2006 Interim Results. China Telecom Corporation Limited 30 August 2006

Transcription

1 2006 Interim Results China Telecom Corporation Limited 30 August 2006

2 Forward-Looking Statements Certain statements contained in this document may be viewed as forwardlooking 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 are subject to known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of China Telecom Corporation Limited (the Company ) to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company s most recent Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission (the SEC ) and in the Company s other filings with the SEC. 2

3 Management Team Mr. Wang Xiaochu Chairman & CEO Mr. Leng Rongquan Executive Director, President & COO Madam Wu Andi Executive Director, EVP & CFO 3

4 Agenda Overview Business Review Financial Results 4

5 Overview

6 Highlights Solid Operating Performance Amid Intensifying Competition Continuous growth in revenue and net profit Strategic Transformation Gaining Momentum Fast growing Non-voice revenue; Voice challenges effectively abated Effective CAPEX Control Ensuring investment return and sustainable business growth Strong Free Cash Flow Supportive of corporate development and shareholders value enhancement 6

7 Solid Results (Excl. Connection Fees) Continuous growth in subscribers, revenue and net profit 1H2005 1H2006 Growth Access Lines in Services (Mil) % Broadband Subs (Mil) % Operating Revenue (RMB Mil) 80,620 84, % EBITDA (RMB Mil) 42,518 44, % EBITDA Margin 52.7% 52.4% -0.3pp Net Profit * (RMB Mil) 11,293 11, % EPS (RMB) % Free Cash Flow** (RMB Mil) 15,101 18, % Note: * Net profit used hereinafter represents profit attributable to equity holders of the company ** Free Cash Flow = EBITDA(Excl. connection fees) CAPEX Income Tax Unless otherwise stated, all financial data used hereinafter exclude upfront connection fees 7

8 IFRS-based Results (Incl. Connection Fees) Operating Revenue (RMB Mil) 1H ,023 1H ,936 EBITDA (RMB Mil) 45,921 46,711 EBITDA Margin 54.7% 53.7% Net Profit (RMB Mil) 14,696 14,084 EPS (RMB)

9 Revenue Growth Drivers -0.5pp +3.2pp +2.5pp -0.5pp 4.7% Contribution RMB Mil 1, , % 84,442 80,620 1H2005 Voice Business* Internet Access VAS Others 1H2006 Note: * Voice Business revenue includes Monthly Fees, Local Usage Fees, Upfront Installation Fees, DLD/ILD and Interconnection Revenue 9

10 Proactively Defend Voice Business Intensifying Market Competition Effective Mobile Voice Tariff in China (RMB/min) CAGR=-17.1% CT s Voice Business Revenue RMB Mil -0.6% 60,591 61,574 61, H2004 1H2005 1H2006 Note: Calculated based on total voice revenue / total voice usage of the 2 mobile operators in China 1H2004 1H2005 1H2006 Voice ARPU(RMB) Voice business revenue includes Monthly Fees, Local Usage Fees, Upfront Installation Fees, DLD/ILD and Interconnection Revenue Firmly committed to profit-oriented development and avoid direct price competition Leverage multi-services bundling & packaging to promote customers stickiness & usage 10

11 Strategic Transformation Gaining Momentum Robust Non-Voice Revenue* Growth Non-Voice Revenue as a % of Operating Revenue RMB Mil +22.0% +3.9pp 15,390 19,046 23, % 60,591 61,574 61, % 23.6% 1H2004 1H2005 1H2006 1H2004 1H2005 1H2006 Non-Voice Revenue* Voice Revenue Note: * Non-Voice revenue includes revenue from Internet access, VAS, managed data, leased line and others Expand new business & revenue Enhance customers stickiness & voice usage via effective multi-services bundling Seize the competitive advantage for future comprehensive services operation 11

12 Effective CAPEX Control RMB Mil CAPEX Stringent control on CAPEX to ensure investment return and sustainable business growth 56, % -4.3% -5.3% 53, % 25,018 22,861 FY Budgeted 51,000 20, E FY CAPEX as a % of Operating Revenue Continued decrease in CAPEX (1H06: 9.1% yoy) Further optimized CAPEX structure to transform existing network into intelligent network, broadband, IP based network and NGN Proactively upgraded network s integrated services capabilities to early prepare for future comprehensive services operation To control CAPEX within full year budget 1H CAPEX 12

13 Near Term Focus Voice & Voice VAS Telecom & Internet Convergence Services, like Best Tone Internet & Applications Telecom, Internet & IT Convergence Services, like BizNavigator IT Services & Applications Multi-services, multinetworks, multi-terminals convergence offering Differentiated branding & marketing Enterprise Customers Household Customers Individual Customers 13

14 Promising Prospect Proactively cultivate unique competitive edge for future comprehensive services convergence offering Integrated Comprehensive Services Triple-Play Shareholders Value Fixed-Mobile Convergence Cultivate financial strength and talents pool Upgrade network s integrated services capabilities Strengthen differentiated branding & marketing Consolidate business fundamentals 14

15 Business Review

16 Revenue Breakdown 1H2005 (RMB Mil) 1H2006 (RMB Mil) Growth Share of Operating Revenue Local Voice Upfront Installation Fees 1,479 1, % 1.7% Monthly Fees 15,326 14, % 17.7% Local Usage Fees 24,005 23, % 27.7% 40,810 39, % 47.1% Long Distance 14,623 14, % 17.1% Interconnections 6,141 6, % 8.3% Internet Access 8,538 11, % 13.2% VAS 4,601 6, % 7.8% Managed Data, Leased Line & Others 5,907 5, % 6.5% Total 80,620 84, % 100% 16

17 Local Voice Business Access Lines in Services Local Voice Usage Mil Pulse Mil -2.4% 210, , , H2004 1H2005 1H2006 Local Voice Revenue RMB Mil -2.5% 40,527 40,810 39, Residential Enterprise Public Telephone PAS 1H2004 1H2005 1H

18 PAS Subscribers CAPEX Mil 26.0% 27.2% 28.0% RMB Mil 4, % ,590 1H2005 1H2006 Network Utilization Rate +2.4pp 67.1% 69.5% PAS Subs/Access Lines in Services Further improve operating return of PAS business 18

19 Long Distance Business Domestic Long Distance Usage Long Distance Business Revenue Minute Mil 45,145 46,761 RMB Mil 39, % 43.7% 39.1% 1H2004 1H2005 1H International Long Distance Usage 15,051 14,623 14,451 Minute Mil % 51.2% 50.0% 1H2004 1H2005 1H2006 Market Share 1H2004 1H2005 1H2006 ILD Average Unit Price(RMB/Min) DLD Average Unit Price(RMB/Min) To stabilize development of long distance business through product bundling and targeted marketing 19

20 Booming Internet Business Internet Access Revenue Internet VAS Revenue RMB Mil RMB Mil % 11, % IP-VPDN services Other services +29.3% 6,602 8, Vnet 748 5,854 8,048 10, IDC services 1H2004 1H2005 1H2006 1H2005 1H2006 Dial-up & Other Access Broadband Access Enhance differentiated marketing Strengthen interactive promotion of access & applications business 20

21 Rapid Broadband Growth Broadband Subs Broadband Access Revenue Mil % RMB Mil +37.5% 5, % 8, % +34.7% 10, % H2005 2H2005 1H2006 Broadband ARPU (RMB) Net Adds 1H2004 1H2005 1H2006 Broadband Access Revenue/Operating Revenue Double broadband subscribers in 3-4 years Leverage product bundling (BizNavigator, Internet VAS ) to stimulate broadband usage Moderate ARPU decline via differentiated marketing & product packaging 21

22 Fast Growing VAS RMB Mil 2, % 1H2004 VAS Revenue 4, % 1H % 6, % 1H2006 VAS Revenue/Operating Revenue VAS Revenue Composition 1H2006 As a % of VAS revenue; growth (yoy) Color Ring Tone 7.8% ( 250.9%) SMS 14.2% ( 46.6%) Integrated Information Services * 18.8% ( 98.7%) 12.2% ( 30.5%) Telephone Information Services Others 7.7% ( 5.8%) Caller ID 39.3% ( 23.1%) Note: * Integrated Information Services include Internet VAS, Best Tone, BizNavigator and IT services & applications Comprehensive deployment of VAS with vigorous growth momentum 22

23 Fostering Market Competitiveness IT Support Improve Business Supporting System (BSS) & Customer Relations Management System (CRM) Branding Enhanced Marketing & Customer Management Product, pricing & marketing management Establish pricing guidance and authorization system to enhance control on service pricing Differentiate branding for enterprise, household and individual customers (e.g. BizNavigator) Distribution Channel Enhance dedicated & direct sales channel Expand community & e-channels 23

24 Financial Results

25 Key Financial Information 1H2005 (RMB Mil) 1H2006 (RMB Mil) Change Operating Revenue 80,620 84, % Operating Expenses Depreciation & Amortization 24,178 25, % Network Operations & Support 13,250 13, % Personnel 13,254 13, % SG&A 9,074 10, % Interconnection & Other Operating Expenses 2,524 2, % 62,280 65, % Operating Profit 18,340 18, % Net Profit 11,293 11, % EBITDA 42,518 44, % 25

26 Profitability EBITDA Net Profit RMB Mil RMB Mil 42,518 39,307 44,217 11,293 11,590 9, % 48.0% 52.4% 14.0% 12.0% 13.7% 1H2005 2H2005 1H2006 1H2005 2H2005 1H2006 EBITDA Margin Net Profit Margin 26

27 Cost Structure Operating Expenses as a % of Operating Revenue 80.2% 77.8% Operating Expenses 30.5% Depreciation & Amortization 30.2% 18.7% Network Operations & Support 16.0% 15.4% Personnel 15.8% 12.2% 3.4% SG&A Interconnection & Other Operating Expenses 12.3% 3.5% H

28 Cost Initiatives Depreciation & Amortization Stringent control on CAPEX to reduce depreciation expenses as a percentage of operating revenue Strict cost continuously control and enhanced balancing to ensure stable EBITDA margin Personnel Control personnel expenses growth below revenue growth, progressively improving competitiveness of remuneration scheme to attract and retain talents Network Operations & Support Strengthen centralized management on network maintenance to enhance quality & capability SG&A Increase investment to retain and gain customers, more promotion & marketing for growth business 28

29 Optimized CAPEX Structure CAPEX Composition RMB Mil 22,861 CAPEX 20, % 5.0% 23.6% 6.0% 23.6% 25.6% 19.9% 20.6% 27.1% 7.7% 13.3% 10.0% Others * IT Support Internet & Data Access & Local Transmission PAS Fixed Line Switches Decreased CAPEX for fixed line switches to enhance operating return Decreased CAPEX for PAS, persisting in profit-oriented development Increased CAPEX for access and local transmission to strengthen last mile advantage Increased CAPEX for Internet and data, optimizing resources allocation for growth business Increased CAPEX for IT support to foster integrated services capability 1H2005 1H2006 Note: * Others include communication infrastructure and other capital expenditure 29

30 Solid Financial Strength Total Debt/ Total Capitalization Free Cash Flow RMB Mil 41.6% 40.2% 38.6% 18,934 15,101 11, H2004 1H2005 1H2006 Solid financial strength and strong cash flow well support the Company s sustainable growth and continuously enhance shareholders value 30

31 Strengthen Internal Control Continue to strengthen internal control per international best practices, Sarbanes-Oxley Act (Section 404) and Hong Kong Listing Rules Perfecting Corporate Governance Reducing Corporate Risk Enhancing Operating Efficiency 31 Establish internal control responsibility system through authority setting, cascade of duties & grade assessment Leverage internal control to promote precision management Enhance internal control incorporating comprehensive risk management

32 Maximize Shareholders Value Perfecting comprehensive budget management and allocating resources effectively to ensure successful implementation of strategic transformation Implementing precision management and stringent cost control to maintain EBITDA margin at a relatively stable level Strengthening treasury management and maintaining solid capital structure to reduce cost of capital Controlling and optimizing CAPEX effectively to increase free cash flow Enhancing internal control establishment and execution to reduce corporate risk 32

33 Thank You 33

34 Appendix 1: Extracted from unaudited statement of income for the 6 months ended 30 June 2006 (incl. upfront connection fees) RMB Mil Unaudited 1H2005 Unaudited 1H2006 Operating Revenue Upfront Connection Fees Operating Expenses Net Finance Costs Investment Loss, Share of Profit from Associates Profit Before Taxation Income Tax Profit for the Period Attributable to: Equity Holders of the Company Minority Interests 84,023 3,403 (62,280) (2,468) (6) 19,269 (4,556) 14,713 14, ,936 2,494 (65,704) (2,592) (13) 18,627 (4,510) 14,117 14,

35 Appendix 2: Extracted from unaudited balance sheet as at 30 June 2006 (incl. upfront connection fees) RMB Mil Current Assets Non-Current Assets Total Assets Current Liabilities Non-Current Liabilities Total Liabilities Total Equity Equity Attributable to Equity Holder of the Company Minority Interests Audited , , , ,976 77, , , ,517 1,444 Unaudited , , , ,309 62, , , ,323 1,458 35

36 Appendix 3: Detailed operating revenue breakdown for the 6 months ended 30 June 2006 (incl. upfront connection fees) RMB Mil Upfront Connection Fees Local Voice Business Upfront Installation Fees Monthly Fees Local Usage Fees DLD ILD Internet Access Managed Data Leased Line Interconnections VAS Other Businesses Total Unaudited 1H2005 3,403 40,810 1,479 15,326 24,005 12,918 1,705 8,538 1,481 2,265 6,141 4,601 2,161 84,023 Unaudited 1H2006 2,494 39,772 1,458 14,936 23,378 12,889 1,562 11,154 1,492 2,098 6,975 6,580 1,920 86,936 36