34 slides from China Telecom Corp. Ltd. Class A's earnings presentation, March 2004
Slide 1: 2003 Annual Results Presentation
2003 Annual Results Presentation
Slide 2: Disclaimer
Disclaimer Certain statements contained in this document may be viewed as “forward- looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve k
Slide 3: Management
Management Zhou Deqiang Chairman/CEO Chang Xiaobing President/COO Wu Andi EVP/CFO Li Ping EVP/Company Secretary 3
Slide 4: Agenda
Agenda Annual Highlight Business Review Financial Review 4
Slide 5: Annual Highlight
* Annual Highlight
Slide 6: Excellent Performance Achieved...
Excellent Performance Achieved... Net Profit RMB Billion, except for 51.9% (2) subscriber data 16.8 (1) EBITDA 13.9% (2) 57.5(1) Revenue 9.5% 110.6(1) Local Subscribers Broadband Subscribers 22.0% 5.63 million 200.4% 118.09 million Note: (1) Excluding up-front connection fee (2) Effect of one-time a
Slide 7: In a Favorable Environment...
In a Favorable Environment... GDP(1) Local Telephony Penetration(2) 23% 21% RMB Billion 19% 18% % 16% 15% 9.1 11,669 % 8.0 10,240 9,593 2001 2002 2003 In our service regions National average Internet Users(3) Million 79.5 59.1 33.7 2001 2002 2003 Source (1) National Bureau of Statistics based on com
Slide 8: …Driven by Continued Reforms and Innovations
…Driven by Continued Reforms and Innovations External Growth Achieved via Acquisition Managerial Innovations Stronger Distribution driving Creating driving Efficiency gains Shareholder Revenue Growth Value Corporate IT Competitiveness Strategy Enhanced thru Implemented BPR 8
Slide 9: Acquisition Review: Target Performance
Acquisition Review: Target Performance(1) Faster Revenue Growth(2) Marked Margin Expansion (2) 10.1% 50.5% 9.2% 45.1% 2003 2003 2002 2003 Targets Original Listco Net Profit Beating Forecast (2) Lower Capex/Sales(3) RMB Million 4,182 4.6 47.2% 45.2% 4,000 2003 Forecast 2003 Actual 2002 2003 Note (1)
Slide 10: Acquisition review: Significant Benefits
Acquisition review: Significant Benefits Targets Original Combined As of or for 2003 Acquired Listco Group Local Subs (million) (1) 49 69 118 Service region pop.(million) 305 223 528 Penetration(2) 16.6% 31.4% 22.8% Local sub growth (1) 23.1% 21.3% 22.0% Broadband sub growth 239.7% 186.3% 200.4% Ope
Slide 11: Business Review
Business Review
Slide 12: Overview: Continued Steady Growth
Overview: Continued Steady Growth RMB Million Contribution Revenue 2003 2002 Change to Rev. Growth(p.p.) Local Telephony 58,021 55,006 5.5% 3.0 Internet 8,160 4,914 66.1% 3.2 Long Distance 23,658 23,817 -0.7% -0.1 Managed Data 2,540 2,431 4.5% 0.1 Leased Line 3,915 4,214 -7.1% -0.3 Interconnection 6
Slide 13: Local Telephony: Positive Trend
Local Telephony: Positive Trend Local Subs Local Usage Million Billion Pulses 118.1 346.4 0.1% 346.9 2 .0% 18.4 96.8 2 71.9 52.7 7.2 6.7 4.8 13.6 12.5 79.4 274.5 7.2% 294.2 72.3 2002 2003 2002 2003 Residential Enterprise Voice Dial-up Public Phone Wireless Local Access 13
Slide 14: Local Telephony: Competition Effectively Countered to Boost Usage
Local Telephony: Competition Effectively Countered to Boost Usage Monthly Usage Growth Rate (YoY), 2003 12.3% 11.8% 9.1% 9.0% 8.1% 7.7% 7.6% 7.1% 6.3% 6.6% 3.1% 1.6% 1 2 3 4 5 6 7 8 9 10 11 12 14
Slide 15: Local Telephony: Proactive & Cautious Approach toward PHS
Local Telephony: Proactive & Cautious Approach toward PHS Strong Sub Growth Declining Unit Cost & Improving Return Thousands 18,346 Centralized Higher Procurement Utilization .3% 3 15 % 8.7 7,243 16 Return further improved as Capex/Sub down 12% YoY 2,696 2001 2002 2003 15
Slide 16: Broadband and other Internet: Continued Strong Growth
Broadband and other Internet: Continued Strong Growth Internet Revenue Sustained Broadband Growth RMB Million 7.4% 5,630 Thousand Subs % 8,160 0.4 20 4.9% 3,590 % 6.1 4,914 6 1,874 % 8.0 28 483 2002 2003 2001 2002 1H2003 2003 Percentage of total rev. (excl. Up-front connection fee) Internet revenue
Slide 17: Broadband & Other Internet: Growing into A New Pillar Business
Broadband & Other Internet: Growing into A New Pillar Business n d b a d Industry Value Chain r oa f B o th row Compelling Branding & Bundling G i ve los p Ex Dominant Control of Last Mile Strong Demand 17
Slide 18: VAS: A Rising Star
VAS: A Rising Star Rapid Growth of Caller ID Expanding the VAS Horizon Million 53.7% 41.5% 63.43 0% 28.3% 58. 40.14 5% 22.87 75. Tele-Chat Wireline QQ SMS 2001 2002 2003 Caller ID sub Value Percentage of Caller ID sub to PHS total local sub Added Services SMS Voice Information Taking Off Million Cal
Slide 19: Long Distance: Steady Growth
Long Distance: Steady Growth DLD Revenue DLD Usage RMB Million Million Minutes 20,123 -1.2% 19,888 53,809 46,793 .0% 15 50.3% 45.8% 49.7% 54.2% 2002 2003 2002 2003 IDD Revenue IDD Usage RMB Million Million Minutes 3,770 1,493 1,618 3,694 2.1% 8.4% 38.7% 48.9% 51.1% 61.3% 2002 2003 2002 2003 VOIP PST
Slide 20: Managed Data & Leased Line: Smooth Growth
Managed Data & Leased Line: Smooth Growth Managed Data Revenue Managed Data Usage RMB Million Thousand port equivalents 2,431 2,540 DDN(64K) FR (128K) ATM(2M) 4.5% 31.6% 366.1 93.0% 278.3 6.6% 39.8 76.8 15.9 16.9 2002 2003 2002 2003 2002 2003 2002 2003 Leased Line Revenue Digital Circuits Leased RMB
Slide 21: Interconnection: Rapid Growth
Interconnection: Rapid Growth Interconnection Income & Expense Inbound Local Call Volume RMB Million Billion Minutes 6,444 53.6 5,921 8.8% % .4 39.9 34 2,828 2,848 2002 2003 2002 2003 Intercon rev. Intercon. expense 21
Slide 22: Managerial Innovation - Core Competitiveness of China Telecom Strengthened
Managerial Innovation - Core Competitiveness of China Telecom Strengthened Construction of distribution system Institution Procedure Modeling Operational Capital Headquarters Financial Provincial companies Local networks IT Systems (CTG-MBOSS) 22
Slide 23: Managerial Innovation - Enhancement of the Distribution System
Managerial Innovation - Enhancement of the Distribution System Distribution Channels Product Key Bundling • Key Account Accounts Managers Fixed line • Community managers PHS • Rural contract Business Public Data personnel customers Customers Broadband • 10000 service hot line Internal Measures •
Slide 24: Managerial Innovation - Business Process Re-engineering Further Implemented
Managerial Innovation - Business Process Re-engineering Further Implemented •Key Account direct service time •Average capex saving:9% proportion: 30% •Utilization: 6% •Customer satisfaction: 2 p.c points BPR Major Services: •Front-end personnel:50%+ •Average time of provisioning: 40% •Average breakd
Slide 25: Financial Review
* Financial Review
Slide 26: Strong Financial Performance
Strong Financial Performance EBITDA Growth: Net Profit Growth: Revenue 13.9% 51.9% Profit and Loss Growth: 9.5% EBITDA Margin: Net Margin: up 2 pc points up 4 pc points Capex: RMB 42.8 Cash Flow Free Cash Flow: billion, down 4.9% RMB 8.7 billion YoY Acquisition of 6 Total Debt/Total Balance Sheet Pr
Slide 27: Significant Revenue and Net Profit Growth
Significant Revenue and Net Profit Growth Revenue EBITDA Net Profit RMB Million RMB Million RMB Million % 9.5 % 110,566 13.9 57,484 .9 % 16,801 101,010 51 50,448(1) 11,061(1) 1,219 2002 2003 2002 2003 2002 2003 Note: All figures exclude up-front connection fee (1) Excluding effects of asset appraisa
Slide 28: Strict Cost Control and Improved Profitability
Strict Cost Control and Improved Profitability Operating and EBITDA Margin (1) Operating Expense Structure Operating Margin EBITDA Margin RMB Million 83,567 86,003 22.2% 3.4% 3.4% 52.0% 15.9% 17.7% 17.3% 12.2% 49.9% 14.1% 28.9% 26.5% 39.5% 38.3% 2002 2003 2002 2003 2002 2003 Note: Depreciation Netwo
Slide 29: Capex Control Target Met
Capex Control Target Met Capital Expenditure RMB Billion 41.1% 36.1% 45.0 42.8 42.0 2002 2003 2004E Capex / Revenue (including up-front connection fee) 29
Slide 30: Significant FCF Growth and Return Enhancement
Significant FCF Growth and Return Enhancement Free Cash Flow (1)(3) ROE (2)(3) RMB Billion 8.73 11.8% 7.7% 1.17 2002 2003 2002 2003 Note: (1) FCF = EBITDA- Income tax- Capex (2) ROE =Net profit / Average shareholders‘ equity (3) Excluding up-front connection fee and, excluding effects of asset appra
Slide 31: Solid Capital Structure
Solid Capital Structure Total Debt / Total Cap (1) Net Debt (2) / EBITDA (3) 36.3% 1.5 24.4% 0.9 2002 2003 2002 2003 Note: (1) Total cap = Total debt + Deferred revenue + Shareholders’ equity + Minority interest (2) Net debt = Total debt - Cash and cash equivalents (3) Excluding up-front connection
Slide 32: Appendix I: Key Data from the Income Statement
Appendix I: Key Data from the Income Statement RMB million 2003 2002 Operating Revenue 110,566 101,010 Operating Expense (86,003) (83,567) Operating Profit 24,563 17,443 Net Interest Expense (1,814) (2,144) Income Tax (5,933) (4,266) Net Profit 16,801 11,061 EPS (RMB) 0.22 0.16 Weighted Average Numb
Slide 33: Appendix II: Key Data from the Balance Sheet
Appendix II: Key Data from the Balance Sheet RMB million 2003 2002 Cash and Cash Equivalents 10,119 18,685 Other Current Assets 15,385 15,015 Non-Current Assets 280,101 269,911 Total Assets 305,605 303,611 Current Liabilities 96,666 99,548 Non-Current Liabilities 76,398 50,029 Minority Interest 1,26
Slide 34: Sharing the Very Best of This Information Age
China Telecom Sharing the Very Best of This Information Age Thank You! For more details, please click onto China Telecom’s corporate website at www.chinatelecom-h.com 34