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Ben Kwok

Pacific Century CyberWorks returned to the black with a better-than-expected net profit of $935 million in the first six months of the year.

However, the embattled telecoms and Internet company also revised its net loss for last year to a massive $129.29 billion - dwarfing the previous record for a Hong Kong-listed company of $13.4 billion, and more than 18 times the $6.9 billion PCCW reported in March.

PCCW, which has seen its share price fall 94 per cent since the height of the Internet boom last year, was forced to restate its earnings due to changes in accounting rules that took effect this year.

Chairman Richard Li Tzar-kai said the revision was purely a technical issue. 'It will not affect our cash flow, it will not affect our shareholders' funds,' he said.

The new loss figure was arrived at after taking into account $172 billion in goodwill from the purchase of HKT. Goodwill refers to the difference between the amount paid for a company and the value of its tangible assets.

Hong Kong companies normally write off goodwill against their reserves - as PCCW originally did - but the new rules require goodwill to be included on balance sheets over a period of up to 20 years.

However, PCCW accounted for its HKT goodwill all at once.

In announcing its first-half results, PCCW was reporting figures for the first full accounting period since it took over the former Hongkong Telecom in August last year. Analysts had forecast earnings for the six months of $800 million to $900 million.

Revenues for the period were $11.31 billion. Comparing the pre-merger results of the companies, revenue rose by 12 per cent on the same period last year, PCCW said.

Mr Li attributed the company's better overall performance to improved operating efficiency. PCCW reduced staff costs by 3.2 per cent in the first six months.

He said PCCW had no immediate plans to cut jobs, but hinted it might have to follow a global trend of lay-offs to further improve efficiency. The company sacked 340 staff in July.

'We will also need to fix our eyes on operating efficiency,' he said.

'Global companies are making themselves more efficient and more competitive, we have to follow that path, that means more work has to be done in that area.'

He said PCCW had not made any decision on how many jobs it would shift to the mainland.

'In the past six months, we have undertaken a thorough review . . . and currently we understand where our fat is and where our muscle is.

'We will continue to look for ways to improve operating profit . . . we would not want to mix fat and muscle, but we will study any ways to save costs and improve operating efficiency.'

Shares in PCCW fell 4.47 per cent to $1.71 yesterday, down from an all-time high of $28.50 last year. The results were released after the market closed. The Hang Seng Index fell 278.82 points, or 2.55 per cent, to 10,664.32.

Mr Li said: 'I am very worried and heart-stricken about shareholders losing money [on our shares] every day.

'We hope investors will be able to benefit . . . but the only thing we can do is to improve company efficiency, make the business better, grow our revenue and profit.'

Analysts agreed with Mr Li on relevance of last year's huge loss, saying the revision was a 'non-issue' as it would not affect the company's cash flow and operations. 'This is a pure accounting treatment,' said an analyst at DBS Securities. 'This could be told by CyberWorks' share price performance.'

The previous known highest net loss by a Hong Kong-listed company was US$1.72 billion (HK$13.4 billion) by Akai Holdings last year.

Mr Li's father, Li Ka-shing, holds another record.

One of his flagship companies, Hutchison Whampoa, reported Hong Kong's biggest net profit by a listed company: $117.3 billion for 1999.



Results for first six months clouded by revision of last year's losses to record $129b