Good afternoon, everyone. Welcome to the HKBN FY 22 annual results investor presentation. As HKBN returns to doing business normally after two-plus years of COVID, our annual results will be presented as a hybrid event before an audience of both virtual and in-person guests. The presentation is going to begin. We may now invite William Yeung, Co-Owner and Executive Vice-Chairman, to the stage.
Thank you for your joining of our annual result announcement, our investors, our shareholders, and our business partners. Before I start, I still want to take this opportunity to thank our 4,000+ talents in Hong Kong and outside Hong Kong for helping us to deliver what I regard is a good performance for financial year 2022, even though under the impact of COVID, which is tough. At HKBN, our main responsibility is growth, and our growth will focus on core business. Core business for our fixed telecom network service is a high-margin service, talk about 70% or above.
With our acquisition of JOS, having the system integration arm three years ago, we are stronger, such that in the market, we can fight or bid against those telecom alone or SI alone players. Even though you have both, your execution won't be as quick or as fast as HKBN. We have, I will say, already successfully integrated the different entities. I mean, JOS, WTT, or HKBN's enterprise teams over the last two or three years. We are well-positioned to grow our telecom and grow beyond telecom, i.e., with the SI business. In the residential market, we continue our internet, pay TV. That means fixed voice, fixed data, OTT, 5G mobile, and also pay TV.
Whatever service or products that a household wants, we will bundle together to offer the better value for money. That is the way we manage and run our business and outperform our competitors. Look at financial year 2022. Stable organic growth. When we look at financial year 2022, if you take out the impact of about 50% less productivity time during COVID-5 in February, March, and April, basically, I think all of you will agree that financial year 2022, those last 12 months, we have less than 90% working days or working hours. The team still deliver and exceed our targets. We have 1% growth in revenue, 2% growth in EBITDA, and we still maintain a similar level of AFF, adjusted fund flow.
For the revenue, I want to highlight that, if we look at this organic growth, actually it is 6% growth. Why? Because, we should exclude the disposal group, i.e. the, JOS Singapore and Malaysia operation, which we sold, 60% of our equity to, Singapore's, StarHub, in the beginning of the year. So actually in financial year 2022, we only have, four months, revenue here versus financial year 2021, full year, 12 months. If you take that out, our organic revenue growth, in fact for the whole group is 6% growth in revenue. So 6% growth in revenue and 2% growth, EBITDA versus less than 90% productivity time, it is a good result, which I should thank our colleagues, our team members.
DPS, the dividends. The final dividend will be HKD 0.20, plus the HKD 0.40 in the first half. Total dividend will be HKD 0.60, which is around 78% of our AFF. 78%, it is lower than our 90%-100% guidance since our IPO in year 2015. On that, I will elaborate more later on. When we have stable organic growth, we need to make sure that this growth is also sustainable. I just share the past three years trend on the revenue, EBITDA, and AFF with you. So that you'll notice that even at tough times, we can still deliver growth, because our industry very resilient. Broadband or telecom services or some other SI services, all of them are just basic needs.
Even better than the electricity or water. In those areas, you can use less and spend less. We are talking about fixed monthly fee times 24 months or even longer contract period. Majority of our revenue, our recurring revenue being protected. If you look at enterprise and residential business, some parameter, the coverage, the customer number, and also the ARPU, you will see that even challenging COVID impact, we will still spend CapEx to increase our fiber coverage, such that we will provide service for more enterprise and more residential customers. On that, I want to let you know that in the enterprise market, we have about 37% market share, a strong number two.
In the residential market, we have about 35% market share, talking about 900,000 residential broadband users. When we have 30+% market share, you can imagine that whenever we roll out our fiber to new commercial buildings, to new residential areas, particularly those areas that the government talking about they will expand and develop in the coming years. All these areas, by default, we should have 35%-37% penetration within the first two years because the contract period is two years. It is very easy for us to get decent return from expansion through the CapEx on the network. That's why I think HKBN is maybe the only one who is still spending huge amount of CapEx for the rollout of fiber coverage.
For customer number or ARPU, I will say more or less the same. When more or less the same, it's still good in a tough year. I always like to advise analysts or investors, don't just look at the ARPU. No matter if it's up or down, we should always look at ARPU times customer number. Look at the total service revenue. That is the total return that we want. In the markets, we will sometimes increase price, we will sometimes cut price. Why? Because we want to find the optimum point of pricing that can help us to get and retain the maximum number of customers for total service revenue. Revenue breakdown.
The green one is talking about the products, like the end user devices, like the PC server, Wi-Fi router or iPad, that are used by enterprise and also households. The orange one, middle one is the residential service, which is more or less the same for the last two years. The lower part, the blue one, is talking about enterprise service revenue. As I mentioned, the drop is mainly because of the disposal of Singapore's JOS, Singapore and Malaysia's JOS. Also, a drop in the wholesale IDD revenue because in last 12 months, people just use less IDD. We can use many different apps or collaboration apps to replace IDD. On that part, the revenue has dropped.
While we still deliver 2% growth in EBITDA because even like our wholesale IDD revenues drop, but the margin is so thin, just a single-digit product margin. It actually didn't hurt too much on our EBITDA. I will say our team are smart and agile. When our service revenue cannot grow as expected, then we shift to sell more products. On average, those products, excluding the handsets, on average, they have a double-digit product margin. That is only the entry point for us. Because whenever our customer buy this equipment from us, we will have our professional team to upsell the maintenance or related value-added service that can help us to have a recurring income. Talk about growth of revenue and EBITDA.
Of course, we must make sure that we control our cost in a optimal way. Last year, OpEx dropped 4%, CapEx dropped 9%. When you look at this number, your question may be, so what will be the trend for next year or next one or two years? I will say, for support function or non-generating non-revenue generating area, we will always control the cost or reduce the cost by speeding up our digital transformation.
On the revenue generating area, sales, marketing, network development, new partnership or collaboration with our partners, we will always invest time, manpower, and also some more capital to buy your service, buy your products, or even commit a bigger amount such that we can go out and together resell cloud and get more. That is what we want. Basically, to maintain a good OpEx to revenue ratio or CapEx to revenue ratio is our target, but we don't have a fixed number. As far as we believe the OpEx or CapEx can be spent in the right way to improve our EBITDA, we will go ahead full force. For the debt profile, today we are talking about 4.6. 4.6 is healthy and we are.
At HKBN, we have enough operating cash or cash on hand. We don't have any issue. Having said that, because of the macroeconomic change or shock, we are seeing inflation and interest rates increase, however. We will try to bring this 4.6x multiple down to a level that we feel more comfortable in a shorter period. That is how we manage our business and the balance sheet. Businesses are seeing ESG as a sort of hot topic, but it is not new to HKBN. We started our ESG initiatives many years ago, even since our IPO. Because we have the CSI Fund, Corporate Social Investment Fund, that is doing something similar to ESG before.
That's why when listed company are required to do something on ESG, we are already far ahead of our competitors. This year we have a new board member joining. We are very serious. We are highly committed. With our board ESG committee just recently formed, it will drive and monitor our performance on the ESG. Internally, we will have KPI on that, and we will share with you when we have these numbers ready. For those who are new to us or not too familiar with us, I want to recap. We HKBN are a high-growth company. High growth since IPO. We IPO in March 2015.
Over the last seven years, through organic growth, through transformative growth, like acquisition of New World Telecommunications, acquisition of JOS, acquisition of WTT, and acquisition of I Consulting Group, the cloud service provider, something like that. No matter organic or transformative, we are full force on growth. That's why we can deliver 20% CAGR growth in revenue, 15% CAGR growth in EBITDA. I'm quite sure that none of our competitors, nobody in Hong Kong's telecom industry could deliver this result. The way we could deliver, and we will continue to deliver even higher growth in the coming years, is that this company is very unique. It's owned and managed by shareholders and co-owners. When we are co-owners, we have skin in the game. We look long-term. We don't have silos.
We will make sure that we maximize the impact of return from limited resources. That is the way we run our business. I'm quite sure that in the months or years ahead, we will be more than happy to share with you to see how we grow our business. Of course, in this journey, we hope that our partners and our vendors can join us through this growth path. I will pass the stage to William Ho. Before that, let me have a brief introduction. We have tried our best to spend much resources to recruit this A-plus grade CEO for our enterprise, William Ho. William Ho, he himself can introduce about his background more.
He's someone with a solid experience, leadership in the MNC area in Hong Kong, Greater China and APAC. We built those big brands and also good friends with all of you. Why I say we spent really much resources on him is that you can't imagine. In recruiting this ES CEO, our group CEO, NiQ Lai and I interview him after he was recommended by headhunter. We asked all his future direct reports to have one-on-one chat, not interview, with him to feel that is this guy becoming good boss or not. He join another team's interview with all our board members. All our board members board members join interview with him.
Even between that, he joined some casual drink, casual dinner, and also we share with him some internal emails to make sure that he knows who we are and we know who he is. It's a very right match. William.
Now all of you know the tough process of Hong Kong Broadband Network, right? If you wanna join us, you have to go through the same thing. By the way, everyone can go through that process is gonna be the top talent in the industry. Again, thank you everyone to come to this session, and I appreciate your time. I'm gonna talk about the Enterprise Solutions business, you know, for this part of the presentation. This is one of the very important part of our overall business. This is like 80% of, you know, our revenue. It's very important that we do it right. With the right support, I think we've got a really good chance to accelerate this company.
A bit of a recap for FY 2022, in terms of the overall operation and the numbers and everything. I think William has already said it that, you know, we have very solid performance. For the enterprise solution, you know, the foundation business, you know, our FTNS, that's the telco connectivity business. Then the SI business, which is majority of the business that we acquire from the JOS acquisition, performed really well considering, you know, the international economic turmoil, the COVID limitation in Hong Kong, right? I think the team has done a tremendous job delivering a very solid number. Not only that we hit the number, our product revenue actually has a 2% growth in a very difficult condition.
On top of that, we also managed to grow the market share from 35% to 37% during the time. Very proud of the team. I want to again say thank you here to the team for, you know, delivering a very, very strong year for the enterprise solution business. Now, on top of that, we also looked at the highlights and where we are. It's very obvious that, you know, Mainland China was actually one of the key contributor to the growth.
We managed to get like 20% in that space, which is a, you know, again, under the, you know, the Shanghai lockout, you know, not being able to, you know, do business in, here and there in China, 20% is actually a very, very solid number. We also see very strong momentum coming from ASEAN. We're seeing international traffic coming to Hong Kong. We see some of the companies actually move to Singapore, but they want to have a branch office. They're increasing the bandwidth between Hong Kong and Singapore. We see the hyperscalers expanding their footprint and capacity in Hong Kong. Very happy to see that ASEAN is becoming a very, you know, vibrant market for us in FY 2022.
The other big piece of the effort that we spent on FY 2022, or at least the time that I spent with the company in the last four months, is about, you know, really try to squeeze the synergy between JOS and Hong Kong Broadband so that we will have a, you know, very strong foundation for the growth for next year. What we have done in the past few months is, number one, we've really aligned the sales organization. I mean, this is for a lot of you guys, this is actually pretty basic. What we really have done is realigned lots of sales forces to the top market verticals, so that now we have the right people with the right domain expertise to cover the right market.
Number two is restructure the organization internally so that our kitchen today has the capability of offering some very, very top-notch technology solutions to the enterprise customers. On top of that, obviously, last four months, I mean, I met lots of you guys, is really to build a very, very strong alliance with you guys and also align with your strategy and getting your commitment so that we're very, very well aligned with our vendor partners. Last but not least, you know, the enterprise leadership team that I, you know, I tried to build, and a lot obviously with the existing talents that we have in Hong Kong Broadband. We did bring in quite a bit of, you know, top talents in the market. You know, just some of the highlights here.
You know, we brought in Kenneth Leung from IBM. Kenneth was actually the COO for the TSS organization for IBM, so brings a lot of a service business experience, and he's gonna be owning the sales and also the you know, the service business revamp and packaging all the value-added services for the box moving business at one side. Help us to grow, help us to improve the margin. Jacky Ko here, I mean, you guys probably know Jacky Ko. He's you know, background from IBM, but he's really the leader for the service delivery organization for HGC. You know, again, lots of experience of doing data center migration, extensive experience in implementing very complex projects in Hong Kong. Very happy to see you know, Jacky Ko to be with the team.
We also got Almira Chan joining us. Almira Chan, again, you know, she was actually the previous competitor to JOS in terms of the box moving business. Now she's joining from the dark side. She's with us now, and, you know, and bringing all her expertise and the experience in the domain to help us to grow the box moving business. Very happy to see the new teams. We have more leaders to come. In the next two months, we'll have the sales leader for public sector. We have the sales leader for strategic accounts. We'd have the leader for the, you know, the CTO for defining our overall strategies. Bunch of talents coming in the next two months. You know, I'll introduce them to you at the time it comes.
I do wanna share with you that we're doing really well in terms of attracting the talents and building the team and having the coverage. Now, how do we execute? You know, after have that vertical. Looking at the overall business, SME obviously is a very, very strong pillar of business for Hong Kong Broadband. We have over 40% market share in Hong Kong for that particular segment. Now, in the past, we have a very strong and stable, sustainable connectivity business with the SME market. This year, we're ramping up the speed in terms of offering more solutions to the end customers so that we can get a thicker, bigger wallet share of the customers. Not only that is the wallet share, it's about building our home a better place to live.
How can we help SME customers to grow? How can we help them to survive or come back from such a tough economic situation? Give you one example, what we're doing in terms of how we help the SME. We're launching a program called, Get, Set, Go. You know, this is a program that we not only offering the connectivity to the end, the SME customer, we're offering the Wi-Fi offer, service to the customer. We're offering PCs. We're offering, you know, voice service. We offer software service. We offer IT support to the customers. So when they start to expand their business, everything is actually as a package that we can deliver within days, so they can start their business very quickly. They don't have to pay for the first six months. It's a managed service, you know, recurring revenue-based business model.
It really helps them to position and scale in a very short period of time. Now, the other piece a lot of people talk about in, you know, in the telecom space is about 5G, right? We talk about FMC, you know. How do we leverage fixed network and mobile network, and how do we do the convergence to help our customers? We're partnering with 3 Hong Kong to provide integrated solution that we offer fixed network connectivity, combining with 3's 5G coverage that we've developed few applications that we've already launched. One application is actually relaunching the 5G plus the fixed network to provide connectivity for the rural areas as one. Second is using 5G as a redundant link to provide business resilience for the stability of the network, right? We're moving ahead on that.
As we go, some of the vendors that we already started talking with you, talking about developing managed service for the SME market, and this is the area that we will continue to develop and continue to grow in terms of building the ARR, the annual recurring revenue base, as we move forward. Now, the second pillar of the business is about the service provider. All of you know that we're very strong in the space because we're offering connectivity to 5G telco players in terms of 5G backhauls. We're providing optical DWDM connectivities between the data centers, and we connect, you know, players from Hong Kong to Singapore, to Europe, to Vietnam, to China. This is what we do in the past.
Now, starting this year with the JOS integration, with the SI capability, we are bringing in the SI opportunities with the telcos, so that we now not only to address their connectivity issues, we're now in a position to drive and help them to evolve their network into the next generation platform. We're now in the position to work on the data center migration projects with the telco players. We now look at the cloud strategy with them now, so that we build hybrid cloud solutions for them. As we speak, we're working with, you know, two 5G and mobile players revamping their data center. We're reviewing their existing IT or IT data network and look at the platform and see how we can migrate them to the next platform.
We see that as an absolute, you know, incremental opportunity for a market that we're very strong in the past with excellent executive relationship that we can leverage the new skills that we can go to the next level. Now, enterprise business is the biggest piece in my portfolio, and this is the opportunity, or this is the statement that I see the most of the synergy coming and most of the growth that coming in the next three years. If I look at the portfolio for Hong Kong Broadband, if I look at the portfolio and customer base for JOS, if I combine the two, suddenly I'm cross-selling between the two sectors. Now, our customers are receiving the connectivity services at the same time looking at the SI solutions that they can leverage.
In most of the customers that I visit in the past four months, lots of them actually came back and say, "Hey, we can't spend the budget for this year." Because they don't have enough IT resources now. With people migrating out of Hong Kong, customers actually having a much higher demand in terms of getting SIs to help them to implement their projects. They need more managed service now. I have, you know, huge organization come to me and say, "Hey, can you do managed service for my distributed network? Can you do managed service now for my hybrid cloud? Can you do cloud-managed service?" There's a huge demand in terms of, number one, how do we build the next generation platform? This is about network. This is about security platforms. This is about cloud platforms and data centers.
The question is, "Can you build? Can you come and operate for me?" Huge upside if we combine the two, if we combine the telecom service plus the SI services together as a single service, right? Tremendous opportunity in the enterprise space. Most of you actually don't know, you know, a part of the JOS business, actually, a bigger part of JOS business is actually what we call the box moving business, right? By definition, it's really selling hardware, and that's about it, right? Margin's a little bit thin, but big volume move very fast. What we are doing this year, you know, with Kenny on board, bringing in the service capability with Rosana coming in, selling solution, value-added solutions as part of the moving, we're pushing this so-called box moving plus programs.
What we do now is not only we sell the hardware to the customer. The hardware will come with a very comprehensive IT support services. We also bundle the IT outsourcing services as part of that, plus the maintenance service. Suddenly, my box moving business is now becoming a double-digit or close to 20% margin business. This is the thing that we're changing today with the new talents, with the new programs, by leveraging the footprints as well as, you know, the capability of doing logistics for large hardware business and movements onto that. Last but not least, we set foot beyond Hong Kong. We're gonna grow beyond, and where are we gonna be investing additional money if we're not giving you all the, you know, money that we made and saving on the dividends?
What we're gonna do is we're gonna continue to invest into China. I mentioned earlier that we grow 20% more in China, and I think we're gonna do the same this year, but we're gonna be investing a little bit more. We're gonna be investing into, you know, the areas that we think we're gonna get more return in terms of more projects by partnering with our vendor partners. We're gonna be investing offices and headcounts into the East China part. We're gonna continue to invest into the North China part of the business. We have a presence of, you know, we have over 2,000 talents in China already, and we'll continue to invest in the Greater Bay area to capitalize what we already have, you know, the footprints that we have by partnering with our vendors, our partners.
Very promising, extremely good momentum. On top of that, we also see a huge momentum coming from ASEAN. It wasn't even in the play when I joined the company, but when we look at all the traffics coming in, the company's tried to extend the coverage with the data center in Singapore. We decided that this is gonna be an area that we're really gonna be focusing on. We still have 40% of the JOS that we co-own with StarHub, so we have a presence there. This year, we're gonna be investing additional headcount to make sure that some of the international traffic will be routed to Hong Kong correctly, and we will be handling it and we'll be extending it.
This piece of the strategy is very important because we're also seeing Chinese customers that they try to go outside of China using Hong Kong as the stepping stone expanding into Southeast Asia. It's a go back and forth, you know, very comprehensive strategy, not only for Hong Kong, but helping customer to expand into all these areas. This not obviously for ASEAN and Chinese customers, but more importantly for customers in Hong Kong that they want to expand to China or Southeast Asia, or they want to increase their capacity and support in those two new areas. Now, we have the coverage, we have the right strategy, we have the right partnership, but what solution should we focus on?
Now, I mean, this is almost like a no-brainer, but really by working with the vendor partners, our foundation is really about the next generation infrastructure. As part of the digital transformation platform, we're gonna be focusing on security as well as cloud business as the two key pillars as we move forward. Every network infrastructure that we do, every, you know, network migration project that we do, when we do data center migration, we implement security platform as part of the overall solution. We have the consideration of cloud computing, the cloud capability as part of the network evolution strategy for our customers as a piece. We also see big data here and there, which is important. We're paying attention to that.
We're getting a lot of business out of that, not from data side, but more from the infrastructure, the platforms, the servers and the storage that we use to enable those services. We also see enterprise application as one key area that we will sustain. Most of you actually don't know that we have close to 400 software developers in-house. What it really means is that not only that we can integrate the third-party software and make it a solution, we have the full capability of leveraging the third-party software and design and implement a very customized solution for our key customers in the space. Now, the only requirement I have for the team this year is that we need to have decent margin for those kind of a project.
Other than that, we see very, very good momentum and very, very good project pipelines for our software business as well. With all that said, you know, technology strategy, segment focus, talent attraction, new organization, and the other piece which is extremely important to our business is our vendor partners. I'm very pleased to see that you guys are here to support us. I really appreciate the effort. In the past four months, I visited all of you. I'm getting tremendous support from you. Not only the support from you, but lots of commitments from you guys that I feel very, very confident and warm that we're gonna have a very successful year next, in the FY 2023, that we're gonna grow our business together. Now this ends my part of the presentation.
Before I hand it over to William, I like William to come here and just say hi to everyone and thank you for your support. We look forward to a great year with you guys in FY 2023. Yeah.
Thank you very much.
Thank you everyone.
Thank you.
Yeah. Okay. Back to William.
We don't have 3 Hong Kong logo here, right? Because this is mainly on the SI area. On telecom, we are very pleased to have 3 Hong Kong's top management joining us. Oh, yeah. Wow. A dedicated. You are premium, yeah. Because 3 Hong Kong is our FMC fixed mobile convergence partners that we are committing to work together to grow together. They utilize our fixed broadband base. We utilize their mobile broadband base such that we can grow together. In our office, there's some areas dedicated for the 3 Hong Kong executives to come here to work with us. Thank you 3 Hong Kong. Thank you for all the partners. When I look at the num...
The pictures of the new leaders William brought in, I noticed that they are some more coming in the coming three or four months. Every one of them, in my mind, I will have a dollar sign for them. This is very good. More, please. Okay. For the residential area, again, everything is going up. The subscriber number grew by 11K. The entertainment or OTT subscriptions also grew more than 100% over the last year. Because of more people staying at home, no matter work or study, however, the bandwidth demand is also increasing. All these upward also relate to the average revenue per users increase because we can upsell or cross-sell. Mainly, as I mentioned, growing demand for over one gig.
In our base, there are still quite a portion of customers. They are using 500 megabit, 200 megabit, or 100 megabit. For this, we can always approach them even earlier than the contract renewal period to ask them to pay more, enjoy one gig or above, fiber speed. Let's look at the Chinese 「留錢逗猴」. 錢 is talking about 金錢, the money. Going forward, we need to make sure that we have prudent use of our cash on hand. We should strengthen our balance sheet. We should also focus on our high-margin core telecom, supported or strengthened by the SI element.
We want to make sure that we have the flexibility and to act agile for any growth opportunities such that we can spend much higher OpEx or CapEx for growth. If I ask you, I don't know if you know. So far, so many PowerPoints. You have heard so much from us. If there are only one word you can pick that appear most in the PowerPoints, please, what is the word?
Grow.
Grow. HKBN equals growth. Grow is the way we go forward. Dividend recommendation. I need to elaborate a little bit. This year, final dividend just HKD 0.20, whole year HKD 0.60. If talking about 78% payout ratio, lower than the close to 100% payout ratio before or since our IPO. Why? Because we really need to have prudent use of our cash on hand. You should remember that on the first page, we actually have similar amount of AFF on hand in financial year 2022. Even though the market was so tough, we still have the same amount of money on hand. We want to make sure that we have prudent use of this money. How much of them are investment for growth such that we generate higher revenue?
I will say we will use quite a major amount of the money on hand for paying back the debt to bring down the ratio from 4.6 to a lower level. We need to be flexible. I want to remind our investors, shareholders or analysts, NiQ, our group CEO and I, both together we hold more than 4% share of HKBN. We are basically major shareholders. Our interests are fully aligned with our investors, our shareholders. What we expect is almost the same as what NiQ and I expect. We are also top management.
Apart from the alignment of the mind of the shareholders, we also need to align our hands, our necks, the execution arms, with the operation team to deliver. In the coming years, we will focus on our core. We will focus on EBITDA growth, because we believe that with our well-positioned enterprise and essential competitive edges, we should grow EBITDA better than our competitors. You, the market, everyone will give us what we deserve in our enterprise value. Thank you. May I have
Thank you, William.
Any investor for Q&A?
Yeah. We also have our acting CFO, Almira, joining us. We like to have any. Yep.
We have questions from online first.
Okay.
Okay. The first question is, how much of the company's debt load is floating rate versus fixed rate? How should we think about the future increase in interest expense?
Okay, let me take this question. Thank you. Thank you for this, the first, online question. We always proactively manage our cash and debt position. Currently, we have one-third of our syndicated loan was hedged at fixed rate. The rest, the two-thirds, is a floating rate. Actually, we entered into this interest rate swap agreement a year ago. That means we are always looking ahead, looking forward to how the macroeconomic market evolved. For this part, we are covered. For the rest, we continuously, you know, assessing the current situation, and we have a lot of options open to us.
Next will be question from the floor.
Hey, thank you. William and management team, good to see you face-to-face again after three years.
Likewise.
Okay, I think I get a couple of questions. First on the dividend payout ratio. I understand your rationale behind, but how should we forecast this ratio going forward? I think that's my first question. Secondly is, you mentioned about the objective to lower the gearing ratio. Do we have a target that you feel comfortable so that we could have a number in mind that we can calculate? My third question is, I wanna know the dollar sign that you put on William Ho. How much growth are you expecting him to deliver next year? I just focus on next year. How much revenue growth? Thank you.
Thank you.
Any question?
Yep. Yep.
Okay. I'll take the first two questions on the dividend payout. Is that right? Okay. Basically, for a telecom industry like HKBN, we have a very predictable cash flow pattern. Even for a very difficult, very challenging year, FY 2022, we still managed to have adjusted fund flow cash flow balance of more than HKD 1.1 billion. If you look at our balance sheet, we still have net cash at bank of more than HKD 1.1 billion. The position is very favorable, especially during a period of interest rates rising. The management, we make a conscious decision on the dividend recommendation to revise the dividend policy along with the market situation. For this year, we declare a 78% payout ratio of our AFF.
Moving forward, we are flexible, we are agile, we have sufficient cash to manage debt repayment, strengthen our balance sheet and the debt profile, and also preserve our flexibility for future investment. For the leverage, you know, to go down by how much? Interest rate is increasing. Currently, our debt ratio is 4.6. Actually, 4.6 is. I will describe it as a healthy and a normal ratio for a company like HKBN. There is plenty of room to drive down this number. Moving forward in the near future, I think to drive down this leverage ratio and also to manage interest risk is the top priorities of our financial strategy.
For number, maybe you tell yours and then I add a premium.
If you look at the growth, we have two parts of the business as core business. One is the FTNS business, which is relatively stable, and you know, saturated the market there. The growth is really gonna come from the SI business. The SI business has a very different nature comparing to the FTNS business because the cycle of recognizing the revenue is a lot longer, right? It's about starting winning the contract, doing the design, implementing the solution, and then you've got UAT, and then all that. What we're really looking for are two things. One is this year we're gonna be flat, but the goal is really to build a very, very strong pipeline this year.
That most of the revenue that we're gonna be recognizing is gonna be coming up in FY 2024. Right. That's what that's the plan that how we're gonna be executing. If you look at the people coming on board now, if you're looking at the people coming on board in the next two months, and then we start executing, build a pipeline, that's probably the right schedule that we can forecast.
I think what I'd like to add is that, when we are talking about, tough environment, macroeconomic, downturn factors, inflation or interest rate, something like that applies to everybody. How each entity react, how each entity or each player in the market, executes and deliver will be different. At HKBN, we are managed mainly by co-owners who have huge skin in the game. We are really fully aligned. Any upside or downside will impact us even more than the shareholders. If you look at all the PowerPoints, all the pages we shared, I will say it is very unique.
Unique in the sense that when you go to see the result announcement of some others or PowerPoints of some others, if you take away the company name, more or less the same, you can't tell who they are. For these PowerPoints, the co-owners, the seven-year track record of, I will say, huge CAGR in revenue or EBITDA, the new forceful new leadership entering into HKBN's SI area to continue invest in the CapEx, the level rollout in both residential and also the enterprise area, or no single major family type shareholder who's going to micromanage you, I think we will excel.
Next will be questions from online first. You mentioned you would like to reduce leverage given rising interest rates. Do you have a target leverage ratio in mind?
I think I have covered this question in my question with.
Sure. Yeah.
Yeah, the floor.
Okay. Next will be question from the floor.
Okay. It's not about interest rate. I would like to ask, what are you going to tell your customer that they should give you the business, the enterprise customer, that they should give you the business rather than the SI before that they use?
It's not about, you know, if they should give us business. It's about, you know, what problems that they have and what capabilities that we have to solve their problems. This is, you know, this is all about having the right sales organization, having the right coverage, having the right domain expertise. They walk into the customer office, understand the challenges, and they'd be able to, working with the vendor partner to propose what are the right solution for the customers. Not only that, you know, the ability to actually execute and implement and, you know, complete the projects is also very important. Those are the two things that we are focusing on right now.
As we move forward, when we have more leadership coming in and, you know, and that's why we kinda organize the organization so that they're segmented in a way, we'll be capable of understand and work with our customer for the right solutions. That's what we're gonna do. With the vendor partners here, I think we have enough support in terms of, you know, coming together, have the right solution for the customers.
I think one point that none of you will disagree is that in fact all enterprise customers face difficulties. They need to cut cost. They have less IT people. Some of them migrated outside Hong Kong. Whoever want to increase their operation efficiency, reduce their OpEx through digital transformation, come to HKBN.
Well, the other part that I kinda missed in my first question was, if you look at the SI landscape, it has been changed drastically in the past three, five years. I mean, some of the usual players that you will see in those bidding process and all that, they're no longer there, or they're not really capable anymore to offer the same service that they used to do. With the new talents that we have, with the acquired company and the partners, I think we're in a much better position comparing to the other SI partners to address especially the largest scale projects. Because if you look at Hong Kong SI market, there are not too many SIs that actually have the financial capability of doing a large scale projects, right?
The cash flow, the capital capability is actually something that we're very good at. If you are from a customer point of view, if you look at Hong Kong Broadband, you should see that, number one, we're a lot more passionate comparing to the other SIs. Number two, we are a lot better equipped in terms of the talents and the resource that we're gonna go implement. Number three, obviously, you know, the very fundamental operation that we have the right sales organization covering the right customer, working with the vendors, coming up with a solution, and implement the projects properly as a flow. With all that, I think we're in a very good position to win more business in the next period of time.
Maybe you can tell us, why not. Thank you.
The next question is from online again. Please, can you talk about the competition within both enterprise and residential businesses? How has this been during the past year? Have recent ARPU cuts been successful in winning share? And what do you expect for pricing going forward?
I think in the markets, this is in fact a FAQ that's been asked for over the last decade. I would say price war in both residential and enterprise area always happens. You just don't know who initiates and then who reacts or follows suit. For us, as I mentioned, we need to make sure that we price a product or service at the right level, no matter if it's high or low. It is the product or service price times the quantity of our product or service you sold such that you get the maximum total service or product revenue. That is the way we calculate and then set our price plan in residential and enterprise. I would say price war will continue.
For the residential markets, we will be very aggressive. When I say aggressive, the price point won't be higher than the last 12 months. Whether it will further drop or not, I can't tell. Our expectation is that last year we have about 11K net gain in residential subscribers. This year we expect to have 30-40K net increase of subscribers. That will come from our expanded fiber coverage. That will come from our better value for money, particularly the bundling with free HKBN's 5G service. On the enterprise area, I'm quite sure that it will have a very significant high growth.
We do not need to cut price, because today our price is already at a discount to our competitors. William has just shown four pictures, including he himself, just four people. In fact, for those committed to join, we have maybe 11 or 12.
Executive. 12.
Twelve.
I mean, at least 12 executives coming on board.
Yeah. At least twelve executives.
Yeah.
More.
10 count.
Yeah.
Only ten fingers.
Yeah, 10 fingers count.
Yeah.
The number of new leaders joining us is even more than our existing leaders.
Mm.
That means the target should be 2000.
Much higher, yeah.
Yeah, something like that.
Well, you know, for enterprise business, we have no plan to have a price war. In fact, it's quite the opposite, right? We like to increase the price. We increase the price so that we offer more services and more value to the customers. I mean, looking at what customers are asking for these days, they're not looking for a cheap price service provider. They're looking for someone who can actually do a good job and help to solve their problem. This is where we are at, and that's why I've been hiring lots of people, bringing in even more talents to do the best work for our customers.
For the enterprise side, we actually see that we're gonna be increasing price by adding a lot more value to the customer, so we get better margin and we get a better growth, for the next few years.
Any question from the floor? Okay, more from online.
Mm.
Can you give us your guidance for this financial year, please? How are you thinking now about the rate of progress to the Co-Owner's targets? What is the current proportion of enterprise revenue from mainland China?
Mm.
What's from Asia?
I think for mainland China, you talk about this, and then I talk about the overall picture.
Mainland China, you know, the business overall is about 15% of our business. We do have over 2,000 staff and talent in China. We do see that, you know, that 15% is gonna be one of the key or high growing numbers as part of our portfolio. You know, we look forward to a very successful year, this year, from the China team.
I think we won't give
Quantitative
Guidance. I'm quite sure that our financial year 2023 will not be worse than financial year 2022. It depends on, for example, like EBITDA. I'm quite sure that we can manipulate to deliver a better EBITDA in 2023. If we spend more and just deliver a sort of a flat EBITDA in financial year 2023, then the gain from financial year 2024 or 2025 is higher than the short-term gain in financial year 2023. We go ahead to grow. As we mentioned, we are here to invest for long-term growth. I won't give a sort of a single year guidance, which is contrary to what we say we want flexibility.
We want to make sure that we will use all the resources, funding on hand, manpower, our time, limited resources for optimal impact or return.
In view of time, we have to take one last question from online.
Mm.
What is the impact on bottom line for every 1% rise in interest rate?
Can you repeat your question again?
1%.
What is the impact on bottom line for every 1% rise in interest rate?
Bottom line price increasing. Okay. That's a very easy question. You can just take the balance sheet and then break it out using the syndicated loan. We have approximately HKD 11 billion loan. Actually, our borrowing is very straightforward, very simple. 1%, that's it.
Today's presentation has come to an end. We would like to invite you all to take a group photo to commemorate this moment.