Chairman’s Message

chariman1I am pleased to provide you with the summary of our performance in 2016, based on the continued improvement in Vodafone Hutchison Australia’s business.

HTAL reported a $63.5 million loss for the year ended 31 December 2016, compared with a loss of $182.9 million in the prior year. HTAL’s share of VHA’s net loss included in HTAL’s results for the year was $68.0 million for the year ended 31 December 2016 compared with a net loss of $187.5 million in 2015 driven by the increase in VHA’s EBITDA, and reduction in depreciation and interest.

HTAL’s revenue from ordinary activities represents interest income received on loans to VHA. HTAL’s revenue from ordinary activities for the year ended 31 December 2016 decreased from $6.0 million in 2015 to $5.8 million.

HTAL’s share of VHA’s EBITDA increased 12.2% to $456.1 million for the full year from $406.4 million in 2015, driven by growth in customer base and ARPU, and commercial optimisation.   In a year on year comparison, HTAL’s share of VHA’s total revenue increased 5.7% and gross ARPU increased 3.6% if incoming revenue impacted by the Australian Competition and Consumer Commission’s reduction of industry mobile termination rates (“MTR”) is excluded.

Driven entirely by the changes in MTR, which were effective 1 January 2016, HTAL’s share of VHA’s revenue declined 8.4% to $1,672.6 million and gross ARPU decreased 12.4% to $45.87.  VHA turned free cash flow positive for the first time since 2010. Operating free cash flow also increased.

VHA highlights

During 2016, VHA achieved continuity of growth, despite competition for mobile customers intensifying in the Australian telecommunications sector both in the products on offer and on the public policy and regulatory front.

With strong support from HTAL and its joint shareholder Vodafone Group Plc, VHA has continued to achieve solid growth through its strategic focus on a strong network, “worry-free” products and excellence in customer service.

Key achievements and highlights in VHA’s performance include:

Growing the VHA business

VHA’s customer base continued to grow with VHA adding 125,000 customers during 2016. Total network customers are up 2.3% to 5.56 million on the back of a 3.2% lift in postpaid customers and 21.4% growth in Mobile Virtual Network Operator customers.  In an increasingly competitive market, VHA prepaid handset ARPU and revenue grew year on year, despite a slight decline in prepaid customer base

Building a network for the future

Following VHA’s multi-billion investment in its network over recent years, VHA continues to be recognised for its network performance.  VHA was ranked as the network with the best combined voice and data performance in major cities with a population over 100,000 in the independent CommsDay P3 network benchmark tests released in December 2016. Of the three Australian mobile networks,  VHA also achieved the biggest improvement from 2015.

During 2016, VHA continued to expand and upgrade its network, adding 111 new sites and performing over 2,200 upgrades across the country. VHA’s 4G services now reach more than 22 million Australians. Its network expansion program includes more than 100 new sites to be built in regional areas by the end of 2017 through VHA investment and the Australian Government’s Mobile Black Spot Program.

Delivering a worry-free mobile experience

VHA has continued to drive connections, customer retention and revenue through its “worry-free” product platform with key products including VHA’s popular $5 Roaming product, MyMix prepaid and Australia’s only money-back Network Satisfaction Guarantee, which reinforces  VHA’s confidence in its network.

Increasing customer sentiment and reducing complaints

VHA customers’ willingness to recommend VHA products and services to others has reached its highest levels in more than six years. In one of the biggest indicators of the significant shift in customer sentiment,

VHA’s brand NPS rose 13 points from January to December 2016. VHA also continues its focus on reducing customer complaints to the Telecommunications Industry Ombudsman, recording a complaints ratio 22% lower than the industry average in the December quarter.

Driving competition in Enterprise

VHA’s Enterprise strategy, focussing on small to medium businesses, is working well with the unit achieving growth in business connections and revenue in 2016. By delivering personalised value and leveraging its global strengths, the unit is building a loyal customer base with a very high willingness of business customers to recommend VHA products and services to others.

Leading the charge for a fairer telco playing field

VHA’s public policy agenda is a key component of VHA’s strategy and business purpose. In 2016, VHA accelerated its campaign to bring increased competition to regional and rural areas through telecommunications policy and regulatory reform, and welcomed several significant developments in the second half of the year with inquiries into domestic roaming and the state of competition within the Australian telecommunications market and a review of the Universal Service Obligation.

Outlook

VHA is well-positioned to continue its growth in 2017. The strength of the VHA business is based on its network, customer propositions and customer service delivery, and it will continue to build on the momentum in these areas of recent years. VHA’s strategy is underpinned by its company purpose – to give customers the freedom and choice to connect the way they want.

During 2017, VHA will launch fixed broadband services via the National Broadband Network to complement its mobile network. The move is in response to strong demand from customers seeking a bundled mobile and fixed broadband solution from VHA. VHA’s entrance into the fixed broadband market will mirror its approach to mobile, which has seen it achieve consistent, steady and sustainable growth.

VHA will take a strategic approach to network expansion and enhancement, retail expansion and marketing activities by leveraging new opportunities to reach existing and potential new customers. To build capability and flexibility in its network, VHA has launched a major five-year program to virtualise its core and IP networks. It will also deliver a Voice Over WiFi product which will allow mobile customers to make and receive voice calls and SMS/MMS over a fixed internet service.

VHA will also continue its focus on delivering products tailored to customer needs, and a seamless, simple customer experience. VHA will also continue its policy and regulatory agenda to bring increased competition and choice to regional Australian customers.

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

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FOK Kin-ning, Canning
Chairman