Hutchison Telecommunications (Australia) Limited (HTA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Hutchison Telecommunications (Australia) Limited 2022 Annual General Meeting. I would now like to hand the conference over to your Chairman today. Please go ahead.

Well, good morning, everyone. My name is Barry Roberts-Thomson, and I am the Deputy Chairman of the Board and Chairman of the meeting. Due to the ongoing impact of COVID-19 pandemic, which is still evolving by the day, the 2022 Annual General Meeting is being conducted as a hybrid meeting. The Board considered it prudent to take steps to encourage shareholders to safely participate in the meeting. This included submitting direct votes, proxy votes and questions ahead of the meeting and being able to attend the meeting live and ask questions in real time using an online webcast platform provided by the company's share registry, Link Market Services. I'm very pleased, therefore, to welcome all shareholders present physically at the meeting and those joining online today through the online webcast platform. Shareholders using the online platform via their personal desktops, laptops, smartphones and tablet devices will be able to listen to the meeting in real time and ask questions online during the meeting as well as cast their votes on the resolutions as set out in the Notice of the Meeting. I also thank those shareholders who have lodged their voting instructions via their voting forms in the manner as set out in the Notice of the Meeting. With me in person today in Sydney are Mr. Justin Gardener, Nonexecutive Director and Chairman of the Audit and Risk Committee; Mr. John Scanlon, Nonexecutive Director; Jason Hayes and [indiscernible], representatives from the company's auditors, PricewaterhouseCoopers; and Swapna Keskar, our Joint Company Secretary. I'd also like to introduce my fellow directors who are all joining online: Mrs. Susan Chow and Mr. Cliff Woo, joining us online from Hong Kong; and Ms. Melissa Anastasiou, joining us online from New Zealand. I also welcome our finance team, legal advisers and share registry. Now the joint company secretary has advised that there is a quorum present for the meeting. Therefore, I formally declare open 2022 Annual General Meeting of the shareholders. The agenda for today's meeting is as follows. Firstly, I will present my address, and then we will proceed with the formal business of the meeting and the 4 resolutions put to the meeting today. Well, ladies and gentlemen, I'm pleased to provide you with an update on the 2021 performance and the future plans of Hutchison Telecommunications (Australia) Limited and its controlled entities, hereinbelow referred to as the group. Following the merger of Vodafone Hutchison Australia Limited with TPG Corporation Limited in June 2020, HTAL's investment in the merged entity, TPG Telecom Limited, was diluted from 50% to 25.05%. This comprises of 11.14% interest directly held by HTAL's wholly owned subsidiary, Hutchison 3G Australia Holdings Pty Limited, and a 13.91% interest in TPG indirectly held by H3GAH through its 50% owned joint venture, Vodafone Hutchison (Australia) Holdings Limited, which has a direct 27.82% interest in TPG. HTAL's principal activity remains its investment in TPG. HTAL's revenue from ordinary activities, which represents interest income, decreased from $1.3 million in the corresponding period in 2020 to $100,000, due to the lower interest income for the year ended the 31st December 2021 as a result of the termination of the working capital facility previously provided to VHA prior to the TPG merger. During 2021, the group reported a net loss of $21.7 million compared with a profit of $825.4 million in 2020, mainly due to lower interest income; recognition of a net gain of $677.3 million resulting from a decrease of HTAL's investment in TPG in 2020; and HTAL's share of net loss of equity accounted investments of $19.9 million compared with a share of net profit of $148.3 million in 2020, mainly due to decrease in TPG's net profits. Dividends of $32.1 million that were received from TPG by H3GAH during 2021 were advanced to HTAL by way of an interest-free loan. The proceeds of $32.1 million, along with the cash on hand of HTAL, was then used to fund a partial repayment of $49.7 million of a related party borrowing facility. This dividend income is recognized as a reduction in the carrying amount of the investment in the group's consolidated financial statements. HTAL's operating expenses for the year ended 31st December 2021 had increased from $1.4 million in the prior corresponding period to AUD 1.9 million. In April 2022, dividends of $17.6 million that were received from TPG by H3GAH were deposited into the HTAL's bank account. The Board of HTAL will review HTAL's financial position to determine the use of these proceeds and, subject to HTAL Board's consideration, is expected to be used to service HTAL debt. VHAH also received a dividend of $44 million with the VHAH Board to review and decide on how to use these funds. As I said before, HTAL's principal activity is in its investment in TPG, so I'd like to talk about the achievements and highlights of TPG for year 2021. TPG operates a number of leading mobile and Internet brands, including Vodafone, TPG, iiNET, Internode, Lebara, AAPT and Felix, providing consumers with a comprehensive portfolio of fixed and mobile products in the Australian telecommunications market. In 2021, TPG announced that it had EBITDA of $1.731 million, resilient amid COVID-19 and industry headwinds; strong cash flow result, reflecting merger benefits and disciplined financial management; a final dividend of $0.085 per share, fully franked, up 13% on the final dividend in the final year 2020; returning momentum in mobile subscriber numbers, up 33,000 since November 2021; strong fixed wireless growth, 80,000 subscribers in December 2021 to double in 2022; continued metro 5G upgrades with a further 1,000-plus sites to be delivered in 2022; a strategic review of passive towers and rooftops infrastructure nearing completion; and on track to deliver $125 million to $150 million synergy -- merger synergy targets in 2022, a year ahead of schedule. On the 21st of February 2022, TPG announced a regional multi-operator core network agreement with Telstra Corporation Limited, which will enable TPG to provide its subscribers with 4G and 5G coverage for data, calls and messaging from over 3,700 Telstra sites in regional and rural Australia. The agreement, which is subject to regulatory and other approvals, has the capacity to significantly expand TPG's mobile network footprint through an increase in regional sites. TPG announced a total revenue of $5,293 million, EBITDA of $1,731 million and a net profit attributable to shareholders of $110 million for the year ended 31st December 2021. Now for further details and an explanation of TPG's results for the year ended 31st December 2021, you may refer to TPG's 2021 annual report, which was lodged with the ASX on the 24th of February 2022. Now to the outlook. HTAL's financial position is directly impacted by TPG's financial position and the performance in the year ahead. The COVID-19 pandemic continues to persist, and containment policies by the Australian government and governments around the world remain in force to prevent the spread of COVID-19. The level of restrictions and measures to limit movement into and out of Australia and also domestically is ongoing and continues to impact inbound-related connections, visitor revenue and international roaming revenues of TPG. While there is prevailing uncertainty of the extent and duration of the COVID-19 pandemic, it is reasonably likely that the pandemic, including other potential variants, will continue to have an impact on the group's results in future periods. HTAL remains committed to its principal activity, being its investment in TPG, and will continue to support TPG's business and strategies in the future. I thank HTAL's shareholders for their ongoing support and for joining the Annual General Meeting either in person or via the online platform. Now the Notice of the Meeting was distributed on the 28th of March 2022, and I propose to take the Notice of the Meeting as read. Shareholders were also provided with a voting form and an online platform guide, providing instructions on how to ask questions and vote at this meeting through the online platform. We will remind shareholders of the arrangements for questions and voting when we get to the formal business of the meeting. If you are attending today's meeting via the online platform and you lose connection to the meeting at any time, you can log back into the online platform by returning to the meeting link specified in the Notice of Meeting and following the prompts. You will then receive an automated e-mail with a recovery link for you to click on. This link -- click on this link to reconnect to the meeting. Alternatively, please call our share registry, Link Market Services, on 1800 990 363 for assistance. That number is also printed at the bottom of the online platform guide. Now before we move to the formal business of the meeting, I'll ask our joint company secretary to explain some procedures. Swapna?

Thank you, Barry. In accordance with the company's current constitution and as set out in the Notice of Meeting, the Chairman has determined that voting on each of the resolutions will be conducted by a poll. The poll for each resolution is now open and will close 5 minutes after the conclusion of the formal part of the meeting. The results of the poll will be released to the ASX and will be available on the company's website as soon as possible after the meeting. The voting eligibility of shareholders is outlined in the Notice of Meeting. Shareholders who are attending via the online platform and who has neither exercised a direct vote before this meeting nor appointed a proxy or attorney to vote on their behalf may cast a direct vote during this meeting using the electronic voting card received when you registered via the platform. Similarly, proxy holders attending online can submit their electronic voting card received when they registered via the online platform. If you have any questions about casting your vote online, please refer to the online platform guide, which can be accessed from the Download section at the bottom right-hand side of your screen or call the help number 1800 990 363, also showing on your screen. Shareholders and proxy holders who are attending the meeting in person today and who have not exercised a direct vote before this meeting should have received a yellow voting card on entry to the meeting. If you did not receive a yellow voting card, please contact the representatives of Link, who are located at the registration desk just outside this room. Shareholders and proxy holders holding yellow voting cards will be invited to cast their votes on all resolutions by completing the voting card and placing them in voting boxes. Representatives of Link will circulate the voting boxes after all resolutions have been discussed and before the poll closes. Before the vote is taken for each item, the resolution to be voted on, the direct votes and proxies for and against the item will be displayed on the screen behind me and will be shown on the webcast for those participating online. These figures will be as of the closing time for receipt of proxies at 10 a.m. on 2nd of May 2022. If a shareholder who submitted a proxy has attended the meeting today and revoked their proxy or if a shareholder has cast a direct vote before the meeting but has instructed the company or the share registry before the commencement of the meeting that they wish to revoke their previously submitted direct vote, these numbers have changed. As set out in the Notice of Meeting, the Chairman will vote all directed proxies in accordance with the directions provided by shareholders and will vote all open proxies in favor of all resolutions. This includes proxy votes held by the Chairman, which will be voted in favor of resolution 4 or the adoption of the remuneration report, unless specifically directed otherwise. In accordance with the Corporations Act, other than in relation to proxies granted to the Chairman, all directors and their closely related parties are not eligible to vote on this resolution and will abstain from voting. Shareholders and proxy holders who are present at the venue can ask questions in the usual way. Only shareholders and proxy holders holding yellow voting cards or blue nonvoting cards will be entitled to ask questions from the floor. Visitors holding red visitor attendance cards are not entitled to vote or speak at the meeting. When directed by the Chairman, state your name clearly and your question. [Operator Instructions] You can submit questions now or at any time prior to the vote on the relevant resolution, and they will be dealt with at the appropriate time. If you have a question already prepared, please submit it now so that as many questions as possible can be answered. Questions must relate to the relevant item of business. There will be an opportunity to ask general questions towards the end of the meeting. I ask that you keep your questions short and to the point so that as many shareholders as possible have the chance to ask a question. All questions will go through to the Chairman and myself. The Chairman will read out the questions and will either answer it or pass it to the most appropriate person. We reserve the right to rule out questions not relating to the meeting or out of order. We will also not answer questions that are the same or substantially similar to questions that have already been received. Otherwise, we will endeavor to answer as many of the questions asked as we can. For each item of business, we will address questions from the floor first to allow as much time as possible for shareholders who wish to ask questions via the online platform or via the phone to submit those questions. Shareholders may also ask questions of the company's auditor, PricewaterhouseCoopers, in relation to the conduct of the audit, the preparation and content of the audit report, accounting policies adopted by the company and the independence of the auditor in carrying out the audit. Shareholders and proxy holders may also join the meeting via their landline or mobile device in the manner detailed in the online platform guide. Please note, however, that by participating in the meeting via the phone, you will only be able to listen to the proceedings of the meeting and ask questions. You will not be able to cast your votes on the resolution over the phone. If you wish to vote during the meeting, you will still need to log into the online platform. I'll now hand over the proceedings of the AGM back to the Chairman of the meeting.

Thank you, Swapna. I will now move to the formal business of the meeting, the consideration of reports. We'll move first to the receipt and consideration of the financial report of the company for the year ended the 31st of December 2021 and the reports of the directors and the auditors. No vote is required on this item of business. A copy of the 2021 annual report has been made available on the company's website and was sent to those shareholders who requested a copy. I'll take the 2021 annual report as received and read and will address any questions regarding the 2021 annual report at the end of the meeting. Now to the resolutions. Resolution 1, the first resolution of the meeting is the reelection of Frank Sixt as a director of the company. Frank's biography is set out in the Notice of the Meeting, and I note that each of the other directors supports Frank's reelection. I'll now address any question regarding Frank's reelection as a director. Are there any questions from the floor? Are there any questions from online?

No.

Thank you. There appears to be no questions. I now put to the meeting resolution 1. The direct votes and proxy votes received for this resolution are on the screen. Please record your vote on the yellow voting card that you are holding. If you wish to vote on resolution 1 online using the electronic voting card and you have not already voted, please vote now. [Voting]

Resolution 2. The second resolution of the meeting is the reelection of Melissa Anastasiou as a director of the company. Melissa's biography is set out in the Notice of the Meeting, and I note that each of the other directors support Melissa's reelection. I now address any questions regarding the reelection of Melissa as a director. There are no questions from the floor. With no -- we received no questions online?

Yes.

I now put to the meeting resolution 2. The direct votes and proxy votes received for this resolution are on the screen. Please record your vote on the yellow voting card that you are holding. If you wish to vote on resolution 2 online using your electronic voting card and you have not already voted, please vote now. [Voting]

Resolution 3. Resolution 3 relates to the reelection of Cliff Woo as a director of the company. Cliff's biography is set out in the Notice of the Meeting, and I note that each of the other directors support Cliff's reelection. I'll now address any questions regarding Cliff's reelection as a director. Are there any questions from the floor? Are there any questions from online?

No.

Thank you. There appears no questions. I now put to the meeting resolution 3. The direct votes and proxy received for this resolution are on the screen. Please record your vote on the yellow voting card that you are holding. If you wish to vote on resolution 3 online using your electronic voting card and you have already -- have not already voted, please vote now. [Voting]

Resolution 4. Now resolution 4 relates to the adoption of the remuneration report, which is set out on Pages 18 to 21 of the 2021 annual report. The vote on this resolution is advisory only and is not binding. However, any discussion on this resolution and the outcome of the nonbinding vote will be taken into consideration by the Board. And I remind you that as the company has no executives, this report only applies to the company's approach to the remuneration of the directors. I'll now address any questions regarding the adoption of the remuneration report for the financial year ended the 31st of December 2021. Are there any questions from the floor? Any questions online?

No.

Thank you. There appears no questions. I now put to the meeting resolution 3 (sic) [ resolution 4 ]. The direct votes and proxies received for this resolution are on the screen. Please record your vote on the yellow voting card that you're holding. If you wish to vote on resolution 4 online using your electronic voting card and you have not already voted, please vote now. [Voting]

Ladies and gentlemen, that concludes the voting on the resolutions of the meeting and the formal part of the meeting. The poll will remain open for a further 5 minutes for shareholders attending the meeting online who have not already voted. Such shareholders may lodge their online votes during that time. And shareholders will see a countdown time on their screen, which will tell them when the 5 minutes are over. After these 5 minutes are over, the poll will close. Shareholders will not be able to submit their vote after the poll closes. For those voting shareholders and proxy holders present in person at the meeting, I ask you to please hand your yellow voting cards to Link Market Services Limited staff, who will come around with the ballot boxes to collect all yellow voting cards. The results of this meeting will be announced to the ASX as soon as the votes have been counted and verified.

Now general questions. Ladies and gentlemen, we have also received some general questions and comments from shareholders asking about payment of a dividend by the company, the cash on hand and assets owned by the company. Now I would direct the shareholders to my address, where I have explained that the company's financial position is directly impacted by TPG's financial position. Accordingly, shareholders may refer to TPG's outlook to 2022 and beyond for any guidance on potential future returns as the company does not provide dividend advice for future years. The details regarding the cash on hand and assets owned by the company are included in the company's balance sheet as of the 31st of December 2022 that has been lodged with the ASX. In addition, a shareholder has also asked a question that HTAL has a 25.05% equity interest in TPG. And on the 28th of April 2022, TPG's share price was $6 with a market cap of $11 billion approximately, while HTAL's share price was $0.08 with a market capitalized of $1 billion approximately and requested -- and has requested an explanation in detail to the obvious discrepancies of value and the proposed future actions that will be taken to rationalize the situation and return shareholder value. Now I would note that the perceived discrepancy is due to the HTAL investment structure in TPG, where HTAL holds over half of its interest in TPG amounting to 13.91% of TPG through Vodafone Hutchison (Australia) Holdings Limited. The 50-50 joint venture -- joint control with the Vodafone Group. Furthermore, VHA has approximately AUD 4.5 billion in net debt, which is disclosed at Note 6 to HTAL's 2021 financial statements. Simplistically, if you take half of that debt or $2.25 billion and deduct it from the 25% of TPG's market cap at the end of April 2022, which is approximately $2.79 billion, then you get about $540 million, which is considerably lower than HTAL's market cap -- current market cap. Clearly, the market does not value HTAL in such a simplistic way. But in my view, these factors largely contribute to any discrepancy. As to future actions, the company will continue to support TPG and its strong performance and work with Vodafone Group to prudently manage VHAH debt. Now are there any more questions from the floor?

No.

I'll now address any online or telephone questions relating to -- okay.

No more questions.

Thank you. It appears no further questions. If there are any further queries, I encourage you to send them to our investor e-mail address, which is available on the company's website. That concludes the business of the meeting. Thank you for your time, your questions and your continued engagement and support in these challenging times for everyone.

That does conclude the meeting for today. Thank you for participating. You may now disconnect.