Hanaro Telecom Announces Robust 2003 Second Quarter Results.Business Editors SEOUL, South Korea--(BUSINESS WIRE)--Aug. 14, 2003 Hanaro Telecom Hanaro Telecom, Inc. is a Seoul-based Korean telecommunications company, one of the largest providers of high-speed broadband internet access in South Korea. The company also is one of the largest telephone companies in South Korea, one of only two companies licensed to provide , Inc. (KOSDAQ KOSDAQ Korean Securities Dealers Automated Quotations : 33630) (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : HANA HANA High-Definition Audio Video Network Alliance HANA Highway Africa News Agency HANA Hawaii Association of Nurse Anesthetists HANA Houston Association of Network Administrators ) ("Hanaro" or "the Company"), one of Korea's largest broadband Internet access Broadband Internet access, often shortened to just "broadband", is high speed Internet access—typically contrasted with dial-up access over modem. Dial-up modems are generally only capable of a maximum bitrate of 56 kbit/s (kilobits per second) and require the full use of a and local call service providers, today announced the results of its operations for the second quarter ended June 30, 2003. The results are unaudited, unconsolidated, and prepared in accordance with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting in Korea.
2Q03 Highlights
-- EBITDA increased 30.3% in 2Q03 to KRW 122.5 billion (US$ 102.7
million) from KRW 94.0 billion in 1Q03, reinstating Hanaro's
previously uninterrupted EBITDA ascent.
-- Revenues increased 4.7% to KRW 344.4 billion (US$ 288.7
million) in 2Q03 from KRW 329.1 billion in 1Q03.
-- Operating costs decreased slightly by 2.7% to KRW 326.4 billion
(US$ 273.6 million) in 2Q03 from KRW 335.5 billion in 1Q03.
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* Income Statement figures have been converted for reader convenience at the exchange rate of US$1 = KRW KRW In currencies, this is the abbreviation for the Korean Won. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 1,1931.1, which is the "Korea Exchange Bank Oehwan Bank or Korea Exchange Bank (KEB) (KSE: 004940) is South Korea's only exchange bank company. It is headquartered in Seoul, and was established in 1967. closing standard rate" on June 30, 2003. Hanaro's Vice President, Mr. Young Wan Cho, commented, "Although we are pleased with Hanaro's second quarter results, which provided the return to upwards trending financial performance and once more verified Hanaro's leading brand and service position, we are resolutely res·o·lute adj. Firm or determined; unwavering. [Middle English, dissolved, dissolute, from Latin resol focused on overcoming our current short term liquidity issue. Resulting from various industry and ownership structural intricacies, Hanaro's recently appointed CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Mr. Yoon and management are working to remedy Hanaro's current liquidity requirements through initiatives such as issuing commercial paper. We are confident that in first solving our short-term financial challenges, Hanaro will be in a strong position to re-evaluate long-term improvements to our financial structure to achieve continuous operational gains and efficiencies." Operational Review Positive Trend Restored Hanaro restored its positive earnings in 2Q03 recording revenues of KRW 344.4 billion with an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become of KRW 122.5 billion and EBITDA margin of 35.6%. The Company achieved operating profits Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. of KRW 18.0 billion with a 2.7% decrease QoQ in operating costs operating costs npl → gastos mpl operacionales . Revenues and costs improved significantly due to the easing of market competition during the period. Subscriber Growth (See Table 1) The total broadband subscriber base at the end of 2Q03 was 2,963,514, representing a slight decrease of 0.35% from 2,973,921 at the end of 1Q03, reflecting the discontinuation dis·con·tin·u·a·tion n. A cessation; a discontinuance. Noun 1. discontinuation - the act of discontinuing or breaking off; an interruption (temporary or permanent) discontinuance of promotional initiatives. In 2Q03, the proportion of subscribers for products such as VDSL See DSL. VDSL - Very high bit-rate Digital Subscriber Line , Pro, Mid and Lite were 3.62%, 16.92%, 3.77%, and 75.69%, respectively. Table 1: Number of Subscribers by Service Category 1. Broadband
Products July '03 2Q03 1Q03 4Q02 3Q02
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VDSL 122,472 107,188 59,805 - -
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ADSL 1,177,415 1,188,209 1,235,246 1,294,368 1,310,144
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CATV 1,619,559 1,618,449 1,632,351 1,539,690 1,501,519
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LMDS 34,108 34,736 37,014 38,293 39,531
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Wireless LAN 16,843 14,932 9,505 5,175 1,782
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Total 2,970,397 2,963,514 2,973,921 2,877,526 2,852,976
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2. Voice
Products July '03 2Q03 1Q03 4Q02 3Q02
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Residential 720,011 718,590 699,033 679,977 643,139
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Corporate 274,035 272,255 259,802 250,057 336,942
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VoIP 27,164 25,898 14,492 9,818 937
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Total 1,021,210 1,016,743 973,327 939,852 981,018
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3. Leased Lines A private communications channel leased from a common carrier. Most digital lines require four wires (two pairs) for full-duplex transmission. (communications, networking) leased line
Products July '03 2Q03 1Q03 4Q02 3Q02
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Leased line 3,465 3,287 2,948 2,641 2,085
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Internet dedicated 3,863 3,748 4,051 4,068 4,004
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Total 7,328 7,035 6,999 6,709 6,089
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Resolutions of Extraordinary Shareholders' Meeting shareholders' meeting n. a meeting, usually annual, of all shareholders of a corporation (although in large corporations only a small percentage attend) to elect the Board of Directors and hear reports on the company's business situation. Hanaro held an Extraordinary Shareholders' Meeting ("EGM EGM Electronic Gaming Machine EGM Electronic Gaming Monthly EGM Extraordinary General Meeting EGM Expert Group Meeting EGM Estudio General de Medios (Spanish: General Means Study) EGM Emergency General Meeting " or "the Meeting") and a Board of Directors Meeting immediately following the EGM on August 5, 2003. Five items were proposed for approval at the EGM: 1) Approval of per share price of rights issue below par value, 2) Approval of new rights issue, 3) Amendment of the Articles of Incorporation The document that must be filed with an appropriate government agency, commonly the office of the Secretary of State, if the owners of a business want it to be given legal recognition as a corporation. , 4) Appointment of standing director, and 5) Appointment of non-standing director. With the exception of item 4, the Company failed to obtain shareholder approval on the proposed agenda. Through the EGM, the Company intended a new common shares rights issuance amounting to KRW 500 billion. The rights issuance was to be in a form of public offering after initially giving existing shareholders the right of first refusal Right of First Refusal In general, the right of a person or company to purchase something before the offering is made available to others. Notes: For example, a football team may have the right of first refusal on a player's contract. . However, by failing to obtain approval for items 1, 2, and 5 at the Meeting, the proposed new rights issue has been cancelled. Appointment of New CEO Immediately after the EGM, Mr. Chang-Bun Yoon was unanimously elected as the Company's new CEO by the Board. Mr. Yoon commenced his responsibilities as Hanaro CEO immediately thereafter. Previously Mr. Yoon served as the President of the Korea Information Society Development Institute (KISDI KISDI Korea Information Society Development Institute ), a leading think-tank and government research institute for policy development for the information technology sector in Korea. Mr. Yoon received his doctorate in Finance from Northwestern University Northwestern University, mainly at Evanston, Ill.; coeducational; chartered 1851, opened 1855 by Methodists. In 1873 it absorbed Evanston College for Ladies. , his MBA MBA abbr. Master of Business Administration Noun 1. MBA - a master's degree in business Master in Business, Master in Business Administration with a concentration in Finance and International Business from Columbia University Columbia University, mainly in New York City; founded 1754 as King's College by grant of King George II; first college in New York City, fifth oldest in the United States; one of the eight Ivy League institutions. , and a bachelor's degree in Industrial Engineering from Seoul National University Not to be confused with the University of Seoul. Seoul National University (SNU) is a national research university in Seoul, South Korea. Founded in 1946, SNU was the first national university in South Korea, and served as a model for the many national and public in Korea. Brand Recognition For the third consecutive year, Hanaro won first place in the high-speed Internet See broadband. service category of the National Customer Satisfaction Index's (NCSI (Network Communications Services Interface) Also called "nixie," it is a protocol used to handle serial port communications on a network. NCSI applications talk to the NCSI driver rather than directly to the COM port, which allows redirection of the data to a ) April 2003 survey, once again highlighting the Company's strong brand image and reputation of excellence. The NCSI survey is conducted by the University of Michigan (body, education) University of Michigan - A large cosmopolitan university in the Midwest USA. Over 50000 students are enrolled at the University of Michigan's three campuses. The students come from 50 states and over 100 foreign countries. in the U.S., the Korea Productivity Center, a quasi-government organization, and Chosun Daily Newspaper. The survey evaluates the degree of customer satisfaction of products or services utilizing an evaluation model co-developed by the Korea Productivity Center and the National Quality Research Center of the University of Michigan. Capital Expenditure Table 2: Capital Expenditures (Unit: KRW billion)
2003
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2001 2002 1Q03 2Q03
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Backbone 200.2 128.5 23.3 23.3
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Last-mile 348.9 205.9 39.2 111.4
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IDC 12.8 3.1 1.5 0.1
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Others 40.9 41.3 6.0 4.8
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Total 602.8 378.8 70.0 139.6
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CAPEX for the second quarter increased by 99.4% to KRW 139.6 billion from KRW 70.0 billion in 1Q03. This was due to a significant increase in last-mile CAPEX to KRW 111.4 billion, of which KRW 20.3 billion was spent for VDSL. Second Quarter 2003 vs. First Quarter 2003 Financial Results Revenues (See Table 3: Revenue Breakdown) The following represents a breakdown of revenues by service category. Table 3: Revenues breakdown (Unit: KRW billion)
Major Service Product 2Q03 (% of 1Q03 (% of 4Q02 (% of
Revs) Revs) Revs)
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Broadband VDSL, ADSL, Cable
Access Service Modem, LMDS &
Note(1) Wireless LAN 252.0 73.2% 240.6 73.1% 253.9 72.8%
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Telephony Local call,
Service VoIP and
Note(2) Interconnection 60.9 17.7% 55.9 17.0% 59.7 17.1%
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Leased Line Leased line
Service service and
Internet Direct 20.4 5.9% 21.3 6.5% 17.5 5.0%
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IDC Server Hosting 8.2 2.4% 7.9 2.4% 7.5 2.2%
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Bundled products
Others such as PC,
solution and
others 2.9 0.8% 3.4 1.0% 10.2 2.9%
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Total 344.4 100.0% 329.1 100.0% 348.8 100.0%
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Note 1: Broadband revenue includes voice revenue from xDSL bundled with voice. Note 2: Telephony service = Local call + International Telephony + PABX (Private Automatic Branch eXchange) Same as PBX. PABX - Private Automatic Branch eXchange + Intelligent Network + VoIP + Interconnection In 2Q03, revenues from Broadband Access See broadband and wireless broadband. Service increased 4.7% to KRW 252.0 billion from KRW 240.6 billion in 1Q03. This is attributable to: 1) the easing of market competition during 2Q03 and 2) the revenue generation from the previous quarter's new subscribers as they initiate payment for the services. The aggressive promotional campaigns such as discounts and free trials have discontinued in order to promote healthy competition among the service providers, positively contributing to increased revenue generation. Revenues from Telephony Services, accounting for 17.7% of the total revenues, increased by 9.0% to KRW 60.9 billion in 2Q03, from KRW 55.9 billion in 1Q03. Although the Company saw a slight decrease in revenues from voice bundled with xDSL and VoIP, there was a noticeable increase of the residential and corporate voice revenues. Revenues from Leased Line Services (including Internet dedicated lines), which accounted for 5.9% of total revenues, decreased 4.0% to KRW 20.4 billion. Revenues from IDC, accounting for 2.4% of the total revenues, increased by 4.2% to KRW 8.2 billion from KRW 7.9 billion in 1Q03. Revenues from Others, accounting for 0.8% of total revenues, decreased by 15.8% to KRW 2.9 billion from KRW 3.4 billion in 1Q03. The decrease was mainly due to a drop in revenues from PC Plus. Operating Costs Total operating costs in 2Q03 was KRW 326.4 billion, which included depreciation and amortization, commissions to Customer Care Centers and sales agents, telecommunication equipment lease expenses, interconnection fees, wages and salaries, and advertising. With the exception of commission and interconnection fees, most other costs showed an encouraging downward trend. Depreciation and amortization in 2Q03 increased to KRW 104.5 billion, up 4.1%, compared to KRW 100.4 billion in 1Q03. Commissions in 2Q03 totaled KRW 84.8 billion, down 1.3% from KRW 86.0 billion in 1Q03. The Company made an upward adjustment in the commission rate in 1Q03 to KRW 70,000 on average. However, to reduce overall costs, the Company slightly lowered the acquisition commission upper limit to KRW 60,000 in mid April. The real effect is expected to appear in 3Q03 since commissions are paid in arrears Adv. 1. in arrears - in debt; "he fell behind with his mortgage payments"; "a month behind in the rent"; "a company that has been run behindhand for years"; "in arrears with their utility bills" behindhand, behind . Wages and Salaries amounted to KRW 18.2 billion in 2Q03, up 0.4% from KRW 18.1 billion in 1Q03. Telecommunications equipment lease expense was KRW 40.3 billion, down 7.2% from KRW 43.4 billion in 1Q03. The decrease was due to a slowdown of subscriber growth and acquisition of IRU Iru (ī`r  ), in the Bible, Caleb's eldest son. or indefeasible That which cannot be defeated, revoked, or made void. This term is usually applied to an estate or right that cannot be defeated. indefeasible adj. cannot be altered or voided, usually in reference to an interest in real property. right of use. Interconnection fees amounted to KRW 32.7 billion, down 0.7% from KRW 32.9 billion in 1Q03. The decrease is mainly due to an additional settlement in 1Q03 of interconnection fee incurred last year which amounts to KRW 2.85 billion. Advertising expenses totaled KRW 5.7 billion, down 33.1% from KRW 8.6 billion in 1Q03. Inventories sales cost, which occurred mostly from PCs and LAN Card See network adapter. sales, amounted to KRW 1.7 billion, down 63.1% from KRW 4.5 billion in 1Q03. Repairs and maintenance expense was KRW 13.6 billion, up 6.2% from KRW 12.8 billion in 1Q03. Repairs and maintenance expense included telecommunications facilities In telecommunication, the term facility has the following meanings: 1. A fixed, mobile, or transportable structure, including (a) all installed electrical and electronic wiring, cabling, and equipment and (b) all supporting structures, such as utility, ground network, maintenance costs and costs for system upgrading/revamping. Repairs and maintenance expenses for telecommunications equipment increased whereas the expenses for software decreased. Operating Profit (Loss) Hanaro recorded an operating profit in 2Q03 amounting to KRW 18.0 billion due to the easing of market competition through Clean Marketing. The Clean Marketing prohibits any additional promotional benefits given to customers other than those specified in the official service provision and benefits guideline. This is to reduce unnecessary marketing costs resulting from unhealthy competition among the service providers and to increase profitability through the fair market competition. The Company discontinued such promotional campaigns as discounts and free trial periods. EBITDA in 2Q03 increased to KRW 122.5 billion, up 30.3%, from KRW 94.0 billion in 1Q03, with an EBITDA margin of 35.6% in 2Q03. Non-Operating Income (Expenses) On the non-operating side, the Company recorded a net loss of KRW 31.6 billion in 2Q03, down 33.4% from KRW 47.5 billion in 1Q03. Interest income and interest expense was KRW 5.4 billion and KRW 40.7 billion, respectively. Net Losses before Income Taxes Net losses before income taxes were KRW 13.6 billion in 2Q03 compared to KRW 53.8 billion in 1Q03 Basic Net Loss Per Share and Diluted Net Loss Per Share Basic net loss per share was KRW 49.0 in 2Q03, compared to KRW 193.0 for 1Q03. Diluted net loss per share was the same as the basic net loss per share since there was no share issuance during the third quarter. This release contains "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " that are based on the Company's current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements, as a result of a number of factors, including without limitation, the Company's history of operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. ; the Company's inability to generate sufficient cash flow from its operations to meet its operating needs and its reliance on equity and debt financings Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay to fund its operations; the decline in the prices for communications services; increasing competition in the telecommunications sector in Korea and other factors beyond the Company's control. Investors are directed to Hanaro Telecom's reports and documents filed from time to time with the U.S. Securities and Exchange Commission for additional factors that should be considered prior to investing in Hanaro Telecom's securities. Hanaro Telecom does not intend to update or otherwise revise the forward-looking statements in this release, whether as a result of new information, future events or otherwise. Because of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this release might not occur in the way the Company expects, or at all. Investors should not place undue reliance on any of the forward-looking statements. Company Information Founded September 23, 1997, Hanaro Telecom Inc., is one of Korea's largest high-speed Internet service and local telecommunications providers. The Company, which was established in 1997 and commenced commercial operations on April 1, 1999, is the only competitive local exchange carrier in Korea licensed to provide voice telephony services across its own last-mile access network. It also provides broadband Internet access, multimedia content and corporate data services bundled with voice telephone in an integrated package. Hanaro deploys multiple broadband last mile access technologies to ensure rapid rollout in high-density areas while preserving access speeds and minimizing coverage overlaps as well as capital expenditure. Hanaro listed on the NASDAQ through issuance of American Depository Receipts American Depository Receipt n. called in the banking trade an ADR, it is a receipt issued by American banks to Americans as a substitute for actual ownership of shares of foreign stocks. (ADRs) on March 29, 2000. Its common shares are listed on KOSDAQ. For additional information, please visit Hanaro Telecom's Investor Relations Investor relations The process by which the corporation communicates with its investors. website: http://ir.hanaro.com/eng Corporate Headquarters 10/F Ilsan Information Center, 726 Janghang-2dong, Ilsan-ku, Koyang-shi, Kyunggi-do, Korea, 411-837 |
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