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CyberWorks loses US$886m as Web strategy falters

Summary

Pacific Century CyberWorks Ltd, Hong Kong's biggest phone company, lost US$886 million last year after its plan to use fixed-line income to fund high-risk Internet expansion faltered.

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HONG KONG--Pacific Century CyberWorks Ltd, Hong Kong's biggest phone company, lost US$886 million last year after its plan to use income from fixed-line services to pay for high-risk Internet expansion faltered.

The loss reflected US$667 million of charges mainly related to a writedown in the value of its Internet investments. Earnings were also crimped by net interest charges of US$302 million related to debt it raised for its US$28 billion purchase of Cable & Wireless HKT Ltd last August.

"There were many one-off items we needed to address as a result of the merger," said Francis Yuen, deputy chairman of CyberWorks. The result exceeds the worst forecast of a US$334 million loss in a Bloomberg survey of seven analysts.

CyberWorks, which reported profit of US$44 million in 1999, was the darling of investors last year after founder Richard Li promised to create Asia's top Internet company. Its shares have plunged about three-quarters in value since it bought HKT, amid a slump in the industry that caused investors to question the value of Internet investments.

The company, formed two years ago by Li, son of Hong Kong billionaire Li Ka-shing, said its sales were US$935 million, compared with US$19 million a year earlier.

The loss per share was HK$0.4754 (US$0.06) against HK$0.0999 earnings a year earlier, the company said.

'Worse than expected'
Earnings before tax, interest payments, debt repayment and writing down the value of capital equipment and other provisions came to US$191 million. Operating profit was US$67 million.

"The provisions were worse than we were expecting, but that probably means that they are clearing the decks for next year and we can expect little in terms of investment losses going forward," said Jahanzeb Naseer, a regional telecommunications analyst at ABN Amro Holding NV.

The provision includes about US$640 million losses on securities and other investments. CyberWorks said it made a US$30 million investment gain from certain investment disposals during the period.

The company wrote off US$22 billion in goodwill against its reserves and said its accumulated losses now exceed its accumulated profit by US$1.8 billion.

CyberWorks' profit is expected to be dented by the continuing high interest expenses in 2000, as the company estimates net interest cost to raise to US$490 million, mainly come from the US$4.7 billion loan it raised in February to help repay the original credit used for the HKT purchase.

The company said it will limit losses before interest, tax, depreciation and amortization in its business-to-consumer Internet operations to less than US$200 million.

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