HKBN Announces Strong FY19 Annual Results

HONG KONG,Oct. 24,2019 -- HKBN Ltd. ("HKBN" or the "Company"; SEHK stock code: 1310) today announced solid growth in financial and business performance for the year ended 31 August 2019 ("FY19"). Through integrating a sequence of mergers and acquisitions,HKBN is being transformed from a telco into a leading integrated one-stop ICT (Information and Communications Technology) solutions provider. Following the completion of WTT Merger in April 2019,HKBN's teams have worked at rapid speed to integrate the network infrastructure,solutions offerings and operations to further boost its competitive position. Key highlights of FY19 results include:

Revenue,EBITDA and Adjusted Free Cash Flow ("AFF") continued to grow year-on-year at 29%,45% and 30%,respectively,to HK$5,108 million,HK$1,709 million and HK$750 million. EBITDA rose by 45% year-on-year mainly due to the consolidation of four months of EBITDA of WTT Holding Corp and its subsidiaries (collectively "WTT Group") amounting to HK$230 million and the exclusion of the amortisation of customer acquisition and retention costs of HK$232 million from calculation of EBITDA,after adopting HKFRS 15. EBITDA before the adoption of HKFRS 15 and excluding WTT's four months contribution was $1,247 million,representing a 6% year-on-year growth.

Enterprise revenue increased by 69% year-on-year to HK$2,324 million,mainly due to the consolidation of four months of WTT Group operating results after the completion of the merger on 30 April 2019. Excluding the contribution from WTT Group,revenue increased by 17% year-on-year to HK$1,619 million.

Residential revenue increased by 9% year-on-year to HK$2,473 million,mainly due to the successful execution of HKBN's multi-play strategy. This allowed the Company to increase its historical full base residential ARPU by 5% year-on-year,from HK$176/month in FY18 to HK$185/month in FY19,while keeping the monthly churn rate low.

The Board of Directors has recommended the payment of a final dividend of 36 HK cents per share (FY18: 30 HK cents per share),resulting in a 25% year-on-year increase in full year payment to 70 HK cents per share (FY18: 56 HK cents per share).

In Enterprise Solutions,unique tri-carrier network diversity is driving strong subscription and ARPU growth

After the completion of WTT Merger,HKBN significantly increased both its presence and capabilities in the enterprise market,enabling the Company to offer integrated ICT solutions at competitive value,and fully exploit the upsell potential to accelerate growth. HKBN is now the only company in Hong Kong powered by tri-carrier fibre networks (HKBN + New World Telecom + WTT),offering unprecedented route diversity and ultra-resilience. During the year,total number of enterprise customers increased from 57,000 to 103,000,while enterprise revenue,excluding the contribution from WTT Group,increased by 17% year-on-year to HK$1,619 million. HKBN's market share by enterprise broadband subscriptions increased to 37% as at 30 June 2019 (based on the latest available OFCA statistics).

In Residential Solutions,unique integrated multi-play is driving solid revenue and ARPU growth

Integrated multi-play continued to be the strategy for the residential market,which delivered competitive fixed-line,mobile and OTT entertainment services to residential customers,and increased ARPU while improving customer stickiness. In FY19,the total number of activated mobile subscribers increased by 5% year-on-year to 277,of which 144,000 also enjoyed HKBN's broadband services. The majority of HKBN residential broadband customers have already ordered at least one OTT set-top box to meet their entertainment needs.

Building a team of Talents with skin in the game to accelerate growth

"We are integrating a sequence of mergers and acquisitions into one united and stronger HKBN. Our Co-Ownership culture is our major Legal Unfair Competitive Advantage (LUCA) that cannot be easily replicated by our competitors. Our upcoming Co-Ownership Plan III Plus will give our top 1,000 out of our total base of ~6,000 Talents,post JOS completion,the chance to put "skin in the game" with a common goal – to achieve assertive market share gains and operating efficiency,'' said Co-Owner and Executive Vice-chairman William Yeung,and Co-Owner and CEO NiQ Lai.

For more details of HKBN's results in FY19,please refer to the announcement:

https://reg.hkbn.net/WwwCMS/upload/pdf/en/e_FY19_AnnualResultsAnnouncement.pdf

Appendix: Shareholder Letter

HKBN Co-Owner and Executive Vice-chairman William Yeung (Left),HKBN Co-Owner and Group CEO NiQ Lai (Centre),and HKBN Co-Owner and CEO – Enterprise Solutions Billy Yeung (Right),proudly celebrated HKBN's outstanding FY19 results and its continued transformation into a fully integrated one-stop ICT solutions provider.

About HKBN Ltd.

HKBN Ltd. (SEHK Stock Code: 1310,together with its subsidiaries,"HKBN" or the "Group") is an investment holding company. HKBN is a leading Information and Communications Technology (ICT) services provider in Hong Kong,offering a comprehensive range of premier ICT services and multi-play services to the enterprise and residential markets respectively,including broadband,data connectivity,managed Wi-Fi,mobile,voice communications,integrated cloud solutions,data centre facilities,business continuity,information security,system integration and OTT entertainment. HKBN's extensive fibre networks cover 2.4 million residential homes and over 7,200 commercial buildings and facilities across Hong Kong. HKBN embraces "Make our Hong Kong a Better Place to Live" as its core purpose,and it takes great pride in developing its Talents into a competitive advantage. HKBN is managed by Co-Owners (supervisory and management level Talents in the Group) who have invested their own savings to buy shares of HKBN Ltd.

Appendix

Shareholder Letter

Dear Fellow Shareholders,

Through fully integrating a sequence of transactions – Y5Zone (Note 1) in 2013,NWT (Note 2) in 2016,ICG (Note 3) in 2018,WTT (Note 4) in 2019 and JOS (Note 5) pending shareholders' approval in 2019,we will completely transform HKBN. At our IPO in 2015,we were residential broadband centric with just over HK$2 billion revenue,whereas today,we have become enterprise centric after a series of business combination with revenue of over HK$5 billion. With our new suite of capabilities,our objective is to transform from a commodity provider of telecom services into the leading Integrated ICT (Information and Communications Technology) partner across residential and enterprise segments,i.e. we are now far more than merely a fixed-line telecom carrier.

Our "Best of Breed" Management Diversity

Core to our integration is our "Best of Breed" approach,i.e. we retain and promote Talents based on mindset and capability rather than whether they are from the acquiring or acquired company. Today,our management team is by far the most diverse amongst our peers,with an awesome mix of veteran and fresh perspectives originating from within HKBN as well as through Talents who joined from acquisitions,merger or regular recruitment in the past few years,which makes us far more ready to take advantage of rapid technology changes. Furthermore,the majority of our newly acquired senior executives intend to join us as Co-Owners as part of our upcoming Co-Ownership Plan III Plus,putting skin in the game towards one common goal.

Table: Profile of HKBN's top 64 executives (top 1.4% of the Group),i.e. Associate Directors and above,as at September 2019.

Company of Origin

Total

% of Team

HKBN

More than 5 years with HKBN

29

45%

5 years or less with HKBN

7

11%

WTT

16

25%

NWT

5

8%

Y5Zone

3

5%

ICG

4

6%

Total

64

100%

Our Co-Ownership Legal Unfair Competitive Advantage (''LUCA'')

At HKBN,our major LUCA is our Co-Ownership culture. With money and time,all other elements of our Company can be replicated by our competitors,but our culture is almost impossible to recreate. Our current Co-Ownership Plan III Plus is essentially a 3% of HKBN market capitalisation incentive which requires both incredible shareholder generosity to accept possible dilution AND incredible management audacity to personally buy the base shares upfront so as to qualify to earn matching free bonus shares by achieving aspirational goals for cumulative AFF/share of between HK$2.53-3.03 between FY19-21,versus HK$0.57 attained in FY18. In short,for Co-Owners to achieve our Co-Ownership Plan III Plus incentive range,we must deliver significant growth in AFF/share in the 3-year period from FY19-21; given our matured market,this means we need to achieve assertive market share gains and operating efficiency gains.

At the current total market capitalisation of HK$22 billion (Note 6),3% is worth approximately HK$700 million. Assuming a doubling of the Co-Ownership Plan II take-up rate to,say,700 Co-Owners,this incentive represents an average of approximately HK$1 million per Co-Ownership Plan III Plus Co-Owner if we can max-out on the incentive parameters. In short,this is how we create distributed wealth for our shareholders,including our Co-Owners.

Our pain/GAIN Alignment

In addition to our Group alignment via Co-Ownership,we offer additional project related alignment via our unique pain/GAIN incentive. HKBN,like any company,has limited resources,so we must have a way for resource prioritisation. For a specific project,if the project team feels strongly about the return,our pain/GAIN scheme allows the team leaders to "underwrite" the project KPIs with a part of their salary (the pain),such that if the KPIs are achieved or exceeded,they will get a multiple of their pain back as GAIN. Conversely if they fail to meet the target,their committed salary will be taken away as pain and donated to a charity of their choice. In short,when we set pain/GAIN KPIs,we have real skin in the game.

Stock Price Chart = Co-Owner Families' Net Worth

For salaried employees,the following HKBN stock price chart is just a detached graphic,whereas for our 330 plus Co-Owners,the chart represents a big part of our families' net worth. At HKBN,we think and execute in the 3-4 year Co-Ownership trenches rather than the half-yearly reporting focus of our competitor peers.

Chart: Total Returns Since HKBN IPO Vs Hang Seng Index

Chart: Total Returns Since HKBN IPO Vs Hang Seng Index

We hope that the above gives you a sense of what makes our HKBN culture unique. Post JOS completion (subject to shareholders' approval),we look forward to welcoming Mark Lunt – Group Managing Director,Eric Or – Managing Director,JOS Greater China,and Stanley Chiu – JOS Group Financial Controller as Co-Owners and pain/GAIN participants.

Sincerely Yours,

William Yeung

NiQ Lai

Co-Owner and Executive Vice-chairman

Co-Owner and Chief Executive Officer

Notes:

1. HKBN Group Limited ("HKBNGL"),an indirect wholly-owned subsidiary of the Company,acquired the entire issued share capital of Y5Zone Limited in 2013 (the "Y5Zone").

2. HKBNGL acquired the entire issued share capital of Concord Ideas Ltd. and Simple Click Investments Limited on 31 March 2016 (the "NWT").

3. HKBNGL acquired the entire issued share capital of HKBN Enterprise Solutions Cloud Services Limited (formerly known as ''I Consulting Group Limited'') on 8 May 2018 (the "ICG").

4. Metropolitan Light Company Limited ("MLCL"),a direct wholly-owned subsidiary of the Company,acquired the entire issued share capital of WTT Holding Corp on 30 April 2019 (the "WTT Merger" or "WTT").

5. HKBNGL proposed to acquire the entire issued share capital of Jardine OneSolution Holdings (C.I.) Limited,Adura Hong Kong Limited and Adura Cyber Security Services Pte Ltd on 23 August 2019 (the "JOS"). For details,please refer to the section under "Significant Investments,Acquisitions and Disposal" on page 12 of this announcement.

6. Assuming full Vendor Loan Notes conversion,i.e. 1.479 billion shares x HK$14.94 stock price as at the close of trading on 23 October 2019.

Photo - https://photos.prnasia.com/prnh/20191024/2621158-1-b?lang=0

Photo - https://photos.prnasia.com/prnh/20191024/2621158-1-c?lang=0