WE MAKE YOUR 2017 DIGITAL WORLD COME ALIVE ANNUAL RESULTS
FOR THE YEAR ENDED DECEMBER 31, 2017
February 7, 2018 – Hong Kong Forward Looking Statements
This presentation may contain “forward-looking statements” that are not historical in nature. These forward-looking statements, which include, without limitation, statements regarding PCCW's future results of operations, financial condition or business prospects, are based on the current beliefs, assumptions, expectations, estimates, and projections of the directors and management of PCCW about the business, the industry and the markets in which PCCW operates. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond PCCW's control and are difficult to predict. Actual results could differ materially from those expressed, implied or forecasted in these forward-looking statements for a variety of factors
2 Overview BG Srinivas Group Managing Director
3 Building on Core Strengths to Innovate and Expand Geographically
19 mn 770 50 40
monthly active active enterprise customers in employee countries with users1 Forbes Global 2000 nationalities operations2
#1 #1 #1 #1
Hong Kong Fixed Voice, Hong Kong Pay TV Hong Kong IT Services Leading Pan-Regional OTT Broadband & Mobile Video Streaming Service Note 1. Include MAU from Viu , Now TV and ViuTV apps and online services 4 2. Based on employees’ physical presence Leveraging Capabilities Across the Group to Better Serve our Customers
Real time analytics for a comprehensive view of customers for personalized offerings
Leading Asia Digital and business entertainment transformation services service for enterprises
Building the next generation customer management system High quality, seamless to transform customer viewing experience across engagement and experience big and small screens, on demand and on-the-go
Integrated communications solutions and comprehensive network infrastructure
5 Financial Review Susanna Hui Group Chief Financial Officer
6 Financial Highlights
Core Business* Consolidated
(US$ million) 2016 2017 % change 2016 2017 % change
Media 468 468 -
Solutions 490 513 5%
HKT 4,339 4,264 -2%
Revenue 4,899 4,729 -3% 4,921 4,750 -3%
EBITDA 1,603 1,652 3% 1,567 1,617 3%
Profit 306 328 7% 263 288 10% Attributable to Equity Holders
* Core business includes HKT, Media and Solutions Businesses 7 TSS Strengthened, Mobile Held Position Adjusted Funds Flow up 5% to US$630 million PCCW to receive a total distribution of approx. US$327 million from HKT for FY17
HKT Revenue (US$ million) HKT EBITDA (US$ million)
4,452 FY16: 3,900 HKT Revenue 1,626 1,666 +2% yoy 4,339 4,264 FY17: 3,961 excl. Handset 1,551 +2% yoy Sales 654 439 303 738 Mobile Mobile Services 707 +4% yoy 1,236 1,238 645 Mobile Handset Sales 1,182 Steady Mobile Services Local Data & Local Data & Broadband 898 928 965 Broadband International +4% yoy TSS Local Telephony +2% yoy 950 947 946 TSS 962 983 1,002 TSS Others Revenue Mobile Others 446 444 435 +2% yoy TSS Eliminations 383 426 454 26 30 32 Others (87) (111) (109) (56) (64) (74) 2015 2016 2017 2015 340 2016 2017 HKT TSS revenue grew by 2% driven by continued demand 35% 37% 39% EBITDA Margin from both consumers for FTTH services and from enterprise customers for integrated solutions EBITDA grew by 2% and margin improved to 39% due to Mobile services revenue was steady despite severe CSL synergies and operating efficiency improvements in industry competition both the TSS and Mobile segments 8 Stabilized Market Position
Now TV Revenue (US$ million) Now TV EBITDA (US$ million) 377 372 352 62 38 39 53 36 50 EBITDA Margin
30 2H 17% 339 333 316
Others 20 1H 11% Subscription
2015 2016 2017 2015 2016 2017
Full Year 17% 14% 14% EBITDA Margin With strong content offering and high quality viewing experience, Now TV successfully stabilized its installed base Margin improvement from 1H17 to 2H17 as at 1,301,000 with exit ARPU of HK$179 successful efforts were made to rationalize Revenue was also impacted by the shift in advertising content costs amidst more benign market spending to other platforms, including OTT as well as our environment own free TV service EBITDA declined but margin stabilized at 14% 9 Building Upon a Good Start
ViuTV Revenue (US$ million) ViuTV EBITDA (US$ million)
24 + 16% yoy
21
(5) (24) (31) N/A 340 2015 2016 2017 2015 2016 2017
Continued enrichment of content attracted EBITDA loss mainly driven by continued local viewership and overseas distribution investments in content as well as the launch Launch of English channel ViuTVsix in of ViuTVsix March 2017
10 Driving User Growth and Engagement
OTT Revenue (US$ million) OTT EBITDA (US$ million)
92 + 23% yoy 75 23 + 22% yoy 55 19
18 (7) 69 + 23% yoy (30) (33) 56 Advertising 37 Subscription 2015 2016 2017 2015 2016 2017
Expanded presence to 27 markets across Asia, Continued to invest in content, user acquisitions and 40 Middle East and Africa new market launches
Monthly active user base grew to 16.3 million from EBITDA loss contained at US$33 million 4.8 million 12 months ago Received investment of US$110 million from a group 75:25 subscription and advertising revenue mix of strategic and financial investors to support further development
11 Trusted Technology Partner
Solutions Revenue (US$ million) Solutions EBITDA (US$ million)
513 +5% yoy 461 490 109 +11% yoy 98 303 88 245 272 +11% yoy 57 70 49 +23% yoy
216 218 210 Recurring 39 41 39 Project based 2015 2016 2017 2015 2016 2017
EBITDA Successfully delivered business transformation 19% 20% 21% Margin services for enterprise customers and large scale, mission critical projects in the public sector EBITDA grew by 11% with margin improving to 21% Increased revenue from High-Tech & Media and reflecting the contribution from higher margin services to Digital, Cloud Solutions & Infrastructure sector Digital, Cloud Solutions & Infrastructure sector
Secured orders increased by 12% to US$943 million 12 Delivering Operating Cost Efficiencies
Core Operating Expenses (US$ million)
1,039 1,028 Improved core opex to revenue ratio to 30 18 921 -10% yoy 131 175 22 19% in 2017 from 21% in 2016 192 Continued cost efficiencies in both the Solutions 379 329 TSS and Mobile segments at HKT in areas Media 297 Mobile such as cell site rental, third-party TSS backhaul, call center integration, and Others 495 promotional expenditure 500 443 Increased investments at OTT and Free TV
(1) 11 (33) businesses to support growth 2015 2016 2017
Core Opex to Revenue Ratio: 21% 21% 19%
13 Financial Performance (US$ million) FY15 FY16 FY17 YoY
Revenue 5,040 4,921 4,750 -3% Cost of Sales (2,431) (2,275) (2,161) Operating Expenses (1,086) (1,079) (972) EBITDA 1,523 1,567 1,617 +3% Depreciation (275) (227) (211) Amortization (503) (631) (652) Loss on disposal on property, plant and equipment – – (1) Net Other Gains 17 4 154 Net Finance Costs (198) (177) (179) Share of Associates and JVs 5 6 7 Profit Before Income Tax 569 542 735 +36% Income Tax (57) (51) (145) Effective Tax Rate 10% 9% 20%
Profit for the Year 512 491 590 +20% Non-controlling Interests (218) (228) (302) Profit Attributable to Equity Holders of the Company 294 263 288 +10%
Earnings Per Share (HK cents) 30.58 26.79 29.15 14 Capex Efficiencies Being Realized Further Investments to Support Growth
Core Capex (US$ million)
447 Core capex to revenue ratio stable at 8.5% in 30 412 400 - 3% yoy 2017, within 10% guidance 15 28 18 30 12 Lower Mobile capex at HKT following 25 29 30 completion of the CSL integration. Higher
178 TSS Capex to support greater demand for 174 fiber broadband and IoT related services, 210 customized network solutions for enterprises
Others and continued submarine cable investments Solutions 194 Media capex for upgrading production studio Media 173 TSS 113 facilities Mobile Solutions capex to expand data center 2015 2016 2017 capacity to fulfill demand Core Business Capex to Revenue Ratio: 8.9% 8.4% 8.5%
15 Ample Liquidity to Support Future Growth
As of As of Dec 2016 Dec 2017 Gross Cash Undrawn Gross Cash Undrawn Debt (1) Balance (5) Facilities Debt (1) Balance (5) Facilities US$ million PCCW 918 129 770 480 763 1,249 HKT 4,974 427 774 5,043 470 731 PCPD 60 112 140 577 468 6 Total 5,952 668 1,684 6,100 1,701 1,986
Gross Debt / EBITDA (3) 3.80 x 3.77 x
Net Debt (2) / EBITDA (4) 3.37 x 2.72 x
(1) Gross debt refers to the principal amount of short-term and long-term borrowings (2) Net debt refers to the principal amount of short-term and long-term borrowings minus cash balance (3) Based on gross debt as at period end divided by EBITDA for the 12-month period (4) Based on net debt as at period end divided by EBITDA for the 12-month period (5) Includes short-term deposits 16 Debt Maturity Profile As of December 31, 2017
300
PCCW Bonds
PCPD Bank Loans 570 PCPD Bonds 1,204 HKT Bank Loans 824 HKT Bonds 750 100 462 500 500 300 (US$ million) 290 213 7 2018 2019 2020 2021 2022 2023 2025 2026 2027 2028 2030
Current mix of floating and fixed rated debt is approximately 50:50 Effective interest rate was approximately 3.0% in 2017 Average maturity of debt was approximately 5 years
17 Delivering Sustainable Returns to Shareholders
29.75 +5% yoy 28.33 25.00 Yield: 6.79% 19.06 20.20 20.20 21.18 15.90 20.17 Final 17.04 Dividend 13.85 13.21 13.55 Final Dividend Interim 10.60 Dividend 21.18 HK cents 7.96 8.16 8.57 (HK cents) 5.30 5.51 6.35 6.99
2011 2012 2013 2014 2015 2016 2017
Full-year Dividend YoY Growth 4% 20% 6% -- 24% 13% 5% Dividend Yield * 5.37% 5.12% 5.61% 3.81% 4.95% 6.19% 6.79% HKT Distribution Pass-through NA 82% 80% 71% 74% 74% 90%
* Based on PCCW closing price on the annual results announcement date for each respective year 18 Media Business
19 PCCW Media - Asia’s Leading Entertainment Service
EXPANDING MARKETS 27 OTT UP Africa Asia Middle East Monthly Active 20% 23% Users across all Of Media Group 2017 YOY 19M media services Revenue BUILDING USER BASE GROWING REVENUES
Pan Regional Video Streaming Service Facebook 100M Reach Chinese, Indian & Indonesian per month # 1 INCREASING PRODUCTION HK’s Pay TV Leader Cutting Edge Free TV CONNECTING WITH CONSUMERS
+ + self-produced 25000 DELIVERING COMPELLING CONTENT 2000 Hours/Year Hours On Demand Drama & Factual Entertainment Leading Asian & Hollywood Content 20 Pay TV Business
21 Now TV Maintained Market Leadership • Maintained resilience as competitive landscape normalized • EBITDA improved in 2H 2017 from restructured content cost
HK$
Installed Base In Thousands
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
22 On-Demand Viewing
• Increased Video-On-Demand offering On-Demand Transaction of • Revamped Now Player App to reinforce Content Pay Per View multi-screen experience Consumption • Enhanced value of set top box offering +23% +14%
with new user-interface supported with
hard disk recording (average monthly viewed hrs ‘17 vs ‘16) (total no. of transaction ‘17 vs ‘16)
Now Apps No. of Users using New UI 6.7M ~300K
(as of end Dec 17) (as of end Dec 17)
23 Comprehensive & Compelling Western and Asian Entertainment
• US Content – 42 of the Top 50 US TV Series / Programs* available on Now TV and Now Player App, with on-demand for catch-up viewing (*based on 2016/2017 US TV Season)
Emmy Awards U.S. Top Rated Series Golden Globe and Emmy Winning Series Awards Winning Series
• Compelling Asian Drama – enriched Now Drama channel (ch102) providing 24x7 Cantonese-dubbed popular dramas from Asia. Complemented by on-demand express titles in original language
2017 SBS Drama Awards Top Rated Korean Top Rated Chinese Grand Prize Drama Series Drama Series
• Express Hollywood and Asian blockbusters - widest selection including around 80% of Top 50 box office Hollywood movies in 2017* from major movie studios (*based on worldwide box office record and made available on Now TV up to 6 Feb 2018)
Top Musical in 2017 Top Animated Film in 2017 Top DC Movie in 2017 24 Ultimate Choice for Soccer Fans Exclusive Broadcast of 2018 FIFA World Cup Russia™ on Now TV and ViuTV
• Prime time kick-off starting from 8PM • Maximizing opportunities via both Subscription and Advertising revenues • Live coverage of 64 matches across Now TV and Viu TV
In-Depth Commentary and Analysis for Provide Entertainment Appeal to the Avid Soccer Fans Wider Audience
Superb viewing experience supported by Providing HK viewers free access to a world- enhanced technologies: class event: • Super HD – advanced streaming picture quality • Enjoy a range of World Cup programs from official highlights to travelogues • Timeshift – control live match • Engage audiences in new variety program, “Good • Recording / On-demand – never miss a match Night Show (World Cup edition)” with celebrities • 360 engagement activities for soccer fans • Experience soccer festivities through events and contests
25 Free TV Business
26 Strengthened Production Capabilities Produced over 2,000 hours of Programs • Increased local drama production volume from two to thirteen titles in 2017
Margaret & David My Very Short - Ex Marriage
1st international simulcast of self- Starring popular singer Eason Chan in his 1st major role in 1 produced local drama series TV drama series
Top 3 best TV drama of 2017 on Yazhou Zhoukan (亞洲 6 partners, including Tencent, Viu, 週刊)2 among drama titles from Mainland China, HyppTV, Dish Network, SlingTV and Taiwan and Hong Kong iTalkBB 7 international markets, including China, Indonesia, Malaysia, Philippines, Singapore, Thailand and US
1 Source: Apple Daily on 03 Oct 2017 (https://hk.entertainment.appledaily.com/entertainment/daily/article/20171003/20170789) 27 2 Source: Yazhou Zhoukan on 30 Dec 2017 (http://www.yzzk.com/cfm/content_archive.cfm?id=1513759173718&docissue=2017-52/) Building More Quality and Creative Entertainment Programs
Factual Entertainment Night Talk • Pioneered factual entertainment programs, and successfully • Increased talk show production from six to fourteen titles in strengthened branding through creative family-driven 2017 programs • Diverse talk show program topics to suit all audiences; ranging from health, supernatural, books to travel • Long running talk show programs are well established and have built a stable, loyal base of viewers
28 OTT Business
29 Growth in Viewership and Engagement Users on average consume Over 16 Million Accumulated VV mins 1,801 Accumulated VV 25.0 Monthly Active Users 17.6+ videos/wk 1,800 1,600 18 20.0 16.3 1,400 16 1,200 14 12.5 15.0 1,000 12 885 800 10 10.0 8 600 386 6 400 4.8 5.0 4 200 2.9 118 2 - 0.0 2016 H1 2016 H2 2017 H1 2017 H2 0 2016 H1 2016 H2 2017 H1 2017 H2 1.8 Bn+ Video views 4.6x year on year growth Content consumption (2017 vs 2016) 29.7M+ Downloads 1.2 to 1.8 hours per day per user * * Across viewers in Hong Kong, Singapore, Malaysia, Indonesia, 23Bn+ Video mins Philippines, Thailand Note: figures cover Viu service only. 30 Expanding Content Portfolio
VIU ORIGINAL - Original productions in multiple languages to address pan regional audiences - Genres spanning dramas, talk shows, reality shows Original - Partnering with top local artistes and writers
LOCALLY RELEVANT CONTENT - Added Mainland Chinese dramas and variety shows
Local Content LocalIncreasingly - Capturing increasing scale of high quality productions from mainland
EXPANDED PREMIUM ASIAN CONTENT - Content from tvN movies & now Baogu movies are also introduced to provide Korean and Chinese movies Premium Asian Movies - Behind the pay wall to increase subscription revenue
THE DESTINATION FOR K-CONTENT - Access to more than 90% of the output of Korean drama series and variety shows The Best and Most Current - Localized subtitles as fast as 4 hours after telecast in Korea
Korean & Japanese Drama and Regional Pan Content - Supplemented by popular Japanese drama series Variety shows
and more 31 Viu Original
24 titles & 293 episodes released in 2017 Original Highest among regional OTT players
Originals in Diversified Genre Indian Drama, thriller, comedy, love & romance, talk show Chinese Publicist – Indonesian Pilla – Indian Indonesian
Internationally distributed Collaborate with for Award Winning Long term monetization Directors & Artistes e.g. Monty Tiwa, Baim Wong (Indonesia) Margaret & David - Ex – Viu – Chinese 32 IT Solutions Business
33 Revenue by Industry & Services
2017 Revenue by Industry 2017 Revenue by Services
Others Business Process BFSI Enterprise Telecom Outsourcing Retail & Applications Manufacturing 5% 4% 4% 6% Technical Travel & 24% 21% Services Transportation 37% 12%
High-Tech 10% & Media 18% 33%
26% Application Digital, Cloud Development & Solutions & Public Sector Maintenance Infrastructure
Secured orders of US$943 million as of December 31, 2017 (+12% yoy)
34 Industry Specific Solutions Solutions Value
Rail operator in Singapore . Implementation and maintenance of Track Access Management . Optimize the work requests for access to the railway track, System to automate legacy manual processes allowing better management of project and maintenance works Travel and transportation Rail operator in Thailand . Provision of Passenger Information Display System . Potential increase in advertising revenue with commercial display side by side with train information
Hong Kong Immigration Department . Design, supply, delivery, installation, commissioning, . Cater for the projected workload for at least ten years; and implementation, system support and maintenance and provision . Provide a more convenient and speedier service to the of other related services of the Core System and system public in travel document application Public infrastructure of the Next Generation Electronic Passport System (e-Passport-2)
A mainland Chinese food and beverages company . Provision of digital control and display system for up to 4,000 . Enable centrally controlled real time distribution of Retail and stores across mainland China with help desk and other managed information to the stores manufacturing services
35 Industry Specific Solutions Solutions Value
One of the leading e-commerce platforms in mainland China . Provide data center hosting and connectivity services to . Facilitate customer’s overseas expansion with reliable support customer’s business operations outside of and stable hosting and connectivity services mainland China High tech and . Shorten customer’s time to market outside of mainland media China by up to 20%
Venetian Group . In-room customer experience improvement project for . Enhance in-room customer experience to support the the Venetian Group hotel’s initiative in expanding its customer base beyond casino goers to families and leisure travelers
Hospitality
A Hong Kong based general insurance provider . Design, build and implement a resilient infrastructure . Support business growth with a flexible, scalable and for customer’s mission critical software applications reliable infrastructure supporting channel management, quotation, electronic . Optimize IT investments for customer application and back office administration BFSI
36 Key Growth Initiatives
Digital transformation Market development Enhancing capabilities and diversification . Provide comprehensive digital solution . Building scalable business model and . Continue to build intellectual property and offerings for enterprises leveraging artificial replicate the success to markets in South commercialize the latest technological intelligence, data analytics and IoT East Asia developments including the award- technologies winning big data analytics solution . Develop new breed of solutions such as the . Modernize the critical IT systems for the . Provide next generation infrastructure next generation insurance platform and CRM public sector and integrate cutting-edge outsourcing and strengthening the best- platform to capture new market opportunities digital technologies to improve efficiency in-class infrastructure services for public and customer experience cloud deployments
37 Five Pillars of Infinitum
Artificial Advanced intelligence analytics
38 Data Center Services Hosting services . Highly utilized data center facilities . Increased demand from Chinese and global cloud providers for both new contracts and renewals
Design and build services . Extended data center design and build consultancy services to new markets including support to a leading bank in the Philippines
D-Infinitum global data center alliance . Expanding footprint with positive market response and solid outbound and inbound opportunities . Coverage over 130 locations in more than 80 cities globally
39 Territory Expansion
Secured long-term managed services deals in Singapore and Thailand in the transportation industry
Won digital transformation project in Taiwan and data center consultancy project in the Philippines
Opened new office in Singapore as the regional hub for Southeast Asia, supported by a delivery center in the Philippines with over 330 staff for service fulfillment of clients in the nearby regions
Continue to strengthen our team in Singapore, Taiwan and the Philippines for business development, client/partner engagement and service delivery
PCCW Solutions offices 40 Our People
. Launched a regional innovation excellence program to unlock creativity, foster entrepreneurship and bring innovative solutions to the market . Generated more than 40 innovative ideas from over 60 staff across Hong Kong, China and the Philippines Talent development . Introduced two 18-month career development programs: Young Talents Development and Future Leaders Development to train and develop high- potential staff for future mission-critical roles to support business expansion . To launch the self-learning platform ‘PCCW Solutions Academy’ for employees to develop the soft skills and acquire the latest technical knowledge Underpin industry sustainability . Supported the “IT – You Study, We Hire!” campaign organized by Office of the Government Chief Information Officer (OGCIO) in Hong Kong . Facilitate ICT manpower development by encouraging and attracting young talents to choose IT professional as their career of choice
41 Market Recognition Market leadership HONG KONG
Application Systems Data Center #1 IT Services #1 Development Integration Hosting Services
Industry awards HONG KONG CHINA INTERNATIONAL
Computerworld Awards Global Telecoms Awards 2017 . IT Outsourcing & Managed Services Provider China Software & Information Service Industry Network . Software-as-a-Service Provider . No. 1 IT Outsourcing Service Enterprise . Connected Cars - Highly Commended award for . BI and Analytics Smart Parking and Charging
Business Partner Advisory Organization . 2017 China Top 10 Cloud Services Provider PCM Biz. IT Excellence . 2017 China Top 10 IT Consulting Services Provider Forrester and CMO Innovation . IT Solution Excellence (Intelligent Video Analytics) . 2017 China Top 10 Telecom Industry Solutions Provider . B2B Winner of Digital Marketing Award in Asia 42 Ranking Source: Gartner Market Share: IT Services, 2016 IDC Asia/Pacific Semiannual Services Tracker, 2014H1 – 2017H1
Summary
HKT delivered solid performance demonstrating its resilience and proven ability to fend off competitors engaging in aggressive price tactics
PCCW Media has emerged as a leading entertainment service available across multiple platforms in Hong Kong and overseas markets
PCCW Solutions is a trusted outsourcing and digital transformation partner in Hong Kong, mainland China and the Asian markets
Emerging as the leading provider of digital services in Asia for consumers and enterprises
43