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PCCW Continues To Cut Back, But Market Unimpressed

by Mary Swire, Investors Offshore, Hong Kong

03 December 2002

Hong Kong telecommunications company Pacific Century CyberWorks (PCCW) is trying to address the problem of its legacy fixed-line telephone business, acquired when it bought Hong Kong Telecom from Cable and Wireless. Chairman Richard Li Tzar-kai says he is hunting for investments in information technology or telecommunications and expects the company to be generating net cash flow of HK$500 million by 2004, much of which will be earmarked for investment, after payment of a promised dividend.

Last week, the company announced 529 redundancies, and laid plans to spin off 3,000 jobs to a new unit called Cascade, offering lower salaries or redundancy. In the last 12 months the company has shed nearly 2,000 staff in total.

The company reduced financing costs by 39% in the first half and staff costs by 3%, generating a 15% rise in pre-tax profits to HK$241.2 million. After exceptional costs, there was a net loss of HK$92 million. PCCW's fixed-line sales, which account for 89% of total revenue, fell 9% per cent in the first half of the year and can be expected to continue to fall.

PCCW has made strenuous moves to cut costs during the last 18 months, and after punishing the stock for its TMT focus and bad fundamentals, the market has lately recognised a serious attempt to put things right by uprating PCCW shares.

Mr Li says: "we will not have growth of revenue between now to 2005, but we will have growth in cash flow and earnings". This is partly due to a focus of development activity on data services and Internet access, where revenue rose 7.5% to HK$243 million in the first six months, a quarter of fixed-line sales.

The market didn't however welcome last week's announcements. PCCW's shares fell 3.2% on Friday to HK$1.50; the stock is down 30% this year.

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