China Mobile Ltd ADR CHL
Q4 2012 Earnings Call Transcript
Transcript Call Date 03/14/2013

Operator: Good afternoon ladies and gentlemen. Welcome to China Mobile Limited's 2012 Annual Results Announcement Briefing. In today's briefing, our Company management will first present the overall results and then take questions from the audience.

First of all, let me introduce the senior management attending today's briefing. Mr. Xi Guohua, Executive Director and Chairman; Mr. Li Yue, Executive Director and CEO; Mr. Xue Taohai, Executive Director, Vice President and CFO; Mr. Sha Yuejia, Executive Director and Vice President; Mr. Liu Aili, Executive Director, Vice President.

Now, I would like to hand the word to Chairman Xi to present the overall results for 2012.

Xi Guohua - Chairman: Good afternoon, ladies and gentlemen. Welcome to our 2012 ending results announcement briefing. Today's presentation is divided into three parts. I will present the overall result for 2012. Then Mr. Li will talk about the operating performance. Finally, Mr. Xue will walk you through the financial results.

Let me walk you through the Company's overall performance for 2012. In 2012, the Company overcame various difficulties and fared serious challenges. We actively transformed strategies and promote innovation to continuously enhance our strategy implementation capabilities, leveraging our scale advantage and leading quality and services, our operating performance achieved stable growth.

Operating revenue up 6.1%; net profit margin at 23.1%; total customer base exceed 700 million; total voice usage up 7.8%. Data business developed fast, but revenue up to 29.7% of total.

Wireless data traffic business has been a strong impetus. Revenue grew by 53.6%. 3G customers nearly 88 million. TD-LTE achieved accelerated development and satisfactory results in scale trial. We strive to creating value for shareholders.

Our full year dividend for 2012 is HK$3.411 per share. Dividend payout ratio for 2013 is planned at 43%.

Here are the key operating data for 2012, showing stable growth. Rise in penetration resulted intensifying competition amongst operations, particularly for existing business.

The ICT sector is transforming with increasing Internet business substitution, which brings serious (task) and challenges to the Company. We also see that new industrialization, informatization, urbanization, and agricultural modernization in China will widen the prospects of information services. The proliferation of smartphones will promote rapid growth of data traffic and application, which will further Company's revenue equation. Meanwhile, the world is recalibrating to next-generation mobile communications, which brings space and opportunities for the Company's development.

To capture opportunities and to fare challenges, the Company established a strategy encompassing four-network coordination, full-service and mobile Internet which drive to transfer our strategies, change or innovate to continuously enhance capabilities in networks, marketing management and teaming. The Company is fully confident about its future.

In 2012, our 3G business enjoyed satisfactory development with nearly 88 million customers. We continued to optimize customer structure. The proportion of handsets customers, smartphones, in particular, have been growing. The Company continued to promote construction and usage of the 3G network. Base stations reached 280,000 (rich) provider coverage in county-level and above cities, and some villages and towns and contiguous coverage in large and medium-sized cities. Network utilization increased by 10.8 percentage points from last year to reach 24.6%.

Competitiveness of device enhanced significantly. The device supply chain continued to thrive with growing diversity of models, spanning high, mid, and low-end. Mainstream models were launched with equitable debut of schedule, quality and price as the competing standards.

Mid-to-low end products began to acquire price advantage. In 2012, more than 56 million TDs handsets were sold across all channels, of which smartphones took up over 60%.

In 2012, the Company kickoff TD-LTE extended scale trial in 15 cities and constructed approximately 20,000 base stations, among which the networks in Hangzhou, Guangzhou and Shenzhen achieved pre-commercial standard.

We will construct more than 200,000 base stations this year and to launch commercial-ready networks. Meanwhile, the TD-LTE supply chain developed rapidly with more mature network equipment.

Regarding the voice, multi-mode, multi-frequency, pre-commercial chipsets were launched and mass production of 28nm chipsets were commenced this year.

I think quite a lot of you all have been to (indiscernible). There is a lot of (indiscernible). TD-LTEs starts to be more mature. It's really a good news. Multi-mode, multi-frequency device such as dongles, MiFi, CPE and handsets, were launched.

Device diversity to be further enrich this year. As at the end of last year, 14 commercial networks and 63 trial networks were launched worldwide. Scale commercialization of TD-LTE is underway across the globe.

Aiming for quality and differentiation, the Company prioritized return to fare full service competition. We adopted a long-term incentive approach to planning. The Company optimally enhanced capability and coverage of metropolitan area network resource ahead of demand. We actively drove the construction of public Internet, expedited IDC development, introduced hotspot resources and uplift on-net traffic. Overall carriage costs were reduced. We developed broadband access targeting corporate customers and aiming for return. In 2012, various infrastructure resources capabilities were significantly enhanced.

The Company has been investing for long-term development. We adopted a forward-looking approach to CapEx planning and focused on return. CapEx for 2012 amounted to RMB127.4 billion, mainly expand on mobile communication networks, transmission, and business development, support systems, buildings and infrastructure.

CapEx for 2013 is planned at RMB190.2 billion. We will consider holistically and endeavor to achieve a balanced development in network capabilities, safeguard quality of the GSM network, continue to build premium TD networks, actively divert traffic with WLAN and extensively build out TD-LTE networks.

Meanwhile, the Company will steadily promote basic resource construction to enhance overall transmission network capability, further step up our efforts in developing mobile Internet, Internet of Things, foster a new growth drivers and continue to promote centralization considering the difference in terms of network, device, chipset, application and operations internationally.

TD-LTE significantly improvement over TD-SCDMA when at launch.

After careful consideration, it was decided for the (last) company to assure investments in TD-LTE moving forward. The Company will not consider buying back the TD-SCDMA assets from its parent company in the near future.

Looking to the future, we will continue to transform and innovate. We have set out to bolster sustainable and healthy development and to create value for our shareholders.

Next I would now like to invite Mr. Li to talk about the Company's operating performance.

Li Yue - CEO: Thank you, Chairman Xi. I am delighted to present the Company's operating performance for 2012. 2012 saw some real challenges in the Company's development due to intense competition particularly in 3G.

Customer and revenue market share and growth of the Company declined by different extent. Also impacted by Internet business substitution, voice services, SMS and MMS businesses were pressured. The Company overcame various difficulties and challenges and achieved positive results by continuously enhancing quality, improving service in the waiting, developing new markets and enhancing management.

We believe quality is the lifeline of a communications company. We are focused on improving quality of networks, businesses and support service. In 2012, both 2G and 3G call drop rates were under 1%. Successful call connection rate was outstanding. Voice quality maintained a leading position.

We are here to tell the mantra of customers are our priority; quality services are our principle. We are focused on improving basic services and protecting consumer rights. Customer satisfaction reached 77.62% keeping us ahead of rivals. Escalated complaints per median customers was lowest in the industry.

The Company actively promoted innovation in networks and businesses and enhanced its management striving for sustainable and healthy development. In 2012, the Company maintained its advantage in customer scale, which totaled over 700 million leveraging the continued enhancement in quality and service.

Medium and high-end customer base remained stable. Meanwhile, corporate customer base continued to expand. Customers' accelerated migration to 3G intensified market competition. The Company's market share, net additions in particular, slipped, yet, overall performance maintained a leading position.

The Company step-up operations of existing customers by consolidating key markets measures including tariff, businesses, services and devices to secure retention and further enhancement. Customer stability was driven as a result.

Meanwhile, we stride to develop the corporate customer business and services and enhancing its overall markets competitiveness and scale. In 2012, voice service revenue amounted to RMB368 billion. Total voice usage was approximately 4.2 trillion minutes. Due to a substitution by Internet business growth of voice business has a bottleneck. We have increased volume to revenue pressure.

The Company continued to reinforce management of existing voice usage, leveraging advantages in quality and service which drive to stabilize the voice business. We also exploited the demand for long-distance calls, roaming off-peak calling and in-group calling to further stimulate voice usage.

Facing adverse of challenges in development, the Company has tried to just (form) from a voice business to operate voice plus data traffic, plus applications.

In 2012, data business continued to develop fast. Revenue was up 19.4% to reach RMB166.3 billion amounting to 29.7% of total revenue.

Wireless strengthening data traffic management. The Company also developed applications and information services and launched a serious of new featured products.

We made a strategic investment in USTC iFlytek and launched the intelligent voice portal Lingxi in addition, to leveraging our advantages in mobile networks.

We launch location-based services with promising prospects. Due to competition and cannibalization by Internet business, SMS and MMS revenues dipped 4.8%. The Company actively developed a corporate SMS and MMS to detail the revenue line.

As smartphones proliferate, the Company's wireless data traffic business (hiked). Revenue was up 53.6% to reach RMB68.2 billion, representing 12.2% of total revenue and has become the key impetus for revenue growth.

Wireless data traffic up 187.6%. The Company has tried to promote data traffic management. We optimized the business process system for managing data traffic to enhance quality, scale and value. With quality controlled end-to-end and focused on handsets access to enhance the scale of data traffic, striving to boost successful rate of connection and access authentication, we (scientifically) decide tariff to propel customer usage striving for a balanced and healthy development of business volume and revenue.

We're developing new businesses. The Company emphasized open cooperation and development for competition. We continued to consolidate our advantages and capabilities endeavored to build a new series of featured products. The Company actively promotes Internet of Things by building of quality and centralized dedicated network, which enable us to provide low-cost standardized Internet products and services.

We also strived to innovate our marketing models tailored for Internet of Things. In 2012 Internet of Things users reached 22.45 million. As a key development (indiscernible) Mobile Internet and Internet of Things, the Company continued to promote the (indiscernible) development of Wireless City of which customers reached 70 million. The Company continued to promote Four-Network Coordination encompassing GSM, TD-SCDMA, WLAN, and TD-LTE. The Company controlled a GSM investment at a reasonable level. We endeavored accurate investment unleashed potential and to assure leadership in GSM network quality.

We continued to be our premium 3G network and saw some cancelled uplift in network utilization rates, really (indiscernible) to WLAN management to enhance its capability to carry data. Substantial offload data traffic, WLAN took up nearly half of handsets data traffic.

Developing TD-LTE is an important strategy of the Company. TD-LTE attained ample supports from the governments and industry. The Company has been undertaking extended scale trial in 15 cities. 2013 will see construction of more than 200,000 TD-LTE base stations and commercial-ready networks (are going well).

The Company reinforced centralization of management, Professional Operations, market-oriented mechanism, lean organization of structure and standardized of processes. Professional Operations is an important imperative of the Company's future development. The Company step-up it's efforts and gradually established a Professional Operations System.

China Mobile Group Device Company Limited and China Mobile International Limited achieved favorable development. Regarding the Device Company product competitiveness continued to enhance. Mainstream models were launched at equitable schedule, quality and price. The number of device models on line were comparable to that of other competing standards.

Device sales exposed rapid demand. The Professional Operation of Device boosted data traffic, helped retain existing customers, developed new business, and reduced overall cost.

China Mobile International Limited rapidly established networks and platforms with late-mover advantages International bandwidth expanded by almost four-fold in two years, by providing highly competitive products and services.

Cost was (next), tariff cost furthered and customer perceptions surged. The Company will continue its efforts of professional operations in other areas.

The Company proactively fulfilled its corporate social responsibility by promoting mature energy conservation and emissions reduction technologies and innovating on energy-saving applications. We as such influenced with remarkable results in driving the supply chain to conserve energy and to reduce emissions. For various energy saving measures such as smart energy-saving carrier frequency function, natural resources cooling, new energy base stations and green packaging. We reduced power consumption per unit of telecommunications traffic by 14.6% and saved 46,400 meter cube of timber.

Looking to the future, we believe the Company is (posed) with challenges and opportunities. With the life of the Mobile Internet era, information services are being embedded in the everyday life of individuals and across various industries. Mobile Changes Life is becoming a reality. From (the narrow) perspective, TD-LTE is entering a new stage of commercial deployment and scaled development. Regarding the voice smartphone proliferation is accelerating and has become the most prominent Internet access device, (indiscernible).

China Mobile will recapitalize on opportunities, fare challenges and focus on quality and service. We endeavor to promote management of existing business, data traffic, and corporate customers. We will focus our new business development and strive to enhance management and corporate competitiveness. We will move fast (in our) corporate structures and promote entrepreneurship and innovation to achieve sustainable and healthy development of the Company.

Next Mr. Xue will give a review of the Company's financial performance. Thank you.

Xue Taohai - VP and CFO: Thank you, Mr. Li. Now, I will go through the 2012 financial results. In 2012, faced with various challenges arising from the further increase in mobile penetration rates, the unprecedented intensified competition in the telecom market, the structural change of the industry (indiscernible) and a more apparent heterogeneous substitution effect from Internet business, the Company proactively respond to various challenges (indiscernible) to the strategic transformation, continuously enhanced the network quality and services, (adhere) to rational competition and refined management and realized a stable growth in both business and operating results whilst exploring the potentials of new customers. The Company strengthened their relationship with existing customers and actively retained high value customers.

Our customer scale continued to go up through effective marketing strategies to drive the growth potential for voice usage. The impact brought to the traditional voice business by new Internet business was alleviated. The Company enhanced its (leading innovation) in business applications and improved operational quality of wireless data traffic business and (as the) wireless data traffic business continue to grow rapidly.

In 2012, operating revenue achieved steady growth to RMB560.4 billion with revenue continue to grow steadily. The Company (persisted) with the refined visionary and rational cost control principles continuously optimized the results application, promote management innovations, enhanced the Company's overall operational efficiency and profitability was good.

In 2012, our EBITDA margin reached 45.3%. Net profit margin reached 23.1%. Profit margin maintained international leading position in the telecom industry. Favorable sustained and long-term profitability demonstrates our confidence and capabilities in creating wealth and value for our shareholders.

We have adhered to our prudent financial principles and strict fund management system to further secure the safe custody of its cash, enhance the efficiency of fund usage and reduce the cost of capital. The Company is (indiscernible) to centralized fund management and the returns were greatly enhanced. The Company ensured the safety and integrity for highly centralized management of corporate, investment and financing and strict control of its investments.

In 2012, the Company's net cash generated from operating activities and free cash flow were RMB230.7 billion and RMB103.3 billion, respectively. Steady fund management and efficient cash flow not only supported the Company's strategic transformation and its sustainable healthy growth but also continuously created value and return for our shareholders.

Voice services revenue remained our major revenue contributor accounting for 65.7% of total revenue. Data services revenue grew rapidly and its contribution to revenue is getting more and more obvious. In 2012, data services revenue represented 29.7% of total revenue. Key business including wireless data traffic, mobile reading, mobile video, mobile gaming have achieved rapid growth. Revenue compensation of data service was further optimized, providing good supports for continuous revenue growth in the future.

In order to strengthen our leadership position into telecom industry and enhance our future competiveness. The Company continued to uphold its principles of forward-looking planning, effective results allocation, rational investment and refined management.

(With a) centralized management, professional operations, market-oriented mechanism, lean organization and standardized process as the objective, the Company continued to optimize costs structure. The implemented benchmark cost management strictly controlled and reduced the expenses not directly related reduction to enhance the ambitions and effectiveness of cost and achieved optimal returns. The percentage of operating expenses over operating revenue for 2012 was 73.1%.

As of the end of 2012, our total debt-to-book capitalization ratio was 4%, reflecting a strong and solid capital structure. Moody's and S&P maintained the Company's corporate credit rating at the same level as China's sovereign credit rating. This proved our strong financial strength, business potentials and prudent financial management discipline have further reserved the market recognition.

In conclusion, we have opportunities and challenges. The Company leverage its advantages of huge customer scale, excellent network quality, quality customer service and refined cost control measures to achieve stable growth in our financial performance. We believe our financial strength and solid capital structure provide us the flexibility to cope with intensified marketing competition, capture future development opportunities and maximize our shareholders return.

This is the end of our presentation analysis on our 2012 annual results. For more detailed data, please refer to the appendix. Now we would like to take your questions. Thank you.

Transcript Call Date 03/14/2013

Operator: The event is not accompanied by Q&A