Hutchison 3G Australia Performance

Hutchison Telecommunications (Australia) Limited announced its full year results for 2002. Chief Executive Kevin Russell ( inset ) said the results reflected a challenging year in which Hutchison met its two primary targets: solid growth in Orange to achieve positive EBITDA; and, with 3, to position for launch and establish an edge over competitors in the provision of new wireless multimedia services.

"What we have done represents a dramatic turnaround in Orange and a major achievement in 3," Mr Russell said.

"We will now push ahead towards profitability in Orange and exploiting a significant window of opportunity with 3," he said.

Key points for Hutchison in 2002 included:

2G EBITDA loss of $14.1 million, a dramatic improvement on the 2001 loss of $112.9m, including a second half EBITDA positive result of $2.1m

Total operating revenue of $227.3m

Orange mobile business contributed $192.7m to total revenue, an increase of 55% over the previous year

37% growth in Orange Mobile subscriber base, adding 70,975 post-paid customers to reach a total of 263,501

Capital expenditure within budget in 3 and dramatically reduced in Orange

Pre-operating costs for 3 of $84.7m contributed to a net loss of $197.3m
Mr Russell said it was a credit to the dedicated work of the 3 team in Australia and global development teams operating in three continents that 3 services were close to launch well ahead of competitors.

Hutchison Australia's 3 team was on course, within budget and continuing to track closely behind its sister organisations in Italy and the UK, he said.

"Our plan remains to fast follow the launches in these markets. Service trials are well underway in the UK and Italy and we will start our own here by the end of February," he said.

A campaign to recruit up to 600 staff for 3 retail stores in Sydney, Melbourne and Brisbane was under way, as part of a well-developed product distribution plan, Mr Russell said. Other details of the go-to-market strategy, including services and pricing, would be revealed close to launch, he said.

In the 3 business, key initiatives in 2002 included the acquisition of network assets from Lucent Technologies Australia Pty Limited (Lucent), the completion of network construction for launch in Sydney, Melbourne and Brisbane and a seven-year agreement with Ericsson Australia Pty Limited for the implementation of a network and IT managed services unit.

In readiness for launch of services, 3 is currently in advanced stages of the technical integration, stabilisation and end-to-end testing of the network, platforms, operating systems and devices.

This and other work has resulted in pre-operating costs of $84.7 million, which were expensed during the 12 months to 31 December 2002, contributing to a net loss of $197.3m. The costs include certain salaries and wages, professional fees and overheads as well as other network deployment costs associated with the integration of the network assets acquired in the Lucent transaction.

The turnaround in Orange was delivered through customer and revenue growth in Orange Mobile and ongoing rationalisation of operating costs across the Company's businesses. Profitability in Orange was also enhanced by dramatically reduced capital expenditure, down from $254.2m in 2001 to $31.1m last year.

Mr Russell said the Orange results reflected Hutchison's continuing commitment to tight cost control and a strategy pitched toward solid profitable growth, rather than irrational pursuit of customer numbers.

"The breakthrough to positive EBITDA in just over two years is a strong performance by any international benchmark, but it is even more impressive when you take into account the size of the turnaround in 2002," he said.

"It is a record of solid growth in EBITDA in the past 18 months which positions us to move confidently toward free cash flow. We estimate that by the time of next year's report, we will fully cover our 2G interest costs. At that point, Orange would be self-funding."

Mr Russell said it was a credit to the commitment of Hutchison's people that cost reduction initiatives were implemented in the areas of customer acquisition, customer service and operational support without any deterioration in service levels.

"In fact in some areas, such as the time taken to resolve customer issues, we improved performance," he said.