Good afternoon, ladies and gentlemen. Welcome to the Taiwan Mobile conference call. Our chairperson today is Mr. Jamie Lin. Mr. Lin, please begin your call and have you stand by for the question and answer session. Thank you.
Thank you, operator. Good afternoon, everyone. Welcome to Taiwan Mobile's Q2 2023 earnings conference call. Before I start our presentation, let's first go over our disclaimer as per usual. Disclaimer: The information contained in this presentation, including all forward-looking information, is subject to change without notice, whether as a result of new information, further events, or otherwise. Taiwan Mobile Company Limited, or hereafter the Company, undertakes no obligation to update or revise the information contained in this presentation. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness, or reliability of the information contained herein, nor is the information intended to be a complete statement of the company, markets, or developments referred to in this presentation. All right, now that we're done with that, let's head straight to business overview.
Please turn to page 4 for highlights of the quarter. In 2Q 2023, consolidated revenue rose by 5% year-over-year, underpinned by solid output from our three core engines, namely 5G, e-commerce, and home broadband. During the quarter, our mobile service revenue growth accelerated again to 6% YOY, the fastest pace since 5G service launch in 3Q 2020. While our smartphone postpaid subs also saw a healthy 2.3% YOY uptick. These great results were mainly driven by our unique bundles, steady 5G conversion, improving 4G pricing environment, and further recovery of our roaming revenues. Meanwhile, momo continued to outperform its peers and recorded a 6% YOY growth in e-commerce revenue during the quarter. Our home broadband business also delivered a 6% revenue growth in 2Q 2023, aided by our expanding footprint.
With telecom service revenue growing another 6% YOY during the quarter, telecom EBITDA rose to the highest level since 4Q 2019. As a result, we broke our company record in terms of consolidated EBITDA during the quarter. Yay! Next, next, let's turn to page 5 for a closer look at our mobile business. During 2Q 2023, we continued to execute our sustainable growth foundation strategy exceptionally. Our smartphone postpaid ARPU grew by 2.8% and hit the NT$700 mark, lifted by unique bundles, 5G renewals, and roaming revenues, which recorded 30% sequential growth and has returned to over 70% of pre-COVID levels as international travel further recovered. Our unique bundles, i.e., momobile, Double Play, Disney+, and OP Life, continued to fortify rate plan mix improvement.
Accumulated users across these unique bundles rose further and accounted for 21% of our smartphone postpaid user base by the end of 2Q 2023. Our momobile bundles continue to gain traction with users, while 60% of our Double Play users are on 999 or higher rate plans, which is notably higher than the company average. As for OP Life bundles, half of users are on 1,399 or higher rate plans, and the proportion of users on 48 months or longer contracts is much higher than that of our regular 5G handset bundles.
This wide variety of offerings, as well as ongoing investment in longer handset bundle contracts, helped enhance our customer stickiness and resulted in a postpaid monthly churn of 0.73% in 1H 2023, setting another company record on the half year basis. Now, let's turn to page 6 for updates on our e-commerce business. Given an already high revenue base and further recovery of leisure and physical retail, momo's e-commerce revenue growth decelerated to 6% YOY in 2Q 2023, albeit higher than industry growth. Our e-commerce profitability was also ahead of the pack in the quarter. On the logistics side, we have built 55 warehouses as of quarter end, or more than a year ago, while our active SKUs reached 4.6 million.
The southern distribution centers should be up and running early next year, while central distribution center to follow in a few years. This will expand the coverage area of our rapid delivery services. As for momo coin and its ecosystem, we will continue to focus on broadening its usability. Let's take a look at our broadband business on the next page. In 2Q 2023, we continued to focus on growing our cable broadband business. Steady demand for faster home connectivity and our Double Play bundles led to a healthy YOY increase in broadband subs in ARPU. Our subscribers who opt for speeds of 300 megabits or higher rose by 65% YOY. As a result, broadband revenue grew by 6% YOY in 2Q 2023.
While we only rank as the number four largest MSO in, with an 11% footprint for basic TV services, we have expanded our cable broadband coverage to 85% of the country by leveraging our Double Play bundles. Let me pass the virtual mic over to our CFO, George Chang, for financial overview.
Good afternoon, everyone. Let's start with the performance by business. In 2Q 2023, consolidated revenue rose by 5% YOY, driven by solid performance in our telecom business. Mobile service revenue grew YOY for 9 quarters in a row, thanks to ARPU improvement amid steady 5G conversion and benign 4G pricing. This, along with a healthy expansion of a fixed line service revenue, allowed us to record our highest telecom service revenue since 4Q 2018. As a result, telecom EBITDA increased by 2% YOY and helped our consolidated EBITDA reach a historical high. The decline in momo's EBITDA was attributable to slower e-commerce revenue growth and weaker legacy business. However, its e-commerce take rate was stable YOY. Broadband growth compensated for the drop in paid TV subscription and kept cable TV EBITDA steady YOY during the quarter. Let's go to a result summary.
With a healthy performance in our 3 core engines, 5G, e-commerce, and home broadband, consolidated revenue rose 5% YOY in the quarter. Our cash costs and expenses increased YOY during the quarter, owing to solid demand of our unique bundle plans, which made up 21% of our postpaid smartphone subscribers. Consolidated operating income recorded a 2% YOY uptake in 2Q 2023, hitting a new high since 1Q 2020, driven by healthy telecom EBITDA growth and a muted rise in D&A expenses. Non-operating expenses went up YOY on the back of higher financing costs from rising interest rates as well as high base for disposal gain. As a result, net income grew by 1% YOY in 2Q 2023. Let's move on to balance sheet.
Starting with assets, receivables rose YOY owing to an increase in post-paid subscribers and monthly fee contribution from our mobile bundle plan. Inventories grew YOY along with momo's business expansion. Long-term investments were YOY due to the valuation gains in our strategic investment in cloud services and new economy businesses. As for liabilities, other current liabilities went up sequentially following AGM's approval of dividend payment. NT 37.2 billion of excess reserve remains available for future dividend top-up. Despite the bond issuance of NT 6.5 billion for 5 years at 1.537% during the quarter, gross debt declined by 6% YOY to NT 63.21 billion, as we repaid short-term borrowings. The proportion of long-term borrowings increased to over 70%, up from 62% a year ago.
Benefiting from decent free cash flow generation, our net debt to EBITDA fell to 1.47 x in 2Q 2023, the lowest since 4Q 2019. On cash flow, 2Q 2023 operating cash inflow rose by 13% YOY, thanks to steady telecom EBITDA growth, as well as good handset inventory turnover. Investing cash outflow decreased YOY as both CapEx and investment came off from a high base a year ago, associated with momo distribution center and our participation in LINE Bank's rights issue last year. As for financing activities, our healthy free cash flow generation allowed us to reduce the short-term borrowings.
Benefiting from improving operating cash inflow and decreasing cash CapEx, first half 2023 free cash flow calculated on a pre-IFRS 16 basis increased by 10% YOY to NT 6.81 billion, translating into an annualized free cash flow yield of 5.1%. Let me turn the presentation back to Jamie for event updates and key message.
All right. Thank you, George. So it is my greatest pleasure to share that in Institutional Investor's 2023 Asia Executive Team rankings announced in June, Taiwan Mobile was voted the number 1 telecom company in the rest of Asia rankings for the second time, second year in a row. We also received the All-Star status as we won first place in all categories. More importantly, we were the only Taiwanese telecom company to make it in the much more competitive overall Asia ranking, which included our much bigger mainland China competitors or peers. Placed first in the sector by scoring the highest in Best CEO, Best CFO, Best IR Program, Best IR Team, Best ESG, and Best Company Board categories. I would like to take this opportunity to express our sincerest gratitude to our investors and covering analysts.
We could not have achieved this without your trust and support. We remain committed to improving further. Thank you, guys. We really appreciate every single one of your votes. I would also like to share some of our recent ESG highlights. Taiwan Mobile has declared 2023 as the starting year of our biodiversity conservation, of biodiversity conservation, and is committed to achieve zero deforestation by 2050. To reach this goal, we have embarked on four new projects, including the introduction of TNFD, the Taskforce on Nature-related Financial Disclosures, to better inform stakeholders of our strategy and governance regarding nature-related risk and opportunities. Furthermore, our Solar for Good project, which combines social care and green energy initiative, has already built solar power systems and generated stable income for six MPOs. The seventh year of this project has just kicked off.
If you're interested in supporting this meaningful project, please do contact my colleagues over at the IR team. Next, let's turn to page 15 for a special announcement we would like to make. 2023 CapEx budget additions. On August 4, 2023, the board approved network-related CapEx budget additions for 2023. Total CapEx budget will be NTD 15.653 billion, with actual cash payments subject to the actual progress of the network pay deployment. Finally, to wrap up our presentation, here's the key message we'd like for you to take away with. Key message: TWM continues to fire on all cylinders with our unique bundles, momobile, Double Play, Disney+, and OP Life, propelling our telecom service revenue. Coupled with steady growth in e-commerce and home broadband, our 2Q 2023 consolidated EBITDA reached an all-time high.
Free cash flow also went up by 10% YOY during the first half of this year, reflecting our strong fundamentals. Meanwhile, we are one step closer toward establishing a sustainable foundation for longer-term growth. Actually, for long-term growth. With that, we open the floor for questions. You're welcome to send your questions via the chat box on the webcast page. We will begin by addressing the telephone line questions before moving on to queries from the webpage. Operator, please go ahead.
Thank you, ladies and gentlemen. We will now open for questions. If I need to register for a question, please press star one on your telephone. Thank you. Our first question comes from Neale Anderson with HSBC. Please go ahead. Thank you.
Thank you. Good afternoon. I have two questions, please. The first one relates to the cash costs. You mentioned that had gone up because of the increase in the bundled subscribers. Could you give us a little bit more idea on how you see the trajectory of that unfolding? I guess it's gonna remain high for the coming quarters, but then what I assume is you'll, you'll see lower retention costs over the, over the next couple of years. How, how do you see that panning out? That's the first question. The second one is to get an update on the Taiwan Star situation. Thanks very much.
Thank you, Neale. In terms of cash cost, especially the spending on handset subsidies, we don't see the trajectory to continue to go up too much further. Like you said, we do expect this investment to bring benefits in the long run in terms of reduced churn rate and also retention costs. In terms of the Taiwan Star deal, right now, it's still pending FTC approval. FTC has earlier accepted the deal, which means that they will have accepted and extended the deal, so which means that they will have till early November to give us the final verdict on the application. Hope those answers your question.
Yep. Thank you.
Thank you, Neale.
Thank you. Our next question comes from Peter Milliken with Deutsche Bank. Please go ahead. Thank you.
Yeah, good afternoon. Congratulations on the good results. My question is really about some of the bundled services that you were mentioning, one of them being OP Life. Can you explain to us a little bit more about what OP Life is? I believe that the offer is you, you give people a, a large screen TV and, I guess some content related to that. Is that, is that correct?
Thank you, Peter. Yes. OP Life in Mandarin is OP 【 goodwill and happiness 】. Within this sub-brand, right now we have two product series. One is 【 image theater set 】, which is a home theater packed bundles, in which we bundle large, large screen TV and soundbar and Wi-Fi and other home theater-related products with our rate plan. Because these are higher ticket size items, that's why with the bundle, there are more customers opting for higher rate plans and longer contracts.
We also have another product series that's the You Xi Wan Jia Ju, which is the game player series, in which we bundle products like Sony's PS5 and VR2 gaming devices, and also game handheld cloud game consoles like G Cloud from Logitech.
Right. I see. Okay, that's interesting. Also, earlier on, you mentioned on the cable TV front that you're the 4th largest ATV operator, but you have 85% of the country covered by broadband. Can you remind me how you get the extra coverage? Is that just reselling other cable TV operators in other areas, or is there another way you're doing that?
Yes. Thank you. Yes, in our Double Play product, we actually work with third-party MSOs to bundle their home broadband service, sort of white label their home broadband service to bundle into our Double Play product and to be shipped to our customers. Yes, we work with third-party broadband home broadband providers in order to achieve our footprint. One of them being Kbro-
Mm-hmm.
MSO in our group.
Yep, makes sense. Hey, great. Thank you very much.
Thank you, Peter.
Thank you. Our next question comes from Sarah Wong with UBS. Please go ahead. Thank you.
Hi. Thank you for the opportunity to ask a question. I have 1 question regarding CapEx. May I ask what's the, like, key reason of increasing the CapEx budget for 2023? Why do we decide to increase the CapEx before the merger, given the potential, significant network synergy with Taiwan Star? Thank you.
Thank you, Sarah. Yes, the approved CapEx is related to the merger with Taiwan Star, and we do need to spend some CapEx in order to integrate the two networks in to achieve the sort of maximum synergy between the two companies. We will not be spending until we have gotten the approval, we have gotten the green light from FTC.
Got it. Just wondering why which area do we spend in order to, like, facilitate the network synergy with Taiwan Star? Could you please provide more color?
Sure. Taiwan Star has 9,000 base stations, and we have around 13,000 base stations. In the process, we need to consolidate all of the base stations. There's, there are many equipments that will need to be moved. That's basically the, the, the sort of the gist of how we're spending the CapEx.
Okay, thank you.
Thank you.
Thank you once again, ladies and gentlemen. If you'd like to register for question, please press star one on your telephone. Thank you. Once again, ladies and gentlemen, that is star one for questions.
Operator, if there's no questions, on the telephone line, we can go to a question from the, web, webpage first.
Yes, Mr. Lin, there are no further questions at this moment. Thank you.
Okay. we're gonna go to a question from Rob Lou of MoneyDJ. The question is, "Hi, Jamie and George. This is Rob from MoneyDJ. I would love, I would love you to shed some light on the additional CapEx, in which domain the CapEx will be in hectic," I guess he means in, enacted in or invested in. I guess maybe it's invested in. "Are they core network, network construction in relation with T Star merger or what else? Why adding such huge chunk of CapEx at this moment? Is it triggered by competitors' moves? What will be Taiwan Mobile's competing edge? The high hauling OpEx is now an issue. Most people notice that.
Jamie, by how long you think this will go away?" All right, the CapEx question. Like we just said, it's for the Taiwan Star merger and the investments we need to make in order to integrate the two networks. Most of the CapEx will be spent on construction, meaning tearing down the equipment from the Taiwan Star base station locations that we will no longer need, and moving the equipment to the Taiwan Mobile base station locations that will continue to operate. We will not, we will not keep the bulk of Taiwan Star's base stations....
The reason why we asked the board to approve the CapEx right now is because any day from now, we might, we can get a green light from FTC. As long as we get a green light from FTC, we'll start to invest to accelerate the synergy extraction of the network integration. That is why we take this opportunity during a regular board meeting to get this approval. In terms of the CapEx, like we just communicated earlier, we don't expect this to continue to grow too much further. We started accelerating our unique bundles since last Q3 last year. On a YOY basis, you can expect things to normalize starting from Q3 this year. George, you have anything to add?
Yeah. If I may just add a little bit. Please bear in mind that we are not going to have our next board meeting for, like, at least another 3 months. As Jimmy mentioned, we may get FTC approval anytime between now, or say within the next couple of months. We do need board's okay to... We can spend the money once we get approval. Otherwise, we need to call an extraordinary board meeting, which is a little bit inconvenient. Let's put it that way. Another thing is, this CapEx is not a surprise at all. If you recall, last year when we announced the, the merger at first place, where we said that we expect to spend certain amount of money, and we expect to generate some synergies in between, from these consolidations.
This is all planned, and this also answers back to Sarah's previous question. None of this, I would say, is a surprise per se. It's all planned, and we just thought that now is a good timing to ask for board's approval because we can get FTC green light at any time now.
All right. Hope that answers your question, Rob. operator, is there any more questions from the phone line?
Not at the moment, Mr. Lin. Once again, ladies and gentlemen, if you'd like to register for question, please press star one on your telephone. Thank you.
Okay, there is another question coming from the in the chat box. The question is: Can you talk about your growth strategy in the telco business other than 5G for consumers?
Thank you. With, with our, on top of our sustainable growth foundation, strategy for consumers, we also have a Telco Plus strategy that is to leverage our the sort of special assets that we are able to generate by operating our telecom business. These assets are what I call gifts. For example, our ability to protect information security and consumer privacy. We take all these gifts, and we turn them into a a strategy called Telco Plus, in which we build these gifts into services, what I which is what I call gifts as a service. One example of, of our gifts as a service Telco Plus product is our number masking product.
That is called the Anxin Call in Chinese. This, this is a service that is being widely adapted by e-commerce, food delivery, and taxi dispatch businesses. It's, it's a service that uses proxy phone numbers to make it possible for the service providers and consumers to be able to call each other and talk on the phone. In a process, prevent the either parties from getting the real phone numbers of the other one. They have the ease of communicating with each other, but they don't run, we don't, the platforms don't run the risk of leaking customer privacy information to the service providers. It has greatly reduced fraud rate for the e-commerce or taxi dispatchment platforms that work with us.
That's one of our Telco Plus gifts as a service sort of product that we offer to the market. Another one is our anti-phishing service, which we call Banza Zhengjing in Mandarin. In that product, we provide a 24/7 monitoring service that detects potential phishing websites that imitate our enterprise customers' IP, and in order to minimize the damage fraudsters can cause to them and protect their brand reputation. This is also why we are sort of adapted by many large enterprises, including financial services and manufacturing companies.
Those are the two examples that we leverage our core strengths that we develop by running our consumer telecom business and turn them into our gifts as service businesses. Going forward, we will continue to develop more of these services, and we expect these services to bring a meaningful revenue and profit to our group as a whole. Hope that answers your question. Operator, do we have more questions from the phone line?
Not at the moment, Mr. Lin. Once again, ladies and gentlemen, that is star one for questions.
If not, we'd also, we don't see, more questions coming from the webpage either. Should we conclude this edition of our conference?
Mr. Lin, there are no further question at this point in time. Thank you.
Okay, great. Thank you, everybody, everyone, for dialing in. We look forward to seeing you again next time.
Thank you. Thank you for your participation. This concludes the conference. Goodbye.