Hanaro Telecom Announces Solid 2003 Fourth Quarter Results.Business Editors SEOUL, South Korea--(BUSINESS WIRE)--Feb. 17, 2004 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 : 033630) (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 fourth quarter ended December 31, 2003. The results are audited, unconsolidated, and prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. 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. 4Q03 Highlights -- Foreign investment of US$500 million was secured by a consortium led by American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. Inc, Newbridge Capital and Telecom Venture Group Ltd., resulting in a 39.6% stake in Hanaro. Costs associated with 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 approval of the investment, together with other factors, contributed to a reduced operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. this quarter of 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 $1 trillion. 21.3 billion (US$ 17.9 million) down 49.5% compared with KRW 42.2 billion in 3Q03. -- 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 in 4Q03 was KRW 132.2 billion (US$ 110.9 million), down 12.6% from KRW 151.3 billion in 3Q03. Total 2003 EBITDA was KRW 500.0 billion (US$ 419.3 million), up 27.7% compared with KRW 391.5 billion in full year 2002. -- Revenues decreased slightly by 1.0% to KRW 349.2 billion (US$ 292.8 million) in 4Q03, compared with KRW 352.6 billion in 3Q03. This small decline was largely due to a decrease in subscriber growth, but was not negatively affected by a clean up of 240 thousand inactive in·ac·tive adj. 1. Not active or tending to be active. 2. a. Not functioning or operating; out of use: inactive machinery. b. broadband subscribers in the fourth quarter. -- CAPEX in 4Q03 was KRW 50.4 billion (US$ 42.3 million), down 35.0% from KRW 77.5 from last quarter. Total 2003 CAPEX was KRW 337.5 billion (US$ 283.0 million), down 11.0% from KRW 378.8 billion in full year 2002. * Income Statement figures have been converted for reader convenience at the exchange rate of US$ 1 = KRW 1,192.6, 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 December 31, 2003. Hanaro's Senior Executive Vice President, Mr. Soon-Yub Kwon, commented, "This fourth quarter has further solidified so·lid·i·fy v. so·lid·i·fied, so·lid·i·fy·ing, so·lid·i·fies v.tr. 1. To make solid, compact, or hard. 2. To make strong or united. v.intr. Hanaro`s ongoing financial and operational strength, ensuring that by 2003 year end Hanaro is in a robust position to provide long-term shareholder value. Net income could not be maintained into this quarter, largely due to one-time expenses related to the consummation CONSUMMATION. The completion of a thing; as the consummation of marriage; (q.v.) the consummation of a contract, and the like. 2. A contract is said to be consummated, when everything to be done in relation to it, has been accomplished. of the massive foreign equity infusion and a sizeable one-time write-off of non-performing property and equipment. Hanaro has now secured the cash infusion necessary to implement its short/mid-term business plan on a fully funded basis, and is in the course of streamlining its business portfolio and related CAPEX spending. Hanaro's new management team is feeling enthusiastic and confident in its 2004 business plan, which we believe will deliver net profit to its shareholders for the first time." Operational Review Business Plan for 2004 In 2004, through the strengthening of its management and the improvement of its financial structure, Hanaro plans to achieve KRW 1.5 trillion in revenues and its first net profit since the commencement of its commercial services, and to prepare for a second leap in continuous development. In order to achieve these goals, Hanaro is enhancing its management team and improving its financial structure by 1) solidifying so·lid·i·fy v. so·lid·i·fied, so·lid·i·fy·ing, so·lid·i·fies v.tr. 1. To make solid, compact, or hard. 2. To make strong or united. v.intr. its competitive position in the broadband Internet See broadband. market and improve its profitability, 2) increasing its market share in the local telephony market, and 3) increasing investment efficiency in its corporate leased line 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 business. Extraordinary Expenses A large sum of expenses was increased due to the extraordinary cost relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the company's preparations for the Extraordinary General shareholders' Meetings 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. ("EGM") and the closing cost for foreign equity infusion. Additionally, there was a slight decrease in revenue due to fierce price competition with SOs and small ISPs, which also contributed to a decrease in operating profit and EBITDA compared to the previous quarter. Subscriber Growth (See Table 1) The total broadband subscriber base at the end of 4Q03 was 2,725,563, representing a decrease of 8.4% from 2,975,503 at the end of 3Q03, reflecting the clean up of 240 thousand inactive subscribers. In 4Q03, the proportion of subscribers for products such as VDSL See DSL. VDSL - Very high bit-rate Digital Subscriber Line , Pro, Mid and Lite were 6.1%, 14.7%, 4.7%, and 74.5%, respectively.
Table 1: Number of Subscribers by Service Category
1. Broadband
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Products 4Q03 3Q03 2Q03 1Q03
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VDSL 165,134 144,363 107,188 59,805
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ADSL 1,051,891 1,158,539 1,188,209 1,235,246
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CATV 1,459,319 1,619,885 1,618,449 1,632,351
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LMDS 26,715 32,822 34,736 37,014
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Wireless LAN 22,504 19,729 14,932 9,505
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Total 2,725,563 2,975,338 2,963,514 2,973,921
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2. Voice
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Products 4Q03 3Q03 2Q03 1Q03
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Residential 694,102 718,305 718,590 699,033
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Corporate 263,495 271,741 272,255 259,802
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VoIP 43,784 27,882 25,898 14,492
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Total 1,001,381 1,017,928 1,016,743 973,327
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3. Leased Lines
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4Q03 3Q03 2Q03 1Q03
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Leased Line 6,680 6,922 7,035 6,999
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Record Low Capital Expenditure
Table 2: Capital Expenditures (KRW billion)
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2003
--------------------------------
2001 2002 1Q03 2Q03 3Q03 4Q03 Total
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Backbone 200.2 128.5 23.3 40.0 33.8 14.0 111.1
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Last-mile 348.9 205.9 39.2 95.6 32.4 24.5 191.7
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IDC 12.8 3.1 1.5 0.1 1.5 1.0 4.1
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Others 40.9 41.3 6.0 3.9 9.8 10.9 30.6
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Total 602.8 378.8 70.0 139.6 77.5 50.4 337.50
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CAPEX for the fourth quarter decreased by 35.0% to its lowest level
ever at KRW 50.0 billion from KRW 77.5 billion in the previous
quarter. Total CAPEX for 2003 was KRW 337.5 billion, down 11.0% from
KRW 378.8 in 2002.
Fourth Quarter 2003 vs. Third Quarter 2003 Financial Results
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Revenues (See Table 3: Revenue Breakdown)
The following represents a breakdown of revenues by service category.
Table 3: Revenues breakdown (KRW billion)
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(% of (% of (% of
Service Product 4Q03 Revs) 3Q03 Revs) 2Q03 Revs)
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VDSL, ADSL,
Broadband Cable Modem,
Access LMDS &
Note 1 Wireless LAN 257.3 73.7% 259.0 73.5% 252.0 73.2%
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Local call, VoIP
Telephony and
Note 2 Interconnection 62.3 17.8% 63.8 18.1% 60.9 17.7%
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Leased line
Leased Line service and
Internet Direct 20.4 5.9% 20.4 5.8% 20.4 5.9%
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IDC Server Hosting 8.7 2.5% 8.5 2.4% 8.2 2.4%
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Bundled products
such as PC,
Others solution and
others 0.5 0.1% 0.9 0.2% 2.9 0.8%
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Total 349.2 100.0% 352.6 100.0% 344.4 100.0%
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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 + Intelligent Network + VoIP + Interconnection
In 4Q03, revenues from Broadband Access See broadband and wireless broadband. Service decreased 0.7% to KRW 257.3 billion from KRW 259.0 billion in 3Q03. The Company executed a clean up of 240,000 inactive subscribers, however there was no harmful effect on revenue and profitability. The decrease in revenue of cable modem cable modem Modem used to convert analog data signals to digital form and vise versa, for transmission or receipt over cable television lines, especially for connecting to the Internet. was significant due to price competition with SOs. Revenues from Telephony Services, accounting for 17.8% of the total revenues, decreased by 2.4% to KRW 62.3 billion in 4Q03, from KRW 63.8 billion in 3Q03. This decrease came mostly from a reduction in 'premium rate call' service usage, one of Hanaro's Intelligence Network Services. Revenues from Leased Line Services, which accounted for 5.9% of total revenues, maintained the same revenues as KRW 20.4 billion in 3Q03. Revenues from IDC, accounting for 2.4% of the total revenues, increased by 2.2% to KRW 8.7 billion from KRW 8.5 billion in 3Q03. Operating Costs operating costs npl → gastos mpl operacionales Total operating costs in 4Q03 was KRW 327.8 billion, which included depreciation and amortization, commissions to Customer Care Centers and sales agents, telecommunication equipment lease expenses, interconnection in·ter·con·nect v. in·ter·con·nect·ed, in·ter·con·nect·ing, in·ter·con·nects v.intr. To be connected with each other: The two buildings interconnect. v.tr. fees, wages and salaries, and advertising. Despite the reduction of commission due to the decrease in subscriber numbers, costs increased by 5.6% compared to 3Q03 mainly due to the increase in advertising costs and extraordinary expenses for the EGM held in October and foreign equity infusion. Depreciation and amortization in 4Q03 increased to KRW 110.9 billion, up 1.7%, compared to KRW 109.0 billion in 3Q03. Commissions in 4Q03 totaled KRW 62.7 billion, down 5.9% from KRW 66.6 billion in 3Q03. A drop in commissions is attributable to slowdown of the subscriber growth and the downward adjustment of costs of customer management centers. Wages and Salaries amounted to KRW 20.9 billion in 4Q03, up 20.6% from KRW 17.4 billion in 3Q03. The increase came from KRW 2.8 billion of extraordinary severance and retirement payments made in connection with the restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). of the management team. Telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. equipment lease expense was KRW 41.5 billion, up 1.8% from KRW 40.8 billion in 3Q03. This includes international telephony network lease expense of KRW 3.7 billion. Interconnection fees amounted to KRW 31.9 billion, down 5.3% from KRW 33.6 billion in 3Q03. Advertising expenses totaled KRW 8.7 billion, up 133.8% from KRW 3.7 billion in 3Q03. Repairs and maintenance expense was KRW 16.5 billion, up 20.5% from KRW 13.7 billion in 3Q03. Repairs and maintenance expenses 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. Bad debt expenses were KRW 10.5 billion, up 99.3% from KRW 5.3 billion in 3Q03. The increase attributable to bad debts expense of bad sales credit in 4Q03. Operating Profit (Loss) Hanaro recorded an operating profit in 4Q03 amounting to KRW 21.3 billion, down 49.5% from KRW 42.2 billion in 3Q03. EBITDA in 4Q03 decreased to KRW 132.2 billion, down 12.6%, from KRW 151.3 billion in 3Q03, with an EBITDA margin of 37.9% in 4Q03. Non-Operating Income (Expenses) On the non-operating side, the Company recorded a net loss of KRW 125.0 billion in 4Q03, up 242.6% from KRW 30.5 billion in 3Q03. The expenses increased due to the extraordinary costs associated with the foreign equity infusion and the one-time KRW 61.1 billion loss due to write off of obsolete property and equipment. Net Profit before Income Taxes The Company recorded a net loss of KRW 103.7 billion from net income KRW 5.7 billion largely due to a one-time substantial increase in non-operating expenses. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. Net Loss Per Share Basic net loss per share was KRW 286 in 4Q03, compared to net earnings of KRW 21 per share in 3Q03. Diluted net loss per share was KRW 274 in 4Q03 since there was new share issuance of 182,812,500 shares 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 See broadband. 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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