Lisa Lai - IR Department: Ladies and gentlemen, good afternoon. I am Lisa with Investor Relations Department of China Telecom Corporation Limited. Here on behalf of the Company, I would like to welcome everyone to our 2012 Annual Results Announcement Presentation. This presentation will be conducted in Chinese with simultaneous interpretation. The Q&A session will be hosted by a moderator and also with consecutive interpretation. Please be reminded to switch your mobile phones.
First of all, I would like to introduce the Company's management present today; Mr. Wang Xiaochu, Chairman and CEO; Mr. Yang Jie, President and COO; Madam Wu Andi, Executive Vice President and CFO. Thank you for joining us today. I hope the presentation will be helpful to you.
Now, let's welcome our Chairman Wang to present the Company's performance in 2012.
Wang Xiaochu - Chairman and CEO: Good afternoon, ladies and gentlemen. I'm very pleased to meet you all and to introduce the Company performance in 2012. Today's presentation will be divided into three sections. First, I will talk about the Company's overall performance. This will be followed by the President Yang and Madam Wu, who will represent our business overview and our financial performance respectively.
In 2012, the Company achievements are highlighted as follows. First, we achieved a robust business growth which optimized the revenue structure and drove double-digit revenue growth surpassing industry average. Second, 3G traction fostered mobile scale development and industry-leading revenue growth with enhanced customer value. Third, we accelerated fibre deployment to boost broadband development and strengthen high bandwidth and high quality edges, which further enforced our core competence and competitive advantages. Last, the Company timely completed mobile network acquisition to enhance future profitability.
In 2012, the operation of the Company progressed as planned and continued to cause satisfactory revenue growth momentum. Our operating revenues were RMB283.1 billion, by 15.5% year-over-year. Excluding revenue from mobile terminal sales, operating revenue were RMB258.3 billion, an increase of 11.8%. EBITDA before pre-leasing fee was RMB96.4 billion while EBITDA margin was 37.3%.
Net profit was RMB14.9 billion, down by 9.5% year-over-year. The decline in net profit were mainly attributable to the Company’s appropriate increase in marketing initiatives for launching iPhone to break through the high-end market and enhance revenue growth despite short-term pressure on profitability and is expected to significantly enhance our long-term sustainable growth and value.
In 2012, the Company deepened strategies transformation and registered double-digit growth in operating revenues, exceeding the industry average. The Company sustained the good momentum and revenue structure was further optimized.
The proportion of revenue from the core businesses significantly increased and accounted for 85% of the operating revenues. Driving strong growth momentum to operating risk of the company was to effectively alleviate as a proportion of the wireline voice revenue further reduced it to 15%.
In 2012, our mobile business saw a rapid growth and the mobile revenue growth was leading in the industry. Leveraged our peer-best 3G network coverage leading in width and depth, the great variety of smart devices and the proliferating mobile Internet content, the scale of mobile subs recorded a fast expansion.
Our total number of mobile subscriber increased by 34.15 million to 160 million, and the subscriber market share was 14.5%, representing an increase of 1.5 percentage points year-over-year. The number of 3G subscribers increased by 32.76 million to over 69 million, accounted for 43% of the total mobile subscribers, an increase of 14.3 percentage points from 2011.
In 2012, the data traffic operation commenced successfully and achieved the satisfactory results. The mobile data service effectively enhanced consumer experience and value. The mobile ARPU rebounded to 53.9 up by 2.8% year-on-year.
Regarding to mobile network acquisition, in last August, we announced the acquisition of mobile network assets from the parent company and completed the transaction at the end of 2012. The followed consideration was RMB87.2 billion to initial payment of RMB25.5 billion was settled in January 2013. The deferred payment of RMB61.7 billion is payable in five years, with the first year interest rate of 4.83% per annum.
Through the acquisition of mobile network, we are able to integrate the network with service offering, better coordinate the mobile network investment, construction, operation management and system upgrade, and save the rapidly rising mobile network leasing fee, hence operating efficiency and the Company value are enhanced.
On CapEx, the Company put a great emphasis on building the superior network to effectively support its rapid business expansion and to improve its core competence. In 2012, we invested RMB53.7 billion in the wireline business and continued the implementation of Broadband China, Fibre Cities project. The investment in broadband was ranked 67% of the total CapEx. In 2012, the CapEx in mobile, which was taken up by the parent company amounted to RMB18.8 million. In 2013, the CapEx budget in wireline and mobile network will be RMB55 billion and RMB20 billion respectively.
From 2011 to 2013 we will continue to carry out the Broadband China, Fibre City project and intensively implement fibre network upgrade. It is expected that fibre network will be expanded into building and residential areas in most city by the end of 2013 with customer access bandwidth of more than 20 megabit per second.
In respect of mobile network, we will focus on network optimization and expanding the capacity in high data traffic areas via enforcing the network strength.
Dividend; taking into account shareholders' return, cash flow of the Company and the capital requirement of the mobile network acquisitions in our future development, the Board recommended a final dividend of HKD0.085 per share for 2012, being the same as the previous year. In the future, the Company strived to increase profit paving the way to high dividend.
Looking forward, we are optimistic about the future, the increasing popularity of smart device and mobile internet application, as well as the continued implementization in the society will bring huge potential for the Company. We will grab the golden opportunities leverage on the broadband 3G business advantages to further pursue the strategic transformation. We will speed up the scale development of the core businesses mainly mobile, broadband, and industry applications and accelerate in the nurture of emerging business realizing the sustainable growth of customer and corporate value.
Let's invite President, Yang Jie to introduce our business development.
Yang Jie - Executive Director, President and COO: Thanks, Chairman Wang. Ladies and gentlemen, good afternoon. I'm going to introduce our business performance in 2012. This table shows the Company's revenue breakdown and changes and we'll further elaborate in the following of our slides.
In 2012, leveraging 3G network and service strength the Company captured the opportunity brought by the migration from 2G to 3G to rapidly expand the scale of mobile business, particularly the 3G business delivering the strong mobile revenue growth. The total number of 3G subscriber is about 69 million and taking up about 43% of the mobile subscriber base. The mobile ARPU rebounded as a result of the substantial increase in proportion of 3G subs of higher ARPU – used ARPU rebounded from RMB52.4 to RMB53.9.
Smart device have been increasingly popular and the price performance factor is also improving. There are approximately 380 models of smart devices available in the market, with the sale volume of approximately 41 million units in 2012, representing 1.4 times increased over the previous year. With the diversification of Mobile Internet application, there were over 180,000 applications in our e-Surfing apps store.
We continued our data traffic operation strategy by pushing the development of – and promotion of application, strengthening 3G application coaching, experienced-based selling, boosting smartphone adoption and enhancing mobile data products and pricing.
We saw the rapid growth from mobile data business, which is becoming our key revenue driver. The mobile data revenue for 2012 was RMB43.6 billion, up by 47% over the previous year and accounted for 47% of mobile service revenue. The Company has cultivated customer habit in data usage and the monthly average data traffic of a 3G handset subscriber increased by 26% year-on-year to 134 meg.
Mobile handset internet access revenue increased by 1.4 times year-over-year to over RMB12 billion. The Company also provided internet access in hotspot area flow WiFi to divert mobile data traffic, which effectively improved customer experience and saved CapEx for the mobile network. During the year, the Company added about like 280,000 WiFi access points and our total number of WiFi access point increased to around like 100,000.
In 2012, revenue of wireline business of the Company improved to RMB165.3 billion, up by 1.8% as compared to the decrease of 2.2% in 2011. With our strong fibre network and ICT service capability, we speeded up the development of the growth businesses, such as wireline Internet access, really as an Integrated Information Services which effectively offset the decrease in wireline voice revenue.
We successfully slowed down to decline in wireline voice revenue flew to integrated package offering. The operating risk of the Company was effectively abbreviated as the proportion of the wireline voice revenue further reduced.
Broadband; the broadband service maintained strong growth in spite of mounting competition. The broadband subscriber base increased by 13.31 million subs to 90.12 million. Revenue from wireline broadband was RMB67 billion, up by 9.8% year-on-year, as a result of the rapid growth of subscriber base.
In response to keen competition in broadband market, the Company flexibly adjusted the tariff to enhance the competitiveness and further penetrated into the rural areas, leading to pressure on broadband ARPU. However, by promoting bandwidth upgrade and Company managed to stabilize the rate of decline of broadband ARPU to approximately 7.8% but improved experience and satisfactions of subscriber supporting the effective scale expansion of the broadband business.
Currently, the penetrating rate of the household Broadband China is ranked 38%, which represent a huge potential for development. We will continue to leverage our advantage in fibre network and services. To provide subscribers we've differentiated services driving the growth of broadband businesses.
Next, look at our wireline VAS and Integrated Information Service. The comprehensively proliferated VAS and Integrated Information Service is set to nurture new growth engines and pull the core business growth. For the IDC and cloud computing business, the Company centralized is operation by integrated IDC resources and standardizing tariff to strengthen its competitiveness. We also established specialized cloud service operating unit and optimized the product and application to boost the rapid growth of data business revenue.
In 2012, wireline VAS and Integrated Information Service maintained steady growth and recorded revenue of RMB31 billion, up by 3%. In particular, revenue of IDC business increased by 40.5% year-on-year to RMB3.9 billion. In 2013, we will further for more profitable scale development, leveraging leadership in innovation and services with enhanced quality and return.
To maintain the leadership of our service, we will create comparative advantage on services for our core businesses and innovate the servicing approach in order to improve the customer experience. To maintain our leadership innovation we will speed up the constructions of intelligent timeline and integrated platforms to check data traffic and enhance our value. We will also deepen the structure and mechanism innovation to boost vibrancy.
We will further capitalize on our strength and differentiate initiative to accelerate the development of the three core business 3G, wireline broadband and industry applications. We will also accelerate to nurture of the development of emerging business to drive our sustainable growth.
The Company will strengthen to efficiently and centralize the business operations and precision management to improve efficiency and effective use of resources.
Now, next I’ll invite Madam Wu, our CFO to present the financial performance of the Company.
Madam Wu Andi - EVP and CFO: Thank you, President Wang. Good afternoon ladies and gentlemen. I will now present the financial performance for 2012. In 2012, the operating revenues were RMB283 billion, up by 15.5% year-on-year. Operating expenses were RMB262 billion, up by 18.5% year-on-year. Net profit was RMB14.9 billion, down by 9.5% year-on-year. Free cash flow was RMB12.4 billion.
In 2012, the Company appropriately increased cost initiative to expand its business and drive a sustainable growth. The operating expenses of the year were RMB262 billion, accounting for 92.5% of revenue, an increase of 2.3 percentage point year-on-year.
Elaborating of key changes is as follows. Depreciation and amortization decreased by 3.4 percentage point to 16.5% as a percentage of revenue, mainly due to the continuous prudent control of CapEx.
Network operations and support expenses increased by 1.7 percentage point to 23.3% as a percentage of revenues, mainly due to the increase of mobile network leasing fee by 34%.
Personnel expenses decreased by 0.9 percentage point to 15.1% as a percentage of revenue, mainly due to the control of salary increment for senior employee or drove the incentive for talent and the frontline staff increases.
SG&A expenses increased by 2.4pp to 22.3% as a percentage of revenues mainly due to the increase in selling and expenses by 32% to drive the scale of operations of mobile and broadband services.
Other operating expenses increases by 2.05 percentage point to 14.3% as a percentage of revenue mainly due to the increase in procurement of smart terminal resulting in increase in cost of mobile terminals sold by 80%.
In 2012, the Company's CapEx was RMB53.7 billion and the investment was tilted towards high growth, high-value business and areas.
The CapEx structure of 2012 is basically similar to that of 2011. In order to reinforce our broadband network leadership and core competence, the Company accelerated the FDD constructions in city areas in Sovereign China. The investment in broadband and Internet was 67% of total CapEx. As well the Company accelerated the construction of cloud data center and integrating information applications.
Investment in VAS integrated information service was 13% of the total CapEx. Investment in wireline voice service was contributed to 1% of the total CapEx. The Company acquired CDMA network from the parent company at the end of 2012 at a consideration of RMB87.2 billion. Upon completion of the acquisition our total debt to total capitalization ratio was around 27% and a net debt to EBITDA ratio was 0.7 times.
The financial position of the Company remained sound and healthy, which provide effective support for the sustainable development of the Company. The Company will further strengthen to position management to achieve profitable scale development by the following measures. First, we will focus on expanding market share and value creation through implementing the market share based resources allocation and performance evaluation system. Second, capital and financial management will further centralized, we will timely provide financial service support for new business.
Third, the Company will comprehensively adopt refined performance evaluation units and foster return-oriented appraisal and incentive system. Fourth, we will strengthen our internal control in particular on the key and in special businesses.
Fifth, the Company will enhance efficiency of resource utilization, optimizing costs and investment structure to promote efficient scale development and maximize values for customer and shareholders.
Operator: The event is not accompanied by Q&A