November 15, 2007

i-CABLE COMMUNICATIONS LIMITED
Stock Code: 1097
Third Quarterly Results
for the nine months ended September 30, 2007

Results Highlights

  • Turnover decreased by 8% to HK$1,748 million (2006: HK$1,910 million).

  • Net profit after tax increased by 6% to HK$155 million (2006: HK$147 million).

  • Capital expenditure decreased by 26% to HK$131 million (2006: HK$178 million).

 

Pay TV

  • Subscribers increased by 7% to 845,000 during the nine-month period.

  • Turnover decreased by 16% to HK$1,212 million (2006: HK$1,440 million).

  • Operating profit decreased by 30% to HK$132 million (2006: HK$190 million).

 

Internet & Multimedia

  • Broadband subscribers decreased by 3% to 316,000 during the nine-month period.

  • Turnover decreased by 1% to HK$442 million (2006: HK$445 million).

  • Operating profit increased by 25% to HK$132 million (2006: HK$105 million) to equal Pay TV.

 

GROUP RESULTS

The unaudited Group profit attributable to Shareholders for the nine months ended September 30, 2007 amounted to HK$153 million, as compared to HK$146 million for the corresponding period in 2006. Basic and diluted earnings per share were both HK$0.076 for 2007, as compared to both HK$0.072 last year.

 

MANAGEMENT DISCUSSION AND ANALYSIS

A. Review of results for the nine months ended September 30, 2007

The Group reported higher net profit during the first nine months ended September 30, 2007 on lower depreciation charges and tax provision. Profit after tax increased by 6% to HK$155 million.

Programming enhancement particularly in local production and effective subscriber acquisition and retention strategies have contributed to the rise of Pay TV subscriber base to 845,000 during the nine-month period.

Consolidated turnover decreased by 8% to HK$1,748 million, partly due to the absence of special events such as FIFA World Cup in 2006 and more competitive service packages. Revenue from new businesses such as film production and advertising in the Mainland tripled from a small base.

More effective cost management and resource redeployment helped to reduce operating costs before depreciation by 6% to HK$1,322 million. Programming costs decreased by 3%; network and other operating costs by 5%; and selling, general and administrative expenses by 15%.

Earnings before interest, tax, depreciation and amortisation ("EBITDA") decreased by 14% to HK$425 million.

Depreciation decreased by 13% to HK$282 million.

Profit from operations decreased by 16% to HK$144 million, while profit before tax decreased by 9% to HK$162 million. With lower tax provision during the period, profit after tax increased by 6% to HK$155 million.

Basic earnings per share were 7.6 cents as compared to 7.2 cents in 2006.

 

B. Segmental Information

Pay Television

Subscribers increased by 59,000 or 7% in the period to 845,000 as compared to 23,000 or 3% during the same period last year. However, turnover decreased by 16% to HK$1,212 million, mainly attributable to dilution from lower yield subscriptions and a return to normality for commercial airtime sales after FIFA World Cup 2006. Operating costs after depreciation decreased by 14% to HK$1,080 million due to decrease in programming costs, marketing and sales spending and depreciation charge. Operating profit decreased by 30% to HK$132 million (2006: HK$190 million).

 

Internet & Multimedia

The Broadband subscriber base was relatively stable at 316,000 in a mature marketplace; yield was also stable. Turnover was HK$442 million. Operating costs after depreciation decreased by 9% to HK$310 million partly due to lower depreciation charges. Operating profit increased by 25% to a record high of HK$132 million.

 

C. Liquidity and Financial Resources

As of September 30, 2007, the Group had net cash of HK$578 million, as compared to HK$369 million a year ago.

The consolidated net asset value of the Group as at September 30, 2007 was HK$2,320 million, or HK$1.1 per share. As at September 30, 2007, the Group had property, plant and equipment with a net book value of approximately HK$657,000 held under finance lease contract.

The Group's assets, liabilities, revenues and expenses were mainly denominated in Hong Kong dollars or U.S. dollars and the exchange rate between these two currencies has remained pegged.

Capital expenditure during the period amounted to HK$131 million, 26% lower than the same period last year. Major items included further network upgrade and expansion, investment in information systems, television production facilities and leasehold buildings.

The Group's further ongoing capital expenditure and new business development will be funded by cash generated from operations and, if needed, bank borrowings or other external sources of funds. The Group also had total short-term bank credit facilities of approximately HK$32 million which remained unutilised as of September 30, 2007.

 

D. Contingent Liabilities

At September 30, 2007, there were contingent liabilities in respect of guarantees, indemnities and letters of awareness given by the Company on behalf of subsidiaries relating to overdraft and guarantee facilities of banks up to HK$198 million, of which HK$166 million have been utilised by the subsidiaries.

 

E. Human Resources

The Group had a total of 2,918 employees at the end of September 2007 (2006: 3,177). Total gross amount of salaries and related costs incurred in the corresponding period amounted to HK$545 million (2006: HK$630 million).

The Group is committed to attracting, retaining and nurturing high quality employees, with pay for performance schemes, staff development programmes, and career advancement opportunities.

As a good employer, the Group not only takes care of employees' well being, including organising a variety of health talks, but also actively supports and participates in community and social welfare events with employees.

 

F. Operating Environment and Competition

The operating environment remained unfavourable as intensified competition continued to affect the Group's operating and financial performances during the period under review.

In response, on top of unbundling its Pay TV packages competitively, the Group also re-aligned its sales strategy and will be opening retails shops in popular areas of the territory to expand its sales coverage. In the meantime, customer service has been enhanced following the opening of our integrated customer service centre in Guangzhou.

The Broadband access service market is mature, returning stable revenue and profitability to the Group. Competition has shifted to service quality, after-sales service as well as value-added services. Pursuant to the acquisition of new media exhibition rights for the Beijing Olympics next year, the Group has started to prepare for full exploitation of the rights to maximise its business and other potential values.

 

G. Outlook

The operating environment in the near and medium term will continue to be challenging with the imminent launch of digital terrestrial television service by the two commercial broadcasters, on top of competition from peers in the Pay TV market.

Nonetheless, the Group is sparing no efforts to consolidate its position in the television market with the acquisition of prized products, such as the Olympics Games and FIFA World Cup, enhancement of its own production, as well as sharpening its sales and marketing and after-sales services.

Some of these efforts are beginning to bear fruit in enhancing our competitiveness and subscriber loyalty; and the Group is confident that it would continue to be very competitive in this crowded market.

 

UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the nine months ended September 30, 2007

2007

2006

Note

HK$'000

HK$'000

Turnover

(2,3)

1,747,901

1,909,547

  

Programming costs

(720,893)

(742,673)

Network and other operating expenses

(315,851)

(332,508)

Selling, general and administrative expenses

(285,716)

(337,682)

Profit from operations before depreciation

425,441

496,684

Depreciation

(281,507)

(324,812)

Profit from operations

(3)

143,934

171,872

Interest income

16,154

7,075

Finance costs (16) (24)

Non-operating income/(expenses)

(4)

1,916

(193)

Profit before taxation

(4)

161,988

178,730

Income tax expense

(5)

(6,878)

(32,092)

Profit after taxation 155,110 146,638

Attributable to:

145,967

Equity shareholders of the Company 153,218

Minority interests

1,892

671

Profit after taxation 155,110 146,638
Dividends payable to equity shareholders attributable to the period 100,962 100,962
Final dividend of 5 cents (2006: 5 cents) per share in respect of the previous financial year, declared during the period

Interim dividend of 3.5 cents (2006: 3.5 cents) per share declared during the period

70,673

70,673

171,635

171,635

  Earnings per share

Basic

(6)

7.6 cents

7.2 cents

Diluted

(6)

7.6 cents

7.2 cents

 

CONSOLIDATED BALANCE SHEET
At September 30, 2007

  At September 30, 2007
(unaudited)

At December 31, 2006
(audited)

Note

HK$'000

HK$'000

Non-current assets

 

  

Property, plant and equipment

1,432,157

 

1,591,353

Programming library

193,822

 

185,702

Other intangible assets 9,487 12,775

Deferred tax assets

(7)

364,466

 

388,266

Other non-current assets 180,245 51,079

2,180,177

 

2,229,175

Current assets

  

Inventories

4,278

 

1,111

Accounts receivable from trade debtors (8) 94,504 85,585
Deposits, prepayments and other receivables 102,923 64,445

Amounts due from fellow subsidiaries

3,581

 

56,361

Cash and cash equivalents

577,502

 

586,197

782,788 793, 699

Current liabilities

 

Amounts due to trade creditors

(9)

22,973

 

42,675

Accrued expenses and other payables

341,815

 

395,698

Receipts in advance and customers' deposits

107,793

 

107,527

Obligations under finance leases 217 705
Current taxation - 49
Amounts due to fellow subsidiaries 32,651 43,735

Amount due to immediate holding company

1,979

 

989

507,428

 

591,378

Net current assets

275,360

 

202,321

Total assets less current liabilities

2,455,537

 

2,431,496

Non-current liabilities
Deferred tax liablities (7) 97,996 115,061
Obligations under finance leases - 72
Other non-current liabilities 37,526 53,970
135,522 169,103

NET ASSETS

2,320,015

 

2,262,393

Capital and reserves
Share capital 2,019,234 2,019,234
Reserves 295,212 239,719
Total equity attributable to equity shareholders of the Company 2,314,446 2,258,953
Minority interests 5,569 3,440
TOTAL EQUITY 2,320,015 2,262,393

 

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the nine months ended September 30, 2007

Attributable to equity shareholders of the Company

Share
capital
Share premium
Special
capital
reserve
Exchange reserve
Revenue reserve
Statutory
reserve
Fund
Total reserves
Total
Minority interests
Total
equity
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
Balance at January 1, 2006*
2,019,234
4,838,365
7,924
(187)
(4,616,969)
-
229,133
2,248,367
-
2,248,367
Profit for the period
-
-
-
-
145,967
-
145,967
145,967
671
146,638
Dividend approved in respect of the previous year
-
-
-
-
(100,962)
-
(100,962)
(100,962)
-
(100,962)
Translation of foreign subsidiaries' financial statements
-
-
-
(244)
-
-
(244)
(244)
-
(244)
Acquisition of subsidiary
-
-
-
(100)
-
-
(100)
(100)
1,887
1,787
Transfer to statutory reserve fund
-
-
-
-
(132)
132
-
-
-
Transfer to special capital reserve**
-
-
1,594
-
(1,594)
-
-
-
-
-
Balance at September 30, 2006*
2,019,234
4,838,365
9,518
(531)
(4,573,690)
132
273,794
2,293,028
2,558
2,295,586

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the nine months ended September 30, 2007

Attributable to equity shareholders of the Company

Share
capital
Share premium
Special
capital
reserve
Exchange reserve
Revenue reserve
Fair value reserve
Total
reserves
Total
Minority interests
Total
equity
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
HK$'000
Balance at January 1, 2007*
2,019,234
4,838,365
13,771
(81)
(4,612,336)
-
239,719
2,258,953
3,440
2,262,393
Profit for the period
-
-
-
-
153,218
-
153,218
153,218
1,892
155,110
Dividend approved in respect of the previous year
-
-
-
-
(100,962)
-
(100,962)
(100,962)
-
(100,962)
Translation of foreign subsidiaries' financial statements
-
-
-
555
-
-
555
555
108
663
Equity contribution from minority interest
-
-
-
-
-
-
-
-
129
129
Change in fair value of available for sale securities
-
-
-
-
-
2,682
2,682
2,682
-
2,682
Transfer to special capital reserve**
-
-
57
-
(57)
-
-
-
-
-
Balance at September 30, 2007*
2,019,234
4,838,365
13,828
474
(4,560,137)
2,682
295,212
2,314,446
5,569
2,320,015

* Included in the Group's revenue reserve is positive goodwill written off against reserves in prior years amounting to HK$197,785,000.
** The special capital reserve is non-distributable and it should be applied for the same purposes as he share premium acount.

 

NOTES TO THE INTERIM FINANCIAL REPORT

  1. Basis of preparation and comparative figures

    The unaudited interim financial report has been prepared in accordance with the requirements of the Main Board Listing Rules of The Stock Exchange of Hong Kong Limited, including compliance with Hong Kong Accounting Standard 34 "Interim financial reporting" issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA").

    The HKICPA has issued certain new and revised Hong Kong Financial Reporting Standards ("HKFRSs") that are first effective or available for early adoption for the current accounting periods of the Group. We believe the adoption of these new and revised HKFRSs will not have a material impact on the Group's financial position or results of operations.

    The same accounting policies adopted in the annual financial statements for the year ended December 31, 2006 have been applied to the interim financial report.


  2. Turnover

    Turnover comprises principally subscription and related fees for Pay television and Internet services, Internet Protocol Point wholesale services. It also includes advertising income net of agency deductions, channel service and distribution fees, programme licensing income, film exhibition and distribution income, network maintenance income and other related income.

  3. Segment information

    Substantially all the activities of the Group are based in Hong Kong and below is an analysis of the Group's revenue and result by principal activity for the nine months ended September 30:

    @

    Segment revenue

    Segment result

    2007

    2006

    2007

    2006

    HK$'000

    HK$'000

    HK$'000

    HK$'000

    Pay television

    1,211,643

     

    1,439,912

     

    132,013

     

    189,569

    Internet and multimedia

    442,295

     

    444,660

     

    131,891

     

    105,127

    Unallocated

    112,787
    36,929

    (116,250)

     

    (122,824)

    Inter-segment elimination
    (18,824)
    (11,954)
    (3,720)
    -

    1,747,901

    1,909,547

    143,934

    171,872

    Profit from operations
    143,934
    171,872
    Interest income
    16,154
    7,075
    Finance costs
    (16)
    (24)
    Non-operating income/(expenses)
    1,916
    (193)
    Income tax expense
    (6,878)
    (32,092)
    Profit after taxation
    155,110
    146,638


  4. Profit before taxation

    Profit before taxation is stated after charging / (crediting):

    Nine months ended September 30, 2007 2006

    HK$'000

    HK$'000

    Depreciation

    - assets held for use under operating leases

    24,925

     

    29,917

    - other assets 256,582 294,895
    281,507 324,812
    Amortisation of programming library* 91,185 66,476
    Amortisation of other intangible assets** 3,288 -
    Staff costs 513,029 578,675
    Contributions to defined contribution retirement plans 21,593 23,134
    Cost of inventories used 5,961 10,237

    Auditors' remuneration

    2,923

     

    2,216

     

    Non-operating (income)/expenses

     

    Net (gain)/loss on disposal of property, plant and equipment

    (1,916)

     

    193



    * Amortisation of programming library is under programming costs in the consolidated results of the Group.
    **Amortisation of other intangible assets is under network and other operating expenses in the consolidated results of the Group.



  5. Income tax
    The provision for Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profits for the period (2006: 17.5%). Taxation for the overseas subsidiaries is charged at the appropriate current rate of taxation ruling in the relevant countries. The income tax charge for the nine months ended September 30 represents:

     

    2007

     

    2006

     

    HK$'000

     

    HK$'000

           
    Current tax provision - overseas
    143
    174
    Net deferred tax expenses
    6,735
    31,918

    6,878

     

    32,092




  6. Earnings per share

    The calculation of basic earnings per share is based on the profit attributable to equity shareholders of the Company of HK$153 million (2006: HK$146 million) and the weighted average number of ordinary shares outstanding during the period of 2,019,234,400 (2006: 2,019,234,400).

    The calculation of diluted earnings per share is based on the weighted average number of ordinary shares of 2,019,234,400 (2006: 2,019,234,400) after adjusting for the effects of all dilutive potential ordinary shares.




  7. Deferred tax in the balance sheet

    The components of deferred tax (assets)/liabilities recognised in the consolidated balance sheet and the movements during the period are as follows:

    Deferred tax arising from:

    Depreciation allowances in excess of related depreciation

    Tax
    losses

    Other

    Total

    HK$'000

    HK$'000

    HK$'000

    HK$'000

    At January 1, 2007

    164,215
    (440,051)

    2,631

    (273,205)

    Charged/(credited) to consolidated profit and loss account (Note 5)
    (32,687)
    40,409
    (987)
    6,735

    At September 30, 2007

    131,528

    (399,642)

    1,644

    (266,470)

    At September 30, 2007
    At December
    31, 2006
    HK$'000
    HK$'000
    Net deferred tax assets recognised on the balance sheet
    (364,466)
    (388,266)
    Net deferred tax liabilities recognised on the balance sheet
    97,996
    115,061
    (266,470)
    (273,205)



  8. Accounts receivable from trade debtors

    An ageing analysis of accounts receivable from trade debtors (net of impairment losses for bad and doubtful accounts) is set out as follows:


     
    At September 30, 2007
     

    At December 31, 2006

     

    HK$'000

     

    HK$'000

           

    0 to 30 days

    38,351

     

    24,819

    31 to 60 days
    12,021
    24,428
    61 to 90 days
    18,746
    16,869

    Over 90 days

    25,386

     

    19,469

     

    94,504

     

    85,585


    The Group has a defined credit policy. The general credit terms allowed range from 0 to 60 days.



  9. Amounts due to trade creditors

    An ageing analysis of amounts due to trade creditors is set out as follows:

     

    At September 30, 2007

     

    At December 31, 2006

     

    HK$'000

     

    HK$'000

           

    0 to 30 days

    5,688

     

    3,806

    31 to 60 days
    5,914
    3,916
    61 to 90 days
    2,626
    6,537

    Over 90 days

    8,745

     

    28,416

     

    22,973

     

    42,675




By Order of the Board
Wilson W. S. Chan
Secretary

Hong Kong, November 15, 2007

 

As at the date of this announcement, the Board of Directors of the Company comprises Mr. Stephen T. H. Ng, Mr. William J. H. Kwan and Mr. Peter S. O. Mak, together with four independent non-executive Directors, namely, Dr. Dennis T. L. Sun, Sir Gordon Y. S. Wu, Mr. Patrick Y. W. Wu and Mr. Anthony K. K. Yeung.