology unit, Business eSolutions, although PCCW has been winning back some of the fixed-line customers it previously lost.
"But in this environment, (short-term) revenues should be flat or slightly down," said Butcher. "It's a tough environment, and we see that continuing for a while. We'll focus on our core telecom business, both retention and growth, and growth in eSolutions."
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