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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 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
May 27, 2009
CITY TELECOM (H.K.) LIMITED
(Translation of registrants name into English)
Level 39
Tower I, Metroplaza
No. 223 Hing Fong Road
Kwai Chung
New Territories
Hong Kong
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
x Form 20-F ¨ Form 40-F
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: ¨ Yes x No
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a
City Telecom (H.K.) Limited (the Company) is furnishing under cover of Form 6-K the Interim Report for the six months ended February 28, 2009.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CITY TELECOM (H.K.) LIMITED | ||
By: |
/s/ Lai Ni Quiaque |
|
Name: | Lai Ni Quiaque | |
Title: | Executive Director, Chief Financial Officer and Company Secretary |
Dated: May 27, 2009
Chairmans Statement |
02 |
City Telecom (H.K.) Limited Interim Report 2009 |
DEAR FELLOW SHAREHOLDERS,
Our core business is to build and provide service through advanced telecom infrastructure in Hong Kong, infrastructure that would last for the next 50 years. We embraced and recognized the responsibility of being a major telecom infrastructure operator and therefore a few years ago, we started to enhance the Management System and Corporate Governance.
It was my intention to separate ownership and management; and also distinguish the role of strategies setting & monitoring of performance versus daily operation, for I want this Company to be a long lasting one, as it has the responsibility to serve Hong Kong in the long run.
Enhancing our Internal Auditing with a clear separation and delegation of authorities, we have undergone a lot of changes in the management of the Company over the past 2 years. While I delegated most of my daily operation issues to our CEO, Mr. William Yeung, this spares me with more time to think for the right long-term development and expansion strategy.
The changes in management culture and structure in the organization not only improved our Corporate Governance, they have also led to higher employee morale and better financial results, which were all on the rise in the past 2 years and is very encouraging. I would like to take this opportunity to thank all our Talents for their great effort.
I wish our shareholders would be delighted by the performance delivered during this interim period. The management is aiming to deliver an even slightly better result in the 2nd half this year, even though we are well aware of the fact that we all are facing the global financial crisis.
Our continuous improving results reflect the following facts:
1. | Our determined long-term investment strategy of developing our people and building our own infrastructure is correct. |
2. | Fixed telecom network business is less competitive than other segments and our products being more advanced, have a strong competitive advantage over our competitors. |
The only underperforming Key Performance Indicator is the network roll out, which we shall put more resource and efforts to speed up our Optical IP network rollout in the next 18 months.
Wong Wai Kay, Ricky
Chairman
Hong Kong, 25 May 2009
Managements Discussion and Analysis |
03 |
City Telecom (H.K.) Limited Interim Report 2009 |
FINANCIAL HIGHLIGHTS
In thousands of Hong Kong dollars except for per share amounts and ratios
Six months ended | ||||||
28 February
2009 |
29 February
2008 |
|||||
Turnover |
721,179 | 623,792 | ||||
Earnings before interest, tax, depreciation and amortization (EBITDA 1 ) |
231,995 | 187,131 | ||||
EBITDA margin |
32.2 | % | 30.0 | % | ||
Profit attributable to shareholders |
75,317 | 47,763 | ||||
Earnings per share |
||||||
Basic (HK Cents) |
11.6 | 7.6 | ||||
Diluted (HK Cents) |
11.4 | 7.3 | ||||
Dividend declared per share (HK cents) 2 |
3.0 | 4.0 | ||||
Capital expenditures |
145,909 | 68,446 | ||||
Adjusted free cash flow 3 |
58,185 | 88,387 | ||||
As at
28 February 2009 |
As at
31 August 2008 |
|||||
Cash position 4 |
552,780 | 421,610 | ||||
Total outstanding borrowings |
679,064 | 683,618 | ||||
Total equity attributable to equity shareholders |
1,107,359 | 1,032,607 | ||||
Shares in issue (in thousands) |
662,935 | 650,622 | ||||
Net asset per share (HK$) |
1.67 | 1.59 | ||||
Gearing ratio |
0.11 | 0.25 | ||||
1 |
EBITDA for any period means, without duplication, net profit/(loss) for such period, plus the following to the extent deducted in calculating such net profit/(loss): net interest expense/(income), 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). |
2 |
For the interim dividend declared during the six months ended 29 February 2008, a scrip or cash option is provided. |
3 |
Adjusted free cash flow means EBITDA minus capital expenditure and net finance costs. |
4 |
Cash position means cash at bank and in hand, but excluding pledged bank deposits. |
FINANCIAL REVIEW
Continuing on our improving trends, City Telecom achieved good results in 1H FY09, with growth in subscriptions, turnover, EBITDA and net profit. The results for 1H FY09 continues to reassure our long term investment decision in starting to build a next generation network from year 2000 is a correct one.
The Groups turnover increased by 15.6% year-on-year to HK$721.2 million due to higher revenue contribution from our Fixed Telecommunications Network Service (FTNS) business. Solid average revenue per user (ARPU), accelerated network expansion and continued growth in subscription base are the key metrics driving FTNS businesss turnover by 24.8% to HK$592.8 million, even though it was partially offset by the decline in International Telecommunications Service business (IDD) of 13.7% year-on-year to HK$128.4 million. Our FTNS business contributed 82.2% of the Group turnover in 1H FY09.
The Groups EBITDA for 1H FY09 increased by 24.0% to HK$232.0 million year-on-year and our EBITDA margin increased to 32.2% when compared with 1H FY08 of 30.0%, reflecting the growing contribution of the higher margin FTNS business. Together with the combined result of saving in interest expenses from the 10-year senior notes buy back actions in 1H FY08, offset by increased income tax expenses, the underlying profits attributable to our shareholders increased by 57.7% to HK$75.3 million in 1H FY09 with basic earnings per share at HK11.6 cents (HK7.6 cents in 1H FY08).
Managements Discussion and Analysis | 04 |
City Telecom (H.K.) Limited Interim Report 2009 |
LIQUIDITY AND CAPITAL RESOURCES
As of 28 February 2009, the Group had total cash position of HK$552.8 million (31 August 2008: HK$421.6 million) and outstanding borrowing of HK$679.1 million (31 August 2008: HK$683.6 million). Our long-term liability consisted mainly of our outstanding 10-year senior notes which amounted to HK$678.7 million (31 August 2008: HK$683.2 million). Our total cash position consisted of cash at bank and in hand but exclude pledged bank deposits.
The debt maturity profiles of the Group as at 28 February 2009 and 31 August 2008 were as follows:
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||
Repayable within one year |
125 | 121 | ||
Repayable in the second year |
134 | 129 | ||
Repayable in the third to fifth year |
58 | 126 | ||
Repayable after the fifth year |
678,747 | 683,242 | ||
Total |
679,064 | 683,618 | ||
As of 28 February 2009, all outstanding borrowings bear fixed interest rate and are denominated in United States dollars or Hong Kong dollars. The Groups net debt to net asset gearing ratio for the period is 0.11 times which is calculated as below:
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||
Net Debt (note) |
126,284 | 262,008 | ||
Net Assets |
1,107,359 | 1,032,607 | ||
Gearing (times) |
0.11 | 0.25 |
Note: | Net debt is total long term debt and other liabilities and obligations under finance leases less cash at bank and in hand but exclude pledged bank deposits |
Our capital expenditure for this period was HK$145.9 million, higher than the same period last year of HK$68.4 million due to the acceleration of network rollout during the period. As of 28 February 2009, our network covers 1.55 million homes pass. As a result of this, the Group generated a lower adjusted free cash flow of HK$58.2 million, which is defined as EBITDA less capital expenditure and less net finance costs (for the six months ended 29 February 2008: HK$88.4 million). Nevertheless, our capital expenditure utilised in 1H FY09 was in line with our policy to maintain capital expenditure to below our EBITDA.
The on-going capital expenditure on our network development will be met by internally generated cash flow and the proceeds from the 10-year senior notes issued in January 2005. Overall, the Groups financial position remains sound, with strong cash generation ensuring that adequate funds are available for continuous business and network expansion.
CHARGE ON GROUP ASSETS
At 28 February 2009, the Group had pledged bank deposits of US$2.7 million and HK$10.0 million for securing bank facilities of equivalent amount for using bank guarantees, letter of credits, hedging arrangements, bank loans and overdraft facilities (31 August 2008: pledged bank deposits of US$9.9 million and HK$10.0 million). At 28 February 2009, the Group has utilised bank facilities of HK$11.1 million mainly for providing bank guarantees to suppliers and to utility vendors in lieu of utility deposits (31 August 2008: HK$29.9 million).
Managements Discussion and Analysis | 05 |
City Telecom (H.K.) Limited Interim Report 2009 |
EXCHANGE RATES
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 United States 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 approximates three months of operating Renminbi cash flows requirements.
CONTINGENT LIABILITIES
At 28 February 2009, the Group had total contingent liabilities in respect of bank guarantees provided to suppliers of HK$5.8 million (31 August 2008: HK$24.6 million) and to utility vendors in lieu of payment of utility deposits of HK$5.3 million (31 August 2008: HK$5.3 million).
BUSINESS REVIEW
Fixed Telecommunications Network Services (FTNS)
In the first six months of FY2009, even against a global recessionary environment, we were able to expand our subscription base by 8.9% with net addition of 71,000 to 872,000 as at 28 February 2009, comprised of 350,000 broadband, 352,000 local telephony and 170,000 IP-TV.
On broadband service, as mentioned in our 2008 annual report, we become the second largest broadband service provider in Hong Kong and we continue to extend our lead during 1H FY09. For the six months ended 28 February 2009, our subscription growth of 10.8% to 350,000 outpaced the market growth of 1.3% to 1,956,000 for the same period. For the twelve months period to 28 February 2009, our subscription growth of 71,000 has surpassed the incumbents growth of 65,000 for the twelve months ended 31 December 2008 making us the fastest growing broadband service provider in Hong Kong. Our blended ARPU for newly acquired and contract renewal broadband service also has a steady growth from HK$191 per month in August 2008 to HK$196 per month in February 2009, whilst our monthly churn rate remained consistently below 1.0%.
On local telephony, we face strong competitive challenges but nonetheless, achieved growth in an overall declining market by taking market share. For the six months ended 28 February 2009, via continued network expansion and also our service bundling strategy, we achieved moderate growth in subscriptions by 7.0% to 352,000, despite overall market decline of 1.0% to 3,688,000 during the same period.
On IP-TV, we continue to position this as an ancillary service to our broadband and local telephony services with focus on prudent cost management. Over the years, riding on our stable high speed fibre network infrastructure, our IP-TV has introduced popular new channels that appeal to our target audience. During the period, we enhanced our interactive infotainment channels and we have also added Nat Geo Challenge by National Geographic Channel and Animax Gokujou Taiketsu by Animax. This has helped to drive the growth in our IP-TV subscription base over time. For the six months ended 28 February 2009, we grew our IP-TV subscription base by 9.0% to 170,000.
To further drive our profitable growth, during the period, our wholly owned subsidiary Hong Kong Broadband Network Limited (HKBN) launched our fourth wave Brand Campaign conveying the message of HKBNs fibre is available in all 18 Districts of Hong Kong. The campaign was designed in accordance with our network expansion.
In 2007 we set a three year target to achieve 2.0 million homes pass by 2010, however due to construction delays, this goal is likely to be delayed to 2011/12. Given the deteriorating economic environment, we will remain cautious in monitoring non-core capital expenditures for possible adjustments while continuing assertive expansion on our network coverage.
International Telecom Services (IDD)
IDD traffic volume recorded a fall of approximately 18.1% in 1H FY09 to 245 million minutes, when compared with the 299 million minutes as recorded in 1H FY08. Revenue from IDD service contributed to 17.8% of the Group turnover. On IDD, our focus is still cash flow first, volume come next.
Managements Discussion and Analysis | 06 |
City Telecom (H.K.) Limited Interim Report 2009 |
PROSPECTS
While the immediate economic outlook remains uncertain, we will continue to leverage Fibre network advantage for profitable growth. We are now harvesting shareholder value from utility-like demand on the investments in network infrastructure and brand enhancement that we have been making since the grant of our FTNS license in 2000.
Three years into our 10-year Big, Hairy & Audacious Goal (BHAG), we are on track to realizing our Dream to become The largest IP provider in Hong Kong by 2016. Our 1H FY09 financial and operational results takes us a half step closer with growth in net profit, subscription base and ARPU, whilst maintaining a low churn rate. With a secure financial base, we will continue to invest in the long-term growth of the Group.
We are driving the profitable growth through:
|
Expanding network maintain our network expansion towards 2.0 million homes pass target |
|
Our fibre based differentiation continues to widen as demand for ultra high speed symmetric bandwidth gains momentum, e.g., Youtube.com has recently upgraded to High Definition higher quality videos and upload limit was raised to 1GB from 100MB |
|
Our Guangzhou Customer Service Centre has 1,366 Talents, approximately half of our total Talent base of 2,882, which allows us to well serve our Hong Kong revenue base with Guangzhou cost base |
|
Growing subscription base we are Hong Kongs fastest growing broadband service provider and we will continue to aggressively expand our subscription base in our endeavour to become the Number 1 player in Hong Kong. |
We have the right team in place and the right culture throughout the organization structure, plus an absolute commitment to our customers and a determination to serve them in the 18 districts of Hong Kong. Given our results, there are reasons for optimism under these turbulent economic times, but nevertheless, we will continue to closely monitor our balance sheet position.
STAFF ENGAGEMENT SUPPLEMENT
At City Telecom we truly consider our Talents to be our biggest asset and are committed to making the necessary long term investments to develop them accordingly. We focus on Productivity per Talent rather than Cost per Talent, and target to offer a premium over market rates to attract and retain the best Talents.
We run a Mini-CEO management structure which empowers our senior managers with maximum autonomy within pre-defined control limits. Compensation is performance based and structured to incentivise results that contribute to achieving our 2016 BHAG. Via this structure, our Talents often deliver upside productivity surprises, while limiting our downside with the control measures.
Specific examples of our long term investment to develop our Talent pool include:
|
For our top 33 senior managers, 70% have or are in the process of completing their post graduate qualifications. Within the Group, we currently have 14 Talents in 50%-100% company sponsored MBA and eMBA programs with The Chinese University of Hong Kong and Kellogg-Hong Kong University of Science and Technology. |
|
For our junior Talents without Degrees, we have our Next Stop is University program co-organised with the Hong Kong Management Association. This 3-4 year program will result in a globally recognised degree from the University of Wales. By arranging for the Professor to teach at our office premises in Hong Kong and Guangzhou and co-investing in the program costs with our Talents, we are paving a path for our Talents towards achieving their dream of gaining a Degree. For the initial Certificate stage, we are pleased to have 88 recently graduated Talents. This will then be followed by a Diploma, Higher Diploma and then finally a Degree. |
|
For our future Talent pool, our CXO of the Future 2009 Management Trainee program sets out to attract the very best fresh graduates. This intense 18-month program has requirements that include, surviving an Outward Bound selection process, passing the CFA level 1 exam, finishing a 21 km half marathon and reading 36 management books. As of this announcement date, we received over 400 applications from around the world, of which we will intend to offer 2-3 positions. |
At the other extreme, we recognize that our performance based culture is not suitable for all Talents. As such, we rank Talents performance and terminate the bottom 5% of performers as part of our annual employee upgrade program.
We believe that our proactive Staff Engagement policies, such as the Mini-CEO structure and the employee upgrade program, has contributed to our financial performance improvement since FY2006.
Managements Discussion and Analysis | 07 |
City Telecom (H.K.) Limited Interim Report 2009 |
CASE STUDY: THE NEXT STATION: UNIVERSITY
To fulfill the desire of Self-Actualization: Realize Degree Graduate Dream, Company Vision Statement, November 2006
At City Telecom, We discover and elevate individual ability to make the most of their lives.
To align the personal and corporate vision, helps identify and cultivate potential talents, instills a learning culture and encourages life-long learning and self-development throughout the company, we launched Next Station: University, with professional support and accreditation from the Hong Kong Management Association (HKMA).
The program is a partnership in terms of program costs, time and effort between the company and the individual Talent. Divided into 4 stages, the program begins with 2 months of studying for a certificate in management studies, followed by diploma, advanced diploma over a 3-4 year program towards a bachelors degree in business management awarded by the University of Wales, the second largest degree awarding institution in UK.
To cater for our Talents specific needs, we have customized the program with the following features:
|
All programs are conducted in Cantonese (supplemented with English) |
|
Classes for the certificate to advanced diploma stages take place in our office premises in Hong Kong and Guangzhou |
|
Morning and evening classes are offered to fit the working shifts of talents |
|
Qualified lecturer from HKMA |
Im a keen learner and its the learning culture that keeps me here with the company. I want to prove that, I can do it!, Banny Ho, Senior Telesales Executive
Total number of participants
Involved departments
Average length of service
Average education level |
53 Hong Kong Talents
35 Guangzhou Talents
16 departments
4 years
Secondary school graduate |
|
||
|
I hope to apply textbook management knowledge into real work situations upon completion of the program. Im a keen learner and its the learning culture that keeps me here with the company. I want to prove that, I can do it!
From Banny Ho, Senior Telesales Executive, Guangzhou office |
Some 10 years ago, I was receiving university education in mainland China. Upon emigrating to Hong Kong, I had to terminate my studies. Now, the company is helping me to work towards an achievable goal, a degree graduate dream!
From Wong Wai Ki, District Service Engineer, Hong Kong office |
|
Unaudited Consolidated Income Statement |
08 |
City Telecom (H.K.) Limited Interim Report 2009 |
For the six months ended 28 February 2009
Six months ended | ||||||||
Note |
28 February
2009 HK$000 |
29 February
2008 HK$000 |
||||||
Turnover |
3 | 721,179 | 623,792 | |||||
Other revenues |
7,646 | 21,509 | ||||||
Network costs and cost of inventories |
4 | (86,889 | ) | (89,469 | ) | |||
Other operating expenses |
(514,364 | ) | (459,971 | ) | ||||
Operating profit |
127,572 | 95,861 | ||||||
Finance costs |
(31,623 | ) | (44,426 | ) | ||||
Profit before taxation |
5 | 95,949 | 51,435 | |||||
Income tax expense |
7 | (20,632 | ) | (3,672 | ) | |||
Profit attributable to shareholders |
75,317 | 47,763 | ||||||
Dividends |
8 | 19,888 | 25,538 | |||||
Basic earnings per share |
9 | HK11.6 cents | HK7.6 cents | |||||
Diluted earnings per share |
9 | HK11.4 cents | HK7.3 cents | |||||
The notes on pages 12 to 26 form part of this interim financial report.
Unaudited Consolidated Balance Sheet |
09 |
City Telecom (H.K.) Limited Interim Report 2009 |
As at 28 February 2009
Note |
28 February
2009 HK$000 |
31 August
2008 HK$000 |
||||
Non-current assets |
||||||
Goodwill |
1,066 | 1,066 | ||||
Fixed assets |
10 | 1,264,950 | 1,231,399 | |||
Long-term prepayment |
5,773 | 5,586 | ||||
Deferred expenditure |
27,481 | 15,391 | ||||
Deferred tax assets |
15 | 10,006 | 26,335 | |||
1,309,276 | 1,279,777 | |||||
Current assets |
||||||
Accounts receivable |
12 | 124,747 | 140,283 | |||
Other receivables, deposits and prepayments |
70,161 | 82,726 | ||||
Deferred expenditure |
23,897 | 40,704 | ||||
Other financial assets |
11 | | 27,997 | |||
Pledged bank deposits |
30,538 | 87,319 | ||||
Cash at bank and in hand |
552,780 | 421,610 | ||||
802,123 | 800,639 | |||||
Current liabilities |
||||||
Accounts payable |
13 | 41,587 | 52,324 | |||
Other payables and accrued charges |
142,405 | 178,114 | ||||
Deposits received |
15,823 | 16,264 | ||||
Deferred services revenue |
114,837 | 110,449 | ||||
Tax payable |
2,674 | 2,103 | ||||
Current portion obligations under finance leases |
14 | 125 | 121 | |||
317,451 | 359,375 | |||||
Net current assets |
484,672 | 441,264 | ||||
Total assets less current liabilities |
1,793,948 | 1,721,041 | ||||
Non-current liabilities |
||||||
Deferred tax liabilities |
15 | 7,650 | 4,937 | |||
Long-term debt and other liabilities |
14 | 678,939 | 683,497 | |||
686,589 | 688,434 | |||||
Net assets |
1,107,359 | 1,032,607 | ||||
Capital and reserves |
||||||
Share capital |
16 | 66,293 | 65,062 | |||
Reserves |
1,041,066 | 967,545 | ||||
Total equity attributable to equity shareholders of the Company |
1,107,359 | 1,032,607 | ||||
The notes on pages 12 to 26 form part of this interim financial report.
Unaudited Consolidated Statement of Changes in Equity For the six months ended 28 February 2009 |
10 |
City Telecom (H.K.) Limited Interim Report 2009 |
Note |
Share
capital HK$000 |
Share
premium HK$000 |
Capital
reserve HK$000 |
Retained
profits HK$000 |
Exchange
reserve HK$000 |
Total
HK$000 |
|||||||||||
At 1 September 2008 |
16 | 65,062 | 670,717 | 19,013 | 275,025 | 2,790 | 1,032,607 | ||||||||||
Profit attributable to shareholders |
| | | 75,317 | | 75,317 | |||||||||||
Shares issued in respect of scrip dividend of previous year |
8(b) | 1,221 | 8,685 | | (9,906 | ) | | | |||||||||
Dividend paid in respect of previous year |
8(b) | | | | (3,108 | ) | | (3,108 | ) | ||||||||
Shares issued upon exercise of share options |
10 | 91 | (33 | ) | | | 68 | ||||||||||
Equity settled share-based transactions |
| | 1,830 | | | 1,830 | |||||||||||
Exchange adjustments on translation of the financial statements of subsidiaries |
| | | | 645 | 645 | |||||||||||
At 28 February 2009 |
16 | 66,293 | 679,493 | 20,810 | 337,328 | 3,435 | 1,107,359 | ||||||||||
At 1 September 2007 |
16 | 61,650 | 622,433 | 18,109 | 200,519 | 1,171 | 903,882 | ||||||||||
Profit attributable to shareholders |
| | | 47,763 | | 47,763 | |||||||||||
Shares issued in respect of scrip dividend of previous year |
8(b) | 1,123 | 18,044 | | (19,167 | ) | | | |||||||||
Dividend paid in respect of previous year |
8(b) | | | | (5,915 | ) | | (5,915 | ) | ||||||||
Shares issued upon exercise of share options |
1,072 | 13,558 | (2,296 | ) | | | 12,334 | ||||||||||
Equity settled share-based transactions |
| | 1,685 | | | 1,685 | |||||||||||
Exchange adjustments on translation of the financial statements of subsidiaries |
| | | | 300 | 300 | |||||||||||
At 29 February 2008 |
63,845 | 654,035 | 17,498 | 223,200 | 1,471 | 960,049 | |||||||||||
The notes on pages 12 to 26 form part of this interim financial report.
Unaudited Condensed Consolidated Cash Flow Statement For the six months ended 28 February 2009 |
11 |
City Telecom (H.K.) Limited Interim Report 2009 |
Six months ended | ||||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
|||||
Net cash inflow from operating activities |
232,326 | 116,289 | ||||
Net cash outflow from investing activities |
(65,423 | ) | (40,897 | ) | ||
Net cash outflow from financing activities |
(33,344 | ) | (303,182 | ) | ||
Increase/(decrease) in cash at bank and in hand |
133,559 | (227,790 | ) | |||
Cash at bank and in hand at the beginning of the period |
421,610 | 532,894 | ||||
Effect of foreign exchange rate changes |
(2,389 | ) | (493 | ) | ||
Cash at bank and in hand at the end of the period |
552,780 | 304,611 | ||||
The notes on pages 12 to 26 form part of this interim financial report.
Notes to Unaudited Interim Financial Report |
12 |
City Telecom (H.K.) Limited Interim Report 2009 |
1 | BASIS OF PREPARATION AND ACCOUNTING POLICIES |
This unaudited interim financial report has been prepared in accordance with (a) the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited; and (b) the same accounting policies as those adopted in the 2008 annual consolidated financial statements, and comply with Hong Kong Accounting Standard (HKAS) 34, Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA). It was authorised for issuance on 25 May 2009.
The preparation of an interim financial report in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.
This interim financial report contains condensed consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2008 annual financial statements. The condensed consolidated interim financial statements and notes thereon do not include all of the information required for full set of financial statements prepared in accordance with Hong Kong Financial Reporting Standards (HKFRSs).
The financial information relating to the financial year ended 31 August 2008 that is included in the condensed consolidated interim financial statements as being previously reported information does not constitute the Companys statutory financial statements for that financial year but is derived from those financial statements. The statutory financial statements for the year ended 31 August 2008 are available at the Companys registered office. The independent auditors have expressed an unqualified opinion on those financial statements in their report dated 17 November 2008.
2 | CHANGES IN ACCOUNTING POLICIES |
The HKICPA has issued a number of new Interpretations and an amendment to HKFRSs that are first effective for the current accounting period of the Group. However, none of these developments are relevant to the Groups operations.
The new and revised HKFRSs that will be effective or are available for voluntary early adoption in the annual financial statements for the year ending 31 August 2009 may be affected by the issue of additional interpretation(s) or other changes announced by the HKICPA subsequent to the date of issuance of these condensed consolidated interim financial statements. Therefore the policies that will be applied in the Groups financial statements for that period cannot be determined with certainty at the date of issuance of these condensed consolidated interim financial statements. The Group has not applied any new standards or interpretations that are not yet effective for this accounting period (see note 20).
Notes to Unaudited Interim Financial Report | 13 |
City Telecom (H.K.) Limited Interim Report 2009 |
3 | 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.
(a) | Primary reporting format business segments |
The Group is organised 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.
Six months ended 28 February 2009 | ||||||||||
International
telecommunications services HK$000 |
Fixed
telecommunications network services HK$000 |
Elimination
HK$000 |
Group
HK$000 |
|||||||
Turnover |
||||||||||
External sales |
128,420 | 592,759 | | 721,179 | ||||||
Inter-segment sales |
2,837 | 10,381 | (13,218 | ) | | |||||
131,257 | 603,140 | (13,218 | ) | 721,179 | ||||||
Segment results |
37,515 | 90,057 | 127,572 | |||||||
Finance costs |
(31,623 | ) | ||||||||
Profit before taxation |
95,949 | |||||||||
Six months ended 29 February 2008 | ||||||||||
International
telecommunications services HK$000 |
Fixed
telecommunications network services HK$000 |
Elimination
HK$000 |
Group
HK$000 |
|||||||
Turnover |
||||||||||
External sales |
148,866 | 474,926 | | 623,792 | ||||||
Inter-segment sales |
2,845 | 11,978 | (14,823 | ) | | |||||
151,711 | 486,904 | (14,823 | ) | 623,792 | ||||||
Segment results |
50,742 | 45,119 | 95,861 | |||||||
Finance costs |
(44,426 | ) | ||||||||
Profit before taxation |
51,435 | |||||||||
Notes to Unaudited Interim Financial Report | 14 |
City Telecom (H.K.) Limited Interim Report 2009 |
3 | TURNOVER AND SEGMENT INFORMATION (Continued) |
(b) | Secondary reporting format geographical segments |
The Groups two business segments are managed in two main geographical areas:
|
Hong Kong |
|
Canada |
In disclosing information on the basis of geographical segments, turnover and segment results are disclosed based on the geographical location of customers.
There were no sales between the geographical segments.
Turnover
six months ended |
Segment results
six months ended |
|||||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
28 February
2009 HK$000 |
29 February
2008 HK$000 |
|||||
Geographical segments: |
||||||||
Hong Kong |
712,724 | 612,553 | 126,812 | 95,021 | ||||
Canada |
8,455 | 11,239 | 760 | 840 | ||||
721,179 | 623,792 | 127,572 | 95,861 | |||||
(c) | Hong Kong Broadband Network Limited (HKBN), a wholly-owned subsidiary of the Group, as a Fixed Telecommunications Network Services (FTNS) licensee, 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 recognising revenue (mobile interconnection charges) based on managements best estimate of the amounts it expected to collect. In prior years, majority of the mobile operators, however, rejected HKBNs demand for payment. 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 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 1 April 2002 to 31 August 2004 and the mobile operator under dispute paid mobile interconnection charge for the relevant period accordingly.
In February 2008, since certain mobile operators still rejected to settle 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 four mobile operators.
Subsequently, 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 1 April 2002 to 31 August 2004 and with respect to the period after 31 August 2004 at the interim rate stated in the contractual agreements. The interim rate will be adjusted based on further determination to be issued by the TA.
Notes to Unaudited Interim Financial Report | 15 |
City Telecom (H.K.) Limited Interim Report 2009 |
3 | TURNOVER AND SEGMENT INFORMATION (Continued) |
(c) | (Continued) |
In September 2008, TA indicated that it accepted HKBNs request for determination on the rate of mobile interconnection charges for the period from 1 April 2002 to 26 April 2009 payable by the mobile operators that have not reached contractual agreements with HKBN, and the rate for the period from 1 September 2004 to 26 April 2009 payable by those mobile operators that have reached contractual agreements with HKBN, and the interest rate thereon (the 2008 Determination). As at 28 February 2009, the 2008 Determination is still in progress.
For the six months ended 28 February 2009, the Group recognised revenue related to mobile interconnection charges of HK$15,330,000 (for the six months ended 29 February 2008: HK$14,339,000).
4 | NETWORK COSTS AND COST OF INVENTORIES |
Network costs and cost of inventories mainly include interconnection charges paid to local and overseas carriers, leased line rentals, program fees, production costs for the IP-TV service and costs of inventories sold, 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 that 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 28 December 2007, TA issued a statement (the 2007 TA Statement) on the USC and confirmed the actual contribution level for the period from 1 January 2005 to 30 June 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 six months ended 29 February 2008.
On 8 April 2009, TA issued a statement (the 2009 TA Statement) on the USC and confirmed the actual contribution level for the period from 1 July 2007 to 30 June 2008. Based on the 2009 TA Statement, no additional payment or refund of USC from PCCW-HKT was required.
The actual contribution level for the period subsequent to 30 June 2008 has not yet been confirmed by TA.
Notes to Unaudited Interim Financial Report | 16 |
City Telecom (H.K.) Limited Interim Report 2009 |
5 | PROFIT BEFORE TAXATION |
Profit before taxation is arrived at after (crediting) and charging the following:
Six months ended | ||||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
|||||
Interest income |
(3,722 | ) | (14,128 | ) | ||
Interest element of finance leases |
12 | 20 | ||||
Interest on 10-year senior notes |
31,162 | 40,774 | ||||
Net exchange gains |
(2,566 | ) | (1,526 | ) | ||
Realised/ unrealised gains on other financial assets |
(189 | ) | (2,585 | ) | ||
Realised loss on derivative financial instruments |
| 1,039 | ||||
Gain on extinguishment of 10-year senior notes (note 14(a)) |
| (2,582 | ) | |||
Advertising and marketing expenses |
153,863 | 141,303 | ||||
Amortisation of deferred expenditure |
25,142 | 14,228 | ||||
Depreciation of owned fixed assets |
107,855 | 105,106 | ||||
Depreciation of fixed assets held under finance leases |
290 | 292 | ||||
Provision for doubtful debts |
5,754 | 8,264 | ||||
Staff costs (note 6) |
139,175 | 122,573 | ||||
Gains on disposal of fixed assets |
(336 | ) | (275 | ) | ||
6 | STAFF COSTS |
Six months ended | ||||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
|||||
Wages and salaries |
127,744 | 111,683 | ||||
Provision for annual leave |
687 | 1,970 | ||||
Equity settled share-based transactions |
1,830 | 1,584 | ||||
Retirement benefit costs defined contribution plans |
17,554 | 13,387 | ||||
Less: Staff costs capitalised as fixed assets |
(8,640 | ) | (6,051 | ) | ||
139,175 | 122,573 | |||||
Staff costs include directors emoluments but exclude staff costs of HK$7,065,000 (for the six months ended 29 February 2008: HK$7,439,000) recorded in network costs and HK$106,659,000 (for the six months ended 29 February 2008: HK$81,750,000) recorded in advertising and marketing expenses.
Notes to Unaudited Interim Financial Report | 17 |
City Telecom (H.K.) Limited Interim Report 2009 |
7 | INCOME TAX EXPENSE |
Hong Kong profits tax has been provided at the rate of 16.5% (for the six months ended 29 February 2008: 16.5%) on the estimated assessable profit for the period. Taxation on overseas profits has been calculated on the estimated assessable profit for the period at the rates of taxation prevailing in the overseas countries in which the Group operates.
The amount of tax expense recorded in the condensed consolidated income statement represents:
Six months ended | |||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
||||
Current taxation |
|||||
Hong Kong profits tax |
715 | 643 | |||
Overseas taxation |
|||||
provision for the interim period |
875 | 1,135 | |||
under-provision in respect of prior years |
| 2,185 | |||
Deferred taxation relating to the origination and reversal of temporary differences (note 15) |
19,042 | (291 | ) | ||
Income tax expense |
20,632 | 3,672 | |||
8 | DIVIDENDS |
(a) | Dividends attributable to the interim period |
Six months ended | ||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
|||
Interim dividend declared and paid after the interim period end of HK3 cents per ordinary share (2008: HK4 cents per ordinary share) |
19,888 | 25,538 | ||
At a board meeting held on 25 May 2009, the directors has recommended to pay an interim dividend of HK3 cents per ordinary share in cash for the six months ended 28 February 2009 (for the six months ended 29 February 2008: HK4 cents per ordinary share with a scrip dividend option). The interim dividend will be distributed on or about 26 June 2009 to shareholders whose names appear on the register of members of the Company as at the close of business on 16 June 2009.
The interim dividend has not been recognised as a liability at the balance sheet date.
(b) | Dividends attributable to the previous financial year, approved and paid during the interim period |
Six months ended | ||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
|||
Final dividend in respect of the financial year ended 31 August 2008, approved and paid during the following interim period, of HK2 cents per ordinary share (2008: HK4 cents per ordinary share) |
13,014 | 25,082 | ||
Notes to Unaudited Interim Financial Report | 18 |
City Telecom (H.K.) Limited Interim Report 2009 |
8 | DIVIDENDS (Continued) |
(b) | Dividends attributable to the previous financial year, approved and paid during the interim period (Continued) |
During the interim period, a scrip dividend option was offered to all shareholders excluding shareholders with registered addresses outside Hong Kong who were entitled to the final dividend in respect of the financial year ended 31 August 2008. 12,212,142 shares were issued during the interim period to the shareholders who had elected to receive all or part of their entitlement to dividends in the form of scrip.
9 | EARNINGS PER SHARE |
Six months ended | ||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
|||
Profit attributable to shareholders |
75,317 | 47,763 | ||
Six months ended | ||||
Weighted average number of ordinary shares |
28 February
2009 Number of shares 000 |
29 February
2008 Number of shares 000 |
||
Issued ordinary shares at the beginning of the period |
650,622 | 616,503 | ||
Effect of scrip dividend issued |
202 | 1,871 | ||
Effect of share options exercised |
77 | 7,781 | ||
Weighted average number of ordinary shares at the end of the period (basic) |
650,901 | 626,155 | ||
Incremental shares from assumed exercise of share options |
8,757 | 27,721 | ||
Weighted average number of ordinary shares at the end of the period (diluted) |
659,658 | 653,876 | ||
Basic earnings per share |
HK11.6 cents | HK7.6 cents | ||
Diluted earnings per share |
HK11.4 cents | HK7.3 cents | ||
10 | FIXED ASSETS |
Six months ended | ||||||
28 February
2009 HK$000 |
29 February
2008 HK$000 |
|||||
At 1 September 2008/2007 |
1,231,399 | 1,237,223 | ||||
Additions |
145,909 | 68,446 | ||||
Disposal |
(3,559 | ) | (2,770 | ) | ||
Depreciation charge |
(108,145 | ) | (105,398 | ) | ||
Exchange adjustments |
(654 | ) | 852 | |||
At 28 February 2009/29 February 2008 |
1,264,950 | 1,198,353 | ||||
Notes to Unaudited Interim Financial Report | 19 |
City Telecom (H.K.) Limited Interim Report 2009 |
11 | OTHER FINANCIAL ASSETS |
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||
Debt securities, at fair value and unlisted outside Hong Kong (note) |
| 27,997 | ||
Note: | The balance as at 31 August 2008 was an investment in debt security with principal amount of US$3,000,000. During the six months ended 28 February 2009, the debt security matured. |
12 | ACCOUNTS RECEIVABLE |
The aging analysis of the accounts receivable is as follows:
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||||
Current |
36,495 | 45,462 | ||||
0 30 days past due |
16,884 | 17,507 | ||||
31 60 days past due |
5,749 | 7,249 | ||||
Over 60 days past due (note) |
68,943 | 82,009 | ||||
128,071 | 152,227 | |||||
Less: Provision for doubtful debts |
(3,324 | ) | (11,944 | ) | ||
124,747 | 140,283 | |||||
Note: | The amounts over 60 days past due for the Group included receivables relating to mobile interconnection charges of HK$64,415,000 as at 28 February 2009 (31 August 2008: HK$64,407,000). |
13 | ACCOUNTS PAYABLE |
The aging analysis of the accounts payable is as follows:
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||
Current 30 days |
24,669 | 18,802 | ||
31 60 days |
2,869 | 4,025 | ||
61 90 days |
201 | 8,334 | ||
Over 90 days |
13,848 | 21,163 | ||
41,587 | 52,324 | |||
Notes to Unaudited Interim Financial Report | 20 |
City Telecom (H.K.) Limited Interim Report 2009 |
14 | LONG-TERM DEBT AND OTHER LIABILITIES |
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||||
10-year senior notes (note (a)) |
678,747 | 683,242 | ||||
Obligations under finance leases (note (b)) |
317 | 376 | ||||
679,064 | 683,618 | |||||
Current portion of obligations under finance leases |
(125 | ) | (121 | ) | ||
678,939 | 683,497 | |||||
Notes:
(a) | On 20 January 2005, the Company issued unsecured 10-year senior fixed rates notes (the 10-year senior notes) with a principal amount of US$125 million at an issue price equal to 100 per cent of the principal amount. The 10-year senior notes mature on 1 February 2015 and bear interest at the fixed rate of 8.75% per annum payable semi-annually on 1 February and 1 August of each year, commencing 1 August 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 Company Limited) as subsidiary guarantors.
During the six months ended 29 February 2008, the Group repurchased the 10-year senior notes with a cumulative principal value of US$35,647,000 (equivalent to HK$277,334,000) in the open market. The total consideration paid including accrued interest was approximately US$35,352,000 (equivalent to HK$275,039,000). The gain on extinguishment of the 10-year senior notes was US$332,000 (equivalent to HK$2,582,000) which has been recorded as other revenues of the consolidated income statement.
As at 28 February 2009, the principal amount of the 10-year senior notes remaining in issue after the repurchase was US$89,353,000 (equivalent to HK$692,486,000) and were stated in the balance sheet at amortised cost of US$87,580,000 (equivalent to HK$678,747,000).
The effective interest rate of the 10-year senior notes for the six months ended 28 February 2009 is 9.2% (2008: 9.2%) per annum.
(b) | The Groups finance lease liabilities are repayable as follows: |
28 February 2009 | 31 August 2008 | |||||||||||
Present
value of the minimum lease payments HK$000 |
Interest
expense relating to future periods HK$000 |
Total
minimum lease payments |
Present
value of the minimum lease payments HK$000 |
Interest
expense relating to future periods HK$000 |
Total
minimum lease payments HK$000 |
|||||||
Within 1 year |
125 | 17 | 142 | 121 | 21 | 142 | ||||||
After 1 year but within 2 years |
134 | 8 | 142 | 129 | 13 | 142 | ||||||
After 2 years but within 5 years |
58 | 1 | 59 | 126 | 4 | 130 | ||||||
192 | 9 | 201 | 255 | 17 | 272 | |||||||
317 | 26 | 343 | 376 | 38 | 414 | |||||||
Notes to Unaudited Interim Financial Report | 21 |
City Telecom (H.K.) Limited Interim Report 2009 |
15 | DEFERRED TAXATION |
Deferred tax assets are recognised to the extent it is probable that future taxable profits will be generated against which the temporary differences can be utilised.
The components of the deferred tax assets/(liabilities) recognised in the consolidated balance sheet and the movements are as follows:
Six months
Ended 28 February 2009 HK$000 |
Year ended
31 August 2008 HK$000 |
|||||
At the beginning of the period/year |
21,398 | (291 | ) | |||
Exchange differences |
| (1 | ) | |||
Deferred taxation (charged)/credited to the income statement |
||||||
relating to the origination and reversal of temporary differences |
(19,042 | ) | (4,645 | ) | ||
relating to the recognition of unrecognised tax losses in prior years (note) |
| 26,335 | ||||
At the end of the period/year |
2,356 | 21,398 | ||||
Note: | Management projects future taxable income by considering all available information, including tax planning strategies, historical taxable incomes, and the expiration period of the unused tax losses carry forwards of each of the Company and its subsidiaries. During the year ended 31 August 2008, taking into consideration of the current results of operations, management assessed that it is probable that sufficient future taxable profits will be generated to utilise the unused tax losses of HK$159,606,000 which resulted in the recognition of deferred tax assets of HK$26,335,000. | |
As at 28 February 2009, the Group has not recognised deferred tax assets in respect of unused tax losses of HK$8,263,000 (31 August 2008: HK$9,518,000) because it is not probable that future taxable profits can be generated to utilise the tax losses. All tax losses are subject to agreement with local tax authorities. |
The unrecognised tax losses carried forward from prior years will expire in the following periods:
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||
After 5 years |
2,555 | 3,810 | ||
From 2 to 5 years |
| | ||
No expiry date |
5,708 | 5,708 | ||
8,263 | 9,518 | |||
Notes to Unaudited Interim Financial Report | 22 |
City Telecom (H.K.) Limited Interim Report 2009 |
15 | DEFERRED TAXATION (Continued) |
The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same taxation jurisdiction) during the period/year is as follows:
Tax losses | ||||||
28 February
2009 |
31 August
2008 |
|||||
HK$000 | HK$000 | |||||
Deferred tax assets: |
||||||
At the beginning of the period/year |
147,845 | 134,619 | ||||
(Charged)/ credited to income statement |
(12,570 | ) | 13,227 | |||
Exchange differences |
(8 | ) | (1 | ) | ||
At the end of the period/year |
135,267 | 147,845 | ||||
Accelerated
depreciation allowances |
||||||
28 February
2009 |
31 August
2008 |
|||||
HK$000 | HK$000 | |||||
Deferred tax liabilities: |
||||||
At the beginning of the period/year |
(126,447 | ) | (134,910 | ) | ||
(Charged)/ credited to income statement |
(6,472 | ) | 8,463 | |||
Exchange differences |
8 | | ||||
At the end of the period/year |
(132,911 | ) | (126,447 | ) | ||
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same legal entity and same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the condensed consolidated balance sheet.
28 February
2009 |
31 August
2008 |
|||||
HK$000 | HK$000 | |||||
Deferred tax assets |
10,006 | 26,335 | ||||
Deferred tax liabilities |
(7,650 | ) | (4,937 | ) | ||
2,356 | 21,398 | |||||
Notes to Unaudited Interim Financial Report | 23 |
City Telecom (H.K.) Limited Interim Report 2009 |
16 | SHARE CAPITAL |
Number of shares | Amount | |||||||
HK$000 | ||||||||
28 February
2009 |
31 August
2008 |
28 February
2009 |
31 August
2008 |
|||||
Authorised: |
||||||||
Ordinary shares of HK$0.10 each |
2,000,000,000 | 2,000,000,000 | 200,000 | 200,000 | ||||
Issued and fully paid: |
||||||||
Ordinary shares of HK$0.10 each |
||||||||
At the beginning of the period/year |
650,621,823 | 616,503,404 | 65,062 | 61,650 | ||||
Shares issued in respect of scrip dividend of the previous year |
12,212,142 | 11,227,213 | 1,221 | 1,123 | ||||
Shares issued in respect of scrip dividend of the current period/year |
| 8,838,938 | | 884 | ||||
Shares issued upon exercise of share options |
100,586 | 14,052,268 | 10 | 1,405 | ||||
At the end of the period/year |
662,934,551 | 650,621,823 | 66,293 | 65,062 | ||||
The movement of outstanding share options during the period was as follows:
Exercise price of share options |
Number of
share options |
Number of
share options |
||||||||||||||||
Date of grant |
before
adjustment |
after
adjustment (note) |
outstanding at
1 September 2008 |
Adjustment
(note) |
Granted | Exercised | Lapsed |
outstanding at
28 February 2009 |
||||||||||
2002 Share Option Scheme |
||||||||||||||||||
21 October 2004 |
HK$ | 1.5297 | HK$ | 1.5224 | 7,571,582 | 35,130 | | | 151,001 | 7,455,711 | ||||||||
5 January 2005 |
HK$ | 1.5297 | HK$ | 1.5224 | 16,106,956 | 76,252 | | | | 16,183,208 | ||||||||
22 May 2006 |
HK$ | 0.6554 | HK$ | 0.6523 | 22,387,555 | 105,366 | | 100,586 | 30,201 | 22,362,134 | ||||||||
3 August 2006 |
HK$ | 0.7052 | HK$ | 0.7018 | 40,349 | 191 | | | | 40,540 | ||||||||
22 November 2006 |
HK$ | 0.7251 | HK$ | 0.7216 | 135,902 | 643 | | | | 136,545 | ||||||||
6 February 2008 |
HK$ | 1.7652 | HK$ | 1.7568 | 6,016,309 | 28,482 | | | | 6,044,791 | ||||||||
11 February 2008 |
HK$ | 1.8749 | HK$ | 1.8660 | 6,016,309 | 28,482 | | | | 6,044,791 | ||||||||
15 February 2008 |
HK$ | 1.7652 | HK$ | 1.7568 | 1,002,718 | 4,747 | | | | 1,007,465 | ||||||||
11 March 2008 |
HK$ | 1.8250 | HK$ | 1.8164 | 300,816 | 1,424 | | | | 302,240 | ||||||||
2 May 2008 |
HK$ | 1.7951 | HK$ | 1.7866 | 1,002,718 | 4,747 | | | | 1,007,465 | ||||||||
60,581,214 | 285,464 | | 100,586 | 181,202 | 60,584,890 | |||||||||||||
Note: | As a result of allotment of 12,212,142 new shares to shareholders of the Company who elected to receive the 2008 Final Dividend in share on 25 February 2009, the exercise price of and the number of shares subject to the 60,299,426 share options outstanding on 19 December 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 25 February 2009. The adjustments to the exercise price and the addition share options granted have no material financial or accounting impact to the Groups result of operations for the six months ended 28 February 2009. |
Notes to Unaudited Interim Financial Report | 24 |
City Telecom (H.K.) Limited Interim Report 2009 |
16 | SHARE CAPITAL (Continued) |
The Company operates a share option scheme (the 2002 Share Option Scheme) which was adopted by shareholders of the Company on 23 December 2002 which the directors may, at their discretion, invite eligible participants to take up share options to subscribe for shares subject to the terms and conditions stipulated therein.
Each share option entitles the holder to subscribe for one ordinary share of HK$0.10 each in the Company at predetermined exercise price.
17 | CONTINGENT LIABILITIES |
28 February
2009 |
31 August
2008 |
|||
HK$000 | HK$000 | |||
Bank guarantees provided to suppliers (note 19(i) and (ii)) |
5,853 | 24,671 | ||
Bank guarantee in lieu of payment of utility deposits (note 19(iii)) |
5,272 | 5,272 | ||
11,125 | 29,943 | |||
18 | COMMITMENTS |
(a) | Capital commitments |
28 February
2009 |
31 August
2008 |
|||
HK$000 | HK$000 | |||
Purchase of telecommunications, computer and office equipment contracted but not provided for |
119,923 | 143,888 | ||
(b) | Commitments under operating leases |
(i) | The Group has future aggregate lease income receivable under non-cancellable operating leases as follows: |
28 February
2009 |
31 August
2008 |
|||
HK$000 | HK$000 | |||
Leases in respect of investment property which are receivable: |
||||
Within 1 year |
258 | 258 | ||
After 1 year but within 5 years |
129 | 258 | ||
387 | 516 | |||
Leases in respect of telecommunications facilities and computer equipment which are receivable: |
||||
Within 1 year |
845 | 979 | ||
After 1 year but within 5 years |
217 | 292 | ||
1,062 | 1,271 | |||
Notes to Unaudited Interim Financial Report | 25 |
City Telecom (H.K.) Limited Interim Report 2009 |
18 | COMMITMENTS (Continued) |
(b) | Commitments under operating leases (Continued) |
(ii) | The Group has future aggregate minimum lease payments under non-cancellable operating leases as follows: |
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||
Leases in respect of land and buildings which are payable: |
||||
Within 1 year |
16,886 | 16,472 | ||
After 1 year but within 5 years |
7,529 | 11,645 | ||
24,415 | 28,117 | |||
Leases in respect of telecommunications facilities and computer equipment which are payable: |
||||
Within 1 year |
28,073 | 38,623 | ||
After 1 year but within 5 years |
9,254 | 12,876 | ||
After 5 years |
6,595 | 7,384 | ||
43,922 | 58,883 | |||
68,337 | 87,000 | |||
(c) | Program fee commitments |
The Group entered into several long-term agreements with program content providers for program rights for use of certain program contents in the Groups IP-TV services. Minimum amounts of program fees to be paid by the Group are analysed as follows:
28 February
2009 HK$000 |
31 August
2008 HK$000 |
|||
Program fee in respect of program rights which are payable: |
||||
Within 1 year |
6,435 | 6,583 | ||
After 1 year but within 5 years |
318 | 279 | ||
6,753 | 6,862 | |||
Notes to Unaudited Interim Financial Report | 26 |
City Telecom (H.K.) Limited Interim Report 2009 |
19 | PLEDGE OF ASSETS |
As at 28 February 2009, the Group had pledged bank deposits of US$2,650,000 (equivalent to HK$20,538,000) and HK$10,000,000 as security for the following significant banking facilities:
(i) | bank facility of US$2,650,000 (equivalent to HK$20,538,000) 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 28 February 2009, bank guarantees of HK$1,553,000 were issued against this bank facility (31 August 2008: HK$20,371,000); |
(ii) | bank guarantees of HK$4,300,000 (31 August 2008: HK$4,300,000) 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 (31 August 2008: HK$5,272,000) issued by a bank to certain utility vendors of the Group in lieu of payment of utility deposits. |
As at 31 August 2008, the Group had pledged bank deposits of US$9,900,000 (equivalent to HK$77,319,000) and HK$10,000,000 for the above significant banking facilities.
20 | POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE PERIOD ENDED 28 FEBRUARY 2009 |
Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the six months period ended 28 February 2009:
Effective for accounting period beginning on or after |
||||
HKAS 1 (Revised) |
Presentation of financial statements | 1 January 2009 | ||
HKAS 23 (Revised) |
Borrowing costs | 1 January 2009 | ||
HKFRS 8 |
Operating segments | 1 January 2009 |
The above amendments, new standard and interpretation were not applied in this interim financial report because the directors expect that the group will not early apply them when preparing the Group annual financial statements for the year ending 31 August 2009.
The Group is in the process of making an assessment of the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application and has so far concluded that the adoption of them is unlikely to have a significant impact on the Groups results of operations and financial position.
21 | NON-ADJUSTING POST BALANCE SHEET EVENTS |
On 26 March 2009, the Company launched a tender offer to purchase for cash of its outstanding US$89,353,000 of aggregate principal amount of the 10-year senior notes. Upon its expiration on 23 April 2009, the Company accepted to purchase the 10-year senior notes with principal value of US$16,928,000 (equivalent to HK$131,192,000) tendered by the holders. The total consideration paid including accrued and unpaid interest was approximately US$13,050,000 (equivalent to HK$101,138,000). The gain on extinguishment was approximately US$3,912,000 (equivalent to HK$30,318,000) which is expected to be recorded in the consolidated income statement for the year ending 31 August 2009. The principal value of the 10-year senior notes remaining in issue after such purchase is US$72,425,000 (equivalent to HK$561,294,000).
Other Information | 27 |
City Telecom (H.K.) Limited Interim Report 2009 |
EMPLOYEE REMUNERATION
Including the directors of the Group, as at 28 February 2009, the Group employed a total of 2,882 full-time employees. The Group provides remuneration package consisting of basic salary, bonus and other benefits. Bonus payments are discretionary and dependent on both the Groups and individual performances. The Group also provides comprehensive medical coverage, competitive retirement benefits schemes, staff training programs and operates share option schemes.
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
Neither the Company nor any of its subsidiaries has purchased, sold nor redeemed any of the Companys listed securities during the period for the six months ended 28 February 2009.
On 26 March 2009, the Company commenced a tender offer to purchase for cash in respect of its outstanding US$89,353,000 of aggregate principal amount of the 10-year senior notes at a discounted price. Based on the tender offer, its expiration and payment dates were 23 April 2009 and 27 April 2009 (New York City time) respectively. Please refer to Note 21 headed Non-adjusting Post Balance Sheet Events of the Notes to Unaudited Interim Financial Report for details.
Other Information | 28 |
City Telecom (H.K.) Limited Interim Report 2009 |
DIRECTORS INTERESTS OR SHORT POSITIONS IN SHARES AND UNDERLYING SHARES
As at 28 February 2009, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares or debentures of the Company and/or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the SFO)), as recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the Stock Exchange) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code) as set out in Appendix 10 of the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules) were as follows:
Long positions in ordinary shares and underlying shares of the Company
Name of Director |
Interests in shares |
Interests in
underlying shares pursuant to share options |
Aggregate
interests |
Approximate
percentage interests in the Companys issued share capital (Note 1) |
|||||||||||
Personal
interests |
Corporate
interests |
Family
interests |
Total
interests in shares |
||||||||||||
Mr. Wong Wai Kay, Ricky |
1,076,588 | 339,814,284 | | 340,890,872 | 14,160,305 | 355,051,177 | 53.56 | % | |||||||
(Note 2 (i)) | |||||||||||||||
Mr. Cheung Chi Kin, Paul |
11,293,119 | 24,924,339 | | 36,217,458 | 14,160,305 | 50,377,763 | 7.60 | % | |||||||
(Note 2 (ii)) | |||||||||||||||
Mr. Yeung Chu Kwong, William |
3,000,000 | | | 3,000,000 | 7,062,956 | 10,062,956 | 1.52 | % | |||||||
Mr. Lai Ni Quiaque |
| | 10,392,506 | 10,392,506 | 8,067,690 | 18,460,196 | 2.78 | % | |||||||
(Note 3) |
Notes:
1. | This percentage is based on 662,934,551 ordinary shares of the Company issued as at 28 February 2009. |
2. | The corporate interests of Mr. Wong Wai Kay, Ricky and Mr. Cheung Chi Kin, Paul arise through their respective interests in the following companies: |
(i) | 339,814,284 Shares are held by Top Group International Limited (Top Group) which is 42.12% owned by Mr. Wong Wai Kay, Ricky; the interests of Top Group in the Company is also disclosed under the section Substantial Shareholders in this report. |
(ii) | 24,924,339 Shares are held by Worship Limited which is 50% owned by Mr. Cheung Chi Kin, Paul. |
3. | 10,392,506 Shares are jointly owned by Mr. Lai Ni Quiaque and his spouse. |
Save as disclosed above, as at 28 February 2009, none of the Directors nor the chief executives of the Company (including their spouse and children under 18 years of age) had or was deemed to have any interest or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO).
Other Information | 29 |
City Telecom (H.K.) Limited Interim Report 2009 |
SHARE OPTION SCHEMES
The Company operates a share option scheme (the 2002 Share Option Scheme) which was adopted by shareholders of the Company on 23 December 2002 which the directors may, at their discretion, invite eligible participants to take up options to subscribe for shares subject to the terms and conditions stipulated therein.
Details of the share options granted under the 2002 Share Option Scheme during the period for the six months ended 28 February 2009 were as follows:
Participants |
Date of grant |
Number of
share options outstanding as at 1 September 2008 |
Exercise
price per share (Note 1) HK$ |
Share
options granted during the period |
Adjusted
number of share options during the period (Note 1) |
Vesting
period |
Exercise
period |
Share
options exercised during the period (Note 4) |
Share
options cancelled/ lapsed during the period (Note 5) |
Balance
as at 28 February 2009 |
||||||||||
Directors |
||||||||||||||||||||
Mr. Wong Wai Kay, Ricky |
5 January
2005 |
8,053,478 | 1.5224 | | 38,126 |
5 January
2005 to 31 December 2006 |
5 January
2005 to 20 October 2014 |
| | 8,091,604 | ||||||||||
22 May
2006 |
6,040,108 | 0.6523 | | 28,593 |
22 May 2006
to 21 May 2009 |
22 May
2007 to 21 May 2016 |
| | 6,068,701 | |||||||||||
Mr. Cheung Chi Kin, Paul |
5 January
2005 |
8,053,478 | 1.5224 | | 38,126 |
5 January
2005 to 31 December 2006 |
5 January
2005 to 20 October 2014 |
| | 8,091,604 | ||||||||||
22 May
2006 |
6,040,108 | 0.6523 | | 28,593 |
22 May 2006
to 21 May 2009 |
22 May
2007 to 21 May 2016 |
| | 6,068,701 | |||||||||||
Mr. Yeung Chu Kwong, William |
22 May
2006 |
1,013,369 | 0.6523 | | 4,796 |
22 May 2006
to 21 May 2009 |
22 May
2007 to 21 May 2016 |
| | 1,018,165 | ||||||||||
6 February
2008 |
6,016,309 | 1.7568 | | 28,482 | Note 2 | Note 2 | | | 6,044,791 | |||||||||||
Mr. Lai Ni Quiaque |
22 May
2006 |
2,013,369 | 0.6523 | | 9,530 |
22 May 2006
to 21 May 2009 |
22 May
2007 to 21 May 2016 |
| | 2,022,899 | ||||||||||
11 February
2008 |
6,016,309 | 1.8660 | | 28,482 | Note 3 | Note 3 | | | 6,044,791 |
Other Information | 30 |
City Telecom (H.K.) Limited Interim Report 2009 |
SHARE OPTION SCHEMES (Continued)
Participants |
Date of grant |
Number of
share options outstanding as at 1 September 2008 |
Exercise
price per share (Note 1) HK$ |
Share
options granted during the period |
Adjusted
number of share options during the period (Note 1) |
Vesting
period |
Exercise
period |
Share
options exercised during the period (Note 4) |
Share
options cancelled/ lapsed during the period (Note 5) |
Balance
as at 28 February 2009 |
||||||||||
Employees under continuous employment contracts |
||||||||||||||||||||
Employees |
21 October
2004 |
7,571,582 | 1.5224 | | 35,130 |
21 October
2004 to 31 December 2006 |
1 January
2005 to 20 October 2014 |
| 151,001 | 7,455,711 | ||||||||||
22 May 2006 | 7,280,601 | 0.6523 | | 33,854 |
22 May 2006
to 21 May 2009 |
22 May 2007
to 21 May 2016 |
100,586 | 30,201 | 7,183,668 | |||||||||||
3 August
2006 |
40,349 | 0.7018 | | 191 |
3 August
2006 to 2 August 2009 |
3 August
2007 to 2 August 2016 |
| | 40,540 | |||||||||||
22 November
2006 |
135,902 | 0.7216 | | 643 |
22 November
2006 to 14 November 2009 |
15 November
2007 to 14 November 2016 |
| | 136,545 | |||||||||||
15 February
2008 |
1,002,718 | 1.7568 | | 4,747 | Note 2 | Note 2 | | | 1,007,465 | |||||||||||
11 March
2008 |
300,816 | 1.8164 | | 1,424 |
11 March
2008 to 10 March 2011 |
11 March
2008 to 23 December 2012 |
| | 302,240 | |||||||||||
2 May 2008 | 1,002,718 | 1.7866 | | 4,747 | Note 2 | Note 2 | | | 1,007,465 | |||||||||||
Total |
60,581,214 | | 285,464 | 100,586 | 181,202 | 60,584,890 | ||||||||||||||
Notes:
1. | As a result of allotment of 12,212,142 new shares to shareholders of the Company who elected to receive the 2008 Final Dividend in shares on 25 February 2009, the exercise price of and the number of share subject to the 60,299,426 share options outstanding on 19 December 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 25 February 2009. The closing price per ordinary share immediately before the date of the grant of the share options was HK$0.88. |
2. | The exercise of the share options is subject to certain conditions that must be achieved by the employee. The share options shall be exercised not later than 23 December 2012. |
3. | The exercise of the share options is subject to the performance of the Companys shares. The share options shall be exercise not later than 23 December 2012. |
4. | During the six months ended 28 February 2009, 100,586 share options were exercised and the weighted average closing price of shares of the Company immediately before the dates of exercise was HK$0.65 per ordinary share. |
5. | During the six months ended 28 February 2009, a total of 181,202 share options were lapsed and no share options cancelled. |
Other Information | 31 |
City Telecom (H.K.) Limited Interim Report 2009 |
SUBSTANTIAL SHAREHOLDERS
At 28 February 2009, the interests or short positions of the persons, other than the Directors or chief executive of the Company, in the shares and underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO were as follows:
Name |
Interests in
shares in long positions |
Percentage
interests (Note) |
|||
Top Group International Limited |
339,814,284 | 51.26 | % |
Note: This percentage is based on 662,934,551 ordinary shares of the Company issued as at 28 February 2009.
Save as disclosed above, as at 28 February 2009, the Company had not been notified of any persons (other than the Directors and chief executive of the Company) having any interest or short position in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO.
COMPLIANCE WITH CODE ON CORPORATE GOVERNANCE PRACTICES
During the six months ended 28 February 2009, the Company has complied with the code provisions of the Code on Corporate Governance Practices as set out in Appendix 14 of the Listing Rules.
CODE OF CONDUCT FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted the Model Code in Appendix 10 to the Listing Rules as the code of conduct for securities transactions by Directors (the Company Code).
Having made specific enquiry of all Directors, the Company confirmed that the Directors have complied with the required standard as set out in the Company Code during the six months ended 28 February 2009.
A revised Model Code has been adopted by the Company to comply with the new requirements set out in Appendix 10 to the Listing Rules effective from 1 April 2009.
REMUNERATION COMMITTEE
The Remuneration Committee which is chaired by Mr. Lee Hon Ying, John, an Independent Non-executive Director, currently has a membership comprising three Independent Non-executive Directors, Non-executive Director, Chief Financial Officer and Director-Talent Management. The Remuneration Committee is responsible for establishing a formal, fair and transparent procedure for developing policy and structure of all remuneration of directors and senior management of the Company. The Remuneration Committee also assists the Company to review and consider the Companys policy for remuneration of directors and senior management and to determine their remuneration packages.
REVIEW BY AUDIT COMMITTEE
The Audit Committee has reviewed and discussed with the management of the Company the unaudited interim results for the six months ended 28 February 2009.
The Audit Committee comprises three Independent Non-executive Directors, namely Mr. Lee Hon Ying, John (the Chairman of the Audit Committee), Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu.
Other Information | 32 |
City Telecom (H.K.) Limited Interim Report 2009 |
INTERIM DIVIDEND
For cash management, we consider adjusted free cash flow, defined as EBITDA less capital expenditure and net finance costs, is a better indicator of cash generation rather than net profit. As such, after reviewing the favourable operating results for the first six months of FY09 and considering our long-term development plans, the Board has resolved to pay an interim dividend based on the percentage of adjusted free cash flow rather than on the percentage of net profit.
The Board has resolved to declare an interim dividend of HK3 cents per ordinary share in cash for the six months ended 28 February 2009 (six months ended 29 February 2008: HK4 cents per ordinary share with a scrip dividend option) to shareholders of the Company whose names are recorded on the register of members of the Company as at 16 June 2009. Warrants for the interim dividend will be sent to shareholders of the Company on or before 26 June 2009.
CLOSURE OF REGISTER OF MEMBERS
The register of members of the Company will be closed from 12 June 2009 to 16 June 2009 (both days inclusive) during which period no transfers of shares would be effected. In order to qualify for the interim dividend, all transfer of shares together with the relevant share certificates must be lodged with the Companys Share Registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queens Road East, Wanchai, Hong Kong not later than 4:30 p.m. on 11 June 2009.
By Order of the Board
Wong Wai Kay, Ricky
Chairman
Hong Kong, 25 May 2009
As at the date of this report, the executive directors of the Company are Mr. Wong Wai Kay, Ricky (Chairman), Mr. Cheung Chi Kin, Paul (Vice Chairman), Mr. Yeung Chu Kwong, William (Chief Executive Officer) and Mr. Lai Ni Quiaque (Chief Financial Officer); the non-executive director of the Company is Mr. Cheng Mo Chi, Moses; and the independent non-executive directors of the Company are Mr. Lee Hon Ying, John, Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu.
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