HUTCHISON TELECOMMUNICATIONS (AUSTRALIA) 2002-08-12 ASX-SIGNAL-G HOMEX - Sydney +++++++++++++++++++++++++ NEWS RELEASE HUTCHISON CONTINUES 2G IMPROVEMENT AND 3G LAUNCH READINESS Hutchison Telecommunications (Australia) Limited (ASX:HTA) (Hutchison) today announced its financial results for the first half of 2002. The results showed ongoing improvements to 2G (Orange) operations. Hutchison CEO Kevin Russell said the results were a pleasing demonstration of the hard work directed into remodelling the Orange business and building for the new world of 3G. Financial highlights included: * Total operating revenue of $112.8 million. * Orange mobile business contributed $93.9 million to total revenue, an increase of 13% over the prior half-year. * 2G EBITDA loss of $16.2 million, over 50% improvement on the prior half-year loss of $35.4 million. * Orange Mobile subscriber base grew by 25% and reached 240,110 by 30 June 2002 with 47,584 additional post-paid customers on the network. Mr Russell said the results showed significant improvements in all operating areas in 2G, reflecting a successful turnaround in the business since a restructure initiated late last year. "For the second consecutive reporting period, we have markedly reduced our 2G EBITDA loss," Mr Russell said. "We remain on track to achieve our full-year goal of being 2G EBITDA positive in the fourth quarter of this year," he said. "And our 3G rollout is progressing well in all key areas of our build. We are firmly on track for the launch of this exciting new service in the first quarter of next year." During the reporting period, Hutchison continued its strategic approach to focus on margins and customer quality. Key drivers of the improved financial performance included: * Reducing average subscriber acquisition costs by 22% to $195 per connection in the reporting period, compared to $250 per connection in the previous six months. * Reducing customer churn to 2.3% in the reporting period, compared to 3.6% in the previous six months. * Increasing network gross profit margin to 65%, compared to 55.5% in the previous six months. In parallel to the 2G operational initiatives, Hutchison has continued to make significant progress towards the launch of its 3G network, scheduled for the first quarter of 2003. Primary focus has been on the design and build of the network and other technical infrastructure and the development of compelling products and services to be delivered using that infrastructure. Key initiatives during the period included the acquisition of the majority of the network assets constructed by Lucent Technologies Australia Pty Limited for One Tel, the commencement of network construction and the installation of a 3G trial network. Hutchison continued to leverage its membership of the Hutchison Whampoa 3G Group for the acquisition, development and installation of the systems and applications to support the 3G product portfolio. Inquiries: Steve Wright Karen Mazor DIRECTOR STAKEHOLDER RELATIONS INVESTOR RELATIONS MANAGER Tel: (02) 9964 4677 Tel: (02) 9964 4885 swright@hutchison.com.au kmazor@hutchison.com.au MORE TO FOLLOW HUTCHISON TELECOMMUNICATIONS (AUSTRALIA) 2002-08-12 ASX-SIGNAL-G HOMEX - Sydney +++++++++++++++++++++++++ A copy of the full presentation material is available in PDF format on www.asx.com.au. Alternatively it is available for purchase from ASX Customer Service on 1 300 300 279. MORE TO FOLLOW HUTCHISON TELECOMMUNICATIONS (AUSTRALIA) 2002-08-12 ASX-SIGNAL-G HOMEX - Sydney +++++++++++++++++++++++++ SPEECH BY KEVIN RUSSELL, CHIEF EXECUTIVE OFFICER Good afternoon ladies and gentlemen. Thank you for joining us today. Over the past 12 months, Hutchison Telecoms Australia has worked hard to improve its 2G business performance and to position itself for an early launch of comprehensive 3G services. Today I can report on very good progress in both these areas. I will start with some key messages, then I will take you through the details of the achievements in 2G and our progress in 3G readiness. In our 2G business, branded Orange, the benefits of a determined remodelling are evident in the first half results for 2002. Once again we have markedly reduced our 2G EBITDA loss; and we remain on track to achieve our full year target of being EBITDA positive in the fourth quarter. Critically, our improving EBITDA trend is underpinned by significant tangible improvements in key operating areas of the Orange business, and I will walk you through a number of these today. Contrary to some external speculation we are absolutely committed to an early launch of 3G services in Australia and we increasingly see the market opportunity opening up for us. We are continuing to track solidly towards launching 3G services in the first quarter of 2003. On our half year results, Orange operating revenue was up $10.9 million in the half - an increase of more than 13%. Stripping out the impact of handset revenue growth, our underlying recurring airtime revenue was up by over 30%. Overall operating revenue was down, as a result of the sale of the GSM resale customer base. The revenue impact from this sale was offset by a dramatic reduction in cost of sales and other operating expenses, which I will expand on shortly. The key line on the financial data slide is the improved 2G EBITDA position - from a loss of $77.5 million a year ago to $16.2 million for the first half this year. This is the key indicator on how we are tracking towards delivering future operating cashflows. At an NPAT level, our loss actually increased, however the key points to recognise here are: The prior half included the net profit on sale of the GSM resale base of $15.3m. The current half was impacted by approximately A$10 million of higher borrowing costs due to higher debt levels at higher average interest rates; and $5 million of 3G OPEX. Our 2G EBITDA loss has more than halved for the past two reporting periods - and we expect to be EBITDA positive in the fourth quarter of this year. This improvement has been brought about by a total restructuring of the business, affecting all key operational areas. I will now take you through each of the main areas. Subscriber growth underpins the improvement in Orange revenues in the past year. However, we continue to prioritise margins and customer quality ahead of pure subscriber numbers. Our growth for the past six months approximated 48,000 which was in line with our expectations. In a market today where growth is dominated by lower end pre-paid product and handset subsidisation, it is important to recognise that 100% of Orange mobile growth is post-paid, and that Orange has led the way in moving away from handset subsidies. Growth through July and August has slowed as we have further restructured our distribution, closing our door-to-door sales channel and relocating our sales call centre from Melbourne to Brisbane. We have also refused to engage in the $0 handset battle currently being waged by Telstra and Optus in the consumer market. We anticipate that growth will pick up strongly again in September with the reopening of the sales call centre, and the introduction of a couple of attractive new handsets in our range, including the Samsung XBS which we consider to be the most attractive mid tier handset we have launched. Excellent service quality and value for money have been key drivers of the ongoing improvement in Orange customer loyalty. In the past 12 months, the churn rate has been cut in half, from 4.7% to 2.3%. We expect this level to continue to reduce in the second half of this year. Our churn improvement has been supported by the outstanding performance of the Orange mobile network. Our CDMA network infrastructure continues to deliver excellent performance statistics for call drop rates and other measures of call quality - less than 1% of Orange calls are dropped. It is a matter of some frustration to us that the ACA process for publication of this data has been prevented by the reluctance of the other carriers to commit to the filing of meaningful data. We have written to the ACA calling for it to quickly conclude its review of network performance measurement and reinstate publication of network performance statistics, because this is one of the few methods of independent public verification of service standards available to mobile customers. In a market of slowing growth, it is critical for operators to have their acquisition costs under control. The cost of bringing customers onto the Orange service has been reduced from $445 per connerction a year ago, to $195 for this half - a 56% improvement. This reduction results from three key initiatives: 1. Elimination of residual handset subsidies on consumer plans; 2. Restructuring of dealer commissions; and 3. Improvements in the distribution channel mix, with subscriber additions weighted towards lower cost channels. Handset subsidisation can be supported in a growing market. 2G growth, however, has slowed significantly. Contrary to our competitors' $0 handset strategies, we will continue to focus on reducing rather than increasing our acquisition costs. Last year's strategic repositioning of Orange has brought improvements to our customer profitability. The next few slides will give you some insights into how this has been achieved. As you are aware, last July we refocused away from a local zone service to basic mobility. This was a clear strategy to deliver more profitable usage of our network. Over 12 months, the local zone average monthly outgoing minutes of use per post-paid subscriber has declined from 206 minutes to 99 minutes. Over the same period, average outgoing mobility usage rose from 44 minutes to 67 minutes, a greater than 50% increase in average mobility usage. Total average monthly outgoing minutes of use has consequently declined from 250 to 166, a 33% decline. Despite this reduced usage, our ARPU has remained relatively steady over the past 12 months. We saw a decline half on half of $3, however as you have seen, this was proactively driven by reducing the local zone usage. As a network operator, our key focus must be on improving the yield generated on the network and the improved balance of mobility versus local zone traffic has seen a significant continued improvement in the yield on our CDMA network. Our outgoing weighted average tariff per subscriber increased to 24 cents per minute for the reporting period, compared to 18 cents per minute in the first half of last year, an increase of 33% over just 12 months. This improving tariff has resulted in a significant improvement in our Orange mobile gross profit margin. Our network GP margin rose strongly last year from 40% to 55% and, now, is up to 65%. We believe that it will stabilise around this level going forward. Our distribution channels continued to be re-engineered to deliver lower cost, higher value customers. The Company's Melbourne sales call centre was consolidated into the customer care facility in Brisbane, and the higher cost door-to-door sales channel was closed in May. Our dealer channel continued to perform well, delivering more than 54% of all customer acquisitions. The dealer channel was strengthened with the introduction of 20 dealer-operated kiosks in major shopping complexes in Sydney and Melbourne. The dealer-operated kiosks; are performing better than expected and further expansion is planned. Another 20 kiosks are scheduled to be opened by the end of the year. In summary, our distribution has been overhauled in 12 months, reducing our retail points of presence from 400 to 144 but increasing the productivity of each point by over 400%. On staffing, our restructuring has been equally as dramatic. In 2G our employee numbers have been halved in 12 months. This reduction has been delivered during a period where our subscriber base has been growing strongly, our churn has been slashed, our network performance has strengthened and our distribution overhauled. Put simply, the reduction has been delivered and managed without adverse repercussions to our operational performance. So, to recap the highlights of our operational achievements in Orange. In the past year, we have: * halved EBITDA loss for the second consecutive six-month period * halved customer churn rates * halved subscriber acquisition costs * halved our employee numbers; and critically, delivered a significant improvement in the profitability of our network usage profile. The last 12 months efforts have given Orange the required platform to move steadily forward to positive cashflow and profitability. Now to our 3G rollout. Hutchison is progressing well towards the launch of a range of now 3G wireless services. We will be ready to go in the first quarter of next year, and will follow launches by our sister companies in the United Kingdom, Italy and Hong Kong. Our implementation is on track, with a large proportion of the structural work already completed and significant progress in designing and developing the compelling products and services which will make the venture a success, both in Australia and the other eight countries in the global Hutchison venture. We will have a phased national rollout. Services will be launched first in Sydney, Melbourne and Brisbane, with Perth and Adelaide following in the second half of 2003. We are planning to deliver a strong launch network next year. In Sydney, our launch coverage will reach from the Northern Beaches, south to Cronulla and west to Penrith. This will be quality coverage designed to give strong indoor and outdoor reception from day one. Our network is being designed to support data speeds at launch of up 384 kilobits per second. Our launch coverage is similarly broad and deep in both Melbourne and in Brisbane. Our deployment progress clearly received a huge boost from the opportune acquisition of the majority of the One.Tel network assets. As of today, we have already acquired approximately 90% of the 1300 network sites required for launch. We have commenced construction on over 75% of sites and are firmly on track to complete construction in the last quarter of this year. At launch our deployment plans will deliver 3G services to approximately 70% of the population in our licence areas through Sydney, Melbourne and Brisbane and provide comprehensive national 2G and 2.5G roaming. We will also launch with comprehensive international 2G GSM roaming services, an interesting shortfall of any competing 1X offering. Beyond deployment, our 3G technical build is well progressed. The delivery timelines from both Ericsson and Motorola are tracking as planned. In May we installed our trial network and we are well progressed in testing of prototype 3G handsets. We are working with Ericsson on a global level through our sister companies in Sweden and Italy to fast track testing and ensure that software stability is quickly established. Packet-switched testing is underway and data capability, including downloading of files, multimedia messaging and game playing has been established on our trial network in Sydney. Over and above the construction of our network capability, Hutchison 3G Australia is well progressed on the implementation of 45 discreet application enablers and platforms. These platforms include digital rights management system, content management system, LEA, alert and search engines, multimedia messaging, and service delivery platform, to name a few. By way of contrast, our 2G CDMA business only required six application platforms. On operating and support systems, we are implementing new capabilities across all areas, designed to support wireless data services. High speed mobile data services require more sophisticated supporting systems. The platforms we are implementing, in billing, for instance, will allow maximum charging flexibility based on live feeds from both the network and our new CRM platform. Our Network Management systems will allow us to follow the traffic patterns at both customer and network level to provide information to the desktop of our CSRs as well as producing automatic trouble tickets on areas needing attention. Progress in implementing these platforms has been steady and we have already passed successfully our initial testing milestones. Finally, on handsets, we have placed orders in accordance with our launch timing. The 3G handsets will include dual mode capability, still and video cameras, global positioning capability, video streaming, PDA and MPEG3 functionality. We have established strong relationships through the Hutchison Group with our handset vendors and expect the handsets to be available in commercial quantities at launch. On funding as we have previously announced, our 30 business rollout is anticipated to require up to A$3 billion of cash funding. Last month we closed off a significant milestone towards securing this funding with the issue by Hutchison Telecoms Australia of A$600 million of convertible notes. Along with the equity commitment of A$400 million from our partner, Telecom New Zealand, these funds will be applied to the 3G project providing a A$1 billion cash equity base in our joint venture vehicle. Of the remaining requirement of up to A$2 billion we will look at funding options from the debt markets, probably in 2003. Now, if I may summarise today's update: * over the past 12 months we have implemented significant operational improvements inside our 2G business * these improvements have established a path for our 2G business to deliver on its target to be positive EBITDA in the final quarter of this year, and * finally, our 3G plans continue firmly on track for launch in the first quarter of 2003. Thank you.