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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Hong Kong Television Network Ltd. (MM) | NASDAQ:CTEL | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 6.08 | 0 | 01:00:00 |
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Name Of Each | ||
Exchange On Which | ||
Title Of Each Class | Registered | |
American Depositary Shares, each representing 20 Ordinary Shares, par value HK$0.10 per share
|
The Nasdaq Stock
Market LLC |
|
Ordinary Shares, par value HK$0.10 per share*
|
The Nasdaq Stock
Market LLC* |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o |
US GAAP o | International Financial Reporting Standards as issued þ | Other o | ||
by the International Accounting Standards Board |
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EX-12.1 | ||||||||
EX-12.2 | ||||||||
EX-13 |
| Hong Kong Companies Ordinance are to Chapter 32 of the laws of Hong Kong; | |
| City Telecom or the Company are to City Telecom (H.K.) Limited; | |
| fiscal year or fiscal are to the Companys fiscal year ended August 31 for the year referenced; | |
| FTNS business are to our business segment in which we provide fixed telecommunications network services, including dial up and broadband Internet access services, local VoIP services, IP-TV services and corporate data services; | |
| FTNS Licenses are to the licenses issued by the Hong Kong regulatory authorities for fixed telecommunications network services; | |
| GPON are to Gigabit Passive Optical Network; | |
| Group are to the Company and its subsidiaries; | |
| HKBN are to Hong Kong Broadband Network Limited, a wholly owned subsidiary of the Company; | |
| HKFRSs are to Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants; | |
| IDD business are to our business segment in which we provide international telecommunications services, including international long distance call services; | |
| IFRSs are to International Financial Reporting Standards, as issued by the International Accounting Standards Board; | |
| IP-TV services are to pay-television services through Internet Protocol; | |
| PNETS Licenses are to licenses issued by the Hong Kong regulatory authorities for the public non-exclusive telecommunications services; | |
| UC License are to the Unified Carrier License issued by the Hong Kong regulatory authorities for fixed and mobile telecommunication services; and | |
| VoIP are to Voice over Internet Protocol. |
1
| technological changes; | ||
| changes in our regulatory environment, including changes in rules and policies promulgated by regulatory agencies from time to time; | ||
| increasing competition in the telecommunications, Internet access, local VoIP, pay-television and corporate data markets; | ||
| the benefits we expect to derive from our Next Generation Network, which utilize Metro Ethernet and GPON technologies, in which we have been making significant capital investments; | ||
| our ability to maintain growth and successfully introduce new services; | ||
| the continued development and stability of our technological infrastructure, a platform through which our local and international telecommunications, Internet access, local VoIP, IP-TV and corporate data services are offered; and | ||
| changes in the local and global economic environment. |
2
3
For the year ended August 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands except per share data and number of ordinary shares) | ||||||||||||||||
Revenue:
|
||||||||||||||||
- FTNS business
|
1,011,038 | 1,230,880 | 1,356,098 | 174,348 | ||||||||||||
- IDD business
|
291,943 | 247,359 | 218,589 | 28,103 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Total operating revenue
|
1,302,981 | 1,478,239 | 1,574,687 | 202,451 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Network costs:
|
||||||||||||||||
- FTNS business
|
(103,524 | ) | (107,670 | ) | (144,347 | ) | (18,558 | ) | ||||||||
- IDD business
|
(74,843 | ) | (67,459 | ) | (50,945 | ) | (6,550 | ) | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Total network costs
|
(178,367 | ) | (175,129 | ) | (195,292 | ) | (25,108 | ) | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Other operating expenses
|
(966,094 | ) | (1,037,964 | ) | (1,105,604 | ) | (142,143 | ) | ||||||||
|
||||||||||||||||
Interest expense, net
|
(59,541 | ) | (50,258 | ) | (10,863 | ) | (1,397 | ) | ||||||||
Other income/(expense), net
|
9,393 | 36,671 | (3,383 | ) | (434 | ) | ||||||||||
Income taxes benefit/(expense)
|
16,818 | (38,730 | ) | (42,679 | ) | (5,487 | ) | |||||||||
|
||||||||||||||||
|
||||||||||||||||
Net income
|
125,190 | 212,829 | 216,866 | 27,882 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Basic earnings per share (cents)
|
19.7 | 32.4 | 30.7 | 3.9 | ||||||||||||
Diluted earnings per share (cents) (note 1)
|
19.0 | 31.8 | 29.4 | 3.8 | ||||||||||||
Dividends per share attributable to the year (cents)
|
6.0 | 19.0 | 20.0 | 2.6 | ||||||||||||
Weighted average number of ordinary shares
|
634,015 | 657,201 | 706,605 | 706,605 | ||||||||||||
Diluted weighted average number of ordinary shares
(note 2)
|
657,997 | 668,384 | 736,616 | 736,616 |
4
As of August 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Total assets
|
2,093,410 | 1,790,408 | 2,251,549 | 289,473 | ||||||||||||
|
||||||||||||||||
Long-term debt and other liabilities
|
(683,242 | ) | (162,586 | ) | (134,860 | ) | (17,338 | ) | ||||||||
Finance lease obligations
|
(376 | ) | (732 | ) | (605 | ) | (78 | ) | ||||||||
Other liabilities
|
(377,185 | ) | (398,563 | ) | (427,545 | ) | (54,969 | ) | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Total liabilities
|
(1,060,803 | ) | (561,881 | ) | (563,010 | ) | (72,385 | ) | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Net assets
|
1,032,607 | 1,228,527 | 1,688,539 | 217,088 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Share capital
|
65,062 | 66,418 | 76,500 | 9,835 | ||||||||||||
Share premium
|
670,717 | 681,208 | 1,074,997 | 138,208 | ||||||||||||
Reserves
|
296,828 | 480,901 | 537,042 | 69,045 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Total shareholders equity
|
1,032,607 | 1,228,527 | 1,688,539 | 217,088 | ||||||||||||
|
For the year ended August 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
EBITDA (note 3)
|
377,964 | 508,058 | 469,437 | 60,354 | ||||||||||||
Net cash inflow from operating activities
|
381,991 | 536,771 | 485,340 | 62,398 | ||||||||||||
Net cash outflow from investing activities
|
(147,750 | ) | (176,488 | ) | (306,254 | ) | (39,374 | ) | ||||||||
Net cash outflow from financing activities
|
(345,978 | ) | (561,292 | ) | 178,307 | 22,924 | ||||||||||
Capital expenditures (note 4)
|
211,684 | 286,734 | 344,844 | 44,335 |
For the year ended August 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
EBITDA
|
377,964 | 508,058 | 469,437 | 60,354 | ||||||||||||
Depreciation and amortization
|
(210,051 | ) | (206,241 | ) | (199,029 | ) | (25,588 | ) | ||||||||
Interest expense, net
|
(59,541 | ) | (50,258 | ) | (10,863 | ) | (1,397 | ) | ||||||||
Income taxes benefit/(expense)
|
16,818 | (38,730 | ) | (42,679 | ) | (5,487 | ) | |||||||||
|
||||||||||||||||
|
||||||||||||||||
Net income
|
125,190 | 212,829 | 216,866 | 27,882 | ||||||||||||
Depreciation and amortization
|
210,051 | 206,241 | 199,029 | 25,588 | ||||||||||||
Amortization of deferred expenditure
|
33,777 | 53,160 | 48,621 | 6,251 | ||||||||||||
Income taxes (benefit)/expense
|
(16,818 | ) | 38,730 | 42,679 | 5,487 | |||||||||||
Interest income
|
(15,596 | ) | (4,869 | ) | (11,372 | ) | (1,462 | ) | ||||||||
Interest element of finance lease
|
34 | 27 | 42 | 5 | ||||||||||||
Interest, amortization and exchange difference on
senior notes
|
72,640 | 49,214 | 6,069 | 780 | ||||||||||||
Interest on other borrowings
|
3,428 | 885 | 3,260 | 419 | ||||||||||||
Amortization of upfront cost on bank loan
|
| | 192 | 25 | ||||||||||||
Interest expense on bank loan
|
| | 1,379 | 177 | ||||||||||||
Change in fair value of derivative financial
instruments
|
| | 11,293 | 1,452 | ||||||||||||
Realized gain on long term bank deposit
|
(1,185 | ) | | | |
5
For the year ended August 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Loss/(gain) on disposal of fixed assets
|
1,431 | 1,016 | (1,375 | ) | (177 | ) | ||||||||||
Equity settled share-based transaction
|
4,204 | 4,768 | 5,347 | 687 | ||||||||||||
Realized loss on derivatives financial instruments
|
1,039 | | | | ||||||||||||
Realized and unrealized gain on other financial assets
|
(3,284 | ) | (189 | ) | | | ||||||||||
(Gain)/loss on extinguishment of senior notes
|
(2,582 | ) | (31,371 | ) | 9,650 | 1,241 | ||||||||||
Taxation paid
|
(4,250 | ) | (1,732 | ) | (3,013 | ) | (387 | ) | ||||||||
Change in long term receivable and prepayments
|
1,346 | (505 | ) | 917 | 118 | |||||||||||
Change in working capital, net
|
(27,434 | ) | 8,567 | (44,244 | ) | (5,688 | ) | |||||||||
|
||||||||||||||||
|
||||||||||||||||
Net cash inflow from operating activities
|
381,991 | 536,771 | 485,340 | 62,398 | ||||||||||||
|
As of and for the year ended August 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
FTNS subscriptions:
|
||||||||||||
- Broadband Internet access
|
316,000 | 391,000 | 526,000 | |||||||||
- Local VoIP
|
329,000 | 382,000 | 431,000 | |||||||||
- IP-TV
|
156,000 | 170,000 | 153,000 | |||||||||
Total
|
801,000 | 943,000 | 1,110,000 | |||||||||
Registered international telecommunications accounts (note 5)
|
2,336,000 | 2,383,000 | 2,445,000 | |||||||||
IDD outgoing minutes (in thousands)
|
574,000 | 487,000 | 464,000 |
Notes: | ||
(1) | Diluted earnings per share is computed by dividing the net income by the diluted weighted average number of ordinary shares during the year. | |
(2) | For the years ended August 31, 2008, 2009 and 2010, the diluted weighted average number of ordinary shares was the weighted average number of ordinary shares outstanding during the respective years, plus the weighted average number of additional ordinary shares which would have been outstanding assuming all the outstanding share options have been exercised at the beginning of the respective years or on the date of issue, whichever is earlier. | |
(3) | EBITDA for any period means, without duplication, net income for such period, plus the following to the extent deducted in calculating such net income: interest expense, income taxes, depreciation and amortization expense (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation), less interest income. EBITDA is not a measure of performance under IFRSs. We believe that EBITDA is an additional measure utilized by investors in determining a borrowers ability to meet debt service requirements. However, EBITDA does not represent, and should not be used as a substitute for, net earnings or cash flows from operations as determined in accordance with IFRSs, and EBITDA is not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements. In addition, our definition of EBITDA may differ from that of other companies. | |
(4) | Capital expenditures represent additions to fixed assets and include non-cash transactions. | |
(5) | Registered accounts refer to international telecommunications customers that have a valid account. Account holders may or may not be active users of our services. |
6
For the year ended August 31, | ||||||||
2006 (note 6) | 2007 | |||||||
HK$ | HK$ | |||||||
(Amounts in thousands except per share data) | ||||||||
HKFRS
|
||||||||
|
||||||||
Revenues:
|
||||||||
Fixed telecommunications network services
|
716,600 | 816,800 | ||||||
International telecommunications services
|
418,276 | 324,470 | ||||||
|
||||||||
|
||||||||
Total operating revenue
|
1,134,876 | 1,141,270 | ||||||
|
||||||||
|
||||||||
Network Costs:
|
||||||||
Fixed telecommunications network services
|
(125,639 | ) | (103,795 | ) | ||||
International telecommunications services
|
(174,954 | ) | (110,796 | ) | ||||
|
||||||||
|
||||||||
Total network costs
|
(300,593 | ) | (214,591 | ) | ||||
Other operating expenses
|
(919,795 | ) | (834,104 | ) | ||||
|
||||||||
|
||||||||
(Loss)/income from operations
|
(85,512 | ) | 92,575 | |||||
Interest (expense)/income, net
|
(68,259 | ) | (64,833 | ) | ||||
Other income, net
|
4,465 | 3,149 | ||||||
Income taxes credit/(expense)
|
7,244 | (2,026 | ) | |||||
|
||||||||
|
||||||||
Net (loss)/income
|
(142,062 | ) | 28,865 | |||||
Basic (loss)/earnings per share (cents)
|
(23.1 | ) | 4.7 | |||||
Diluted (loss)/earnings per share (cents) (note 1)
|
(23.1 | ) | 4.6 | |||||
Dividends declared per share (cents)
|
| 8.0 | ||||||
Weighted average number of shares
|
614,134 | 614,840 | ||||||
Diluted weighted average number of shares (note 2)
|
614,134 | 631,319 |
For the year ended August 31, | ||||||||
2006 | 2007 | |||||||
HK$ | HK$ | |||||||
(Amounts in thousands except per share data) | ||||||||
U.S. GAAP
|
||||||||
Total operating revenue
|
1,134,876 | 1,141,270 | ||||||
Total operating expenses
|
(1,220,388 | ) | (1,048,695 | ) | ||||
Net (loss)/income
|
(142,062 | ) | 28,865 | |||||
Basic (loss)/earnings per share (cents)
|
(23.1 | ) | 4.7 | |||||
Diluted (loss)/earnings per share (cents) (note 1)
|
(23.1 | ) | 4.6 | |||||
Dividends declared per share (cents)
|
| 8.0 | ||||||
Weighted average number of shares
|
614,134 | 614,840 | ||||||
Diluted weighted average number of shares (note 2)
|
614,134 | 631,319 |
7
As of August 31, | ||||||||
2006 | 2007 | |||||||
HK$ | HK$ | |||||||
(Amounts in thousands) | ||||||||
HKFRS
|
||||||||
Total assets
|
2,124,215 | 2,161,133 | ||||||
Debt
|
(948,027 | ) | (952,593 | ) | ||||
Finance lease obligation
|
(2,373 | ) | (1,210 | ) | ||||
Other liabilities
|
(282,161 | ) | (303,448 | ) | ||||
|
||||||||
|
||||||||
Total liabilities
|
(1,232,561 | ) | (1,257,251 | ) | ||||
|
||||||||
|
||||||||
Net assets employed
|
891,654 | 903,882 | ||||||
|
||||||||
|
||||||||
Share capital
|
61,417 | 61,650 | ||||||
Share premium
|
620,298 | 622,433 | ||||||
Reserves
|
209,939 | 219,799 | ||||||
|
||||||||
|
||||||||
Total shareholders equity
|
891,654 | 903,882 | ||||||
|
As of August 31, | ||||||||
2006 | 2007 | |||||||
HK$ | HK$ | |||||||
(Amounts in thousands) | ||||||||
U.S. GAAP
|
||||||||
Total assets
|
2,154,305 | 2,189,086 | ||||||
Total liabilities
|
(1,257,034 | ) | (1,279,587 | ) | ||||
Net shareholders equity
|
897,271 | 909,499 |
For the year ended August 31, | ||||||||
2006 (note 6) | 2007 | |||||||
HK$ | HK$ | |||||||
(Amounts in thousands) | ||||||||
HKFRS
|
||||||||
EBITDA (note 3)
|
195,417 | 353,827 | ||||||
Net cash provided by operating activities
|
184,151 | 383,999 | ||||||
Net cash (used in)/provided by investing activities
|
(492,742 | ) | 114,053 | |||||
Net cash used in financing activities
|
(86,432 | ) | (109,504 | ) | ||||
Capital expenditures (note 4)
|
322,935 | 132,250 |
8
For the year ended August 31 | ||||||||
2006 | 2007 | |||||||
HK$ | HK$ | |||||||
(Amounts in thousands) | ||||||||
EBITDA (note 3)
|
195,417 | 353,827 | ||||||
Depreciation and amortization
|
(276,464 | ) | (258,103 | ) | ||||
Interest expense, net
|
(68,259 | ) | (64,833 | ) | ||||
Income taxes credit/(expense)
|
7,244 | (2,026 | ) | |||||
|
||||||||
|
||||||||
Net (loss)/income
|
(142,062 | ) | 28,865 | |||||
Depreciation and amortization
|
276,464 | 258,103 | ||||||
Impairment loss on investment property
|
1,131 | | ||||||
Amortization of deferred expenditure
|
13,973 | 15,580 | ||||||
Income taxes (credit)/expense
|
(7,244 | ) | 2,026 | |||||
Interest income
|
(20,378 | ) | (22,671 | ) | ||||
Interest, amortization and exchange difference on senior notes
|
86,664 | 89,879 | ||||||
Other borrowing costs
|
1,919 | (739 | ) | |||||
Loss on disposal of fixed assets
|
9,621 | 1,714 | ||||||
Equity settled share-based transaction
|
6,823 | 5,727 | ||||||
Realized and unrealized loss on derivatives financial instruments
|
125 | 806 | ||||||
Unrealized gain on other investments
|
(668 | ) | (1,887 | ) | ||||
Taxation paid
|
(2,532 | ) | (2,171 | ) | ||||
Change in long term receivable
|
567 | 5,600 | ||||||
Change in working capital, net
|
(40,252 | ) | 3,167 | |||||
|
||||||||
|
||||||||
Net cash flow provided by operating activities
|
184,151 | 383,999 | ||||||
|
As of and for the year ended August 31, | ||||||||
2006 | 2007 | |||||||
FTNS Subscriptions:
|
||||||||
Broadband Internet Access
|
220,000 | 247,000 | ||||||
Local VoIP
|
281,000 | 308,000 | ||||||
IP-TV
|
116,000 | 128,000 | ||||||
|
||||||||
|
||||||||
Total
|
617,000 | 683,000 | ||||||
|
||||||||
|
||||||||
Registered international telecommunications accounts (note 5)
|
2,201,963 | 2,331,000 | ||||||
IDD outgoing minutes (in thousands)
|
788,000 | 659,000 |
9
Notes: | ||
(1) | Diluted (loss)/earnings per share is computed by dividing the net (loss)/income by the diluted weighted average number of ordinary shares during the year. | |
(2) | For fiscal 2007, the diluted weighted average number of shares was the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of additional ordinary shares which would have been outstanding assuming all the outstanding share options and share warrants (if any) have been exercised at the beginning of the respective years or on the date of issue, whichever is earlier. For fiscal 2006, the diluted weighted average number of shares was equal to the weighted average number of ordinary shares outstanding during the respective years because the incremental effect of share options and share warrants was anti-dilutive in a loss-making year. | |
(3) | EBITDA for any period means, without duplication, net income/(loss) for such period, plus the following to the extent deducted in calculating such net income/(loss): interest expense, income taxes, depreciation and amortization expense (excluding any such non cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation), less interest income. EBITDA is not a measure of performance under HKFRS or U.S. GAAP. We believe that EBITDA is an additional measure utilized by investors in determining a borrowers ability to meet debt service requirements. However, EBITDA does not represent, and should not be used as a substitute for, net earnings or cash flows from operations as determined in accordance with HKFRS or U.S. GAAP, and EBITDA is not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements. In addition, our definition of EBITDA may differ from that of other companies. | |
(4) | Capital expenditures represent additions to fixed assets and include non-cash transactions. | |
(5) | Registered accounts refer to international telecommunications customers that have a valid account. Account holders may or may not be active users of our services. | |
(6) | Due to additional evidence and information received with respect to the collectability of the mobile interconnection charges on January 30, 2006, we were required to reassess the conditions on which the estimates on bad debt provision for mobile interconnection charges receivables were based. Such assessment were made after the publication of our Hong Kong statutory financial statements for fiscal 2005 but prior to the filing of our annual report on Form 20-F for fiscal 2005. The effect of the reassessment was reflected in our annual report on Form 20-F for fiscal 2005 and in our Hong Kong statutory financial statements for fiscal 2006. | |
Our reassessment had the following effects on our consolidated statement of operations for fiscal 2005 and 2006: |
As previously | ||||||||||||||||
reported in | ||||||||||||||||
As previously | 2006 Hong Kong | |||||||||||||||
reported in 2005 Hong | As reported | statutory | As reported | |||||||||||||
Kong statutory | in 2005 Form | financial | in 2006 | |||||||||||||
financial statements | 20-F | statements | Form 20-F | |||||||||||||
HK$ | HK$ | HK$ | HK$ | |||||||||||||
(Amounts in thousands except per share data) | ||||||||||||||||
Total operating revenue
|
1,137,356 | 1,162,059 | 1,159,579 | 1,134,876 | ||||||||||||
Provision for doubtful debts
|
(60,563 | ) | (35,445 | ) | 7,668 | (17,450 | ) | |||||||||
Net loss after tax
|
(206,352 | ) | (156,531 | ) | (92,241 | ) | (142,062 | ) | ||||||||
Loss per share basic and diluted
|
(33.6) cents | (25.5) cents | (15.0) cents | (23.1) cents |
10
Average | High | Low | Period-end | |||||||||||||
(note) | ||||||||||||||||
HK$ | HK$ | HK$ | HK$ | |||||||||||||
Fiscal 2006
|
7.7601 | 7.7796 | 7.7506 | 7.7767 | ||||||||||||
Fiscal 2007
|
7.8029 | 7.8289 | 7.7665 | 7.7968 | ||||||||||||
Fiscal 2008
|
7.7915 | 7.8159 | 7.7497 | 7.8036 | ||||||||||||
Fiscal 2009
|
7.7550 | 7.8094 | 7.7495 | 7.7505 | ||||||||||||
Fiscal 2010
|
7.7646 | 7.8040 | 7.7495 | 7.7781 | ||||||||||||
June 2010
|
7.7880 | 7.8040 | 7.7690 | 7.7865 | ||||||||||||
July 2010
|
7.7753 | 7.7962 | 7.7651 | 7.7672 | ||||||||||||
August 2010
|
7.7702 | 7.7788 | 7.7605 | 7.7781 | ||||||||||||
September 2010
|
7.7643 | 7.7738 | 7.7561 | 7.7599 | ||||||||||||
October 2010
|
7.7580 | 7.7642 | 7.7513 | 7.7513 | ||||||||||||
November 2010
|
7.7547 | 7.7656 | 7.7506 | 7.7649 | ||||||||||||
December 2010
(through December 10, 2010)
|
7.7666 | 7.7737 | 7.7612 | 7.7737 |
Note: | The average rates on the last business day of each month during the relevant fiscal year period or the average rates for each business day during the relevant monthly period. | |
Source: | For all periods prior to January 1, 2009, the exchange rate refers to noon buying rate as reported by the Federal Reserve Bank of New York. For periods beginning on or after January 1, 2009, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. |
11
| Increasing liberalization of the telecommunications industry in Hong Kong may continue to attract new local and foreign entrants and broaden the variety of telecommunications services available in the market, thereby increasing the overall level of competition in our industry. | ||
| The Hong Kong government may continue to issue new wireless and wire-line FTNS Licenses. For instance, 291 PNETS Licenses had been issued in Hong Kong as of October 31, 2010 for the provision of external telecommunications services (as defined in the Telecommunications Authoritys Determination as of December 30, 1998). Some of these licenses are held by subsidiaries of major foreign telecommunications providers, which have competitive advantages over us due to their global presence and size. | ||
| Around December 31, 2007, Television Broadcasts Limited and Asia Television Limited, commonly known as TVB and ATV, respectively, the only two licensed domestic free television programme broadcasters in Hong Kong, launched their digital terrestrial television services and have since broadened such services to cover an increasingly large percentage of the viewing public in Hong Kong. As of December 14, 2010, their services offered a total of 11 free channels in both standard and high definition. This improvement in the quality of free television may result in a reduction in the number of subscribers for pay-television services. |
12
| To compete successfully, we must constantly increase the diversity and sophistication of the services we offer and upgrade our telecommunications technologies. We may be required to make substantial capital expenditures and may not be successful in modifying our network infrastructure in a timely and cost-effective manner in response to these changes. | ||
| New technology, such as the possible development of 4G wireless data networks as a substitute for fiber-based services, or other trends in the telecommunications industry, could have an adverse effect on the services we currently offer. For example, traditional fixed line home telephones are being replaced by mobile telephones and/or VoIP services. Technology substitution from global VoIP providers, some of which offer free PC-to-PC based international calls, is also becoming more prevalent. Increased adoption of such competing technology may lead to a decline in our revenues. | ||
| Changing our services in response to market demand may require the adoption of new technologies that could render many of the technologies that we are currently implementing less competitive or obsolete. We may also need to gain access to related or enabling technologies in order to integrate the new technology with our existing technology. Our new services may contain design flaws or other defects when first introduced to the market. |
| Developing new telecommunications services can be complex. We may not be able to adapt the new services effectively, promptly and economically to meet customer demand. |
13
| In developing new services, we are required to continue to make significant investments in our network infrastructure in order to support these services. If we exceed our budgeted capital expenditure and cannot meet the additional capital requirements in time through operating cash flows and planned financings, we may have to delay the project. | ||
| Any of our new services may not be commercially successful. The failure of any of our services to achieve commercial acceptance could result in additional capital expenditures or, to the extent that we are required under the applicable accounting standards to recognize a charge for the impairment of assets. Any impairment charges could materially adversely affect our financial condition and the results of our operations. |
| improve our existing operational, administrative and technological systems and our financial and management controls; | ||
| enhance our infrastructure to support the expansion; | ||
| develop effective marketing plans; | ||
| control operational costs and maintain effective quality controls; and | ||
| offer competitive prices to customers for our services. |
14
| Because at least one of our competitors has already installed in-building wiring in virtually all buildings and many buildings have limited physical space for additional in-building wiring, other FTNS providers, including us, may encounter a bottleneck when installing our own in-building wiring; | ||
| Some single-owner commercial buildings may grant rights of access to our competitors while barring us from installing our own in-building wiring; and | ||
| Certain developers may have affiliations with our competitors and may attempt to delay or inhibit our wiring installations. |
| interruption, delays or cessation in services to our customers; | ||
| a threat to the security of confidential information stored in the computer system of our customers; and | ||
| illegal viewing or download of our contents. |
15
| the expansion and development of our own international telecommunications facilities; | ||
| the availability of leased capacity from third party carriers at favorable rates; and | ||
| the possible termination or cancellation of our existing contracts. |
| In July 2004, a new provision of the Telecommunications Ordinance came into force. This anti-competition provision specifically regulates the conduct of all carrier licensees (in particular merger and acquisition transactions) in the Hong Kong telecommunications industry by giving the Telecommunications Authority the power to review the conducts and transactions concerning carrier licensees and to take appropriate actions if it determines that the transaction would, or is likely to, prevent or substantially lessen competition in a telecommunications market. The Telecommunications Authority has the power under this provision to conduct an investigation into any questionable transaction. It might consent to the transaction (unconditionally or subject to any conditions it deems appropriate) or reject the transaction outright. The decision of the Telecommunications Authority will take into account whether the transaction will adversely affect the public interest and benefit. This provision may have an adverse effect on our ability to grow our business through mergers and acquisitions. | ||
| We offer local VoIP services through our Next Generation Network under HKBNs FTNS License. Following the conclusion of a public consultation on the regulation of Internet Protocol Telephony Services, the Telecommunications Authority issued a statement on June 20, 2005, setting out its views and decisions on the regulatory and licensing framework for the provision of VoIP services, including the creation of a licensing framework, conformance to the existing system of assigning telephone numbers, imposition of interconnection charges and establishing guidelines with respect to the quality of services. |
16
| We offer fixed but not mobile telecommunications network services. The Telecommunications Authority has implemented a new fixed-mobile convergence licensing practice by way of the UC License. The UC License regime, which began on August 1, 2008, seeks to replace the existing four classes of carrier licenses for the provision of fixed and mobile services with a simple license. Going forward the UC License will be the only carrier license to be issued for the provision of fixed, mobile and/or converged services. Existing carrier licenses will remain effective until their expiry date. Licensees can choose to apply to convert their existing licenses to UC Licenses before then or apply for a UC License upon expiry. This regulatory change, together with the development of new technologies, may further accelerate the convergence of fixed and mobile telecommunications services, resulting in more structural competition between fixed-line and mobile telecommunications operators. As we do not have a mobile license, and are not currently authorized to provide mobile services, our ability to compete may be hindered by our inability to offer such services independently. | ||
| We provide our IP-TV services over our Next Generation Network under HKBNs FTNS License. The Hong Kong government has indicated that because our IP-TV services are carried over the Internet, we are exempted under the Broadcasting Ordinance from the requirement to obtain a domestic pay-television programme service license. However, the governments Communications and Technology Branch has informed us that the government is considering a review of the broadcasting regulatory regime and may introduce changes to the existing regulatory framework, including the existing exemption in the Broadcasting Ordinance. However, we cannot predict whether the government may require us to obtain a pay-television programme service license in the future. |
| Our ability to adjust the tariffs for different services are governed by the terms and conditions of the relevant licenses. The licenses, however, are issued under different regulatory frameworks. The differences in regulatory structure for these licenses may constrain our flexibility to respond to market conditions, competition or cost structure. | ||
| We have been granted a waiver by the Telecommunications Authority to comply with the tariff restrictions contained in HKBNs FTNS License. If the waiver is revoked, our ability to adjust the tariffs for our fixed telecommunication network services, including our offer of discounts to subscribers from time to time, will be restricted. | ||
| Our PNETS License is subject to the Telecommunications Authoritys annual renewal. On October 19, 2009, the Telecommunications Authority announced the replacement of the PNETS License by a new class of Services-Based Operator License, Class 3 Modified Services-Based Operator License. On November 10, 2009, the PNETS License of City Telecom was replaced by a Class 3 Modified Services-Based Operator License. It is noted that the PNETS License of HKBN would also be replaced by a Class 3 Modified Services-Based Operator License on December 7, 2009 through the renewal procedure. HKBNs FTNS License was initially granted in 2000 for a term of 15 years and may be renewed for such further period not exceeding 15 years at the discretion of the Telecommunications Authority. | ||
| The Telecommunications Authoritys failure to renew or its revocation of any of these licenses or its amendment of any of the terms and conditions contained in such licenses for any reason would prohibit us from continuing to offer the services authorized by those licenses, which would have a significant adverse impact on our revenues and profitability. In addition, there may be future changes in Hong Kongs telecommunications regulations or policies that would require us to obtain additional licenses, which could have an adverse impact on our operations. |
17
| A major portion of our operating costs of interconnection charges payable to overseas carriers for the delivery of our international calls. Substantially all of these interconnection charges are denominated in U.S. dollars or other foreign currencies. | ||
| The equipment and hardware we purchase for the expansion of our Next Generation Network constitutes a large portion of our capital expenditures and is also denominated in U.S. dollars. | ||
| Expenses incurred for the operation of our call center located in Guangzhou, China are denominated exclusively in Renminbi, the official currency of the Peoples Republic of China. These include salaries paid to our personnel as well as various operating expenses that we incur to maintain our operations. |
| In October 2006, our Liu Xiang Be Ahead of Yourself marketing campaign won the Certificate of Excellence of HKMA/TVB Awards for Marketing Excellence 2006. | ||
| In February 2007, we launched our bb50 and bb200 symmetric residential broadband service supported by SDU personalized customer care service. |
18
| In June 2007, we were awarded Best Retention Strategies at the Hong Kong HR Awards 2007. | ||
| In July 2007, we were awarded Integrated Support Team of the year at the Asia Pacific Customer Service Consortium Customer Relationship Excellence Awards. | ||
| In September 2007, we launched Fibre-To-The-Home residential broadband service, FibreHome100, FibreHome200 and FibreHome1000. As the same time, we upgraded our entry level service broadband Internet access from 10 Mbps to 25 Mbps. | ||
| In January 2008, we began to offer our Dual Mode High Definition Terrestrial TV Receiver and IPTV Set-Top Box to all of our customers in Hong Kong. | ||
| In February 2008, we were awarded contract for the provision of payphone service at the Hong Kong International Airport. | ||
| In September 2008, we launched the National Geographic Channels first ever Interactive Channel. | ||
| In June 2009, we launched the first Online Broadband Service Registration Platform in Hong Kong. | ||
| In November 2009, we accepted the Innovation in Recruitment award and Champion of HR award at the Hong Kong HRM Awards 2009. | ||
| In December 2009, we shattered the one-million mark for Fixed Telecommunications Network Services subscriptions. | ||
| In March 2010, we launched our bb100 symmetric broadband and WiFi services at Hong Kong International Airport. | ||
| In April 2010, we launched our 1Gbps symmetric residential broadband service at HK$199 per month. |
For the year ended August 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
HK$ | HK$ | HK$ | ||||||||||
(Amounts in thousands) | ||||||||||||
Revenue
|
||||||||||||
FTNS business
|
1,011,038 | 1,230,880 | 1,356,098 | |||||||||
IDD business
|
291,943 | 247,359 | 218,589 | |||||||||
|
||||||||||||
|
||||||||||||
Total operating revenue
|
1,302,981 | 1,478,239 | 1,574,687 | |||||||||
|
| FTNS business. Our FTNS business involves the provision of fixed telecommunications network services through our self-owned Next Generation Network. Such services include the following: |
| high-speed broadband Internet access services at symmetric upstream and downstream access speeds of 25 Mbps to 1000 Mbps; | ||
| fixed line local telephony services using VoIP technology; | ||
| pay television services consisting of more than 110 channels, including self-produced news, childrens program, international drama, movies and documentary and local interest programming, using our IP platform; and | ||
| corporate data services, including the provision of dedicated bandwidth to corporate customers. |
19
As of August 31, 2010, we had a total of approximately 1,110,000 subscriptions for our fixed telecommunications network services, consisting of 526,000 broadband Internet access, 431,000 local VoIP and 153,000 IP-TV services subscriptions. | |||
| IDD business. Our IDD business involves the provision of international telecommunications services. Such services include direct dial services, international calling cards and mobile call forwarding services in Hong Kong and Canada. As of August 31, 2010, the customer base for our total international telecommunications services consisted of approximately 2.4 million registered accounts. |
| Focus on the Residential Mass and Small-To-Medium Corporate and Enterprise Market Segments. We focus on offering high-bandwidth services to the residential mass and small-to-medium enterprise markets in Hong Kong, which we believe have significant growth potential. We price our services attractively on a value-for-bandwidth basis and at the same time offer bandwidth advantages over comparable service offerings by our competitors. Our IP-TV services focus on the residential mass market by providing Chinese-language content that targets the Chinese-speaking population of Hong Kong. We have also strengthened our English language contents over the past year to increase our competitiveness by adding Disney Channels, Discovery Channels, National Geographic, AXN, Bloomberg and other channels. Our focus on the residential mass and small-to-medium corporate and enterprise markets has enabled us to quickly grow our subscription base, and we believe this will help us to up-sell our services. | ||
| Leading-Edge Next Generation Network. We believe our self-owned Next Generation Network, a fiber-based backbone, gives us an inherent cost and performance advantage over our competitors. The high capacity of this network has enabled us to offer a suite of services on a single IP network platform. This IP platform is highly scalable, enabling us to offer broadband Internet access, local VoIP, IP-TV and corporate data services over a single network. It is also capable of providing up to 1000 Mbps symmetric broadband Internet access. Whereas our competitors are on a linear improvement path, we can upgrade our fiber based services logarithmically from 100Mbps to 1000Mbps on our existing passive fiber infrastructure which existing technology cannot accomplish using legacy telephone lines. | ||
| First Mover Advantage and High Barriers to Entry. Despite the intense competition in the Hong Kong telecommunications industry, the inherent characteristics of the fixed line telecommunications market create a high entry barrier. Accordingly, we believe that our Next Generation Networks current coverage of 1.77 million residential homes pass, substantially all in densely populated areas, gives us a first mover advantage over our competitors. Competitors who want to replicate our business model to provide a full coverage network that includes remote and difficult-to-reach areas of Hong Kong may encounter technological difficulties. Attempting to deploy Metro Ethernet technology in such locations would significantly increase costs and completion time of such a network. While other telecommunications operators may lay their own fiber-to-the-building, we believe some would encounter significant in-building bottlenecks when attempting to complete an end-to-end network. This is because a majority of Hong Kongs residential properties have limited space for in-building wiring leading to subscribers residences, making it difficult for new entrants to replicate our end-to-end network build. |
20
As of August 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Broadband Internet access
|
316,000 | 391,000 | 526,000 | |||||||||
Local VoIP
|
329,000 | 382,000 | 431,000 | |||||||||
IP-TV
|
156,000 | 170,000 | 153,000 | |||||||||
|
||||||||||||
|
||||||||||||
Total FTNS subscriptions
|
801,000 | 943,000 | 1,110,000 | |||||||||
|
| Scope of service. Our broadband Internet access services in Hong Kong are offered through HKBN. We currently offer our residential and corporate customers broadband Internet access speeds of up to 1000 Mbps, but the majority of our customers currently have access speeds of 100 Mbps. We also offer Fiber-to-the-Home, or FTTH, broadband service for 100 Mbps, 200 Mbps and 1000 Mbps. Rather than using Category-5e copper wiring for the last mile, optical fiber is used in FTTH broadband service. Currently, all of our broadband Internet access packages include free e-mail and for additional charges, offer customers for a variety of value added services, such as bbWatch, a full-screen IP-TV service that is viewed with a desktop or laptop computer; bbWi-Fi, a service in which subscribers can have wireless Internet access through more than 2,000 hotspots; and Game.hkbn.net, a game point portal that sells various game providers cards and merchandises. We frequently alter our promotions in response to changing market conditions or as a way of attracting additional subscribers. | ||
| Pricing. We currently offer broadband service for bb100 and FibreHome1000 at monthly fees ranging from HK$169 to HK$199 for unlimited service access. On August 19, 2010, we announced to the public that effective from September 1, 2010, we ended the promotional rate at HK$99 per month. By paying HK$199 per month, customers can choose 100 Mbps triple play service or HK$199 per month for 1000Mbps broadband Internet access service. Our strategy is to change from subscriber growth to revenue growth with a reasonable and acceptable pricing to our customers. | ||
In addition to the residential packages described above, we have also developed broadband and Metronet private network service plans that target corporate customers. We offer prepackaged plans that provide access at speeds of up to 1000 Mbps. Corporate customers that subscribe to prepackaged plans pay fixed monthly subscription fees ranging from HK$128 to HK$200,000 depending on bandwidth or solution selected. Our prepackaged plans include on-site training, on-site maintenance support, high capacity data transfer and e-mail services. | |||
| Competition. There have been many new entrants to the Internet access business, but our main competitors are PCCW-HKT, i-Cable and HGC. PCCW-HKT has been offering broadband Internet access services since May 1998 and mainly uses asymmetric digital subscriber line technology, or ADSL, over its telephone network to provide asymmetric Internet access at speeds up to 6 Mbps/8 Mbps downstream and 640 Kbps/800 Kbps upstream. In November 2007, PCCW-HKT announced the provision of 100 Mbps and 1000 Mbps fiber direct broadband Internet access service to two-thirds of Hong Kongs households. i-Cable began providing broadband Internet access services in March 2000 using its hybrid fiber coaxial network that provides symmetric typical access speeds up to 8 Mbps shared by a cluster of buildings. HGC predominantly uses VDSL technology and typically provides access speeds up to 100 Mbps. | ||
Our main competitors have been in operation longer and may have greater market presence, brand recognition and more financial, technical and personnel resources. In addition, they may have greater network coverage in terms of number of homes pass. | |||
| Market share. We had approximately 526,000 broadband Internet access subscriptions as at August 31, 2010, which represented a market share of approximately 25% with respect to the total number of broadband Internet access subscribers in Hong Kong. |
| Scope of service. We offer our on-network local VoIP services in Hong Kong by installing IP-based voice switching equipment in locations covered by our Next Generation Network. Voice signals are transmitted through our Ethernet network by the VoIP switches installed in the subscribers building. The quality of our local VoIP service is comparable to traditional fixed line local telephony services, and customers are able to use their existing telephone equipment. In addition, with portability of fixed line numbers, fixed line telephony subscribers switching to our local VoIP services are able to retain their existing local telephone number. |
21
We also offer hardware-based off-network local VoIP services, or Broadband Phone services, via the broadband network of other operators. In October 2005, we launched our global software-based VoIP services under the brand 2b. This service is primarily targeted at the overseas Chinese community, which we believe will enable us to access a wider addressable market with higher tariff compared to the Hong Kong market. For HK$98 per month, 2b provides broadband users around the world with a standard Hong Kong 8-digit fixed line number to make and receive unlimited calls to/from Hong Kong. Moreover, we offer a full range of value added services, including call waiting, voice mail and conference call features. | |||
| Pricing. We currently charge from HK$68 to HK$118 per month, on standalone basis, for our on-network local VoIP services depending on the service plan, and we offer a full range of value added services, including call waiting, caller display and conference call services. The majority of our new local VoIP is included in our triple play service offered at HK$199 per month for voice, IP-TV and broadband. | ||
| Competition. PCCW-HKT is the incumbent and largest fixed telecommunications network operator in Hong Kong. Based on public information, PCCW-HKT had a market share of approximately 70% with respect to local telephony services as of June 30, 2010. The remainder of the market is shared among ourselves and three other alternative carriers: HGC, New World and Wharf T&T. The principal basis of competition for local telephony is price and brand name recognition. PCCW-HKT has the highest brand name recognition, but we and the other operators are contending by offering competitively priced local telephony services that provide comparable quality to PCCW-HKT. | ||
| Market share. As of August 31, 2010, we had 431,000 local VoIP subscriptions. Our market share with respect to local residential and business telephony services was approximately 10% as of August 31, 2010. |
| Scope of service. Our IP-TV services began in August 2003 and include the provision of standard definition and high definition video via our Next Generation Network to an IP set-top-box connected to the subscribers television set. In May 2007, we renamed our IP-TV services as bbTV. bbTV currently consists of more than 110 channels, including a self-produced 24-hour news channel and kids education and development channels and turnaround channels from various international content providers. Since the launch of our IP-TV services in August 2003, we have progressively adjusted our content offerings and valued added components of the services. We consider our IP-TV to be an incremental component of our broadband and VoIP service offerings, rather than a large standalone business. | ||
| Pricing. We currently charge our IP-TV service together with our broadband and VoIP services at HK$199 per month for this subscription-based pay television service. Because of the scalability of our Next Generation Network infrastructure, the current cost of adding IP-TV services to an existing broadband Internet access or local VoIP subscriber is small. | ||
| Competition. Our two main competitors in the pay-television business are i-Cable and PCCW-HKT. The pay-television services of i-Cable and PCCW-HKT include a significant amount of exclusive contents, such as Barclays Premier League Football until June 2013, HBO, Cinemax, ESPN and others. We target a different market than these competitors by offering a wide spectrum of content line-up and attractive pricing, both of which we consider critical for successful penetration in the residential mass market. We have also strengthened our English language contents over the past year to increase our competitiveness by adding Disney Channels, Discovery Channels, National Geographic, AXN, Bloomberg and other channels. | ||
TVB and ATV are indirect competitors of our pay-TV services. TVB and ATV account for a substantial proportion of Hong Kongs television viewership and we market our services as supplemental to theirs. Because TVB and ATV offer primarily subscription-free television services supported by advertising revenues, we expect that their programming is designed to attract the widest possible audience. In contrast, we and the other pay-TV operators rely on monthly subscription fees for most of our revenues. Other competitors include satellite TV operators, such as Star TV, as well as potential competition from direct-to-home broadcasters and broadcasters using digital terrestrial delivery methods. | |||
| Market share . As of August 31, 2010, we had 153,000 IP-TV subscriptions, representing approximately 7% of the total pay-television subscription base in Hong Kong. |
| Scope of services. We began providing international telecommunications services in 1992 and were among the first companies to be granted a PNETS License. Our international telecommunications services are offered to our FTNS business customers via our Next Generation Network and to other carriers customers via indirect access. Indirect access allows any pre-registered telecom user in Hong Kong to access our services via our two primary access codes 1666 and 0030. By dialing our access code, our registered customers can access any destination in the world through our network, by paying us a usage charge. |
22
We have greatly expanded our range of services over the years to include a variety of international direct dial services at competitive rates. We believe that our ability to deliver a range of calling plans with varying features that cater to different customer needs has been one of the key factors of our success. We market our international telecommunications services under the IDD 1666 and IDD 0030 brand names. These two brands provide us with flexibility in our marketing strategies. The primary international telecommunications services that we currently offer our customers are the following: |
Service | Description | |
IDD 1666 | Provides subscribers with international direct dial using the access code 1666 in Hong Kong. | |
IDD 0030 | Provides subscribers with international direct dial using the access code 0030 in Hong Kong. | |
Mobile call forwarding services | Allows call forwarding of Hong Kong mobile numbers to any overseas telephone number so that subscribers can receive calls while in overseas. |
| Pricing. We charge our IDD 1666 and IDD 0030 users a per minute tariff rate that varies according to the destination of the call and the calling prefix, with discounts depending on the time of day or day of the week when the call is placed as well as monthly plans. To maintain our market share in a market segment with increasingly intense competition, we have significantly reduced some of our international telecommunications rates and introduce new marketing and promotional offers from time to time. To offset the effects of these price reductions, we have taken steps to reduce our cost base, such as using our relatively large traffic volume to negotiate lower prices from our international partners, establishing a call center in Guangzhou to provide customer service and back office support services, and developing our own international telecommunications infrastructure. Our employment of two separate brand names, IDD 1666 and IDD 0030, also provide us with flexibility in our marketing strategies. | ||
| Competition. PCCW-HKT, HGC, New World, and Wharf T&T are our main competitors in the international telecommunications business. As in previous years, we experienced fierce price competition in Hong Kong during fiscal 2010. This competition drove down the average tariff rates per minute and we expect this price competition to continue in fiscal 2011 . | ||
Further, technology substitution from global VoIP providers such as Skype, which offers free PC-to-PC based international calls, is becoming more prevalent. | |||
| Market share. We experienced a reduction in total traffic volume of 15.2% to 487 million minutes in fiscal 2009 and a further reduction of 4.7% to 464 million minutes in fiscal 2010. The continuing reduction in traffic volume was mainly due to intense competition as some of our integrated competitors offered free or very low cost international direct dial minutes as a customer incentive to gain local fixed line and mobile market share. |
23
| Undersea cables . In March 2002, we received our license to provide undersea cable-based FTNS. This license allows us to purchase and operate our own undersea cables. In 2000, we entered into contracts with two large consortia of international telecommunications companies to acquire undersea cable capacity. Pursuant to the first contract, we completed the construction of a Japan-U.S. undersea cable in August 2001. Pursuant to the second contract, we agreed to jointly construct and maintain the Asia-Pacific Cable Network 2 undersea cable as an international transmission facility. Construction of the cable was completed in May 2002, and commercial operation began immediately thereafter. We spent a total of HK$120 million on these two projects. We believe the utilization of these undersea cables provides capacity for significant future growth of our international and fixed-network telecommunications services. | ||
Having our own undersea cables and our fiber-based backbone have enabled us to better control international transmission quality, reduce the costs associated with international transmission and reduce our reliance on third party infrastructure. Our international telecommunications network currently has a monthly handling capacity of approximately 130 million minutes. We believe that the continuing improvement of our international telecommunications network is important in supporting the growth of our subscription base and the expansion of our range of services. | |||
| Interconnection arrangements. We have entered into interconnection arrangements with other local fixed network operators in Hong Kong and overseas carriers to transmit calls between Hong Kong and overseas destinations for our customers. We take into account a number of factors in choosing the local fixed network operators and overseas carriers with whom we cooperate, including the level of termination charges and transmission efficiency and quality. We evaluate the performance of parties with whom we have interconnection arrangements periodically. We believe that we will not have difficulty in finding alternative overseas carriers if performance standards are not being met or a change is otherwise necessary. We have not experienced any disruption in the provision of our services as a result of a change of arrangements with overseas carriers or local fixed network operators. | ||
We pay a fixed monthly fee to local fixed network operators for connection between our switches and their networks and a variable access fee payable on a per-minute basis when accessing their network. For customers using our own network, no interconnection fee is charged. We negotiate the termination charges we pay with the overseas carriers, and the termination charges vary from one overseas carrier to another. All of the interconnection and termination charges we pay to local fixed network operators and overseas carriers, respectively, are made on an open account basis with credit terms ranging from 10 to 30 days. The interconnection charges we pay to local fixed network operators are denominated in Hong Kong dollars and substantially all the interconnection charges we pay to overseas carriers are denominated in U.S. dollars. | |||
| International telecommunications switching systems. We own five international telecommunications switching systems: three in Hong Kong and two in Canada, one in Vancouver and one in Toronto. | ||
Our three international telecommunications switching systems in Hong Kong handle telephone calls originating or terminating in Hong Kong as well as transit traffic. Our telecommunications network mainly consists of switching equipment by Nortel Networks Limited and compression units supplied by Cisco Systems, Inc. and ECI Telecom Ltd. These systems are programed to automatically choose the optimal routing for each transmission. Optimal routing is a function of a variety of factors, such as country or territory of origination and destination, communication quality, efficiency and costs, and the capacity of the various communication methods available. | |||
Because our three international telecommunications switching systems in Hong Kong operate independently of each other, if one system breaks down, all transmissions are immediately diverted to another switching system. We have never experienced a period where all systems experienced a failure at the same time since we commenced operations in 1992. |
24
| two separate network operation centers in two different locations that operate 24 hours a day, 7 days a week, network operation center providing real-time service monitoring and maintenance services and supported by about 133 operational and field Talents; | ||
| individual self-reporting mechanisms and centralized performance monitoring systems for our switches and equipment; | ||
| an emergency self-reporting system that automatically contacts designated personnel; and | ||
| back-up systems for our switches, critical software and hardware components. |
25
26
| to provide a public fixed telecommunications network service, covering internal services or external services, or both; and | |
| to establish and maintain a fixed telecommunications network, which may be wireline-based or wireless-based (Wi-Fi spectrum included), or a combination of both. |
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28
29
30
Notes: | ||
(1) | The other immediate subsidiaries of City Telecom (H.K.) Limited are SGBN Singapore Broadband Network Pte. Limited and Golden Trinity Holdings Limited. The immediate subsidiaries of Golden Trinity Holdings Limited are Warwick Gold Enterprises Limited and Attitude Holdings Limited. | |
(2) | The Company has only registered its Chinese name. The English name is an unregistered translation. | |
(3) | The other immediate subsidiaries of Automedia Holdings Limited are Global Courier Company Limited, CTI International Limited, BBTV Company Limited, City Telecom (U.S.A.) Inc., City Telecom (Vancouver) Inc. and City Telecom (Toronto) Inc. | |
(4) | The immediate subsidiaries of Hong Kong Broadband Network Limited are Excel Billion Profits Limited, Hong Kong Television Network Limited, Hong Kong Broadband Television Company Limited, Hong Kong Broadband Phone Limited and Hong Kong Broadband Digital TV Limited. |
31
Percentage of interest | ||||||||||
held by City Telecom | ||||||||||
Jurisdiction of | Direct | Indirect | ||||||||
Name | incorporation | % | % | |||||||
963673 Ontario Limited
|
Canada | | 100 | |||||||
Attitude Holdings Limited
|
British Virgin Islands | | 100 | |||||||
Automedia Holdings Limited
|
British Virgin Islands | 100 | | |||||||
BBTV Company Limited
|
Hong Kong | | 100 | |||||||
City Telecom (B.C.) Inc.
|
Canada | | 100 | |||||||
City Telecom (Canada) Inc.
|
Canada | | 100 | |||||||
City Telecom (Toronto) Inc.
|
Canada | | 100 | |||||||
City Telecom (U.S.A.) Inc.
|
United States of America | | 100 | |||||||
City Telecom (Vancouver) Inc.
|
Canada | | 100 | |||||||
City Telecom Inc.
|
Canada | | 100 | |||||||
City Telecom International Limited
|
British Virgin Islands | 100 | | |||||||
Credibility Holdings Limited
|
British Virgin Islands | 100 | | |||||||
CTI Guangzhou Customer
Services Co. Ltd. (note)
|
Peoples Republic of China | 100 | | |||||||
CTI International Limited
|
Hong Kong | | 100 | |||||||
CTI Marketing Company Limited
|
Hong Kong | | 100 | |||||||
Excel Billion Profits Limited
|
Hong Kong | | 100 | |||||||
Global Courier Company Limited
|
Hong Kong | | 100 | |||||||
Golden Trinity Holdings Limited
|
British Virgin Islands | 100 | | |||||||
Hong Kong Broadband Digital TV Limited
|
Hong Kong | | 100 | |||||||
Hong Kong Broadband Network Limited
|
Hong Kong | | 100 | |||||||
Hong Kong Broadband Phone Limited
|
Hong Kong | | 100 | |||||||
Hong Kong Broadband Television Company Limited
|
Hong Kong | | 100 | |||||||
Hong Kong Television Network Limited
|
Hong Kong | | 100 | |||||||
IDD1600 Company Limited
|
Hong Kong | | 100 | |||||||
SGBN Singapore Broadband Network Pte. Limited
|
Singapore | 100 | | |||||||
Warwick Gold Enterprises Limited
|
Hong Kong | | 100 |
Note: The Company has only registered its Chinese name. The English name is an unregistered translation. |
32
| FTNS business. Revenues from our FTNS business primarily consist of monthly service charges payable by our subscribers and interconnection charges payable by other telecommunications operators. |
| Monthly service charges. We charge our subscribers a monthly service charge, which generally varies by the number and nature of the fixed telecommunications network services subscribed. Our strategy is to market additional services to our subscribers by leveraging our broadband Internet access subscription base of 526,000 as of August 31, 2010 and the scalability of our Next Generation Network. | ||
| Interconnection charges. We offer fixed telecommunications network services through our self-owned Next Generation Network. Under the terms of HKBNs fixed telecommunications network services license, we are required to provide interconnection services to other network operators, including mobile network operators. |
| IDD business. Substantially all of revenues from our IDD business consists of tariffs, which generally varies by the destination of the call and the calling prefix, with discounts depending on the time of the day or day of the week when the call is placed. |
| Network costs. Network costs vary according to either our network capacity or our traffic volume. Such costs mainly include leased line rentals, program fees and production costs for our IP-TV services and interconnection charges payable to other local fixed network operators and international bandwidth providers. Network costs do not include depreciation charge, which is included in other operating expenses. | ||
| Other operating expenses . Other operating expenses mainly consist of Talent costs, advertising and marketing expenses, depreciation of owned fixed assets. |
| Talent costs . Salaries and related costs incurred for services rendered by Talents. | ||
| Advertising and marketing expenses. Due to our efforts in promoting our FTNS services, our advertising and marketing expenses incurred in connection with subscription acquisition activities have been relatively high. We expect that we will be required to continue to invest significant financial and human resources in our sales and marketing efforts as we strive to build our subscription base and to enhance our brand value. |
33
| Depreciation. Depreciation is calculated to write off the cost of fixed assets less their estimated residual value, if any, using straight line method over their estimated useful lives. We expect that we will continue to invest in our Next Generation Network to expand our network coverage. In addition, any technological advancement or obsolescence might affect the estimated useful lives of our fixed assets. |
| The amount recognized for fiscal 2004 and before was determined using the available rates under the then-existing calculation model (fully distributed cost model) for interconnection service between fixed and mobile operators, which are based on historical cost data of PCCW-HKT Telephone Limited. In May 2004, the Telecommunications Authority confirmed that mobile network operators are obliged to pay interconnection charges to us in accordance with the charging principles promulgated by the Telecommunications Authority. A number of mobile network operators, however, disputed the basis of our calculation. In August 2004, we requested the Telecommunications Authority to make a determination (the 2004 Determination) on the level of mobile interconnection charges payable by one of the mobile network operators to us and the effective date of the determined mobile interconnection charges. | ||
| The amount recognized in fiscal 2005 reflected a discount from the amounts billed which was determined based on our assessment of the range of likely outcomes of the 2004 Determination. In November 2005, we entered into contractual agreements with one of the mobile network operators who agreed to pay interim mobile interconnection charges at a rate based on PCCW-HKTs published fully distributed cost model of HK$0.0436 per occupancy minute until the Telecommunications Authority issued its final ruling. | ||
| The amount recognized in fiscal 2006 was based on the preliminary rates published by the Telecommunications Authority in March 2006 as we awaited a final ruling by the Telecommunications Authority on the 2004 Determination. |
34
| The amount recognized in fiscal 2007 was based on the 2004 Determination issued by the Telecommunications Authority in June 2007, which set out the rates of mobile interconnection charge payable by the mobile operator under dispute for interconnection services provided by us for the period from April 1, 2002 to August 31, 2004. | ||
| The amount recognized in fiscal 2008 was based also on the 2004 Determination issued by the Telecommunications Authority in June 2007. In February 2008, we requested the Telecommunications Authority to make a new determination with four mobile operators on the rates of mobile interconnection charge and interest thereon. We subsequently entered into contractual agreements with some of these mobile operators, which agreed to pay mobile interconnection charges based on the 2004 Determination for the period from April 1, 2002 to August 31, 2004 and with respect to the period after August 31, 2004 at the interim rates stated in the agreements, which will be adjusted based on further determination to be issued by the Telecommunications Authority. | ||
| The amount recognized in fiscal 2009 and before was based on the 2004 Determination issued by the Telecommunications Authority in June 2007 which set out the rates of mobile interconnection charge payable by the mobile operators under dispute for interconnection services provided by us for the period from April 1, 2002 to August 31, 2004. In September 2008, the Telecommunications Authority indicated that it accepted our request for determination on the rate of mobile interconnection charge for the period from April 1, 2002 to April 26, 2009 payable by the mobile operators that have not reached contractual agreements with us, and the rate for period from September 1, 2004 to April 26, 2009 payable by those mobile operators that have reached contractual agreements with us and the interest thereon (the 2008 Determination). On November 25, 2009, the Telecommunications Authority issued a Preliminary Analysis in relation to the 2008 Determination for the parties comments. | ||
| In May 2010, the Telecommunications Authority issued its decision on the 2008 Determination, which set out the rates of mobile interconnection charges payable by the mobile operators involved in the dispute. Based on such decision on the 2008 Determination, we reversed approximately HK$19.7 million revenue related to mobile interconnection charges and recognized approximately HK$10.1 million interest income in fiscal 2010. |
35
For the year ended August 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
HK$ | HK$ | HK$ | ||||||||||
(Amounts in thousands) | ||||||||||||
Balance at beginning of the year
|
22,392 | 11,944 | 3,160 | |||||||||
Additions charged to expense
|
14,293 | 12,103 | 14,742 | |||||||||
Write-off
|
(24,741 | ) | (20,887 | ) | (12,079 | ) | ||||||
|
||||||||||||
|
||||||||||||
Balance at the end of the year
|
11,944 | 3,160 | 5,823 | |||||||||
|
36
For the year ended August 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Revenue
|
||||||||||||||||
FTNS business
|
1,011,038 | 1,230,880 | 1,356,098 | 174,348 | ||||||||||||
IDD business
|
291,943 | 247,359 | 218,589 | 28,103 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
1,302,981 | 1,478,239 | 1,574,687 | 202,451 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Network costs
|
(178,367 | ) | (175,129 | ) | (195,292 | ) | (25,108 | ) | ||||||||
|
||||||||||||||||
Other operating expenses
|
(966,094 | ) | (1,037,964 | ) | (1,105,604 | ) | (142,143 | ) | ||||||||
|
||||||||||||||||
Other income, net
|
24,989 | 41,540 | 7,989 | 1,028 | ||||||||||||
|
||||||||||||||||
Finance costs
|
(75,137 | ) | (55,127 | ) | (22,235 | ) | (2,859 | ) | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Profit before taxation
|
108,372 | 251,559 | 259,545 | 33,369 | ||||||||||||
Income taxes benefit/(expense)
|
16,818 | (38,730 | ) | (42,679 | ) | (5,487 | ) | |||||||||
|
||||||||||||||||
|
||||||||||||||||
Net income
|
125,190 | 212,829 | 216,866 | 27,882 | ||||||||||||
|
| FTNS business. Revenues from our FTNS business increased by 10.2% to HK$1,356.1 million in fiscal 2010 from HK$1,230.9 million in fiscal 2009. The increase was primarily caused by an increase of 17.7% of our FTNS subscription base to 1,110,000 as of August 31, 2010 from 943,000 as of August 31, 2009. |
| Broadband Internet access. The subscription base for our Internet access services increased by 34.5%, to 526,000 as of August 31, 2010 from 391,000 as of August 31, 2009. During fiscal 2010, we are able to have a record growth of 135,000 net additions through our Member-Get-Member marketing campaigns which reduced the price of our symmetric 100Mbps broadband services by half to HK$99 per month if a customer introduces a new customer at HK$99 per month. Such marketing campaigns essentially allowed us to increase our revenues by converting one subscriber at HK$182 per month to two subscribers at a minimum rate of HK$99 per month. | ||
| Local VoIP. The subscription base for our local VoIP services increased by 12.8%, to 431,000 as of August 31, 2010 from 382,000 as of August 31, 2009, mainly due to improved branding that allowed us to increase sales of our VoIP services to subscribers of our Internet access services. | ||
| IP-TV. The subscription base for our IP-TV services decreased by 10.0% to 153,000 subscriptions as of August 31, 2010 from 170,000 as of August 31, 2009 because we proactively churned off free or low paying IP-TV subscribers and redeployed the set-top-boxes to higher yielding customers. We continued to enhance our channel variety so as to increase the content value to our customers. We currently offer more than 110 channels to our customers. |
37
As a result of the Telecommunications Authoritys decision on the 2008 Determination in May 2010 as stated above, revenue of HK$19.7 million related to mobile interconnection charges was reversed in fiscal 2010. In addition, prior to April 26, 2009, the mobile network operators were required to pay interconnection charges for all calls originating to and from the mobile users. After April 26, 2009, the chargeability of interconnection charges is subject to commercial negotiation. With the withdrawal of regulatory guidance on FMIC in favor of mobile network operators on April 27, 2009, only an insignificant amount of revenue related to mobile interconnection charges was recognized. |
| IDD business. Revenues from our IDD business decreased by 11.6% to HK$218.6 million in fiscal 2010 from HK$247.4 million in fiscal 2009. The decrease was primarily due to the reduction in IDD traffic volume and the decrease in the tariff rate we charged to our customers. Competition during fiscal 2010 intensified as some of our competitors offered international direct dial minutes for free or at significantly lower rates as a marketing incentive to gain local fixed line and mobile market shares. Further, technology from global VoIP providers such as Skype, which offer free PC-to-PC based international calls, was becoming more prevalent. |
For the year ended August 31, | ||||||||||||
2009 | 2010 | 2010 | ||||||||||
HK$ | HK$ | US$ | ||||||||||
(Amounts in thousands) | ||||||||||||
Talent costs
|
(302,279 | ) | (301,760 | ) | (38,796 | ) | ||||||
Advertising and marketing expenses
|
(299,794 | ) | (372,727 | ) | (47,920 | ) | ||||||
Depreciation
|
(206,241 | ) | (199,029 | ) | (25,588 | ) | ||||||
Others
|
(229,650 | ) | (232,088 | ) | (29,839 | ) | ||||||
|
||||||||||||
|
||||||||||||
Other operating expenses
|
(1,037,964 | ) | (1,105,604 | ) | (142,143 | ) | ||||||
|
||||||||||||
|
| Talent costs. Talent costs decreased by 0.2% to HK$301.8 million in fiscal 2010 from HK$302.3 million in fiscal 2009. | ||
| Advertising and marketing expenses. Advertising and marketing expenses increased by 24.3% to HK$372.7 million in fiscal 2010 from HK$299.8 million in fiscal 2009. Our salaries and commissions for our sales and marketing Talents increased by HK$28.5 million due to our growth in broadband subscription base. Moreover, our marketing campaigns resulted in an increase in mass media advertising costs of HK$21.6 million and other advertising costs of HK$14.9 million. In addition, the expansion of our sales channels through opening new shops resulted in an increase of advertising and marketing related expenses of HK$7.9 million. | ||
| Depreciation. Depreciation decreased by 3.5% to HK$199.0 million in fiscal 2010 from HK$206.2 million in fiscal 2009. Notwithstanding our purchase of additional fixed assets for our network infrastructure as we increased the scale of operations in our FTNS business, a portion of our owned fixed assets were fully depreciated. As a result, we incurred lower depreciation expenses. |
38
| FTNS business. Revenues from our FTNS business increased by 21.8% to HK$1,230.9 million in fiscal 2009 from HK$1,011.0 million in fiscal 2008. The increase was primarily caused by an increase of 17.7% of our FTNS subscription base to 943,000 as of August 31, 2009 from 801,000 as of August 31, 2008 and, to a lesser extent, an increase in the average revenue per user for our Internet access services. We believe that there was growing market acceptance of premium pricing in fiscal 2009. |
| Broadband Internet access. The subscription base for our Internet access services increased by 23.7%, to 391,000 as of August 31, 2009 from 316,000 as of August 31, 2008. During fiscal 2009, partly as a result of our success in differentiating our services by emphasizing our ultra high Internet access speed, we were able to acquire and retain customers who are willing to enter into subscription contracts with a long service period. Revenues from our Internet access services increased as a result. | ||
| Local VoIP. The subscription base for our local VoIP services rose by 16.1%, to 382,000 as of August 31, 2009 from 329,000 as of August 31, 2008, mainly due to improved branding and our greater success in cross selling our VoIP services to subscribers of our Internet access services. | ||
| IP-TV. The subscription base for our IP-TV services increased by 9.0% to 170,000 subscriptions, with the majority of the new subscriptions coming from existing subscribers of our Internet access and local VoIP services. |
Also as included in revenue from our FTNS business were mobile interconnection charges of HK$20.6 million in fiscal 2009. The mobile interconnection charges in fiscal 2009 decreased by 30.5% compared to fiscal 2008 due to the withdrawal of regulatory guidance on FMIC in favor of Mobile Partys Network Pay on April 26, 2009. Prior to April 26, 2009, the mobile network operators were required to pay interconnection charges for all calls originating to and from the mobile users. After April 26, 2009, the chargeability of interconnection charges is subject to commercial negotiation. |
| IDD business. Revenues from our IDD business decreased by 15.3% to HK$247.4 million in fiscal 2009 from HK$292.0 million in fiscal 2008. The decrease was primarily due to the reduction in IDD traffic volume. Competition during the fiscal year was intense as some of our integrated competitors offered international direct dial minutes for free or at very low cost as a marketing incentive to gain local fixed line and mobile market shares. Further, technology from global VoIP providers such as Skype, which offer free PC-to-PC based international calls, was also becoming more prevalent. |
39
For the year ended August 31, | ||||||||||||
2008 | 2009 | 2009 | ||||||||||
HK$ | HK$ | US$ | ||||||||||
(Amounts in thousands) | ||||||||||||
Talent costs
|
(247,460 | ) | (302,279 | ) | (39,001 | ) | ||||||
Advertising and marketing expenses
|
(307,743 | ) | (299,794 | ) | (38,681 | ) | ||||||
Depreciation
|
(210,051 | ) | (206,241 | ) | (26,610 | ) | ||||||
Others
|
(200,840 | ) | (229,650 | ) | (29,630 | ) | ||||||
|
||||||||||||
|
||||||||||||
Other operating expenses
|
(966,094 | ) | (1,037,964 | ) | (133,922 | ) | ||||||
|
| Talent costs. Talent costs increased by 22.1% to HK$302.3 million in fiscal 2009 from HK$247.5 million in fiscal 2008. We increased our total work force by 4.0% to 3,173 Talents as of August 31, 2009 from 3,051 Talents as of August 31, 2008, primarily due to the increased scale of operations in our FTNS business and the increasing scope in investing and developing our Talents through Talents education partnership and Talent infinity program. | ||
| Advertising and marketing expenses. Advertising and marketing expenses decreased by 2.6% to HK$299.8 million in fiscal 2009 from HK$307.7 million in fiscal 2008. Our salaries and commissions for our sales and marketing Talents were increased by HK$19.5 million due to an increase in total contract sum due to substantial growth in subscription base. Moreover, our opening of additional new shops caused shop related operating costs to increase by HK$11.4 million. The effects of the foregoing, however, were partially offset by a decrease in mass media advertising costs of HK$34.4 million. | ||
| Depreciation. Depreciation decreased by 1.9% to HK$206.2 million in fiscal 2009. Notwithstanding our purchase of additional fixed assets for our network infrastructure as we increased the scale of operations in our FTNS business, a portion of our owned fixed assets were fully depreciated and a lower depreciation expenses was incurred as a result. |
40
For the year ended August 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Net cash inflow from operating activities
|
381,991 | 536,771 | 485,340 | 62,398 | ||||||||||||
Net cash outflow from investing activities
|
(147,750 | ) | (176,488 | ) | (306,254 | ) | (39,374 | ) | ||||||||
Net cash (outflow)/inflow from financing activities
|
(345,978 | ) | (561,292 | ) | 178,307 | 22,924 | ||||||||||
|
||||||||||||||||
|
||||||||||||||||
(Decrease)/increase in cash and cash equivalents
|
(111,737 | ) | (201,009 | ) | 357,393 | 45,948 | ||||||||||
Cash and cash equivalents, at the beginning of year
|
532,894 | 421,610 | 221,052 | 28,420 | ||||||||||||
Effect of foreign exchange rate changes on cash
|
453 | 451 | (270 | ) | (35 | ) | ||||||||||
|
||||||||||||||||
|
||||||||||||||||
Cash and cash equivalents, at the end of the year
|
421,610 | 221,052 | 578,175 | 74,333 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Analysis of the balances of cash and cash equivalents
|
||||||||||||||||
Cash at bank and in hand
|
434,604 | 226,416 | 588,665 | 75,682 | ||||||||||||
Bank overdrafts unsecured
|
(12,994 | ) | (5,364 | ) | (10,490 | ) | (1,349 | ) | ||||||||
|
||||||||||||||||
|
||||||||||||||||
|
421,610 | 221,052 | 578,175 | 74,333 | ||||||||||||
|
41
42
Payments due by period | ||||||||||||||||||||
More than | More than | |||||||||||||||||||
1 year | 3 years | |||||||||||||||||||
Within | but within | but within | More than | |||||||||||||||||
Total | 1 year | 3 years | 5 years | 5 years | ||||||||||||||||
Contractual obligations | HK$ | HK$ | HK$ | HK$ | HK$ | |||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||
Capital expenditure items
|
132,340 | 132,340 | | | | |||||||||||||||
Operating leases
|
124,287 | 88,821 | 26,555 | 4,062 | 4,849 | |||||||||||||||
Long-term bank loan
|
133,996 | 1,829 | 4,326 | 127,841 | | |||||||||||||||
Obligation under finance leases
|
677 | 242 | 243 | 192 | | |||||||||||||||
Other current liabilities
|
264,904 | 264,904 | | | | |||||||||||||||
Programming fees (IP-TV)
|
73,626 | 25,539 | 41,506 | 6,581 | | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Total
|
729,830 | 513,675 | 72,630 | 138,676 | 4,849 | |||||||||||||||
|
Note: | The other current liabilities of HK$264.9 million is comprised of bank overdrafts unsecured of HK$10.5 million, accounts payable of HK$35.1 million, other payables and accrued charges of HK$195.9 million, deposits received of HK$21.8 million and tax payable of HK$1.5 million. A detailed explanation of the nature of accounts payable and other payables and accrued charges is contained in Note 17 to the Companys audited consolidated financial statements included in this Form 20-F. |
43
Date | |||||||||
joined | |||||||||
City | |||||||||
Name | Age | Position | Telecom | ||||||
Board of directors:
|
|||||||||
|
|||||||||
WONG Wai Kay, Ricky
|
49 | Executive Director and Chairman | 1992 | ||||||
|
|||||||||
CHEUNG Chi Kin, Paul
|
53 | Executive Director and Vice Chairman | 1992 | ||||||
|
|||||||||
YEUNG Chu Kwong, William
|
50 | Executive Director and Chief Executive Officer | 2005 | ||||||
|
|||||||||
LAI Ni Quiaque
|
41 | Executive Director, Chief Financial Officer, Company Secretary and Head of Talent Engagement | 2004 | ||||||
|
|||||||||
CHENG Mo Chi, Moses
|
60 | Non-Executive Director | 1997 | ||||||
|
|||||||||
LEE Hon Ying, John
|
64 | Independent Non-Executive Director | 1997 | ||||||
|
|||||||||
CHAN Kin Man
|
51 | Independent Non-Executive Director | 1997 | ||||||
|
|||||||||
PEH Jefferson Tun Lu
|
51 | Independent Non-Executive Director | 2004 | ||||||
|
|||||||||
Senior management:
|
|||||||||
|
|||||||||
CHONG Kin Chun, John
|
48 | Managing Director of Corporate Division | 1996 | ||||||
|
|||||||||
LO Sui Lun
|
46 | Director of Corporate Affairs Department | 1998 | ||||||
|
|||||||||
TAM Ming Chit
|
45 | Chief Technology Officer | 2008 | ||||||
|
|||||||||
TO Wai Bing
|
48 | Managing Director of Business Development | 2007 |
44
45
46
| overseeing the accounting and financial reporting process of the Company and the audits of the Companys consolidated financial statements on behalf of the board of directors; and | ||
| the appointment, compensation, retention and oversight of the work of the Companys independent auditors (including resolution of disagreements between management and the auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. |
| Reviewed our consolidated financial statements for the year ended August 31, 2009 and for the six months ended February 28, 2010; | |
| Reviewed the internal audit progress, including procedures required for compliance with the Sarbanes-Oxley Act; | |
| Reviewed the external auditors report on the review of our interim financial report for the six months ended February 28, 2010 and our audited consolidated financial statements for the year ended August 31, 2009; and | |
| Pre-approved the audit and non-audit services provided by KPMG, our external auditor. |
| Establish formal, fair and transparent procedures for developing policy and structure of all remuneration of directors and senior management. |
47
| Review and consider the Companys policy for remuneration of directors and senior management. | |
| Recommend the remuneration packages of non-executive directors (including independent non-executive directors). |
| Reviewed and approved the discretionary performance bonus for the management committee members; | |
| Reviewed and approved the remuneration packages for management committee members; and | |
| Reviewed and approved the remuneration packages for the directors. |
Talents | ||||
Information technology and engineering
|
363 | |||
Sales and marketing, customer service and Special Duty Unit, or SDU
|
2,499 | |||
General administration and others
|
370 | |||
|
||||
|
||||
Total
|
3,232 | |||
|
Talents | ||||
Hong Kong
|
1,593 | |||
Guangzhou
|
1,620 | |||
Canada
|
19 | |||
|
||||
|
||||
Total
|
3,232 | |||
|
Number | Percentage | |||||||||||||||
of shares | of shares | |||||||||||||||
beneficially | beneficially | Outstanding | ||||||||||||||
Identity of person | owned | owned (note 3) | share | |||||||||||||
Title of class | or Group | (note 4) | % | options | ||||||||||||
Ordinary shares
|
Wong Wai Kay, Ricky |
389,245,732
(note 1) |
50.66 | 8,091,604 | ||||||||||||
|
||||||||||||||||
Ordinary shares
|
Cheung Chi Kin, Paul |
389,245,732
(note 1) |
50.66 | 8,091,604 | ||||||||||||
|
||||||||||||||||
Ordinary shares
|
Yeung Chu Kwong, William | 2,306,000 | Less than 1.0 | 11,542,956 | ||||||||||||
|
||||||||||||||||
Ordinary shares
|
Lai Ni Quiaque | 12,415,405 | 1.62 | 6,044,791 |
48
Number | Percentage | |||||||||||||||
of shares | of shares | |||||||||||||||
beneficially | beneficially | Outstanding | ||||||||||||||
Identity of person | owned | owned (note 3) | share | |||||||||||||
Title of class | or Group | (note 4) | % | options | ||||||||||||
Ordinary shares
|
Chong Kin Chun, John | 2,777,089 | Less than 1.0 | 2,022,900 | ||||||||||||
|
||||||||||||||||
Ordinary shares
|
Lo Sui Lun | Nil | Nil | 1,638,901 | ||||||||||||
|
||||||||||||||||
Ordinary shares
|
Tam Ming Chit | Nil | Nil | 629,665 | ||||||||||||
|
||||||||||||||||
Ordinary shares
|
To Wai Bing | Nil | Nil | 302,239 |
Notes: | ||
(1) | The 389,245,732 shares are held by a group consisting of Top Group International Limited, Mr. Wong Wai Kay, Ricky, our chairman, and Mr. Cheung Chi Kin, Paul, our vice chairman, Top Group International Limited is a special purpose vehicle incorporated in the British Virgin Islands. Its board of directors consists of Mr. Wong and Mr. Cheung. Mr. Wong and Mr. Cheung have entered into a voting agreement pursuant to which they agreed to vote the 339,814,284 shares held by Top Group International Limited, the 7,145,289 shares held by Mr. Wong individually, and the 42,286,159 shares held by Mr. Cheung individually, collectively as a group. The registered address of Top Group International Limited is Akara Bldg, 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands. Top Group International Limited has four shareholders: Mr. Wong, Mr. Cheung, Mr. Leung Ka Pak, and Mr. Yau Ming Yan, Andrew, and their equity interests are 42.12%, 27.06%, 21.00% and 9.82%, respectively. | |
(2) | Percentage ownership is based on 768,410,429 shares issued as of December 14, 2010. | |
(3) | Beneficial ownership is determined in accordance with the rules of the SEC. |
49
Options | Options | Options | ||||||||||||||||||||||||||||||
Balance | granted | exercised | cancelled/ | Balance | ||||||||||||||||||||||||||||
Exercise | as at | during | during | lapsed | as at | |||||||||||||||||||||||||||
Date of | price | December 15, | the | Exercise | the | during | December 14, | |||||||||||||||||||||||||
Directors | grant | HK$ | 2009 | period | period | period | the period | 2010 | ||||||||||||||||||||||||
Mr. Wong Wai Kay, Ricky
|
January 5, 2005 | 1.5224 | 8,091,604 | | January 5, 2005 to October 20, 2014 | | | 8,091,604 | ||||||||||||||||||||||||
Mr. Cheung Chi Kin, Paul
|
January 5, 2005 | 1.5224 | 8,091,604 | | January 5, 2005 to October 20, 2014 | | | 8,091,604 | ||||||||||||||||||||||||
Mr. Yeung Chu Kwong, William
|
May 22, 2006 | 0.6523 | 1,018,165 | | May 22, 2007 to May 21, 2016 | 1,018,000 | | 165 | ||||||||||||||||||||||||
|
February 6, 2008 | 1.7568 | 6,044,791 | | (note 1) | 502,000 | | 5,542,791 | ||||||||||||||||||||||||
|
February 5, 2010 | 4.2400 | | 6,000,000 | (note 2) | | | 6,000,000 | ||||||||||||||||||||||||
Mr. Lai Ni Quiaque
|
May 22, 2006 | 0.6523 | 2,022,899 | | May 22, 2007 to May 21, 2016 | 2,022,899 | | | ||||||||||||||||||||||||
|
February 11, 2008 | 1.8660 | 6,044,791 | | (note 3) | | | 6,044,791 | ||||||||||||||||||||||||
Senior management
|
||||||||||||||||||||||||||||||||
Mr. Chong Kin Chun, John
|
October 21, 2004 | 1.5224 | 2,022,900 | | January 1, 2005 to October 20, 2014 | | | 2,022,900 | ||||||||||||||||||||||||
Mr. Lo Sui Lun
|
October 21, 2004 | 1.5224 | 505,726 | | January 1, 2005 to October 20, 2014 | | | 505,726 | ||||||||||||||||||||||||
|
May 22, 2006 | 0.6523 | 1,517,175 | | May 22, 2007 to May 21, 2016 | 384,000 | | 1,133,175 | ||||||||||||||||||||||||
Dr. Tam Ming Chit
|
May 2, 2008 | 1.7866 | 1,007,465 | | (note 4) | 377,800 | | 629,665 | ||||||||||||||||||||||||
Ms. To Wai Bing
|
February 15, 2008 | 1.7568 | 1,007,465 | | (note 4) | 705,226 | | 302,239 |
Notes: | ||
(1) | The exercise of the Options is subject to certain conditions that must be achieved by the grantee. During the year ended August 31, 2010, one of the clauses in the option agreement has been modified. The Options shall be exercised not later than December 23, 2012. | |
(2) | The exercise of the Options is subject to certain conditions that must be achieved by the grantee. The Options shall be exercised not later than February 4, 2020. | |
(3) | The exercise of the Options is subject to the performance of the Companys share and certain conditions that must be achieved by the grantee. During the year ended August 31, 2010, one of the clauses in the option agreement has been modified. The Options shall be exercised not later than December 23, 2012. |
50
(4) | The exercise of the Options is subject to certain conditions that must be advanced by the grantees. The Options shall be exercised not later than December 23, 2012. |
(a) | the expiry date relevant to that option; | |
(b) | one month following the date a grantee ceases to be an eligible participant for any reason other than death or termination of his relationship with us (or the relevant subsidiary, as the case may be) on any of the grounds specified in (g) below; |
51
(c) | 12 months, or such longer period as the Board may determine, following the death of a grantee whose relationship with us (or the relevant subsidiary, as the case may be) would not have been terminated on any of the grounds specified in (g) below; | |
(d) | 21 days following the date an effective resolution is passed for our voluntary winding-up; | |
(e) | subject to (d) above, the date of commencement of such winding-up; | |
(f) | the date on which any compromise or arrangement between us and our members or creditors in connection with a scheme for our reconstruction or our amalgamation with any other company or companies becomes effective; | |
(g) | the date on which the grantee ceases to be an eligible participant by reason of the termination of his or her relationship with us or the relevant subsidiary on any one or more of the grounds of serious misconduct or breach, bankruptcy, insolvency, composition with his or her creditors or conviction of any criminal offence involving his or her integrity or honesty or, in the case of a grantee-Talent and if so determined by the Board, on any other common law, statutory or contractual ground on which an employer would be entitled to terminate such grantees employment; | |
(h) | 14 days following the date a general offer (which has been made to shareholders by way of take-over offer, share repurchase offer or scheme of arrangement or otherwise in like manner) becomes, or is declared unconstitutional; and | |
(i) | the date on which we cancel the options by reason that the grantee in any way sells, transfers, charges, mortgages, encumbers or creates any interest in favor of any third party over or in relation to any of his or her options or attempt to do so. |
Percentages | ||||||||||||
of shares | ||||||||||||
Beneficially | ||||||||||||
beneficially | owned | |||||||||||
Identity of person | owned | (note 1) | ||||||||||
Title of class | or Group | (note 4) | % | |||||||||
Ordinary shares
|
Wong Wai Kay, Ricky | 389,245,732 (note 2) | 50.66 | |||||||||
|
||||||||||||
Ordinary shares
|
Cheung Chi Kin, Paul | 389,245,732 (note 2) | 50.66 | |||||||||
|
||||||||||||
Ordinary shares
|
Top Group International Limited | 389,245,732 (note 2) | 50.66 | |||||||||
|
||||||||||||
Ordinary shares
|
Leung Ka Pak | 339,814,284 (note 3) | 44.22 | |||||||||
|
||||||||||||
Ordinary shares
|
Yau Ming Yan, Andrew | 339,814,284 (note 3) | 44.22 |
Notes: | ||
(1) | Percentage ownership is based on 768,410,429 shares issued as of December 14, 2010. | |
(2) | The 389,245,732 shares are held by a group consisting of Top Group International Limited, Mr. Wong Wai |
52
Kay, Ricky, our chairman, and Mr. Cheung Chi Kin, Paul, our vice chairman, Top Group is a special purpose vehicle incorporated in the British Virgin Islands, and its board of directors consists of Mr. Wong and Mr. Cheung. Mr. Wong and Mr. Cheung have entered into a voting agreement pursuant to which they agreed to vote the 339,814,284 shares held by Top Group International Limited, the 7,145,289 shares held by Mr. Wong individually, and the 42,286,159 shares held by Mr. Cheung individually, collectively as a group. The registered address of Top Group International Limited is Akara Bldg, 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands. Top Group International Limited has four shareholders: Mr. Wong, Mr. Cheung, Mr. Leung Ka Pak, and Mr. Yau Ming Yan, Andrew (See Note (3) below), and their equity interests are 42.12%, 27.06%, 21.00% and 9.82%, respectively. | ||
(3) | Mr. Leung Ka Pak and Mr. Yau Ming Yan, Andrew may be deemed to have beneficial ownership in the 339,814,284 shares held by Top Group International Limited. Each of them expressly disclaims any beneficial ownership in such shares except to the extent of their respective pecuniary interest therein. Mr. Leung was a director and the president of all of our subsidiaries in Canada (other than City Telecom (Canada) Inc.) and resigned as a director and president in October 2005. After Mr. Leungs resignation, Mr. Yau became a director and the president of all of our subsidiaries in Canada (other than City Telecom (Canada) Inc.). He resigned as a director and president in July 2006. | |
(4) | Beneficial ownership is determined in accordance with the rules of the SEC. |
53
Price | ||||||||
High | Low | |||||||
(In HK$) | ||||||||
Annual Date
|
||||||||
2005
|
1.530 | 0.550 | ||||||
2006
|
0.830 | 0.570 | ||||||
2007
|
3.670 | 0.830 | ||||||
2008
|
2.170 | 0.750 | ||||||
2009
|
3.950 | 2.500 |
54
Price | ||||||||
High | Low | |||||||
(In HK$) | ||||||||
Quarterly Data
|
||||||||
2008
|
||||||||
|
||||||||
January to March
|
2.170 | 1.620 | ||||||
April to June
|
2.090 | 1.670 | ||||||
July to September
|
1.950 | 1.340 | ||||||
October to December
|
1.360 | 0.750 | ||||||
|
||||||||
2009
|
||||||||
|
||||||||
January to March
|
1.140 | 0.840 | ||||||
April to June
|
1.780 | 1.100 | ||||||
July to September
|
2.630 | 1.630 | ||||||
October to December
|
3.950 | 2.500 | ||||||
|
||||||||
2010
|
||||||||
|
||||||||
January to March
|
6.210 | 3.800 | ||||||
April to June
|
6.770 | 4.420 | ||||||
July to September
|
5.200 | 3.690 | ||||||
October to December (through December 14, 2010)
|
6.200 | 4.800 | ||||||
|
||||||||
Monthly Data
|
||||||||
2010
|
||||||||
|
||||||||
June
|
5.280 | 4.420 | ||||||
July
|
4.560 | 3.690 | ||||||
August
|
4.570 | 4.010 | ||||||
September
|
5.200 | 4.720 | ||||||
October
|
5.270 | 4.800 | ||||||
November
|
6.200 | 5.000 | ||||||
December (through December 14, 2010)
|
5.960 | 5.740 |
Price | ||||||||
High | Low | |||||||
(In US$) | ||||||||
Annual Date
|
||||||||
2005
|
3.980 | 1.370 | ||||||
2006
|
2.009 | 1.380 | ||||||
2007
|
10.750 | 2.010 | ||||||
2008
|
5.750 | 1.915 | ||||||
2009
|
10.300 | 2.000 | ||||||
|
||||||||
Quarterly Data
|
||||||||
2008
|
||||||||
|
||||||||
January to March
|
5.580 | 4.250 | ||||||
April to June
|
5.750 | 4.370 | ||||||
July to September
|
4.910 | 2.950 | ||||||
October to December
|
3.380 | 1.915 |
55
Price | ||||||||
High | Low | |||||||
(In US$) | ||||||||
2009
|
||||||||
January to March
|
2.870 | 2.000 | ||||||
April to June
|
4.650 | 2.870 | ||||||
July to September
|
7.023 | 4.050 | ||||||
October to December
|
10.300 | 6.610 | ||||||
|
||||||||
2010
|
||||||||
|
||||||||
January to March
|
16.180 | 10.150 | ||||||
April to June
|
17.330 | 11.340 | ||||||
July to September
|
13.500 | 9.670 | ||||||
October to December(through December 14, 2010)
|
15.980 | 12.500 | ||||||
|
||||||||
Monthly Data
|
||||||||
2010
|
||||||||
|
||||||||
June
|
13.460 | 11.340 | ||||||
July
|
11.850 | 9.6700 | ||||||
August
|
11.980 | 10.200 | ||||||
September
|
13.500 | 12.450 | ||||||
October
|
13.620 | 12.500 | ||||||
November
|
15.980 | 12.770 | ||||||
December (through December 14, 2010)
|
15.650 | 14.480 |
56
(a) | the giving of any security or indemnity to him or his associates(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries; | |
(b) | the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which he or his associate(s) has himself/themselves assumed responsibility in whole or in part and whether alone or jointly under a guarantee or indemnity or by the giving of security; | |
(c) | any proposal concerning an offer of shares, debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase in which offer he or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting thereof; | |
(d) | any proposal concerning any other company in which he or his associate(s) is/are interested only, whether directly or indirectly, as an officer, executive or shareholder or in which he or his associate(s) is/are beneficially interested in shares of that Company, provided that he and any of his associate(s) are not in aggregate beneficially interested in five per cent or more of the issued shares of any class of such Company (or of any third company through which his interest or that of his associate(s) is derived) or of the voting rights; | |
(e) | any proposal or arrangement concerning the benefit of Talents of the Company or its subsidiaries, including the adoption, modification or operation of any Talents share scheme or any share incentive or share option scheme under which the director or his associate(s) may benefit; | |
(f) | any proposal or arrangement concerning the benefit of Talents of the Company or its subsidiaries, including the adoption, modification or operation of a pension fund or retirement, death or disability benefits scheme which relates both to directors (or his associate(s)) and Talents of the Company or any of its subsidiaries and does not provide in respect of any director or his associate(s), as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and | |
(g) | any contract or arrangement in which he or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company. |
(a) | such dividend be satisfied in whole or in part in the form of an allotment of shares to the shareholders, credited as being fully paid up, provided that all the shareholders entitled to receive the dividend will also be entitled to choose to receive the dividend (or a part of it) in cash; or | |
(b) | the shareholders entitled to such dividend are entitled to elect to receive an allotment of shares credited as fully paid up instead of the whole or part of the cash dividend our board of directors may decide upon. |
57
(a) | divide among the shareholders the whole or any part of the assets of the Company and set such value as the liquidator deems fair upon any property to be divided and determine how the division shall be carried out between the shareholders; or | |
(b) | vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator shall think fit, but no shareholder shall be compelled to accept any shares or other assets upon which there is any liability. |
(a) | the declaration and sanctioning of dividends; | |
(b) | the consideration and adoption of the accounts, balance sheet and reports of the directors and auditors and other documents required to be attached to the financial statements; | |
(c) | the appointment of directors in place of those retiring (by rotation or otherwise); | |
(d) | the appointment of auditors; and | |
(e) | the fixing of, or the determining of the method of fixing, the remuneration of the directors and of the auditors. |
58
(a) | the instrument of transfer, duly stamped, is lodged with us accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the seller to make the transfer; | |
(b) | such fee, not more than the maximum amount allowed by The Stock Exchange of Hong Kong Limited from time to time, as our board of directors may from time to time require is paid to us in respect of it; | |
(c) | the instrument of transfer is in respect of only one class of share; | |
(d) | in the case of a transfer of a share jointly held by two or more holders, the number of joint holders to whom the share is to be transferred does not exceed four; and | |
(e) | the shares concerned are free of any lien in favor of us. |
59
(i) | such profits are derived from or arise in Hong Kong; | |
(ii) | such profits are attributable to a trade, profession or business carried on in Hong Kong; and | |
(iii) | the property in question, such as shares and American depositary shares, are not capital assets of that trade, profession or business. |
60
| an individual who is a citizen or resident of the United States; | |
| a corporation, or other entity that is taxable as a corporation, created in or organized under the laws of the United States or any State or political subdivision thereof; | |
| an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source; | |
| a trust the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust; or | |
| a trust that was in existence on August 20, 1996, was treated as a United States person, for United States federal income tax purposes, on the previous day, and elected to continue to be so treated. |
61
62
| the dividends received or gain recognized on the sale of the shares or American depositary shares by such person is treated as effectively connected with the conduct of a trade or business by such person in the United States as determined under United States federal income tax law, and the dividends are attributable to a permanent establishment (or in the case of an individual, a fixed place of business) that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis. In such cases you generally will be taxed in the same manner as a U.S. holder. If you are a corporate non-U.S. Holder, effectively connected dividends may, under certain circumstances, be subject to an additional branch profits tax at a 30% rate or a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate, or | |
| in the case of gains recognized on a sale of shares or American depositary shares by an individual, such individual is present in the United States for 183 days or more and certain other conditions are met. The non-U.S. Holder will be subject to United States federal income tax at a rate of 30% on the amount by which the U.S. source capital gains exceed non-U.S. source capital losses. |
63
64
/s/ KPMG | ||||
Hong Kong, China | ||||
November 9, 2010 |
65
2010 | 2009 | |||||||
Nature of the service |
HK$
million |
HK$
million |
||||||
Audit fees
|
2.3 | 2.6 | ||||||
Audit-related fees
|
0.2 | 0.4 | ||||||
Non-audit services fees
|
0.3 | | ||||||
|
||||||||
|
||||||||
Total
|
2.8 | 3.0 | ||||||
|
| Nasdaq Stock Market Rule 5605(b)(1) requires a Nasdaq listed company to have a board of directors consisting of a majority of independent members, In this regard we have elected to adopt the practices of our home country, As a listed company in Hong Kong, we are subject to the requirement under the HKSE Listing Rules that at least three members of our board of directors be independent as determined under the HKSE Listing Rules. In compliance with our home country practices, we currently have three independent |
66
directors out of a total of eight directors. The standards for establishing independence under the HKSE Listing Rules also differ from those set forth in the Nasdaq Stock Market Rules. | |||
| Nasdaq Stock Market Rule 5605(b)(2) requires a Nasdaq listed company to schedule regular executive sessions in which non-management directors meet without management participation. In this regard we have elected to adopt the practices of our home country. Under the applicable Hong Kong law, our board of directors is required to meet regularly and at least four times a year and we are required to ensure that there is active participation by a majority of the directors and afford all directors an opportunity to include matters on the agenda. In addition, when a board meeting considers a matter in which a substantial shareholder or a director has a conflict of interest, the independent directors with no material interest in such matter must be present. In compliance with our home country practices, we do not organize exclusive meetings for our independent non-executive directors on a regular basis. | ||
| Nasdaq Stock Market Rule 5605(d)(1) requires a Nasdaq listed company to have the compensation of the chief executive officer and the other executive officers be determined, or recommended to the Board for determination, by a compensation committee comprised solely of independent directors. In this regard we have elected to adopt the practices of our home country. Under the HKSE Listing Rules, listed companies are required to establish a remuneration committee with a majority of independent non-executive directors. The compensation of our executive officers is determined by a remuneration committee consisting of six directors, three of whom are independent non-executive directors. | ||
| Nasdaq Stock Market Rule 5605(e)(1) requires a Nasdaq listed company to have a nominations committee consisting solely of independent directors to select or recommend for selection director nominees. In this regard we have elected to adopt the practices of our home country and do not have a nominations committee consisting solely of independent directors. Under the HKSE Listing Rules, listed companies are recommended but not required to establish a nomination committee consisting of the independent non-executive directors with majority vote. Our director nominees are selected by or recommended for selection by the Board. Our current practice is not inconsistent with our home country practices. |
67
(a) | Exhibit 12.1 Section 302 Certifications of the Chief Executive Officer. | |
(b) | Exhibit 12.2 Section 302 Certifications of the Chief Financial Officer. | |
(c) | Exhibit 13 Section 906 Certification of Chief Executive Officer and Chief Financial Officer. |
68
Audited Consolidated Financial Statements | Pages | |
F-1 | ||
F-2 | ||
F-3 | ||
F-4 | ||
F-5 | ||
F-7 | ||
F-8 |
F-1
For the year ended August 31, | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
Note | HK$000 | HK$000 | HK $000 | |||||||||||||
Revenue
|
2 | 1,574,687 | 1,478,239 | 1,302,981 | ||||||||||||
Network costs
|
3 | (195,292 | ) | (175,129 | ) | (178,367 | ) | |||||||||
Other operating expenses
|
4 | (a) | (1,105,604 | ) | (1,037,964 | ) | (966,094 | ) | ||||||||
Other income, net
|
4 | (b) | 7,989 | 41,540 | 24,989 | |||||||||||
Finance costs
|
4 | (c) | (22,235 | ) | (55,127 | ) | (75,137 | ) | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Profit before taxation
|
4 | 259,545 | 251,559 | 108,372 | ||||||||||||
Income tax (expense)/benefit
|
5 | (42,679 | ) | (38,730 | ) | 16,818 | ||||||||||
|
||||||||||||||||
|
||||||||||||||||
Profit attributable to shareholders
|
216,866 | 212,829 | 125,190 | |||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Basic earnings per share
|
7 | HK30.7 cents | HK32.4 cents | HK19.7 cents | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Diluted earnings per share
|
7 | HK29.4 cents | HK31.8 cents | HK19.0 cents | ||||||||||||
|
F-2
For the year ended August 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Profit for the year
|
216,866 | 212,829 | 125,190 | |||||||||
|
||||||||||||
Other comprehensive income
|
||||||||||||
Exchange differences on translation of
financial statements of overseas
subsidiaries
|
(97 | ) | 70 | 1,619 | ||||||||
|
||||||||||||
|
||||||||||||
Total comprehensive income for the year
|
216,769 | 212,899 | 126,809 | |||||||||
|
F-3
As at August 31, | ||||||||||||
2010 | 2009 | |||||||||||
Note | HK$000 | HK$000 | ||||||||||
Non-current assets
|
||||||||||||
|
||||||||||||
Goodwill
|
11 | 1,066 | 1,066 | |||||||||
Fixed assets
|
12 | 1,431,813 | 1,302,380 | |||||||||
Long term receivable and prepayment
|
5,174 | 6,091 | ||||||||||
Deferred expenditure
|
14 | 6,626 | 12,786 | |||||||||
|
||||||||||||
|
||||||||||||
|
1,444,679 | 1,322,323 | ||||||||||
|
||||||||||||
|
||||||||||||
Current assets
|
||||||||||||
|
||||||||||||
Accounts receivable
|
15 | 99,729 | 120,192 | |||||||||
Other receivables, deposits and prepayments
|
15 | 89,490 | 69,765 | |||||||||
Deferred expenditure
|
14 | 28,986 | 36,674 | |||||||||
Pledged bank deposits
|
27 | | 15,038 | |||||||||
Cash at bank and in hand
|
16 | 588,665 | 226,416 | |||||||||
|
||||||||||||
|
||||||||||||
|
806,870 | 468,085 | ||||||||||
|
||||||||||||
|
||||||||||||
Current liabilities
|
||||||||||||
|
||||||||||||
Bank overdrafts unsecured
|
10,490 | 5,364 | ||||||||||
Accounts payable
|
17 | 35,128 | 37,555 | |||||||||
Other payables and accrued charges
|
17 | 195,931 | 206,487 | |||||||||
Deposits received
|
21,822 | 16,385 | ||||||||||
Deferred service revenue
|
18 | 106,798 | 115,070 | |||||||||
Tax payable
|
1,533 | 1,993 | ||||||||||
Current portion obligations under finance leases
|
22 | 212 | 202 | |||||||||
|
||||||||||||
|
||||||||||||
|
371,914 | 383,056 | ||||||||||
|
||||||||||||
|
||||||||||||
Net current assets
|
434,956 | 85,029 | ||||||||||
|
||||||||||||
|
||||||||||||
Total assets less current liabilities
|
1,879,635 | 1,407,352 | ||||||||||
|
||||||||||||
|
||||||||||||
Non-current liabilities
|
||||||||||||
|
||||||||||||
Deferred tax liabilities
|
20 | 55,843 | 15,709 | |||||||||
Derivative financial instrument
|
21 | 11,293 | | |||||||||
Long-term debt and other liabilities
|
22 | 123,960 | 163,116 | |||||||||
|
||||||||||||
|
||||||||||||
|
191,096 | 178,825 | ||||||||||
|
||||||||||||
|
||||||||||||
Net assets
|
1,688,539 | 1,228,527 | ||||||||||
|
||||||||||||
|
||||||||||||
Capital and reserves
|
||||||||||||
|
||||||||||||
Share capital
|
19 | 76,500 | 66,418 | |||||||||
Reserves
|
19 | 1,612,039 | 1,162,109 | |||||||||
|
||||||||||||
|
||||||||||||
Total equity attributable to equity shareholders of the Company
|
1,688,539 | 1,228,527 | ||||||||||
|
F-4
Capital | ||||||||||||||||||||||||||||
Share | Share | Capital | redemption | Retained | Exchange | |||||||||||||||||||||||
capital | premium | reserve | reserve | profits | reserve | Total | ||||||||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||||||||
At September 1, 2009
|
66,418 | 681,208 | 23,232 | 7 | 454,802 | 2,860 | 1,228,527 | |||||||||||||||||||||
Total comprehensive
income for the year
|
| | | | 216,866 | (97 | ) | 216,769 | ||||||||||||||||||||
Dividend paid in respect
of previous year
|
| | | | (108,735 | ) | | (108,735 | ) | |||||||||||||||||||
Dividend paid in respect
of current year
|
| | | | (49,725 | ) | | (49,725 | ) | |||||||||||||||||||
Shares issued upon
exercise of share option
|
2,032 | 22,227 | (7,515 | ) | | | | 16,744 | ||||||||||||||||||||
Equity settled
share-based transactions
|
| | 5,347 | | | | 5,347 | |||||||||||||||||||||
Shares issued upon
placement
|
8,050 | 371,562 | | | | | 379,612 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At August 31, 2010
|
76,500 | 1,074,997 | 21,064 | 7 | 513,208 | 2,763 | 1,688,539 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
Capital | ||||||||||||||||||||||||||||
Share | Share | Capital | redemption | Retained | Exchange | |||||||||||||||||||||||
capital | premium | reserve | reserve | profits | reserve | Total | ||||||||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||||||||
At September 1, 2008
|
65,062 | 670,717 | 19,013 | | 275,025 | 2,790 | 1,032,607 | |||||||||||||||||||||
Total comprehensive
income for the year
|
| | | | 212,829 | 70 | 212,899 | |||||||||||||||||||||
Dividend paid in respect
of previous year
|
| | | | (3,108 | ) | | (3,108 | ) | |||||||||||||||||||
Shares issued in respect
of scrip dividend of
previous year
|
1,221 | 8,685 | | | (9,906 | ) | | | ||||||||||||||||||||
Dividend paid in respect
of current year
|
| | | | (19,904 | ) | | (19,904 | ) | |||||||||||||||||||
Shares issued upon
exercise of share option
|
142 | 1,806 | (549 | ) | | | | 1,399 | ||||||||||||||||||||
Equity settled
share-based transactions
|
| | 4,768 | | | | 4,768 | |||||||||||||||||||||
Repurchase and
cancellation of ordinary
shares
|
(7 | ) | | | 7 | (134 | ) | | (134 | ) | ||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At August 31, 2009
|
66,418 | 681,208 | 23,232 | 7 | 454,802 | 2,860 | 1,228,527 | |||||||||||||||||||||
|
F-5
Share | Share | Capital | Retained | Exchange | ||||||||||||||||||||
capital | premium | reserve | profits | reserve | Total | |||||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | |||||||||||||||||||
At September 1, 2007
|
61,650 | 622,433 | 18,109 | 200,519 | 1,171 | 903,882 | ||||||||||||||||||
Total comprehensive
income for the year
|
| | | 125,190 | 1,619 | 126,809 | ||||||||||||||||||
Dividend paid in respect
of previous year
|
| | | (5,915 | ) | | (5,915 | ) | ||||||||||||||||
Shares issued in respect
of scrip dividend of
previous year
|
1,123 | 18,044 | | (19,167 | ) | | | |||||||||||||||||
Dividend paid in respect
of current year
|
| | | (11,371 | ) | | (11,371 | ) | ||||||||||||||||
Shares issued in respect
of scrip dividend of
current year
|
884 | 13,347 | | (14,231 | ) | | | |||||||||||||||||
Shares issued upon
exercise of share option
|
1,405 | 16,893 | (3,300 | ) | | | 14,998 | |||||||||||||||||
Equity settled
share-based transactions
|
| | 4,204 | | | 4,204 | ||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
At August 31, 2008
|
65,062 | 670,717 | 19,013 | 275,025 | 2,790 | 1,032,607 | ||||||||||||||||||
|
F-6
For the year ended August 31, | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
Note | HK$000 | HK$000 | HK$000 | |||||||||||||
Net cash inflow from operations
|
23 | (a) | 488,353 | 538,503 | 386,241 | |||||||||||
|
||||||||||||||||
Hong Kong profits tax (paid)/recovered
|
(456 | ) | | 42 | ||||||||||||
Overseas tax paid
|
(2,557 | ) | (1,732 | ) | (4,292 | ) | ||||||||||
|
||||||||||||||||
|
||||||||||||||||
Net cash inflow from operating activities
|
485,340 | 536,771 | 381,991 | |||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Investing activities
|
||||||||||||||||
|
||||||||||||||||
Increase in pledged bank deposits
|
15,038 | 72,281 | | |||||||||||||
Interest received
|
11,372 | 4,869 | 15,596 | |||||||||||||
Purchases of fixed assets
|
(349,076 | ) | (289,938 | ) | (189,903 | ) | ||||||||||
Net proceeds from maturity of investment in debt securities
|
| 28,051 | 3,900 | |||||||||||||
Net proceeds from redemption of long-term bank deposit
|
| | 15,600 | |||||||||||||
Proceeds from disposal of fixed assets
|
16,412 | 8,249 | 7,057 | |||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Net cash outflow from investing activities
|
(306,254 | ) | (176,488 | ) | (147,750 | ) | ||||||||||
|
||||||||||||||||
|
||||||||||||||||
Net cash inflow before financing activities
|
179,086 | 360,283 | 234,241 | |||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Financing activities
|
||||||||||||||||
|
||||||||||||||||
Repurchase of ordinary shares
|
| (134 | ) | | ||||||||||||
Proceeds from issuance of new shares
|
23 | (b) | 396,356 | 1,399 | 14,998 | |||||||||||
Proceeds from new bank loans
|
163,375 | | | |||||||||||||
Repayment of bank loan
|
(40,000 | ) | | | ||||||||||||
Repayment of capital element of finance leases
|
23 | (b) | (217 | ) | (138 | ) | (834 | ) | ||||||||
Interest element of finance leases
|
(42 | ) | (27 | ) | (34 | ) | ||||||||||
Interest paid on bank loans
|
(1,166 | ) | | | ||||||||||||
Other borrowing costs paid
|
(3,260 | ) | (885 | ) | (3,428 | ) | ||||||||||
Interest paid on 10-year senior notes
|
(5,881 | ) | (52,670 | ) | (70,010 | ) | ||||||||||
Repurchase of 10-year senior notes
|
23 | (b) | (172,423 | ) | (485,829 | ) | (269,399 | ) | ||||||||
Dividends paid
|
(158,435 | ) | (23,008 | ) | (17,271 | ) | ||||||||||
|
||||||||||||||||
|
||||||||||||||||
Net cash inflow/(outflow) from financing activities
|
178,307 | (561,292 | ) | (345,978 | ) | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
Increase/(decrease) in cash and cash equivalent
|
357,393 | (201,009 | ) | (111,737 | ) | |||||||||||
|
||||||||||||||||
Cash and cash equivalent at September 1
|
221,052 | 421,610 | 532,894 | |||||||||||||
|
||||||||||||||||
Effect of foreign exchange rate changes
|
(270 | ) | 451 | 453 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Cash and cash equivalent at August 31
|
578,175 | 221,052 | 421,610 | |||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Analysis of the balances of cash and cash equivalents
|
||||||||||||||||
Cash at bank and in hand
|
588,665 | 226,416 | 434,604 | |||||||||||||
Bank overdrafts unsecured
|
(10,490 | ) | (5,364 | ) | (12,994 | ) | ||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
578,175 | 221,052 | 421,610 | |||||||||||||
|
F-7
1 | Significant accounting policies | |
(a) | Statement of compliance | |
City Telecom (H.K.) Limited (the Company) was incorporated in Hong Kong on May 19, 1992 under the Hong Kong Companies Ordinance. City Telecom (H.K.) Limited and its subsidiaries (collectively referred to as the Group) are engaged in the provision of international telecommunications services and fixed telecommunications network services to customers in Hong Kong and Canada. | ||
The accompanying consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards (IASs) and Interpretations issued by the IASB. | ||
The IASB has issued a number a new or revised IFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. The equivalent new or revised HKFRSs consequently issued by HKICPA as a result of these developments have the same effective date as those issued by the IASB and are in all material respects identical to the pronouncements issued by the IASB. Of these, the following developments are relevant to the Groups financial statements: |
| IFRS/HKFRS 8, Operating segments | ||
| IAS/HKAS1 (revised 2007), Presentation of financial statements | ||
| Amendments to IFRS/HKFRS 7, Financial instruments: disclosure improving disclosures about financial instruments |
The impact of these developments is as follows: | ||
IFRS/HKFRS 8 requires segment disclosure to be based on the way that the Groups chief operating decision-maker regards and manages the Group, with the amounts reported for each reportable segment being the measures reported to the Groups chief operating decision-marker for the purposes of assessing segment performance and making decisions about operating matters. The new requirement under IFRS/HKFRS 8 is consistent with the Groups segment information presented in prior years. The adoption of HKFRS 8 had no material impact on the reportable segments being identified and disclosed. | ||
As a results of the adoption of IAS/HKAS 1 (revised 2007), details of changes in equity during the period arising from transactions with equity shareholders in their capacity as such have been presented separately from all other income and expenses in a revised consolidated statement of changes in equity. All other items of income an expense are presented in the consolidated income statement, if they are recognized as part of profit or loss for the period, or otherwise in a new primary statement, the consolidated statement of comprehensive income. Corresponding amounts have been restated to conform to the new presentation. The change in presentation has no effect on reported profit or loss, total income and expense or net assets for any period presented. | ||
As a result of the adoption of the amendments to IFRS/HKFRS 7, the financial statements include expanded disclosure in note 24(e)(i) about the fair value measurement of the Groups financial instruments, categorizing these fair value measurements into a three-level fair value hierarchy accordingly to the extent to which they are based on observable market data. | ||
The Group has taken advantage of the transitional provisions set out in the amendments to IFRS/HKFRS 7, under which comparative information for the newly required disclosures about the fair value measurements of financial instruments has not been provided. |
F-8
1 | Significant accounting policies (continued) | |
(a) | Statement of compliance (continued) | |
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 32). | ||
The consolidated financial statements were authorized for issue by the Board of Directors on November 9, 2010. | ||
(b) | Basis of preparation of the financial statements | |
The measurement basis used in the preparation of the financial statements is the historical cost basis except that certain financial assets are stated at their fair values or amortized costs as explained in the accounting policies set out below (see notes 1(j), 1(l) and 1(r)). | ||
The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. | ||
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. | ||
Judgments made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 31. | ||
(c) | Subsidiaries and controlled entities | |
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. | ||
(d) | Group accounting | |
(i) | Consolidation | |
An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. | ||
Intra-group balances and transactions and any unrealized profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealized losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment. | ||
(ii) | Translation of foreign currencies | |
Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in profit or loss. | ||
For consolidation purposes, the balance sheets of foreign subsidiaries denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the income statement is translated at an average rate for the year. Exchange differences are dealt with as a movement in reserves. | ||
The accompanying consolidated financial statements are presented in Hong Kong Dollars, which is the Groups functional currency. All financial information have been rounded to the nearest thousand. |
F-9
1 | Significant accounting policies (continued) | |
(e) | Goodwill | |
Goodwill represents the excess of the cost of a business combination or an investment in an associate or a jointly controlled entity over the Groups interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities. | ||
Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 1(i)). In respect of associates or jointly controlled entities, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or jointly controlled entity. | ||
Any excess of the Groups interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate or a jointly controlled entity is recognized immediately in profit or loss. | ||
On disposal of a cash generating unit, an associate or a jointly controlled entity during the year, any attributable amount of goodwill is included in the calculation of the profit or loss on disposal. | ||
(f) | Investment property | |
Investment properties are land and/or buildings which are owned and held to earn rental income and/or for capital appreciation. | ||
Investment properties are stated in the balance sheet at cost less accumulated depreciation (see note 1(g)) and impairment losses (see note 1(i)) if any. Any gain or loss arising from the retirement or disposal of an investment property is recognized in the income statement. Rental income from investment property is accounted for in accordance with the accounting policy as set out in note 1(s)(v). | ||
(g) | Fixed assets | |
Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. | ||
Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows: |
| Buildings situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives of 50 years |
|
| Furniture, fixtures and fittings | 4 years | |||
|
||||||
|
| Telecommunications, computer and office equipment | 4 years 20 years | |||
|
||||||
|
| Motor vehicles | 4 years |
| Leasehold improvements are depreciated over the shorter of the unexpired term of the leases and their estimated useful lives. |
Where the parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually. | ||
Major costs incurred in restoring fixed assets to their normal working condition are charged to profit or loss. Major improvements are capitalized and depreciated over their expected useful lives to the Group. | ||
The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognized in profit or loss on the date of disposal. |
F-10
1 | Significant accounting policies (continued) | |
(h) | Assets held under leases | |
An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. | ||
(i) | Classification of assets leased to the Group | |
Assets that are held by Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. | ||
Land held for own use under an operating lease for which its fair value cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease (see note 1(h)(iii)). | ||
(ii) | Finance leases | |
Where the Group acquired the use of assets under finance leases, the amounts representing the fair value of the leased asset or, if lower, the present value of the minimum lease payments of such assets, are included in fixed assets with the corresponding liabilities, net of finance charges, recorded as obligations under finance leases. Depreciation and impairment losses are accounted for in accordance with the accounting policy as set out in note 1(g) and note 1(i). Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. | ||
(iii) | Operating leases | |
Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Receipts and payments made under operating leases net of any incentives received by/from the lessor are credited/charged to profit or loss on a straight-line basis over the lease periods. | ||
(i) | Impairment of assets | |
(i) | Impairment of investments in debt and equity securities and accounts and other receivables | |
Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortized cost or are classified as available-for-sale securities are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events: |
| significant financial difficulty of the debtor; | ||
| a breach of contract, such as a default or delinquency in interest or principal payments; | ||
| it becoming probable that a debtor will enter bankruptcy or other financial reorganization; and | ||
| a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. |
F-11
1 | Significant accounting policies (continued) | |
(i) | Impairment of assets (continued) | |
(i) | Impairment of investments in debt and equity securities and accounts and other receivables (continued) | |
If any such evidence exists, any impairment loss is determined and recognized as follows: |
| For trade and other current receivables and other financial assets carried at amortized cost, the impairment loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the financial assets original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets). This assessment is made collectively where financial assets carried at amortized cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group. | ||
If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognized, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the assets carrying amount exceeding that would have been determined had no impairment loss been recognized in prior years. | |||
| For available-for-sale securities, the cumulative loss that has been recognized directly in equity is removed from equity and is recognized in profit or loss. The amount of the cumulative loss that is recognized in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that asset previously recognized in profit or loss. | ||
Impairment losses recognized in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognized directly in equity. | |||
Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognized. Reversals of impairment losses in such circumstances are recognized in profit and loss. |
Impairment losses are written off against the corresponding assets directly, except for impairment losses recognized in respect of accounts receivable, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against accounts receivable and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognized in profit or loss. | ||
(ii) | Impairment of other assets | |
Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognized no longer exists or may have decreased: |
| fixed assets; | ||
| investment property; and | ||
| goodwill. |
F-12
1 | Significant accounting policies (continued) | |
(i) | Impairment of assets (continued) | |
(ii) | Impairment of other assets (continued) | |
If any such indication exists, the assets recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment. |
| Calculation of recoverable amount | ||
The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). | |||
| Recognition of impairment losses | ||
An impairment loss is recognized in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable. | |||
| Reversals of impairment losses | ||
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. | |||
A reversal of an impairment loss is limited to the assets carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognized. |
(j) | Derivative financial instruments | |
Derivative financial instruments are recognized initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurement to fair value is recognized immediately in profit or loss, except where the derivatives qualify for cash flow hedge accounting or hedge of a net investment in a foreign operation, in which case recognition of any resultant gain or loss depends on the nature of the item being hedged. For the years presented in the consolidated financial statements, none of the Groups derivative financial instruments qualify as hedges or hedge accounting. | ||
(k) | Deferred expenditure | |
Deferred expenditure represents customer acquisition costs incurred for successful acquisition or origination of a service subscription agreement with a customer. Such costs are deferred and amortized on a straight-line basis over the period of the underlying service subscription agreements. |
F-13
1 | Significant accounting policies (continued) | |
(l) | Accounts receivable | |
Trade and other receivables are initially recognized at fair value and thereafter stated at amortized cost less allowance for impairment of doubtful debts (see note 1(i)(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment of doubtful debts (see note 1(i)(i)). | ||
(m) | Cash, bank balances and pledged bank deposits | |
Cash and bank balances consist of cash on hand, cash in bank accounts and interest-bearing savings accounts. Cash that is restricted for use or pledged as security is disclosed separately on the face of the balance sheet, and is not included in the cash and bank balances total in the consolidated statements of cash flows. The pledged bank deposits represent cash maintained at a bank as security for bank facility and bank guarantees issued by the bank to third party suppliers and utility vendors (see note 27). | ||
(n) | Financial guarantees issued, provisions and contingent liabilities | |
(i) | Financial guarantees issued | |
Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. | ||
Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognized as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognized in accordance with the Groups policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognized in profit or loss on initial recognition of any deferred income. | ||
The amount of the guarantee initially recognized as deferred income is amortized in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognized in accordance with note 1(n)(ii) if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee i.e. the amount initially recognized, less accumulated amortization. | ||
(ii) | Other provisions and contingent liabilities | |
Provisions are recognized for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. | ||
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. |
F-14
1 | Significant accounting policies (continued) | |
(o) | Talent benefits | |
(i) | Leave entitlements | |
Entitlements to annual leave and long service leave are recognized when they accrue to individuals employed by the Group hereinafter (referred to as Talents), including directors of the Company. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by Talents up to the balance sheet date. | ||
Entitlements to sick leave and maternity or paternity leave are not recognized until the time of leave. | ||
(ii) | Profit sharing and bonus plans | |
Provisions for profit sharing and bonus plans are recognized when the Group has a present legal or constructive obligation as a result of services rendered by Talents and a reliable estimate of the obligation can be made. | ||
(iii) | Retirement benefit costs | |
The Group contributes to defined contribution retirement schemes which are available to certain Talents. Contributions to the schemes by the Group are calculated as a percentage of Talents basic salaries and charged to profit or loss. The Groups contributions are reduced by contributions forfeited by those Talents who leave the scheme prior to vesting fully in the contributions. | ||
The assets of the scheme are held in an independently administered fund that is separated from the Groups assets. | ||
(iv) | Share-based payments | |
The fair value of share options granted to Talents is recognized as an Talent cost with a corresponding increase in capital reserve within equity. The fair value is measured at grant date using the Black-Scholes option pricing model or Monte Carlo model, taking into account the terms and conditions upon which the options were granted. Where the Talents have to meet vesting conditions before becoming unconditionally entitled to the share options, the total estimated fair value of the share options is spread over the vesting period, taking into account the probability that the options will vest. | ||
During the vesting period, the number of share options that is expected to vest is reviewed. Any adjustment to the cumulative fair value recognized in prior years is charged/credited to profit or loss, unless the original Talent expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Companys shares. The amount related to share options expense is recorded in the capital reserve until either the option is exercised or the option expires. | ||
(p) | Deferred taxation | |
Deferred taxation is provided, using the balance sheet liability method, on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also arise from unused tax losses. Taxation rates enacted or substantively enacted at the balance sheet date are used to measure deferred tax assets and liabilities. | ||
Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized. |
F-15
1 | Significant accounting policies (continued) | |
(p) | Deferred taxation (continued) | |
The following temporary differences, of which deferred taxes are not provided for: initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the temporary differences will not be reversed in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. | ||
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity. | ||
(q) | Interest-bearing borrowings | |
Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, the interest-bearing borrowings are stated at amortized cost with the difference between amortized cost and redemption value recognized in profit or loss over the period of borrowings using the effective interest method. | ||
(r) | Trade and other payables | |
Trade and other payables are initially recognized at fair value. Except for financial guarantee liabilities measured in accordance with note 1(n), trade and other payables are subsequently stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost. | ||
(s) | Revenue recognition | |
(i) | Revenue for the provision of international telecommunications and fixed telecommunications network services is recognized, when an arrangement exists, service is rendered, the fee is fixed or determinable, and collectibility is probable. | |
(ii) | Tariff-free period granted to subscribers of fixed telecommunications network services are recognized in profit or loss rateably over the term of the service subscription agreement. Unbilled revenue represents revenue recognized in accordance with the requirement in note 1(s)(i) that has not been billed to the subscriber. | |
(iii) | Amount received in advance for the provision of fixed telecommunications network services is deferred and included under deferred service revenue, and subsequently recognized as revenue on a straight-line basis over the related service period. | |
(iv) | Interest income is recognized as it accrues using the effective interest method. | |
(v) | Rental income receivable under operating leases is recognized in profit or loss in equal installments over the periods covered by the lease term. Lease incentives granted are recognized in profit or loss as an integral part of the aggregate net lease payments receivable. | |
(t) | Borrowing costs | |
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of that asset. | ||
All other borrowing costs are charged to profit or loss in the year in which they are incurred. |
F-16
1 | Significant accounting policies (continued) | |
(u) | Segment reporting | |
Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Groups most senior executive management for the purposes of allocating resources to, and assessing the performance of, the groups two lines of business. | ||
Geographical information is not presented as the majority of the Groups revenue is attributed to customers in Hong Kong and the majority of the assets are located in Hong Kong. | ||
(v) | Accounting for barter transactions | |
When goods or services are exchanged for goods or services which are of a similar nature and value, the exchange is not regarded as a revenue generating transaction. | ||
When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services rendered, adjusted by the amount of any cash or cash equivalents transferred. | ||
(w) | Related parties | |
For the purposes of these financial statements, a party is considered to be related to the Group if: |
(i) | the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group; | ||
(ii) | the Group and the party are subject to common control; | ||
(iii) | the party is an associate of the Group or a joint venture in which the Group is a venturer; | ||
(iv) | the party is a member of key management personnel of the Group or the Groups parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals; | ||
(v) | the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or | ||
(vi) | the party is a post-employment benefit plan which is for the benefit of Talents of the Group or of any entity that is a related party of the Group. |
Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. |
F-17
2 | Turnover and segment information |
The Group is principally engaged in the provision of international telecommunications services and fixed telecommunications network services to customers in Hong Kong and Canada. Revenues recognized during the year are as follows: |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Turnover
|
||||||||||||
|
||||||||||||
International telecommunications services
|
218,589 | 247,359 | 291,943 | |||||||||
Fixed telecommunications network services (note 2(b))
|
1,356,098 | 1,230,880 | 1,011,038 | |||||||||
|
||||||||||||
|
||||||||||||
|
1,574,687 | 1,478,239 | 1,302,981 | |||||||||
|
(a) | Primary reporting format business segments |
The Group is organized on a worldwide basis into two business segments: |
|
| International telecommunications | : | provision of international long distance calls services | ||||
|
| Fixed telecommunications network | : | provision of dial up and broadband Internet access services , local voice-over-IP services, IP-TV services and corporate data services |
The Groups inter-segment transactions mainly consist of provision of leased lines services. These transactions were entered into on similar terms as those contracted with third parties. |
2010 | ||||||||||||||||
International | Fixed | |||||||||||||||
tele- | tele- | |||||||||||||||
communications | communications | |||||||||||||||
services | network services | Elimination | Group | |||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | |||||||||||||
Turnover
|
||||||||||||||||
- External sales
|
218,589 | 1,356,098 | | 1,574,687 | ||||||||||||
- Inter-segment sales
|
5,673 | 16,673 | (22,346 | ) | | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
224,262 | 1,372,771 | (22,346 | ) | 1,574,687 | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
Segment results
|
54,173 | 219,618 | 273,791 | |||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Other income, net
|
7,989 | |||||||||||||||
Finance costs
|
(22,235 | ) | ||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Profit before taxation
|
259,545 | |||||||||||||||
Income tax expense
|
(42,679 | ) | ||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Net profit
|
216,866 | |||||||||||||||
|
F-18
2 | Revenue and segment information (continued) |
(a) | Primary reporting format business segments (continued) |
2009 | ||||||||||||||||
International | Fixed | |||||||||||||||
tele- | tele- | |||||||||||||||
communications | communications | |||||||||||||||
services | network services | Elimination | Group | |||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | |||||||||||||
Turnover
|
||||||||||||||||
- External sales
|
247,359 | 1,230,880 | | 1,478,239 | ||||||||||||
- Inter-segment sales
|
5,669 | 19,784 | (25,453 | ) | | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
253,028 | 1,250,664 | (25,453 | ) | 1,478,239 | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
Segment results
|
61,631 | 203,515 | 265,146 | |||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Other income, net
|
41,540 | |||||||||||||||
Finance costs
|
(55,127 | ) | ||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Profit before taxation
|
251,559 | |||||||||||||||
Income tax expense
|
(38,730 | ) | ||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Net profit
|
212,829 | |||||||||||||||
|
2008 | ||||||||||||||||
International | Fixed | |||||||||||||||
tele- | tele- | |||||||||||||||
communications | communications | |||||||||||||||
services | network services | Elimination | Group | |||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | |||||||||||||
Turnover
|
||||||||||||||||
- External sales
|
291,943 | 1,011,038 | | 1,302,981 | ||||||||||||
- Inter-segment sales
|
5,692 | 22,680 | (28,372 | ) | | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
297,635 | 1,033,718 | (28,372 | ) | 1,302,981 | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
Segment results
|
63,225 | 95,295 | 158,520 | |||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Other income, net
|
24,989 | |||||||||||||||
Finance costs
|
(75,137 | ) | ||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Profit before taxation
|
108,372 | |||||||||||||||
Income tax benefit
|
16,818 | |||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Net profit
|
125,190 | |||||||||||||||
|
F-19
2 | Revenue and segment information (continued) |
(a) | Primary reporting format business segments (continued) |
2010 | ||||||||||||
International | Fixed | |||||||||||
tele- | tele- | |||||||||||
communications | communications | |||||||||||
services | network services | Group | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Segment assets
|
590,888 | 1,660,661 | 2,551,549 | |||||||||
|
||||||||||||
|
||||||||||||
Segment liabilities
|
92,982 | 289,085 | 382,067 | |||||||||
Unallocated liabilities
|
180,943 | |||||||||||
|
||||||||||||
|
||||||||||||
Total liabilities
|
563,010 | |||||||||||
|
||||||||||||
|
||||||||||||
Capital expenditure incurred during the year
|
5,223 | 339,621 | 344,844 | |||||||||
Depreciation for the year
|
12,637 | 186,392 | 199,029 |
2009 | ||||||||||||
International | Fixed | |||||||||||
tele- | tele- | |||||||||||
communications | communications | |||||||||||
services | network services | Group | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Segment assets
|
298,412 | 1,491,996 | 1,790,408 | |||||||||
|
||||||||||||
|
||||||||||||
Segment liabilities
|
82,090 | 299,503 | 381,593 | |||||||||
Unallocated liabilities
|
180,288 | |||||||||||
|
||||||||||||
|
||||||||||||
Total liabilities
|
561,881 | |||||||||||
|
||||||||||||
|
||||||||||||
Capital expenditure incurred during the year
|
1,820 | 284,914 | 286,734 | |||||||||
Depreciation for the year
|
15,154 | 191,087 | 206,241 |
F-20
2 | Revenue and segment information (continued) |
(b) | Hong Kong Broadband Network Limited (HKBN), a wholly-owned subsidiary of the Company, is a Fixed Telecommunications Network Services (FTNS) licensee and provides interconnection services to enable delivery of telecommunications service to customers of different operators. Since the FTNS license was granted by the Telecommunication Authority (TA) and interconnection services have been provided, HKBN has been billing mobile operators for the interconnection services provided to them and recognizing revenue (mobile interconnection charges) based on managements best estimate of the amounts to be collected. In prior years, majority of the mobile operators rejected HKBNs demand for payment of the mobile interconnection charges. As a result of non-payment by certain mobile operators, in 2004, the Group requested the TA to make a determination (the 2004 Determination) on the level of mobile interconnection charges payable by one of the mobile operators (mobile operator under dispute) to HKBN; and the effective date of the determined mobile interconnection charges. | |
In June 2007, TA issued the 2004 Determination which set out the rates of mobile interconnection charge payable by the mobile operator under dispute for interconnection services provided by HKBN for the period from April 1, 2002 to August 31, 2004 and the mobile operator under dispute paid mobile interconnection charge for the relevant period accordingly. | ||
Subsequent to June 2007, HKBN entered into contractual agreements with several mobile operators which agreed to pay mobile interconnection charges based on the 2004 Determination for the period from April 1, 2002 to August 31, 2004 and with respect to the period after August 31, 2004 at the interim rate stated in the contractual agreements. The interim rate is subject to adjustment based on further determination to be issued by the TA. | ||
In February 2008, since certain mobile operators had still not yet settled their mobile interconnection charges for interconnection services provided by HKBN, HKBN requested TA to make a new determination on the rate of mobile interconnection charge and interest thereon with the four mobile operators. | ||
In September 2008, TA accepted HKBNs request for determination on the rate of mobile interconnection charges for the period from April 1, 2002 to April 26, 2009 payable by the mobile operators that have not reached contractual agreements with HKBN, and the rate for the period from September 1, 2004 to April 26, 2009 payable by those mobile operators that have reached contractual agreements with HKBN, and the interest rate thereon (the 2008 Determination). | ||
In May 2010, TA issued its decision on the 2008 Determination which set out the rates of mobile interconnection charges payable by the mobile operators under dispute. | ||
Based on the 2008 determination, the Group reversed approximately HK$19,706,000 revenue related to mobile interconnection charges and recognized approximately HK$10,053,000 interest income during the year ended August 31, 2010. | ||
Included in the accounts receivable balance as at August 31, 2010 were receivable relating to mobile interconnection charges of HK$39,763,000 (August 31, 2009: HK$68,802,000) representing the amount of mobile interconnection charges management expects to collect. |
F-21
3 | Network costs |
Network costs mainly include interconnection charges paid to local and overseas carriers, leased line rentals, program fees, and production costs for the IP-TV service, and do not include depreciation charge which is included in other operating expenses. | ||
The Group estimates the Universal Services Contributions (USC) payable to PCCW-HKT to fund the costs of network development in remote areas in Hong Kong and includes such estimated costs as part of the network costs. TA periodically reviews the actual costs of such developments and revises the amounts owed to PCCW-HKT or to be refunded by PCCW-HKT to the USC contributing parties. | ||
On December 28, 2007, TA issued a statement (the 2007 TA Statement) on the USC and confirmed the actual contribution level for the period from January 1, 2005 to June 30, 2007. Based on the 2007 TA Statement, HK$7,617,000 was recorded as a reduction against the network costs of the Group for the year ended August 31, 2008. | ||
On April 8, 2009, TA issued a statement (the 2009 TA Statement) on the USC and confirmed the actual contribution level for the period from July 1, 2007 to June 30, 2008. Based on the 2009 TA Statement, no additional payment or refund of USC from PCCW-HKT was required. | ||
On April 27, 2010, TA issued a statement (the 2010 TA Statement) on the USC and confirmed the actual contribution level for the period from July 1, 2008 to April 30, 2009. Based on the 2010 TA Statement, no additional payment or refund of USC from PCCW-HKKT was required | ||
Based on the 2010 TA Statement, TA decided that USC contributing parties are not required to pay provisional USC from May 1, 2009 onwards until a further review of the USC. |
F-22
4 | Profit before taxation | |
Profit before taxation is arrived at after charging/(crediting) the following: |
(a) | Other operating expenses |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Advertising and marketing expenses
|
372,727 | 299,794 | 307,743 | |||||||||
Amortization of deferred expenditure (note 14)
|
48,621 | 53,160 | 33,777 | |||||||||
Auditors remuneration
|
2,910 | 3,455 | 3,687 | |||||||||
Depreciation of owned fixed assets
|
198,323 | 205,624 | 209,464 | |||||||||
Depreciation of fixed assets held under finance lease
|
706 | 617 | 587 | |||||||||
Operating lease charges in respect of land and buildings
|
22,669 | 17,010 | 13,296 | |||||||||
Operating lease charges in respect of equipment
|
39 | 42 | 50 | |||||||||
Provision for doubtful debts (note 15(b))
|
14,742 | 12,103 | 14,293 | |||||||||
(Gain)/loss on disposal of fixed assets
|
(1,375 | ) | 1,016 | 1,431 | ||||||||
Talent costs (note 4(d))
|
301,760 | 302,279 | 247,460 | |||||||||
Others
|
144,482 | 142,864 | 134,306 | |||||||||
|
||||||||||||
|
||||||||||||
|
1,105,604 | 1,037,964 | 966,094 | |||||||||
|
(b) | Other income, net |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Interest income
|
(11,372 | ) | (4,869 | ) | (15,596 | ) | ||||||
Loss/(gain) on extinguishment of 10-year senior notes (note 22(a))
|
9,650 | (31,371 | ) | (2,582 | ) | |||||||
Net exchange gain
|
(324 | ) | (3,038 | ) | (1,923 | ) | ||||||
Others
|
(5,943 | ) | (2,262 | ) | (4,888 | ) | ||||||
|
||||||||||||
|
||||||||||||
|
(7,989 | ) | (41,540 | ) | (24,989 | ) | ||||||
|
(c) | Finance costs |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Interest element of finance leases
|
42 | 27 | 34 | |||||||||
Interest on 10-year senior notes
|
5,881 | 52,670 | 70,010 | |||||||||
Amortization of incidental issuance costs
|
188 | 1,545 | 1,665 | |||||||||
Interest on bank borrowings
|
1,379 | | | |||||||||
Amortization of upfront costs on bank borrowings
|
192 | | | |||||||||
Change in fair value of derivative financial instrument
|
11,293 | | | |||||||||
Other borrowing costs
|
3,260 | 885 | 3,428 | |||||||||
|
||||||||||||
|
||||||||||||
|
22,235 | 55,127 | 75,137 | |||||||||
|
F-23
(d) | Talent costs |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Wages and salaries
|
277,883 | 278,905 | 226,097 | |||||||||
Provision for annual leave
|
561 | 613 | 2,642 | |||||||||
Equity settled share-based transaction
|
5,347 | 4,768 | 4,114 | |||||||||
Retirement benefit costs defined contribution plans (note 8)
|
38,820 | 34,614 | 29,738 | |||||||||
Less: Talent costs capitalized as fixed assets
|
(20,851 | ) | (16,621 | ) | (15,131 | ) | ||||||
|
||||||||||||
|
||||||||||||
|
301,760 | 302,279 | 247,460 | |||||||||
|
(e) | Other items |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Realized loss on derivative financial instruments
|
| | 1,039 | |||||||||
Realized gain on long-term bank deposit
|
| | (1,185 | ) | ||||||||
Realized and unrealized gain on other financial assets
|
| (189 | ) | (3,284 | ) | |||||||
|
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Current taxation:
|
||||||||||||
|
||||||||||||
Hong Kong
|
||||||||||||
- Provision for the year
|
| | (391 | ) | ||||||||
- Over-provision in prior years
|
40 | | | |||||||||
Non-Hong Kong
|
||||||||||||
- Provision for the year
|
(2,585 | ) | (1,622 | ) | (1,929 | ) | ||||||
- Under-provision in prior years
|
| | (2,552 | ) | ||||||||
|
||||||||||||
Deferred taxation:
|
||||||||||||
|
||||||||||||
- Origination and reversal of temporary differences (note 20)
|
(40,134 | ) | (37,108 | ) | (4,645 | ) | ||||||
- Recognition of previously unrecognized tax losses (note 20)
|
| | 26,335 | |||||||||
|
||||||||||||
|
||||||||||||
Income tax (expense)/benefit
|
(42,679 | ) | (38,730 | ) | 16,818 | |||||||
|
F-24
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Profit before taxation
|
259,545 | 251,559 | 108,372 | |||||||||
|
||||||||||||
|
||||||||||||
Notional tax on profit before taxation, calculated at the prevailing
tax rates applicable to profit in the jurisdictions concerned
|
(43,781 | ) | (42,240 | ) | (18,927 | ) | ||||||
Effect of non-taxable income
|
4,692 | 1,466 | 3,452 | |||||||||
Effect of (loss)/gain on extinguishment of 10-year senior notes not
subject to taxation
|
(1,592 | ) | 5,176 | 426 | ||||||||
Effect of non-deductible expenses
|
(2,367 | ) | (3,648 | ) | (6,353 | ) | ||||||
Effect of recognition of prior year unrecognized tax losses (note)
|
| | 26,335 | |||||||||
Over/(under)-provision in prior years
|
40 | | (2,552 | ) | ||||||||
Effect of utilization of prior year unrecognized tax losses
|
| | 12,013 | |||||||||
Effect of share based payment
|
| | 2,324 | |||||||||
Effect of tax losses not recognized
|
| | (74 | ) | ||||||||
Others
|
329 | 516 | 174 | |||||||||
|
||||||||||||
|
||||||||||||
Income tax (expense)/benefit
|
(42,679 | ) | (38,730 | ) | 16,818 | |||||||
|
Note:
|
Management projects future taxable income by considering all available information, including tax planning strategies, historical taxable income, and the expiration period of the unused tax losses carry forwards of each of the Company and its subsidiaries. During the year ended August 31, 2008, taking into consideration of the results of operations, management assessed that it is probable that sufficient future taxable profits will be generated to utilize the unused tax losses of HK$159,606,000 which resulted in the recognition of deferred tax assets of HK$26,335,000. |
F-25
6 | Dividends |
(a) | Dividends payable to equity shareholders of the Company attributable to the year |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Interim dividend
declared and paid of HK6.5
cents per ordinary share
(2009: HK3 cents per
ordinary share, 2008: HK4
cents per ordinary share)
|
49,725 | 19,904 | 25,602 | |||||||||
Final dividend proposed
after the balance sheet
date, of HK13.5 cents per
ordinary share (2009: HK16
cents per ordinary share,
2008: HK2 cents per
ordinary share)
|
103,275 | 106,269 | 13,012 | |||||||||
|
||||||||||||
|
||||||||||||
|
153,000 | 126,173 | 38,614 | |||||||||
|
(b) | Dividends attributable to the previous financial year, approved and paid during the year: |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Final dividend in respect of
the financial year ended August
31, 2009, approved and paid of
HK16 cents per ordinary share
(2009: HK2 cents per ordinary
share in respect of financial
year ended August 31, 2008, 2008:
|
||||||||||||
HK4 cents per ordinary share in
respect of financial year ended
August 31, 2007)
|
108,735 | 13,014 | 25,082 | |||||||||
|
F-26
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Profit attributable to shareholders
|
216,866 | 212,829 | 125,190 | |||||||||
|
||||||||||||
Weighted average number of ordinary shares | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Number | Number | Number | ||||||||||
of shares | of shares | of shares | ||||||||||
000 | 000 | 000 | ||||||||||
Issued ordinary shares at the beginning of the year
|
664,180 | 650,622 | 616,503 | |||||||||
Effect of scrip dividend issued
|
| 6,256 | 7,353 | |||||||||
Effect of share options exercised
|
14,856 | 329 | 10,159 | |||||||||
Effect of placement
|
27,569 | | | |||||||||
Effect of shares repurchased and cancelled
|
| (6 | ) | | ||||||||
|
||||||||||||
|
||||||||||||
Weighted average number of ordinary shares at the end of the
year (basic)
|
706,605 | 657,201 | 634,015 | |||||||||
Incremental shares from assumed exercise of share options
|
30,011 | 11,183 | 23,982 | |||||||||
|
||||||||||||
Weighted average number of ordinary shares at the end of the
year (diluted)
|
736,616 | 668,384 | 657,997 | |||||||||
|
||||||||||||
|
||||||||||||
Basic earnings per share
|
HK30.7 | cents | HK32.4 | cents | HK19.7 | cents | ||||||
|
||||||||||||
|
||||||||||||
Diluted earnings per share
|
HK29.4 | cents | HK31.8 | cents | HK19.0 | cents | ||||||
|
F-27
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Gross contributions
|
38,820 | 34,614 | 29,738 | |||||||||
|
(a) | Directors remuneration |
Employer's | ||||||||||||||||||||||||
contribution | ||||||||||||||||||||||||
to defined | ||||||||||||||||||||||||
Discretionary | Share-based | contribution | ||||||||||||||||||||||
Fee | Salary | bonuses | payment | scheme | Total | |||||||||||||||||||
Name of director | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||||
Wong Wai Kay, Ricky
|
| 6,707 | 1,800 | | 670 | 9,177 | ||||||||||||||||||
Cheung Chi Kin, Paul
|
| 6,709 | 1,800 | | 670 | 9,179 | ||||||||||||||||||
Yeung Chu Kwong, William
|
| 8,264 | 2,400 | 2,526 | 456 | 13,646 | ||||||||||||||||||
Lai Ni Quiaque
|
| 2,642 | 750 | 2,455 | 264 | 6,111 | ||||||||||||||||||
Cheng Mo Chi, Moses
|
168 | | | | | 168 | ||||||||||||||||||
Lee Hon Ying, John
|
185 | | | | | 185 | ||||||||||||||||||
Chan Kin Man
|
174 | | | | | 174 | ||||||||||||||||||
Peh Jefferson Tun Lu
|
174 | | | | | 174 | ||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Total
|
701 | 24,322 | 6,750 | 4,981 | 2,060 | 38,814 | ||||||||||||||||||
|
F-28
(a) | Directors remuneration (continued) |
Employers | ||||||||||||||||||||||||
contribution | ||||||||||||||||||||||||
to defined | ||||||||||||||||||||||||
Discretionary | Share-based | contribution | ||||||||||||||||||||||
Fee | Salary | bonuses | payment | scheme | Total | |||||||||||||||||||
Name of director | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||||
Wong Wai Kay, Ricky
|
| 6,712 | 1,500 | 193 | 670 | 9,075 | ||||||||||||||||||
Cheung Chi Kin, Paul
|
| 6,714 | 1,500 | 193 | 670 | 9,077 | ||||||||||||||||||
Yeung Chu Kwong, William
|
| 7,049 | 1,000 | 1,764 | 456 | 10,269 | ||||||||||||||||||
Lai Ni Quiaque
|
| 2,403 | 550 | 1,141 | 240 | 4,334 | ||||||||||||||||||
Cheng Mo Chi, Moses
|
160 | | | | | 160 | ||||||||||||||||||
Lee Hon Ying, John
|
176 | | | | | 176 | ||||||||||||||||||
Chan Kin Man
|
165 | | | | | 165 | ||||||||||||||||||
Peh Jefferson Tun Lu
|
165 | | | | | 165 | ||||||||||||||||||
|
||||||||||||||||||||||||
Total
|
666 | 22,878 | 4,550 | 3,291 | 2,036 | 33,421 | ||||||||||||||||||
|
(b) | Five highest paid individuals |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Basic salaries, other allowances and benefits in kind
|
2,492 | 2,515 | ||||||
Discretionary bonuses
|
300 | 150 | ||||||
Share-based payments
|
| 332 | ||||||
Retirement benefit costs defined contribution plans
|
181 | 106 | ||||||
|
||||||||
|
||||||||
|
2,973 | 3,103 | ||||||
|
Number of individual | ||||||||
2010 | 2009 | |||||||
HK$2,500,001 HK$3,000,000
|
1 | | ||||||
HK$3,000,001 HK$3,500,000
|
| 1 |
F-29
(a) | The terms and conditions of the options |
Number | Vesting | Exercisable | ||||||
of option | conditions | period | ||||||
2002 Share Option Scheme
|
||||||||
|
||||||||
Options granted to directors:
|
||||||||
|
||||||||
-January 5, 2005
|
16,183,208 | Condition 1 | On or prior to October 20, 2014 | |||||
-May 22, 2006
|
15,178,466 | Condition 1 | On or prior to May 21, 2016 | |||||
-February 6, 2008
|
6,044,791 | Condition 3 | On or prior to December 23, 2012 | |||||
-February 11, 2008
|
6,044,791 | Condition 2 | On or prior to December 23, 2012 | |||||
-February 5, 2010
|
6,000,000 | Condition 4 | On or prior to February 4, 2020 | |||||
|
||||||||
Options granted to Talents:
|
||||||||
|
||||||||
-October 21, 2004
|
6,909,527 | Condition 1 | On or prior to October 20, 2014 | |||||
-May 22, 2006
|
6,414,433 | Condition 1 | On or prior to May 21, 2016 | |||||
-August 3, 2006
|
40,540 | Condition 1 | On or prior to August 2, 2016 | |||||
-November 22, 2006
|
136,545 | Condition 1 | On or prior to November 14, 2016 | |||||
-February 15, 2008
|
1,007,465 | Condition 5 | On or prior to December 23, 2012 | |||||
-May 2, 2008
|
1,007,465 | Condition 5 | On or prior to December 23, 2012 | |||||
|
||||||||
|
||||||||
Total share options
|
64,967,231 | |||||||
|
F-30
10 | Equity settled share-based transactions (continued) |
(a) | The terms and conditions of the options (continued) | |
Options that existed during the year ended August 31, 2009 are as follows, whereby all options are settled by physical delivery of shares: |
Number | Vesting | Exercisable | ||||||||||
of option | conditions | period | ||||||||||
2002 Share Option Scheme
|
||||||||||||
|
||||||||||||
Options granted to directors:
|
||||||||||||
|
||||||||||||
-January 5, 2005
|
16,183,208 | Condition 1 | On or prior to October 20, 2014 | |||||||||
-May 22, 2006
|
15,178,466 | Condition 1 | On or prior to May 21, 2016 | |||||||||
-February 6, 2008
|
6,044,791 | Condition 3 | On or prior to December 23, 2012 | |||||||||
-February 11, 2008
|
6,044,791 | Condition 2 | On or prior to December 23, 2012 | |||||||||
|
||||||||||||
Options granted to Talents:
|
||||||||||||
|
||||||||||||
-October 21, 2004
|
7,606,712 | Condition 1 | On or prior to October 20, 2014 | |||||||||
-May 22, 2006
|
7,314,455 | Condition 1 | On or prior to May 21, 2016 | |||||||||
-August 3, 2006
|
40,540 | Condition 1 | On or prior to August 2, 2016 | |||||||||
-November 22, 2006
|
136,545 | Condition 1 | On or prior to November 14, 2016 | |||||||||
-February 15, 2008
|
1,007,465 | Condition 5 | On or prior to December 23, 2012 | |||||||||
-March 11, 2008
|
302,240 | Condition 1 | On or prior to December 23, 2012 | |||||||||
-May 2, 2008
|
1,007,465 | Condition 5 | On or prior to December 23, 2012 | |||||||||
|
||||||||||||
|
||||||||||||
Total share options
|
60,866,678 | |||||||||||
|
The vesting conditions of the respective share option grant are as follows: | ||
Condition 1 | ||
Options granted will be vested in one year or evenly vested over a period of two to three years. Options are awarded without performance conditions and are exercisable provided the participants have remained employed by the end of respective vesting periods. | ||
Condition 2 | ||
Vesting of the options is conditional upon the performance of the Companys shares over the period from the close of trading in Hong Kong on November 22, 2007 to November 21, 2010. | ||
Upon fulfillment of the market conditions, certain options granted vest immediately, while other options affected by the same market conditions vest evenly over a period of three years. | ||
During the year ended August 31, 2010, one of the clauses in the option agreement has been modified. As a result of this modification, vesting of certain options is now conditional upon the Company reaching a non-market performance condition. Upon fulfillment of this non-market performance condition, a portion of the options affected by this condition vest immediately, while other options affected by this condition vest evenly over a period of three years. | ||
The Group has accounted for the modification in accordance with IFRS/HKFRS 2 Share-based payment by measuring the incremental fair value which is the difference between the fair value of the modified share options and that of the original share options, both estimated as at the date of the modification, and recognizing the incremental fair value over the period from the modification date until the date when the modified share options vest. The balance of the original grant-date fair value as at the date of modification continues to be recognized over remaining original vesting period. For the year ended August 31, 2010, the amount of incremental fair value recognized in respect of the modification was HK$1,977,000. |
F-31
10 | Equity settled share-based transactions (continued) |
(a) | The terms and conditions of the options (continued) | |
The vesting conditions of the respective share option grant are as follows: (continued) | ||
Condition 3 | ||
Vesting of the options is conditional upon the performance of the participants. Options granted are vested over a period of three to four years from the date of fulfillment of certain key performance indicators. | ||
During the year ended August 31, 2010, one of the performance conditions has been modified. Such modification does not result in any incremental fair value, and therefore, there is no financial impact in the financial statements. | ||
Condition 4 | ||
Vesting of the options is conditional upon the performance of the participants. Options granted are vested immediately from the date of fulfillment of the certain key performance indicators. | ||
Condition 5 | ||
Vesting of the options is conditional upon the performance of the participants. Options granted are vested over a period of three to four years from the date of fulfillment of certain key performance indicators. |
(b) | The number and weighted average exercise prices of share options are as follows: |
2010 | 2009 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
average | average | |||||||||||||||
exercise | exercise | |||||||||||||||
price | Number of | price | Number of | |||||||||||||
HK$ | options | HK$ | options | |||||||||||||
2002 Share Option Scheme
|
||||||||||||||||
|
||||||||||||||||
Outstanding at the beginning of the year
|
1.27 | 58,967,231 | 1.27 | 60,581,214 | ||||||||||||
Adjustment to number of options for 2008
Final Dividend (note)
|
| | 1.27 | 285,464 | ||||||||||||
Granted during the year
|
4.24 | 6,000,000 | | | ||||||||||||
Exercised during the year
|
0.82 | (20,317,374 | ) | 0.99 | (1,416,005 | ) | ||||||||||
Lapsed during the year
|
| | 1.65 | (483,442 | ) | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
Outstanding at the end of the year
|
1.87 | 44,649,857 | 1.27 | 58,967,231 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Exercisable at the end of the year
|
1.35 | 25,603,183 | 1.12 | 45,849,756 | ||||||||||||
|
The weighted average share price at the date of exercise for the share options exercised during the year was HK$3.85 (2009: HK$1.82). | ||
The options outstanding at August 31, 2010 had a weighted exercise price of HK$1.87 (2009: HK$1.27) and a weighted average remaining contractual life of 4 years (2009: 5 years). |
As a result of allotment of 12,212,142 new shares to shareholders who elected to receive the 2008 Final Dividend in shares on February 25, 2009, the exercise price of and the number of share subject to the 60,299,426 share options outstanding on December 19, 2008 (being the Record Date for determining the entitlement of 2008 Final Dividend) were adjusted pursuant to the 2002 Share Option Scheme with effect from February 25, 2009. The closing price per ordinary share immediately before the date of the grant of the options was HK$0.88. |
F-32
10 | Equity settled share-based transactions (continued) |
(c) | Fair value of share options and assumptions | |
In determining the value of the share options granted during the year ended August 31, 2010, the Black-Scholes option pricing model (the Black-Scholes Model) has been used. The Black-Scholes Model is one of the most generally accepted methodologies used to calculate the value of options. The variables of the Black-Scholes Model includes expected life of the options, risk-free interest rate, expected volatility and expected dividend yield of the shares of the Company. | ||
In determining the value of the share options granted during the year, the following variables have been applied to the Black-Scholes Model: |
Measurement date | February 5, 2010 | |||
Variables
|
||||
-Expected life
|
8 years | |||
-Risk-free rate
|
2.33 | % | ||
-Expected volatility
|
61.49 | % | ||
-Expected dividend yield
|
2.99 | % |
The above variables were determined as follows: |
(i) | The expected life is estimated to be 8 years from the date of grant (the Measurement date). | ||
(ii) | The risk-fee rate represents the yield of the Hong Kong Exchange Fund Notes corresponding to the expected life of the options as at the Measurement date. | ||
(iii) | The expected volatility represents the annualized standard deviation of the return on the daily share price of the Company over the period commensurate to the expected life of the options (taking into account the remaining contractual life of the option and the effect of the expected early exercise of the option). | ||
(iv) | The expected dividend yield is based on the historical dividend yield over the last eight years. |
The fair value of the options granted during the year is estimated as below: |
Date of grant
|
February 5, 2010 | |||
Fair value per share option
|
HK$1.94 |
The Group recognizes the fair value of share options as an expense in the income statement over the vesting period, or as an asset, if the cost qualifies for recognition as an asset. The fair value of the share options is measured at the date of grant. | ||
The Black-Scholes Model applied for the determination of the estimated value of the options granted under 2002 Share Option Scheme require input of highly subjective assumptions, including the expected stock volatility. As the Companys share options have characteristics significantly different from those of traded options, changes in subjective inputs may materially affect the estimated fair value of the options granted. |
F-33
11 | Goodwill |
HK$000 | ||||
Cost and carrying amount:
|
||||
At August 31, 2010/2009
|
1,066 | |||
|
Impairment tests for cash-generating units containing goodwill | ||
Goodwill is allocated to the Groups cash-generating units (CGU) identified according to country of operation and business segment as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Fixed telecommunications network service segment
|
1,066 | 1,066 | ||||||
|
The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows for the five-year period are estimated based on average growth rates of 15% and a pre-tax discount rate of 16%. Cash flows beyond the five year period are assumed to remain constant. The estimated growth rates used are comparable to the growth rate for the industry. | ||
The key assumption used in the value-in-use calculation is the annual growth of the turnover of the fixed telecommunications network services, which is determined based on the past performance and managements expectation for market development. The discount rate used is pre-tax and reflects specific risks relating to the fixed telecommunications services segment. | ||
Any adverse change in the key assumption could reduce the recoverable amount below carrying amount. |
F-34
12 | Fixed assets |
Telecom- | ||||||||||||||||||||||||||||
munications, | ||||||||||||||||||||||||||||
Leasehold | Furniture, | computer | ||||||||||||||||||||||||||
Investment | land and | Leasehold | fixtures | and office | Motor | |||||||||||||||||||||||
property | buildings | improvements | and fittings | equipment | vehicles | Total | ||||||||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||||||||
Cost:
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At September 1, 2009
|
5,197 | 90,911 | 100,447 | 19,885 | 2,850,444 | 12,773 | 3,079,657 | |||||||||||||||||||||
Additions
|
| | 12,885 | 1,343 | 330,441 | 175 | 344,844 | |||||||||||||||||||||
Disposals
|
| | (212 | ) | (109 | ) | (51,906 | ) | | (52,227 | ) | |||||||||||||||||
Exchange adjustments
|
| | 166 | 72 | 1,230 | | 1,468 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At August 31, 2010
|
5,197 | 90,911 | 113,286 | 21,191 | 3,130,209 | 12,948 | 3,373,742 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Accumulated depreciation:
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At September 1, 2009
|
2,309 | 12,466 | 69,102 | 17,017 | 1,668,160 | 8,223 | 1,777,277 | |||||||||||||||||||||
Charge for the year
|
104 | 1,818 | 11,270 | 1,166 | 183,052 | 1,619 | 199,029 | |||||||||||||||||||||
Disposals
|
| | (212 | ) | (109 | ) | (35,344 | ) | | (35,665 | ) | |||||||||||||||||
Exchange adjustments
|
| | 156 | 58 | 1,074 | | 1,288 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At August 31, 2010
|
2,413 | 14,284 | 80,316 | 18,132 | 1,816,942 | 9,842 | 1,941,929 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Net book value:
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At August 31, 2010
|
2,784 | 76,627 | 32,970 | 3,059 | 1,313,267 | 3,106 | 1,431,813 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Cost:
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At September 1, 2008
|
5,197 | 84,244 | 84,577 | 19,575 | 2,644,281 | 12,624 | 2,850,498 | |||||||||||||||||||||
Additions
|
| 6,667 | 16,663 | 416 | 262,796 | 192 | 286,734 | |||||||||||||||||||||
Disposals
|
| | (630 | ) | (30 | ) | (55,118 | ) | (43 | ) | (55,821 | ) | ||||||||||||||||
Exchange adjustments
|
| | (163 | ) | (76 | ) | (1,515 | ) | | (1,754 | ) | |||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At August 31, 2009
|
5,197 | 90,911 | 100,447 | 19,885 | 2,850,444 | 12,773 | 3,079,657 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Accumulated depreciation:
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At September 1, 2008
|
2,205 | 10,727 | 61,269 | 15,596 | 1,522,739 | 6,563 | 1,619,099 | |||||||||||||||||||||
Charge for the year
|
104 | 1,739 | 8,286 | 1,508 | 192,925 | 1,679 | 206,241 | |||||||||||||||||||||
Disposals
|
| | (294 | ) | (29 | ) | (46,214 | ) | (19 | ) | (46,556 | ) | ||||||||||||||||
Exchange adjustments
|
| | (159 | ) | (58 | ) | (1,290 | ) | | (1,507 | ) | |||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At August 31, 2009
|
2,309 | 12,466 | 69,102 | 17,017 | 1,668,160 | 8,223 | 1,777,277 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Net book value:
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
At August 31, 2009
|
2,888 | 78,445 | 31,345 | 2,868 | 1,182,284 | 4,550 | 1,302,380 | |||||||||||||||||||||
|
F-35
12 | Fixed assets (continued) |
(a) | The Groups total future aggregate lease income receivable under non-cancellable operating lease are as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Leases in respect of investment property which are receivable:
|
||||||||
- Within 1 year
|
108 | 258 | ||||||
- After 1 year but within 5 years
|
| | ||||||
|
||||||||
|
||||||||
|
108 | 258 | ||||||
|
||||||||
|
||||||||
Leases in respect of telecommunications facilities and computer equipment which are receivable:
|
||||||||
- Within 1 year
|
2,335 | 1,566 | ||||||
- After 1 year but within 5 years
|
607 | 1,071 | ||||||
|
||||||||
|
||||||||
|
2,942 | 2,637 | ||||||
|
||||||||
|
||||||||
|
3,050 | 2,895 | ||||||
|
(b) | At August 31, 2010, the fair value of the investment property is HK$5,300,000. Management estimated the fair value of the investment property based on its open market value. | |
(c) | The net book value of interests in leasehold land and buildings and investment property situated in Hong Kong are analyzed as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Leases of between 10 to 50 years
|
79,411 | 81,333 | ||||||
|
||||||||
|
||||||||
Representing:
|
||||||||
|
||||||||
Leasehold land and building carried at cost
|
76,627 | 78,445 | ||||||
Investment property carried at cost less impairment loss
|
2,784 | 2,888 | ||||||
|
||||||||
|
||||||||
|
79,411 | 81,333 | ||||||
|
(d) | In addition to the leasehold land and buildings classified as being held under a finance lease, the Group leases telecommunications, computer and office equipment under finance leases expiring from one to five years. At the end of the lease term the Group has the option to purchase the equipment at a price deemed to be a bargain purchase option. None of the leases included contingent rental. | |
At August 31, 2010, the net book value of telecommunications, computer and office equipment under finance lease held by the Group amounted to HK$674,000 (2009: HK$1,289,000). |
F-36
13 | Principal subsidiaries | |
The following is a list of the principal subsidiaries which principally affected the results, assets or liabilities of the Group at August 31, 2010: |
Principal | ||||||||||
activities | Particulars | |||||||||
Place of | and place of | of issued | Percentage of | |||||||
Name | incorporation | operations | share capital | interest held | ||||||
Attitude Holdings Limited
|
British Virgin
Islands |
Inactive |
Ordinary
US$1 |
100 | ||||||
|
||||||||||
Automedia Holdings Limited
|
British Virgin
Islands |
Investment holding in Hong Kong |
Ordinary
US$1 |
* 100 | ||||||
|
||||||||||
City Telecom (B.C.) Inc.#
|
Canada | Provision of international telecommunications and dial-up internet access services in Canada | Common Canadian dollar (CAD) 501,000 | 100 | ||||||
|
||||||||||
City Telecom (Canada) Inc.#
|
Canada | Leasing and maintenance of switching equipment and provision of operational services in Canada |
Common
CAD100 |
100 | ||||||
|
||||||||||
City Telecom Inc.#
|
Canada | Provision of international telecommunications and dial-up internet access services in Canada |
Common
CAD1,000 |
100 | ||||||
|
||||||||||
City Telecom International Limited
|
British Virgin
Islands |
Investment holding in Hong Kong |
Ordinary
US$5,294 |
* 100 | ||||||
|
||||||||||
Credibility Holdings Limited
|
British Virgin
Islands |
Investment holding in Hong Kong |
Ordinary
US$1 |
* 100 |
F-37
13 | Principal subsidiaries (continued) | |
The following is a list of the principal subsidiaries which principally affected the results, assets or liabilities of the Group at August 31, 2010: (continued) |
Principal | ||||||||||
activities | Particulars | |||||||||
Place of | and place of | of issued | Percentage of | |||||||
Name | incorporation | operations | share capital | interest held | ||||||
CTI Guangzhou
Customer Services Co.
Ltd. (translated from the
registered name in
Chinese)#
|
PRC | Provision of administrative support services in the PRC |
Paid in capital of
HK$8,000,000 |
* 100 | ||||||
|
||||||||||
CTI Marketing
Company Limited |
Hong Kong | Inactive |
Ordinary
HK$10,000 |
100 | ||||||
|
||||||||||
Golden Trinity
Holdings Limited |
British Virgin
Islands |
Investment holding in
Hong Kong |
Ordinary
US$1 |
* 100 | ||||||
|
||||||||||
Hong Kong
Broadband Network Limited |
Hong Kong | Provision of international telecommunications and fixed telecommunications network services in Hong Kong |
Ordinary
HK$383,049 |
100 | ||||||
|
||||||||||
IDD1600 Company
Limited |
Hong Kong | Provision of international telecommunications services in Hong Kong |
Ordinary
HK$2 |
100 | ||||||
|
||||||||||
SGBN Singapore Broadband
Network Pte. Limited
|
Singapore | Inactive |
Ordinary
Singapore dollar (SG$) 1 |
* 100 |
* | Shares held directly by the Company. | |
# | Subsidiaries not audited by KPMG |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Balance as at the beginning of the year
|
49,460 | 56,095 | ||||||
Additions during the year
|
34,773 | 46,525 | ||||||
Less: amortization charge for the year (note 4(a))
|
(48,621 | ) | (53,160 | ) | ||||
|
||||||||
|
||||||||
|
35,612 | 49,460 | ||||||
Current portion
|
(28,986 | ) | (36,674 | ) | ||||
|
||||||||
|
||||||||
Balance as at the end of the year
|
6,626 | 12,786 | ||||||
|
Deferred expenditure represents costs incurred to acquire subscribers of the services offered by the Group, which is treated as customer acquisition costs and are amortized over the period of the underlying service subscription agreements. |
F-38
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Accounts receivable
|
105,552 | 123,352 | ||||||
Less: Allowance for doubtful debts
|
(5,823 | ) | (3,160 | ) | ||||
|
||||||||
|
||||||||
|
99,729 | 120,192 | ||||||
Other receivables, deposits and prepayments
|
89,490 | 69,765 | ||||||
|
||||||||
|
||||||||
|
189,219 | 189,957 | ||||||
|
(a) | Aging analysis | |
The aging analysis of accounts receivable is as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Current 30 days
|
41,244 | 32,427 | ||||||
31 60 days
|
9,024 | 13,663 | ||||||
61 90 days
|
5,245 | 3,953 | ||||||
Over 90 days
|
50,039 | 73,309 | ||||||
|
||||||||
|
||||||||
|
105,552 | 123,352 | ||||||
|
The majority of the Groups accounts receivable are due within 30 days from the date of billings. Subscribers with receivable that are more than 3 months overdue are requested to settle all outstanding balance before further credit is granted. | ||
(b) | Impairment of accounts receivable | |
Impairment losses in respect of accounts receivable are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against accounts receivable directly (see note 1(i)(i)). | ||
The movement in the allowance for doubtful debts during the year including both specific and collective loss components is as follows: |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Balance as at the beginning of the year
|
3,160 | 11,944 | 22,392 | |||||||||
Impairment loss recognized
|
14,742 | 12,103 | 14,293 | |||||||||
Uncollectible amounts written off
|
(12,079 | ) | (20,887 | ) | (24,741 | ) | ||||||
|
||||||||||||
|
||||||||||||
Balance as at the end of the year
|
5,823 | 3,160 | 11,944 | |||||||||
|
F-39
15 | Accounts receivable, other receivables, deposits and prepayments (continued) | |
(c) | Accounts receivable that are not impaired | |
The aging analysis of accounts receivable that are neither individually nor collectively considered to be impaired are as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Neither past due nor impaired
|
41,244 | 32,427 | ||||||
0 30 past due
|
9,024 | 13,663 | ||||||
31 60 past due
|
5,245 | 3,953 | ||||||
Over 60 past due
|
44,216 | 70,149 | ||||||
|
||||||||
|
||||||||
|
99,729 | 120,192 | ||||||
|
Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default. | ||
The amounts over 60 days past due for the Group included receivable relating to mobile interconnection charges of HK$39,763,000 as at August 31, 2010 (August 31, 2009: HK$68,802,000) (see note 2(b)). | ||
Other accounts receivable that were past due but not impaired relate to a number of independent customers that have a good track record of payment. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold collateral over these balances. | ||
(d) | Other receivables, deposits and prepayments | |
Other receivables, deposits and prepayments consist of deposits for purchase of fixed assets, rental deposit, interest receivable, unbilled revenue, prepayment and other receivables. All of the other receivables, except rental deposits are expected to be recovered within one year. |
F-40
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Time deposits with banks and other financial institutions
|
262,280 | 77,500 | ||||||
Cash at bank and in hand
|
326,385 | 148,916 | ||||||
|
||||||||
|
||||||||
Cash at bank and in hand in the balance sheet
|
588,665 | 226,416 | ||||||
|
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Accounts payable
|
35,128 | 37,555 | ||||||
Other payables and accrued charges
|
195,931 | 206,487 | ||||||
|
||||||||
|
||||||||
|
231,059 | 244,042 | ||||||
|
(a) | The aging analysis of the accounts payable was as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Current 30 days
|
6,838 | 12,621 | ||||||
31 60 days
|
1,982 | 1,778 | ||||||
61 90 days
|
1,647 | 189 | ||||||
Over 90 days
|
24,661 | 22,967 | ||||||
|
||||||||
|
||||||||
|
35,128 | 37,555 | ||||||
|
(b) | Other payables and accrued charges | |
Other payables and accrued charges primarily consist of accrual for Talents salaries and bonus, carrier fees and charges, payable for purchase of fixed assets, advertising and promotional expenses as well as interest payable. |
18 | Deferred service revenue |
Deferred service revenue primarily includes service fees received from customers in advance for the Groups fixed telecommunications network services. Service fees received in advance is deferred and recognized as revenue on a straight-line basis over the related contract period. |
F-41
19 | Capital and reserves |
(a) | Share capital |
2010 | 2009 | |||||||||||||||
No. of | Amount | No. of | Amount | |||||||||||||
Shares | HK$000 | shares | HK$000 | |||||||||||||
Authorized:
|
||||||||||||||||
Ordinary shares of HK$0.10 each
|
2,000,000,000 | 200,000 | 2,000,000,000 | 200,000 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Issued and fully paid:
|
||||||||||||||||
Ordinary shares of HK$0.10 each
|
||||||||||||||||
At the beginning of the year
|
664,179,970 | 66,418 | 650,621,823 | 65,062 | ||||||||||||
Shares issued in respect of scrip dividend of the previous
year (note (i))
|
| | 12,212,142 | 1,221 | ||||||||||||
Shares issued upon exercise of share options
(note (ii))
|
20,317,374 | 2,032 | 1,416,005 | 142 | ||||||||||||
Shares issued upon placement (note (iii))
|
80,500,000 | 8,050 | | | ||||||||||||
Repurchase and cancellation of ordinary shares
|
| | (70,000 | ) | (7 | ) | ||||||||||
|
||||||||||||||||
|
||||||||||||||||
At the end of the year
|
764,997,344 | 76,500 | 664,179,970 | 66,418 | ||||||||||||
|
Notes: |
(i) | On February 25, 2009, the Company issued and allotted 12,212,142 ordinary shares to shareholders who elected to receive the 2008 final dividend in shares pursuant to the scrip dividend scheme announced by the Company on January 9, 2009. These shares rank pari passu with the existing shares of the Company in all respects. | ||
(ii) | During the year ended August 31, 2010, 20,317,374 ordinary shares (2009: 1,416,005 ordinary shares) were issued at a weighted average exercise price of HK$0.82 per ordinary share (2009: HK$0.99 per ordinary share) to share option holders who had exercised their options. These shares so issued rank pari passu with the then existing ordinary shares in issue. | ||
(iii) | On April 28, 2010, the Company completed its public offering of 4,025,000 American Depositary Shares (ADSs). An aggregate of 80,500,000 ordinary shares (4,025,000 ADSs) were issued at a price of HK$5.0455 per ordinary share (US$13.00 per ADS) to independent professional, institutional and private investors. The Company raised net proceeds of approximately HK$379,612,000 from the ADS offering. |
F-42
19 | Capital and reserves (continued) |
(iv) | The movement of outstanding share options during the year was as follows: |
Number of | Number of | |||||||||||||||||||||||
share options | share options | |||||||||||||||||||||||
Exercise | outstanding at | outstanding | ||||||||||||||||||||||
price | September 1, | at August 31, | ||||||||||||||||||||||
Date of grant | per share | 2009 | Granted | Exercised | Lapsed | 2010 | ||||||||||||||||||
October 21, 2004
|
HK$1.5224 | 6,909,527 | | 2,750,847 | | 4,158,680 | ||||||||||||||||||
January 5, 2005
|
HK$1.5224 | 16,183,208 | | | | 16,183,208 | ||||||||||||||||||
May 22, 2006
|
HK$0.6523 | 21,592,899 | | 16,409,456 | | 5,183,443 | ||||||||||||||||||
August 3, 2006
|
HK$0.7018 | 40,540 | | 40,540 | | | ||||||||||||||||||
November 22, 2006
|
HK$0.7216 | 136,545 | | 136,545 | | | ||||||||||||||||||
February 6, 2008
|
HK$1.7568 | 6,044,791 | | 502,000 | | 5,542,791 | ||||||||||||||||||
February 11, 2008
|
HK$1.8660 | 6,044,791 | | | | 6,044,791 | ||||||||||||||||||
February 15, 2008
|
HK$1.7568 | 1,007,465 | | 402,986 | | 604,479 | ||||||||||||||||||
May 2, 2008
|
HK$1.7866 | 1,007,465 | | 75,000 | | 932,465 | ||||||||||||||||||
February 5, 2010
|
HK$4.2400 | | 6,000,000 | | | 6,000,000 | ||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
|
58,967,231 | 6,000,000 | 20,317,374 | | 44,649,857 | |||||||||||||||||||
|
During the year ended August 31, 2010, options were granted under the 2002 Share Option Scheme to eligible participant for the subscription of 6,000,000 shares of the Company at an exercise price of HK$4.24 each. | ||
Each option entitles the holder to subscribe for one share of HK$0.10 each in the Company at a predetermined exercise price. |
(b) | Nature and purpose of reserves | |
(i) | Share premium | |
The application of the share premium account is governed by Sections 48B of the Hong Kong Companies Ordinance. | ||
(ii) | Capital reserve | |
The capital reserve comprises the fair value of the actual or estimated number of unexercised share options granted to Talents of the Group that was recognized in accordance with the accounting policy adopted for share based payment in note 1(o). | ||
(iii) | PRC statutory reserve | |
In accordance with Accounting Regulations for Business Enterprises, foreign investment enterprises in the PRC are required to transfer at least 10% of their profit after taxation, as determined under accounting principles generally accepted in the PRC (PRC GAAP) to the general reserve until the balance of the general reserve is equal to 50% of their registered capital. | ||
For the year ended August 31, 2010, CTI Guangzhou Customer Services Co Ltd (CTIGZ), a wholly-owned subsidiary of the Group, made appropriation to the statutory reserve of RMB597,000 (2009: RMB510,000). The accumulated balance of the statutory reserve maintained at the CTIGZ as at August 31, 2010 was RMB2,012,000 (2009: RMB1,415,000). The statutory reserve can be used to reduce previous years losses and to increase the capital of the subsidiary. | ||
(iv) | Exchange reserve | |
The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 1(d)(ii). |
F-43
19 | Capital and reserves (continued) | |
(c) | Capital management | |
The Groups primary objectives when managing capital are to maintain a reasonable capital structure, safeguard the Groups ability to continue as a going concern, and to provide returns for shareholders. | ||
The Group manages the amount of capital in proportion to risk, and makes adjustments to its capital structure through the amount of dividend payment to shareholders, issuance of scrip and new shares, and managing its debt portfolio in conjunction with cash flow requirements, taking into account its future financial obligations and commitments. | ||
The Group monitors its capital structure by reviewing its net debt to net asset gearing ratio. For this purpose, the Group defines net debt as total loans less cash at bank and in hand and long-term bank deposits. | ||
The net debt to net asset gearing ratio as at August 31, 2010 and 2009 are as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Unsecured
|
||||||||
- 10-year senior notes
|
| 162,586 | ||||||
- Long-term bank loan
|
123,567 | | ||||||
- Obligations under finance leases
|
605 | 732 | ||||||
|
||||||||
|
||||||||
Total loans
|
124,172 | 163,318 | ||||||
Less: Cash at bank and in hand
|
(588,665 | ) | (226,416 | ) | ||||
Add: Bank overdrafts unsecured
|
10,490 | 5,364 | ||||||
|
||||||||
|
||||||||
Net cash
|
(454,003 | ) | (57,734 | ) | ||||
Net asset
|
1,688,539 | 1,228,527 | ||||||
|
||||||||
|
||||||||
Net debt to net asset gearing ratio
|
| | ||||||
|
Neither the Company nor any of its subsidiaries are currently subject to externally imposed capital requirements. |
20 | Deferred taxation |
The movements of net deferred tax (liabilities)/assets recognized in the balance sheet are as follows: |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Balance as at the beginning of the year
|
(15,709 | ) | 21,398 | (291 | ) | |||||||
Exchange differences
|
| 1 | (1 | ) | ||||||||
Deferred taxation (charged)/credited to income statement
|
||||||||||||
- relating to the origination and reversal of temporary differences
|
(40,134 | ) | (37,108 | ) | (4,645 | ) | ||||||
- relating to the recognition of unrecognized tax losses in prior years
|
| | 26,335 | |||||||||
|
||||||||||||
|
||||||||||||
Balance as at the end of the year
|
(55,843 | ) | (15,709 | ) | 21,398 | |||||||
|
F-44
20 | Deferred taxation (continued) | |
As at August 31, 2010, the Group has not recognized deferred tax assets in respect of unused tax losses of HK$8,242,000 (2009: HK$8,154,000) because it is not probable that future taxable profits can be generated to utilize the tax losses. |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
After 5 years
|
2,553 | 2,455 | ||||||
No expiry date
|
5,689 | 5,699 | ||||||
|
||||||||
|
||||||||
|
8,242 | 8,154 | ||||||
|
According to the Corporate Income Tax (CIT) law and its relevant regulations, PRC-resident enterprises are levied withholding tax at 10% on dividends to their non-PRC-resident corporate investors for earnings accumulated beginning on January 1, 2008, and undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax. In addition, under the Arrangement between the Mainland of China and Hong Kong Special Administration Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion and its related regulations, a qualified Hong Kong Company will be liable for withholding tax at the rate of 5% for the dividend income derived from the PRC, if the Hong Kong company is the beneficial owner and holds 25% of equity interest or more of the PRC company directly. At August 31, 2010, the Group has not recognized deferred tax liabilities in respect of temporary differences relating to the undistributed earnings of its PRC subsidiary approximately amounting HK$12,283,000 (2009: HK$5,393,000) as the Group controls the dividend policy of the subsidiary and it does not consider that it is probable that profits will not be distributed in the foreseeable future. | ||
The components in deferred tax assets and liabilities recognized in the balance sheet and the related movements during the year are as follows: |
Accelerated depreciation allowance | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Deferred tax liabilities
|
||||||||||||
At the beginning of the year
|
(131,766 | ) | (126,447 | ) | (134,910 | ) | ||||||
Charged to consolidated income statement
|
(15,027 | ) | (5,326 | ) | 8,463 | |||||||
Exchange differences
|
(6 | ) | 7 | | ||||||||
|
||||||||||||
At the end of the year
|
(146,799 | ) | (131,766 | ) | (126,447 | ) | ||||||
|
Tax losses | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Deferred tax assets
|
||||||||||||
At the beginning of the year
|
116,057 | 147,845 | 134,619 | |||||||||
Charged to consolidated income statement
|
(25,107 | ) | (31,782 | ) | 13,227 | |||||||
Exchange differences
|
6 | (6 | ) | (1 | ) | |||||||
|
||||||||||||
At the end of the year
|
90,956 | 116,057 | 147,845 | |||||||||
|
The following amounts, determined after appropriate offsetting, are shown in the balance sheet: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Deferred tax assets
|
| | ||||||
Deferred tax liabilities
|
(55,843 | ) | (15,709 | ) | ||||
|
||||||||
|
(55,843 | ) | (15,709 | ) | ||||
|
F-45
21 | Derivative financial instrument |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Non-current liability
|
||||||||
|
||||||||
Interest rate swap, at fair value through profit or loss
|
11,293 | | ||||||
|
During the year ended August 31, 2010, the Group entered into a 5-year interest rate swap contract with a HK$175,000,000 notional amount to hedge against interest rate risk. Under this arrangement, the Group will pay a fixed rate interest on the notional amount on a quarterly basis, and receive a floating interest rate at HIBOR rate. The contract is recognized initially at fair value and is remeasured at each balance sheet date. | ||
The Interest rate swap does not quality for hedge accounting under IAS/HKAS 39, Financial instruments: Recognition and measurement , and therefore changes in its fair value is recognized immediately in profit or loss. | ||
22 | Long-term debt and other liabilities |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
10-year senior notes (note (a))
|
| 162,586 | ||||||
Long-term bank loan unsecured (note (b))
|
123,567 | | ||||||
Obligations under finance leases (note (c))
|
605 | 732 | ||||||
|
||||||||
|
||||||||
|
124,172 | 163,318 | ||||||
|
||||||||
Current portion of obligations under finance leases
|
(212 | ) | (202 | ) | ||||
|
||||||||
|
||||||||
|
123,960 | 163,116 | ||||||
|
At August 31, 2010, the Groups long-term debt and other liabilities were repayable as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Long-term debt
|
||||||||
- after 2 years but within 5 years
|
123,567 | | ||||||
- after 5 years
|
| 162,586 | ||||||
|
||||||||
|
||||||||
Obligations under finance leases
|
||||||||
- Within 1 year
|
212 | 202 | ||||||
- After 1 year but within 2 years
|
105 | 197 | ||||||
- After 2 years but within 5 years
|
288 | 263 | ||||||
- After 5 years
|
| 70 | ||||||
|
||||||||
|
||||||||
|
605 | 732 | ||||||
|
||||||||
Less: Current portion of obligations under finance leases
|
(212 | ) | (202 | ) | ||||
|
||||||||
|
||||||||
|
393 | 530 | ||||||
|
||||||||
|
||||||||
|
123,960 | 163,116 | ||||||
|
F-46
22 | Long-term debt and other liabilities (continued) |
(a) | On January 20, 2005, the Company issued unsecured 10-year senior fixed rates notes (the 10-year senior notes) with a principle amount of US$125 million at an issue price equal to 100 per cent of the principal amount. The 10-year senior notes have a maturity date on February 1, 2015 and bear interest at the fixed rate of 8.75% per annum payable semi-annually on February 1 and August 1 of each year, commencing August 1, 2005. | |
The 10-year senior notes are unconditionally and irrevocably guaranteed on a joint and several basis by the Companys subsidiaries (other than CTI Guangzhou Customer Services Co. Ltd.) as subsidiary guarantors. | ||
On December 4, 2009, the Group repurchased a portion of the 10-year senior notes with a cumulative principal value of US$1,500,000 (equivalent to HK$11,625,000) in the open market. The total consideration paid including accrued interest was approximately US$1,562,000 (equivalent to HK$12,103,000). The loss on extinguishment of the senior notes was US$41,000 (equivalent to HK$318,000) which has been recorded in other income, net. | ||
On February 1, 2010, the Company redeemed the then outstanding 10-year senior notes with principal value of US$19,863,000 (equivalent to HK$153,948,000) with the redemption price equal to 104.375% of the principal amount. The total consideration paid including accrued interest was approximately US$21,601,000 (equivalent to HK$167,624,000). The loss on extinguishment of the 10-year senior notes was US$1,203,000 (equivalent to HK$9,332,000) which has been recorded in other income, net. | ||
(b) | As at August 31, 2010, HK$125,000,000 was drawn which bears floating interest rate and is repayable on December 23, 2014. The borrowing is subject to the fulfillment of covenants relating to certain of the Groups balance sheet ratios, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. As at August 31, 2010, none of the covenants relating to drawn down facilities had been breached. | |
(c) | At August 31, 2010, the Group had obligations under finance leases repayable as follows: |
2010 | 2009 | |||||||||||||||||||||||
Present | Present | |||||||||||||||||||||||
value | Interest | value | Interest | |||||||||||||||||||||
of the | expense | Total | of the | expense | Total | |||||||||||||||||||
minimum | relating to | minimum | minimum | relating to | minimum | |||||||||||||||||||
lease | future | lease | lease | future | lease | |||||||||||||||||||
payments | periods | payments | payments | periods | payments | |||||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | |||||||||||||||||||
Within 1 year
|
212 | 30 | 242 | 202 | 35 | 237 | ||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
After 1 year but within 2 years
|
105 | 20 | 125 | 197 | 22 | 219 | ||||||||||||||||||
After 2 years but within 5 years
|
288 | 22 | 310 | 263 | 30 | 293 | ||||||||||||||||||
After 5 years
|
| | | 70 | 1 | 71 | ||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
|
393 | 42 | 435 | 530 | 53 | 583 | ||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
|
605 | 72 | 677 | 732 | 88 | 820 | ||||||||||||||||||
|
F-47
23 | Notes to the consolidated cash flow statement |
(a) | Reconciliation of profit before taxation to net cash inflow from operations |
2010 | 2009 | 2008 | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Profit before taxation
|
259,545 | 251,559 | 108,372 | |||||||||
Depreciation of owned fixed assets
|
198,323 | 205,624 | 209,464 | |||||||||
Depreciation of fixed assets held under finance lease
|
706 | 617 | 587 | |||||||||
Amortization of deferred expenditure
|
48,621 | 53,160 | 33,777 | |||||||||
Interest income
|
(11,372 | ) | (4,869 | ) | (15,596 | ) | ||||||
Interest element of finance lease
|
42 | 27 | 34 | |||||||||
(Gain)/loss on disposal of fixed assets
|
(1,375 | ) | 1,016 | 1,431 | ||||||||
Realized and unrealized gain on other financial assets
|
| (189 | ) | (3,284 | ) | |||||||
Realized gain on long term bank deposit
|
| | (1,185 | ) | ||||||||
Realized loss on derivative financial instrument
|
| | 1,039 | |||||||||
Equity settled share-based transactions
|
5,347 | 4,768 | 4,204 | |||||||||
Loss/(gain) on extinguishment of 10-year senior notes
|
9,650 | (31,371 | ) | (2,582 | ) | |||||||
Change in fair value of derivative financial instruments
|
11,293 | | | |||||||||
Interest, amortization and exchange difference on 10-year senior notes
|
6,069 | 49,214 | 72,640 | |||||||||
Interest on other borrowings
|
3,260 | 885 | 3,428 | |||||||||
Amortization of upfront cost on bank loans
|
192 | | | |||||||||
Interest expenses on bank loans
|
1,379 | | | |||||||||
|
||||||||||||
|
||||||||||||
Net cash inflow before working capital changes
|
531,680 | 530,441 | 412,329 | |||||||||
Decrease/(increase) in long-term receivable and prepayment
|
917 | (505 | ) | 1,346 | ||||||||
Decrease in accounts receivable, other receivables, deposits and prepayments
|
738 | 33,052 | 6,914 | |||||||||
Decrease in inventories
|
| | 477 | |||||||||
Increase in deferred expenditure
|
(34,773 | ) | (46,525 | ) | (68,505 | ) | ||||||
(Decrease)/increase in accounts payable, other payables, accrued charges
and deposits received
|
(1,937 | ) | 17,419 | (12,567 | ) | |||||||
(Decrease)/increase in deferred service revenue
|
(8,272 | ) | 4,621 | 46,247 | ||||||||
|
||||||||||||
|
||||||||||||
Net cash inflow generated from operations
|
488,353 | 538,503 | 386,241 | |||||||||
|
F-48
23 | Notes to the consolidated cash flow statement (continued) |
(b) | Analysis of changes in financing during the year |
Share capital | ||||||||||||
(including share | Obligations | |||||||||||
premium and | under finance | 10-year | ||||||||||
capital reserve) | leases | senior notes | ||||||||||
HK$000 | HK$000 | HK$000 | ||||||||||
Balance at September 1, 2007
|
702,192 | 1,210 | 952,593 | |||||||||
Share issued upon exercise of share options
|
14,998 | | | |||||||||
Share issued in respect of scrip dividend
|
33,398 | | | |||||||||
Repayment of capital element of finance lease
|
| (834 | ) | | ||||||||
Repurchase of 10-year senior notes
|
| | (269,399 | ) | ||||||||
Gain on extinguishment of 10-year senior notes
|
| | (2,582 | ) | ||||||||
Amortization of incidental issuance costs
|
| | 1,665 | |||||||||
Equity settled share-based transactions
|
4,204 | | | |||||||||
Effect of foreign exchange rate changes
|
| | 965 | |||||||||
|
||||||||||||
|
||||||||||||
Balance at August 31, 2008
|
754,792 | 376 | 683,242 | |||||||||
|
||||||||||||
|
||||||||||||
Balance at September 1, 2008
|
754,792 | 376 | 683,242 | |||||||||
Share issued upon exercise of share options
|
1,399 | | | |||||||||
Repurchase and cancellation of ordinary shares
|
(7 | ) | | | ||||||||
Share issued in respect of scrip dividend
|
9,906 | | | |||||||||
Purchase of fixed assets under finance lease
|
| 494 | | |||||||||
Repayment of capital element of finance lease
|
| (138 | ) | | ||||||||
Repurchase of 10-year senior notes
|
| | (485,829 | ) | ||||||||
Gain on extinguishment of 10-year senior notes
|
| | (31,371 | ) | ||||||||
Amortization of incidental issuance costs
|
| | 1,545 | |||||||||
Equity settled share-based transactions
|
4,768 | | | |||||||||
Effect of foreign exchange rate changes
|
| | (5,001 | ) | ||||||||
|
||||||||||||
|
||||||||||||
Balance at August 31, 2009
|
770,858 | 732 | 162,586 | |||||||||
|
||||||||||||
|
||||||||||||
Balance at September 1, 2009
|
770,858 | 732 | 162,586 | |||||||||
Share issued upon exercise of share options
|
16,744 | | | |||||||||
Shares issued upon placement
|
379,612 | | | |||||||||
Purchase of fixed assets under finance lease
|
| 90 | | |||||||||
Repayment of capital element of finance lease
|
| (217 | ) | | ||||||||
Repurchase and redemption of 10-year senior notes
|
| | (172,423 | ) | ||||||||
Loss on extinguishment of 10-year senior notes
|
| | 9,650 | |||||||||
Amortization of incidental issuance costs
|
| | 188 | |||||||||
Equity settled share-based transactions
|
5,347 | | | |||||||||
Effect of foreign exchange rate changes
|
| | (1 | ) | ||||||||
|
||||||||||||
|
||||||||||||
Balance at August 31, 2010
|
1,172,561 | 605 | | |||||||||
|
F-49
24 | Financial instruments |
Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Groups business. These risks are limited by the Groups financial management policies and practices described below. | ||
(a) | Credit risk | |
The Groups credit risk is primarily attributable to accounts receivable and other receivables. Management has a credit policy in place and the exposure to the credit risk is monitored on an ongoing basis. | ||
In respect of accounts receivable and other receivables, credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customers past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer locates. These receivables are due within 30 days from the date of billing. Subscribers with receivables that are more than 3 months overdue are requested to settle all outstanding balances before any further credit is granted. The Group generally does not obtain collateral from customers. | ||
The Groups exposure to credit risk is influenced mainly by individual characteristics of each customer. The default risk of the country in which customer locates also has an influence on credit risk but to a lesser extent. Concentrations of credit risk with respect to accounts receivable are limited due to the Groups customer base being large and unrelated. As such, management does not expect any significant losses of accounts receivable that have not been provided for by way of allowances as disclosed in note 15. | ||
The maximum exposure to credit risk is represented by the carrying amount of each financial asset after deducting any impairment allowance, in the balance sheet. Except for the financial guarantee given by the Group as disclosed in note 25, the Group does not provide any other guarantees which expose the Group to credit risk. The maximum exposure to credit risk in respect of these financial guarantees at the balance sheet date is disclosed in note 25. | ||
Further quantitative disclosures in respect of the Groups exposure to credit risk arising from accounts receivable are set out in note 15. |
F-50
24 | Financial instruments (continued) |
(b) | Liquidity risk | |
The Group has a cash management policy, which includes the short term investment of cash surpluses and the raising of loans and other borrowings to cover expected cash demands. The Groups policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient cash and readily realizable marketable securities and adequate amount of committed credit facilities from major financial institutions to meet its liquidity requirements in the short and long term. Due to the dynamic nature of the underlying business, the Group aims to maintain flexibility in funding by maintaining committed credit lines available. | ||
The following table details the remaining contractual maturities at the balance sheet date of the Groups financial liabilities, which are based on undiscounted cash flows (including interest) and the earliest date the Group are required to pay. |
2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||
Total | More than | More than | Total | More than | More than | |||||||||||||||||||||||||||||||||||||||||||
contractual | Within | 1 year but | 2 years but | contractual | Within | 1 year but | 2 years but | |||||||||||||||||||||||||||||||||||||||||
Carrying | undiscounted | 1 year or | less than | less than | More than | Carrying | undiscounted | 1 year or | less than | Less than | More than | |||||||||||||||||||||||||||||||||||||
amount | cash flow | on demand | 2 years | 5 years | 5 years | amount | cash flow | on demand | 2 years | 5 years | 5 years | |||||||||||||||||||||||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | |||||||||||||||||||||||||||||||||||||
Current liabilities
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
Bank overdrafts -
unsecured
|
10,490 | 10,490 | 10,490 | | | | 5,364 | 5,364 | 5,364 | | | | ||||||||||||||||||||||||||||||||||||
Accounts payable
|
35,128 | 35,128 | 35,128 | | | | 37,555 | 37,555 | 37,555 | | | | ||||||||||||||||||||||||||||||||||||
Other payables and
accrued charges
|
195,931 | 195,931 | 195,931 | | | | 206,487 | 206,487 | 206,487 | | | | ||||||||||||||||||||||||||||||||||||
Deposits received
|
21,822 | 21,822 | 21,822 | | | | 16,385 | 16,385 | 16,385 | | | | ||||||||||||||||||||||||||||||||||||
Obligations under
finance leases
|
212 | 242 | 242 | | | | 202 | 237 | 237 | | | | ||||||||||||||||||||||||||||||||||||
Tax payable
|
1,533 | 1,533 | 1,533 | | | | 1,993 | 1,993 | 1,993 | | | | ||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
Non-current
liabilities
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
Long-term bank loan
|
123,567 | 133,996 | 1,829 | 2,166 | 130,001 | | | | | | | | ||||||||||||||||||||||||||||||||||||
Derivative
financial
instrument
|
11,293 | 11,435 | 4,580 | 3,441 | 3,414 | | | | | | | | ||||||||||||||||||||||||||||||||||||
10-year senior notes
|
| | | | | | 162,586 | 244,117 | 14,489 | 14,489 | 43,467 | 171,672 | ||||||||||||||||||||||||||||||||||||
Obligations under
finance leases
|
393 | 435 | | 125 | 310 | | 530 | 583 | | 219 | 293 | 71 | ||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
400,369 | 411,012 | 271,555 | 5,732 | 133,725 | | 431,102 | 512,721 | 282,510 | 14,708 | 43,760 | 171,743 | ||||||||||||||||||||||||||||||||||||
|
F-51
24 | Financial instruments (continued) | |
(c) | Interest rate risk | |
The Groups interest-rate risk arises mainly from the HK$125,000,000 bank loan which bears floating interest rate. Bank loans at variable rates expose the Group to cash flow interest rate risk. | ||
(i) | Interest rate profile | |
The following table details the interest rate profile of the Groups borrowings at the balance sheet date. |
2010 | 2009 | |||||||||||||||
Effective | Effective | |||||||||||||||
interest | interest | |||||||||||||||
rate | rate | |||||||||||||||
% | HK$000 | % | HK$000 | |||||||||||||
Fixed rate borrowings:
|
||||||||||||||||
|
||||||||||||||||
10-year senior notes
|
| | 9.2 | 162,586 | ||||||||||||
Obligations under finance leases
|
5.6 | 605 | 5.6 | 732 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
605 | 163,318 | ||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Floating rate borrowings:
|
||||||||||||||||
|
||||||||||||||||
Bank overdrafts unsecured
|
5.3 | 10,490 | 5.3 | 5,364 | ||||||||||||
Long-term bank loan
|
1.7 | 123,567 | | | ||||||||||||
|
(ii) | Sensitivity analysis | |
The Groups profit attributable to shareholders would decrease by approximately HK$1,250,000 in response to a 100 basis-points increase in market interest rates applicable as at August 31, 2010, with all other variables held constant. |
F-52
24 | Financial instruments (continued) | |
(d) | Foreign currency risk | |
All the Groups monetary assets and liabilities are primarily denominated in either Hong Kong dollars or United States dollars. Given the exchange rate of the Hong Kong dollar to the U.S. dollar has remained close to the current pegged rate of HKD7.80 = USD1.00 since 1983, management does not expect significant foreign exchange gains or losses between the two currencies. | ||
The Group is also exposed to a certain amount of foreign exchange risk based on fluctuations between the Hong Kong dollars and the Renminbi arising from its operations in the PRC. In order to limit this foreign currency risk exposure, the Group maintained Renminbi cash balance that approximate two to three months of operating cash flows. | ||
(i) | Exposure to currency risk | |
The following table details the Groups exposure at the balance sheet date to currency risk arising from recognized assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. |
2010 | 2009 | |||||||||||||||||||||||
United | United | |||||||||||||||||||||||
States | Japanese | Canadian | States | Japanese | Canadian | |||||||||||||||||||
Dollars | Yen | Dollars | Dollars | Yen | Dollars | |||||||||||||||||||
000 | 000 | 000 | 000 | 000 | 000 | |||||||||||||||||||
Cash at bank and in hand and
pledged bank deposits
|
30,443 | 591 | 435 | 11,599 | 696 | 282 | ||||||||||||||||||
Bank overdrafts unsecured
|
(294 | ) | | | (161 | ) | | | ||||||||||||||||
Accounts payable
|
(1,350 | ) | | | (3,183 | ) | | | ||||||||||||||||
Other payables and accrued charges
|
(1,075 | ) | | | (390 | ) | | | ||||||||||||||||
10-year senior notes
|
| | | (20,979 | ) | | | |||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Overall net exposure
|
27,724 | 591 | 435 | (13,114 | ) | 696 | 282 | |||||||||||||||||
|
(ii) | Sensitivity analysis | |
Management determines that the Groups exposure of foreign currency risk was not significant and hence no sensitivity analysis is prepared. |
F-53
24 | Financial instruments (continued) |
(e) | Fair values | |
(i) | Financial instrument carried at fair value | |
The following table presents the carrying value of financial instrument measured at fair value at the balance sheet date across the three levels of the fair value hierarchy defined in IFRS/HKFRS 7, Financial Instruments: Disclosures , with the fair value of each financial instrument categorized in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows: |
| Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments | ||
| Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data | ||
| Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | |||||||||||||
Liability
|
||||||||||||||||
|
||||||||||||||||
Derivative financial instrument:
|
||||||||||||||||
- Interest rate swap
|
| 11,293 | | 11,293 | ||||||||||||
|
The carrying amounts of the Groups financial instruments carried at cost or amortized cost are not materially different from their fair values as at August 31, 2010 and 2009 except as follows: |
2010 | 2009 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
amount | Fair value | amount | Fair value | |||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | |||||||||||||
The Group
|
||||||||||||||||
|
||||||||||||||||
10-year senior notes
|
| | 162,586 | 157,285 | ||||||||||||
|
(f) | Estimation of fair values | |
Fair value of financial instruments is estimated as follows: |
(i) | The fair value of the 10-year senior notes was determined based on quoted market price. | ||
(ii) | Trade receivables less impairment provision and account payables are assumed to approximate their fair values. | ||
(iii) | The fair value of the long-term bank loan is estimated as the present value of future cash flows, discounted at current market interest rate for similar financial instruments. | ||
(iv) | The fair value of the interest rate swap is determined based on the discounted cash flow technique which takes into account estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Where discounted cash flow techniques are used, estimated future cash flows are based on managements best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date. |
F-54
25 | Contingent liabilities |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Bank guarantees provided to suppliers (notes 27(i) and (ii))
|
2,770 | 2,490 | ||||||
Bank guarantee in lieu of payment of utility deposits (note 27(iii))
|
5,572 | 5,272 | ||||||
|
||||||||
|
||||||||
|
8,342 | 7,762 | ||||||
|
At August 31, 2010, HK$133,342,000 (2009: HK$7,762,000) of the HK$353,840,000 (2009: HK$205,038,000) total banking facility and revolving loan facility was utilized by the Company and its subsidiary. |
26 | Commitments |
(a) | Capital commitments |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Purchase of telecommunications, computer and office equipment
- contracted but not provided for
|
132,340 | 150,099 | ||||||
|
(b) | Commitments under operating leases | |
At August 31, 2010 and 2009, the Group has future aggregate minimum lease payments under non-cancellable operating leases as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Leases in respect of land and buildings which are payable:
|
||||||||
- Within 1 year
|
24,873 | 21,387 | ||||||
- After 1 year but within 5 years
|
16,417 | 13,802 | ||||||
|
||||||||
|
||||||||
|
41,290 | 35,189 | ||||||
|
||||||||
|
||||||||
Leases in respect of telecommunications facilities and computer equipment which are payable
|
||||||||
- Within 1 year
|
63,948 | 45,321 | ||||||
- After 1 year but within 5 years
|
14,200 | 9,600 | ||||||
- After 5 years
|
4,849 | 6,271 | ||||||
|
||||||||
|
||||||||
|
82,997 | 61,192 | ||||||
|
||||||||
|
||||||||
|
124,287 | 96,381 | ||||||
|
(c) | Program fee commitments | |
The Group entered into several long-term agreements with program content providers for the rights to use certain program contents in the Groups IP-TV services. Minimum amounts of program fees to be paid by the Group are as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Program fee in respect of program rights which are payable:
|
||||||||
- Within 1 year
|
25,539 | 9,094 | ||||||
- After 1 year but within 5 years
|
48,087 | 6,238 | ||||||
|
||||||||
|
||||||||
|
73,626 | 15,332 | ||||||
|
F-55
27 | Pledge of assets |
As at August 31, 2010, the Group has no pledged bank deposits. | ||
As at August 31, 2009, the Group has pledged bank deposits of US$650,000 (equivalent to HK$5,038,000) and HK$10,000,000 as security for the following significant banking facilities: |
(i) | bank facility of US$650,000 (equivalent to HK$5,038,000) granted by a bank for issuance of bank guarantees to third party suppliers, letters of credit, short-term loan, overdraft, foreign exchange and interest rate hedging arrangements. As of August 31, 2009, bank guarantees of HK$500,000 were issued against this bank facility; | ||
(ii) | bank guarantees of HK$1,990,000 issued by the bank to third party suppliers of the Company and one of its subsidiaries for payment of certain products and services procured by the Group from these third party suppliers; and | ||
(iii) | bank guarantees of HK$5,272,000 issued by the bank to certain utility vendors of the Group in lieu of payment of utility deposits. |
28 | Barter transaction |
During the year ended August 31, 2010, HKBN entered into an agreement with a third party (the Contract Party). Pursuant to the agreement, HKBN would provide network capacity to the Contract Party for a service term of 10 years commencing on May 1, 2010 or after the respective activation of the relevant network capacity, and in exchange, the Contract Party would provide HKBN the right to use telecommunications facilities for a term of 10 years commencing on May 1, 2010 or after the respective activation of the relevant network capacity. The transaction has been entered into on a barter basis at no consideration being exchange. The agreement expires on April 30, 2020. | ||
The Directors of the Company made an assessment and determined that since the arrangement above involves exchange of services of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. Accordingly, the network capacity of the Contract Party under the arrangement have not been recognized as an asset and no revenue or deferred revenue have been recognized in the financial statements of the Group since inception of the arrangement. |
29 | Material related party transactions |
In addition to the transactions and balances disclosed elsewhere in these financial statements, the Group entered into the following material related party transactions. | ||
Key management personnel remuneration | ||
Remuneration for key management personnel, including amounts paid to the Companys directors as disclosed in note 9(a) and certain of the highest paid Talents as disclosed in note 9(b), is as follows: |
2010 | 2009 | |||||||
HK$000 | HK$000 | |||||||
Short-term Talent benefits
|
40,716 | 34,687 | ||||||
Post-employment benefits
|
2,725 | 2,614 | ||||||
Equity compensation benefits
|
5,347 | 4,071 | ||||||
|
||||||||
|
||||||||
|
48,788 | 41,372 | ||||||
|
30 | Comparative figure |
During the year, management performed a review of the presentation of the Groups cash at bank and in hand balance. As a result of the review, the Groups bank overdrafts unsecured balances amounted to HK$5,364,000 and HK$12,994,000 which previously included in the cash at bank and in hand balance at August 31, 2009 and August 31, 2008 respectively have been reclassified as a current liability to conform to the current years presentation. This change in presentation had no effect on the reported results of the prior year. |
F-56
31 | Accounting estimates and judgments |
(a) | Key sources of estimation uncertainty | |
Notes 10 and 24 contain information about the assumptions and risk factors relating to fair value of share options and financial instruments. Other key sources of estimation uncertainty are as follows: | ||
(b) | Impairment loss for doubtful accounts | |
The Group maintains impairment loss for doubtful accounts based upon evaluation of the recoverability of the accounts receivable and other receivables which takes into account the historical write-off experience and recovery rates. If the financial condition of the customers were to deteriorate, additional impairment may be required. | ||
(c) | Depreciation | |
Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. The Group reviews the estimated useful lives of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Groups historical experience with similar assets and takes into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates. | ||
(d) | Income taxes | |
Determining income tax provisions involves judgment on the future tax treatment of certain transactions and interpretation of tax rules. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation and practices. | ||
Deferred tax assets are recognized for certain unused tax losses as set out in note 20. In assessing the recognition of deferred tax assets, management considers all available evidence, including available taxable temporary differences, projected future taxable income, tax planning strategies, historical taxable income, and the expiration periods of the tax losses. For certain subsidiaries, deferred tax assets can only be recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized. Managements judgment is thus required to assess the probability of future taxable profits and this assessment is constantly reviewed and additional deferred tax assets are recognized if it becomes probable that future taxable profits will allow the deferred tax assets to be recovered. |
F-57
32 | Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended August 31, 2010 |
Up to the date of issue of these financial statements, the IASB/HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended August 31, 2010 and which have not been adopted in these financial statements. |
Effective for | ||||
accounting periods | ||||
beginning on or after | ||||
Amendment to IFRS/HKFRS 2
|
Share-based payment Group cash-settled | January 1, 2010 | ||
|
share-based payment transactions | |||
|
||||
IFRSs/HKFRSs (Amendments)
|
Improvements to IFRSs (2009) | January 1, 2010 | ||
|
||||
Amendment to IAS/HKAS 32
|
Financial instruments: Presentation | February 1, 2010 | ||
|
Classification of rights issues | |||
|
||||
IFRIC/HK (IFRIC) Int 19
|
Extinguishing financial liabilities with equity | July 1, 2010 | ||
|
instruments | |||
|
||||
IFRSs/HKFRSs (Amendments)
|
Improvement to IFRSs/HKFRSs (2010) | July 1, 2010 or | ||
|
January 1, 2011 | |||
|
||||
Amendments to
|
IAS/HKAS 19 The limitation on a defined | January 1, 2011 | ||
IFRIC/HK (IFRIC) Int 14
|
benefit asset, minimum funding requirements and | |||
|
their interaction Prepayments of a minimum | |||
|
funding requirement | |||
|
||||
IAS/HKAS 24 (Revised)
|
Related party disclosures | January 1, 2011 | ||
|
||||
Amendments to IFRS/HKFRS 7
|
Financial instruments: Disclosures Transfer of | July 1, 2011 | ||
|
financial assets | |||
|
||||
IFRS/HKFRS 9
|
Financial instruments | January 1, 2013 |
The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far the Group is not yet in a position to state whether they would have a significant impact on the Groups results of operations and financial position. |
F-58
33 | Supplemental guarantors consolidated financial information |
The 10-year senior notes mentioned above in note 22 are fully, irrevocably and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the subsidiaries of City Telecom (H.K.) Limited (collectively defined as Guarantor Subsidiaries), except CTI Guangzhou Customer Services Co. Ltd. in the PRC (Non-guarantor Subsidiary). | ||
The condensed consolidated financial information is presented below and should be read in connection with the consolidated financial statements of City Telecom (H.K.) Limited prepared under IFRSs. Separate financial statements of the Guarantor Subsidiaries are not presented because the Guarantor Subsidiaries are wholly-owned and have fully and unconditionally guaranteed the Notes on a joint and several basis. | ||
On February 1, 2010, we redeemed all the outstanding 10-year senior notes with a cumulative principal amount of HK$153.9 million (US$19.9 million) at the redemption price equal to 104.375% of the principal amount. | ||
Since as of August 31, 2010, all the outstanding 10-year senior notes has been fully redeemed, the following condensed consolidated financial information is limited to the years ended August 31, 2009 and 2008. | ||
The following condensed consolidated financial information presents the consolidated balance sheets as of August 31, 2008 and 2009 and the related consolidated income statements and cash flow statements for the years ended August 31, 2008 and 2009 of (a) City Telecom (H.K.) Limited, the parent; (b) the Guarantor Subsidiaries on a combined basis; (c) the Non-guarantor Subsidiary; (d) eliminating entries; and (e) the total consolidated amounts. |
F-59
Consolidated balance sheet as of August 31, 2009 |
City | ||||||||||||||||||||
Telecom | Non- | |||||||||||||||||||
(H.K.) | Guarantor | guarantor | Eliminating | Consolidated | ||||||||||||||||
Limited | subsidiaries | subsidiary | entries | total | ||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||
Non-current assets
|
||||||||||||||||||||
|
||||||||||||||||||||
Investments in subsidiaries (note)
|
1,258,726 | 228,875 | | (1,487,601 | ) | | ||||||||||||||
Goodwill
|
| | | 1,066 | 1,066 | |||||||||||||||
Fixed assets
|
74,688 | 1,221,172 | 6,520 | 1,302,380 | ||||||||||||||||
Long term receivable and prepayment
|
| 16,573 | | (10,482 | ) | 6,091 | ||||||||||||||
Deferred expenditure
|
| 12,786 | | 12,786 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
|
1,333,414 | 1,479,406 | 6,520 | 1,322,323 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Current assets
|
||||||||||||||||||||
|
||||||||||||||||||||
Accounts receivable
|
9,220 | 110,972 | | 120,192 | ||||||||||||||||
Other receivables, deposits and prepayments
|
3,393 | 67,584 | 2,492 | (3,704 | ) | 69,765 | ||||||||||||||
Deferred expenditure
|
| 36,674 | | 36,674 | ||||||||||||||||
Pledged bank deposits
|
15,038 | | | 15,038 | ||||||||||||||||
Cash at bank and in hand
|
120,315 | 78,665 | 27,436 | 226,416 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
|
147,966 | 293,895 | 29,928 | 468,085 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Current liabilities
|
||||||||||||||||||||
|
||||||||||||||||||||
Bank overdrafts unsecured
|
896 | 4,468 | | 5,364 | ||||||||||||||||
Amounts due to subsidiaries/ fellow subsidiaries
|
10,830 | 905,460 | 4,427 | (920,717 | ) | | ||||||||||||||
Accounts payable
|
20,484 | 17,071 | | 37,555 | ||||||||||||||||
Other payables and accrued charges
|
23,530 | 172,676 | 10,281 | 206,487 | ||||||||||||||||
Deposits received
|
7,886 | 8,499 | | 16,385 | ||||||||||||||||
Deferred service revenue
|
10,848 | 107,904 | | (3,682 | ) | 115,070 | ||||||||||||||
Tax payable
|
356 | 496 | 1,141 | 1,993 | ||||||||||||||||
Current portion obligation under finance leases
|
193 | 9 | | 202 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
|
75,023 | 1,216,583 | 15,849 | 383,056 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Net current assets/(liabilities)
|
72,943 | (922,688 | ) | 14,079 | 85,029 | |||||||||||||||
|
F-60
Consolidated balance sheet as of August 31, 2009 (continued) |
City | ||||||||||||||||||||
Telecom | Non- | |||||||||||||||||||
(H.K.) | Guarantor | guarantor | Eliminating | Consolidated | ||||||||||||||||
Limited | subsidiaries | subsidiary | entries | total | ||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||
Total assets less current liabilities
|
1,406,357 | 556,718 | 20,599 | 1,407,352 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Non-current liabilities
|
||||||||||||||||||||
Deferred tax liabilities
|
7,047 | 8,662 | | 15,709 | ||||||||||||||||
Long-term deferred service revenue
|
10,535 | | | (10,535 | ) | | ||||||||||||||
Long-term debt and other liabilities
|
163,108 | 8 | | 163,116 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
|
180,690 | 8,670 | | 178,825 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Net assets
|
1,225,667 | 548,048 | 20,599 | 1,228,527 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Capital and reserves
|
||||||||||||||||||||
|
||||||||||||||||||||
Share capital
|
66,418 | 15,485 | 8,131 | (23,616 | ) | 66,418 | ||||||||||||||
Reserves
|
1,159,249 | 532,563 | 12,468 | (542,171 | ) | 1,162,109 | ||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Total equity attributable to equity shareholders of the Company
|
1,225,667 | 548,048 | 20,599 | 1,228,527 | ||||||||||||||||
|
Note: | The amounts of investment in subsidiaries and retained profits at City Telecom (H.K.) Limited level have included the share of net assets of its subsidiaries using the equity method of accounting. |
F-61
Consolidated income statement for the year ended August 31, 2009 |
City | ||||||||||||||||||||
Telecom | Non- | |||||||||||||||||||
(H.K.) | Guarantor | guarantor | Eliminating | Consolidated | ||||||||||||||||
Limited | subsidiaries | subsidiary | entries | Total | ||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||
Revenue
|
95,386 | 1,390,697 | 142,603 | (150,447 | ) | 1,478,239 | ||||||||||||||
Network costs
|
(29,973 | ) | (177,655 | ) | | 32,499 | (175,129 | ) | ||||||||||||
Other operating expenses
|
(90,557 | ) | (959,960 | ) | (136,750 | ) | 149,303 | (1,037,964 | ) | |||||||||||
Other income, net
|
108,933 | 31,684 | 576 | (99,653 | ) | 41,540 | ||||||||||||||
Finance costs
|
(54,241 | ) | (69,017 | ) | | 68,131 | (55,127 | ) | ||||||||||||
Share of net profit from subsidiaries (note)
|
185,391 | | | (185,391 | ) | | ||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Profit before taxation
|
214,939 | 215,749 | 6,429 | 251,559 | ||||||||||||||||
Income tax expense
|
(2,110 | ) | (34,998 | ) | (1,622 | ) | (38,730 | ) | ||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Net profit
|
212,829 | 180,751 | 4,807 | 212,829 | ||||||||||||||||
|
Note: | The net profit amounts at City Telecom (H.K.) Limited level have included the share of net profit of its subsidiaries using the equity method of accounting. |
Consolidated income statement for the year ended August 31, 2008 |
City | ||||||||||||||||||||
Telecom | Non- | |||||||||||||||||||
(H.K.) | Guarantor | guarantor | Eliminating | Consolidated | ||||||||||||||||
Limited | subsidiaries | subsidiary | entries | Total | ||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||
Revenue
|
116,130 | 1,283,296 | 135,374 | (231,819 | ) | 1,302,981 | ||||||||||||||
Network costs
|
(28,398 | ) | (184,851 | ) | | 34,882 | (178,367 | ) | ||||||||||||
Other operating expenses
|
(87,551 | ) | (978,990 | ) | (130,481 | ) | 230,928 | (966,094 | ) | |||||||||||
Other income, net
|
93,494 | 37,752 | 1,336 | (107,593 | ) | 24,989 | ||||||||||||||
Finance costs
|
(71,702 | ) | (71,753 | ) | | 68,318 | (75,137 | ) | ||||||||||||
Share of net profit from subsidiaries (note)
|
108,154 | | | (108,154 | ) | | ||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Profit before taxation
|
130,127 | 85,454 | 6,229 | 108,372 | ||||||||||||||||
Income tax (expense)/benefit
|
(4,937 | ) | 26,306 | (4,551 | ) | 16,818 | ||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Net profit
|
125,190 | 111,760 | 1,678 | 125,190 | ||||||||||||||||
|
Note: | The net profit amounts at City Telecom (H.K.) Limited level have included the share of net profit of its subsidiaries using the equity method of accounting. |
F-62
Condensed consolidated cash flow statement for the year ended August 31, 2009 |
City | ||||||||||||||||||||
Telecom | Non- | |||||||||||||||||||
(H.K.) | Guarantor | guarantor | Eliminating | Consolidated | ||||||||||||||||
Limited | subsidiaries | subsidiary | entries | total | ||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||
Net cash inflow/(outflow) from operating activities
|
487,691 | 88,243 | (38,930 | ) | (233 | ) | 536,771 | |||||||||||||
Net cash inflow/(outflow) from investing activities
|
101,605 | (276,843 | ) | (1,250 | ) | (176,488 | ) | |||||||||||||
Net cash outflow from financing activities
|
(560,397 | ) | (895 | ) | | (561,292 | ) | |||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Increase/(decrease) in cash at bank and in hand
|
28,899 | (189,495 | ) | (40,180 | ) | (201,009 | ) | |||||||||||||
Cash at bank in hand at September 1, 2008
|
90,386 | 263,386 | 67,838 | 421,610 | ||||||||||||||||
Effects of foreign exchange rates changes
|
134 | 306 | (222 | ) | 233 | 451 | ||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Cash at bank and in hand at August 31, 2009
|
119,419 | 74,197 | 27,436 | 221,052 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Analysis of the balances of cash and cash equivalent:
|
||||||||||||||||||||
|
||||||||||||||||||||
Cash at bank and in hand
|
120,315 | 78,665 | 27,436 | 226,416 | ||||||||||||||||
Bank overdrafts unsecured
|
(896 | ) | (4,468 | ) | | (5,364 | ) | |||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
|
119,419 | 74,197 | 27,436 | 221,052 | ||||||||||||||||
|
F-63
Condensed consolidated cash flow statement for the year ended August 31, 2008 |
City | ||||||||||||||||||||
Telecom | Non- | |||||||||||||||||||
(H.K.) | Guarantor | guarantor | Eliminating | Consolidated | ||||||||||||||||
Limited | subsidiaries | subsidiary | entries | total | ||||||||||||||||
HK$000 | HK$000 | HK$000 | HK$000 | HK$000 | ||||||||||||||||
Net cash inflow from operating activities
|
193,028 | 128,939 | 59,866 | 158 | 381,991 | |||||||||||||||
Net cash inflow/(outflow) from investing activities
|
18,775 | (164,222 | ) | (2,303 | ) | (147,750 | ) | |||||||||||||
Net cash outflow from financing activities
|
(341,813 | ) | (4,165 | ) | | (345,978 | ) | |||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
(Decrease)/increase in cash at bank and in hand
|
(130,010 | ) | (39,448 | ) | 57,563 | (111,737 | ) | |||||||||||||
Cash at bank and in hand at September 1, 2007
|
220,531 | 303,227 | 9,136 | 532,894 | ||||||||||||||||
Effects of foreign exchange rates changes
|
(135 | ) | (393 | ) | 1,139 | (158 | ) | 453 | ||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Cash at bank and in hand at August 31, 2008
|
90,386 | 263,386 | 67,838 | 421,610 | ||||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Analysis of the balances of cash and cash equivalent:
|
||||||||||||||||||||
|
||||||||||||||||||||
Cash at bank and in hand
|
91,764 | 275,002 | 67,838 | 434,604 | ||||||||||||||||
Bank overdrafts unsecured
|
(1,378 | ) | (11,616 | ) | | (12,994 | ) | |||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
|
90,386 | 263,386 | 67,838 | 421,610 | ||||||||||||||||
|
F-64
CITY TELECOM (H.K.) LIMITED
|
||||
By: | /s/ Yeung Chu Kwong, William | |||
Name: | Yeung Chu Kwong, William | |||
Title: | Chief Executive Officer | |||
By: | /s/ Lai Ni Quiaque | |||
Name: | Lai Ni Quiaque | |||
Title: | Chief Financial Officer | |||
1 Year Hong Kong Television Network Ltd. (MM) Chart |
1 Month Hong Kong Television Network Ltd. (MM) Chart |
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