China Unicom (Hong Kong) Limited

Good afternoon, ladies and gentlemen. I'm Jackie, company secretary of China Unicom. Welcome to our media conference call. First of all, please allow me to introduce the management present today Mr. Wang Xiaochu, Chairman and CEO Mr. Li Fusheng, Executive Director Mr. Mai Yanzhou, Senior Vice President Mr. Liang Baojun, Senior Vice President Mr. Zhu Kebin, Executive Director and CFO Mr. Fan Yunjun, Executive Director and Senior Vice President Mr. He Biao, Senior Vice President Now let's invite Chairman Wang to talk about our performance in the first half of 2020 Good afternoon ladies and gentlemen It's my great pleasure to discuss with you China Unicom's result. Due to the coronavirus outbreak, unfortunately, we can't meet in person in Hong Kong today, but to discuss via a teleconference. Stay safe and healthy, everyone. In today's presentation, I will summarize our overall result in the first half of 2020. and Mr. Zhu Kebing will then discuss our financial performance. Lastly, the management will take any questions you have. Highlights of the company's results in the first half are as follows. We sustainably enhance growth quality and profitability through active transformation and in-depth mixed ownership reform. The adjustments in mobile development priority delivered initial success. Fixed-line business reignited rapid growth by empowering government and enterprise customers. Innovative businesses continue to grow robustly, with huge value embedded. We successfully achieved 5G network cobucle share, effectively enhancing edges in return. and we will push forward comprehensive digital transformation to firmly promote high-quality development. In the first half, the company proactively responded to the challenges brought by the COVID-19. By accelerating comprehensive digital transformation and innovating communication services offering, we strive to turn adversity into opportunities. Our business continues to improve. Our service revenue increased by 4% to $138.3 billion, which was faster than the industry revenue growth of 3.2%. The company's profitability further enhanced. Net profit was $7.6 billion, up by 10% year on year. The company remains determined with the strategy of focused innovation and cooperation. We continue to push forward proactive transformation. Our growth quality and return kept improving in recent years. Our service-revenue mix was further optimized. Industry internet revenue contributed to 16% of our total service revenue in the first half. Benefiting from sustained good control of CapEx and efficient operation, we have generated free cash flow of over 100 billion over the past years. Our net profit continues to grow robustly. The company maintains strong fundamentals. Facing new challenges in the industry development, the company was determined to proactively Adjusting the development priority of mobile business We shifted focus from subscriber scale to quality and value And strengthened internet-oriented transformation and innovative differentiated operations We also stepped up 5G customer acquisition in a paced and targeted manner. These efforts have delivered initial success, driving value enhancement. Adjustments inevitably come with short-term pain. In the first half, we saw nearly 9 million mobile subscriber loss, and mobile service revenue declined by 2.2 billion. However, our selling and marketing expenses decreased by 2.6 billion. Our mobile service revenue and ARPU rebounded sequentially in the second quarter by 3% and 4% respectively. On a year-on-year basis, our mobile business was also trending well. Our mobile service revenue growth has been improving month by month since April. and rebounded to positive growth year-on-year in June and July. The company continued to promote consumption upgrades through 5G innovative applications. We leveraged privileges, content and financial tools to improve product value while strongly enhancing pan-integration penetration. We optimize performance management system and deploy big data analytics to enhance targeted marketing and customer retention. Going forward, with accelerated 5G network deployment, proliferation and declining price of 5G terminals, as well as more prevalent innovative applications, our 5G subscriber growth is expected to accelerate in the second half, driving sustainable growth in mobile app and service revenue. New infrastructure policy and COVID-19 further boosted demand for digitization, cyberization, and intelligent transformation of the economy and society. The company seized the opportunities and pushed forward the integrated development of innovative and fundamental businesses for mutual promotion. We actively leverage proprietary resources and the edges in network, service and mixed ownership reform cooperation, etc. to empower government and enterprise customers and enhance family customer experience and value. In the first half, the rapid growth of rapid broadband access, smart home products, IDC and cloud computing, etc. drove our fixed line service revenue to grow by 14% year-on-year. The company expedited capability development and scale expansion in industry internet business. We continue to strengthen our foundation, focus on key areas and proactively establish leading edges. In the first half, industry internet maintains strong growth momentum with revenue reaching $22.7 billion, up by 36% year-on-year. It has become our key revenue growth driver. Going forward, the company will deeply push forward industry cooperation, speed up product standardization and scale replication, and actively nurture innovative 5G plus vertical applications and delivering to deliver faster growth in the new digital era. The company is Through our integrated services, combining IDC, cloud networks and applications, we can offer total solutions to customers. Our rich network of 551 IDCs nationwide yields significant scale benefits with centralized operations. We plan to invest $2 billion, focusing on high-value and high-demand areas this year. Over half of the new cabinets will be located in Tier 1 cities. The number of cabinets in operation is expected to reach 280,000 by the end of this year. In the first half, the average utilization of our cabinets exceeded 60%. Our IDC revenue was $10.1 billion, up by 22% year-on-year. For the government and enterprise business, the company promoted the mutual development of innovative business and fundamental business with cloud plus networks plus smart applications. It focused on key areas and key regions, built light-house projects, and explored innovative 5G business models. We built centralized platforms for replicated use of fundamental capabilities and enhanced R&D centralization and product standardization. In order to push forward scale development and efficiency improvement, in the first half, cloud computing revenue rose by 82% and least-line service revenue rose by 3%, effectively driving government and enterprise revenue to grow by 14%. In the first half, the epidemic prompted demand for broadband network deployment and speed upgrade. The company showcases high-speed and smart home products advantages. We adhere to rational and disciplined competition while promoting 3 gigabit integrated products in the incumbent regions in northern China and provincial capitals in southern China. We deeply push forward broadband cooperation in southern China and advance the promotion of smart home products, facilitating the rapid growth of broadband access and other revenue. We focus on creating new edges such as integrated operation of marketing, maintenance and service, synergized operation of business and new network. In the first half, our broadband access revenue and ARPU continues to climb. For 5G network deployment, The company maintained a focused approach while advancing 5G network co-build, co-share with China Telecom in a coordinated manner. In the first half, our 5G capex was about 12.6 billion. We added about 150,000 5G base stations with China Telecom, with the total number of 5G base stations reaching 210,000. and achieved contiguous 5G coverage in about 50 cities. In addition, we are actively pushing forward 5G network upgrade to SA, assuring commercialization in the fourth quarter. The company conducts dynamic investment with due regard to technology advancement, value chain maturity, market and business demand, etc. Full-year 5G capex budget is $35 billion. We strive to add 250,000 5G base stations with China Telecom, targeting to complete by the end of third quarter. Then we will have over 300,000 5G base stations in service covering all cities nationwide. Through 5G network pro-bio co-share, we have effectively sharpened our network edges in investment return. Our 5G network deployment pace, coverage, and speeds all doubled, boosting our customers' experience and partners' confidence. The two operators altogether saved over $40 billion in capex and substantial opex including tile usage fee, network maintenance cost, and energy charges. To magnify Cobeo CoShare benefits, the company has expanded network sharing with China Telecom. We are driving 4G network sharing in scale to fast rectify network shortcoming economically. We are also promoting co-build, co-share and co-maintenance of transmission resources such as pole lines, pipe lines, etc. to facilitate more efficient use of resources. In the first half, in the 5G consumer market, 5G application is still a bottleneck. We introduce feature services such as HD 4K, 8K video, AR, VR, cloud gaming, etc. We promote the extensive value chain cooperation to build 5G pan-smart device ecosystem. We focus on 5G touchpoints and O2O integration to enrich content offerings and simplify the signup process. In the second half, our 5G subscriber growth is set to accelerate as 5G network terminals and applications gain maturity. For 5G enterprise and government market, the company focused on industrial internet, smart cities, healthcare, etc., accelerated industry product incubation and incorporates 5G plus ABC elements into industry solutions to create unique competitive advantage. We also promoted the industry ecosystem growth with the solid development of China Unicom 5G Application Innovation Alliance. In the first half, the company developed 162 5G Lighthouse customers, signed 92 commercial contracts, and completed 70 showcase projects, successfully commercializing 5G industry applications. Going forward, the company will fully exploit and leverage its 5G unique edges, including 5G network co-build co-share Centralized IT system which can support open cooperation Potential collaboration with 14 strategic investors and benefits from market-oriented system and mechanism reform Leveraging mixed ownership reform Well-established internet-oriented mindset and operation experience and establish long-term relationship with government and enterprise customers as well as innovative business capabilities. We believe these unique edges will effectively drive our revenue growth and value enhancement in the future. In the second half, seizing the epidemic window, We will strengthen our fundamentals and push forward company-wide digital transformation. We will lay a solid foundation, improve efficiency and enhance vitality, unveiling a new paradigm of high-quality development for China Unicom. Next, I will invite our CFO Mr. Zhu Kerbin to talk about our financial performance in the first half of 2020. Thank you Chairman Wang. Now let's discuss our financial performance in the first half of 2020. In the first half, operating revenue was up by 3.8%, operating profit was up by 5.5%, net profit increased by 10%. The company's growth quality continues to enhance. Let's take a look at the detailed analysis next. The company's operating expenses increased by 3.7%, which is slightly lower than the operating revenue growth, of which depreciation and amortization dropped by 1.1% year-on-year mainly because of a good control of capex in the past years selling and marketing expense fell by 14.8% year-on-year which mainly benefited from our business model transformation to rigorously control customer acquisition cost Handset subsidies plummeted by 99.3% mainly due to our innovative business model of not offering handset subsidies in general We continue to promote incentive mechanism reform to strengthen performance-based compensation and develop innovative talent. Employee benefits went up by 9.2% year-on-year. G&A and other operating expenses grew by 42.1% year-on-year. A detailed analysis is on the next slide. The company capitalized on the opportunities of digital transformation and appropriately stepped-up course initiative to promote scale development and capability enhancement of innovative businesses. G&A and other operating expenses increased by $5.8 billion, mainly due to higher technical support expense and cost of IT services, which together increased by $4.2 billion. But they fueled an $6 billion increase in industry internet revenue and further enhanced our product capabilities. In particular, the cost of IT service went up by 37% year-on-year, driving IT service revenue to grow by 39% year-on-year. Going forward, the company will progressively raise the profitability of innovative businesses through scale development. For network deployment, the company continued to conduct precise and efficient investment and strengthen the synergy between business and network in order to create value. Dollar CapEx for the first half was $25.8 billion. Network quality and customer's perception kept rising in focus regions. and our network latency performance was the best in the industry. In the second half, the company will continue to strengthen network support's capability so as to enhance customers' perception. For mobile network, we will deepen co-build-co-share and 4G-5G synergy and promote 2G-3G network simplification by regions to lower network operating costs and reform spectrum. For broadband network, We will focus on gigabit access deployment while maintaining leading edge network edges, maintain leading network coverage in Northern China and expanding the scale through private capital cooperation in Southern China. At the same time, we will expedite intelligent network upgrade by advancing SDN NFV and cloudification. With the deepened execution of our corporate strategy and advantages of mixed ownership reform being gradually unleashed, the company's financial position was further optimized. We maintained healthy free cash flow ever since the inception of mixed ownership reform three years ago. The amount of our interest-bearing debt continued its climb to only $20.5 billion. Our liabilities to asset ratio kept falling to 39.9%. Our financial strength significantly enhanced, making us well-positioned to capture new 5G opportunities and creating new value. In the second half, the company will insist on high-quality development. We will strengthen cash flow management and promote transformation of resources, allocation and use, to enhance productivity of all essential factors. We will deepen network and business integration with precise investment to enhance the edges of cloud network integration. We will accelerate operating model transformation to foster pan-market coordinated operation and high-quality development. We will strengthen centralized IT operations and data governance to boost overall IT efficiency. We will continue to promote value management, leveraging innovative revitalization of operating assets and enhancement of talent performance in order to drive quality and efficiency enhancement and create greater value for our shareholders.