City Telecom bets on free TV business

Firm to stop dividend payments for 3 years to save for heavy investment

City Telecom (Hong Kong) Ltd cautioned that it may terminate dividend payments in the next three years as the company will invest heavily in the free television business in the period.

The original local telecommunication services provider in May had disposed its telecommunication businesses entirely and booked a gain of HK$3.52 billion ($454 million). Since then the company became a multimedia company which is determined to operate free television business in Hong Kong by recruiting television drama specialists and constructing multi media centers.

The company is holding a net cash of HK$2.6 billion to support the future multimedia business. The company plans to invest HK$800 million to build a TV & multimedia production center and HK$300 million to purchase equipments in the next three years. The production center is expected to go into full operation in 2014.

The specific gain on telecommunication business disposal has offset the operating loss of HK$73.8 million that made the company's net profit in 2012 to skyrocket to nearly HK$3.7 billion, representing a 9.63 times surge from a year ago. The company recommended a final dividend payment of HK$0.15 per share.

Turnover from continuing operations amounted to HK$3.8 million which represented the license fee received from the telecom business, and the income received from artiste management functions.

"The next three years will be the peak period in making the investment in free television business so that it is difficult for the company's net profit level to reach the level before disposing the telecommunication businesses," City Telecom (Hong Kong) Chairman Ricky Wong said in the Wednesday annual result press conference. He added that the company may stop dividend payments over the next three years as it will need cash to invest in the new free television business.

City Telecom had paid a special dividend of HK$2.5 per share in June this year after it booked the specific disposal gain.

Looking ahead, Wong is confident that the company will finally be granted a licence to operate free television business.

"We are committed to launch large-scale talent recruitment exercises to hire more than 1,000 professionals once the government grants the license to us. At present, we have no intention of making any layoffs," Wong noted.

Wong also reiterated that the company will not sell the licenses of its drama series to overseas countries first to get license income just because it currently has not obtained the free television license from the Hong Kong government.

Meanwhile, the company will also strive to invest in high quality bonds so that the investments can generate some interest income to the company in the investment peak season period.

In December 2009, City Telecom, submitted an application for a domestic free television program service license, while Fantastic Television (a subsidiary of iCable) and Hong Kong Television Entertainment (a subsidiary of PCCW) both did the same in early 2010.

The Communications Authority had already finished vetting the three license applications and submitted its recommendations to the Chief Executive in Council for approval during 2011. However, the government has not made any final license approval until now.