Chairman’s Message

chariman1Hutchison Telecommunications (Australia) Limited (“HTAL”) reported a $4.5 million profit for the year ended 31 December 2018, compared with a loss of $37.6 million last year. HTAL’s share of Vodafone Hutchison Australia Pty Limited’s (“VHA”) net loss included in HTAL’s results for the year was $5.0 million for the year ended 31 December 2018 compared with a net loss of $42.5 million in 2017.

HTAL’s revenue from ordinary activities increased from $6.2 million in 2017 to $10.6 million for the year ended 31 December 2018. The significant growth in revenue is primarily driven by a full 12 months of interest income received on loans to VHA.   However, this will be a non-recurring uplift as the overall loan balance was reduced by a loan repayment during December 2018.

Review of VHA’s results

In 2018, VHA achieved modest financial growth in an intense competitive environment and despite the need for ongoing significant investment to maintain, enhance and evolve its networks, products and customer service.

With strong support from CK Hutchison Holdings Limited and its joint shareholder Vodafone Group Plc, VHA has again produced a stable financial performance, while maintaining its position as a price leader and achieving market-leading customer sentiment.

Key 2018 achievements and highlights:

  • Reached six million mobile customers;
  • Full launch of fixed broadband services on the National Broadband Network;
  • Continued significant investment in network and technology, including evolution to 5G;
  • Introduced Australia’s first widely-available endless data plans;
  • Expanded $5 Roaming to more than 80 countries;
  • Leading Net Promoter Score (NPS) and lowest rate of customer complaints to the Telecommunications Industry Ombudsman of the Mobile Network Operators;
  • Announced proposed merger with TPG Telecom Ltd (“TPG Telecom”) to become a leading full-service telecommunications company in Australia and a more effective challenger to the dominant carriers in the market; and
  • Acquired 5G spectrum through Mobile JV Pty Ltd, its spectrum joint venture with TPG Telecom.

2018 financial results

VHA’s 2018 financial performance was in line with expectations, given aggressive competition among the major Mobile Network Operators over recent years and increased capital investments required to maintain and evolve mobile telecommunications networks.

HTAL’s share of VHA total revenue increased 5.5% to $1,823.4 million from $1,729.0 million, driven by growth in VHA’s customer base and higher device sales. In a direct year on year comparison, without the AASB 15 accounting change, HTAL’s share of VHA total reported revenue would have been $1,845.7 million, a 6.8% increase.

HTAL’s share of VHA’s EBITDA increased 13.4% YoY to $551.1 million from $485.9 million, driven by revenue growth, expenditure optimisation and non-recurring benefits of $33.5 million. In a direct year on year comparison, without the AASB 15 accounting change, HTAL’s share of VHA total reported EBITDA would have been $543.5 million, an 11.8% increase.

In a year on year comparison using previous year calculation methodology, VHA ARPU (Average Revenue Per User) was $37.45, a decrease of 2.0% YoY from $38.23 due to ongoing competition among the major Mobile Network Operators and increased inclusions on VHA mobile plans. In the first half of 2018, non-Vodafone branded partners Kogan and Lebara were re-classified from MVNO to Pre-paid. With the inclusion of Kogan and Lebara customers, VHA ARPU on this basis was $35.52, a decrease of 4.4% YoY from $37.16.

The loss position improved with HTAL’s share of VHA net loss declining 88.2% to $5.0 million, driven by  the improvement in VHA’s EBITDA partially offset by an increase in depreciation and amortisation expense.

VHA and TPG Telecom propose merger of equals

VHA and TPG Telecom Limited announced a merger of equals transaction in August 2018 to establish Australia’s leading full-service challenger telecommunications provider. The merger is subject to regulatory approvals, and will provide the new merged group with increased financial strength and scale to compete more effectively, and drive innovation, service and product improvements to Australian customers.  HTAL and Vodafone Group Plc, as VHA shareholders, will each own 25.05% of the new merged group with TPG Telecom shareholders owning the remaining 49.9%.

VHA reaches 6 million mobile customers, achieves leading customer sentiment

VHA passed the 6 million mobile customer mark in 2018, with the addition of 211,000 customers. Total mobile network customers increased 3.6% to 6.02 million, driven by 6.1% growth in prepaid customers, a 2.0% lift in postpaid customers and a 5.3% increase in wholesale and partner customers.

VHA also had 33,000 fixed broadband customers following the full launch of Vodafone nbnTM services in April 2018.

VHA continued to achieve strong customer sentiment, recording the leading Net Promoter Score (NPS) among the Mobile Network Operators throughout 2018. VHA’s NPS performance is driven by customer perceptions of network performance and reliability, trustworthiness, customer control over spend, and value for money.

VHA again recorded the lowest rate of customer complaints to the Telecommunications Industry Ombudsman of the major telecommunications companies throughout 2018. In the December 2018 quarter, VHA’s complaints ratio was 50% lower than the industry average and less than half that of the major Mobile Network Operators.

National 5G spectrum acquisition builds on VHA’s future network plans

In December 2018, Mobile JV Pty Ltd, the 50:50 joint venture company of VHA and TPG Telecom acquired substantial spectrum holdings in all available metropolitan and regional areas in the 3.6GHz band, for $263 million.  VHA has the right to use half of the spectrum licences acquired by Mobile JV Pty Ltd.  This builds on VHA’s work over recent years to prepare for 5G, with projects including the virtualisation of its core network, fibre transmission rollout and detailed infrastructure planning.

Mobile JV Pty Ltd is an ongoing joint venture and will not terminate if the merger between VHA and TPG Telecom does not proceed.

Expanding and enhancing the VHA mobile network

In 2018, VHA’s total network and technology spend was approximately $1.3 billion, including the construction of more than 180 new sites and upgrade of over 850 existing sites across Australia. This included the construction of 22 new sites as part of the Australian Government’s Mobile Black Spot Program. VHA’s significant network investment in metropolitan and regional areas helped support growing customer data usage, which increased 45% from 2017 to more than 360 million gigabytes in 2018.

The VHA mobile network also continued to be recognised for its strong performance. In May 2018, VHA was awarded Best Mobile Operator at the telecommunications industry CommsDay Edison Awards. The OpenSignal Mobile Network update report showed VHA’s network performance continues to improve, with VHA performing strongly in 4G download speed, 4G latency and overall download speeds. The P3 Public Benchmark networking test recognised improvements across all aspects of VHA’s network performance in the five major cities.

In May 2018, VHA successfully launched its first 4.9G site in Parramatta, in Sydney’s western suburbs. This was the first of five sites to be launched that will act as trial locations to deliver a higher quality network experience in the lead up to the introduction of 5G.

In September 2018, VHA announced a successful trial of its self-install mobile coverage solution – the Vodafone Regional Coverage Hub. The device delivers 4G voice and data services, and Internet of Things (IoT) connectivity, in locations where commercial networks are not traditionally deployed, or where coverage is patchy or unavailable.

VHA entry into fixed broadband

In April 2018, VHA officially launched Vodafone nbnTM, following a soft launch in Sydney, Melbourne, Canberra, Newcastle and Geelong in December 2017. In a strategic move to complement its mobile network and offer customers a converged internet experience, using the National Broadband Network (NBN), VHA has grown the availability of its fixed network to other major Australian cities, expanded its fixed retail distribution footprint and added content access and enhanced features.

Like its mobile offering, Vodafone nbnTM focuses on the customer experience with Instant Connect and 4G Back-Up allowing customers to access the internet via VHA’s 4G mobile network prior to NBN installation and in the event of a fault. These features have been well received by customers and some of them have been implemented by VHA’s competitors in response.

VHA continues significant investment in customers

VHA continues to focus heavily in retaining existing customers and acquiring new customers, introducing new competitive offers and innovative products.

In May 2018, VHA introduced Australia’s first widely available endless mobile data plans. Known as Red Plus, the plans offer customers protection against excess data use charges by providing between 50 and 120 gigabytes per month at the maximum data speed available on the VHA network, followed by endless data at streaming speeds of 1.5Mbps.

VHA’s $5 Roaming continues to be a key driver of postpaid customer connections and retentions. In November 2018, VHA launched $5 Roaming to an additional 11 destinations, making the product available in more than 80 countries. $5 Roaming remains the most competitive offering of its kind in the Australian market.

VHA strengthens Enterprise business

VHA continued its Enterprise strategy in 2018, building on its award-winning offerings for small and medium sized business customers. VHA signed major business customers across a variety of industries including travel, global logistics, and finance.

VHA extended its endless data offerings with the introduction of Business Advance mobile plans – Australia’s first plans with endless data for small or medium businesses (SMBs).

In August, VHA won the Canstar Blue award for Most Satisfied Customers – Small Business Mobile Phone Providers for the second year in a row.

DreamLab goes global

In 2018, Vodafone Foundation continued to help improve the health and wellbeing of Australians through its technology-driven partnerships with the Garvan Institute of Medical Research and Hello Sunday Morning.

In May 2018, the Foundation’s DreamLab app, which helps solve cancer using the processing power of idle smartphones while users sleep, launched in the UK and New Zealand. The DreamLab community now consists of more than 300,000 users, known as ‘dreamers’. In November 2018, the app’s first scientific findings were released, with ‘Project Decode’ discovering 141 new subtypes of cancer.  By donating the computing power to process 75 million research calculations, DreamLab users halved the time it would have otherwise taken to reach this discovery and provided an important research milestone for the program.

Outlook

With strong support from CK Hutchison Holdings Limited and its joint shareholder Vodafone Group Plc, VHA is well-placed to continue achieving steady, modest customer and financial growth, despite ongoing aggressive competition among the Mobile Network Operators.

As it has done in recent years, in 2019, VHA will continue to invest in innovative, competitive mobile and fixed services and products which offer value inclusions and flexible options to Australian customers.

VHA will also continue to invest in its mobile and fixed networks, including the evolution to 5G.

However, VHA has publicly expressed concerns that the Australian Government’s notice to not permit equipment of Chinese suppliers to be used in 5G networks will reduce vendor competition and increase costs for Mobile Network Operators.

VHA also notes the challenges for all retailers in the fixed broadband market due to limited margins associated with reselling the NBN services.

VHA has entered into a Scheme Implementation Deed with TPG Telecom to create a substantial converged telecommunications provider through a merger of equals. Increased investment requires increased scale, and the proposed merger would create a more effective challenger to the dominant telecommunications players in the market. The two companies own highly complementary telecommunications infrastructure, with VHA established in mobile and TPG Telecom established in fixed.

The merger is subject to approval by several regulatory bodies, including the Australian Competition and Consumer Commission (ACCC), and by TPG Telecom shareholders. VHA and TPG Telecom commenced an informal merger review process with the ACCC and it has indicated it will provide its view on the proposed VHA-TPG Telecom merger in April 2019.

HTAL remains committed to its investment in VHA, and will continue to support VHA in the future.

CanningFOKsig[1]

FOK Kin-ning, Canning
Chairman